That wasn't about the results. That was, I was turning the mic on. All right, good morning, everyone. Welcome to the Beazley annual results for the year 2023. I am Adrian Cox, the Group CEO, and I'm joined by Sally Lake on the right, our Group CFO, and Bob Quane on the left, our CUO. So here with the order of play, I'll take you through the highlights. Sally will then go through some of the details from financial performance. Bob will take us through the underwriting performance. I'll share thoughts a little bit after that about how we think about long-term performance, and give some guidance for this year for 2024, and then we'll move on to Q&A.
We have a hard stop at 10:00 A.M. for two reasons, I think. One, some of, some of us have to get to Admiral for 10:15 A.M., and we also have a fire alarm test at 10:00 A.M. So two good reasons, I think, to stop at 9:59 A.M. Please do read the disclaimer, and with that done, we'll move on to the results. So, a superset of results, I think, this year, with record profits of $1.25 billion, which is over twice as much as our previous record profit, with a combined ratio of 71% or 74 undiscounted. In addition, our insurance written premiums increased by 7% gross and 24% net for the full year, which I think are both in line with the guidance we gave at the third quarter.
The net remains considerably higher than the gross because of that reduction in proportional reinsurance that we needed to buy following the capital raise in November 2022, which we've talked about before. All of which gives a combined return on equity of 30% for the year. And so given those numbers, I'm pleased to be able to declare an ordinary interim dividend of 14.2p, which is, not surprisingly, 5% more than last year, which is sort of what we do, and a share buyback of up to $325 million. I think that success last year demonstrates that our clear strategy, based on good access to risk, a well-diversified business, disciplined underwriting, and a responsive claims infrastructure, delivers good outcomes for all of our stakeholders.
In particular, I'd like to call out Property Risks, which had a standout year. Reflecting the rate increase of 22%, helping the growth of 64%, but really reflecting significant investment in our team, both in the U.S. and London, allowing us prudently to increase our exposure to take advantage of those excellent market conditions that we had. And an opportunity in property business that we expect to persist for some time. You know, in an era of accelerating risk, Property Risks need more expertise and underwriting expertise that we can bring to the market. And at $1.35 billion, that team is now the second largest in the company, which is great.
I would like to reiterate that we wouldn't have had the confidence to execute on this property plan, without the capital raise that we did in November 2022. Our cyber team also had an excellent year, growing nicely outside the U.S., particularly in Europe, which grew by 27% last year, off the back of continued accelerating demand growth. That offset a more competitive environment in North America that was also quite noisy, with cyber war discussions. We remain comfortable with the rating conditions, in cyber and in the robustness of that ecosystem that we have that is proving effective at improving both our threat detection and our risk selection. Given that, our ransomware activity remained stable last year, despite rising levels of cyber criminal activity across the world.
Given that one of the features of the 2023 earnings season has been reserve deterioration in U.S. casualty business in the so-called soft market era of 15-19, marked by social inflation, I wanted to highlight that there has, that this has had no material impact on our result in 2023. Sally will talk about this a little bit more later, but social inflation is something we've been adjusting for in pricing and reserving for a number of years. It's also something that hasn't gone away since 2019, and whilst it isn't a feature in most of our business, 'cause we don't write GL really or auto or umbrella or excess casualty, that's in the crucible of social inflation, we do underwrite carefully to it where it is.
I thought it would be an opportune time to reiterate the principles of our capital strategy. So in order, we begin with an ambition to have an SCR ratio of more than 170%. And when we think about how much more we should have, we go through the following considerations. Firstly, we will look to deploy capital by investing in sustainable, profitable growth that hits our ROE target of 15% cross cycle, in a way that helps build that balanced, diversified business. And we look at those opportunities over a multi-year basis, rather than just the next year, because insurance tends to be a cyclical business, and the SCR contemplates just the preceding twelve months.
Next, we look at peak risks to equity, two of which, of course, are natural catastrophe and cyber risks, and those are some of the sensitivities that we share and we consider how much of our equity we should put at risk to those risks, given our view of expected levels of reward in those markets. And having thought about those, we think about whether there are anything else we need to take into account. And following that, any surplus capital should be returned to shareholders. So we've been through that process this year, which has led us to the conclusion that on top of our ordinary interim dividend, we should launch a $325 million share buyback program.
In coming to that conclusion, thinking about the level of capital that we want to post, dividend buyback, we debated a number of things, two of which I think are worth a mention. The first is the impact of potential rate, interest rate reductions on the SCR ratio, and we have to think, don't we, that interest rates are more likely than not to move at some point this year. And secondly, we think about the complexity of the marketplace in the light of remaining visible elevated risk, and therefore the potential for new opportunities to emerge over the next year or two. To Sally.
Thank you, Adrian. And good morning, everyone. My name is Sally Lake. I'm the Group CFO of Beazley. Okay. So, I'm gonna go through my usual trio, but to begin with, let's just have a quick look at the financial performance in a little bit more detail. So I'm pleased to present an outstanding set of results with PBT growth of 115% compared to last year. Gross insurance contracts written premium have grown by 7% year-over-year, and with an impressive growth in net premium of 24%. As Adrian spoke about, we've always planned to grow our nets more than our gross during 2023.
It's really pleasing to see that these record profits are also driven by both insurance service result and also the investment performance, where we saw a income of $480 million during the year. Our expertise in underwriting, together with lower catastrophe experience in the year compared to 2022, has led to an impressive undiscounted core of 74%. This is despite quite an active catastrophe market. Higher interest rates in the first three quarters of the year have led to an increase in the discount unwind expense hitting the IFE, coupled with a decrease in interest rates at the end of the year, meaning the impact over the year on the change in discount rates is reasonably flat.
If we then move to expenses, coming back to the record profit, we have looked to remunerate our staff, as well as ongoing digitization of our business. This has led to an increase on total expense ratio once we allow for OpEx as well, and this has moved from 37% to 40%. And as Adrian mentioned, we've also announced a share buyback of up to $325 million. So this graph shows a makeup of the discounted combined ratio and undiscounted combined ratio, and how and the different elements of that. The loss ratio has been split between the amount coming from current year claims and prior year, prior year releases.
So the net current year loss ratio is 42%, which is an improvement on last year, and reserve releases accounted for an improvement of 2.5%. A benign catastrophe season, due to our underwriting expertise, have been part of the driver of the improved combined ratio this year. With the current year net claims ratio reducing from 63% to 44% on our property division. This, coupled with the growth that we've seen in property this year, have shown that we've led into market conditions at the right time. It's not just been the lack of catastrophes that have led to property making more profit this year. We've also seen an improvement in attrition year-over-year.
There has been other improvements in the claims ratios in others of our larger divisions. So if we go into the reserve releases in a little bit more detail. So this graph shows where we've seen reserve releases and strengthening by segment on our LIC. Overall, you can see that reserve releases remained... reserves remained stable over time with a percentile of 85%, right in the middle of our range. Releases on past years have contributed to a strong service result. The overall past service reduced by $110 million during the year, and as I said, this corresponds to a 2.5% release. It's worth noting, Specialty Lines here, Specialty Risks here, as Adrian mentioned, as there's been a lot of talk about social inflation, and a lot of questions asked.
Overall, you can see that Specialty Risk reserves, where the majority of our social Inflation risk sits, has seen reserve release overall in 2023. We have seen some movements on prior years due to the ongoing effects that Adrian mentioned, and we've been telling you for a number of years that this has been a problem we've been highly alert to. We do minimize our exposure to these types of areas, and actually, in addition to that, we look to write on a claims-made form , which reduces our exposure further still. We also write very little general liability business. In addition, we also buy an Aggregate Excess of Loss reinsurance that has been in place for many years over those years that are affected as well....
While we have seen releases across, most of our classes, there is an exception in cyber, which has seen a small strengthening, due to some adverse development arising from some cyber liability claims. This has been almost entirely offset by more recent years having benign claims experience. Property Risks has seen the largest reserve release of GBP 78 million, and as we mentioned, due to favorable claims experience, improved estimates on past catastrophes, along with the expiry of risk on the more recent years. Digital has seen reductions in estimates on specific losses, favorable attritional experience, and, cyber businesses in that division as well. And as I mentioned, our reserve percentile remains consistent in the middle of our range at 85%.
So now if I move on to our investment portfolio, the first thing worthy of note is that it grew from $9 billion to $10.5 billion during the period as we continue to grow. Our investment team made some adjustments to our portfolio during the year, specifically acting to adding to risks while seeking out additional return. Exposures to high-quality corporate debt grew more than 10%, with high yield credit and equity exposures also increasing. The decisions added to our return this year. It's worthy of note that this is a rebalance to our more neutral asset allocation after a period of being slightly risk- off in our portfolio. By aligning interest rate exposure to our investments with those on our liabilities, we can earn investment return which reflects the prevailing level of yield with minimal risk to our earnings.
Our approach to investment strategy, which includes scope for tactical portfolio adjustments like this, has been in place for a number of years and has served us well. So as I mentioned earlier, at $480 million, or 4.9%, our investment produced the highest income in our history by some margin. High yields prevailing at the start of the year promised good returns, but performance remained modest for much of the period as yields continued to rise, generating losses on our fixed income investments. Most of the strong performance in 2023 occurred in the final two months of the year as yields begin to decline. Ultimately, the fixed income performance on the equity markets. Yields are currently at similar levels to early 2023, suggesting that we may continue to see attractive returns for investments, although the global market remains uncertain.
With interest rates likely to fall over the short to medium term, by aligning the interest rate exposures of our investments to those of our liabilities, we can earn an investment return which reflects the prevailing levels of yields with minimal risk to our earnings. Let's move on to capital. So you can see here, movements in both our eligible own funds and our one-year SCR over the year. You can see that we've had an increase in our SCR over the year in Q4, which is Adrian's point, reserve risk, which has come through from our recent significant growth on a net of reinsurance basis, which also leads to an exposure to an increase in our SCR.
Finally, the increase in SCR is also affected by changes to the model that we make over the year, which has had a small effect as well. Given the current position in the cycle, and substantial capital above our aim to be above 170%, we have decided to return some excess capital to shareholders. Between the ordinary dividend and share buyback, we will aim to return up to GBP 440 million. This still leaves a healthy group solvency ratio of 218%, which will continue to support our growth going forward. So let's just quickly walk through what has happened over the year. So, firstly, our capital coverage has reduced as we increase the SCR, as I've described.
We've also generated capital, at the same time as we've made a healthy profit over the year. This leads us to a coverage ratio before any capital actions of 240% before we then talk about the dividend and the share buyback. Finally, from me, the updates to our, to our scenarios. The main point of note here is to show that we are now looking at our cyber sensitivity on a probabilistic basis, and showing that 1 in 250 downside risk is the main scenario, which you'll remember we discussed in November at our, our Capital Markets Day. Previously, you've seen us referring to our largest, Cyber Realistic Disaster . For context, if I gave you the equivalent figure today on that same scenario, the sensitivity would have been 10%.
And just so you know, we're not going to be sharing that anymore. We're going to focus on the 1 in 250 going forward to be more in line with what we show on the Nat Cat. To refer back to the previous slide, where we continue to hold a capital ratio of 280%, we are in an uncertain world, and we can see that a 50 bp decrease in rates would lead to a 10% impact on the solvency ratio. A Nat Cat event would lead to 1 in 250 of 26% on the solvency ratio, and we continue to think about this when we look at the level of capital we want to hold.
take advantage of emerging growth opportunities, especially in the very short-term lines like cyber, where market conditions can evolve rapidly. And with that, I will pass over to Bob.
Hi, everyone. Great to see everyone here today. I am Bob Quane, and I'm the Chief Underwriting Officer here at Beazley, and I'll be taking you through the underwriting section of today's presentation. I am proud of our underwriting teams and the success that they had in 2023. They have shown agility and insight in the delivery of risk management expertise to their clients, while focusing on underwriting profitability, through actively managing the cycle and achieving a 4% increase in rates across our business in 2023. Property shows a very strong growth as we leaned into the hard market. Specialty had active cycle management within the team. You can see they're close to flat, but as we navigated the very soft D&O market, we grew in other niche, profitable products within the team.
MAP, if we normalize for growth, actually had 15% growth. It's showing a reduction here due to 5623 becoming a standalone syndicate in 2023. We had strong markets in war, political risk, terrorism, and contingency. Cyber, we had modest growth, but we're very proud of that because we achieved that despite us leading the charge on updating the war exclusion. We had good new exposure growth internationally, especially in Europe. Our focus is having the right people in the right places, ensuring that our subject matter experts are close to where the risks are being underwritten. This provides us with the best possible market access and intelligence. In 2023, we moved this forward as we further balanced our business across the portfolios.
North America is 40% of our portfolio, and as you can see, we focus in the non-admitted market, which we have more flexibility in our terms and conditions, and it also has a rate that's above the market trend in terms of growth. Europe has had fast-paced growth, and Europe is 7% of Beazley's portfolio, but we see a multi-year growth opportunity here. Global Wholesale remains the largest part of Beazley, and we have a growth rate that reflects a mature market segment. Property Risk had a standout year, and it grew by 64%. This was driven by a 22% rate increase and also strong exposure growth. The capital raise in 2022 really enabled us to achieve this growth, and we're delighted about what we were able to accomplish.
As we've said in the past, climate risk makes property more complicated to underwrite, and it makes it less commoditized and more specialized, which plays to our strengths. The investment the team made during the soft market into understanding the impact of climate risk and effectively managing property valuations paid off as the rating environment improved. In addition to our strong growth, we improved the core by nearly 30 points. The attritional loss ratio was better than we expected in our initial guidance, and the catastrophe activity was much better than both last year, meaning 2022, and also much better than an average catastrophe year. The improvement in core, compared to 2022, was driven by a combination of these two points.
We expect the market to be positive as we head into 2024, although the rate change will not be at the same magnitude or the same pace that we saw in 2023. We believe climate risk will keep property more disciplined than we've seen in the past. North America grew by 85%. As we've said before, we see a long-term opportunity to grow our market share in the United States. All of our U.S. business and property is in the non-admitted market. As commercial property underwriting has become increasingly complex and more volatile, many brokers have shifted their clients' program to the non-admitted market. This market has the ability to adapt more quickly to fast-changing conditions and address complex risk more effectively than the admitted market.
As a result, we are building our relevance in the market, accessing new clients that previously would have been unavailable to us. We expect this opportunity to persist throughout 2024 and beyond. We saw growth across both our insurance and our reinsurance portfolios, but we saw the vast majority of our exposure growth in the insurance book. You have seen these slides before. Both the 1 in 250 as a % of our capital and the 1 in 10 as a % of our expected company's annual earnings have decreased into 2023. Over more than a decade, we have actively reduced the volatility to our firm, and we will continue to maintain these lower levels of volatility going forward. We have seized the opportunity of the property hardening market with enthusiasm, and we've achieved that without increasing the volatility to our firm.
Our cyber business continued to see demand-led growth in 2023 outside of the United States and especially in Europe. Undiscounted core of 72% is still well within our target range, and we continue to see an opportunity for profitable growth within cyber. We continue to believe in the importance of showing leadership in the marketplace where we were one of the pioneers, and in 2023, we launched the first markets cyber catastrophe bond. We led the update on the cyber war clause to ensure the product's sustainability and still managed to achieve growth despite the resistance to that change. Just last month, we announced the formation of Beazley Security, which will be a leader in delivering cyber resilience services to our clients. Today's cyber rating adequacy is good.
Rates through 2023 did come off a bit, but as you can see, they're still materially higher than where they were in 2020. That was due to the increase in exposure due to ransomware. The early signs of 2024 make us optimistic that the rates are heading towards flat. We are confident that this positive environment puts a lean into the demand-led growth. We will see the strongest growth markets outside of the United States. Outside the U.S., we had demand-led growth, especially in Europe. It grew by 27% and is now 12% of the total cyber book. It is our largest product on the European platform. As I said previously, this is where we expect to see strong exposure growth in 2024.
We have been building infrastructure and attracting a talented team for several years, and we're ready to capitalize on this opportunity. North America is the largest part of our book, but we saw a slight downturn in growth. This was due to increased competition and our leadership on updating the war clause. Specialty Risks saw its combined ratio improve to 78%. We were especially proud of achieving that during the soft market. D&O will continue to be a significant part of Specialty Risk, but during the soft market, we've become less dependent on this product as we've grown in other profitable niches within specialty. North America is more diversified with these profitable products, which is why you saw modest growth there. Europe and global wholesale are more dependent on the D&O product, which is why we saw negative growth on those platforms.
Our MAP team continued to show the power of the expertise they bring to our clients during 2023. Across the division, they play a vital role in helping to keep business investing and trade moving despite ongoing geopolitical uncertainty. Specifically, to touch on ongoing geopolitical concerns, the situation in the Middle East and the Red Sea has not materially impacted our business so far. On a normalized basis, MAP has actually increased by about 15%, despite the slide showing premium reducing in 2023. As mentioned already, this was driven by 5623, which is our Smart Tracker syndicate, becoming a standalone syndicate in 2023. The division continues to have consistently profitable core. Global Wholesale is by far the largest platform for MAP risk.
We had 15% growth if normalized for 5623 becoming a standalone syndicate, and the growth was driven by war, political risk, terrorism, and contingency. Europe's growth was driven by the same products, but is off a much smaller base. We will continue to look for growth opportunities in Europe and North America during 20...
Thanks, Bob. Two thoughts to share on long-term value creation. The first is our performance against an internal target. So we have an ambition to grow our net asset value per share, including the impact of dividends and capital actions at a rate of between 10% and 15% above risk-free. Our strategy is directed at being able to build compounding value over time, and what we've shown here is our performance over the last 10 years. The blue corridor shows the upper and lower boundaries of that range above the risk-free rate since 2014, and the pink diamonds are our actual performance during those years.
What it shows, I hope, is that throughout the last decade, despite all that has been thrown at us between, climate change, natural catastrophes, COVID, war, and a soft market, we have managed to achieve that compounding, value, and following last year's performance, are now at the top of that range. The company's long-term incentive plans are exactly aligned to these targets, and they've performed, well this year in a way I think that aligns well with our shareholders' interests. The second, way we think about, performance is benchmarking ourselves against a range and a basket of U.S. and Bermudan peers. When we think about our major competitors, they tend to be from that cohort, specialty insurers or composite insurance with a big specialty division, against whom we compete generally in the U.S., in London and beyond.
Whilst we're described generally as a Lloyd's or a London market insurer, we tend to see ourselves as a global or international specialty insurer. Yes, based in London, but with a bias towards North American marketplace and three vibrant platforms here in the U.S. and in Europe. And it's this group of peers, therefore, that we tend to pay most attention to, and you can see that list at the bottom of the page. We've also charted the last 10 years, comparing total shareholder return generation over that time. And you can see the outperformance that we had in the mid-teens. You can see the impact of COVID on that performance and that value creation, or lack thereof, and then the recovery thereafter through growing both our premiums and our margins in the business.
I think we can see that over the last 10 years, we have kept up well with that cohort of peers to which we compare ourselves. On to outlook then. I think the world is increasingly complex and risky, whether that's new threats to cybersecurity, weather, or growing political geopolitical volatility. To prosper in that environment, businesses need the sorts of products, services, and risk transfer that we offer, and we believe that the demand for specialty insurance will continue to increase over the next few years because of that. I think that creates a persistent long-term opportunity for specialty insurers like us, with the right levels of expertise, commitment, and financial strength. As I think Bob was outlining, the cornerstone of our business is and will always be disciplined underwriting.
We combine this with a long-term outlook, very aggressive cycle management, and a high conviction approach. So we respond quickly to new opportunities. We're also fast to take risk off the table when the risk reward deteriorates, either because of market cycles or changes to exposure. I do think that access to risk is vital in insurance. We've spent 20 years building our business in North America, building trust with clients and with our broker partners, and patiently adding product and resource organically over those 2 decades. We're doing the same thing in Europe. Why? Because, as Bob said, having the right people in the right place, getting our subject matter experts closer to the business, closer to the retail broker, gets us better intelligence and better access to risk, and I think that is a competitive advantage.
I do think that the property opportunity will continue, as we've said. I also think cyber demand will persist over the next few years, and therefore, despite a relatively complex market, I do think there is growth available this year, and we're estimating high single digits growth, a little bit higher net. That disconnect that we've seen between gross and net is going to ease a little bit, so the marked decrease in proportional insurance we're buying has mostly come to an end. So the net will be a little bit higher, but not very much. And we're estimating an undiscounted combined ratio in the low 80s, which the eagle-eyed amongst us will notice is what we said this time last year. The logic for that, I think, is relatively straightforward. Rates at an overall level have roughly kept pace with loss costs.
We got about 4% last year. It's low single digits again this year. 2023 did benefit from lower than expected catastrophe activity, also lower than expected attritional, but we have to expect both those to normalize this year, and hence we're back to where we started in the low 80s. And lastly, I'm very pleased to be able to announce that we have a new CFO called Barbara Plucnar Jensen, who'll be joining us late in the second quarter this year. As some of you will know, until late last year, she was group CFO at Tryg. She comes with over 25 years' experience in the financial services industry. I think she'll be an excellent fit at Beazley, and we very much look forward to welcoming her. And with that, we'll move on to Q&A. Thank you.
Thank you. Freya Kong from Bank of America. So the SCR grew 31%. Would you be able to give us a rough breakdown of the various elements you talked about contributing to this increase? And mostly, can you explain the increase in the net reserve risk charge a bit more? And previous guidance, I think, was for SCR growth to be in line with net growth plans. Would this still hold for forward-looking? Second question on gross growth, split between rate versus exposure. Based on your comments, it sounds roughly 50/50. Is that fair? And last question on reserve releases. 2022 was a little strange, given the adjustments made to transitioning to IFRS 17, but is 2023 a pretty good starting point to look forward to? Thanks.
Well, the first and the third are you.
Yeah. Do you want to do the-
The middle one?
Yep.
Yes, probably, roughly. Yeah. So growth is probably half rate, half exposure. Roughly, yeah. So well estimated.
Okay, so on the SCR, so step back. If you look back at our SFCR. Sorry, there's a lot of acronyms in what I'm going to say. You can see that last year, our SCR over the year grew by about 7-8%. But that was with an expectation of net growth being much higher than that, 'cause that was at a time when we were estimating net growth in the 20s, which we achieved. So your question, to answer the last bit of your first question, first, over time, and we've said this before, over the medium term, generally speaking, the SCR will move with net growth. However, when you look at individual years, that can vary, and that really depends on how the net growth is coming in.
And so what we've had is a number of strong years from a net perspective, which has an impact in the first year, but also has a secondary impact in the second year as reserve risks come into that SCR. So overall, it's a good guide, but on an individual year, you can have those effects. In terms of the elements, I would take them in order. I would probably say that the vast majority of the increase is a mix between current year expectations on growth, and as Adrian said, it's high single digits growth, slightly higher net, but not to the extent that we've seen in the past. And then secondary, the effect around the net reserve risk, and then there's a small amount due to model changes.
One of the things we were talking about earlier is that the move that we've had to the new way of talking about capital means we're going from an ultimate version of capital, which ECR is, to a one-year version. So we're getting these effects for the first time, visibly, 'cause we always used to project to ultimate, and that's one of the results of that that you can see.
And then on to reserving in from 2022 versus 2023. Short answer, yes. So we're on Jehan's side. Couple down to you, so you can bother him afterwards on the detail on this. I do that 'cause Martin used to do it to me when I was Jehan. But so we've now moved over to the new way that we reserve under IFRS 17. 2023 is a good indicator of how we reserve. We've put in our loss development tables for the past 5 years. Obviously, the reserving has been different, so that's on a best effort basis. So it will give you a good indication of how to think about it, but actually, as we build that up, that will become more useful.
Thank you.
Oh, hi there, Tryfonas Spyrou from Berenberg. Just on the growth outlook, I was wondering if you can maybe help us unpack the assumptions per line of business backing that high single digit. Maybe separate property is still growing fast. Maybe so specialty lines, they're now a little bit lower. Is cyber still an uncertainty when it comes to the growth? So maybe any more color on what underpins those assumptions. The second one is on capital return outlook. With the risk of not being greedy, clearly, if you can help us understand more how you think about capital returns. Clearly, the ordinary dividend payout is around 15%, looking forward. So everything else being equal, should we expect more special capitals being financed out of really high capital generation in the next few years?
Thank you.
Great. Thank you. Right, so the first question for Bob was, can we give a bit more color on growth by division?
Yeah.
in 2024? Is it property first, then cyber, then map, then everything else?
Yes. I mean, property is growing. We expect it to grow the most. We have single digit rate there and continued exposure growth in property. Cyber also has growth, but that's exposure growth that we're looking for there. And then MAP has both mild rate, low rate, but also growth. So it would be in that order. Specialty risk will be more flat.
So we're hoping that some of the headwinds that we had last year in cyber will dissipate. The war conversation is getting behind us now. That was quite noisy last year, particularly in North America, so we'll see, we'll see. Capital returns. So, you know, I think what we've done is kind of lay out how we think about things and then what that resulted in. So if 2024 is a rinse and repeat of 2023, you'll see the same thing again. But if things change during 2024, either in terms of how much capital we generate or what the prospects are or what happens to our tail risks, then those, that may come out with a, with a, with a different answer.
But if you paint a scenario where we're in an era of good capital generation and lower rate, then you'll see, you may see more of what we did this year.
The strategy hasn't changed.
No.
The outcome this year is different 'cause the environment's changed.
Yeah.
Hi, it's Ivan Bokhmat from Barclays. Thank you very much. I was just wondering, in your mid-80s, low 80s combined ratio guidance, maybe you could try to provide us something of a...
Of a large loss budget. I mean, we've been asking for a little while. Now, the property is the second largest business. You know, you've started to provide the PMLs. Maybe you can at least try to quantify what the benefit was in the 2023 from low large losses, or alternatively, maybe provide a combined ratio indication for property specifically. I mean, that would be helpful. And second, I just wanted to ask for your thoughts about how you, how do you feel about opportunistic reserve additions that some of your peers have done in Q4, in 2023? You've obviously had a very strong results, and you could have taken advantage of that, of that as well. So maybe something conceptual, how would you think about that in the future? Okay. Thank you.
I'll do the second one. Why don't you do the first one?
Oh, okay. Shall I do the first one? Yep. Okay. So when we look at... So we're not—we don't guide to... Sorry, we don't guide. The CFO doesn't guide to individual divisions from a budget basis. I know it would be nice. But I would say when I look at the property result, it is the attrition was better than we expected. The cats were much better than we expected, I think would be my words. And obviously, we've reloaded both when we look at the guidance, but that would be how I'd think about it without numbers. And now Adrian's gonna talk to you about reserving, which I'm excited about.
So we have a policy of keeping our reserve confidence level between 80 and 90, and it's bang in the middle of it. I think that seems sensible. It didn't seem, you know, there'd be no logic for us to apply an opportunistic increase in reserve levels when we're bang in the middle of our target range, which I think tells you all you need to know. Go.
Sorry, I was never not gonna add. So the other thing is that we've been talking about social inflation since 2017. And so we've been looking at that, and we've been updating on a quarterly basis when we're thinking about all our reserves, but in particular, social inflation. And so I think there are three things to remember here. The exposure we have is there, but it is minimized given what we write, and we write on a claims-made basis, so the ability to cut that off is quicker in the things that we write as well, and it's one of the reasons we write on a claims-made basis. And the third thing is, since the mid-2010s, is that how you what you call them?
We've had this aggregate excess of loss in place across cyber and Specialty Risk, which covers more than the social inflation areas, but we do have some hedging against any deterioration within there. So we've been looking at this. So what we've seen this year isn't a new thing for us. We've been thinking about it for a while. So to take a significant change on what we've been doing this year wouldn't be congruent with what we've been doing for the last few years and the experience that we've had.
Good addition.
Thank you.
Hi there, Faizan Lakhani from HSBC. The first is coming back to the fact that you are normalizing for attritional and nat cat for next year. Now, I know you won't give what the nat cat aspect is, but why is it that you're normalizing for attritional for next year? Why is that not sustainable? If you could sort of help provide some color on that one. The second is, it's noticeable you haven't seen the same uptick in ransom frequency, like some of the peers have commented. If we were to assume a similar level of ransom frequency, which I'm not saying you will next year, what would that do to your cyber combined ratio? And the third one is, the other income grew very strongly last year.
How much of that is sticky and sustainable, and how much of that would you say is sort of normalized as profit commissions come down next year? Thank you.
Okay. So, when we thought about the low 80s combined, you obviously normalize for cat. If you take a big step back, our business mix is not changing that much, and rates aren't changing that much, so the most sensible thing to do is just to reset the assumptions where they were. What we tried to do with our combined ratio guidance, candidly, is to explain our thinking and say, "Here's the number we got to. Here's why. You can interpret that as you will." Right? And so what we're saying is business mix not changing very much, rates not changing very much, therefore, we reset the clock back to 2023, and you can do with that information what you will, right? I think,
We'll be updating.
We'll be updating quarterly.
Yeah.
Ransomware, if the frequency normalizes, or not quite sure what normalizing is, given how much it's been up and down over the last few years, you know, I think all I would point to is that the Combined Ratio that our Cyber division produced last year is significantly below the sort of long-term target that we have. So were attrition to increase, we have the ability to absorb it without breaching that 85 in old money that we used to talk about. Other income, Sally, do you want to talk about?
Yeah. So the increase in other income this year is largely due to the profit commissions due from Syndicate 623, which is our third-party backed syndicate. And so that's the main cause of the increase. So what will happen next year, it depends on what profitability on 623 happens. 623 is very much based on our wholesale market business, which is running well at the moment. I'm not gonna give you a guide on it.
Okay, thank you. Sorry, can I just come back to the first point you made, that the mix isn't changing a great deal, but you've grown very strongly in property. Specialty is coming off a little bit, and as that earns through-
Yep
I would have assumed the combined ratio would improve next year. So what-
... Why, why is that not really a business shift?
The difference in growth in 2024 isn't as marked as the growth in 2023 was.
And as well?
Uh, yeah.
Yeah.
Yeah.
Thanks. It's Andrew Ritchie from Autonomous.
Your last-
My last-
Welcome.
Well, for now, for now. I'm sure may reappear one day. So first of all, nerdy question, as I'm known for. Just explain the $139.4 million IFE, which you describe as a change of assumptions. Do I think of that as effectively a PYD, but it's within the IFE rather than the service result? Or maybe just, I'm just curious to know how I should think about that. Secondly, on the prior year, I hadn't seen gross versus net triangles yet. I don't know if you're giving us them, but you mentioned you've still got recoveries happening on the XOL from the prior year deterioration. What...
Just give us some reassurance again on remaining limit there, because it's, I think it's the third year where you've been recovering on that. The only other question I had, two other questions. I'm curious in specialty D&O, you're shrinking still, but where are the areas of growth that in specialty which are mitigating that? And then the final question, again, a nerdy one: You show a negative sensitivity on the Solvency II from a fall in interest rates. That, that's, that's sort of not really true, though, is it? Because I think the, the footnote is that's just showing the SCR impact, but in reality, you're sort of matched, I think, on interest rates, in principle, on the risk-free side. So, I shouldn't really think of interest rate sensitivity for, for capital, should I? Thanks.
Do you want to do the nerdy ones, Cox?
No, what I... I'll add.
Okay. All right. So, no, it's a great question on the, on the IFE. There are only great questions on the IFE, in my opinion. So, so is it a prior year? No. Obviously, it's impacted by prior year, but it's also current year as well. So it's made up of two main things. One, is any change in the payment patterns that you see over the year, 'cause obviously then you would change the way that, the financials, assumptions apply to that. And then secondly, it's also impacted by our actual payments that we made during the year versus what we expected. So those two things will have an impact.
This will be volatile, and it is hard to model, and we were talking earlier about the fact that we can explain what's happened when it's happened, but knowing what's gonna happen going forward is very difficult. I would only say I'm sorry, it's hard for us, too. And so that's what's happened this year, and because our A versus E was better, you're seeing that impact. And that, for us, comes through the IFE. People do it differently, but that's what happens. On-
I should assume a zero as a group, really. I mean, there's, I can't model that, presumably. Yeah.
Yeah. So it, you know, you've got... Well, unless you want to start taking views, you've got to assume that what we've put within our model is what we expect to happen. Yes. Yeah, that's what we assume as we start. Do you want to go on the-
Yeah. So, do we have any remaining limit left on the reinsurance for the back years and especially risks of cyber? Yes. Yes, we do. And thinking about Specialty Risk Mitigation, lots and lots of products in Specialty Risks we've got.
Yeah. The ones that were growing profitably was environmental, crime, U.S. Programs, which is cover hold-
Did I miss a geeky question?
Yes, yes, to sensitivity to interest rates.
Yes. Sorry, yes, that, that was right. I think it's prudent to show a negative for the SCR, but yes, you're right, that broadly, we are, we do aim to be matched. But we do. There is a reason for that footnote. So, we do want to say that we don't do an own funds calculation along with that. But yeah, we are, we do aim to be broadly matched.
But we might not be at any one point in time.
Well, yeah.
Yeah.
No one's ever perfectly matched.
Yeah.
Yeah.
Thanks.
Hey, so Kamran Hossain from J.P. Morgan.
You actually just... I'm gonna say.
Two questions for me. The first one is just back on the SCR. Obviously, you've kind of outlined there was a bit of a lagging effect on SCR growth, which is the move to Solvency II, and, you know, versus the old approach and how we used to kind of think about that. Is there another lagged effect to come in 2025? I know lots of things will change, but will that again mean that the SCR grows faster than net growth in 2025? Just kind of all other things being equal, I know-
It depends what happens to net.
Yeah, I know. Yeah, I know lots of things will happen, but-
Yeah
... you know.
So say-
Is there gonna be another-
So if net growth goes down further, where we are at the moment is net growth in 2024 is expected to be lower than net growth in 2023. So what you'll see in the SCR is a weighted average between current year and prior year growth. So depending on what will happen next year, you will see a combination of 2025 and 2024, broadly. So it really depends on that expectation. If it's the same in 2025 to 2024, which is not guidance, it's a scenario, then you would expect, you may expect some lag coming through from the back end of this significant growth-
Less marked.
But much, much less marked.
Second question, just on the share buyback. Do you have any parameters on, you know-
... what price you're willing to do it at? I know you're probably not going to tell us what that is, but, you know, how should we think about this? Is this a firm commitment to do up to $325?
Yes and yes.
Nice.
You can disagree if you want.
Nope.
Thank you for taking my questions. It's Anthony from Goldman Sachs. The first question is, appreciate all the comments on U.S. E&S. Could you give us a color or indication on what's the profitability in that compared to your group core guidance? And then secondly is, again coming back to the core, should we... Again, on the seasonality, should we expect higher core in 1H 2024, and then come down again in 2024 full year 2024? Thanks.
Good questions.
So the second one is, yes, but probably not as marked. But yes, we would definitely expect that, because we have two seasonality effects in property. What one is to do with the earning of the premium, and the second is to do with the runoff in the risk adjustment, and that happens more in the second half of the year. And we're also in a high return, which leads to our cost of capital, which drives our risk adjustment going up. So, yes.
On the E&S business, so all of our property business is written on the E&S in the E&S market, whether we write it here in London or in the U.S.. So the profitability shouldn't be that much different between the two, 'cause they're both written in the same marketplace. There is generally a trade-off between admitted and non-admitted, which is the admitted, you get better access to risk, because you see it first. But because you have more underwriting freedom in the E&S, it can be more profitable, and that is generally the trade-off, which is why we're more in the E&S market than we are on the admitted. It's about that trade-off between access and flexibility. Does that make sense?
Hi, Darius Satkauskas, KBW. Two questions, please. So the first one is, you benefited greatly from the flow of programs into E&S markets in the recent past. Is that slowing down? Or are the trends still continuing? At what point do you expect that wave to sort of turn? And the second question is just a different angle on Cameron's question on the buyback. So do you see there being a decent amount of headroom to the share price at which you'd be willing to do the buyback? So if there were to be capital returns going forward, we should expect a buyback rather than a special. Thank you.
So, you know, let me ask the question a slightly different way. So why, why are we doing a buyback? We're doing a buyback for a number of different reasons, rather than a special dividend. One, it's increasingly common market practice. Two, when we speak to our investors, there's an increasing preference for it for a variety of different reasons. But around the world, there is increasing preference for it. And also, when we look at our share price and compare it to consensus share price, there is a big delta. And so for all those reasons, it makes sense for us to do a buyback this year. There remains quite a big delta between consensus and our actual share price.
So that's why we're relatively confident that we should be, we should be able to complete the, the buyback as we have planned to do. Does that make sense? Carol?
So, it's consensus target price that's driving the continuing growth internally?
There are a number of different factors, one of which is the intrinsic value of the company versus the... and, and the consensus price versus where we're actually trading at. Yes, but it's one of many.
The consensus price is the one that everyone knows, so, that's why we refer to it here.
Uh-
Yes, the next question. The market flows.
Oh, flows. Yes, of course. Sorry. So we're seeing no signs that flows are slowing down. I think the mix of business flowing into the E&S market is probably slightly different. So there's more smaller mid-market business flowing in, because that's the business that is written by the big admitted insurers, that they're still having to non-renew whilst they figure out how to underwrite property in an admitted world. I think it's gonna take them a little while to figure that out. You know, changing risk in the underwriting risks that are changing in an admitted framework is hard. I've no doubt eventually it will happen, but I don't think that flow is gonna slow down for a little bit-
Yeah.
but the shape will be different.
It might stabilize, but I don't see it slowing down. I think, you know, cyber will probably get more complicated. Property is gonna stay more complicated for a long time, so I see the E&S market continuing to grow.
It's worth saying we also do have an admitted carrier, which we do-
Yeah
... write some cyber on as well. So it's not... It's just worthy of note.
Hi, sir. Abid Hussain from Panmure Gordon. I have three questions, if I can. First one is on cyber reserves. There was a small reserve strengthening on cyber, and that's sort of despite the current year margins being relatively stable. So just wondering what's driving that adverse experience on the back years. Is it something structural, or is it one-off? I'm thinking, is it sort of, you know, generative AI hacks, or is it just, you know, are you sort of seeing something scary, or is it just literally one-off? So any color on that would be great. And then the second one is on the cyber market. Clearly, it's a big market, and the outlook is positive. You mentioned growth in Europe.
I'm just wondering, what's the pricing power that you have there, and how does that compare to, say, the U.S. or the U.K. market in terms of cyber pricing power, and margins? And then the final question is just coming back on capital. You're looking to move the solvency ratio down to 170%, is it fair to say that's a multi-year journey? It's not a two-year journey, it stretches beyond that.
Got it. Okay, super. So the good news is that there's no generative AI hack that have impacted our cyber reserves. We sort of alluded to it. So cyber losses come in two forms. There's the sort of first-party losses caused by cybercrime and ransomware, and then there are liability issues, right? Around what you do with your data, how you store it, what data you ask for, whether you sell it, and so on and so forth. And those issues are beginning to emerge again, having been fairly subdued for a while. The one that there's been most press about is something called Pixels, which is a piece of technology that Meta use or sell to various clients who can then track what people are doing.
That has raised some liabilities, and that's something that we spotted in 2022. We've taken underwriting action to make sure we're not exposed to that anymore, but there are some claims coming through that we're having to deal with, and that's what caused a very small increase there. And I think it speaks to the fact that you need to be able to keep an eye on emerging threats, both on the liability side and on the first party side with, with cyber, and then deal with them, seal them off. Work with our clients to make sure that they're protected, so they understand what these threats are, and then we can move forward, and that's a good example of them. Pricing power, international versus, U.S., I think our market share is slightly higher outside the U.S. than it is in the U.S..
So our pricing power should be as good, if not a little bit better, I think. And then on the capital side, we're not targeting 170. We're saying we have an ambition to stay above 170. The actual target that we'll have will be a mixture of the things that we think about, how much growth prospects there are, what the sensitivities are, what we want our 1 in 250 peak risks to be, and so on and so forth. And so there should always be a gap between our minimum ambition and where we actually are, depending on what's going on.
Follow up on that. So it sounds like you think of a more of a target range. Are you willing to share what the range is?
It's not a range. It's not a range. So how much above the 170 we want depends upon the factors that we listed out in the cyber strategy, and they'll move year on year, right? And that's why there's no range, because it's a dynamic environment.
Morning. James Pearse from Jefferies. So, you recently announced Beazley Security. Just interested to hear more about the ambitions there. You know, whether that could become a more material component of earnings over time on its own, or does it just help fuel further cyber insurance growth? Second question's on D&O. So, are there any early signs of sufficient capital leaving the market yet? And how far off are we from that being an attractive market to grow again, and how much of a catch-up needs to happen on pricing?
Great. Okay.
Yes.
You want Beazley Security?
Yeah, so Beazley Security, we had, you know, services inside our company. We had Lodestone that was more risk expertise, and we brought these two together. So it's. It'll be effective on July first. We think it'll be a dynamic advantage that we have both of these working together. They do different things, and that expertise will stay separate, but now we'll be able to leverage their expertise together, and we think that brings a more dynamic service to our clients.
U.S. D&O, I think, given there's a lot of talk about rate decreases moderating, and there are some signs that that's happening, particularly on the primary layers, but it's too early to call anything yet. And, you know, talk is cheap, isn't it?
If you go to our plan, our plan isn't predicated on that changing significantly.
Nope. Not at all.
I think that's a notable thing to say.
Not at all.
Hi there, Faizan Lakhani. Sorry for another follow-up question, but this time on the solvency. It's pretty clear your guidance in terms of the way you sort of think about it. A hypothetical question, if the opportunity set stays very similar to what it is now, interest rates start to plateau, what does that do to your thinking this time next year in terms of the solvency ratio that you need to operate at?
Repeat.
Yeah, rinse and repeat, I think.
The 2.30%-2.40% level is where you'd want to be at, if we had the same opportunity set?
Well, we're at 218.
I have to fall-
Pretty, pretty much. Yeah.
Yeah.
Okay. Thank you.
Hi, it's Freya again from Bank of America. Could you comment a bit about the competitive backdrop for cyber in Europe, where you're pushing for growth? How are client demands and product offerings different from the U.S., which I understand is a bit more developed? And then secondly, just on the Red Sea disruption, how are you managing potential risk exposures here?
Okay. You want to take the second one? Red Sea.
I thought it was cyber in Europe. I didn't hear the second one.
Oh, okay. How are we handling the potential Red Sea disruptions to our business?
I don't know that one.
Okay.
It's-
All right, let's talk about cyber market in Europe. So the demand is at an earlier stage of development, as you say. So it is more large risk than mid to small. Although we're starting to work with a number of brokers about selling at scale to the small round of their clients, because the market's beginning to move that way. And the good thing I think about the international growth is that most of the large brokers have done this before, right?
So they've been through a cycle of selling to their clients in North America, where you start with the larger and you move into the mid-market and the small, and they're rinsing and repeating what they did there in Europe, and we're starting to work with them on that now. So it's a much more of a large risk business. The new business is generally bigger ticket, but we're actively starting to go into the small market there, which is good. We're keeping a very close watch on our aggregates in the Red Sea, et al. And so we're comfortable with that. As we said, as Bob said, there's been no impact to us so far.
We are in that market, so we are continuing to ensure trade and trade movement around there. I think it's an important part of what we do. But we do so in a way that, you know, means that the level of exposure to us is prudent and manageable. I think we're gonna have to call a halt there. So thank you very much indeed for coming today, and good luck with Admiral later.