Lloyd’s of London insurer Beazley (BEZ) has exceeded profit expectations for the six months to 30 June despite operating in a market blighted by falling rates.

The professional indemnity, marine, political risk, property and reinsurance provider recorded a $150 million pre-tax profit during the period. This was lower than the $154.5 million reported a year ago, but still eclipsed the $143 million consensus.

Bezley’s prices during the period were forced down by increased competition and lower storm activity in North America than in previous years.

Its rates fell by 2% on average during the second quarter, double than that in the opening three months of the year, thanks to lower rates in its speciality business.

Web - Beazley - 22 July 2016

The consensus beat was helped by $62.7 million of investment returns, up from $43 .5 million on an uplift in bond values.

‘The corresponding reduction in bond yields will be a small negative for future earnings,’ Numis said in a note. ‘Our FY17 investment return assumption is likely to come down from 1.6% currently (investment earnings currently equate to 31% of EPS).’

Another factor was Beazley writing $100 million more new business in the opening six months at $1.1 billion than it did a year ago.

Management target further gains here. They will need 12% more capital, or $173 million, than initially expected in 2017 to pick up new business that it is seeing.

Half if this will be part funded by new debt, with Numis believing that the company has enough on the balance sheet to provide the rest. Capital reserves sit at 42% of the risks it takes, well ahead of the 15% to 25% target.

Numis expects pre-tax profits to improve 4.6% to $239.5 million in 2017 after forecasting a 19.4% decline this year.

‘The shares remain one of our key picks, with upside expected to be driven by medium term revenue growth,’ the broker said.

Issue Date: 22 Jul 2016