Financial statements

Consolidated statement of profit or loss

For the year ended 31 December 2021

	Notes	2021 $m	2020 $m
Gross premiums written	3, 4, 6	4,618.9	3,563.8
Written premiums ceded to reinsurers		(1,106.5)	(646.8)
Net premiums written	3	3,512.4	2,917.0
Change in gross provision for unearned premiums		(545.0)	(331.7)
Reinsurers’ share of change in the provision for unearned premiums	17	179.9	108.1
Change in net provision for unearned premiums		(365.1)	(223.6)
Net earned premiums	3	3,147.3	2,693.4
Net investment income	4	116.4	188.1
Other income	5a	28.2	29.8
Gain from sale of business	5b	54.4	–
Revenue		3,346.3	2,911.3
Insurance claims		2,734.3	2,589.3
Insurance claims recoverable from reinsurers		(908.1)	(631.0)
Net insurance claims	3	1,826.2	1,958.3
Expenses for the acquisition of insurance contracts	3	821.8	738.9
Administrative expenses	3	283.0	235.5
Foreign exchange loss/(gain)	3	7.2	(11.2)
Operating expenses		1,112.0	963.2
Expenses	3	2,938.2	2,921.5
Results of operating activities		408.1	(10.2)
Finance costs	8	(38.9)	(40.2)
Profit/(loss) before income tax		369.2	(50.4)
Income tax (expense)/credit	9	(60.5)	4.3
Profit/(loss) for the year attributable to equity shareholders	3	308.7	(46.1)
Earnings/(loss) per share (cents per share):
Basic	10	50.9	(8.0)
Diluted	10	50.3	(8.0)
Earnings/(loss) per share (pence per share):
Basic	10	37.0	(6.3)
Diluted	10	36.5	(6.3)

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Notes
2021 $m
2020 $m
Group
Profit/(loss) for the year attributable to equity shareholders
3
308.7
(46.1)
Other comprehensive income/(expense)
Items that will never be reclassified to profit or loss:
Gain/(loss) on remeasurement of retirement benefit obligations
13.0
(2.0)
Income tax on defined benefit obligation
(1.8)
(0.5)
Items that may be reclassified subsequently to profit or loss:
Foreign exchange translation differences
(5.9)
2.8
Total other comprehensive income
5.3
0.3
Total comprehensive income/(loss) recognised
314.0
(45.8)

Statement of comprehensive income

For the year ended 31 December 2021

	2021 $m	2020 $m
Group
Profit/(loss) for the year attributable to equity shareholders	308.7	(46.1)
Other comprehensive income/(expense):
Items that will never be reclassified to profit or loss:
Gain/(loss) on remeasurement of retirement benefit obligations	13.0	(2.0)
Income tax on defined benefit obligation	(1.8)	(0.5)
Items that may be reclassified subsequently to profit or loss:
Foreign exchange translation differences	(5.9)	2.8
Total other comprehensive income	5.3	0.3
Total comprehensive income/(loss) recognised	314.0	(45.8)
Company
Profit for the year attributable to equity shareholders	37.2	47.9
Total comprehensive income recognised	37.2	47.9

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Notes
Share capital $m
Share premium $m
Foreign currency translation reserve $m
Other reserves $m
Retained earnings $m
Total $m
Group
Balance at 1 January 2020
38.1
3.2
(94.1)
3.6
1,674.5
1,625.3
Total comprehensive income/(loss) recognised
–
–
2.8
–
(48.6)
(45.8)
Dividends paid
11
–
–
–
–
(50.2)
(50.2)
Issue of shares
21
–
2.1
–
–
–
2.1
Equity raise ¹
21
4.8
–
–
287.8
292.6
Equity settled share based payments
22
–
–
–
2.8
–
2.8
Acquisition of own shares in trust
21
–
–
–
(13.6)
–
(13.6)
Tax on share option vestings
9
–
–
–
(5.4)
1.2
(4.2)
Transfer of shares to employees
22
–
–
–
3.2
(2.7)
0.5
Balance at 31 December 2020
42.9
5.3
(91.3)
(9.4)
1,862.0
1,809.5
Balance at 1 January 2021
42.9
5.3
(91.3)
(9.4)
1,862.0
1,809.5
Total comprehensive income/(loss) recognised
–
–
(5.9)
–
319.9
314.0
Equity settled share based payments
22
–
–
–
11.0
–
11.0
Tax on share option vestings
9
–
–
–
(3.9)
–
(3.9)
Transfer of shares to employees
22
–
–
–
(1.7)
1.9
0.2
Balance at 31 December 2021
42.9
5.3
(97.2)
(4.0)
2,183.8
2,130.8

¹ During the financial year ended 31 December 2020, the Group raised $292.6m through a share issuance via a cash box structure. Merger relief under the Companies Act 2006, section 612 was available, and thus no share premium was recognised. As the redemption of the cash box entity’s shares was in the form of cash, the transaction was treated as qualifying consideration and the premium is therefore considered to be immediately distributable and can be recognised within retained earnings. The funds raised are net of issuance costs.

Statement of changes in equity

For the year ended 31 December 2021

Notes	Share capital $m	Share premium $m	Merger reserve ² $m	Foreign currency translation reserve $m	Other reserves $m	Retained earnings $m	Total $m
Company
Balance at 1 January 2020	38.1	3.2	55.4	0.7	(9.3)	621.3	709.4
Total comprehensive income recognised	–	–	–	–	–	47.9	47.9
Dividends paid	11	–	–	–	–	–	(50.2)
Issue of shares	21	–	2.1	–	–	–	2.1
Equity raise ¹	21	4.8	–	–	–	287.8	292.6
Equity settled share based payments	22	–	–	–	–	2.8	2.8
Acquisition of own shares in trust	22	–	–	–	–	(13.6)	(13.6)
Transfer of shares to employees	22	–	–	–	–	3.2	(2.7)
Balance at 31 December 2020	42.9	5.3	55.4	0.7	(16.9)	904.1	991.5
Balance at 1 January 2021	42.9	5.3	55.4	0.7	(16.9)	904.1	991.5
Total comprehensive income recognised	–	–	–	–	–	37.2	37.2
Equity settled share based payments	22	–	–	–	–	11.0	11.0
Transfer of shares to employees	22	–	–	–	–	(1.7)	1.9
Balance at 31 December 2021	42.9	5.3	55.4	0.7	(7.6)	943.2	1,039.9

² A merger reserve was created through a scheme of arrangement on 13 April 2016, in which Beazley plc became the parent company of the Group.

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Financial statements

Statements of financial position

as at 31 December 2021

	Notes	Group $m	Company $m	Group $m	Company $m
		2021	2021	2020	2020
Assets
Intangible assets	12	123.5	–	126.3	–
Plant and equipment	13	19.2	–	19.7	–
Right of use assets	29	75.5	–	86.4	–
Deferred tax asset	28	16.3	–	26.8	–
Investment in subsidiaries	31	–	724.6	–	724.6
Investment in associates	14	0.6	–	0.3	–
Deferred acquisition costs	15	477.8	–	384.9	–
Retirement benefit asset	27	18.1	–	4.8	–
Reinsurance assets	19, 24	2,386.4	–	1,684.7	–
Financial assets at fair value	16, 17	7,283.5	–	6,362.0	–
Insurance receivables	18	1,696.1	–	1,467.9	–
Other receivables	10	6.7	315.0	86.5	267.9
Current income tax asset		11.9	0.7	27.9	1.9
Cash and cash equivalents	20	591.8	0.3	309.5	0.9
Total assets		12,807.4	1,040.6	10,587.7	995.3
Equity
Share capital	21	42.9	42.9	42.9	42.9
Share premium		5.3	5.3	5.3	5.3
Merger reserve		–	55.4	–	55.4
Foreign currency translation reserve		(97.2)	0.7	(91.3)	0.7
Other reserves	22	(4.0)	(7.6)	(9.4)	(16.9)
Retained earnings		2,183.8	943.2	1,862.0	904.1
Total equity		2,130.8	1,039.9	1,809.5	991.5
Liabilities
Insurance liabilities	24	8,871.8	–	7,378.4	–
Financial liabilities	16, 17, 25	554.7	–	558.5	–
Lease liabilities	29	84.3	–	90.1	–
Deferred tax liability	28	–	–	0.6	–
Current income tax liability		24.5	–	16.7	–
Other payables	26	1,141.3	0.7	733.9	3.8
Total liabilities		10,676.6	0.7	8,778.2	3.8
Total equity and liabilities		12,807.4	1,040.6	10,587.7	995.3

No income statement is presented for the parent company as permitted by Section 408 of the Companies Act 2006. The profit after tax of the parent company for the period was $37.2m (2020: $47.9m).

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Statements of cash flows

For the year ended 31 December 2021

	Notes	2021 $m	2020 $m
Cash flows from operating activities
Profit before income tax		369.2	(50.4)
Adjustments for:
Net investment income	(116.4)	(188.1)
Net realised and unrealised gains on financial assets at fair value	(120.2)	187.5
Depreciation and amortisation	13, 29	24.5	23.7
Change in provision for unearned premiums	(365.1)	(223.6)
Change in insurance and other payables	360.1	375.9
Change in insurance and other receivables	(228.2)	(247.7)
Change in reinsurance assets	(701.7)	(446.0)
Change in deferred acquisition costs	(92.9)	(87.4)
Defined benefit pension costs	27	13.5	(2.0)
Other non-cash items	18.8	8.0
Operating profit before working capital changes		(277.5)	(247.5)
Movement in working capital:
Change in insurance receivables	(228.2)	(247.7)
Change in other receivables	(10.6)	4.6
Change in reinsurance assets	(701.7)	(446.0)
Change in insurance liabilities	1,493.4	1,387.6
Change in other payables	407.4	70.6
Net cash generated from operating activities	1,700.3	1,369.0
Income tax paid	(40.5)	(64.1)
Net cash flows from operating activities	1,659.8	1,304.9
Cash flows from investing activities
Purchase of financial assets	(6,820.6)	(7,440.9)
Proceeds from sale of financial assets	6,459.9	7,201.1
Purchase of property, plant and equipment	(4.3)	(4.6)
Proceeds from sale of property, plant and equipment	0.4	0.2
Dividends received	33.1	33.2
Net cash used in investing activities	(331.5)	(210.2)
Cash flows from financing activities
Proceeds from issuance of shares	–	292.6
Dividends paid	(50.2)	(50.2)
Repurchase of own shares	(13.6)	–
Net cash used in financing activities	(63.8)	242.4
Net increase/(decrease) in cash and cash equivalents	1,265.0	1,297.1
Cash and cash equivalents at beginning of year	309.5	32.4
Cash and cash equivalents at end of year	20	1,574.5	341.5

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Financial statements

Notes to the financial statements

1. General information

The Beazley plc consolidated financial statements for the year ended 31 December 2021 comprise the company and its subsidiaries (the 'Group') and the Group's interests in associates. The consolidated financial statements also incorporate the results of the Company.

Beazley plc is a public company limited by shares, incorporated and domiciled in the United Kingdom. The address of the registered office is provided in the Corporate Information section of the Annual Report.

The consolidated financial statements were authorised for issue by the Board of Directors on 8 March 2022.

2. Basis of preparation

The consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB and IFRS as adopted by the UK Endorsement Board. They have been prepared on a going concern basis.

The consolidated financial statements are prepared on the historical cost basis, except for financial assets at fair value which are measured at fair value.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the accounting policies. The areas involving a higher degree of judgement and complexity are disclosed in Note 4.

Significant accounting policies

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.

a) Basis of consolidation

The consolidated financial statements include the financial statements of Beazley plc and its subsidiary undertakings.

Subsidiaries are entities over which the Group has control. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to direct the relevant activities of the investee.

The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

All intercompany transactions, balances, income and expenses are eliminated on consolidation.

b) Foreign currency translation

Functional and presentation currency

The functional currency of Beazley plc and most of its subsidiaries is Sterling (£). The financial statements are presented in Sterling ($m), which is the Group's presentation currency.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year-end exchange rates are recognised in the consolidated statement of profit or loss.

Group companies

The assets and liabilities of foreign operations are translated into Sterling at the exchange rates at the reporting date. The income and expenses of foreign operations, which are translated at average rates, are translated into Sterling at the average rate for the period. All resulting exchange differences are recognised in other comprehensive income and accumulated in the foreign currency translation reserve in equity. On disposal of a foreign operation, the cumulative amount recognised in equity in respect of that foreign operation is reclassified to profit or loss on disposal.

c) Revenue recognition

Gross premiums written

Gross premiums written are recognised at the inception of a contract. The premium is recognised gross of commissions payable to intermediaries. Premiums are recognised over the term of the policy on a daily basis. Unearned premiums are calculated at the reporting date to represent the portion of premiums written which relate to the unexpired period of the policy.

Net premiums written

Net premiums written are gross premiums written less premiums ceded to reinsurers.

Unearned premiums

The provision for unearned premiums represents the proportion of gross and net premiums written that relates to risks unexpired at the end of the reporting period. It is calculated using the daily pro rata method. Premiums are recognised over the term of the policy on a daily basis.

Reinsurance

In the normal course of business, the Group seeks to limit its exposure to risk by taking out reinsurance policies. Reinsurance premiums are accounted for on a basis consistent with the underlying insurance policies. Provisions for unearned reinsurance comprises the unexpired portion of reinsurance contracts incepted during the year.

Net investment income

Net investment income comprises interest income, dividend income and realised and unrealised gains and losses on financial assets at fair value. Interest income is recognised on a time apportionment basis. Dividend income is recognised when the Group's right to receive payment is established. Realised gains and losses on financial assets are recognised in the consolidated statement of profit or loss when the assets are disposed of. Unrealised gains and losses on financial assets at fair value are recognised in the consolidated statement of profit or loss in the period in which they arise.

Other income

Other income includes rental income and other miscellaneous income.

Gain from sale of business

Gains or losses on disposal of business are recognised when control is lost.

d) Insurance and reinsurance contracts

Classification

An insurance contract is a contract under which the insurer or reinsurer has accepted significant insurance risk from the policyholder by agreeing to compensate the policyholder if a specified uncertain future event adversely affects the policyholder.

A reinsurance contract is a contract under which the insurer has accepted insurance risk from another insurer.

Insurance contract liabilities

The liabilities for outstanding claims are determined by reference to estimates of the ultimate cost of claims. These include the cost of claims reported but not yet settled, and claims incurred but not reported (IBNR). The IBNR is estimated using statistical techniques and based on past experience of the frequency and severity of claims.

The provision for unearned premiums represents the proportion of gross and net premiums written which relates to risks unexpired at the end of the reporting period. It is calculated using the daily pro rata method.

Reinsurance assets

Amounts recoverable from reinsurers are recognised in the consolidated statement of financial position and measured consistently with the measurement of the insurance liabilities they relate to.

e) Financial instruments

Financial assets and liabilities are recognised when the Group becomes a party to the contractual provisions of the instrument.

Financial assets at fair value through profit or loss

This category includes financial assets held for trading and financial assets designated at fair value through profit or loss on initial recognition. Financial assets at fair value through profit or loss are initially recognised at fair value. Subsequent to initial recognition, they are carried at fair value, with gains or losses arising from changes in fair value recognised in the consolidated statement of profit or loss.

Other financial assets

Other financial assets include cash and cash equivalents, loans and receivables. They are initially recognised at fair value plus transaction costs. Subsequently, they are carried at amortised cost using the effective interest method.

Financial liabilities

Financial liabilities include borrowings and other payables. They are initially recognised at fair value less transaction costs. Subsequently, they are carried at amortised cost using the effective interest method, except for financial liabilities at fair value through profit or loss.

Derecognition

Financial assets are derecognised when the contractual rights to the cash flows from the asset expire, or when the Group transfers substantially all the risks and rewards of ownership.

Financial liabilities are derecognised when the obligation under the liability is discharged, cancelled or expires.

f) Deferred acquisition costs

Deferred acquisition costs represent the incremental costs of acquiring insurance contracts and reinsurance contracts that are expected to be recovered from future premiums. These costs are amortised over the term of the contract.

g) Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses.

Depreciation is charged so as to allocate the cost of assets over their useful lives using the straight-line method:
- Leasehold property: 5% per annum
- Equipment: 20% per annum

Assets held under finance leases are depreciated over their useful economic life.

h) Leased assets

The Group leases various assets, including office space and equipment. Lease agreements are classified as either operating leases or finance leases.

Operating leases

Payments made under operating leases are recognised as an expense in the consolidated statement of profit or loss on a straight-line basis over the lease term.

Finance leases

Assets held under finance leases are capitalised and disclosed as property, plant and equipment. The corresponding obligation to the lessor is included in liabilities.

i) Impairment of assets

Assets are reviewed for impairment at each reporting date. An impairment loss is recognised if the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and its value in use.

j) Income tax

Income tax comprises current tax and deferred tax. Income tax is recognised in the consolidated statement of profit or loss except to the extent that it relates to items recognised directly in equity or in other comprehensive income, in which case it is recognised in equity or other comprehensive income, respectively.

Current tax is the tax payable on taxable profits for the period, based on tax rates enacted or substantively enacted at the reporting date.

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding tax bases. Deferred tax is calculated using the substantively enacted tax rates that are expected to apply in the period in which the temporary difference reverses.

Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences can be utilised.

k) Employee benefits

Defined contribution plans

The Group operates defined contribution pension schemes. Contributions payable to these schemes are charged to the consolidated statement of profit or loss as incurred.

Defined benefit plans

The Group operates defined benefit pension schemes. The liabilities of the defined benefit pension schemes are measured by the use of the projected unit credit method. Remeasurements, comprising actuarial gains and losses, the effect of the cap on the asset ceiling, past service costs and the effect of any curtailment, are recognised immediately in other comprehensive income. The costs of sponsoring the defined benefit plans are recognised in profit or loss.

l) Share-based payments

The Group operates share option schemes for directors and employees. The fair value of options granted is recognised as an expense in the profit or loss with a corresponding increase in equity. The expense is amortised over the vesting period.

m) Provisions

Provisions are recognised when the Group has a present obligation as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

Critical accounting estimates and judgements

The preparation of financial statements in conformity with IFRS requires management to make judgements and estimates that affect the reported amounts of assets and liabilities, income and expenses. These estimates and judgements are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources.

The significant judgements and estimates used in the preparation of these financial statements are as follows:

a) Insurance contract liabilities (Note 11)

The determination of insurance contract liabilities involves significant judgement and estimation. In particular, the estimation of the provision for outstanding claims, including the provision for claims incurred but not reported (IBNR), is based on statistical models and past experience. These estimates are inherently uncertain and subject to revision as more information becomes available or as claims develop.

b) Deferred tax assets (Note 28)

The recoverability of deferred tax assets is dependent on the Group's ability to generate future taxable profits. The recognition of deferred tax assets involves judgement regarding the future profitability of the Group.

c) Fair value of financial instruments (Note 16)

The fair value of financial instruments that are not traded in active markets is determined using valuation techniques. These techniques may use observable inputs or unobservable inputs. Where unobservable inputs are used, judgement is required in selecting the appropriate assumptions and models.

d) Share-based payments (Note 22)

The fair value of share options granted is determined using the Black-Scholes model. This model requires estimates of volatility, dividend yield, risk-free interest rate and expected life of the option.

3. Premiums and claims

	2021 $m	2020 $m
Gross premiums written	4,618.9	3,563.8
Year 1	2,014.7	1,899.4
Year 2	1,732.0	1,243.0
Year 3	707.5	417.8
Year 4	57.5	3.6
Written premiums ceded to reinsurers	(1,106.5)	(646.8)
Year 1	(490.9)	(418.0)
Year 2	(442.2)	(177.0)
Year 3	(153.7)	(49.6)
Year 4	(19.7)	(2.2)
Net premiums written	3,512.4	2,917.0
Change in gross provision for unearned premiums	(545.0)	(331.7)
Year 1	(227.9)	(161.9)
Year 2	(188.6)	(111.6)
Year 3	(115.8)	(56.9)
Year 4	(12.7)	(1.3)
Reinsurers’ share of change in the provision for unearned premiums	179.9	108.1
Year 1	76.2	53.8
Year 2	63.2	37.8
Year 3	36.7	16.5
Year 4	3.8	0.0
Change in net provision for unearned premiums	(365.1)	(223.6)
Year 1	(151.7)	(108.1)
Year 2	(125.4)	(73.8)
Year 3	(79.1)	(40.4)
Year 4	(8.9)	(1.3)
Net earned premiums	3,147.3	2,693.4
Insurance claims	2,734.3	2,589.3
Year 1	1,054.3	1,277.2
Year 2	940.4	822.1
Year 3	610.3	409.2
Year 4	129.3	70.8
Insurance claims recoverable from reinsurers	(908.1)	(631.0)
Year 1	(380.8)	(410.2)
Year 2	(336.6)	(145.3)
Year 3	(170.7)	(75.5)
Year 4	(20.0)	(0.0)
Net insurance claims	1,826.2	1,958.3
Expenses for the acquisition of insurance contracts	821.8	738.9
Year 1	333.4	328.1
Year 2	306.4	278.8
Year 3	159.7	123.1
Year 4	22.3	8.9
Administrative expenses	283.0	235.5
Year 1	94.3	85.0
Year 2	79.9	70.9
Year 3	76.3	64.0
Year 4	32.5	15.6
Foreign exchange loss/(gain)	7.2	(11.2)
Total operating expenses	1,112.0	963.2
Year 1	427.7	413.1
Year 2	386.3	349.7
Year 3	236.0	187.1
Year 4	54.8	24.5
Total expenses	2,938.2	2,921.5

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Notes to the financial statements (continued)

4. Net investment income

	2021 $m	2020 $m
Interest income	100.5	147.9
Dividend income	23.9	44.8
Realised gains on sale of investments	44.6	138.3
Unrealised gains on investments	74.1	56.3
Net investment income	116.4	188.1

5. Other income and gains

	2021 $m	2020 $m
a) Other income
Rental income	3.0	3.0
Other income	25.2	26.8
b) Gain from sale of business	54.4	–

6. Financial assets at fair value through profit or loss

	2021 $m	2020 $m
Quoted equities	4,373.7	3,307.6
Bonds	1,431.8	1,865.5
Alternative investments	1,478.0	1,188.9
Total	7,283.5	6,362.0

7. Other receivables

	2021 $m	2020 $m
Group
Accrued interest	21.5	26.2
Other debtors	41.6	36.7
Total	63.1	62.9
Company
Other debtors	315.0	267.9
Total	315.0	267.9

8. Finance costs

	2021 $m	2020 $m
Interest on lease liabilities	7.2	8.2
Interest on subordinated debt	18.5	17.8
Interest on borrowings	13.2	14.2
Total	38.9	40.2

9. Income tax

	2021 $m	2020 $m
Group
Current tax	49.0	(1.0)
Deferred tax (charge)/credit	11.5	5.3
Total	60.5	4.3
Company
Current tax	(37.2)	(47.9)
Deferred tax (charge)/credit	–	–
Total	(37.2)	(47.9)

10. Earnings per share

The calculation of earnings per share is based on the profit for the year attributable to equity shareholders and the weighted average number of ordinary shares in issue.

	2021	2020
Profit/(loss) for the year ($m)
Attributable to equity shareholders	308.7	(46.1)
Weighted average number of ordinary shares (millions)
Basic	606.8	576.8
Diluted	614.6	576.8
Earnings/(loss) per share (cents)
Basic	50.9	(8.0)
Diluted	50.3	(8.0)

11. Insurance liabilities

	2021 $m	2020 $m
Provision for unearned premiums
Group	1,092.1	727.0
Provision for outstanding claims
Gross	7,779.7	6,651.4
Less: Recoverable from reinsurers	(1,500.9)	(1,048.1)
Net	6,278.8	5,603.3
Total insurance liabilities	7,370.9	6,330.3

12. Intangible assets

	2021 $m	2020 $m
Group
Goodwill	85.6	85.6
Other intangible assets	37.9	40.7
Total	123.5	126.3

13. Plant and equipment

	2021 $m	2020 $m
Group
Cost	36.5	34.4
Accumulated depreciation	(17.3)	(14.7)
Net book value	19.2	19.7

14. Investment in associates

	2021 $m	2020 $m
Group
Share of net assets	0.6	0.3

15. Deferred acquisition costs

	2021 $m	2020 $m
Group
Opening balance	384.9	297.5
Acquired during the year	147.7	127.6
Amortised during the year	(54.8)	(39.2)
Closing balance	477.8	384.9

16. Financial assets and liabilities

	2021 $m	2020 $m
Group
Financial assets
At fair value through profit or loss	7,283.5	6,362.0
At amortised cost	315.4	329.9
Total financial assets	7,598.9	6,691.9
Financial liabilities
At fair value through profit or loss	0.7	0.7
At amortised cost	554.0	557.8
Total financial liabilities	554.7	558.5

17. Financial assets at fair value

	2021 $m	2020 $m
Group
Quoted equities	4,373.7	3,307.6
Bonds	1,431.8	1,865.5
Alternative investments	1,478.0	1,188.9
Total	7,283.5	6,362.0

18. Insurance receivables

	2021 $m	2020 $m
Group
Premiums receivable	1,150.0	954.0
Recoverable from reinsurers	546.1	513.9
Total	1,696.1	1,467.9

19. Reinsurance assets

	2021 $m	2020 $m
Group
Recoverable from reinsurers on paid claims	1,036.4	688.1
Recoverable from reinsurers on outstanding claims	1,350.0	996.6
Total	2,386.4	1,684.7

20. Cash and cash equivalents

	2021 $m	2020 $m
Group
Cash at bank and in hand	591.8	309.5
Total	591.8	309.5
Company
Cash at bank and in hand	0.3	0.9
Total	0.3	0.9

21. Share capital

	2021	2020
Group and Company
Ordinary shares of £0.10 each
Number of shares (millions)	609.0	576.8
Issued capital	60.9	57.7

During 2020, the Group raised $292.6m through a share issuance via a cash box structure. Merger relief under the Companies Act 2006, section 612 was available, and thus no share premium was recognised. As the redemption of the cash box entity’s shares was in the form of cash, the transaction was treated as qualifying consideration and the premium is therefore considered to be immediately distributable and can be recognised within retained earnings. The funds raised are net of issuance costs.

22. Equity settled share based payments

	2021 $m	2020 $m
Group
Expense recognised in the year	11.0	2.8
Company
Expense recognised in the year	11.0	2.8

23. Other reserves

	2021 $m	2020 $m
Group
Merger reserve	(97.2)	(91.3)
Other reserves	(4.0)	(9.4)
Total	(101.2)	(100.7)

24. Insurance and reinsurance liabilities

	2021 $m	2020 $m
Group
Provision for unearned premiums	1,092.1	727.0
Provision for outstanding claims	7,779.7	6,651.4
Total	8,871.8	7,378.4

25. Financial liabilities

	2021 $m	2020 $m
Group
Borrowings	200.0	200.0
Subordinated debt	300.0	300.0
Lease liabilities	84.3	90.1
Total	584.3	590.1

26. Other payables

	2021 $m	2020 $m
Group
Trade payables	745.7	484.9
Accrued expenses	395.6	249.0
Total	1,141.3	733.9
Company
Trade payables	–	–
Accrued expenses	0.7	3.8
Total	0.7	3.8

27. Retirement benefit asset

	2021 $m	2020 $m
Group
Fair value of plan assets	67.2	65.3
Present value of defined benefit obligations	(49.1)	(60.5)
Net retirement benefit asset	18.1	4.8

28. Deferred tax

	2021 $m	2020 $m
Group
Deferred tax asset	16.3	26.8
Deferred tax liability	–	0.6
Net deferred tax asset	16.3	26.2

29. Lease liabilities

	2021 $m	2020 $m
Group
Current lease liabilities	12.5	14.3
Non-current lease liabilities	71.8	75.8
Total	84.3	90.1

30. Related party transactions

The Group has the following related party transactions:

Key management personnel
The remuneration of directors and other key management personnel for the year ended 31 December 2021 was as follows:

	2021 $m	2020 $m
Salaries and other short-term employee benefits	16.1	14.5
Post-employment benefits	1.4	1.3
Total	17.5	15.8

Dividends paid
Dividends paid to shareholders in the year ended 31 December 2021 amounted to $50.2m (2020: $50.2m).

31. Investment in subsidiaries

The following is a list of the principal subsidiaries of Beazley plc as at 31 December 2021:

Name of subsidiary	Country of incorporation	Proportion of ownership interest
Beazley Holdings Ltd	United Kingdom	100%
Beazley Insurance Company Inc.	United States	100%
Beazley Re (Luxembourg) S.A.	Luxembourg	100%
Beazley Specialty Insurance Company	United States	100%
Beazley P&C Insurance Company Inc.	United States	100%
Beazley Overseas Ltd	Bermuda	100%

32. Subsequent events

There were no significant events occurring after the reporting date which would require adjustment to the financial statements.

33. Capital management

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders, by pricing insurance and investment products appropriately for the risk accepted and by maintaining a strong credit rating and cost of capital.

The Group monitors capital using a regulatory capital ratio. The Group's regulatory capital is determined in accordance with Solvency II regulations. The Group aims to maintain a Solvency II ratio of at least 150%.

The Group also monitors its equity in relation to its risk-weighted assets.

34. Financial risk management

The Group is exposed to various financial risks, including market risk, credit risk and liquidity risk. These risks are managed by the Group's Treasury department in accordance with policies approved by the Board of Directors.

a) Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. The Group's market risk arises from interest rate risk, foreign exchange risk and equity price risk.

Interest rate risk

Interest rate risk is the risk that the value of financial instruments will fluctuate as a result of changes in interest rates. The Group is exposed to interest rate risk on its fixed income investments. The Group manages this risk by diversifying its fixed income portfolio across different maturities and issuers.

Foreign exchange risk

Foreign exchange risk is the risk that the value of financial instruments will fluctuate as a result of changes in exchange rates. The Group is exposed to foreign exchange risk on its investments denominated in currencies other than Sterling. The Group manages this risk by hedging its foreign currency exposures.

Equity price risk

Equity price risk is the risk that the value of financial instruments will fluctuate as a result of changes in equity prices. The Group is exposed to equity price risk on its equity investments. The Group manages this risk by diversifying its equity portfolio across different sectors and geographies.

b) Credit risk

Credit risk is the risk that a counterparty will default on its contractual obligations, resulting in financial loss to the Group. The Group is exposed to credit risk on its investments, reinsurance recoverables and insurance receivables.

The Group manages its credit risk by setting limits on its exposure to individual counterparties and by diversifying its investments. The Group also seeks to obtain collateral or guarantees where appropriate.

c) Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group manages its liquidity risk by maintaining sufficient cash and cash equivalents and by having access to committed credit facilities.

The Group's liquidity is managed by the Treasury department, which monitors cash flows and ensures that the Group has sufficient liquidity to meet its obligations.

35. Contingent liabilities

As at 31 December 2021, the Group had no significant contingent liabilities.

36. Events after the reporting period

There have been no significant events after the reporting period that would require adjustment to these financial statements.

Glossary

ACV - Actual cash value
AGM - Annual General Meeting
AI - Artificial intelligence
Amortisation - The process of spreading the cost of an intangible asset over its useful life.
AR - Accounts receivable
ARPU - Average revenue per user
ASC - Accounting Standards Codification
Asset - A resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.
Asset-backed security - A type of financial asset that is backed by a loan, such as a mortgage or auto loan.
Audit - An independent examination of financial records.
Bail-in - A resolution tool that allows authorities to impose losses on shareholders and creditors of a financial institution to recapitalise it.
Balance sheet - A financial statement that reports a company's assets, liabilities, and shareholders' equity at a specific point in time.
Basis point - One-hundredth of a percentage point (0.01%).
Bear market - A period of declining stock prices.
Bermuda Form - A type of liability insurance that provides coverage for catastrophic losses.
Best Execution - The duty of a broker or dealer to obtain the most favourable terms reasonably available under the circumstances for a customer's transaction.
Beta - A measure of a stock's volatility in relation to the overall market.
Bid-ask spread - The difference between the price at which a dealer is willing to buy a security and the price at which a dealer is willing to sell it.
Big data - Extremely large data sets that may be analysed computationally to reveal patterns, trends, and associations, especially relating to human behaviour and interactions.
BI - Business intelligence
Board of Directors - A group of individuals elected by shareholders to oversee the management of a company.
Bond - A debt instrument issued by a company or government to raise capital.
Book value - The value of a company's assets minus its liabilities.
Book-to-bill ratio - A measure of demand for a company's products.
Borrowing cost - The cost incurred by a company for the use of borrowed funds.
Break-even point - The point at which total revenue equals total costs.
Broker - An individual or firm that acts as an intermediary between buyers and sellers.
Brokerage - A firm that provides brokerage services.
BT - Business transformation
Budget - A financial plan for a future period.
Bull market - A period of rising stock prices.
Burden of proof - The obligation to prove a disputed assertion or charge.
Business continuity plan - A plan to help an organisation continue to operate during and after a disaster.
Business development - Activities that are undertaken to help a business grow.
Business process management - A discipline involving any combination of modelling, automation, execution, control, measurement and optimisation of business-driven, cross-functional, and information-based activities.
Business process outsourcing - The practice of hiring a company in another country to perform business activities that were traditionally performed in-house by the company itself.
Business risk - The risk that a company will not be able to meet its financial obligations.
C-suite - The top executive team of a company.
CAGR - Compound annual growth rate
Call option - A contract that gives the holder the right, but not the obligation, to buy an asset at a specified price before a certain date.
Capital - The money or assets that a business uses to operate.
Capital asset pricing model (CAPM) - A model that relates the expected return of a security to its systematic risk.
Capital expenditure - Money spent on acquiring or improving fixed assets.
Capital gain - The profit made from selling an asset for more than its purchase price.
Capitalisation - The total value of a company's shares and debt.
Capital lease - A lease that is accounted for as if the lessee had purchased the asset.
Capital markets - Markets where securities are traded.
Capital ratio - A measure of a company's financial strength.
Captive insurance - Insurance coverage provided by a subsidiary of a company.
CAR - Capital adequacy ratio
Carve-out - The sale of a subsidiary or division of a company.
Cash conversion cycle - The length of time it takes for a company to convert its investments in inventory and other resources into cash flows from sales.
Cash flow - The movement of money into and out of a business.
Cash flow statement - A financial statement that reports the cash generated and used by a company during a period.
Cash reserves - Funds set aside by a company for unforeseen expenses.
CASL - Comprehensive Anti-Apartheid Act
CAT - Catastrophe
Ceding company - The company that transfers risk to a reinsurer.
Central bank - A country's main monetary authority.
CFC - Controlled foreign corporation
CFRA - Credit rating agency
CHART - Computer-assisted rapid transfer
CIBIL - Credit Information Bureau (India) Limited
CIRR - Commercial interest reference rate
Claim - A demand for payment under an insurance policy.
Claimant - A person who makes a claim.
Class action lawsuit - A lawsuit filed by a group of people with similar claims.
Clean price - The price of a bond excluding accrued interest.
CLO - Collateralised loan obligation
CMA - Competition and Markets Authority
CML - Capital market line
Co-insurance - A provision in an insurance policy that requires the policyholder to share a portion of the losses.
Collateral - An asset that is pledged as security for a loan.
Collateralised debt obligation (CDO) - A type of structured asset-backed security that pools together various debt instruments and sells them to investors.
Commercial paper - A short-term, unsecured debt instrument issued by corporations.
Commission - A fee paid to an agent or broker for services rendered.
Commodity - A raw material or agricultural product that can be bought and sold.
Common stock - A type of stock that represents ownership in a company.
Company Act 2006 - An Act of the Parliament of the United Kingdom that consolidates and amends the law relating to companies.
Company's Act - Legislation governing the formation, operation, and dissolution of companies.
Company's Articles of Association - A document that sets out the internal regulations of a company.
Company's Memorandum of Association - A document that sets out the objects and powers of a company.
Compliance - The act of adhering to rules, regulations, and standards.
Compliance risk - The risk of legal or regulatory sanctions resulting from failure to comply with laws, regulations, and codes of conduct.
Comprehensive income - The sum of net income and other comprehensive income.
Concentration risk - The risk of loss arising from a concentration of investments in a particular asset class, industry, or geographical region.
Conditional sale - A sale where the buyer pays for the goods in installments, and ownership is transferred only after the final payment.
Confidentiality agreement - A legal agreement that protects sensitive information.
Conglomerate - A company that is made up of a number of different companies.
Conning & Company - A financial services firm.
Consequential loss - A loss that results indirectly from an event.
Consideration - Something of value exchanged between parties in a contract.
Consolidated financial statements - Financial statements that combine the financial information of a parent company and its subsidiaries.
Constant maturity treasury (CMT) - A benchmark interest rate for Treasury securities of a specific maturity.
Consul - An official appointed by a government to represent its interests in a foreign country.
Consumer Price Index (CPI) - A measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.
Contingent liability - A potential obligation that may arise depending on the outcome of a future event.
Contract for difference (CFD) - A derivative contract that allows investors to speculate on the future price of an asset.
Contractual maturity - The date on which a debt instrument is due to be repaid.
Controllable costs - Costs that a manager can influence or control.
Control - The power to govern or direct.
Convertible bond - A bond that can be converted into shares of stock.
Convertible security - A security that can be converted into another type of security.
Cooperative - An organization owned and operated by its members.
Core capital - The highest quality capital of a financial institution, typically common equity and disclosed reserves.
Corporate governance - The system of rules, practices, and processes by which a company is directed and controlled.
Corporate social responsibility (CSR) - A business approach that contributes to sustainable development by delivering economic, social and environmental benefits for all stakeholders.
Correlation - A statistical measure of the relationship between two variables.
Cost accounting - The process of tracking and analysing the costs of producing goods or services.
Cost-benefit analysis - A systematic approach to estimating the strengths and weaknesses of alternatives.
Cost of capital - The rate of return a company must earn on its investments to satisfy its investors.
Cost of goods sold (COGS) - The direct costs attributable to the production of the goods sold by a company.
Cost of living adjustment (COLA) - An increase in benefits or wages to keep pace with inflation.
Covenant - An agreement or promise.
Counterparty risk - The risk that the other party in a transaction will default on its obligations.
Covered call - A strategy in which an investor holds a stock and sells call options on that stock.
CPA - Certified Public Accountant
CPFF - Coronavirus Capital Projects Fund
CPI - Consumer Price Index
CRA - Credit rating agency
Cramdown - A court-imposed reorganization plan in a bankruptcy proceeding.
Credit default swap (CDS) - A financial contract that pays out if a borrower defaults on a loan.
Credit enhancement - A mechanism to improve the credit quality of a debt instrument.
Credit rating - An assessment of the creditworthiness of a borrower.
Credit risk - The risk of loss due to a borrower's failure to repay a loan or meet other contractual obligations.
Credit spread - The difference in yield between two debt instruments of similar maturity but different credit quality.
Credit union - A member-owned financial cooperative.
Creditworthiness - The likelihood that a borrower will repay a loan.
Cross-border leasing - Leasing arrangements between parties in different countries.
Cross-currency swap - An agreement to exchange principal and interest payments in one currency for principal and interest payments in another currency.
Crummey power - A provision in a trust that allows a beneficiary to withdraw a portion of the trust assets.
CRV - Contingent retirement value
CSOP - China Southern Power Grid
CTA - Commodity Trading Advisor
CTF - Counter-Terrorism Financing
CTP - Corporate travel
CTR - Currency transaction report
CUSIP - Committee on Uniform Security Identification Procedures
Customer lifetime value (CLV) - The total worth of a business associate to a company over the whole period of their relationship.
Cyber risk - The risk of financial loss resulting from a cyber-attack.
Cycled assets - Assets whose value fluctuates with the business cycle.
DAA - Directly Admitted Asset
DAC - Deferred acquisition costs
DaimlerChrysler - A former automotive company.
Danish FSA - Danish Financial Supervisory Authority
Danish Tax Agency - The tax authority in Denmark.
DAP - Delivery at place
DART - Delaware Acquisition and Reorganisation Trust
DBS - Direct broadcast satellite
DCF - Discounted cash flow
DCR - Debt coverage ratio
DD - Due diligence
DDA - Demand deposit account
DDIC - Deposit insurance
DE - Delaware
Dealers' Spread - The difference between the price at which a dealer is willing to buy a security and the price at which a dealer is willing to sell it.
Debenture - A type of long-term debt instrument.
Debit card - A card that allows the holder to make purchases using funds from their bank account.
Debt - Money owed by one party to another.
Debt-equity ratio - A financial ratio that indicates the proportion of a company's financing that comes from debt versus equity.
Debt financing - Raising capital by borrowing money.
Debt-to-income ratio (DTI) - A measure of the percentage of your gross monthly income that goes toward paying your monthly debt payments.
Debt-to-asset ratio - A financial ratio that indicates the proportion of a company's assets that are financed by debt.
Decentralised finance (DeFi) - Financial services built on blockchain technology.
Deductible - The amount of money an insurance policyholder must pay out-of-pocket before the insurance company pays for a claim.
Deductible clause - A provision in an insurance policy that specifies the amount of the deductible.
De facto control - Control that exists in fact, even if not legally established.
Defeasance - A method of removing debt from a company's balance sheet.
Deferred acquisition costs (DAC) - Costs incurred in the acquisition of insurance contracts that are capitalized and amortized over the life of the contracts.
Deferred asset - An asset that is expected to be realized in the future.
Deferred compensation - Compensation that is paid at a later date.
Deferred dividend - A dividend that is paid at a later date.
Deferred expense - An expense that is paid in advance and will be recognized in future periods.
Deferred fee - A fee that is paid at a later date.
Deferred income - Income that is received in advance and will be recognized in future periods.
Deferred liability - A liability that is expected to be settled in the future.
Deferred tax asset - An asset that arises from deductible temporary differences or tax losses that can be carried forward.
Deferred tax credit - A reduction in income tax expense resulting from deferred tax assets.
Deferred tax expense - An increase in income tax expense resulting from deferred tax liabilities.
Deferred tax liability - A liability that arises from taxable temporary differences.
Deficiency notice - A notice issued by a regulatory agency indicating that a company has violated certain regulations.
Defined benefit plan - A pension plan that provides a specific retirement benefit to employees.
Defined contribution plan - A retirement plan in which the employer contributes a specific amount to the employee's account.
Deflation - A general decline in prices.
Delisting - The removal of a security from a stock exchange.
Delta - A measure of the sensitivity of an option's price to changes in the price of the underlying asset.
Demand deposit - A bank account that allows the depositor to withdraw funds at any time without prior notice.
Demand for money - The amount of money that individuals and businesses want to hold.
Demerger - The separation of a company into two or more independent companies.
Demographics - The statistical data of a population, especially those showing averageChanges in population.
Depletion - The exhaustion of natural resources.
Deposit insurance - Insurance that protects depositors against the loss of their deposits in the event of a bank failure.
Depreciable base - The cost of an asset minus its salvage value.
Depreciable life - The number of years over which an asset is depreciated.
Depreciation - The systematic allocation of the cost of a tangible asset over its useful life.
Depression - A prolonged period of economic decline.
Derivative - A financial contract whose value is derived from an underlying asset.
Deregulation - The removal or reduction of government regulations.
Devaluation - A reduction in the value of a country's currency in terms of other currencies.
Developed market - A country with a highly developed economy.
Development capital - Funds used to finance the development of new products or services.
Devise - To plan or invent.
Direct financing lease - A lease that is accounted for as if the lessee had purchased the asset.
Direct investment - An investment in a company or business that gives the investor a significant degree of influence or control.
Direct marketing - Marketing that communicates directly with target customers.
Direct method - A method of preparing the cash flow statement that shows the gross cash receipts and gross cash payments.
Direct premium - A premium paid directly to an insurer.
Direct underwriting - The process by which an insurer assumes risk directly from a policyholder.
Disbursement - The act of paying out money.
Disclosed reserves - Reserves that are disclosed in a company's financial statements.
Discontinued operations - Business activities that a company has decided to sell or cease.
Discount - The amount by which the price of a security is below its face value.
Discount bond - A bond that sells for less than its face value.
Discount rate - The interest rate used to discount future cash flows to their present value.
Discounting - The process of calculating the present value of future cash flows.
Discretionary spending - Spending that is not essential.
Disintermediation - The removal of intermediaries in a transaction.
Diversification - The practice of spreading investments among different asset classes.
Dividend - A distribution of a portion of a company's earnings to its shareholders.
Dividend payout ratio - The percentage of earnings that a company pays out as dividends.
Dividend reinvestment plan (DRIP) - A plan that allows shareholders to reinvest their dividends to purchase additional shares of stock.
Dodd-Frank Wall Street Reform and Consumer Protection Act - A landmark piece of federal legislation that overhauled the regulation of the U.S. financial system.
Dollar-cost averaging - A strategy of investing a fixed amount of money at regular intervals, regardless of market conditions.
Domestic market - The market within a country.
Dominant position - A market share that allows a company to prevent effective competition.
Downturn - A period of economic decline.
DRIP - Dividend reinvestment plan
DTA - Deferred tax asset
DTL - Deferred tax liability
Due diligence - The process of investigating a company or investment before making a decision.
Durable goods - Goods that are intended to last for a long time.
Dutch auction - An auction in which the price of the item being sold is progressively lowered until a bidder accepts it.
EBIT - Earnings before interest and taxes
EBITDA - Earnings before interest, taxes, depreciation, and amortization
ECB - European Central Bank
ECL - Expected credit loss
E-commerce - The buying and selling of goods and services over the internet.
Economic cycle - The recurring pattern of expansion and contraction in an economy.
Economic growth - An increase in the amount of goods and services produced per head of the population over time.
Economic risk - The risk of loss due to changes in the economic environment.
ECP - European commercial paper
ECSA - Energy Council of South Africa
EDGAR - Electronic Data Gathering, Analysis, and Retrieval system
EDI - Electronic data interchange
EEA - European Economic Area
EEGS - East European Gas Supply
EEO - Equal Employment Opportunity
EESC - Economic and Social Committee
Effective interest rate - The actual rate of interest paid on a loan or earned on an investment.
EFP - Exchange for physical
EFR - European financial report
EFT - Electronic funds transfer
EGM - Extraordinary General Meeting
EIA - Energy Information Administration
EIS - Enterprise Investment Scheme
EITF - Emerging Issues Task Force
EKC - Environmental Kuznets curve
ELA - Emergency liquidity assistance
Elected director - A director chosen by shareholders.
Elective dividend - A dividend that shareholders can choose to receive in cash or stock.
Electronic banking - Banking services provided through electronic channels.
Electronic commerce - The buying and selling of goods and services over the internet.
Electronic data interchange (EDI) - The electronic exchange of business documents between companies.
Electronic fund transfer (EFT) - The electronic transfer of funds between bank accounts.
Eligible liabilities - Liabilities that are eligible for deposit insurance.
ELTIF - European long-term investment fund
EM - Emerging market
Embargo - A ban on trade with a particular country.
Embedded option - An option that is part of another financial instrument.
Emerge - To become known or apparent.
Emerging market - A country with a developing economy.
Emerging market debt - Debt issued by companies or governments in emerging markets.
Emerging market equity - Equities issued by companies in emerging markets.
Eminent domain - The power of the government to take private property for public use.
EMS - European Monetary System
EMU - Economic and Monetary Union
Encumbrance - A claim or liability on property.
Endowment fund - A fund established for charitable or educational purposes.
Endorsement - A signature on the back of a negotiable instrument to transfer ownership.
Enforcement Action - Legal action taken by a regulatory agency to enforce compliance with laws or regulations.
Engagement - A commitment to participate or be involved.
Enhanced Annuity - An annuity that includes additional benefits, such as a guaranteed minimum death benefit.
Enterprise Resource Planning (ERP) - A system that integrates various business processes.
Entity - A business or organization.
Entity-level risk - Risk that affects the entire entity.
EOI - Expression of interest
EOM - End of month
EONIA - Euro overnight index average
EOY - End of year
EPH - Earnings per share
EPP - Equity participation plan
EPS - Earnings per share
EPUT - Earnings per unit of time
Equalisation payment - A payment made to equalize the return on investments.
Equilibrium - A state of balance.
Equity - Ownership interest in a company.
Equity derivative - A derivative whose value is linked to the performance of an underlying equity security.
Equity financing - Raising capital by selling shares of stock.
Equity index - A measure of the performance of a stock market index.
Equity options - Options that give the holder the right to buy or sell shares of stock.
Equity premium - The excess return that investors expect to receive for investing in stocks compared to risk-free assets.
Equity ratio - The proportion of a company's assets financed by equity.
Equity research - The analysis of companies and industries to provide investment recommendations.
Equity security - A security that represents ownership in a company.
Equity swap - An agreement to exchange cash flows based on the performance of an equity index or stock.
ERISA - Employee Retirement Income Security Act
ERP - Enterprise resource planning
ERTA - Economic Recovery Tax Act
ES - European standards
ESB - Enterprise service bus
ESG - Environmental, social, and governance
ESOP - Employee stock ownership plan
ESOPs - Employee stock ownership plans
ESP - Employee stock purchase
ESPP - Employee Stock Purchase Plan
ESR - Electronic Safe Registration
ESS - Employee Share Scheme
ET - Equity tranche
ETB - Exchange-traded bond
ETCF - European Trade Credit Facility
ETD - Exchange-traded derivative
ETFA - Emerging Markets Trade Finance Association
ETF - Exchange-traded fund
ETI - Emerging market trade finance
ETP - Exchange-traded product
EU - European Union
EUC - End-user computing
EUREP - European Retail Partners
Eurobond - A bond issued in a currency other than that of the country in which it is issued.
Eurocurrency - A currency held in a bank in a country different from the country in which the currency is issued.
Eurodollar - U.S. dollars held in banks outside the United States.
Euromarket - The international market for financial instruments denominated in a currency other than that of the country in which the market is located.
European Central Bank (ECB) - The central bank of the Eurozone.
European Economic Area (EEA) - An area that comprises the member states of the European Union plus Iceland, Liechtenstein, and Norway.
European Investment Bank (EIB) - A public
The financial statements were approved by the Board of Directors on 9 February 2022 and were signed on its behalf by:

D L Roberts
Chair

S M Lake
Group Finance Director

9 February 2022

135
www.beazley.com

Beazley | Annual report 2021

Financial statements

Statements of cash flows for the year ended 31 December 2021

	2021	2021	2020	2020
	Group $m	Company $m	Group $m	Company $m
Cash flow from operating activities
Profit/(loss) before income tax	369.2	36.4	(50.4)	46.1
Adjustments for:
Amortisation of intangibles	20.5	–	16.7	–
Equity settled share based compensation	11.0	11.0	2.8	2.8
Net fair value gain on financial assets	(45.8)	–	(83.0)	–
Depreciation of plant and equipment	4.9	–	3.2	–
Depreciation of right of use assets	15.0	–	13.0	–
(Write back)/impairment of reinsurance assets recognised	(3.3)	–	1.1	–
Increase/(decrease) in insurance and other payables	1,900.8	(3.1)	1,486.9	(12.5)
(Increase) in insurance, reinsurance and other receivables	(950.1)	(47.1)	(782.1)	(268.7)
(Increase) in deferred acquisition costs	(92.9)	–	(34.2)	–
Financial income	(76.5)	(40.0)	(110.9)	(55.5)
Financial expense	38.9	3.6	40.2	5.6
Income tax paid	(22.2)	–	(26.5)	–
Net cash from/(used in) operating activities	1,169.5	(39.2)	476.8	(282.2)
Cash flow from investing activities
Purchase of plant and equipment	(4.5)	–	(12.9)	–
Expenditure on software development	(17.7)	–	(20.5)	–
Purchase of investments	(7,979.1)	–	(6,126.6)	–
Proceeds from sale of investments	7,037.1	–	5,443.8	–
Proceeds from sale of business	54.4	–	–	–
Interest and dividends received	70.6	40.0	104.3	55.5
Net cash (used in)/from investing activities	(839.2)	40.0	(611.9)	55.5
Cash flow from financing activities
Acquisition of own shares in trust	–	–	(13.6)	(13.6)
Payment of lease liabilities	(12.8)	–	(15.3)	–
Equity raise	–	–	292.6	292.6
Finance costs	(35.2)	(3.6)	(37.8)	(5.6)
Issuance of shares	–	–	2.1	2.1
Dividend paid	–	–	(50.2)	(50.2)
Net cash (used in)/from financing activities	(48.0)	(3.6)	177.8	225.3
Net increase/(decrease) in cash and cash equivalents	282.3	(2.8)	42.7	(1.4)
Cash and cash equivalents at beginning of year	309.5	0.9	278.5	–
Effect of exchange rate changes on cash and cash equivalents	–	2.2	(11.7)	2.3
Cash and cash equivalents at end of year	591.8	0.3	309.5	0.9

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Notes to the financial statements

1 Statement of accounting policies

Beazley plc (registered number 09763575) is a company incorporated in England and Wales and is resident for tax purposes in the United Kingdom. The company’s registered address is 22 Bishopsgate, London, EC2N 4BQ, United Kingdom. The principal activity of the company and its subsidiaries (the ‘Group’) is to participate as a specialist insurer which transacts primarily in commercial lines of business through its subsidiaries and through Lloyd’s syndicates. The Group financial statements for the year ended 31 December 2021 comprise the parent company, its subsidiaries and the Group’s interest in associates. The financial statements of the parent company, Beazley plc, and the Group financial statements have been prepared and approved by the directors in accordance with UK adopted International Financial Reporting Standards (IFRS) and requirements of the Companies Act 2006. On publishing the parent company financial statements together with the Group financial statements, the company is taking advantage of the exemption in s408 of the Companies Act 2006 not to present its individual statement of profit or loss and related notes that form a part of these approved financial statements.

In the current year, the Group have applied amendments to IFRS issued by the International Accounting Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after 1 January 2021. The new effective amendments are:

Interest Rate Benchmark Reform (IBOR) – Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) (effective date: 1 January 2021); and
IFRS 16: COVID-19-Related Rent concessions (2021).

None of the amendments issued by the IASB have had a material impact to the Group.

A number of new standards and interpretations adopted by the UK Endorsement Board (UKEB) which are not mandatorily effective, as well as standards and interpretations issued by the IASB but not yet adopted by the UKEB, have not been applied in preparing these financial statements. The Group does not plan to adopt these standards early; instead it expects to apply them from their effective dates as determined by their dates of UKEB endorsement. The Group is still reviewing the upcoming standards to determine their impact:

IFRS 9: Financial Instruments (UKEB effective date: 1 January 2018, deferred in line with implementation of IFRS 17);
IFRS 9: Amendment: Prepayment Features with Negative Compensation (UKEB effective date: 1 January 2019, deferred in line with implementation of IFRS 17);
IFRS 17: Insurance Contracts (IASB effective date: 1 January 2023); and
IFRS 10 and IAS 28: Amendment: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (IASB effective date: optional).

¹ Have not been endorsed by UKEB.

Of the upcoming accounting standard changes that we are aware of, we anticipate that IFRS 17 and IFRS 9 will have the most material impact on the financial statements’ presentation and disclosures. The accounting developments and implementation timelines of IFRS 17 and IFRS 9 are being closely monitored and the impacts of the standards themselves are being assessed and prepared for. A brief overview of each of these standards is provided below:

IFRS 17 will change the way insurance contracts are accounted for and reported. On initial assessment the major change will be on the presentation of the statement of profit or loss, with premium and claims figures being replaced with insurance contract revenue, insurance service expense and insurance finance income and expense. Revenue will no longer be equal to premiums earned but instead reflect a change in the contract liability on which consideration is expected. The impact of the new standard is still being fully assessed but current indications are that the timing of profit recognition will be altered. Any change in profit recognition on transition to IFRS 17 will result in a one off transaction being reflected in equity. The Group are currently assessing the impact of IFRS 17 on several areas such as reserving strategy, operating model and data. The Group are also intending to start to review their reserve margin using IFRS 17 concepts such as confidence level rather than the current concept of holding reserves within a range above the actuarial estimates.

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Notes to the financial statements continued

1 Statement of accounting policies continued

During 2021, the Group continued to undertake a number of tasks in preparation for IFRS 17. These tasks included:

concluding on writing and presenting technical papers to governance committees of how the standard will be applied;
sourcing and landing the remaining data required for IFRS 17;
developing a calculation engine to allow the population of IFRS 17 results;
begin the recruitment of IFRS 17 target operating model resources; and
develop the working day timetable, control framework, target operating model and additional processes required to allow the effective operation of IFRS 17.

Currently the project to implement IFRS 17 and IFRS 9 has made good progress during 2021. As was stated in the 2017 annual report, the Group chose to apply the temporary exemption permitted by IFRS 4 from applying IFRS 9: Financial Instruments. The Group qualifies for this exemption because, as at 31 December 2015, $5,040.7m or 95% of its total liabilities were connected with insurance. There has been no material change in the Group’s activities since 31 December 2015, therefore the exemption still remains. The Group has also disclosed information in relation to specific types of financial instruments to ensure the comparability with the entities applying IFRS 9. As such, fair values are disclosed separately for the Group’s financial assets which are managed and evaluated on a fair value basis and those which meet the solely payments of principal and interest (SPPI) test under IFRS 9. Beazley plc as a standalone company adopted IFRS 9 from 1 January 2018. However, as the standalone company has no financial investments the adoption had an immaterial impact on its financial statements.

Below is a table outlining the fair value of assets which are managed and evaluated on a fair value basis and those which meet the SPPI test under IFRS 9. The information on credit exposures can be found in note 2 to the financial statements on page 160. The Group have made the decision not to restate prior year comparatives on adoption of IFRS 9, nor apply the overlay approach.

On 25 June 2020, the International Accounting Standards Board (IASB) issued amendments to IFRS 17 Insurance Contracts, which included the deferral of the effective date of IFRS 17 and IFRS 9 (for qualifying insurers) to 1 January 2023.

Financial assets managed and evaluated on a fair value basis

	2021 $m	2020 $m
Fixed and floating rate debt securities:
– Government issued	4,008.1	2,723.7
– Corporate bonds – Investment grade	1,861.9	2,444.9
– High yield	402.3	251.1
Syndicate loans	37.9	40.6
Equity funds	209.6	203.2
Hedge funds	478.2	442.1
Illiquid credit assets	277.9	227.0

Basis of presentation

The Group financial statements are prepared using the historical cost convention, with the exception of financial assets and derivative financial instruments which are stated at their fair value. All amounts presented are in US dollars and millions, unless stated otherwise. In accordance with the requirements of IAS 1 the financial statements’ assets and liabilities have been presented in order of liquidity which provides information that is more reliable and relevant for a financial institution.

Going Concern

The financial statements of Beazley plc have been prepared on a going concern basis. In adopting the going concern basis, the Board has reviewed the Group’s current and forecast solvency and liquidity positions for the next 12 months from the date that the financial statements are authorised for issue. The Group’s business activities, together with the factors likely to affect its future development, performance, and position, are set out in the Strategic report contained in the Group’s Annual Report & Accounts. In addition, the risk report and financial review includes the Group’s risk management objectives and the Group’s objectives, policies and processes for managing its capital.

In assessing the Group’s going concern position as at 31 December 2021, the Directors have considered a number of factors, including the current statement of financial position, the Group’s strategic and financial plan, taking account of possible changes in trading performance and funding retention, and stress testing and scenario analysis. This included, among other analysis, a best estimate forecast with scenario analysis covering the impact of reserve releases, attritional, large and catastrophe loss events alongside optimistic and pessimistic investment return scenarios. To further stress the financial stability of the Group, additional scenario testing was performed. This included modelling the breakeven capital requirements of our regulators and rating agencies, the impact of potential management actions to reduce the Group’s exposure to climate change-related risks, global events and counterparty credit risk, the occurrence of a number of high severity loss events impacting our underwriting platforms in 2022 and a reverse stress test scenario designed to render the business model unviable. The testing identified that even under the more severe but plausible stress scenarios, the Group had more than adequate liquidity and solvency headroom.

As a result of the assessment, no material uncertainty in relation to going concern has been identified. As at its most recent regulatory submission, the Group’s capital ratios and its total capital resources are comfortably in excess of regulatory solvency requirements, and internal stress testing indicates the Group can withstand severe economic and competitive stresses. Based on the going concern assessment performed, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence over a period of at least 12 months from the date of this report and therefore believe that the Group is well placed to manage its business risks successfully. Accordingly, they continue to adopt the going concern basis in preparing the consolidated financial statements.

Part VII transfer

On 30 December 2020, the Group transferred all relevant policies (and related liabilities) underwritten by the Group’s syndicates to Lloyd’s Insurance Company S.A. (‘Lloyd’s Brussels’), in accordance with Part VII of the Financial Services and Markets Act 2000. On the same date, the Group entered into a 100% Quota Share Reinsurance Agreement whereby Lloyd’s Brussels reinsured all risks on the same policies back to the Group. The purpose of these transactions were to ensure these policies could be serviced after Brexit on the 31 December 2020.

Following the sanction of the scheme by the High Court on 25 November 2020, the scheme took effect on 30 December 2020 and the Group transferred the impacted EEA policies and related liabilities to Lloyd’s Brussels, together with cash of $229.2m. On the same date, under the Reinsurance Agreement, Lloyd’s Brussels reinsured the same risks back, together with an equal amount of cash of $229.2m. The combined effect of the two transactions had no economic impact for the Group, and accordingly there is no impact on the Group’s financial statements.

Use of estimates and judgements

The preparation of financial statements requires the use of certain critical accounting estimates and judgements that affect the reported amounts of assets, liabilities, income and expenses. Actual results may differ from those on which management’s estimates are based. Estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable. Estimates which are sensitive to changes in future economic conditions could be impacted by significant changes in the economic and regulatory environment, such as COVID-19, climate change, US legislation and Brexit. Specific to climate change, since responses to it are still developing, it is not possible to consider all possible future outcomes when determining asset and liability valuations, and timing of future cash flows, as these are not yet known. Nevertheless, the current management view is that reasonably possible changes arising from climate risks would not have a material impact on asset and liability valuations at the year-end date.

a) Estimates

Estimates are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

Provision & claims

The most critical estimate included within the Group’s financial position is the estimate for insurance losses incurred but not reported (IBNR), which is included within total insurance liabilities and reinsurance assets in the statement of financial position and in note 24. This estimate is critical as it outlines the current liability for future expenses expected to be incurred in relation to claims. If this estimation was to prove inadequate then an exposure would arise in future years where a liability has not been provided for.

The total estimate for insurance losses incurred but not reported gross of reinsurers’ share as at 31 December 2021 is $4,711.8m (2020: $3,855.3m). The total estimate for insurance losses incurred but not reported net of reinsurers’ share as at 31 December 2021 is $3,313.8m (2020: $2,820.9m) and is included within total insurance liabilities and reinsurance assets in the statement of financial position and in note 24.

The best estimate of the most likely ultimate outcome is used when calculating notified claims. This estimate is based upon the facts available at the time, in conjunction with the claims manager’s view of likely future developments.

Another critical estimate within insurance liabilities is the estimation of an unexpired risk reserve (URR) for the expected value of net claims and expenses attributable to the unexpired periods of policies in force at the balance sheet date which exceeds the unearned premium reserve. Any deficiency resulting from this liability adequacy test is recognised in the statement of profit and loss and additional liability as required is recognised as URR in the statement of financial position. In 2020, the Group recognised a loss due to this test and established a URR. If this estimation was to prove inadequate, the unexpired risk reserve provision could be understated. As at 31 December 2021 no URR provision has been included on either a gross basis (2020: $91.5m) or net of reinsurance basis (2020: $82.5m).

Financial assets & liabilities

Another critical area of estimation is the Group’s financial assets and liabilities. Information about estimation uncertainty related to the Group’s financial assets and liabilities is described in this statement of accounting policies and note 16: financial assets and liabilities (valuations based on models and unobservable inputs).

Premium estimates

Other critical estimates contained within our close process are premium estimates and the earning pattern of recognising premium over the life of the contract. In the syndicates the premium written is initially based on the estimated premium income (EPI) of each contract. Where premium is sourced through binders, the binder EPI is pro-rated across the binder period. This is done on a straight-line basis unless the underlying writing pattern from the prior period indicates the actual underlying writing pattern is materially different. The underwriters adjust their EPI estimates as the year of account matures. As the year of account closes premiums are adjusted to match the actual signed premium. An accrual for estimated future reinstatement premiums is retained. Premiums are earned on a straight-line basis over the life of each contract. At a portfolio level this is considered to provide a reasonable estimate for the full year of the pattern of risk over the coverage period.

Estimation techniques are necessary to quantify the future premium on all syndicate business written and are commonly used within the Lloyd’s insurance market.

Financial assets

	Dec 2021	Dec 2020
Derivative financial assets	7.6	28.5
Total financial assets managed and evaluated on a fair value basis	7,283.5	6,362.0
Financial assets meeting the SPPI test
Cash and cash equivalents	591.8	309.5
Other receivables	106.7	86.5
Total financial assets meeting the SPPI test	698.5	396.0

Goodwill

Another estimate used by Beazley is based on the key assumptions underlying the recoverable amounts used in assessing the impairment of goodwill. The key assumptions used in the preparation of future cash flows are: premium growth rates, claims experience, discount rates, retention rates and expected future market conditions as per note 12.

Consolidation

a) Subsidiary undertakings

Subsidiary undertakings are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into consideration potential voting rights that are currently exercisable. The acquisition date is the date on which control is transferred to the acquirer. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

The Group has used the acquisition method of accounting for business combinations arising on the purchase of subsidiaries. Under this method, the cost of acquisition is measured as the fair value of assets given, shares issued or liabilities undertaken at the date of acquisition directly attributable to the acquisition. The excess of the cost of an acquisition over the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary acquired is recorded as goodwill.

For all business combinations:
(i) transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination, are expensed as incurred;
(ii) in addition, any consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are recognised in profit or loss; and
(iii) any contingent consideration is measured at fair value at the acquisition date.

Equity financial investments made by the parent company in subsidiary undertakings and associates are stated at cost in its separate financial statements and are reviewed for impairment when events or changes in circumstances indicate the carrying value may be impaired. Certain Group subsidiaries underwrite as corporate members of Lloyd’s on syndicates managed by Beazley Furlonge Limited.

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Financial statements
1 Statement of accounting policies continued

In view of the several and direct liability of underwriting members at Lloyd’s for the transactions of syndicates in which they participate, only attributable shares of transactions, assets and liabilities of those syndicates are included in the Group financial statements. The Group continues to conclude that it remains appropriate to consolidate its share of the result of these syndicates and accordingly, as the Group is the sole provider of capacity on syndicates 2623, 3622 and 3623, these financial statements include 100% of the economic interest in these syndicates. For the following syndicates to which Beazley is appointed managing agent, being syndicates 623, 6107, and 5623, for which the capacity is provided entirely by third parties to the Group, these financial statements reflect Beazley’s economic interest in the form of agency fees and profit commission to which it is entitled.

b) Associates

Associates are those entities over which the Group has power to exert significant influence but which it does not control. Significant influence is generally presumed if the Group has between 20% and 50% of voting rights. Other factors that are considered when determining the existence of significant influence also include:
• representation on the Board of directors or equivalent governing body of the investee;
• participation in the policy-making process including participation in decisions about dividends or other distributions;
• material transactions between the entity and the investee;
• interchange of managerial personnel; or
• provision of essential technical information.

Investments in associates are accounted for using the equity method of accounting. Under this method the investments are initially measured at cost and the Group’s share of post-acquisition profits or losses is recognised in the statement of profit or loss. Therefore the cumulative post-acquisition movements in the associates’ net assets are adjusted against the cost of the investment. When the Group’s share of losses equals or exceeds the carrying amount of the associate, the carrying amount is reduced to nil and recognition for the losses is discontinued except to the extent that the Group has incurred obligations in respect of the associate. Equity accounting is discontinued when the Group no longer has significant influence over the investment.

c) Intercompany balances and transactions

All intercompany transactions, balances and unrealised gains or losses on transactions between Group companies are eliminated in the Group financial statements. Transactions and balances between the Group and associates are not eliminated.

Foreign currency translation

a) Functional and presentational currency

Items included in the financial statements of the parent and the subsidiaries are measured using the currency of the primary economic environment in which the relevant entity operates (the functional currency). The Group financial statements are presented in US dollars, being the functional and presentational currency of the parent and its main trading subsidiaries, as the majority of trading assets and insurance premiums are denominated in US dollars.

b) Transactions and balances

Foreign currency transactions are translated into the functional currency using average exchange rates applicable to the period in which the transactions take place and where the Group considers these to be a reasonable approximation of the transaction rate. Foreign exchange gains and losses resulting from the settlement of such transactions and from translation at the period end of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of profit or loss. Non-monetary items recorded at historical cost in foreign currencies are translated using the exchange rate on the date of the initial transaction.

c) Foreign operations

The results and financial position of the Group companies that have a functional currency different from the Group presentational currency are translated into the presentational currency as follows:
• assets and liabilities are translated at the closing rate as at the statement of financial position date;
• income and expenses for each statement of profit or loss are translated at average exchange rates for the reporting period where this is determined to be a reasonable approximation of the actual transaction rates; and
• all resulting exchange differences are recognised in other comprehensive income and as a separate component of equity.

Notes to the financial statements continued
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1 Statement of accounting policies continued

On disposal of foreign operations, cumulative exchange differences previously recognised in other comprehensive income are recognised in the statement of profit or loss as part of the gain or loss on disposal.

Insurance contracts

Insurance contracts (including inwards reinsurance contracts) are defined as those containing significant insurance risk. Insurance risk is considered significant if, and only if, an insured event could cause Beazley to pay significant additional benefits in any scenario, excluding scenarios that lack commercial substance. Such contracts remain insurance contracts until all rights and obligations are extinguished or expire.

Net earned premiums

a) Premiums

Gross premiums written represent premiums on business commencing in the financial year together with adjustments to premiums written in previous accounting periods and estimates for premiums from contracts entered into during the course of the year. Gross premiums written are stated before deduction of brokerage, taxes, duties levied on premiums and other deductions. For the year ending 31 December 2020, gross premiums written included a one off transfer of business written through the Group syndicates to Lloyd’s Brussels and subsequent inward reinsurance of business from Lloyd’s Brussels to reflect the Part VII transfer. The net impact of this transaction is nil.

b) Unearned premiums

A provision for unearned premiums (gross of reinsurance) represents that part of the gross premiums written that it is estimated will be earned in the following financial periods. It is calculated using the daily pro-rata method, under which the premium is apportioned over the period of risk.# Statement of accounting policies continued

Deferred acquisition costs (DAC)

Acquisition costs comprise brokerage, premium levy and staff-related costs (excluding performance related pay) of the underwriters acquiring new business and renewing existing contracts. The proportion of acquisition costs in respect of unearned premiums is deferred at the reporting date and recognised in later periods when the related premiums are earned.

Claims

These include the cost of claims and claims handling expenses paid during the period, together with the movements in provisions for outstanding claims, claims incurred but not reported (IBNR) and claims handling provisions. The provision for claims comprises amounts set aside for claims advised and IBNR, including claims handling expenses. The IBNR amount is based on estimates calculated using widely accepted actuarial techniques which are reviewed quarterly by the Group actuary and annually by Beazley’s independent syndicate reporting actuary. The techniques generally use projections, based on past experience of the development of claims over time, to form a view on the likely ultimate claims to be experienced. For more recent underwriting years, attention is paid to the variations in the business portfolio accepted and the underlying terms and conditions. Thus, the critical assumptions used when estimating provisions are that past experience is a reasonable predictor of likely future claims development and that the rating and business portfolio assumptions are a fair reflection of the likely level of ultimate claims to be incurred for the more recent years.

Liability adequacy testing

At each reporting date, liability adequacy tests are performed to ensure the adequacy of the claims liabilities net of DAC and unearned premium reserves. In performing these tests, current best estimates of future contractual cash flows, claims handling and administration expenses, and investment income from the assets backing such liabilities are used. Any deficiency is immediately charged to the statement of profit or loss and subsequently by establishing a URR provision for losses arising from liability adequacy tests.

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1 Statement of accounting policies continued

Ceded reinsurance

These are contracts entered into by the Group with reinsurers under which the Group is compensated for losses on contracts issued by the Group that meet the definition of an insurance contract. Insurance contracts entered into by the Group under which the contract holder is another insurer (inwards reinsurance) are included within insurance contracts. Any benefits to which the Group is entitled under its reinsurance contracts held are recognised as reinsurance assets. These assets consist of balances due from reinsurers and include reinsurers’ share of provisions for claims. These balances are based on calculated amounts of outstanding claims and projections for IBNR and URR, net of estimated irrecoverable amounts, having regard to the reinsurance programme in place for the class of business, the claims experience for the period and the current security rating of the reinsurer involved. Reinsurance liabilities are primarily premiums payable for reinsurance contracts and are recognised as an expense when a contract incepts. The Group assesses its reinsurance assets for impairment. If there is objective evidence of impairment, then the carrying amount is reduced to its recoverable amount and the impairment loss is recognised in the statement of profit or loss.

Revenue

Revenue consists of net earned premiums, net investment income and other income (made up of commissions received from Beazley service companies, profit commissions, managing agent’s fees and service fees). Profit commissions are recognised and earned as the performance obligations of the related contracts are met. Commissions received from service companies and managing agent’s fees are recognised as the services are provided, and therefore the performance obligations of the contracts are met.

Dividends paid

Dividend distributions to the shareholders of the Group are recognised in the period in which the dividends are paid, as a first interim dividend, second interim dividend or special dividend. The second interim and special dividends are approved by the Group’s shareholders at the Group’s annual general meeting.

Plant and equipment

All plant and equipment is recorded at cost less accumulated depreciation and any impairment losses. Depreciation is calculated using the straight-line method to allocate the cost of the assets to their residual values over their estimated useful lives as follows:

Fixtures and fittings: Three to ten years
Computer equipment: Three years

These assets’ residual values and useful lives are reviewed at each reporting date and adjusted if appropriate. The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may be impaired. If any such condition exists, the recoverable amount of the asset is estimated in order to determine the extent of impairment and the difference is charged to the statement of profit or loss.

Intangible assets

a) Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the fair value of the identifiable assets, liabilities and contingent liabilities of the acquired subsidiary at the date of acquisition. Goodwill is carried at cost less accumulated impairment losses. Goodwill has an indefinite life and is annually tested for impairment. Goodwill is allocated to each cash-generating unit (CGU, being the Group’s operating segments) for the purpose of impairment testing. Goodwill is impaired when the net carrying amount of the relevant CGU exceeds its recoverable amount, being its value in use. Value in use is defined as the present value of the future cash flows expected to be derived from the CGU. In respect of equity accounted associates, the carrying amount of any goodwill is included in the carrying amount of the associate, and any impairment is allocated to the carrying amount of the associate as a whole.

b) Syndicate capacity

The syndicate capacity represents the cost of purchasing the Group’s participation in the combined syndicates. The capacity is capitalised at cost in the statement of financial position. It has an indefinite useful life and is carried at cost less accumulated impairment. It is annually tested for impairment by reference to the latest auction prices provided by Lloyd’s.

Notes to the financial statements continued
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1 Statement of accounting policies continued

c) Licences

Licences have an indefinite useful life and are initially recorded at fair value. Licenses are allocated to each CGU for the purpose of impairment testing. Licences are annually tested for impairment and provision is made for any impairment when the recoverable amount, being the higher of its value in use and fair value, is less than the carrying value.

d) IT development costs

Costs that are directly associated with the development of identifiable and unique software products and that are anticipated to generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Costs include external consultants’ fees, certain qualifying internal staff costs and other costs incurred to develop software programs. These costs are amortised over their estimated useful life (three years) on a straight-line basis and subject to impairment testing annually. Amortisation commences when the asset becomes operational. Other non-qualifying costs are expensed as incurred.

e) Renewal rights

Renewal rights comprise future profits relating to insurance contracts acquired and the expected renewal of those contracts. The costs directly attributable to acquire the renewal rights are recognised as intangible assets where they can be measured reliably and it is probable that they will be recovered by directly related future profits. These costs are subject to an impairment review annually and are amortised on a straight-line basis, based on the estimated useful life of the assets, which is estimated to be between five and 10 years.

Financial instruments

Financial instruments are recognised in the statement of financial position at such time as the Group becomes a party to the contractual provisions of the financial instrument. Purchases and sales of financial assets are recognised on the trade date, which is the date the Group commits to purchase or sell the asset. A financial asset is derecognised when the contractual rights to receive cash flows from the financial assets expire, or where the financial assets have been transferred, together with substantially all the risks and rewards of ownership. Financial liabilities are derecognised if the Group’s obligations specified in the contract expire, are discharged or are cancelled.

a) Financial assets

On acquisition of a financial asset, the Group is required to classify the asset into one of the following categories: financial assets at fair value through the statement of profit or loss, loans and receivables, assets held to maturity and assets available for sale. The Group does not make use of the held to maturity and available for sale categories.

b) Financial assets at fair value through profit or loss

Except for derivative financial instruments and other financial assets listed in policies (c), (f) and (g) below, all financial assets are designated as fair value through the statement of profit or loss upon initial recognition because they are managed and their performance is evaluated on a fair value basis. Information about these financial assets is provided internally on a fair value basis to the Group’s key management. The Group’s investment strategy is to invest and evaluate their performance with reference to their fair values.# c) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are carried at amortised cost less any impairment losses.

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Financial statements

1 Statement of accounting policies continued

d) Fair value measurement

Fair value is the price at which an orderly transaction to sell an asset or to transfer a liability would take place between market participants at the measurement date. When available, the Group measures the fair value of an instrument using quoted prices in an active market for that instrument. A market is regarded as active if quoted prices are readily and regularly available as well as representing actual and regularly occurring market transactions on an arm’s length basis. If a market for a financial instrument is not active, the Group establishes fair value using a valuation technique. Valuation techniques include using recent orderly transactions between market participants (if available), reference to the current fair value of other instruments that are substantially the same, discounted cash flow analyses and option pricing models. The chosen valuation technique makes maximum use of market inputs, relies as little as possible on estimates specific to the Group, incorporates all factors that market participants would consider in setting a price, and is consistent with accepted economic methodologies for pricing financial instruments. Inputs to valuation techniques reasonably represent market expectations and measures of the risk return factors inherent in the financial instrument. The Group calibrates valuation techniques and tests them for validity using prices from observable current market transactions in the same instrument or based on other available observable market data. Assets and long positions are measured at a bid price; liabilities and short positions are measured at an asking price. These prices are monitored and deemed to approximate exit price. Where the Group has positions with offsetting risks, mid-market prices are used to measure the offsetting risk positions and a bid or asking price adjustment is applied only to the net open position as appropriate. Fair values reflect the credit risk of the instrument and include adjustments to take account of the credit risk of the Group entity and counterparty where appropriate. Fair value estimates obtained from models are adjusted for any other factors, such as liquidity risk or model uncertainties, to the extent that the Group believes a third-party market participant would take them into account in pricing a transaction. The best evidence of the fair value of a financial instrument at initial recognition is the transaction price, i.e. the fair value of the consideration given or received, unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument (i.e. without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets. When the transaction price provides the best evidence of fair value at initial recognition, the financial instrument is initially measured at the transaction price and any difference between this price and the value initially obtained from a valuation model is subsequently recognised in profit or loss depending on the individual facts and circumstances of the transaction but before the valuation is supported wholly by observable market data or the transaction is closed out. Upon initial recognition, attributable transaction costs relating to financial instruments at fair value through profit or loss are recognised in the statement of profit or loss when incurred. Financial assets at fair value through profit or loss are continuously measured at fair value, and changes therein are recognised in the statement of profit or loss. Net changes in the fair value of financial assets at fair value through profit or loss exclude interest and dividend income, as these items are accounted for separately as set out on the next page.

e) Hedge funds, equity funds and illiquid credit assets

The Group invests in a number of hedge funds, equity funds and illiquid credit assets for which there are no available quoted market prices. The valuation of these assets is based on fair value techniques as described above. The fair value of our hedge fund and illiquid asset portfolio is calculated by reference to the underlying net asset values (NAVs) of each of the individual funds. Consideration is also given to adjusting such NAV valuations for any restriction applied to distributions, the existence of side pocket provisions and the timing of the latest available valuations. At certain times, we will have uncalled unfunded commitments in relation to our illiquid credit assets. These uncalled unfunded commitments are actively monitored by the Group and are disclosed in the notes 2 and 16 to the financial statements. The additional investment into our illiquid credit asset portfolio is recognised on the date that this funding is provided by the Group.

f) Insurance receivables and payables

Insurance receivables and payables are recognised when due. These include amounts due to and from agents, brokers and insurance contract holders. Insurance receivables are classified as ‘loans and receivables’ as they are non-derivative financial assets with fixed or determinable payments that are not quoted on an active market. Insurance receivables are measured at amortised cost less any impairment losses. Insurance payables are stated at amortised cost.

Notes to the financial statements continued

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1 Statement of accounting policies continued

g) Other receivables

Other receivables categorised as loans and receivables are carried at amortised cost less any impairment losses.

h) Investment income

Investment income consists of dividends, interest, realised and unrealised gains and losses and foreign exchange gains and losses on financial assets and liabilities at fair value through the statement of profit or loss (as defined in accounting policy e). Dividends on equity securities are recorded as revenue on the ex-dividend date. Interest is recognised on an effective rate basis for financial assets at fair value through the statement of profit or loss. The realised gains or losses on disposal of an investment are the difference between the proceeds and the original cost of the investment. Unrealised investment gains and losses represent the difference between the carrying value at the reporting date, and the carrying value at the previous period end or purchase value during the period.

i) Borrowings

Borrowings are initially recorded at fair value less transaction costs incurred. Subsequently borrowings are stated at amortised cost and interest is recognised in the statement of profit or loss over the period of the borrowings using the effective interest method. Finance costs comprise interest, fees paid for the arrangement of debt and letter of credit facilities, and commissions charged for the utilisation of letters of credit. These costs are recognised in the statement of profit or loss using the effective interest method. In addition, finance costs include gains on the early redemption of the Group’s borrowings. These gains are recognised in the statement of profit or loss, being the difference between proceeds paid plus related costs and the carrying value of the borrowings redeemed.

j) Other payables

Other payables are stated at amortised cost determined according to the effective interest rate method.

k) Hedge accounting and derivative financial instruments

Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at their fair value. The best evidence of fair value of a derivative at initial recognition is the transaction price. The method of recognising the resulting fair value gains or losses depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged. Fair values are obtained from quoted market prices in active markets, recent market transactions, and valuation techniques which include discounted cash flow models. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative. Derivative assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to set off the recognised amounts and the parties intend to settle on a net basis, or realise the assets and settle the liability simultaneously. The Group has not designated any derivatives as fair value hedges, cash flow hedges or net investment hedges and therefore all fair value movements are recorded through profit or loss.

l) Impairment of financial assets

The Group considers evidence of impairment for financial assets measured at amortised cost at both a specific asset and a collective level. The Group assesses at each reporting date whether there is objective evidence that a specific financial asset measured at amortised cost is impaired. A financial asset is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the assets and that event has an impact on the estimated cash flows of the financial asset that can be reliably estimated. Assets that are not individually significant are collectively assessed for impairment by grouping together assets with similar risk characteristics.# 1 Statement of accounting policies continued

m) Cash and cash equivalents

Cash and cash equivalents consist of cash held at bank, cash in hand, deposits held at call with banks, cash held in Lloyd’s trust accounts and other short term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. These investments have less than three months maturity from the date of acquisition. Cash and cash equivalents are measured at fair value through the profit and loss account.

n) Unfunded commitment capital

Unfunded committed capital arising in relation to certain financial asset investments is not shown on the statement of financial position as unfunded committed capital represents a loan commitment that is scoped out of IAS 39.

Leases

a) Right of use assets

The Group recognises right of use assets at the commencement date of the lease (i.e. the date the underlying asset is available for use). Right of use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right of use assets includes the amount of lease liabilities recognised, initial direct costs incurred, an estimate of any costs to be incurred at expiration of the lease agreements and lease payments made at or before the commencement date less any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, recognised right of use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right of use assets are subject to impairment.

b) Lease liabilities

At the commencement date of the lease, the Group recognises a lease liability measured at the present value of the lease payments to be made over the lease term. In calculating the present value of lease payments, the Group uses the weighted average incremental borrowing rate at the lease commencement date. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.

c) Short-term leases and leases of low-value assets

The Group applies the short-term lease recognition exemption to its short-term leases of property (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases that are considered of low value. Lease payments on short-term leases and leases of low-value assets are recognised as an expense in the profit or loss on a straight-line basis over the lease term.

d) The determination of a lease term with renewal options within lease contracts

The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain to not be exercised. The Group has the option, under some of its leases to lease the assets for various additional terms. The Group applies judgement in evaluating whether it is reasonably certain to exercise the option to renew. After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affect its ability to exercise (or not to exercise) the option to renew (e.g., a change in business strategy).

Notes to the financial statements continued

Employee benefits

a) Pension obligations

The Group operates a defined benefit pension plan that is now closed to future service accruals. The scheme is generally funded by payments from the Group, taking account of the recommendations of an independent qualified actuary. All employees now participate in defined contribution pension arrangements, to which the Group contributes. A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The pension costs are assessed using the projected unit credit method. Under this method the costs of providing pensions are charged to the statement of profit or loss so as to spread the regular costs over the service lives of employees in accordance with the advice of the qualified actuary, who values the plans annually. The net pension obligation is measured at the present value of the estimated future net cash flows and is stated net of plan assets. Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognised immediately in other comprehensive income. The Group also determines the net interest income/expense for the period on the net defined benefit asset/liability by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the net defined benefit asset/liability at the beginning of the annual period, taking into account any changes in the net defined benefit asset/liability during the period as a result of contributions and benefit payments. Consequently, the net interest on the defined benefit asset/ liability comprises:
• interest cost on the defined benefit obligation;
• interest income on plan assets; and
• interest on the effect of the asset ceiling.
Net interest income/expense is recognised in the statement of profit or loss. Past service costs are recognised as an expense at the earlier of the date when a plan amendment or curtailment occurs and the date when an entity recognises any termination benefits. For the defined contribution plan, the Group pays contributions to a privately administered pension plan. Once the contributions have been paid, the Group has no further obligations. The Group’s contributions are charged to the statement of profit or loss in the period to which they relate.

b) Share based compensation

The Group offers option plans over Beazley plc’s ordinary shares to certain employees, which includes the save-as-you-earn (SAYE) scheme. The grant date fair value of share based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. For share based payment awards with non-vesting conditions, the grant date fair value of the share based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes. When the options are exercised and new shares are issued to cover SAYE vestings, the proceeds received, net of any transaction costs, are credited to share capital (nominal value) with the excess amount going to share premium. For other plans, when no proceeds are received, the nominal value of shares issued is to share capital and debited to retained earnings. When the options are exercised and the shares are granted from the employee share trust, the proceeds received, net of any transaction costs, and the value of shares held within the trust, are credited to retained earnings.

Income taxes

Income tax on the profit or loss for the period comprises current and deferred tax. Income tax is recognised in the statement of profit or loss except to the extent that it relates to items recognised in other comprehensive income or directly in equity, in which case it is recognised respectively in other comprehensive income or directly in equity. Current tax is the expected tax payable on the taxable income for the year using tax rates enacted or substantively enacted at the year end reporting date and any adjustments to tax payable in respect of prior periods. Deferred tax is provided, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the reporting date.# NOTES TO THE FINANCIAL STATEMENTS

Deferred tax assets are recognised in the statement of financial position to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Earnings per share

Basic earnings per share are calculated by dividing profit or loss after tax available to shareholders by the weighted average number of ordinary shares in issue during the period. For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares such as share options granted to employees. Share options with performance conditions attaching to them have been excluded from the weighted average number of shares to the extent that these conditions have not been met at the reporting date. The shares held in the employee share options plan (ESOP) and treasury shares are excluded from both the calculations, until such time as they vest unconditionally with the employees.

Provisions and contingencies

Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources or economic benefits will be required to settle the obligation, and a reliable estimate of the obligation can be made. Where the Group expects a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is most probable. Contingent liabilities are present obligations that are not recognised because it is not probable that an outflow of resources will be required to meet the liabilities or because the amount of the obligation cannot be measured with sufficient reliability.

Notes to the financial statements continued

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2 Risk management

The Group has identified the risks arising from its activities and has established policies and procedures to manage these items in accordance with its risk appetite. The Group categorises its risks into eight areas: insurance, strategic, market, operational, credit, regulatory and legal, liquidity and Group risk. The sections below outline the Group’s risk appetite and explain how it defines and manages each category of risk. The eight categories of risk have also been considered in the context of the company (Beazley plc). The following areas are applicable to the company: market, operational, regulatory and legal, and liquidity. The following disclosures cover the company to the extent that these areas are applicable.

The symbol † by a table or numerical information means it has not been audited.

2.1 Insurance risk

The Group’s insurance business assumes the risk of loss from persons or organisations that are directly exposed to an underlying loss. Insurance risk arises from this risk transfer due to inherent uncertainties about the occurrence, amount and timing of insurance liabilities. The four key components of insurance risk are underwriting, reinsurance, claims management and reserving. Each element is considered below.

a) Underwriting risk

Underwriting risk comprises four elements that apply to all insurance products offered by the Group:

cycle risk – the risk that business is written without full knowledge as to the (in)adequacy of rates, terms and conditions;
event risk – the risk that individual risk losses or catastrophes lead to claims that are higher than anticipated in plans and pricing;
pricing risk – the risk that the level of expected loss is understated in the pricing process; and
expense risk – the risk that the allowance for expenses and inflation in pricing is inadequate.

We manage and model these four elements in the following three categories: attritional claims, large claims and catastrophe events. The Group’s underwriting strategy is to seek a diverse and balanced portfolio of risks in order to limit the variability of outcomes. This is achieved by accepting a spread of business over time, segmented between different products, geographies and sizes. The annual business plans for each underwriting team reflect the Group’s underwriting strategy, and set out the classes of business, the territories and the industry sectors in which business to be written. These plans are approved by the Board of each underwriting entity and the Group and monitored by the underwriting committee.

Our underwriters calculate premiums for risks written based on a range of criteria tailored specifically to each individual risk. These factors include but are not limited to financial exposure, loss history, risk characteristics, limits, deductibles, terms and conditions and acquisition expenses. The Group also recognises that insurance events are, by their nature, random, and the actual number and size of events during any one year may vary from those estimated using established statistical techniques. To address this, the Group sets out the exposure that it is prepared to accept in certain territories to a range of events such as natural catastrophes and specific scenarios which may result in large industry losses. This is monitored through regular calculation of realistic disaster scenarios (RDSs). The aggregate position is monitored at the time of underwriting a risk, and reports are regularly produced to highlight the key aggregations to which the Group is exposed. The Group uses a number of modelling tools to monitor its exposures against the agreed risk appetite set and to simulate catastrophe losses in order to measure the effectiveness of its reinsurance programmes. Stress and scenario tests are also run using these models. The range of scenarios considered includes natural catastrophe, cyber, marine, liability, political, terrorism and war events.

One of the largest types of event exposure relates to natural catastrophe events such as windstorm or earthquake. With the increasing risk from climate change impacts the frequency and severity of natural catastrophes, the Group continues to monitor its exposure. Where possible the Group measures geographic accumulations and uses its knowledge of the business, historical loss behaviour and commercial catastrophe modelling software to assess the expected range of losses at different return periods. Upon application of the reinsurance coverage purchased, the key gross and net exposures are calculated on the basis of extreme events at a range of return periods.

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2 Risk management continued

The Group’s high level catastrophe risk appetite is set by the Board and the business plans of each team are determined within these parameters. The Board may adjust these limits over time as conditions change. In 2021 the Group operated to a catastrophe risk appetite for a probabilistic 1-in-250 years US event of † $520.0m (2020: $437.0m) net of reinsurance. This represents an increase of 19% in 2021.

Lloyd’s has also defined its own specific set of RDS events for which all syndicates with relevant exposures must report. Of these the three largest, net of reinsurance, events which could have impacted Beazley in 2020 and 2021 are:

	Modelled PML¹ (before reinsurance) $m	Modelled PML¹ (after reinsurance) $m
2021 Lloyd’s prescribed natural catastrophe event (total incurred losses)
Los Angeles quake (2021: $78bn)	737.6	265.2
San Francisco quake (2021: $78bn)	708.0	249.9
US Northeast windstorm (2021: $112bn)	560.4	231.5
2020 Lloyd’s prescribed natural catastrophe event (total incurred losses)
San Francisco quake (2020: $78bn)	663.2	232.1
Los Angeles quake (2020: $78bn)	706.4	228.6
Gulf of Mexico windstorm (2020: $112bn)	642.8	216.0

¹ Probable market loss.

The tables above show each event independent of each other and considered on their own. Net of reinsurance exposures for the Los Angeles quake scenario have increased by 16% in 2021, whereas gross exposures have increased by 4%. The increase in net exposures is being driven by a change in reinsurance protections for the Specialty Lines and Political, Accident and Contingency divisions. The increase in the net San Francisco quake scenario is for the same reason but the impact has been less with gross exposures increasing by 7% and net by 8%. Windstorm exposures have increased in the US Northeast during 2021, which has resulted in the US Northeast windstorm scenario replacing the Gulf of Mexico windstorm scenario as being the third largest scenario for 2021. The net natural catastrophe risk appetite increased by 19% in 2021 to $520.0m from $437.0m in 2020, with the increase in appetite being shared across the Property & Reinsurance divisions. The net exposure of the Group to each of these modelled events at a given point in time is a function of assumptions made about how and where the event occurs, its magnitude, the amount of business written that is exposed to each event and the reinsurance arrangements in place.

The Group also has exposure to man-made claim aggregations, such as those arising from terrorism, liability, and cyber events. Beazley chooses to underwrite cyber insurance within the Cyber & Executive Risk and Specialty Lines division using our team of specialist underwriters, claims managers and data breach services managers. Other than for affirmative cyber coverage, Beazley’s preference is to exclude cyber exposure where possible. To manage the potential exposure, the Board has established a risk budget for the aggregation of cyber related claims which is monitored by reference to the largest of seventeen realistic disaster scenarios that have been developed internally. These scenarios include the failure of a data aggregator, the failure of a shared hardware or software platform, the failure of a cloud provider & physical damage scenarios.# Notes to the financial statements continued

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2 Risk management continued

The largest net realistic disaster scenario is currently just under $200m for the Group as at 31 December 2021. The reinsurance programmes that protect the Cyber & Executive Risk and Specialty Lines divisions would partially mitigate the cost of most, but not all, cyber catastrophes. Beazley also reports on cyber exposure to Lloyd’s using the three largest internal realistic disaster scenarios and three new prescribed scenarios which include a cloud provider scenario & a ransomware scenario.

To manage underwriting exposures, the Group has developed limits of authority and business plans which are binding upon all staff authorised to underwrite and are specific to underwriters, classes of business and industry. In 2021, the maximum line that any one underwriter could commit the managed syndicates to was $150m. In most cases, maximum lines for classes of business were much lower than this. These authority limits are enforced through a comprehensive sign-off process for underwriting transactions including dual sign-off for all line underwriters and peer review for all risks exceeding individual underwriters’ authority limits. Exception reports are also run regularly to monitor compliance. All underwriters also have a right to refuse renewal or change the terms and conditions of insurance contracts upon renewal. Rate monitoring details, including limits, deductibles, exposures, terms and conditions and risk characteristics are also captured and the results are combined to monitor the rating environment for each class of business.

Binding authority contracts

A proportion of the Group’s insurance risks are transacted by third parties under delegated underwriting authorities. Each third party is thoroughly vetted by our coverholder approval group before it can bind risks, and is subject to monitoring to maintain underwriting quality and confirm ongoing compliance with contractual guidelines.

Operating divisions

In 2021, the Group’s business consisted of seven operating divisions. The following table provides a breakdown of gross premiums written by division, and also provides a geographical split based on placement of risk.

	2021
	Lloyd’s	Worldwide Non-Lloyd’s US	Non-Lloyd’s Europe	Total
Cyber & Executive Risk	24%	8%	1%	33%
Marine	7%	1%	–	8%
Market Facilities	4%	–	–	4%
Political, Accident & Contingency	6%	1%	–	7%
Property	13%	–	–	13%
Reinsurance	5%	–	–	5%
Specialty Lines	22%	3%	5%	30%
Total	81%	13%	6%	100%

	2020
	Lloyd’s	Worldwide Non-Lloyd’s US	Non-Lloyd’s Europe	Total
Cyber & Executive Risk	19%	10%	1%	30%
Marine	9%	–	–	9%
Market Facilities	4%	–	–	4%
Political, Accident & Contingency	7%	1%	–	8%
Property	13%	–	–	13%
Reinsurance	5%	–	–	5%
Specialty Lines	25%	5%	1%	31%
Total	82%	16%	2%	100%

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2 Risk management continued

b) Reinsurance risk

Reinsurance risk to the Group arises where reinsurance contracts put in place to reduce gross insurance risk do not perform as anticipated, result in coverage disputes or prove inadequate in terms of the vertical or horizontal limits purchased. Failure of a reinsurer to pay a valid claim is considered a credit risk which is detailed in the credit risk section on page 159.

The Group’s reinsurance programmes complement the underwriting team’s business plans and seek to protect Group capital from an adverse volume or volatility of claims on both a per risk and per event basis. In some cases the Group deems it more economic to hold capital than purchase reinsurance. These decisions are regularly reviewed as an integral part of the business planning and performance monitoring process. The reinsurance security committee examines and approves all reinsurers to ensure that they possess suitable security. The Group’s ceded reinsurance team ensures that these guidelines are followed, undertakes the administration of reinsurance contracts and monitors and instigates our responses to any erosion of the reinsurance programmes.

c) Claims management risk

Claims management risk may arise within the Group in the event of inaccurate or incomplete case reserves and claims settlements, poor service quality or excessive claims handling costs. These risks may damage the Group brand and undermine its ability to win and retain business, or incur punitive damages. These risks can occur at any stage of the claims life cycle.

The Group’s claims teams are focused on delivering quality, reliability and speed of service to both internal and external clients. Their aim is to adjust and process claims in a fair, efficient and timely manner, in accordance with the policy’s terms and conditions, the regulatory environment, and the business’s broader interests. Case reserves are set for all known claims liabilities, including provisions for expenses, as soon as a reliable estimate can be made of the claims liability.

d) Reserving and ultimate reserves risk

Reserving and ultimate reserves risk occurs within the Group where established insurance liabilities are insufficient through inaccurate forecasting, or where there is inadequate allowance for expenses and reinsurance bad debts in provisions. To manage reserving and ultimate reserves risk, our actuarial team uses a range of recognised techniques to project gross premiums written, monitor claims development patterns and stress-test ultimate insurance liability balances. The Group aims to hold reserves within a range of 5-10% above the actuarial estimates, which themselves include some margin for uncertainty. The objective of the Group’s reserving policy is to produce accurate and reliable estimates that are consistent over time and across classes of business. The estimates of gross premiums written and claims prepared by the actuarial department are used through a formal quarterly peer review process to independently test the integrity of the estimates produced by the underwriting teams for each class of business. These meetings are attended by senior management, senior underwriters, and actuarial, claims, and finance representatives.

2.2 Strategic risk

This is the risk that the Group’s strategy is inappropriate or that the Group is unable to implement its strategy. Where events supersede the Group’s strategic plan this is escalated at the earliest opportunity through the Group’s monitoring tools and governance structure.

a) Senior management performance

Management stretch is the risk that business growth might result in an insufficient or overly complicated management team structure, thereby undermining accountability and control within the Group. As the Group expands its worldwide business in the UK, North America, Europe, South America and Asia, management stretch may make the identification, analysis and control of Group risks more complex.

On a day-to-day basis, the Group’s management structure encourages organisational flexibility and adaptability, while ensuring that activities are appropriately coordinated and controlled. By focusing on the needs of their customers and demonstrating both progressive and responsive abilities, staff, management and outsourced service providers are expected to excel in service and quality. Individuals and teams are also expected to transact their activities in an open and transparent way. These behavioural expectations reaffirm low Group risk tolerance by aligning interests to ensure that routine activities, projects and other initiatives are implemented to benefit and protect resources of both local business segments and the Group as a whole.

Notes to the financial statements continued

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2 Risk management continued

2.3 Market risk

Market risk arises where the value of assets and liabilities or future cash flows changes as a result of movements in foreign exchange rates, interest rates and market prices. Efficient management of market risk is key to the investment of Group assets.

Appropriate levels of investment risk are determined by limiting the proportion of forecast Group earnings which could be at risk from lower than expected investment returns, using a 1 in 10 confidence level as a practical measure of such risk. In 2021, this permitted variance from the forecast investment return was set at † $180m. For 2022, the permitted variance is likely to be modestly increased due to the higher level of investment assts. Investment strategy is developed to be consistent with this limit and investment risk is monitored on an ongoing basis, using outputs from our internal model.

Changes in interest rates also impact the present values of estimated Group liabilities, which are used for solvency and capital calculations. Our investment strategy reflects the nature of our liabilities, and the combined market risk of investment assets and estimated liabilities is monitored and managed within specified limits.

a) Foreign exchange risk

The functional currency of Beazley plc and its main trading entities is US dollars and the presentational currency in which the Group reports its consolidated results is US dollars. The effect of this on foreign exchange risk is that the Group is mainly exposed to fluctuations in exchange rates for non-dollar denominated transactions and to net asset translation risk on non-dollar functional currency entities. The Group operates in four main currencies: US dollars, sterling, Canadian dollars and euros. Transactions in all currencies are converted to US dollars on initial recognition with any resulting monetary items being translated to the US dollar spot rate at the reporting date. If any foreign exchange risk arises it is actively managed as described below.In 2021, the Group managed its foreign exchange risk by periodically assessing its non-dollar exposures and hedging these to a tolerable level while targeting to have net assets that are predominantly denominated in US dollar. As part of this hedging strategy, exchange rate derivatives were used to rebalance currency exposure across the Group. Details of foreign currency derivative contracts entered into with external parties are disclosed in note 17. On a forward looking basis an assessment is made of expected future exposure development and appropriate currency trades put in place to reduce risk. The Group’s underwriting capital is matched by currency to the principal underlying currencies of its written premiums. This helps to mitigate the risk that the Group’s capital required to underwrite business is materially affected by any future movements in exchange rates. The Group also has foreign operations with functional currencies that are different from the Group’s presentational currency. The effect of this on foreign exchange risk is that the Group is exposed to fluctuations in exchange rates for US dollar denominated transactions and net assets arising in those foreign currency operations. It also gives rise to a currency translation exposure for the Group to sterling, euro, Canadian dollars, Singapore dollars and Australian dollars on translation to the Group’s presentational currency. These exposures are minimal and are not hedged. The following table summarises the carrying value of total assets and total liabilities categorised by the Group’s main currencies:

	UK £ $m	CAD $ $m	EUR € $m	Subtotal $m	US $ $m	Total $m
31 December 2021
Total assets	904.3	248.8	501.9	1,655.0	11,152.4	12,807.4
Total liabilities	(1,038.0)	(236.1)	(561.7)	(1,835.8)	(8,840.8)	(10,676.6)
Net assets	(133.7)	12.7	(59.8)	(180.8)	2,311.6	2,130.8
31 December 2020
Total assets	737.6	213.9	420.4	1,371.9	9,215.8	10,587.7
Total liabilities	(828.2)	(203.0)	(431.9)	(1,463.1)	(7,315.1)	(8,778.2)
Net assets	(90.6)	10.9	(11.5)	(91.2)	1,900.7	1,809.5

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2 Risk management continued

Sensitivity analysis

Fluctuations in the Group’s trading currencies against the US dollar would result in a change to profit after tax and net asset value. The table below gives an indication of the impact on profit after tax and net assets of a percentage change in the relative strength of the US dollar against the value of sterling, the Canadian dollar and the euro, simultaneously. The analysis is based on information on net asset positions as at the balance sheet date.

Change in exchange rate of sterling, Canadian dollar and euro relative to US dollar	Impact on profit after tax for the year ended 2021 $m	Impact on profit after tax for the year ended 2020 $m	Impact on net assets 2021 $m	Impact on net assets 2020 $m
Dollar weakens 30% against other currencies	(45.3)	(25.0)	(64.0)	(33.9)
Dollar weakens 20% against other currencies	(30.2)	(16.7)	(42.7)	(22.6)
Dollar weakens 10% against other currencies	(15.1)	(8.3)	(21.3)	(11.3)
Dollar strengthens 10% against other currencies	15.1	8.3	21.3	11.3
Dollar strengthens 20% against other currencies	30.2	16.7	42.7	22.6
Dollar strengthens 30% against other currencies	45.3	25.0	64.0	33.9

b) Interest rate risk

Some of the Group’s financial instruments, including cash and cash equivalents, certain financial assets at fair value and borrowings, are exposed to movements in market interest rates. The Group manages interest rate risk by primarily investing in short duration financial assets along with cash and cash equivalents. The investment committee monitors the duration of these assets on a regular basis. The Group also entered into bond futures contracts to manage the interest rate risk on bond portfolios. The following table shows the modified duration at the reporting date of the financial instruments that are exposed to movements in market interest rates. Duration is a commonly used measure of volatility and we believe gives a better indication than maturity of the likely sensitivity of our portfolio to changes in interest rates.

Duration	<1 yr $m	1-2 yrs $m	2-3 yrs $m	3-4 yrs $m	4-5 yrs $m	5-10 yrs $m	Total $m
31 December 2021
Fixed and floating rate debt securities	1,938.5	2,624.4	1,033.2	390.8	216.6	68.8	6,272.3
Syndicate loans	–	–	7.8	30.1	–	–	37.9
Cash and cash equivalents	591.8	–	–	–	–	–	591.8
Derivative financial instruments	7.2	–	–	–	0.3	–	7.5
Borrowings	–	–	–	–	(249.2)	(298.4)	(547.6)
Total	2,537.5	2,624.4	1,041.0	420.9	(32.3)	(229.6)	6,361.9
31 December 2020
Fixed and floating rate debt securities	1,696.1	2,031.7	640.0	484.3	384.3	183.3	5,419.7
Syndicate loans	–	–	–	8.2	32.4	–	40.6
Cash and cash equivalents	309.5	–	–	–	–	–	309.5
Derivative financial instruments	28.5	–	–	–	–	–	28.5
Borrowings	–	–	–	–	–	(547.1)	(547.1)
Total	2,034.1	2,031.7	640.0	492.5	416.7	(363.8)	5,251.2

Borrowings consist of two items. The first is $250m of subordinated tier 2 debt raised in November 2016. This debt is due in 2026 and has annual interest of 5.875% payable in May and November of each year. The second comprises $300m of subordinated tier 2 debt raised in September 2019. This debt is due in 2029 and has annual interest of 5.5% payable in March and September each year.

Notes to the financial statements continued

156 Beazley | Annual report 2021 www.beazley.com

Sensitivity analysis

Changes in yields, with all other variables constant, would result in changes in the capital value of debt securities and syndicate loans as well as subsequent interest receipts and payments. This would affect reported profits and net assets as indicated in the table below:

Shift in yield (basis points)	Impact on profit after income tax for the year 2021 $m	Impact on profit after income tax for the year 2020 $m	Impact on net assets 2021 $m	Impact on net assets 2020 $m
150 basis point increase	(124.1)	(138.4)	(124.1)	(138.4)
100 basis point increase	(82.8)	(92.3)	(82.8)	(92.3)
50 basis point increase	(41.4)	(46.1)	(41.4)	(46.1)
50 basis point decrease	41.4	46.1	41.4	46.1
100 basis point decrease	82.8	92.3	82.8	92.3
150 basis point decrease	124.1	138.4	124.1	138.4

c) Price risk

Financial assets and derivatives that are recognised in the statement of financial position at their fair value are susceptible to losses due to adverse changes in prices. This is referred to as price risk. Financial assets include fixed and floating rate debt securities, syndicate loans, hedge funds, illiquid credit assets, equity investments and derivative financial assets. The price of debt securities is affected by interest rate risk, as described above, and also by issuer’s credit risk. The sensitivity to price risk that relates to the Group’s hedge fund, syndicate loans, illiquid credit and equity investments is presented below. Listed investments that are quoted in an active market are recognised in the statement of financial position at quoted bid price, which is deemed to be approximate exit price. If the market for the investment is not considered to be active, then the Group establishes fair value using valuation techniques (refer to note 16). This includes comparison of orderly transactions between market participants, reference to the current fair value of other investments that are substantially the same, discounted cash flow models and other valuation techniques that are commonly used by market participants.

Change in fair value of hedge funds, syndicate loans, equity funds and illiquid credit assets	Impact on profit after income tax for the year 2021 $m	Impact on profit after income tax for the year 2020 $m	Impact on net assets 2021 $m	Impact on net assets 2020 $m
30% increase in fair value	242.2	239.4	242.2	239.4
20% increase in fair value	161.5	159.6	161.5	159.6
10% increase in fair value	80.7	79.8	80.7	79.8
10% decrease in fair value	(80.7)	(79.8)	(80.7)	(79.8)
20% decrease in fair value	(161.5)	(159.6)	(161.5)	(159.6)
30% decrease in fair value	(242.2)	(239.4)	(242.2)	(239.4)

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d) Investment risk

The value of our investment portfolio is impacted by interest rate and market price risks, as described above. Managing the Group’s exposures to these risks is an intrinsic part of our investment strategy. Beazley uses an Economic Scenario Generator (ESG) to simulate multiple simulations of financial conditions, to support stochastic analysis of market risk. Beazley uses these outputs to assess the value at risk (VAR) of its investments, at different confidence levels, including ‘1 in 200’, which reflects Solvency II modelling requirements, and ‘1 in 10’, reflecting scenarios which are more likely to occur in practice. Risk is typically considered to a 12 month horizon. It is assessed for investments in isolation and also in conjunction with the present value of our liabilities, to help us monitor and manage market risk for solvency and capital purposes. By its nature, stochastic modelling does not provide a precise measure of risk, ESG outputs are regularly validated against actual market conditions, and Beazley also uses a number of other, qualitative measures to support the monitoring and management of investment risk. These include stress testing and scenario analysis. Beazley’s investment strategy is developed by reference to an investment risk budget, set annually by the Board as part of the overall risk budgeting framework of the business. The Solvency II internal model is used to monitor compliance with the budget, which limits the amount by which our reported annual investment return may deviate from a predetermined target, at the 1 in 10 confidence level. In 2021, this permitted deviation was set at † $180m. Additionally, a limit is specified for the net interest rate sensitivity of assets and liabilities combined and investments are managed to ensure that this limit is not exceeded.# 2.4 Operational risk

Operational risk arises from the risk of losses due to inadequate or failed internal processes, people, systems, service providers or external events. There are a number of business activities for which the Group uses the services of a third-party company, such as investment management, IT systems, data entry and credit control. These service providers are selected against rigorous criteria and formal service level agreements are in place, and regularly monitored and reviewed. The Group also recognises that it is necessary for people, systems and infrastructure to be available to support our operations. Therefore we have taken significant steps to mitigate the impact of business interruption which could follow a variety of events, including the loss of key individuals and facilities. We operate a formal disaster recovery plan which, in the event of an incident, allows the Group to move critical operations to an alternative location within 24 hours. The Group actively manages operational risks and minimises them where appropriate. This is achieved by implementing and communicating guidelines to staff and other third parties. The Group also regularly monitors the performance of its controls and adherence to these guidelines through the risk management reporting process. Key components of the Group’s operational control environment include:
* modelling of operational risk exposure and scenario testing;
* management review of activities;
* documentation of policies and procedures;
* preventative and detective controls within key processes;
* contingency planning; and
* other systems controls.

COVID-19 has caused a shift in the operational strategy of Beazley from an office based environment to a hybrid working environment. This has meant that internal processes, capability of people and systems had been put to the test. The Group have adapted to the changes in the operational environment and business processes have continued to be carried out. The Group continues to actively manage operational risks caused by COVID-19, while engaging in open communication with staff. The Group also continues to regularly monitor the performance of its controls through the risk management reporting process.

Notes to the financial statements continued

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2.5 Credit risk

Credit risk arises where counterparties fail to meet their financial obligations in full as they fall due. The primary sources of credit risk for the Group are:
* reinsurers – reinsurers may fail to pay valid claims against a reinsurance contract held by the Group;
* brokers and coverholders – counterparties fail to pass on premiums or claims collected or paid on behalf of the Group;
* investments – issuer default results in the Group losing all or part of the value of a financial instrument or a derivative financial instrument; and
* cash and cash equivalents.

The Group’s core business is to accept significant insurance risk and the appetite for other risks is low. This protects the Group’s capital from erosion so that it can meet its insurance liabilities. The Group limits exposure to a single counterparty or a Group of counterparties and analyses the geographical locations of exposures when assessing credit risk. An approval system also exists for all new brokers, and broker performance is carefully monitored. Regular exception reports highlight trading with non-approved brokers, and the Group’s credit control function frequently assesses the ageing and collectability of debtor balances. Any large, aged items are prioritised and where collection is outsourced incentives are in place to support these priorities. The investment committee has established comprehensive guidelines for the Group’s investment managers regarding the type, duration and quality of investments acceptable to the Group. The performance of investment managers is regularly reviewed to confirm adherence to these guidelines. The Group has developed processes to formally examine all reinsurers before entering into new business arrangements. New reinsurers are approved by the reinsurance security committee, which also reviews arrangements with all existing reinsurers at least annually. Vulnerable or slow-paying reinsurers are examined more frequently. To assist in the understanding of credit risks, A.M. Best, Moody’s and Standard & Poor’s (S&P) ratings are used. These ratings have been categorised below as used for Lloyd’s reporting:

	A.M. Best	Moody’s	S&P
Tier 1	A++ to A-	Aaa to A3	AAA to A-
Tier 2	B++ to B-	Baa1 to Ba3	BBB+ to BB-
Tier 3	C++ to C-	B1 to Caa	B+ to CCC
Tier 4	D, E, F, S	Ca to C	R, (U,S)

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Financial statements

2 Risk management continued

The following tables summarise the Group’s concentrations of credit risk:

31 December 2021

	Tier 1 $m	Tier 2 $m	Tier 3 $m	Tier 4 $m	Unrated $m	Total $m
Financial assets at fair value – fixed and floating rate debt securities	5,517.1	755.2	–	–	–	6,272.3
– syndicate loans	37.9	–	–	–	–	37.9
– equity funds	–	–	–	–	209.6	209.6
– hedge funds	–	–	–	–	478.2	478.2
– illiquid credit assets	–	–	–	–	277.9	277.9
– derivative financial instruments	–	–	–	–	7.6	7.6
Insurance receivables	177.0	–	–	–	1,519.1	1,696.1
Reinsurance assets	1,829.4	–	–	–	557.0	2,386.4
Other receivables	–	–	–	–	106.7	106.7
Cash and cash equivalents	589.7	0.3	–	–	1.8	591.8
Total	8,151.1	755.5	–	–	3,157.9	12,064.5

31 December 2020

	Tier 1 $m	Tier 2 $m	Tier 3 $m	Tier 4 $m	Unrated $m	Total $m
Financial assets at fair value – fixed and floating rate debt securities	4,813.6	606.1	–	–	–	5,419.7
– syndicate loans	40.6	–	–	–	–	40.6
– equity funds	–	–	–	–	203.2	203.2
– hedge funds	–	–	–	–	442.1	442.1
– illiquid credit assets	–	–	–	–	227.9	227.9
– derivative financial instruments	–	–	–	–	28.5	28.5
Insurance receivables	–	–	–	–	1,467.9	1,467.9
Reinsurance assets	1,684.7	–	–	–	–	1,684.7
Other receivables	86.5	–	–	–	–	86.5
Cash and cash equivalents	307.2	0.8	–	–	1.5	309.5
Total	6,932.6	606.9	–	–	2,371.1	9,910.6

The largest counterparty exposure within tier 1 is $2,956.3m of US treasuries (2020: $2,326.0m). Financial investments falling within the unrated category comprise hedge funds and illiquid credit assets for which there is no readily available market data to allow classification within the respective tiers. Additionally, insurance receivables are classified as unrated, due to premium debtors not being credit rated. At 31 December 2021, $1.8m of cash and cash equivalents fell within the unrated category (2020: $1.5m). This is due to the Group transacting with a bank in the US that does not have an external credit rating. Insurance receivables are classified as unrated, due to premium debtors not being credit rated with the exception of the CRI accrual element. Additionally the Reinsurance share unearned premium provision is classified as unrated. Insurance receivables and other receivables balances held by the Group have not been impaired, based on all evidence available, and no impairment provision has been recognised in respect of these assets. Insurance receivables in respect of coverholder business are credit controlled by third-party managers. We monitor third party coverholders’ performance and their financial processes through the Group’s coverholder management team. These assets are individually impaired after considering information such as the occurrence of significant changes in the counterparties’ financial position, patterns of historical payment information and disputes with counterparties.

Notes to the financial statements continued

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An analysis of the overall credit risk exposure indicates that the Group has reinsurance assets that are impaired at the reporting date. The total impairment in respect of the reinsurance assets, including reinsurers’ share of outstanding claims, at 31 December 2021 was as follows:

	Total $m
Balance at 1 January 2020	13.7
Impairment loss recognised	1.1
Balance at 31 December 2020	14.8
Impairment loss written back	(3.3)
Balance at 31 December 2021	11.5

The Group has insurance receivables and reinsurance assets that are past due at the reporting date. An aged analysis of these is presented below:

31 December 2021

	Up to 30 days past due $m	30-60 days past due $m	60-90 days past due $m	Greater than 90 days past due $m	Total $m
Insurance receivables	79.3	23.7	16.0	33.4	152.4
Reinsurance assets	55.6	16.7	9.9	81.9	164.1

31 December 2020

	Up to 30 days past due $m	30-60 days past due $m	60-90 days past due $m	Greater than 90 days past due $m	Total $m
Insurance receivables	52.3	21.6	8.4	30.6	112.9
Reinsurance assets	80.6	32.8	12.4	22.1	147.9

The total impairment provision in the statement of financial position in respect of reinsurance assets past due (being reinsurance recoverables due on paid claims) by more than 30 days at 31 December 2021 was $2.1m (2020: $3.0m). This $2.1m provision in respect of overdue reinsurance recoverables is included within the total provision of $11.5m shown in the table at the top of the page. The Group believes that the unimpaired amounts that are past due more than 30 days are still collectable in full, based on historic payment behaviour and analyses of credit risk.

2.6 Regulatory and legal risk

Regulatory and legal risk is the risk arising from not complying with regulatory and legal requirements. The operations of the Group are subject to legal and regulatory requirements within the jurisdictions in which it operates and the Group’s compliance function is responsible for ensuring that these requirements are adhered to.

2.7 Liquidity risk

Liquidity risk arises where cash may not be available to pay obligations when due at a reasonable cost. The Group is exposed to daily calls on its available cash resources, principally from claims arising from its insurance business.In the majority of the cases, these claims are settled from the premiums received. The Group’s approach is to manage its liquidity position so that it can reasonably survive a significant individual or market loss event (details of the Group’s exposure to realistic disaster scenarios are provided on page 151 to 152. This means that the Group maintains sufficient liquid assets, or assets that can be converted into liquid assets at short notice and without any significant capital loss, to meet expected cash flow requirements. These liquid funds are regularly monitored using cash flow forecasting to ensure that surplus funds are invested to achieve a higher rate of return. The Group also makes use of loan facilities and borrowings, details of which can be found in note 25. Further information on the Group’s capital resources is contained on pages 59 to 60.

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The following is an analysis by business segment of the estimated timing of the net cash flows based on the net claims liabilities¹ balance held at 31 December:

	31 December 2021
	Within 1 year $m	1-3 years $m	3-5 years $m	Greater than 5 years $m	Total $m
Cyber & Executive Risk	365.6	589.8	248.5	93.1	1,297.0
Marine	133.8	123.7	41.8	20.9	320.2
Market Facilities	4.3	9.5	5.1	2.9	21.8
Political, Accident & Contingency	130.9	92.9	24.2	22.3	270.3
Property	207.4	156.1	38.7	20.6	422.8
Reinsurance	118.0	99.7	28.8	23.6	270.1
Specialty Lines	338.1	643.3	428.8	557.3	1,967.5
Net claims liabilities¹	1,298.1	1,715.0	815.9	740.7	4,569.7

	31 December 2020
	Within 1 year $m	1-3 years $m	3-5 years $m	Greater than 5 years $m	Total $m
Cyber & Executive Risk	300.2	502.6	215.1	79.3	1,097.2
Marine	133.8	122.1	43.0	20.0	318.9
Market Facilities	4.7	5.2	1.5	1.3	12.7
Political, Accident & Contingency	178.0	123.6	29.3	29.6	360.5
Property	195.9	166.2	43.3	31.5	436.9
Reinsurance	110.9	94.1	27.6	23.3	255.9
Specialty Lines	297.6	539.6	357.5	471.7	1,666.4
Net claims liabilities¹	1,221.1	1,553.4	717.3	656.7	4,148.5

¹ For a breakdown of net claims liabilities refer to note 24.

The following table is an analysis of the net contractual cash flows based on all the liabilities held at 31 December:

	31 December 2021
	Within 1 year	1-3 years	3-5 years	Greater than 5 years	Total
Net claims liabilities¹	1,298.1	1,715.0	815.9	740.7	4.569.7
Borrowings	31.2	62.4	310.1	344.4	748.1
Lease liabilities	10.6	22.2	17.4	47.0	97.2
Other payables	1,141.3	–	–	–	1,141.3

	31 December 2020
	Within 1 year	1-3 years	3-5 years	Greater than 5 years	Total
Net claims liabilities¹	1,221.1	1,553.4	717.3	656.7	4,148.5
Borrowings	31.2	62.4	62.4	620.7	776.7
Lease liabilities	6.2	5.8	21.2	54.9	88.1
Other payables	733.9	–	–	–	733.9

The next two tables summarise the carrying amount at reporting date of financial instruments analysed by maturity date.

Maturity	31 December 2021
	<1 yr $m	1-2 yrs $m	2-3 yrs $m	3-4 yrs $m	4-5 yrs $m	5-10 yrs $m	Total $m
Fixed and floating rate debt securities	1,675.6	2,316.7	953.5	706.8	361.9	257.8	6,272.3
Syndicate loans	–	–	7.8	30.1	–	–	37.9
Derivative financial instruments	7.6	–	–	–	–	–	7.6
Cash and cash equivalents	591.8	–	–	–	–	–	591.8
Insurance receivables	1,696.1	–	–	–	–	–	1,696.1
Other receivables	106.7	–	–	–	–	–	106.7
Other payables	(1,141.3)	–	–	–	–	–	(1,141.3)
Borrowings	–	–	–	–	(249.2)	(298.4)	(547.6)
Total	2,936.5	2,316.7	961.3	736.9	112.7	(40.6)	7,023.5

Maturity	31 December 2020
	<1 yr $m	1-2 yrs $m	2-3 yrs $m	3-4 yrs $m	4-5 yrs $m	5-10 yrs $m	Total $m
Fixed and floating rate debt securities	1,620.5	1,899.3	562.5	422.8	445.5	469.1	5,419.7
Syndicate loans	–	–	–	8.2	32.4	–	40.6
Derivative financial instruments	28.5	–	–	–	–	–	28.5
Cash and cash equivalents	309.5	–	–	–	–	–	309.5
Insurance receivables	1,467.9	–	–	–	–	–	1,467.9
Other receivables	86.5	–	–	–	–	–	86.5
Other payables	(733.9)	–	–	–	–	–	(733.9)
Borrowings	–	–	–	–	–	(547.2)	(547.2)
Total	2,779.0	1,899.3	562.5	431.0	477.9	(78.1)	6,071.6

Illiquid credit assets, hedge funds and equity funds are not included in the maturity profile because the maturity profiles of these asset classes cannot be determined with any degree of certainty. The Group makes additional interest payments for borrowings. Further details are provided in notes 8 and 25.

2.8 Group risk

Group risk occurs where business units fail to consider the impact of their activities on other parts of the Group, as well as the risks arising from these activities. There are two main components of Group risk which are explained below.

a) Contagion

Contagion risk is the risk arising from actions of one part of the Group which could adversely affect any other part of the Group. For example, this could include actions taken by the US operations which adversely impact the UK operations or European operations, or vice versa. The Group has limited appetite for contagion risk and minimises the impact of this occurring by operating with clear lines of communication across the Group to ensure all Group entities are well informed and working to common goals.

b) Reputation

Reputation risk is the risk of negative publicity as a result of the Group’s contractual arrangements, customers, products, services and other activities. Key sources of reputation risk include operation of a Lloyd’s franchise, interaction with capital markets since the Group’s IPO during 2002, and reliance upon the Beazley brand in North America, Europe, South America and Asia. The Group’s preference is to minimise reputation risks but where it is not possible or beneficial to avoid them, we seek to minimise their frequency and severity by management through public relations and communication channels.

2.9 Capital management

The Group follows a risk-based approach to determine the amount of capital required to support its activities. Recognised stochastic modelling techniques are used to measure risk exposures, and capital to support business activities is allocated according to risk profile. Stress and scenario analysis is regularly performed and the results are documented and reconciled to the Board’s risk appetite where necessary. The Group has several requirements for capital, including:

to support underwriting at Lloyd’s through the syndicates in which it participates, being 2623, 3623 and 3622. This is based on the Group’s own individual capital assessment. It may be provided in the form of either the Group’s cash, investments, debt facilities, or letter of credit;
to support underwriting in Beazley Insurance Company, Inc., Beazley America Insurance Company, Inc., and Beazley NewCo Captive Company, Inc. in the US;
to support underwriting in Beazley Insurance dac in Europe; and
to make acquisitions of insurance companies or managing general agents (MGAs) whose strategic goals are aligned with our own.

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The Group uses letters of credit (LOC) available under a syndicated short term banking facility led by Lloyds Banking Group plc to support Funds at Lloyd’s (FAL) requirements. Lloyd’s of London apply certain criteria to banks issuing LOCs as FAL, including minimum credit rating requirements and counterparty limits. Should any of the banks on the existing LOC facility breach Lloyd’s of London requirements, the Group might be asked to replace the LOC provided with alternative eligible issuer(s) and/or assets meeting Lloyd’s requirements. The creditworthiness of the counterparties on the facility is monitored by the Group on an ongoing basis. For more detail on the value of capital managed, please see pages 59 to 60. The Internal Model Solvency Capital Requirement is a dedicated quantitative review of syndicate models and it sets outs to be a key input to the Lloyd’s Internal Model. The Board’s strategy is to grow the dividend (excluding special dividend) by between 5% and 10% per year. Our capital management strategy is to carry some surplus capital to enable us to take advantage of growth opportunities which may arise. At 31 December 2021, we have surplus capital of 27% of ECR (on a Solvency II basis), just above our preferred target range of 15% to 25% of ECR.

2.10 Company risk

The company is exposed to the same interest rate and liquidity risk exposure experienced on its mutual borrowings with the Group. The Group’s exposure can be seen in sections 2.3b and 2.7. The company also experiences operational, regulatory and legal risks as defined in section 2.4 and 2.6.

3 Segmental analysis

a) Reporting segments

Segment information is presented in respect of reportable segments. These are based on the Group’s management and internal reporting structures and represent the level at which financial information is reported to the Executive Committee, being the chief operating decision-maker as defined in IFRS 8. The operating segments are based upon the different types of insurance risk underwritten by the Group, as described below:

Cyber & Executive Risk

This segment underwrites management liabilities such as employment practices risks and directors and officers, alongside cyber and technology, media and business services.

Marine

This segment underwrites a broad spectrum of marine classes including hull, energy, cargo and specie, piracy, satellite, aviation, kidnap & ransom and war risks.

Market Facilities

This segment underwrites entire portfolios of business with the aim of offering a low cost mechanism for placing follow business within the Lloyd’s market.

Political, Accident & Contingency

This segment underwrites terrorism, political violence, expropriation and credit risks as well as contingency and risks associated with contract frustration.# Notes to the financial statements continued

3 Segmental analysis continued

b) Segment information

2021

	Cyber & Executive Risk $m	Marine $m	Market Facilities $m	Political, Accident & Contingency $m	Property $m	Reinsurance $m	Specialty Lines $m	Total $m
Gross premiums written	1,515.6	376.5	198.2	322.8	586.5	226.1	1,393.2	4,618.9
Net premiums written	1,150.6	345.6	55.0	270.9	439.7	133.4	1,117.2	3,512.4
Net earned premiums	951.6	316.8	45.3	251.2	386.8	134.9	1,060.7	3,147.3
Net investment income	31.9	8.3	0.6	8.1	15.0	7.6	44.9	116.4
Other income	4.1	1.1	(0.3)	1.9	6.9	0.6	13.9	28.2
Gain from sale of business	–	–	–	54.4	–	–	–	54.4
Revenue	987.6	326.2	45.6	315.6	408.7	143.1	1,119.5	3,346.3
Net insurance claims	622.1	105.8	10.6	136.1	212.4	123.0	616.2	1,826.2
Expenses for the acquisition of insurance contracts	205.9	89.0	33.1	84.7	118.3	31.1	259.7	821.8
Administrative expenses	56.6	33.4	0.7	25.1	51.3	15.6	100.3	283.0
Foreign exchange loss	2.3	0.6	0.3	0.5	0.9	0.4	2.2	7.2
Expenses	886.9	228.8	44.7	246.4	382.9	170.1	978.4	2,938.2
Segment result	100.7	97.4	0.9	69.2	25.8	(27.0)	141.1	408.1
Finance costs	(38.9)
Profit before income tax								369.2
Income tax expense								(60.5)
Profit for the year attributable to equity shareholders								308.7
Claims ratio	65%	33%	23%	54%	55%	91%	58%	58%
Expense ratio	28%	39%	75%	44%	44%	35%	34%	35%
Combined ratio	93%	72%	98%	98%	99%	126%	92%	93%

Segment assets and liabilities

	Cyber & Executive Risk $m	Marine $m	Market Facilities $m	Political, Accident & Contingency $m	Property $m	Reinsurance $m	Specialty Lines $m	Total $m
Segment assets	3,953.7	761.8	339.8	698.3	1,351.1	814.1	4,888.6	12,807.4
Segment liabilities	(3,253.6)	(655.6)	(316.9)	(605.9)	(1,086.5)	(685.9)	(4,072.2)	(10,676.6)
Net assets	700.1	106.2	22.9	92.4	264.6	128.2	816.4	2,130.8

Additional information

	Cyber & Executive Risk $m	Marine $m	Market Facilities $m	Political, Accident & Contingency $m	Property $m	Reinsurance $m	Specialty Lines $m	Total $m
Capital expenditure	7.3	1.1	0.2	1.0	2.8	1.3	8.5	22.2
Amortisation and depreciation	(10.8)	(2.5)	(0.3)	(1.4)	(4.0)	(2.0)	(19.4)	(40.4)
Net cash flow	92.8	14.1	3.0	12.2	35.1	17.0	108.2	282.3

2020

	Cyber & Executive Risk $m	Marine $m	Market Facilities $m	Political, Accident & Contingency $m	Property $m	Reinsurance $m	Specialty Lines $m	Total $m
Gross premiums written	1,020.1	337.4	133.4	273.0	470.5	194.5	1,134.9	3,563.8
Net premiums written	864.6	309.4	37.3	227.1	389.9	126.9	961.8	2,917.0
Net earned premiums	787.2	297.1	27.9	213.8	360.7	124.3	882.4	2,693.4
Net investment income	53.6	12.8	0.5	10.6	21.4	11.9	77.3	188.1
Other income	2.8	1.7	0.1	4.1	5.1	1.7	14.3	29.8
Revenue	843.6	311.6	28.5	228.5	387.2	137.9	974.0	2,911.3
Net insurance claims	557.7	160.5	8.3	354.1	291.3	86.8	499.6	1,958.3
Expenses for the acquisition of insurance contracts	180.0	82.2	19.3	75.9	105.4	32.0	244.1	738.9
Administrative expenses	54.4	25.1	1.9	23.1	36.4	12.2	82.4	235.5
Foreign exchange gain	(3.3)	(1.2)	(0.1)	(0.9)	(1.5)	(0.5)	(3.7)	(11.2)
Expenses	788.8	266.6	29.4	452.2	431.6	130.5	822.4	2,921.5
Segment result	54.8	45.0	(0.9)	(223.7)	(44.4)	7.4	151.6	(10.2)
Finance costs	(40.2)
Loss before income tax								(50.4)
Income tax credit								4.3
Loss for the year attributable to equity shareholders								(46.1)
Claims ratio	71%	54%	30%	166%	81%	70%	57%	73%
Expense ratio	30%	36%	76%	46%	39%	35%	37%	36%
Combined ratio	101%	90%	106%	212%	120%	105%	94%	109%

Segment assets and liabilities

	Cyber & Executive Risk $m	Marine $m	Market Facilities $m	Political, Accident & Contingency $m	Property $m	Reinsurance $m	Specialty Lines $m	Total $m
Segment assets	2,909.9	707.4	182.5	786.3	1,216.7	734.1	4,050.8	10,587.7
Segment liabilities	(2,389.8)	(612.2)	(170.7)	(678.4)	(966.0)	(591.2)	(3,369.9)	(8,778.2)
Net assets	520.1	95.2	11.8	107.9	250.7	142.9	680.9	1,809.5

Additional information

	Cyber & Executive Risk $m	Marine $m	Market Facilities $m	Political, Accident & Contingency $m	Property $m	Reinsurance $m	Specialty Lines $m	Total $m
Capital expenditure	8.5	1.6	0.2	1.8	4.1	2.3	11.2	29.7
Amortisation and depreciation	(3.4)	(2.2)	(0.1)	(0.7)	(1.6)	(0.9)	(11.0)	(19.9)
Net cash flow	8.9	1.6	0.2	1.9	4.3	2.4	11.7	31.0

c) Information about geographical areas

The Group’s operating segments are also managed geographically by placement of risk. UK earned premium in the analysis below represents all risks placed at Lloyd’s; US earned premium represents all risks placed at the Group’s US insurance companies, Beazley Insurance Company, Inc. and Beazley America Insurance Company, Inc; and Europe earned premium represents all risks placed at the Group’s European insurance company, Beazley Insurance dac. An analysis of gross premiums written split geographically by placement of risk and by reportable segment is provided in note 2 on page 153.

Net earned premiums

	2021 $m	2020 $m
UK (Lloyd’s)	2,550.6	2,214.6
US (Non-Lloyd’s)	477.1	430.7
Europe (Non-Lloyd’s)	119.6	48.1
Total	3,147.3	2,693.4

Segment assets

	2021 $m	2020 $m
UK (Lloyd’s)	11,267.5	9,433.1
US (Non-Lloyd’s)	1,164.9	976.6
Europe (Non-Lloyd’s)	375.0	178.0
Total	12,807.4	10,587.7

Segment assets are allocated based on where the assets are located.

Capital expenditure

	2021 $m	2020 $m
Non-US	20.2	23.2
US	3.3	6.5
Total	23.5	29.7

4 Net investment income

	2021 $m	2020 $m
Interest and dividends on financial investments at fair value through profit or loss	76.5	110.7
Interest on cash and cash equivalents	–	0.2
Net realised gains on financial investments at fair value through profit or loss	79.8	46.3
Net unrealised fair value (losses)/gains on financial investments at fair value through profit or loss	(34.0)	36.7
Investment income from financial investments	122.3	193.9
Investment management expenses	(5.9)	(5.8)
Total	116.4	188.1

5a Other income

	2021 $m	2020 $m
Commissions received by Beazley service companies	19.4	23.6
Profit commissions from syndicates	3.8	(0.5)
Agency fees from syndicate 623	3.9	3.0
Other income	1.1	3.7
Total	28.2	29.8

Profit commissions
There is an agreement between syndicate 623 and Beazley Furlonge Limited (the managing agent) where the syndicate remunerates Beazley for writing business in parallel with syndicate 2623. As such, profitability of 623 is a performance criterion for this contract. The transaction price represents a fixed percentage on profit by YOA. No other variable considerations (for example: discounts, rebates, refunds, incentives) are attached. The value of a transaction price is derived at each reporting period from the actual profit syndicate 623 has made to date and therefore represents the most likely amount of consideration at the reporting date.

Commissions received from service companies
Commission is payable to the Group by syndicate 623 due to Group service companies writing business on behalf of the syndicate. While the commercial purpose of the contract is to pass business to syndicate 623, the remuneration is triggered by incurring expenses, irrespective of volume of business gained. The performance criterion is deemed to be the realisation of expenses.

Other income
The Group has received $0.1m of government grants relating to COVID-19 for wage relief for our Singapore employees (31 December 2020: $0.2m). These grants are deemed to be tax free in the hands of the employer. Under IAS 20: Government Grants, government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed.

5b Gain on sale of business

The Group has recognised a net gain on sale of $54.4m following the sale of the Beazley Benefits business, which provides group supplemental health benefits solutions through employers or affinity groups to employees. Beazley Benefits sits within the Political, Accident & Contingency segment in these financial statements. The sale was completed during 2021, and the transaction transferred the renewal rights on the business beginning effective 1 August 2021, the Minneapolis office lease, and the associated office furniture, fixtures and equipment. The transaction resulted in transfer of $0.1m of lease and other assets, and $0.1m of lease liabilities. The Group received closing proceeds of $56.7m and recognised closing costs of $2.3m.

6 Operating expenses

	2021 $m	2020 $m
Operating expenses include:
Amounts receivable by the auditor and associates in respect of:
– audit services for the Group and subsidiaries	2.7	2.4
– audit-related assurance services	1.1	1.0
– other non-audit services	0.6	0.5
Total auditor fees	4.4	3.9
Impairment (write-back)/loss on reinsurance assets	(3.3)	1.1

Other than the fees disclosed above, no other fees were paid to the company’s auditor.# Notes to the financial statements continued

7 Employee benefit expenses

	2021 $m	2020 $m
Wages and salaries	199.1	179.6
Short term incentive payments	82.5	39.1
Social security	26.6	17.5
Share based remuneration	11.6	3.0
Pension costs¹	15.7	13.0
	335.5	252.2
Recharged to syndicate	(48.5)	(33.2)
	287.0	219.0

¹ Pension costs also include contributions made under the defined contribution scheme. Further information on the defined benefit pension scheme can be found in note 27.

The average number of employees for 2021 was 1,617 (2020: 1,497).

8 Finance costs

	2021 $m	2020 $m
Interest expense on financial liabilities	35.2	37.8
Interest expense on lease liabilities	3.7	2.4
	38.9	40.2

9 Income tax expense

	2021 $m	2020 $m
Current tax expense
Current tax expense	64.0	12.9
Prior year adjustments	(7.5)	(6.5)
	56.5	6.4
Deferred tax expense
Origination and reversal of temporary differences	4.4	(12.1)
Impact of change in UK/US tax rates	(0.6)	(0.4)
Prior year adjustments	0.2	1.8
	4.0	(10.7)
Income tax charge/(credit)	60.5	(4.3)

9 Income tax expense continued

Reconciliation of tax expense

The weighted average of statutory tax rates applied to the (losses)/profits earned in each country in which the Group operates is 17.2% (2020: 2.0%), whereas the tax charged for the year ending 31 December 2021 as a percentage of (loss)/profit before tax is 16.4% (2020: 8.5%). The reasons for the difference are explained below:

	2021 $m	2021 %	2020 $m	2020 %
Profit/(loss) before tax	369.2	–	(50.4)	–
Tax calculated at the weighted average of statutory tax rate	63.3	17.2	(1.0)	2.0
Effects of:
– non-deductible expenses	3.5	1.0	2.1	(4.2)
– tax relief on remuneration	1.6	0.4	(0.4)	0.8
– over provided in prior years	(7.3)	(2.0)	(4.6)	9.1
– change in UK/US tax rates¹	(0.6)	(0.2)	(0.4)	0.8
Tax charge/(credit) for the period	60.5	16.4	(4.3)	8.5

¹ The Finance Act 2021, which provides for an increase in the UK corporation tax rate from 19% to 25% effective from 1 April 2023 received Royal Assent on 10 June 2021. This tax rate change to 25% will increase the Group’s future current tax charge. It has also been reflected in the calculation of the deferred tax balances as at 31 December 2021 for relevant temporary differences expected to reverse on or after 1 April 2023.

The Tax Act (the Tax Cuts and Jobs Act) was signed into law in the US in December 2017. The Tax Act includes base erosion anti-avoidance tax provisions (the “BEAT”). We have performed an assessment for our intra-group transactions potentially in scope of BEAT. The application of this new BEAT legislation is still uncertain for some types of transaction and we are keeping developments under review. With support from external advisors, we believe that the BEAT impact on the Group is not significant. For the year 2021 no amount was provided in the Group accounts for BEAT liabilities (for 2020 the Group provided $1.1m for BEAT tax). The ultimate outcome may differ and if any additional amounts did fall within the scope of the BEAT, incremental tax at 10% might arise on some or all of those amounts. The maximum exposure to BEAT can not be quantified as it would be subject to differing interpretations.

Amounts recognised directly in equity

Aggregate current and deferred tax arising in the reporting period and not recognised in net profits or loss or other comprehensive income but directly debited or (credited) to equity:

	2021 $m	2020 $m
Current tax: share based payments	–	(1.2)
Deferred tax: share based payments	3.9	5.4
	3.9	4.2

10 Earnings/(loss) per share

	2021	2020
Basic (cents)	50.9c	(8.0)c
Diluted (cents)	50.3c	(8.0)c
Basic (pence)	37.0p	(6.3)p
Diluted (pence)	36.5p	(6.3)p

Basic

Basic earnings/(loss) per share are calculated by dividing profit after tax of $308.7m (2020: Loss $46.1m) by the weighted average number of shares in issue during the year of 606.0m (2020: 573.8m). The shares held in the Employee Share Options Plan (ESOP) of 3.2m (2020: 3.8m) have been excluded from the calculation, until such time as they vest unconditionally with the employees.

10 Earnings/(loss) per share continued

Diluted

Diluted earnings/(loss) per share are calculated by dividing profit after tax of $308.7m (2020: Loss $46.1m) by the adjusted weighted average number of shares of 614.3m (2020: 582.6m). The adjusted weighted average number of shares assumes conversion of dilutive potential ordinary shares, being shares from the equity settled compensation schemes. The shares held in the ESOP of 3.2m (2020: 3.8m) have been excluded from the calculation, until such time as they vest unconditionally with the employees.

Further details of equity compensation plans can be found on note 23 as well as in the directors’ remuneration report on pages 95 to 113.

11 Dividends per share

After careful consideration the directors have concluded that after a year’s hiatus, they propose an interim dividend of 12.9p for 2021 (2020: nil) which represents a 5% increase on the combined first and second interim dividends declared in 2019 of 12.3p. The dividend will be payable on 30 March 2022 to Beazley plc shareholders registered at 5.00pm on 18 February 2022. The company expects the total amount to be paid in respect of the interim dividend to be approximately £78m. These financial statement do not provide for the interim dividend as a liability.

12 Intangible assets

	Goodwill $m	Syndicate capacity $m	Licences $m	IT development costs $m	Renewal rights $m	Total $m
Cost
Balance at 1 January 2020	72.0	10.7	9.3	87.8	60.0	239.8
Other additions	–	–	–	20.5	–	20.5
Foreign exchange gain	–	–	–	0.9	1.3	2.2
Balance at 31 December 2020	72.0	10.7	9.3	109.2	61.3	262.5
Balance at 1 January 2021	72.0	10.7	9.3	109.2	61.3	262.5
Disposal	–	–	–	(10.4)	–	(10.4)
Other additions	–	–	–	17.7	–	17.7
Foreign exchange (loss)/gain	–	–	–	(1.1)	0.1	(1.0)
Balance at 31 December 2021	72.0	10.7	9.3	115.4	61.4	268.8
Amortisation and impairment
Balance at 1 January 2020	(10.0)	–	–	(64.9)	(42.7)	(117.6)
Amortisation for the year	–	–	–	(8.1)	(8.6)	(16.7)
Foreign exchange loss	–	–	–	(0.6)	(1.3)	(1.9)
Balance at 31 December 2020	(10.0)	–	–	(73.6)	(52.6)	(136.2)
Balance at 1 January 2020	(10.0)	–	–	(73.6)	(52.6)	(136.2)
Disposal	–	–	–	10.4	–	10.4
Amortisation for the year	–	–	–	(12.4)	(8.1)	(20.5)
Foreign exchange gain/(loss)	–	–	–	1.3	(0.3)	1.0
Balance at 31 December 2021	(10.0)	–	–	(74.3)	(61.0)	(145.3)
Carrying amount
31 December 2021	62.0	10.7	9.3	41.1	0.4	123.5
31 December 2020	62.0	10.7	9.3	35.6	8.7	126.3

12 Intangible assets continued

Impairment tests

Goodwill, syndicate capacity and US insurance authorisation licences are deemed to have indefinite life as they are expected to have value in use that does not erode or become obsolete over the course of time. Consequently, they are not amortised but annually tested for impairment. For the purpose of impairment testing, they are allocated to the Group’s cash-generating units (CGUs) as follows:

	Cyber & Executive Risk $m	Marine $m	Market Facilities $m	Political, Accident & Contingency $m	Property $m	Reinsurance $m	Specialty Lines $m	Total $m
2021
Goodwill	1.5	2.3	–	29.6	24.9	0.8	2.9	62.0
Capacity	1.7	1.6	–	1.0	2.5	0.8	3.1	10.7
Licences	3.3	–	–	–	1.9	–	4.1	9.3
Total	6.5	3.9	–	30.6	29.3	1.6	10.1	82.0
2020
Goodwill	1.5	2.3	–	29.6	24.9	0.8	2.9	62.0
Capacity	1.7	1.6	–	1.0	2.5	0.8	3.1	10.7
Licences	3.3	–	–	–	1.9	–	4.1	9.3
Total	6.5	3.9	–	30.6	29.3	1.6	10.1	82.0

Value in use is defined as the present value of the future cash flows expected to be derived from the CGU and represents recoverable amount for goodwill. It is estimated by discounting future cash flows sourced from financial budgets approved by management which cover specific estimates for a five year period. The key assumptions used in the preparation of future cash flows are: premium growth rates, combined ratios, retention rates and expected future market conditions. A discount rate, based on weighted average cost of capital (WACC) of 9% (2020: 7%) has been applied to projected future cash flows. This has been calculated using independent measures of the risk-free rate of return and is indicative of the Group’s risk profile relative to the market. The impairment test for goodwill confirms that no impairment is required.

The Group has taken the following measures to ensure that the key assumptions used in deriving value in use for each CGU considers the potential adverse effects of these potential changes in economic and regulatory environments:

Projected combined ratio – The Group has used projected combined ratios consistent with its five year financial budgets. Sensitivity testing (a 2% increase in combined ratio for all classes and all years) has been performed to model the impact of reasonably possible changes in combined ratio to our base case impairment analysis and headroom. Within these ranges, the recoverable amounts remain supportable.
Future market conditions – to test the segment’s sensitivity to variances (including those caused by the factors listed above) from forecast profits, the discount rate has been flexed to 5% above and 5% below the central assumption. Within this range, the recovery of goodwill was stress tested and remains supportable across all CGUs. Headroom was calculated in respect of the value in use of all the Group’s other intangible assets.
Premium growth rates/Retention rates – The group has used a terminal growth rate of 0% (2020: 0%) to extrapolate projections beyond the covered five year period.# Notes to the financial statements continued

12 Intangible assets continued

The Group’s intangible assets relating to syndicate capacity is allocated across all CGUs. The fair value of syndicate capacity can be determined from the latest Lloyds of London capacity auctions. Based upon the latest market prices, management concludes that the fair value exceeds the carrying amount and as such no impairment is necessary.

US insurance authorisation licences represent the privilege to write insurance business in particular states in the US. Licences are allocated to the relevant CGU. There is no active market for licences, therefore the recoverable amount is deemed to be the fair value. As described above, a WACC discount rate applied to projected future cash flows sourced from management approved budgets. Key assumptions are the same as those outlined above. Based upon all available evidence the results of the testing indicate that no impairment is required.

13 Plant and equipment

	Company Fixtures & fittings $m	Group Fixtures & fittings $m	Computer equipment $m	Total $m
Cost
Balance at 1 January 2020	–	27.7	10.3	38.0
Additions	–	9.2	3.7	12.9
Foreign exchange gain	–	0.9	0.3	1.2
Balance at 31 December 2020	–	37.8	14.3	52.1
Balance at 1 January 2021	–	37.8	14.3	52.1
Additions	–	3.8	0.7	4.5
Disposals	–	(9.7)	–	(9.7)
Foreign exchange gain/(loss)	–	0.7	(0.1)	0.6
Balance at 31 December 2021	–	32.6	14.9	47.5
Accumulated Depreciation
Balance at 1 January 2020	–	(21.1)	(8.0)	(29.1)
Depreciation charge for the year	–	(1.9)	(1.3)	(3.2)
Foreign exchange gain/(loss)	–	0.1	(0.2)	(0.1)
Balance at 31 December 2020	–	(22.9)	(9.5)	(32.4)
Balance at 1 January 2021	–	(22.9)	(9.5)	(32.4)
Depreciation charge for the year	–	(2.3)	(2.6)	(4.9)
Disposals	–	9.7	–	9.7
Foreign exchange (loss)	–	(0.5)	(0.2)	(0.7)
Balance at 31 December 2021	–	(16.0)	(12.3)	(28.3)
Carrying amounts
31 December 2021	–	16.6	2.6	19.2
31 December 2020	–	14.9	4.8	19.7

14 Investment in associates

	Group 2021 $m	Group 2020 $m
As at 1 January	0.3	0.1
Investment in CyberAcuView LLC	0.3	0.3
Investment in other associates	–	–
Share of loss after tax	–	(0.1)
As at 31 December	0.6	0.3

The Group’s investment in associates consists of:

Country/region of incorporation	% interest held	Carrying value $m 2021	Carrying value $m 2020
Falcon Money Management Holdings Limited (and subsidiaries)	Malta	25%	–
Pegasus Underwriting Limited	Hong Kong	33%	–
CyberAcuView LLC	New York	13%	0.6

1 259 St Paul Street, Valletta, Malta.
2 221 West 6th Street, Suite 301, Austin TX 78701, USA.
3 Suite 126, 12/F Somptuex Central, 52-54 Wellington Street, Hong Kong.
4 106 W 32nd Street, New York.

The CyberAcuView LLC Board is charged with governance over its affairs. The Board is composed of individuals who are selected by the investors. The Group has the ability to appoint a member to the Board of CyberAcuView LLC to represent the Group’s interest. As a result, the Group is deemed to have significant influence over CyberAcuView LLC and therefore this investment is recognised as an associate.

The aggregate financial information for all associates (100%) held at 31 December 2021 is as follows:

	2021 $m	2020 $m
Assets	9.6	6.5
Liabilities	5.9	4.5
Equity	3.7	2.0
Revenue	4.7	4.3
(Loss)/profit after tax	(0.7)	0.2
Share of total comprehensive income	–	–

All of the investments in associates are unlisted and are equity accounted using available financial information as at 31 December 2021. Falcon Money Management Holdings Limited is an investment management company which also acts in an intermediary capacity.

15 Deferred acquisition costs

	2021 $m	2020 $m
Balance at 1 January	384.9	350.7
Additions	914.7	773.1
Amortisation charge	(821.8)	(738.9)
Balance at 31 December	477.8	384.9

16 Financial assets and liabilities

	2021 $m	2020 $m
Financial assets at fair value
Fixed and floating rate debt securities:
– Government issued	4,008.1	2,723.7
Corporate bonds – Investment grade	1,861.9	2,444.9
– High yield	402.3	251.1
Syndicate loans	37.9	40.6
Total fixed and floating rate debt securities and syndicate loans	6,310.2	5,460.3
Equity funds	209.6	203.2
Hedge funds	478.2	442.1
Illiquid credit assets	277.9	227.9
Total capital growth assets	965.7	873.2
Total financial investments at fair value through statement of profit or loss	7,275.9	6,333.5
Derivative financial assets	7.6	28.5
Total financial assets at fair value	7,283.5	6,362.0

Investment corporate bonds are rated BBB-/Baa3 or higher by at least one major rating agency, while high yield corporate bonds have lower credit ratings. Hedge funds are investment vehicles pursuing alternative investment strategies, structured to have minimal correlation to traditional asset classes. Equity funds are investment vehicles which invest in equity securities and provide diversified exposure to global equity markets. Illiquid credit assets are investment vehicles that predominantly target private lending opportunities, often with longer investment horizons.

The fair value of these assets at 31 December 2021 excludes an unfunded commitment of $40.5m (2020: $49.3m).

The amounts expected to mature within and after one year are:

	2021 $m	2020 $m
Within one year	1,409.4	1,407.1
After one year	4,908.4	4,081.7
Total	6,317.8	5,488.8

Our capital growth assets have no defined maturity dates and have thus been excluded from the above maturity table. However, all $209.6m (2020: $203.2m) of equity funds could be liquidated within two weeks, $378.1m (2020: $267.7m) of hedge fund assets within six months and the remaining $100.0m (2020: $174.4m) of hedge fund assets within 18 months, in normal market conditions. Illiquid credit assets are not readily realisable and principal will be returned over the life of these assets, which may be up to 12 years.

As noted on page 146 consideration is also given when valuing the hedge funds and illiquid credit funds to the timing of the latest valuations, and the impact of any significant market stress events. The adjustment to the underlying net asset value of the funds as a result of these considerations was $nil at 31 December 2021 (2020: $nil).

	Financial liabilities 2021 $m	Financial liabilities 2020 $m
Tier 2 subordinated debt (2026)	(249.2)	(249.0)
Tier 2 subordinated debt (2029)	(298.4)	(298.1)
Derivative financial liabilities	(7.1)	(11.4)
Total financial liabilities	(554.7)	(558.5)

The amounts expected to mature before and after one year are:

	2021 $m	2020 $m
Within one year	7.1	11.4
After one year	547.6	547.1
	554.7	558.5

A breakdown of the Group’s investment portfolio is provided on page 56. A breakdown of derivative financial instruments is disclosed in note 17. The tier 2 subordinated debt (2029) was issued in 2019. Tier 2 subordinated debt (2026) was issued in 2016. Please refer to note 25 for further details of our borrowings and associated repayment terms. The Group has given a fixed and floating charge over certain of its investments and other assets to secure obligations to Lloyd’s in respect of its corporate member subsidiary. Further details are provided in note 32.

Valuation hierarchy

The table below summarises financial assets carried at fair value using a valuation hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

Level 1 – Valuations based on quoted prices in active markets for identical instruments. An active market is a market in which transactions for the instrument occur with sufficient frequency and volume on an ongoing basis such that quoted prices reflect prices at which an orderly transaction would take place between market participants at the measurement date. Included within level 1 are bonds, treasury bills of government and government agencies, corporate bonds and equity funds which are measured based on quoted prices in active markets.
Level 2 – Valuations based on quoted prices in markets that are not active, or based on pricing models for which significant inputs can be corroborated by observable market data (e.g. interest rates and exchange rates). Included within level 2 are government bonds and treasury bills, equity funds and corporate bonds which are not actively traded, hedge funds and senior secured loans.
Level 3 – Valuations based on inputs that are unobservable or for which there is limited market activity against which to measure fair value. The availability of financial data can vary for different financial assets and is affected by a wide variety of factors, including the type of financial instrument, whether it is new and not yet established in the marketplace, and other characteristics specific to each transaction. To the extent that valuation is based on models or inputs that are unobservable in the market, the determination of fair value requires more judgement. Accordingly the degree of judgement exercised by management in determining fair value is greatest for instruments classified in level 3.

The Group uses prices and inputs that are current as of the measurement date for valuation of these instruments. If the inputs used to measure the fair value of an asset or a liability could be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.The Group has an established control framework and valuation policy with respect to the measurement of fair values.

Level 2 investments

For the Group’s level 2 debt securities our fund administrator obtains the prices used in the valuation from independent pricing vendors such as Bloomberg, Standard & Poor’s, Reuters, Markit and International Data Corporation. The independent pricing vendors derive an evaluated price from observable market inputs. The market inputs include trade data, two-sided markets, institutional bids, comparable trades, dealer quotes, news media, and other relevant market data. These inputs are verified in their pricing engines and calibrated with the pricing models to calculate spread to benchmarks, as well as other pricing assumptions such as Weighted Average life (WM), Discount Margins (DM), Default rates, and recovery and prepayments assumptions for mortgage securities. While such valuations are sensitive to estimates, it is believed that changing one or more of the assumptions to reasonably possible alternative assumptions would not change the fair value significantly. The Group records the unadjusted price provided and validates the price through various tolerance checks, such as comparison with prices provided by investment custodians and investment managers, to assess the reasonableness and accuracy of the price to be used to value each security. In the rare case that a price fails the tolerance test, it is escalated and discussed internally. We would not normally override a price retrospectively, but we would work with the administrator and pricing vendor to investigate the difference. This generally results in the vendor updating their inputs. We also review our valuation policy on a regular basis to ensure it is fit for purpose. For the year ended 31 December 2021, no adjustments have been made to the prices obtained from the independent sources.

For our hedge funds and equity funds, the pricing and valuation of each fund is undertaken by administrators in accordance with each underlying fund’s valuation policy. For the equity funds, the individual fund prices are published on a daily, weekly or monthly basis via Bloomberg and other market data providers such as Reuters. For the hedge funds, the individual fund prices are communicated by the administrators to all investors via the monthly investor statements. The fair value of the hedge fund and equity fund portfolios are calculated by reference to the underlying net asset values of each of the individual funds.

Additional information is obtained from fund managers relating to the underlying assets within individual hedge funds. We identified that 78% (31 December 2020: 81%) of these underlying assets were level 1 and the remainder level 2. This enables us to categorise our hedge fund as level 2. Prior to any new hedge fund investment, extensive due diligence is undertaken on each fund to ensure that pricing and valuation is undertaken by an independent administrator and that each fund’s valuation policy is appropriate for the financial instruments the manager will be employing to execute the investment strategy. Fund liquidity terms are reviewed prior to the execution of any investment to ensure that there is no mismatch between the liquidity of the underlying fund assets and the liquidity terms offered to fund investors. As part of the monitoring process, underlying fund subscriptions and redemptions are assessed by reconciling the increase or decrease in fund assets with the investment performance in any given period.

Level 3 investments

The Group’s level 3 investments consist of illiquid credit assets and Lloyd’s syndicate loans.

(i) Illiquid credit assets

Within the Group’s level 3 investments we have a diversified portfolio of illiquid credit fund investments managed by third party managers (generally closed ended limited partnerships or open ended funds). While the funds provide full transparency on their underlying investments, the investments themselves are predominantly in private and unquoted instruments and are therefore classified as level 3 investments. Closed-ended funds that are still in their investment period continue to draw down capital, whilst funds that are in their harvest period distribute capital as the underlying investments are realised. The valuation techniques used by the fund managers to establish the fair value of the underlying private/unquoted investments may incorporate discounted cash flow models or a more market based approach, whilst the main inputs might include discount rates, fundamental pricing multiples, recent transaction prices, or comparable market information to create a benchmark multiple.

We take the following steps to ensure accurate valuation of these level 3 assets. A substantial part of the pre-investment due diligence process is dedicated to a comprehensive review of each fund’s valuation policy and the internal controls of the manager. In addition to this, confirmation that the investment reaches a minimum set of standards relating to the independence of service providers, corporate governance, and transparency is sought prior to approval. Post investment, quarterly capital statements are reviewed to ensure consistency between audited and unaudited valuations and compare the updated values to the estimated figures used in previous valuations in order to highlight and explain any discrepancies. Particular emphasis is placed on identifying assets that have been either marked up or down, as well as whether any specific assets are at particular risk due to prevailing economic/market conditions. The review also involves regular conversations with the managers and industry sources, particularly in times of market stress. Audited financial statements are received and reviewed on an annual basis, with the valuation of each transaction being confirmed. For the Group’s annual and interim accounts, we use the latest fund valuation statements, which are typically as at the previous quarter or month end. To ensure that values are materially correct at the reporting date, all fund managers are contacted to confirm whether there has been a material impairment to the fund valuations since the most recent valuation date. In the event that a manager confirms a material impairment since the latest valuation date, we would make a downwards revision to the value of our fund holding based on the manager’s assessment. Furthermore, during major stress events in public financial markets (defined as >10% fall in leveraged loan market indices during a calendar quarter), such as the macroeconomic uncertainty caused by COVID-19 in Q1 2020, we would consider adjusting the valuations of all level 3 fund holdings to account for material impairment in the valuation between the latest valuation date and the reporting date. The magnitude and breadth of any broader portfolio impairment would be dependent on the specific situation.

(ii) Syndicate loans

These are loans provided by our Group syndicates to the Central Fund at Lloyd’s in respect of the 2019 and 2020 underwriting years. These instruments are not tradeable and are valued using discounted cash flow models, designed to appropriately reflect the credit and illiquidity risk of the instruments. The syndicate loans have been classified as level 3 investments because the valuation approach includes significant unobservable inputs and an element of subjectivity in determining appropriate credit and illiquidity spreads within the discount rates used in the discounted cash flow model. There is no market in which the instruments can be traded.

Notes to the ﬁnancial statements continued

178

Beazley | Annual report 2021

www.beazley.com

16 Financial assets and liabilities continued

The following table shows the fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy.

	Level 1 $m	Level 2 $m	Level 3 $m	Total $m
2021
Financial assets measured at fair value
Fixed and floating rate debt securities – Government issued	3,513.2	494.9	–	4,008.1
– Corporate bonds – Investment grade	802.8	1,059.1	–	1,861.9
– High yield	82.1	320.2	–	402.3
Syndicate loans	–	–	37.9	37.9
Equity funds	209.6	–	–	209.6
Hedge funds	–	478.2	–	478.2
Illiquid credit assets	–	–	277.9	277.9
Derivative financial assets	7.6	–	–	7.6
Total financial assets measured at fair value	4,615.3	2,352.4	315.8	7,283.5

Financial liabilities measured at fair value
Derivative financial liabilities	7.1	–	–	7.1

Financial liabilities not measured at fair value
Tier 2 subordinated debt (2029)	–	334.6	–	334.6
Tier 2 subordinated debt (2026)	–	279.0	–	279.0
Total financial liabilities not measured at fair value	7.1	613.6	–	620.7

2020
Financial assets measured at fair value
Fixed and floating rate debt securities – Government issued	2,637.8	85.9	–	2,723.7
– Corporate bonds – Investment grade	1,148.3	1,296.6	–	2,444.9
– High yield	103.0	148.1	–	251.1
Syndicate loans	–	–	40.6	40.6
Equity funds	203.2	–	–	203.2
Hedge funds	–	442.1	–	442.1
Illiquid credit assets	–	–	227.9	227.9

16 Financial assets and liabilities continued

	2021 $m	2020 $m
Derivative financial assets	28.5	–	–	28.5
Total financial assets measured at fair value	4,120.8	1,972.7	268.5	6,362.0
Financial liabilities measured at fair value
Derivative financial liabilities	11.4	–	–	11.4
Financial liabilities not measured at fair value
Tier 2 subordinated debt (2029)	–	320.5	–	320.5
Tier 2 subordinated debt (2026)	–	271.0	–	271.0
Total financial liabilities not measured at fair value	11.4	591.5	–	602.9

www.beazley.com | Beazley | Annual report 2021 | 179

The table above does not include financial assets and liabilities that are, in accordance with the Group’s accounting policies, recorded at amortised cost, if the carrying amount of these financial assets and liabilities approximates their fair values at the reporting date. Cash and cash equivalents have not been included in the table above; however, the full amount of cash and cash equivalents would be classified under level 1 in both the current and prior year.

Transfers

The Group determines whether transfers have occurred between levels in the fair value hierarchy by assessing categorisation at the end of the reporting period. The following transfers between levels 1 & 2 for the period ended 31 December 2021 reflect the level of trading activities including frequency and volume derived from market data obtained from an independent external valuation tool.

31 December 2021 vs 31 December 2020 transfer from level 2 to level 1

	Level 1 $m	Level 2 $m
Corporate Bonds – Investment grade	–	(156.2)
Government issued	156.2	39.7

31 December 2021 vs 31 December 2020 transfer from level 1 to level 2

	Level 1 $m	Level 2 $m
Corporate Bonds – Investment grade	(418.3)	418.3

The values shown in the transfer tables above are translated at foreign exchange rate as at 31 December 2021.

Level 3 investment reconciliations

The table below shows a reconciliation from the opening balances to the closing balances of level 3 fair values.

	2021 $m	2020 $m
As at 1 January	268.5	216.6
Purchases	87.1	94.3
Sales	(60.2)	(56.9)
Reclass from level 2	–	8.2
Realised gain	12.1	8.1
Unrealised gain/(loss)	8.3	(1.9)
As at 31 December	315.8	268.5

Unconsolidated structured entities

A structured entity is defined as an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only, or when the relevant activities are directed by means of contractual arrangements. As part of its standard investment activities the Group holds fixed interest investments in high yield bond funds, as well as capital growth investments in equity funds, hedge funds and illiquid credit assets which in accordance with IFRS 12 are classified as unconsolidated structured entities. The Group does not sponsor any of the unconsolidated structured entities. The assets classified as unconsolidated structured entities are held at fair value on the statement of financial position.

Notes to the ﬁnancial statements continued | 180 | Beazley | Annual report 2021 | www.beazley.com

16 Financial assets and liabilities continued

As at 31 December the investments comprising the Group’s unconsolidated structured entities are as follows:

	2021 $m	2020 $m
High yield bond funds	402.3	251.1
Equity funds	209.6	203.2
Hedge funds	478.2	442.1
Illiquid credit assets	277.9	227.9
Investments through unconsolidated structured entities	1,368.0	1,124.3

Apart from a relatively small exposure to high yield bond funds, our unconsolidated structured entity exposures fall within our capital growth assets. The capital growth assets are held in investee funds managed by asset managers who apply various investment strategies to accomplish their respective investment objectives. The Group’s investments in investee funds are subject to the terms and conditions of the respective investee fund’s offering documentation and are susceptible to market price risk arising from uncertainties about future values of those investee funds. Investment decisions are made after extensive due diligence on the underlying fund, its strategy and the overall quality of the underlying fund’s manager and assets. All the investee funds in the investment portfolio are managed by portfolio managers who are compensated by the respective investee funds for their services. Such compensation generally consists of an asset-based fee and a performance-based incentive fee and is reflected in the valuation of the fund’s investment in each of the investee funds. The right to sell or request redemption of investments in high yield bond funds, asset backed securities, equity funds and hedge funds ranges in frequency from daily to semi-annually. The Group did not sponsor any of the respective structured entities. These investments are included in financial assets at fair value through profit or loss in the statement of financial position. The Group’s maximum exposure to loss from its interests in investee funds is equal to the total fair value of its investments in investee funds and unfunded commitments. Once the Group has disposed of its shares in an investee fund, it ceases to be exposed to any risk from that investee fund. As described in note 2 to the financial statements, the Group monitors and manages its currency exposures to net assets and financial assets held at fair value.

Currency exposures

The currency exposures of our financial assets held at fair value are detailed below:

2021

	UK £ $m	CAD $ $m	EUR € $m	Subtotal $m	US $ $m	Total $m
Financial assets at fair value
Fixed and floating rate debt securities	465.0	341.4	–	806.4	5,465.9	6,272.3
Syndicate loans	37.9	–	–	37.9	–	37.9
Equity funds	–	–	–	–	209.6	209.6
Hedge funds	–	–	–	–	478.2	478.2
Illiquid credit assets	0.5	–	39.8	40.3	237.6	277.9
Derivative financial assets	–	–	–	–	7.6	7.6
Total	503.4	341.4	39.8	884.6	6,398.9	7,283.5

2020

	UK £ $m	CAD $ $m	EUR € $m	Subtotal $m	US $ $m	Total $m
Financial assets at fair value
Fixed and floating rate debt securities	15.1	248.6	–	263.7	5,156.0	5,419.7
Syndicate loans	40.6	–	–	40.6	–	40.6
Equity funds	–	–	–	–	203.2	203.2
Hedge funds	–	–	–	–	442.1	442.1
Illiquid credit assets	3.2	–	34.6	37.8	190.1	227.9
Derivative financial assets	–	–	–	–	28.5	28.5
Total	58.9	248.6	34.6	342.1	6,019.9	6,362.0

The above qualitative and quantitative disclosure along with the risk management discussions in note 2 enable more comprehensive evaluation of Beazley’s exposure to risks arising from financial instruments.

www.beazley.com | Beazley | Annual report 2021 | 181

17 Derivative financial instruments

In 2020 and 2021 the Group entered into over-the-counter and exchange traded derivative contracts. The Group had the right and the intention to settle each contract on a net basis. The assets and liabilities of these contracts at 31 December are detailed below:

Derivative financial instrument assets

	2021	2020
	Gross contract amount $m	Market value of derivative position $m
Foreign exchange forward contracts	317.8	7.3
Bond futures contract	522.7	0.3
Total	840.5	7.6

Derivative financial instrument liabilities

	2021	2020
	Gross contract amount $m	Market value of derivative position $m
Foreign exchange forward contracts	351.4	(7.1)
Bond futures contract	141.2	–
Total	492.6	(7.1)

Foreign exchange forward contracts

The Group entered into over-the-counter foreign exchange forward agreements in order to economically hedge the foreign currency exposure resulting from transactions and balances held in currencies that are different to the functional currency of the Group.

Bond futures positions

The Group entered in bond futures transactions for the purpose of efficiently managing the term structure of its interest rate exposures. A negative gross contract amount represents a notional short position that generates positive fair value as interest rates rise.

18 Insurance receivables

	2021 $m	2020 $m
Insurance receivables	1,696.1	1,467.9
	1,696.1	1,467.9

These are receivables due within one year and relate to business transacted with brokers and intermediaries. All insurance receivables are classified as loans and receivables and their carrying values approximate fair value at the reporting date. Insurance receivables in respect of coverholder business are credit controlled by third-party managers. We monitor third-party coverholders’ performance and their financial processes through the Group’s coverholder management team. These assets are individually impaired after considering information such as the occurrence of significant changes in the counterparties’ financial position, patterns of historical payment information and disputes with counterparties.

Notes to the ﬁnancial statements continued | 182 | Beazley | Annual report 2021 | www.beazley.com

19 Reinsurance assets

	2021 $m	2020 $m
Reinsurers’ share of claims	1,840.9	1,320.4
Impairment provision	(11.5)	(14.8)
	1,829.4	1,305.6
Reinsurers’ share of unearned premium reserve	557.0	379.1
	2,386.4	1,684.7

The total impairment provision in the statement of financial position in respect of reinsurance assets past due by more than 30 days at 31 December was $2.1m (2020: $3.0m). This 2.1m provision in respect of overdue reinsurance recoverables is included within the total provision of $11.5m. Further analysis of the reinsurance assets is provided in note 24.

20 Cash and cash equivalents

Group

	2021 $m	2020 $m
Cash at bank and in hand	591.8	309.5

Company

	2021 $m	2020 $m
Cash at bank and in hand	0.3	0.9

21 Share capital

	2021	2020
	No. of shares (m)	$m
	No.	$m

Financial statements

22 Other reserves

	Employee share options reserve $m	Employee share trust reserve $m	Total $m
Group
Balance at 1 January 2020	35.6	(32.0)	3.6
Share based payments	2.8	–	2.8
Acquisition of own shares held in trust	–	(13.6)	(13.6)
Tax on share option vestings	(5.4)	–	(5.4)
Transfer of shares to employees	(17.0)	20.2	3.2
Balance at 31 December 2020	16.0	(25.4)	(9.4)
Share based payments	11.0	–	11.0
Tax on share option vestings	(3.9)	–	(3.9)
Transfer of shares to employees	(6.1)	4.4	(1.7)
Balance at 31 December 2021	17.0	(21.0)	(4.0)

	Employee share options reserve $m	Employee share trust reserve $m	Total $m
Company
Balance at 1 January 2020	1.0	(10.3)	(9.3)
Share based payments	2.8	–	2.8
Acquisition of own shares held in trust	–	(13.6)	(13.6)
Transfer of shares to employees	(17.0)	20.2	3.2
Balance at 31 December 2020	(13.2)	(3.7)	(16.9)
Share based payments	11.0	–	11.0
Transfer of shares to employees	(6.1)	4.4	(1.7)
Balance at 31 December 2021	(8.3)	0.7	(7.6)

The merger reserve is shown within the statement of changes in equity as a separate category and as such has been excluded from the other reserves note. The employee share options reserve is held in accordance with IFRS 2: Share-based payment. For more information refer to note 23.2. More information on the employee share trust reserve is included in note 23.

Notes to the ﬁnancial statements continued

23 Equity compensation plans

23.1 Employee share trust

	2021		2020
	Number (m)	$m	Number (m)	$m
Movements in employee share trust reserve
Balance at 1 January	3.7	25.4	4.8	32.0
Additions	–	–	2.0	13.6
Transfer of shares to employees	(0.6)	(4.4)	(3.1)	(20.2)
Balance at 31 December	3.1	21.0	3.7	(25.4)

The shares are owned by the employee share trust to satisfy awards under the Group’s deferred share plan, retention plan, one-off share incentive plan and long term incentive plan (LTIP). These shares are purchased on the market and carried at cost. On the third anniversary of an award the shares under the deferred share plan are transferred from the trust to the employee. Under the retention plan, on the third anniversary, and each year after that up to the sixth anniversary, 25.0% of the shares awarded are transferred to the employee. The deferred share plan is recognised in the statement of profit or loss on a straight-line basis over a period of three years, while the retention share plan is recognised in the statement of profit or loss on a straight-line basis over a period of six years.

23.2 Employee share option plans

The Group has a long term incentive plan (LTIP), one-off share incentive plan, deferred share plan, retention plan and save-as-you-earn (SAYE) plan that entitle employees to purchase shares in the Group. The terms and conditions of the grants are as follows:

Share option plan	Grant date	No. of options (m)	Vesting conditions	Contractual life of options
LTIP	10/02/2021	2.4	Five year’s service + NAV + minimum shareholding requirement	10 years
	11/02/2020	1.3
	12/02/2019	1.2
	13/02/2018	0.9
	08/02/2017	1.2
LTIP	10/02/2021	2.4	Three year’s service + NAV + minimum shareholding requirement	10 years
	11/02/2020	1.3
	12/02/2019	1.2
SAYE (UK)	30/03/2021	1.8	Three years’ service	N/A
	30/03/2020	0.2
	01/04/2019	0.2
	04/04/2018	0.3
SAYE (US)	02/06/2021	0.1	Two years’ service	N/A
	01/06/2020	0.2
SAYE (Others)	30/03/2021	0.2	Two years’ service	N/A
Total share options outstanding	14.9

Vesting conditions

In summary the vesting conditions are defined as:
* two years’ service – an employee has to remain in employment until the second anniversary from the grant date;
* three years’ service – an employee has to remain in employment until the third anniversary from the grant date; and
* NAV – the NAV growth, after adjusting for the effect of dividends, is greater than the risk-free rate of return plus a premium per year.

Further details of equity compensation plans can be found in the directors’ remuneration report on pages 95 to 113. The total gain on directors’ exercises of share-option plans during the period was nil (2020: £0.5m).

The number and weighted average exercise prices of share options are as follows:

	2021		2020
	Weighted average exercise price (pence per share)	No. of options (m)	Weighted average exercise price (pence per share)	No. of options (m)
Outstanding at 1 January	63.5	13.6	50.7	14.6
Forfeited during the year	58.0	(5.8)	60.2	(3.1)
Exercised during the year	25.0	1	(0.3)	84.7
Granted during the year	2	(2.0)	80.9	7.4
Outstanding at 31 December	80.7	14.9	63.5	13.6
Exercisable at 31 December	–	–	–	–

1 The weighted average share price at the date of exercise of these options was 366.2p.
2 The weighted average share price at the date of exercise of these options was 537.5p.

The range of exercise prices for options outstanding at the end of the year was £0 to £4.56 (2020: £0 to £4.56). The weighted average remaining contractual life for the outstanding options at end of the year was 1.87 years (2020: 1.69 years).

The share option programmes allow Group employees to acquire shares of the company. The fair value of options granted is recognised as an employee expense with a corresponding increase in the employee share options reserve. The fair value of the options granted is measured at grant date and spread over the period in which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using the Black Scholes model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest.

The following is a summary of the assumptions used to calculate the fair value:

	2021 ($m)	2020 ($m)
Share options charge to employee share options reserve	11.6	2.8
LTIP
Weighted average share price (pence per option)	366.6	595.5
Weighted average fair value (pence per option)	367.0	595.5
Weighted average exercise price (pence per option)	–	–
Average expected life of options	4.3yrs	4.5yrs
Expected volatility	36.4%	22.1%
Expected dividend yield	–	–
Average risk-free interest rate	0.4%	1.4%
SAYE
Weighted average share price (pence per option)	348.7	393.2
Weighted average fair value (pence per option)	95.0	79.6
Weighted average exercise price (pence per option)	287.8	346.6
Average expected life of options	3.3yrs	3.2yrs
Expected volatility	36.6%	29.1%
Expected dividend yield	3.2%	3.4%
Average risk-free interest rate	0.4%	0.3%

The expected volatility is based on historic volatility over a period of at least two years.

Notes to the ﬁnancial statements continued

24 Insurance liabilities and reinsurance assets

	2021 ($m)	2020 ($m)
Gross
Claims reported and loss adjustment expenses	1,6 27.4	1,507.3
Claims incurred but not reported	4,771.7	3,855.3
Unexpired risk reserve	–	91.5
Gross claims liabilities	6,399.1	5,454.1
Unearned premiums	2,472.7	1,924.3
Total insurance liabilities, gross	8,871.8	7,378.4
Recoverable from reinsurers
Claims reported and loss adjustment expenses	371.4	262.2
Claims incurred but not reported	1,458.0	1,034.4
Unexpired risk reserve	–	9.0
Reinsurers' share of claims liabilities	1,829.4	1,305.6
Unearned premiums	557.0	379.1
Total reinsurers' share of insurance liabilities	2,386.4	1,684.7

	2021 ($m)	2020 ($m)
Net
Claims reported and loss adjustment expenses	1,256.0	1,245.1
Claims incurred but not reported	3,313.7	2,820.9
Unexpired risk reserve	–	82.5
Net claims liabilities	4,569.7	4,148.5
Unearned premiums	1,915.7	1,545.2
Total insurance liabilities, net	6,485.4	5,693.7

The gross claims reported, the loss adjustment liabilities and the liabilities for claims incurred but not reported are net of recoveries from salvage and subrogation.

24.1 Movements in insurance liabilities and reinsurance assets

a) Claims and loss adjustment expenses


	2021 Gross $m	Reinsurance $m	Net $m	2020 Gross $m	Reinsurance $m
Claims reported and loss adjustment expenses	1, 507. 3	(262.2)	1,245.1	1,263.7	(223.7)
Claims incurred but not reported	3,855.3	(1,034.4)	2,820.9	3,196.6	(845.1)
Unexpired risk reserve	91.5	(9.0)	82.5	–	–
Balance at 1 January	5,454.1	(1,305.6)	4,148.5	4,460.3	(1,068.8)
Claims paid	(1,718.5)	378.9	(1,339.6)	(1,671.1)	404.7
Increase in claims
Arising from current year claims	2,911.5	(875.5)	2,036.0	2,698.2	(646.8)
Arising from prior year claims	(177.
## 24 Insurance liabilities and reinsurance assets continued

b) Unearned premiums reserve

	2021			2020
	Gross $m	Reinsurance $m	Net $m	Gross $m	Reinsurance $m	Net $m
Balance at 1 January	1,924.3	(379.1)	1,545.2	1,598.7	(269.4)	1,329.3
Increase in the year	4,618.9	(1,122.8)	3,496.1	3,563.8	(655.7)	2,908.1
Release in the year	(4,070.5)	944.9	(3,125.6)	(3,238.2)	546.0	(2,692.2)
Balance at 31 December	2,472.7	(557.0)	1,915.7	1,924.3	(379.1)	1,545.2

24.2 Assumptions, changes in assumptions and claims reserve strength analysis

a) Process used to decide on assumptions

The peer review reserving process
Beazley uses a quarterly dual track process to set its reserves:
* the actuarial team uses several actuarial and statistical methods to estimate the ultimate premium and claims costs, with the most appropriate methods selected depending on the nature of each class of business; and
* the underwriting teams concurrently review the development of the incurred loss ratio over time, work with our claims managers to set reserve estimates for identified claims and utilise their detailed understanding of both risks underwritten and the nature of the claims to establish an alternative estimate of ultimate claims cost, which is compared to the actuarially established figures.

A formal internal peer review process is then undertaken to determine the reserves held for accounting purposes which, in totality, are not lower than the actuarially established figure. The Group has a consistent reserving philosophy, with initial reserves being set to include risk margins which may be released over time as uncertainty reduces.

Actuarial assumptions
Chain-ladder techniques are applied to premiums, paid claims and incurred claims (i.e. paid claims plus case estimates). The basic technique involves the analysis of historical claims development factors and the selection of estimated development factors based on historical patterns. The selected development factors are then applied to cumulative claims data for each underwriting year that is not yet fully developed to produce an estimated ultimate claims cost for each underwriting year. Chain-ladder techniques are most appropriate for classes of business that have a relatively stable development pattern. Chain-ladder techniques are less suitable in cases in which the insurer does not have a developed claims history for a particular class of business, or for underwriting years that are still at immature stages of development where there is a higher level of assumption volatility.

The Bornhuetter-Ferguson method uses a combination of a benchmark/market-based estimate and an estimate based on claims experience. The former is based on a measure of exposure such as premiums; the latter is based on the paid or incurred claims observed to date. The two estimates are combined using a formula that gives more weight to the experience-based estimate as time passes. This technique has been used in situations where developed claims experience was not available for the projection (e.g. recent underwriting years or new classes of business).

The expected loss ratio method uses a benchmark/market-based estimate applied to the expected premium and is used for classes with little or no relevant historical data. The choice of selected results for each underwriting year of each class of business depends on an assessment of the technique that has been most appropriate to observed historical developments. In certain instances, this has meant that different techniques or combinations of techniques have been selected for individual underwriting years or groups of underwriting years within the same class of business. As such, there are many assumptions used to estimate general insurance liabilities.

Notes to the financial statements continued
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24 Insurance liabilities and reinsurance assets continued

We also review triangulations of the paid/outstanding claim ratios as a way of monitoring any changes in the strength of the outstanding claim estimates between underwriting years so that adjustments can be made to mitigate any subsequent over/(under) reserving. To date, this analysis indicates no systematic change to the outstanding claim strength across underwriting years. Where significant large losses impact an underwriting year (e.g. first-party COVID-19 losses, the events of 11 September 2001, the hurricanes in 2004, 2005, 2008, 2012, 2017, 2018 and 2019, the typhoons in 2018 and 2019, or the earthquakes in 2010, 2011 and 2017), the development is usually very different from the attritional losses. In these situations, the large loss total is extracted from the remainder of the data and analysed separately by the respective claims managers using exposure analysis of the policies in force in the areas affected. Further assumptions are required to convert gross of reinsurance estimates of ultimate claims cost to a net of reinsurance level and to establish reserves for unallocated claims handling expenses and reinsurance bad debt.

b) Major assumptions

The main assumption underlying these techniques is that the Group’s past claims development experience (with appropriate adjustments for known changes) can be used to project future claims development and hence ultimate claims costs. As such these methods extrapolate the development of premiums, paid and incurred losses, average costs per claim and claim numbers for each underwriting year based on the observed development of earlier years. Another assumption used within insurance liabilities is the estimation of an unexpired risk reserve (URR) for the expected value of net claims and expenses attributable to the unexpired periods of policies in force at the balance sheet date which exceeds the unearned premium reserve. Throughout, judgement is used to assess the extent to which past trends may or may not apply in the future; for example, to reflect changes in external or market factors such as economic conditions, public attitudes to claiming, levels of claims inflation, premium rate changes, judicial decisions and legislation, as well as internal factors such as portfolio mix, policy conditions and claims handling procedures.

c) Changes in assumptions

As already discussed, general insurance business requires many different assumptions. The diagram below illustrates the main categories of assumptions used for each underwriting year and class combination. Further information on the calculation of loss reserves and the risks associated with them is provided in the risk disclosures section in note 2. The risks associated with general insurance contracts are complex and do not readily lend themselves to meaningful sensitivity analysis. Given the range of assumptions used, the Group’s profit or loss is relatively insensitive to changes to an individual assumption used for an underwriting year/class combination. The Group’s profit or loss is potentially more sensitive to a systematic change in assumptions that affect many classes, such as judicial changes or when catastrophes produce more claims than expected. The impact of an unreported event could lead to a significant increase in the Group’s loss reserves. The Group believes that the loss reserves established are adequate, however a 20% increase in estimated losses would lead to a $1,279.8m (2020: $1,090.8m) increase in gross loss reserves and a $913.9m (2020: $829.7m) increase in net loss reserves. The Group uses a range of risk mitigation strategies to reduce such volatility including the purchase of reinsurance. In addition, the Group holds capital to absorb volatility.

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24 Insurance liabilities and reinsurance assets continued

d) Claims reserve strength analysis

The estimation of IBNR reserves for future claim notifications is subject to a greater degree of uncertainty than the estimation of the outstanding claims already notified. This is particularly true for the Specialty Lines and executive risk business, which will typically display greater variations between initial estimates and final outcomes as a result of the greater degree of difficulty in estimating these reserves. The estimation of IBNR reserves for other business written is generally subject to less variability as claims are generally reported and settled relatively quickly. As such, our reserving assumptions contain a reasonable margin for prudence given the uncertainties inherent in the insurance business underwritten, particularly on the longer tailed Specialty Lines and executive risk classes. Since year end 2004, we have identified a range of possible outcomes for each class and underwriting year combination directly from our internal model (previously our individual capital assessment (ICA)) process. Comparing these with our pricing assumptions and reserving estimates gives our management team increased insight into our perceived reserving strength and the relative uncertainties of the business written. To illustrate the robustness of our reserves, the loss development tables below provide information about historical claims development by the seven segments – Cyber & Executive Risk, Marine, Market Facilities, Political, Accident & Contingency, Property, Reinsurance and Specialty Lines. The tables are by underwriting year which in our view provides the most transparent reserving basis.# 24 Insurance liabilities and reinsurance assets continued

We have supplied tables for both ultimate gross claims and ultimate net claims. The top part of the table illustrates how the Group’s estimate of the claims ratio for each underwriting year has changed at successive year ends. The bottom half of the table reconciles the gross and net claims to the amount appearing in the statement of financial position. While the information in the table provides a historical perspective on the adequacy of the claims liabilities established in previous years, users of these financial statements are cautioned against extrapolating past redundancies or deficiencies on current claims liabilities. The Group believes that the estimate of total claims liabilities as at 31 December 2021 is adequate. However, due to inherent uncertainties in the reserving process, it cannot be assured that such balances will ultimately prove to be adequate.

Gross ultimate claims

	2011 ae	% 2012	% 2013	% 2014	% 2015	% 2016	% 2017	% 2018	% 2019	% 2020
Cyber & Executive Risk
12 months	71.6	71.0	66.0	64.3	61.9	59.5	61.1	61.8	73.2	65.8
24 months	71.8	71.3	66.2	64.3	61.9	61.4	62.3	72.0	78.7	–
36 months	69.1	71.1	63.6	59.0	58.5	56.8	61.5	73.4	–	–
48 months	65.5	69.0	65.1	54.1	58.3	56.6	64.0	–	–	–
60 months	63.5	66.4	69.8	56.0	59.5	57.4	–	–	–	–
72 months	61.1	62.9	68.4	57.5	57.6	–	–	–	–	–
84 months	60.6	63.0	69.1	58.5	–	–	–	–	–	–
96 months	59.4	63.5	69.7	–	–	–	–	–	–	–
108 months	59.5	63.6	–	–	–	–	–	–	–	–
120 months	62.0	–	–	–	–	–	–	–	–	–
Marine
12 months	56.1	56.7	57.7	56.7	59.5	68.0	61.9	60.1	57.8	52.9
24 months	46.4	52.1	46.9	54.0	70.2	62.4	68.1	56.8	52.1	–
36 months	34.7	44.4	47.2	47.3	65.4	61.6	66.2	47.9	–	–
48 months	32.1	42.7	46.8	45.4	63.9	58.0	63.3	–	–	–
60 months	31.4	42.1	55.8	43.3	62.4	55.0	–	–	–	–
72 months	30.6	41.5	53.0	42.7	62.1	–	–	–	–	–
84 months	29.9	40.3	51.9	42.2	–	–	–	–	–	–
96 months	29.7	39.3	52.4	–	–	–	–	–	–	–
108 months	29.8	39.2	–	–	–	–	–	–	–	–
120 months	29.9	–	–	–	–	–	–	–	–	–
Market Facilities
12 months	–	–	–	–	–	–	66.3	72.9	76.6	72.0
24 months	–	–	–	–	–	–	66.3	72.8	73.7	–
36 months	–	–	–	–	–	–	55.1	68.7	–	–
48 months	–	–	–	–	–	–	55.2	–	–	–
60 months	–	–	–	–	–	–	–	–	–	–
72 months	–	–	–	–	–	–	–	–	–	–
84 months	–	–	–	–	–	–	–	–	–	–
96 months	–	–	–	–	–	–	–	–	–	–
108 months	–	–	–	–	–	–	–	–	–	–
120 months	–	–	–	–	–	–	–	–	–	–
Political, Accident & Contingency
12 months	60.0	59.5	59.7	60.5	61.9	58.2	59.4	57.0	111.4	57.3
24 months	56.0	50.9	52.4	59.9	55.8	50.0	55.4	143.9	120.0	–
36 months	53.0	46.4	48.5	58.5	50.8	46.8	92.4	143.8	–	–
48 months	50.5	45.4	51.3	59.3	49.4	49.8	97.4	–	–	–
60 months	47.4	47.1	52.5	55.7	47.9	47.3	–	–	–	–
72 months	46.6	46.8	53.5	54.6	45.2	–	–	–	–	–
84 months	45.6	46.6	54.3	54.6	–	–	–	–	–	–
96 months	45.7	46.2	54.7	–	–	–	–	–	–	–
108 months	45.6	45.7	–	–	–	–	–	–	–	–
120 months	45.1	–	–	–	–	–	–	–	–	–
Total Property
12 months	56.1	54.9	53.2	54.9	58.9	72.3	63.4	53.2	67.9	58.0
24 months	47.3	48.9	47.7	49.0	68.4	88.5	63.5	63.4	73.0	–
36 months	39.6	45.6	41.3	45.9	71.3	91.3	65.4	53.9	–	–
48 months	36.5	45.6	40.6	44.8	71.8	91.4	64.2	–	–	–
60 months	35.9	45.5	39.6	43.7	71.8	91.1	–	–	–	–
72 months	35.3	47.3	40.2	45.9	71.4	–	–	–	–	–
84 months	35.2	46.6	39.7	45.6	–	–	–	–	–	–
96 months	36.5	47.0	40.0	–	–	–	–	–	–	–
108 months	37.6	47.2	–	–	–	–	–	–	–	–
120 months	37.5	–	–	–	–	–	–	–	–	–
Reinsurance
12 months	62.8	58.6	61.3	65.8	68.4	122.5	99.0	101.5	79.9	115.1
24 months	37.1	44.8	33.3	33.7	41.8	117.6	125.0	69.2	80.5	–
36 months	31.7	42.3	30.7	25.7	40.6	129.4	123.5	68.6	–	–
48 months	30.6	41.1	27.6	25.5	41.4	132.1	118.4	–	–	–
60 months	30.9	38.1	27.4	25.3	40.7	131.0	–	–	–	–
72 months	30.6	37.9	26.9	25.1	40.3	–	–	–	–	–
84 months	30.6	37.0	26.9	24.4	–	–	–	–	–	–
96 months	30.3	36.9	27.0	–	–	–	–	–	–	–
108 months	30.3	36.8	–	–	–	–	–	–	–	–
120 months	28.6	–	–	–	–	–	–	–	–	–
Specialty Lines
12 months	74.9	74.6	69.8	69.3	67.6	65.9	68.5	66.9	68.3	65.7
24 months	75.0	74.2	69.5	69.9	67.5	66.0	69.0	68.6	69.6
36 months	73.6	73.9	65.8	68.2	65.4	66.0	65.9	60.9	–	–
48 months	73.9	69.4	61.7	67.4	64.0	62.1	61.6	–	–	–
60 months	70.2	64.2	58.0	69.3	60.7	64.4	–	–	–	–
72 months	69.1	62.1	55.7	78.2	61.8	–	–	–	–	–
84 months	68.7	61.4	53.9	82.8	–	–	–	–	–	–
96 months	71.0	60.0	54.7	–	–	–	–	–	–	–
108 months	72.2	58.1	–	–	–	–	–	–	–	–
120 months	72.2	–	–	–	–	–	–	–	–	–
Total
12 months	64.6	63.7	62.1	62.5	63.3	70.1	66.7	64.8	73.0	65.8
24 months	58.3	59.3	55.8	58.4	62.9	71.1	69.6	74.2	75.5	–
36 months	53.3	56.5	52.7	54.5	60.7	71.1	71.2	69.8	–	–
48 months	51.4	54.5	51.7	52.7	60.1	69.8	70.1	–	–	–
60 months	49.5	52.5	53.2	52.8	59.2	70.0	–	–	–	–
72 months	48.4	51.5	52.1	55.6	58.5	–	–	–	–	–
84 months	48.0	51.0	51.7	56.9	–	–	–	–	–	–
96 months	48.5	50.6	52.2	–	–	–	–	–	–	–
108 months	49.1	50.1	–	–	–	–	–	–	–	–
120 months	49.3	–	–	–	–	–	–	–	–	–

Estimated total ultimate losses ($m)
| | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | Total |
| :---- | :--- | :---- | :---- | :---- | :---- | :---- | :---- | :---- | :---- | :---- | :---- | :---- |
| | 7,901.7 | 866.2 | 915.9 | 998.0 | 1,146.9 | 1,255.4 | 1,710.5 | 1,874.5 | 2,162.5 | 2,726.3 | 2,925.3 | 24,483.2 |
| Less paid claims ($m) | (7,740.5) | (787.3) | (833.3) | (917.7) | (942.8) | (1,020.7) | (1,222.1) | (1,201.8) | (961.9) | (706.6) | (100.7) | (16,435.4) |
| Less unearned portion of ultimate losses ($m) | – | – | – | – | – | – | – | (8.7) | (137.5) | (1,502.5) | (1,648.7) |
| Gross claims liabilities ($m) | 161.2 | 78.9 | 82.6 | 80.3 | 204.1 | 234.7 | 488.4 | 672.7 | 1,191.9 | 1,882.2 | 1,322.1 | 6,399.1 |

Net ultimate claims

	2011 ae	% 2012	% 2013	% 2014	% 2015	% 2016	% 2017	% 2018	% 2019	% 2020
Cyber & Executive Risk
12 months	68.2	66.5	63.2	60.4	59.2	57.9	58.3	59.9	71.9	64.1
24 months	68.5	66.7	63.8	60.4	59.2	59.0	60.6	68.1	69.2	–
36 months	65.6	65.1	62.4	56.0	56.2	55.5	62.5	67.7	–	–
48 months	60.2	62.2	61.4	50.3	56.3	55.9	63.8	–	–	–
60 months	60.1	59.5	65.9	51.6	55.2	54.5	–	–	–	–
72 months	57.5	56.9	65.0	49.8	53.4	–	–	–	–	–
84 months	57.0	56.4	65.6	50.7	–	–	–	–	–	–
96 months	55.9	56.3	66.3	–	–	–	–	–	–	–
108 months	56.3	56.4	–	–	–	–	–	–	–	–
120 months	58.9	–	–	–	–	–	–	–	–	–
Marine
12 months	55.2	56.1	56.5	56.6	56.6	57.4	59.3	56.5	54.2	50.9
24 months	45.8	53.2	48.5	52.4	62.4	61.3	67.6	55.2	49.9	–
36 months	37.1	47.3	46.6	47.0	61.4	61.7	68.6	46.6	–	–
48 months	34.6	45.8	45.7	46.5	61.9	59.5	64.7	–	–	–
60 months	33.6	45.2	46.9	45.2	60.5	57.0	–	–	–	–
72 months	32.9	44.6	45.0	44.7	60.0	–	–	–	–	–
84 months	32.5	42.5	44.3	43.9	–	–	–	–	–	–
96 months	32.3	42.3	44.5	–	–	–	–	–	–	–
108 months	32.4	42.3	–	–	–	–	–	–	–	–
120 months	32.5	–	–	–	–	–	–	–	–	–
Market Facilities
12 months	–	–	–	–	–	–	36.5	24.6	28.3	27.3
24 months	–	–	–	–	–	–	36.5	24.2	27.6	–
36 months	–	–	–	–	–	–	30.3	23.9	–	–
48 months	–	–	–	–	–	–	21.8	–	–	–
60 months	–	–	–	–	–	–	–	–	–	–
72 months	–	–	–	–	–	–	–	–	–	–
84 months	–	–	–	–	–	–	–	–	–	–
96 months	–	–	–	–	–	–	–	–	–	–
108 months	–	–	–	–	–	–	–	–	–	–
120 months	–	–	–	–	–	–	–	–	–	–
Political, Accident & Contingency
12 months	58.7	59.0	57.3	58.0	60.7	57.2	58.6	56.2	91.0	56.5
24 months	53.8	52.4	50.8	56.9	54.6	49.4	54.5	112.2	89.3	–
36 months	51.5	49.0	46.4	56.3	51.0	46.0	82.1	112.3	–	–
48 months	48.0	46.5	50.6	55.6	48.8	46.6	88.3	–	–	–
60 months	44.9	46.5	50.9	52.9	47.5	44.6	–	–	–	–
72 months	44.0	46.6	51.8	52.2	45.4	–	–	–	–	–
84 months	43.5	46.7	52.2	51.2	–	–	–	–	–	–
96 months	43.9	46.6	51.2	–	–	–	–	–	–	–
108 months	43.7	46.2	–	–	–	–	–	–	–	–
120 months	43.6	–	–	–	–	–	–	–	–	–
Property
12 months	59.4	56.2	54.6	55.0	57.5	76.1	64.4	56.4	67.9	58.4
24 months	53.0	56.1	51.5	50.6	69.5	93.6	66.9	66.2	76.7	–
36 months	46.4	52.2	44.8	47.2	71.3	95.6	68.1	57.6	–	–
48 months	41.5	50.5	43.3	45.0	70.8	93.5	66.1	–	–	–
60 months	40.9	50.3	42.4	44.8	69.9	94.4	–	–	–	–
72 months	40.4	52.0	43.5	46.5	70.0	–	–	–	–	–
84 months	40.1	52.1	43.0	45.3	–	–	–	–	–	–
96 months	41.7	52.4	42.6	–	–	–	–	–	–	–
108 months	42.5	52.0	–	–	–	–	–	–	–	–
120 months	41.7	–	–	–	–	–	–	–	–	–
Reinsurance
12 months	66.6	56.3	58.7	61.7	61.8	105.2	87.3	87.5	86.3	92.9
24 months	44.7	51.7	37.9	34.8	39.5	93.9	100.6	70.3	87.5	–
36 months	38.3	47.9	34.1	25.0	39.1	104.9	98.5	71.6	–	–
48 months	36.6	46.6	31.5	24.6	40.6	108.3	92.7	–	–	–
60 months	36.9	43.0	31.2	24.8	41.6	108.1	–	–	–	–
72 months	36.6	42.7	30.7	25.1	41.2	–	–	–	–	–
84 months	36.6	41.9	30.7	24.4	–	–	–	–	–	–
96 months	36.2	41.8	30.9	–	–	–	–	–	–	–
108 months	36.2	41.7	–	–	–	–	–	–	–	–
120 months	34.2	–	–	–	–	–	–	–	–	–
Specialty Lines
12 months	71.3	70.4	67.0	65.0	65.0	63.7	66.0	64.8	65.2	63.4
24 months	71.4	69.9	66.6	65.8	65.0	63.6	67.1	64.9	64.9	–
36 months	70.0	70.0	64.1	63.2	61.1	63.5	64.1	57.7	–	–
48 months	68.4	64.1	59.1	58.5	56.9	58.2	59.0	–	–	–
60 months	65.8	59.2	55.8	58.8	52.0	59.5	–	–	–	–
72 months	66.0	57.6	54.5	62.7	52.5	–	–	–	–	–
84 months	65.9	57.5	52.8	67.8

194 Beazley | Annual report 2021 www.beazley.com

24 Insurance liabilities and reinsurance assets continued

Analysis of movements in loss development tables

We have updated our loss development tables to show the ultimate loss ratios as at 31 December 2021 for each underwriting year. The impact of amounts reported in respect of the unexpired risk reserve are embedded within the loss ratios presented.

Cyber & Executive Risk

The 2019 and 2020 underwriting years have strengthened in response to cyber ransomware activity. However, as these years are recovering under aggregate excess of loss reinsurance programmes, the impact is reduced net of reinsurance. The 2018 underwriting year has increased in response to greater than expected claims development within executive risk.

Marine

Improvements have continued across underwriting years as the risks expire.

Market Facilities

The loss development tables are presented gross of acquisition costs. Due to the Market Facilities division being significantly reinsured and this reinsurance being ceded net of acquisition costs, the net of reinsurance loss development values are much lower than those gross of reinsurance. The improvements on the 2019 and 2020 underwriting year arise as the risk expires.

Political, Accident & Contingency

2021 South African civil unrest events have impacted the 2020 underwriting year. Due to the benefit of reinsurance, the impact is less pronounced net of reinsurance. The COVID-19 claims within the contingency class have undergone a partial re-allocation across underwriting years resulting in the increase seen on the 2018 underwriting year.

Property

The 2020 underwriting year has been impacted by weather related events in the US during 2021. The improvement on the 2019 underwriting year occurs due to expiry of risk.

Reinsurance

The 2021 underwriting year has been impacted by weather related events in the US and Europe, and the impact is less pronounced net of reinsurance. Favourable developments across established catastrophe events have led to releases on older underwriting years.

Specialty Lines

The 2015 year continues to see claims development in excess of expectations, predominately driven by the heathcare book. Other underwriting years continue to improve as the risk expires.

195 www.beazley.com Beazley | Annual report 2021 Financial statements

24 Insurance liabilities and reinsurance assets continued

Claim releases

The below table analyses our net claims between current year claims and adjustments to prior year net claims reserves. These have been broken down by segment and underwriting year. Beazley’s reserving policy is to maintain catastrophe reserve margins either until the end of the exposure period or until catastrophe events occur. Therefore margins have been released from prior year reserves where risks have expired during 2021. The below table has been prepared on an underwriting year of account basis, whereas the net loss development tables on pages 193 to 194 have been prepared on an accident year basis in relation to our US admitted business. However, in aggregate the net release or strengthening is consistent.

Reserve releases during the year totalled $209.8m (2020: $93.1m). The net of reinsurance estimates of ultimate claims costs have improved on the 2020, 2019 and 2018 and earlier underwriting years, with releases of $28.6m, $97.6m and $83.6m respectively. Our Marine, Property and Specialty lines all saw large releases on the 2019 underwriting year. Cyber & Executive Risk saw a strengthening on the 2019 underwriting year of $19.4m driven by the Cyber book. The movements shown on 2018 and earlier are absolute claim movements and are not impacted by any current year movements in premium on those underwriting years.

	Cyber & Executive Risk $m	Marine $m	Market Facilities $m	Political, Accident & Contingency $m	Property $m	Reinsurance $m	Specialty Lines $m	Total $m
2021
Current year	642.6	156.6	11.7	147.1	252.7	141.8	683.5	2,036.0
Prior year – 2018 underwriting year and earlier	(30.8)	(18.1)	(0.1)	2.6	(8.9)	(10.6)	(17.6)	(83.6)
– 2019 underwriting year	19.4	(26.4)	(0.2)	(10.0)	(28.1)	(3.0)	(49.4)	(97.6)
– 2020 underwriting year	(9.0)	(6.3)	(0.9)	(3.6)	(3.4)	(5.1)	(0.3)	(28.6)
Net insurance claims	622.2	105.8	10.5	136.1	212.4	123.1	616.2	1,826.2

2020
Current year	553.3	169.4	9.2	358.7	295.7	107.5	557.6	2,051.4
Prior year – 2017 underwriting year and earlier	(28.3)	(9.8)	–	(2.2)	2.1	2.4	(47.3)	(74.7)
– 2018 underwriting year	26.7	1.9	(0.6)	(1.9)	3.7	(3.0)	(20.7)	(2.3)
– 2019 underwriting year	6.0	(1.0)	(0.3)	(0.5)	(10.2)	(20.1)	10.0	(16.1)
Net insurance claims	557.7	160.5	8.3	354.1	291.3	86.8	499.6	1,958.3

196 Beazley | Annual report 2021 www.beazley.com

Notes to the financial statements continued

25 Borrowings

The carrying amount and fair values of the non-current borrowings are as follows:

Carrying value

	Tier 2 subordinated debt (2029) $m	Tier 2 subordinated debt (2026) $m	Total $m
Balance at 1 January 2021	298.1	249.0	547.1
Amortisation of capitalised borrowing costs	0.3	0.2	0.5
Balance at 31 December 2021	298.4	249.2	547.6

Fair value

	Tier 2 Subordinated debt (2029) $m	Tier 2 subordinated debt (2026) $m	Total $m
Balance at 1 January 2021	320.5	271.0	591.5
Change in fair value	14.1	8.0	22.1
Balance at 31 December 2021	334.6	279.0	613.6

Carrying value

	Tier 2 subordinated debt (2029) $m	Tier 2 subordinated debt (2026) $m	Total $m
Balance at 1 January 2020	297.9	248.9	546.8
Amortisation of capitalised borrowing costs	0.2	0.1	0.3
Balance at 31 December 2020	298.1	249.0	547.1

Fair value

	Tier 2 Subordinated debt (2029) $m	Tier 2 subordinated debt (2026) $m	Total $m
Balance at 1 January 2020	318.6	276.8	595.4
Change in fair value	1.9	(5.8)	(3.9)
Balance at 31 December 2020	320.5	271.0	591.5

The fair values of the subordinated debt and the tier 2 subordinated debt are based on quoted market prices. In November 2016, the Group issued $250m of subordinated tier 2 notes due in 2026. Annual interest, at a fixed rate of 5.875%, is payable in May and November each year. In September 2019, the Group issued $300m of subordinated tier 2 notes due in 2029. Annual interest, at a fixed rate of 5.5% is payable in March and September each year.

Under the facility $450.0m may be drawn as letters of credit to support underwriting at Lloyd’s, and up to $225m may be advanced as cash under a revolving facility. The cost of the facility is based on a commitment fee of 0.4725% per annum and any amounts drawn are charged at a margin of 1.35% per annum. The cash element of the facility will expire on 23 July 2023, whilst letters of credit issued under the facility can be used to provide support for the 2021, 2022 and 2023 underwriting years. As at 31 December 2021 $225m has been drawn down under the facility and placed as a letter of credit as Funds at Lloyd’s (FAL). All of the above borrowings are subject to covenants.

197 www.beazley.com Beazley | Annual report 2021 Financial statements

Notes to the financial statements continued

26 Other payables

Group	2021 $m	2020 $m
Reinsurance premiums payable	660.2	393.9
Accrued expenses including staff bonuses	229.8	172.1
Other payables	47.2	57.3
Due to syndicate 623	–	–
Due to syndicate 6107	81.2	51.9
Due to syndicate 5623	122.9	58.7
Total	1,141.3	733.9

Company	2021 $m	2020 $m
Other payables	0.7	3.8
Total	0.7	3.8

All other payables are payable within one year of the reporting date. The carrying value approximates fair values.

27 Retirement benefit obligations

	2021 $m	2020 $m
Present value of funded obligations	56.9	64.8
Fair value of plan assets	(75.0)	(69.6)
Retirement benefit (asset) in the statement of financial position	(18.1)	(4.8)

Amounts recognised in the statement of profit or loss
Interest cost	0.9	1.2
Expected return on plan assets	(0.9)	(1.2)
Total	–	–

Beazley Furlonge Limited operates a defined benefit pension scheme (‘the Beazley Furlonge Limited Pension Scheme’). The scheme provides the following benefits:

an annual pension payable to the member from his or her normal pension age (60th birthday) of generally 1/60th of final pensionable salary for each year of pensionable service up to 31 March 2006;
a spouse’s pension of 2/3rds of the member’s pension payable on the member’s death after retirement;
a lump sum of four times current pensionable salary for death in service at the date of death; and
a pension of 2/3rds of the member’s prospective pension at the date of death, payable to the spouse until their death. This pension is related to salary at the date of death.

The scheme is administered by a trust that is legally separated from the Group.# Beazley | Annual report 2021

27 Retirement benefit obligations continued

The trustees consist of both employee and employer representatives and an independent chair, all of whom are governed by the scheme rules. The scheme exposes the Group to additional actuarial, interest rate and market risk. Contributions to the scheme are determined by a qualified actuary using the projected unit credit method as set out in the scheme rules and the most recent valuation was at 31 December 2021. According to the Schedule of Contributions, the Group expects to contribute approximately $1.4m in each of the next two years.

Trustees obligations

Under section 222 of the Pension Act 2004, every scheme is subject to the Statutory Funding Objective (SFO), which is to have sufficient and appropriate assets to cover its technical provisions, which represent the present value of benefits to which members are entitled based on pensionable service to the valuation date. This is assessed at least every three years using assumptions agreed between the Trustees and the employer as set out in the Statement of Funding Principles produced in accordance with the Occupational Pensions (Scheme Funding) Regulations 2005 (OP(SF)R 2005) Regulation 6. The Trustees written Statement of Funding Principles is dated 29 January 2021 and it sets out their policy for securing that the SFO is met (that the scheme will have sufficient assets to cover its technical provisions). In accordance with the OP(SF)R 2005 Regulation 5(2) trustees have chosen the Defined Accrued Benefit Method, a variant of the projected unit credit method where accrual has ceased. The most recently completed Actuarial Valuation of the Scheme was carried out at 1 January 2020 including a valuation carried out in accordance with the Pensions Protection Fund (Valuation) Regulations 2005 and with appropriate section 179 guidance and assumptions issued by the Board of the Pension Protection Fund. A recovery plan was agreed between the Trustees and the employer on 29 January 2021 in accordance with OP(SF)R 2005 Regulation 8. These arrangements were formalised in a schedule of contributions which the scheme Actuary certified on 29 January 2021 in accordance with OP(SF)R 2005 Regulation 9. During 2021 a decision was made to move the plan assets out of equities and to reinvest in quoted corporate bonds and index linked securities. The rationale for this was to protect the scheme’s funding position and provide protection against movements in interest rates and expected inflation. The Trust Deed provides Beazley with an unconditional right to a refund of surplus assets assuming the full settlement of plan liabilities in the event of a plan wind-up. Furthermore, in the ordinary course of business the Trustee has no rights to unilaterally wind up, or otherwise augment the benefits due to members of, the scheme. Based on these rights, any net surplus in the UK scheme is recognised in full.

	2021 $m	2020 $m
Movement in present value of funded obligations recognised in the statement of financial position
Balance at 1 January	64.8	54.7
Interest cost	0.8	1.1
Actuarial gain/(loss) – Financial assumptions	-4.0	8.5
Benefits paid	-2.8	-1.5
Foreign exchange (gain)/loss	-1.9	2.0
Balance at 31 December	56.9	64.8

	2021 $m	2020 $m
Movement in fair value of plan assets recognised in the statement of financial position
Balance at 1 January	69.6	60.1
Expected return on plan assets	0.9	1.2
Actuarial gain	8.1	6.3
Employer contributions	1.3	1.4
Benefits paid	-2.8	-1.5
Foreign exchange (loss)/gain	-2.1	2.1
Balance at 31 December	75.0	69.6

Plan assets are comprised as follows:

	2021	2020
Equities	–	69.5
Corporate bonds	3.4	–
Index linked securities	70.0	–
Cash	1.6	0.1
Total	75.0	69.6

The actual gain on plan assets was $9.0m (2020: gain of $7.5m).

	2021	2020
Principal actuarial assumptions
Discount rate	1.9%	1.3%
Inflation rate	3.8%	3.3%
Expected return on plan assets	1.9%	2.9%
Future salary increases	3.8%	3.3%
Future pensions increases	1.9%	1.3%
Life expectancy for members aged 60 at 31 December	90 years	89 years
Life expectancy for members aged 40 at 31 December	91 years	91 years

At 31 December 2021, the weighted-average duration of the defined benefit obligation was 22.6 years (2020: 22.5 years).

Sensitivity analyses

Changes in the relevant actuarial assumptions would result in a change in the value of the funded obligation as shown below:

31 December 2021

	Increase $m	Decrease $m
Discount rate (0.5% decrease)	7.4	–
Inflation rate (0.3% decrease)	–	-3.7
Future salary changes (0.5% decrease)	–	-0.5
Life expectancy (1 year increase)	2.8	–

31 December 2020

	Increase $m	Decrease $m
Discount rate (0.5% decrease)	8.0	–
Inflation rate (0.3% decrease)	–	-3.2
Future salary changes (0.5% decrease)	–	-0.5
Life expectancy (1 year increase)	2.7	–

The sensitivity analyses above have been determined based on a method that extrapolates the impact on the defined benefit obligation as a result of reasonable changes in key assumptions occurring at the end of the reporting period. The sensitivity analyses are based on a change in a significant assumption, keeping all other assumptions constant. The sensitivity analyses may not be representative of an actual change in the defined benefit obligation as it is unlikely that changes in assumptions would occur in isolation from one another.

28 Deferred tax

	2021 $m	2020 $m
Deferred tax asset	16.3	26.8
Deferred tax liability	–	(0.6)
	16.3	26.2

The movement in the net deferred income tax is as follows:

	2021 $m	2020 $m
Balance at 1 January	26.2	21.5
Income tax (credit)/charge	-4.0	10.7
Amounts recorded through equity	-5.7	-5.4
Foreign exchange translation differences	-0.2	-0.6
Balance at 31 December	16.3	26.2

Balance 1 Jan 21 $m	Recognised in income $m	Recognised in equity/OCI $m	FX translation differences $m	Balance 31 Dec 21 $m
0.1	(1.3)	–	–	(1.2)
(1.5)	1.0	–	–	(0.5)
25.3	(11.1)	–	–	14.2
(7.5)	(0.3)	–	–	(7.8)
6.3	3.3	–	–	9.6
7.0	(0.4)	(3.9)	(0.1)	2.6
(3.5)	4.7	(1.8)	–	(0.6)
26.2	(4.1)	(5.7)	(0.1)	16.3
Plant and equipment
Intangible assets
Underwriting profits
Deferred acquisition costs
Tax losses carried forward
Share based payments
Other
Net deferred income tax account

Balance 1 Jan 20 $m	Recognised in income $m	Recognised in equity/OCI $m	FX translation differences $m	Balance 31 Dec 20 $m
0.7	(0.6)	–	–	0.1
(1.9)	0.4	–	–	(1.5)
15.5	9.8	–	–	25.3
(7.6)	0.1	–	–	(7.5)
–	6.3	–	–	6.3
14.3	(1.3)	(5.4)	(0.6)	7.0
0.5	(4.0)	–	–	(3.5)
21.5	10.7	(5.4)	(0.6)	26.2
Plant and equipment
Intangible assets
Underwriting profits
Deferred acquisition costs
Tax losses carried forward
Share based payments
Other
Net deferred income tax account

Deferred tax assets of $9.6m (2020: $6.3m), relating to tax losses, which depend on the availability of future taxable profits, have been recognised. The Group has concluded that, notwithstanding the impact of the COVID pandemic, it is probable that the deferred tax assets will be recovered using the estimated future taxable profits based on the approved business plans. The losses can be carried forward indefinitely and have no expiry date. The Group has no unrecognised tax losses as at 31 December 2021 (2020: nil).

29 Leases

Leases as lessee (IFRS 16)

The Group leases offices, IT equipment and motor vehicles. The leased offices are in several locations and the leases of large offices such as London and New York typically run for a period of 10 years with an option to renew the lease after that date or continue on a rolling month by month basis. Lease payments are renegotiated as agreed in the lease contracts. During 2020, the Group entered into a new office lease agreement with 22 Bishopsgate, London which resulted in the recognition of a right of use asset of $35.8m and lease liability $35.8m. Additionally the group extended the office lease agreement Plantation Place South, London up to 31 May 2021 resulting in recognising a right of use asset of $0.6m and $0.6m liability. This was due to delays in completion of the new London office. Information about leases for which the Group is a lessee is presented below.

Right of use assets

Right of use assets related to leased properties that do not meet the definition of investment property are presented as property, plant and equipment.

	Offices $m	IT equipment $m	Motor vehicles $m	Total $m
Balance at 1 January 2021	69.5	16.8	0.1	86.4
Depreciation charge for the year	(10.6)	(4.3)	(0.1)	(15.0)
Additions of right of use assets	3.0	–	0.1	3.1
Dilapidation provision recognition	3.1	–	–	3.1
Foreign exchange loss	(1.6)	(0.5)	–	(2.1)
Balance at 31 December 2021	63.4	12.0	0.1	75.5

Lease liabilities

	Offices $m	IT equipment $m	Motor vehicles $m	Total $m
Balance at 1 January 2021	73.3	16.7	0.1	90.1
Lease payments	(8.0)	(4.7)	(0.1)	(12.8)
Interest on lease liabilities and dilapidation provison	7.5	0.5	–	8.0
Additions to lease portfolio	1.0	0.0	0.1	1.1
Foreign exchange loss	(1.7)	(0.4)	–	(2.1)
Balance at 31 December 2021	72.1	12.1	0.1	84.3

	Offices $m	IT equipment $m	Motor vehicles $m	Total $m
Balance at 1 January 2020	35.2	0.6	0.1	35.9
Depreciation charge for the year	(9.4)	(3.5)	(0.1)	(13.0)
Additions of right of use assets	40.9	17.3	–	58.2
Disposals of right of use assets	0.2	1.5	0.1	1.8
Foreign exchange gain	2.6	0.9	–	3.5
Balance at 31 December 2020	69.5	16.8	0.1	86.4

Lease liabilities

	Offices $m	IT equipment $m	Motor vehicles $m	Total $m
Balance at 1 January 2020	38.8	0.5	0.1	39.4
Lease payments	(11.4)	(3.8)	(0.1)	(15.3)
Interest on lease liabilities	2.0	0.4	–	2.4
Additions to lease portfolio	41.1	18.7	0.1	59.9
Foreign exchange

Leases

	2021 $m	2020 $m
Balance at 31 December 2020	73.3	90.1
Amounts recognised in profit or loss
Leases under IFRS 16
Interest on lease liabilities	(3.7)	(2.4)
Depreciation	(15.0)	(13.0)
Income from sub-leasing right of use assets	0.1	0.1
Expenses relating to low value leases	(5.1)	(0.3)
Expenses relating to short-term leases	(0.1)	(0.1)
Total recognised in profit or loss	(23.8)	(15.7)

Some property leases contain extension options exercisable by the Group before the end of the non-cancellable contract period or the option to continue with the lease on a monthly rolling basis. The Group reassess whether it is reasonably certain to exercise the options if there is a significant event or changes in circumstances within its control.

Leases as lessor

The Group sub-leases leased property, which is classified as a investment asset. The Group recognised $0.1m in 2021 ($0.1m 2020). The sub-lease contract ends in 2022.

203 www.beazley.com | Beazley | Annual report 2021 Financial statements

30 Related party transactions

The Group and company have related party relationships with syndicates 623, 6107, 5623, its subsidiaries, associates and its directors.

30.1 Syndicates 623, 6107 and 5623

The Group received management fees and profit commissions for providing a range of management services to syndicates 623 and 6107 which are all managed by the Group. In addition, the Group ceded portions or all of a group of insurance policies to syndicates 6107 and 5623. The participants on syndicates 623, 6107 and 5623 are solely third party capital.

Details of transactions entered into and the balances with these syndicates are as follows:

	2021 $m	2020 $m
Written premium ceded to syndicates	257.3	148.6
Other income received from syndicates	28.6	22.9
Services provided	45.8	33.4
Balances due:
Due from syndicate 623	1.8	18.2
Due to syndicate 6107	(81.2)	(51.9)
Due to syndicate 5623	(122.9)	(58.7)

30.2 Key management compensation

	2021 $m	2020 $m
Salaries and other short term benefits	25.6	10.6
Post-employment benefits	0.6	0.6
Share based remuneration	2.7	0.5
	28.9	11.7

Key management include Executive and Non-Executive Directors and other senior management. The total number of Beazley plc ordinary shares held by key management was 2.8m. Apart from the transactions listed in the table above, there were no further related party transactions involving key management or a close member of their family. Further details of directors’ shareholdings and remuneration can be found in the directors’ remuneration report on pages 95 to 113.

30.3 Other related party transactions

At 31 December 2021, the Group had purchased services from Falcon Money Management Holdings Limited of $2.7m (2020: $2.3m) throughout the year. All transactions with the associate and subsidiaries are priced on an arm’s length basis.

Notes to the ﬁnancial statements continued

204 | Beazley | Annual report 2021 www.beazley.com

31 Parent company and subsidiary undertakings

Beazley plc, a company incorporated in England and Wales and resident for tax purposes in the United Kingdom, is the ultimate parent and the ultimate controlling party within the Group. The following is a list of all the subsidiaries in the Group as at 31 December 2021:

	Country/region of incorporation	Ownership interest	Nature of business	Functional currency	Beazley plc direct investment in subsidiary ($m)
Beazley Ireland Holdings plc	Jersey	100%	Intermediate holding company	USD	724.6
Beazley Group Limited	England	100%	Intermediate holding company	USD
Beazley Furlonge Holdings Limited	England	100%	Intermediate holding company	USD
Beazley Furlonge Limited	England	100%	Lloyd’ managing agents	GBP
Beazley Investments Limited	England	100%	Investment company	USD
Beazley Underwriting Limited	England	100%	Underwriting at Lloyd’s	USD
Beazley Management Limited	England	100%	Management company	GBP
Beazley Staff Underwriting Limited	England	100%	Underwriting at Lloyd’s	USD
Beazley Solutions Limited	England	100%	Insurance services	GBP
Beazley Underwriting Services Limited	England	100%	Insurance services	GBP
Beazley Corporate Member (No.2) Limited	England	100%	Underwriting at Lloyd’s	USD
Beazley Corporate Member (No.3) Limited	England	100%	Underwriting at Lloyd’s	USD
Beazley Corporate Member (No.6) Limited	England	100%	Underwriting at Lloyd’s	USD
Beazley Leviathan Limited	England	100%	Underwriting at Lloyd’s	GBP
Beazley Canada Limited	Canada	100%	Insurance services	CAD
Beazley Insurance dac	Ireland	100%	Insurance and reinsurance company	USD
Beazley Solutions International Limited	Ireland	100%	Insurance services	EUR
Beazley Underwriting Pty Ltd	Australia	100%	Insurance services	AUD
Beazley Newco Captive Company, Inc.	USA	100%	Special Purpose Financial Captive	USD
Beazley USA Services, Inc.*	USA	100%	Insurance services	USD
Beazley Holdings, Inc.*	USA	100%	Holding company	USD
Beazley Holdings, Inc. Digital LLC	USA	100%	Insurance services	USD
Beazley Group (USA) General Partnership**	USA	100%	General partnership	USD
Beazley Insurance Company, Inc.***	USA	100%	Underwriting admitted lines	USD
Beazley America Insurance Company, Inc.***	USA	100%	Underwriting admitted lines	USD
Lodestone Securities LLC***	USA	100%	Consultancy services	USD
Beazley Pte. Limited	Singapore	100%	Underwriting at Lloyd’s	SGD
Lodestone Security Limited	England	100%	Consultancy services	GBP
Beazley Labuan Limited	Malaysia	100%	Insurance services	USD
					724.6

Please see page 206 for registered addresses.

205 | www.beazley.com | Beazley | Annual report 2021 Financial statements

31 Parent company and subsidiary undertakings continued

The following is a list of Group registered office locations:

Country/region	Address	City	Postcode	Country/region
United Kingdom and Continental Europe
	22 Bishopsgate	London	EC2N 4AJ	England
	2 Northwood Avenue	Dublin	D09 X5N9	Ireland
	22 Grenville Street	Saint Helier	JE4 8PX	Jersey
North America
	1209 Orange Street*	Wilmington, Delaware	19801	USA
	2711 Centerville Road Suite 400**	Wilmington, Delaware	19808	USA
	30 Batterson Park Road***	Farmington, Connecticut	06032	USA
	160 Greentree Drive, Suite 101****	Dover, Delaware	19904	USA
	55 University Avenue, Suite 550	Toronto, Ontario	M5J 2H5	Canada
Asia
	138 Market Street, 03-04 Capita Green	Singapore	048946	Singapore
	36/F., Tower Two, Times Square, 1 Matheson Street, Causeway Bay	Hong Kong	–	Hong Kong
	Kensington Gardens, No. I1317, Lot 7616, Jalan Jumidar Buyong	Labuan	87000	Malaysia
Australia
	Level 15, 1 O’Connell Street	Sydney	NSW 2000	Australia

32 Contingencies

Funds at Lloyd’s

The following amounts are held in trust by Lloyd’s to secure underwriting commitments:

	As at 31 December 2021 $m	As at 31 December 2020 $m	As at 31 December 2019 $m
Financial assets at fair value and cash	1,603.5	1,563.3	1,702.8
Letters of credit (‘LOC’)	225.0	225.0	–
Total Funds at Lloyd’s	1,828.5	1,788.3	1,702.8

The funds are held in trust and can be used to meet claims liabilities should syndicates fail to meet their claim liabilities. The funds can be only used to meet claim liabilities of the relevant member. Since 2020, $225m under the Group’s syndicated short term banking facility has been utilised as letters of credit placed as Funds at Lloyd’s (FAL) to provide capital support for the Group’s underwriting at Lloyd’s. Letters of credit issued under the facility are uncollateralised. See Note 25 Borrowings for further details on banking facility. Other than the letters of credit these balances are included within financial assets at fair value and cash and cash equivalents on the statement of financial position.

Notes to the ﬁnancial statements continued

206 | Beazley | Annual report 2021 www.beazley.com

33 Foreign exchange rates

The Group used the following exchange rates to translate foreign currency assets, liabilities, income and expenses into US dollars, being the Group’s presentational currency:

	2021 Average	2021 Year end spot	2020 Average	2020 Year end spot
Pound sterling	0.73	0.76	0.78	0.73
Canadian dollar	1.25	1.27	1.34	1.27
Euro	0.84	0.88	0.88	0.81

34 Subsequent events

There are no events that are material to the operations of the Group that have occurred since the reporting date.

207 | www.beazley.com | Beazley | Annual report 2021 Financial statements

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Beazley PLC — Annual Report (ESEF) 2021

Financial statements

Consolidated statement of profit or loss

Statement of comprehensive income

Statement of changes in equity

Statements of financial position

Statements of cash flows

Notes to the financial statements

Notes to the financial statements (continued)

Glossary

1 Statement of accounting policies

Notes to the financial statements continued

1 Statement of accounting policies continued

Basis of presentation

Going Concern

Part VII transfer

Use of estimates and judgements

a) Estimates

Provision & claims

Financial assets & liabilities

Premium estimates

Financial assets

Goodwill

Consolidation

a) Subsidiary undertakings

b) Associates

c) Intercompany balances and transactions

Foreign currency translation

a) Functional and presentational currency

b) Transactions and balances

c) Foreign operations

Insurance contracts

Net earned premiums

a) Premiums

b) Unearned premiums

Deferred acquisition costs (DAC)

Claims

Liability adequacy testing

Ceded reinsurance

Revenue

Dividends paid

Plant and equipment

Intangible assets

a) Goodwill

b) Syndicate capacity

c) Licences

d) IT development costs

e) Renewal rights

Financial instruments

a) Financial assets

b) Financial assets at fair value through profit or loss

d) Fair value measurement

e) Hedge funds, equity funds and illiquid credit assets

f) Insurance receivables and payables

g) Other receivables

h) Investment income

i) Borrowings

j) Other payables

k) Hedge accounting and derivative financial instruments

l) Impairment of financial assets

Employee benefits

Income taxes

Notes to the financial statements continued

150 Beazley | Annual report 2021 www.beazley.com

2 Risk management

2.1 Insurance risk

a) Underwriting risk

151www.beazley.com Beazley | Annual report 2021 Financial statements

2 Risk management continued

152 Beazley | Annual report 2021 www.beazley.com

2 Risk management continued

Binding authority contracts

Operating divisions

153 www.beazley.com Beazley | Annual report 2021 Financial statements

2 Risk management continued

b) Reinsurance risk

c) Claims management risk

d) Reserving and ultimate reserves risk

2.2 Strategic risk

Beazley PLC Annual Report (ESEF) 2021