(Reuters) - Lloyd’s of London insurer Beazley Plc’s BEZG.L first-half profit slumped as its bond portfolio took a hit from higher U.S. interest rates, while the company also warned a “hard” Brexit could prove very expensive for Britain’s insurance sector.
Beazley's shares fell as much as 13 percent after its results on Friday, before paring some losses to trade 6.1 percent lower at 523 pence on the London Stock Exchange. The stock was at the bottom of the FTSE Midcap Index .FTMC.
The insurer said its net investment income slid to $8 million for the six months ended June, from $79.4 million a year earlier, while pretax profit fell 64 percent to $57.5 million.
Beazley’s bond portfolio is worth $3.5 billion, Finance Director Martin Bride told Reuters on a call.
“If interest rates stay where they are then all the pain is behind us and we will now enjoy quite high investment yields. If rates go even higher then there will be another period of not very good returns,” Bride said.
The slump in profit took the shine off a 15 percent jump in gross premiums written to $1.32 billion, helped by Beazley’s property division, where rates have risen sharply after the heavy catastrophe losses suffered by insurers and reinsurers last year.
To view a graphic on Lloyd's Insurers After Most Expensive Year On Record, click: tmsnrt.rs/2LBHRp3
As Britain’s exit from the European Union nears, Beazley has converted its Irish reinsurance business into a European insurance company to handle its business with EU customers. It will also be able to write its Lloyd’s business on the platform Lloyd’s has set up in Brussels from the beginning of next year.
However, if financial firms based in Britain face an abrupt end to EU market access, Beazley would not be able to pay out claims to existing EU-based customers or receive premiums from them, Chief Executive Officer Andrew Horton told Reuters.
“The outstanding issue at the moment is ... the legal position regarding can we pay claims on outstanding policies when we leave the EU? So does it become illegal to make cross-border payments to people we have insured,” he said.
If such payments were to be declared illegal, all transactions would have to be transferred to an entity in Europe which is allowed to pay claims, resulting in a lengthy and “very expensive” process, Horton said.
Beazley hopes that situation can be avoided.
“... But at the moment there is no clarity on that and therefore we have to prepare for this expensive route of doing a transfer to an entity which is allowed to pay claims. But practically that will not be done by March next year. So there has to be a transition period,” he said.
Reporting by Noor Zainab Hussain in Bengaluru; Editing by Amrutha Gayathri and Susan Fenton