Beazley Insurance Designated Activity Company

Beazley Insurance Designated Activity Company

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Jahresabschluss zum Geschäftsjahr vom 01.01.2023 bis zum 31.12.2023

Beazley Insurance Designated Activity Company

Dublin/Irland

Annual report and accounts 2023

Welcome to our Annual report 2023

Beazley Insurance dac is a non-life insurance company that underwrites through its European branch network.

The Company also acts an internal reinsurer within the Beazley Group and provides capital to support the underwriting activities of Beazley Underwriting Limited in the Lloyd's market.

Contents

Highlights

Report of the directors

Independent auditor's report

Statement of comprehensive income

Statement of changes in equity

Balance sheet

Notes to the financial statements

Directors and advisors

Highlights

Directors' Report

The directors submit their report, together with the financial statements of Beazley Insurance dac (the Company) for the year ended 31 December 2023.

Company purpose and vision

The Company, as part of the Beazley Group (the Group), is passionate about serving all our stakeholders, our colleagues, our clients and brokers, and offering them the protection they need to achieve our shared business goals. The vision of the Company and the Group is to be the highest performing sustainable specialist insurer.

Principal activities and business review

The Company is authorised by the Central Bank of Ireland (CBI) to underwrite non-life insurance and reinsurance business. The Company operates its direct insurance business through a branch network in the United Kingdom, France, Germany, Spain and Switzerland and operates across the European Union on a freedom of services basis.

The Company acts as an intra-group reinsurer and provides capital to support the underwriting activities of its related company, Beazley Underwriting Limited (BUL). BUL is a Lloyd's of London corporate member. It participates in the Lloyd's insurance market on a limited liability basis through syndicates 2623, 3622, 3623 and 5623. Under the 2023 contract, BUL cedes effectively 65% of the final declared result (less a retention of $2.6m) of its participation in syndicates 2623 and 3623 to the Company. In the event that the declared result is a loss, the extent of the reinsurance is limited to the loss in excess of $2.6m not exceeding 65% of the Funds at Lloyd's (FAL). The Company has a credit facility agreement with BUL. Under the 2023 agreement, the Company can provide up to 35% of BUL's total required FAL. This facility was not utilised during the year. Further information on the 2024 reinsurance contract with BUL, and the credit facility agreement, is included on page 3.

The Company achieved strong premium growth in 2023, with growth achieved across all branches and divisions. The Company saw profit before tax increase to $769.7m (2022: $52.4m). Head office, including the reinsurance contracts with BUL, generated a profit before tax for the Company of $716.7m (2022: $28.7m). Our direct business delivered a pre-tax profit of $53.0m (2022: $23.7m) aided by a relatively benign claims year.

Throughout 2023, the Company continued to invest in and develop its business across Europe. Premiums from the Company's non-life insurance and reinsurance business carried out through its branches grew from $270.6m in 2022 to $346.5m in 2023. We expect growth to continue as we move into 2024 as a result of sustained organic growth on our current portfolio alongside new opportunities for the Company.

With regards to Environmental, Social and Governance (ESG) issues, reference should be made to the the Group Annual Report and Accounts. The Task Force on Climate Related Financial Disclosures (TCFD) on page 22 of the Group's 2023 Annual Report details recommendations and recommended disclosures at the consolidated Group level. The 2023 Beazley plc Annual Report and Accounts can be found at www.beazley.com.

Climate-related issues

The Company and the Group are focused on how we can play our part in addressing the climate crisis. While primary responsibility for climate related issues sits with the Group Boards and Committees listed on the next page, the Company's Board has regular interactions and updates with the responsible persons to ensure that the Company's Board is appropriately consulted, engaged and informed. The Board is responsible for ensuring that the Company is operating in accordance with legal and regulatory requirements and with relevant Beazley Group policies and procedures. The Company also considers climaterelated matters as part of the annual process to approve the risk framework and own risk and solvency assessment (ORSA).

Future developments in the business

The reinsurance contract for 2024 was renewed by the Company and BUL in December 2023. The main terms for the contract have remained the same as the contract for the 2023 year of account which includes an effective 65% cede from BUL to the Company. Under the contracts, the Company provides approximately 65% of BUL's FAL relating to the reinsured business. The credit facility agreement with BUL was also renewed for 2024. The terms of the agreement allow the Company to provide up to 35% of BUL's total required FAL.

The Company has entered into two new quota-share reinsurance contracts incepting 1 January 2024. The first will reinsure business from two syndicates at Lloyd's managed by the Group's managing agent, Beazley Furlonge Limited; 2623 (100% Group owned and managed) and 623 (third party capital). This contract will cede a portion of property treaty business written by those syndicates to the Company for the 2024 underwriting year. The second contract will assume a portion of all business from the Group's newly established North American surplus lines carrier, Beazley Excess and Surplus Insurance inc.

The Company plans to grow and expand its non-life insurance/reinsurance business across Europe through additional underwriting capability through its branch network.

Risk management oversight and framework

The Company's Board delegates oversight of the risk management function and framework to its Risk Committee. Beazley takes an enterprise-wide approach to managing risk. The risk management framework establishes the approach to identifying, measuring, mitigating, monitoring, and reporting on principal risks. The risk management framework supports the Company's strategy and objectives.

The Company leverages the 'three lines of defence' model, in which the risk management function is part of the second line of defence. Ongoing communication and collaboration across the three lines of defence ensures that the Company identifies and manages risks effectively.

A suite of reports from the risk management function support senior management and the Company Board in discharging their oversight and decision-making responsibilities throughout the year. The risk management function's reports include updates on risk appetite, risk profiles, stress and scenario testing and analysis, reverse stress testing, emerging and heightened risks, and the Own Risk and Solvency Assessment (ORSA) report.

The Company's Board approves the risk appetite statement at least annually and receives updates on monitoring against risk appetites throughout the year. This includes an assessment of principal risks.

The Company operates a control environment which supports mitigating risks to stay within risk appetite. The risk management function reviews and challenges the control environment through various risk management activities. In addition, the risk management function works with the capital model and exposure management teams, particularly in relation to validation of the internal model, preparing parts of the ORSA, monitoring risk appetite and the business planning process.

The risk management plan considers, among other inputs, the inherent and residual risk scores for the risks in the registers. The risk management function also includes results from internal audits into its risk assessment process. The internal audit function considers the risk management framework in its audit universe to derive a risk-based audit plan.

The Company's approach to identifying, managing and mitigating emerging risks includes inputs from the business, analysis of lessons learned post-risk incidents and industry thought leadership. The approach considers the potential materiality and likelihood of impacts, which helps prioritise emerging risks which the Company monitors or undertakes focused work on. Key emerging risks in 2023 included geopolitical, artificial intelligence, large cyber attack, legal and regulatory risk, human capital, and climate change. The Board carries out a robust assessment of the Company's emerging risks at least annually.

Risk management

The Company prides itself on understanding the drivers of risk. The risk management function supports and challenges management on managing those risks.

During the year, the risk management function continued to enhance and roll out elements of the risk management framework and continued working with our colleagues across the first and second lines of defence to support the Company's strategy.

The Company operates a risk management framework, within which risk appetite is defined, risks assumed are identified and managed and key controls are implemented and monitored. Additional information in relation to the Company's risk management objectives and policies is included in note 2 of the financial statements. The Company was within risk appetite for all principal risks at 31 December 2023.

Principal risks and uncertainties

Due to the nature of its activities, the principal risks and uncertainties of the Company are aligned with those of the Group. We carefully assess these risks and they are under continuous review with ongoing risk assessments. The table below summarises the principal risks the Company faces, and the control environment, governance and oversight that mitigate these risks.

Key performance indicators (KPIs)

The Company generated a profit before tax of $769.7m (2022: $52.4m). The Company's return on equity for the year was 50% (2022: 3%), which was largely driven by the positive performance of the intra-group reinsurance contracts alongside strong profits from the Company's investment portfolio. The Company has seen premiums from its non-life insurance and reinsurance business carried out through its branches grow from $270.6m in 2022 to $346.5m in 2023 and we anticipate further growth in 2024. During 2023, the Company increased its product offering and underwriting capability through its branch network. The balance of premiums written relates to our intra-group reinsurance contracts. Further information on the breakdown of our performance between direct insurance and intra-group reinsurance can be found in note 3 to the financial statements.

The increased premium volumes written through the Company's direct insurance branches have contributed to an increase in net insurance claims from that business of $117.7m (2022: $105.4m). The net insurance claims contain $34.2m of prior year reserve releases (2022: increases of $7.1m), largely driven by positive claims experience in the Specialty Risks division on the 2021 underwriting year. The Company saw a claims ratio on its direct business of 50% (2022: 63%).

The profit before tax for the year was bolstered by net investment profits which contributed $138.0m (2022: loss of $36.3m) primarily driven by higher yields on our fixed income portfolio.

The Company maintained a strong capital position throughout 2023, with a solvency capital requirement coverage ratio of 207% as at 31 December 2023 (2022: 210%).

Results and dividends

The result for the year is shown on the statement of comprehensive income (SOCI) on page 19. The Company did not declare or pay any dividend during 2023 (2022: $305.0m).

Directors

The names of the persons who were directors at any time during the year ended 31 December 2023 are set out below:

Secretary

The names of the persons who were secretary at any time during the year ended 31 December 2023 are set out below:

J Wright (appointed 27 June 2023)

R Yeoman (resigned 27 June 2023)

Directors and secretary and their interests

The directors and secretary who held office at 31 December 2023 had no interests greater than 1% in the shares of, or debentures or loan stock of, the Company or Group companies at the beginning (or date of appointment, if later) or end of the year (2022: nil).

Statement of directors' responsibilities

The directors are responsible for preparing the report of the directors and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and FRS 103 Insurance contracts. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the assets, liabilities and financial position of the Company and of its profit or loss for that year.

In preparing these financial statements, the directors are required to:

In assessing the Company's ability to continue as a going concern, the directors have considered the Company's capital position, business plans, cash flow and liquidity, and broader external and internal business factors including the ongoing uncertainty in financial markets. The directors are satisfied that the assessment of the Company as a going concern is reasonable.

The directors are responsible for keeping adequate accounting records which disclose with reasonable accuracy at any time the assets, liabilities, financial position and profit or loss of the Company and enable them to ensure that the financial statements comply with the Companies Act 2014 and the European Union (Insurance Undertakings: Financial Statements) Regulations 2015.

The directors are responsible for such internal controls as they determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities. The directors are also responsible for preparing a directors' report that complies with the requirements of the Companies Act 2014. As required by Section 1551 of the Companies Act 2014 (2014 Act), the Company confirms that it has established an Audit Committee, which assists the Board in carrying out its oversight and control obligations.

Relevant audit information

We confirm that to the best of our knowledge:

Statement of directors' compliance

The directors of the Company acknowledge that they are responsible for securing the Company's compliance with its relevant obligations (as defined in the 2014 Act) and, as required by Section 225 of the 2014 Act.

The directors confirm that:

Accounting records

The directors believe that they have complied with the requirements of sections 281 to 285 of the Companies Act, 2014 with regard to accounting records by employing accounting personnel with appropriate expertise and by providing adequate resources to the financial function. The books of account of the Company are maintained at 2 Northwood Avenue, Santry, Dublin 9 (D09 X5N9).

Political donations

The Company made no political donations during the financial year ended 31 December 2023 (2022: nil).

Central Bank of Ireland Corporate Governance Code

The Company is subject to the Corporate Governance Requirements for Insurance Undertakings issued by the Central Bank of Ireland. The Company is not required to comply with the additional requirements for major institutions.

Post balance sheet events

On 8 March 2024, the Board approved a dividend of $300.0m payable to its sole shareholder, Beazley Ireland Holdings plc. As a non-adjusting post balance sheet event, this dividend has not been reflected in the Company's financial statements for the year ended 31 December 2023. There are no other events that are material to the operations of the Company that have occurred since the reporting date.

Auditor

The auditors, Ernst and Young, Chartered Accountants, were appointed as the Company's auditor on 25 June 2019 in accordance with section 383(2) of the Companies Act 2014. This followed a selection procedure in accordance with Article 16(3) of Regulation (EU) No 537/2014 in respect of the appointment of the audit firm.

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF BEAZLEY INSURANCE DAC

Report on the audit of the financial statements

Opinion

We have audited the financial statements of Beazley Insurance dac ('the Company') for the year ended 31 December 2023, which comprise the Statement of Comprehensive Income, Statement of Changes in Equity, Balance Sheet and notes to the financial statements, including the summary of significant accounting policies set out in note 1. The financial reporting framework that has been applied in their preparation is Irish Law and FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' and FRS 103 'Insurance Contracts' (Generally Accepted Accounting Practice in Ireland) issued in the United Kingdom by the Financial Reporting Council.

In our opinion the financial statements:

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (Ireland) (ISAs (Ireland)) and applicable law. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with ethical requirements that are relevant to our audit of financial statements in Ireland, including the Ethical Standard as applied to public interest entities issued by the Irish Auditing and Accounting Supervisory Authority (IAASA), and we have fulfilled our other ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern

In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors' assessment of the Company's ability to continue to adopt the going concern basis of accounting included:

Conclusion

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Company's ability to continue as a going concern.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Our application of materiality

We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in forming our audit opinion.

Materiality

The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures.

We determined materiality for the Company to be $17.0 million (2022: $10.2 million), which is 1% (2022: 1%) of Equity. We believe that Equity provides us with a stable basis of materiality and as the primary stakeholders are mainly concerned about solvency and capital position of the Company.

Performance materiality

The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.

On the basis of our risk assessments, together with our assessment of the Company's overall control environment, our judgement was to set performance materiality at 50% (2022: 75%) of our planning materiality, namely $8.5 million (2022: $7.7 million). We have set performance materiality at this percentage due to nature of the industry in which the Company operates and our prior experience with the Company.

Reporting threshold

An amount below which identified misstatements are considered as being clearly trivial.

We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of $0.8 million (2022: $0.5 million), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.

We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion.

An overview of the scope of our audit report

Tailoring the scope

Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for the company. This enables us to form an opinion on the financial statements. We take into account size, risk profile, the organisation of the Company and effectiveness of controls, including controls and changes in the business environment when assessing the level of work to be performed. All audit work was performed directly by the audit engagement team.

Other information

The directors are responsible for the other information. The other information comprises the information included in the Directors' Report and the Statement of Directors' Responsibilities other than the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

Opinions on other matters prescribed by the Companies Act 2014

In our opinion, based solely on the work undertaken in the course of the audit, we report that:

We have obtained all the information and explanations which, to the best of our knowledge and belief, are necessary for the purposes of our audit.

In our opinion the accounting records of the Company were sufficient to permit the financial statements to be readily and properly audited and the financial statements are in agreement with the accounting records.

Matters on which we are required to report by exception

Based on the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified material misstatements in the directors' report.

The Companies Act 2014 requires us to report to you if, in our opinion, the disclosures required by sections 305 to 312 of the Act, which relate to disclosures of directors' remuneration and transactions are not complied with by the Company. We have nothing to report in this regard.

Respective responsibilities

Responsibilities of directors for the financial statements

As explained more fully in the Statement of Directors' Responsibilities set out on page 9, the directors are responsible for the preparation of the financial statements in accordance with the applicable financial reporting framework that give a true and fair view, and for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the Company's ability to continue as going concern disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (Ireland) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

Explanation to what extent the audit was considered capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect irregularities, including fraud, that could reasonably be expected to have a material effect on the financial statements. The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. In addition, the further removed any non-compliance is from the events and transactions reflected in the financial statements, the less likely it is that our procedures will identify such non-compliance. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below. However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the company and management.

Our approach was as follows:

A further description of our responsibilities for the audit of the financial statements is located on the IAASA's website at: http://www.iaasa.ie/getmedia/b2389013-1cf6-458b-9b8f a98202dc9c3a/Description of auditors responsiblities for audit.pdf. This description forms part of our auditor's report.

Other matters which we are required to address

We were appointed by board of directors in August 2019 to audit the financial statements for the year ending 31 December 2019 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and reappointments of the firm is 5 years.

The non-audit services prohibited by IAASA's Ethical Standard were not provided to the Company and we remain independent of the Company in conducting our audit.

Our audit opinion is consistent with the additional report to the Audit Committee.

The purpose of our audit work and to whom we owe our responsibilities

Our report is made solely to the Company's members, as a body, in accordance with section 391 of the Companies Act 2014. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members, as a body, for our audit work, for this report, or for the opinion we have formed.

Statement of comprehensive income for the year ended 31 December 2023

The Company's operating activities all relate to continuing operations.

Statement of changes in equity for the year ended 31 December 2023

There is one share with a nominal value of €1 in issue as per note 11 Share capital and other reserves.

Balance sheet as at 31 December 2023

Approved on behalf of the Board of directors:

The notes on pages 23 to 53 form part of these financial statements.

Notes to the financial statements for the year ended 31 December 2023

1 Accounting policies

(a) Basis of preparation

The financial statements have been prepared in accordance with Financial Reporting Standard 102, (the Financial Reporting Standard applicable in the UK and Republic of Ireland) (FRS 102) and Financial Reporting Standard 103 (Insurance Contracts) (FRS 103). The financial statements comply with the European Union (Insurance Undertakings: Financial Statements) Regulations 2015, and the Companies Act 2014. The financial statements are prepared using the historical cost convention except for certain financial assets and liabilities which are measured at fair value.

The policies have been consistently applied to all periods presented, unless otherwise stated. All amounts disclosed in the financial statements are presented in US dollars and millions, unless otherwise stated.

FRS 102 allows a qualifying entity certain disclosure exemptions, subject to certain conditions. As these conditions have been complied with the Company has taken advantage of the following exemptions:

Going concern

The financial statements have been prepared on a going concern basis. In adopting the going concern basis, the Board has reviewed the Company'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 Company's business activities, together with the factors likely to affect its future development, performance and position, are set out in the directors' report contained in the financial statements. In addition, the risk review section of the financial statements includes the Company's risk management objectives and the Company's objectives, policies and processes for managing its capital.

In assessing the Company's going concern position as at 31 December 2023, the directors have considered a number of factors, including the current statement of financial position and the Company's strategic and financial plan, taking account of possible changes in trading performance and funding retention. The assessment concluded that, the Company has sufficient capital and liquidity for the twelve months following the date of signing of the directors' report and financial statements.

As per its most recent regulatory submission, the Company's capital ratios and its total capital resources are comfortably in excess of regulatory solvency requirements and internal stress testing indicates the Company can withstand severe economic and competitive stresses.

As a result of the assessment, the directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future and therefore believe that the Company is well placed to manage its business risks successfully. Accordingly, they continue to adopt the going concern basis in preparing the Company's financial statements.

(b) 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.

Inputs and assumptions are evaluated on an ongoing basis by considering historical experience, expectations of reasonably possible future events, and other factors. For example, estimates which are sensitive to economic, regulatory and geopolitical conditions could be impacted by significant changes in the external environment such as the volatile macroeconomic environment, climate change, international conflicts, and significant changes in legislation. Any revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

Specific to climate change, the estimate for which there is the highest potential exposure to climate risk is the estimation of technical provisions. Management currently include allowances in the determination of technical provisions for the potential impact of changes arising from climate risks (which could include but is not limited to an increased frequency of natural catastrophes, liability claims for green-washing and changes in legislation related to climate). Management are of the view that for all other estimates, climate risk would not have a material impact on the valuation of the assets and liabilities held by the Company at the year end date.

The most critical estimates included within the Company's financial statements are the estimates for the fair value of investments and the estimate of the premium receivable or claims provision arising under the intra-group reinsurance contracts and direct insurance business. Further information about our investment portfolio can be found at note 2 and note 8 of the financial statements. Information on the premium receivable and claims provisions can be found at notes 2.1(d), 12 and 13.

(c) Basis of accounting for insurance/reinsurance activities

The Company undertakes both insurance and reinsurance activities. The Company writes direct insurance through a network of European branches and has an aggregate excess of loss reinsurance agreement with Beazley Underwriting Limited (BUL).

Under the terms of these intra-group reinsurance agreements the Company reinsures and indemnifies BUL in respect of a percentage of all losses. This percentage varies by underwriting year, with 75% of losses indemnified for the 2021 and 2022 underwriting years, and 65% indemnified for the 2023 underwriting year (subject to a $3m excess for 2021 and 2022 underwriting years and $2.6m excess for the 2023 underwriting year). In the event that the declared result is a loss, the extent of the reinsurance is limited to the loss in excess of the aforementioned amounts, not exceeding 75% (2021 and 2022) or 65% (2023) of the Funds at Lloyds. The underwriting results relating to this reinsurance contract are determined on an annual basis. Results under this contract reported on an annual basis recognise profits or losses as they are earned instead of at the closure of a particular Lloyd's year of account, normally after three years.

The excess of loss cede is reflected in the SOCI in accordance with the definition of premium and the limits of liability contained in the excess of loss agreement. This treatment results in each contract being accounted for as either a single premium or outstanding claim balance depending on whether the declared result of the syndicates is a profit or a loss. In this regard, the Company will recognise a premium receivable when an underlying reinsurance contract is in a profitable position at the reporting date, and will show an outstanding claim reserve when an underlying contract is in a loss making position at the reporting date. Movements in premium receivables and outstanding claims reserves will be shown through the SOCI and outlined in further detail through the notes to the financial statements.

As the premium/claim balance presented in the profit or loss account represents the Company's share of the profit or loss before tax of the syndicates, premium earnings adjustments and expense deferrals in respect of the underlying syndicate business have already been recognised through the premium or claims recognised under the contract. In this regard, the Company's balance sheet does not contain technical balances such as deferred acquisition costs and the provision for unearned premium relating to these reinsurance contracts. Profit commissions and financing fees, included in the terms of the reinsurance agreements, are accounted for separately and are included in operating expenses and investment income in the SOCI.

Premiums

Gross premiums written represent:

Premiums are recognised by the Company under an intra-group reinsurance contract, if at the reporting date the underlying result of the syndicates is a profit (subject to a $3m excess for 2021 and 2022 underwriting years and $2.6m excess for the 2023 underwriting year). If the underlying result of the syndicate is loss making at the reporting date, no premium is presented.

In relation to direct insurance, gross premiums written comprise premiums on contracts incepted during the financial year together with adjustments to premiums written in previous accounting periods. Gross premiums written are stated before the deduction of brokerage, taxes, duties levied on premiums and other deductions. Outward reinsurance premiums are accounted for in the same accounting period as the related direct insurance or inwards reinsurance business except in relation to excess of loss contracts, where the initial premium is charged when paid.

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.

Claims

Claims incurred represent the cost of claims and claims handling expenses paid during the financial year, together with the movement in provisions for outstanding claims, claims incurred but not reported (IBNR) and future claims handling provisions. The provision for claims comprises amounts set aside for claims advised and IBNR. Included in the movement in the provision for outstanding claims is the movement in claims reserves relevant to the reinsurance contracts with BUL, as defined by the aggregate excess of loss agreement with that Company.

A provision is made at the year-end for the estimated cost of claims incurred but not settled at the balance sheet date, including the cost of claims incurred but not yet reported to the Company. The Company takes all reasonable steps to ensure that it has appropriate information regarding its claims exposures. However, given the uncertainty in establishing claims provisions, it is likely that the final outcome will prove to be different from the original liability established.

The IBNR amount is based on estimates calculated using widely accepted actuarial techniques which are reviewed quarterly. 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, regard is given to the variations in the business portfolio accepted and the underlying terms and conditions. Thus, the critical assumptions used when estimating claims provisions are that the past experience is a reasonable predictor of likely future claims development and that the rating and other models used to analyse current business are a fair reflection of the likely level of ultimate claims to be incurred.

The estimation of IBNR is generally subject to a greater degree of uncertainty than the estimation of the cost of settling claims already notified to the Company, where more information about the claim event is generally available. Claims IBNR may not be apparent to the insured until many years after the event which gives rise to the claims has happened. Classes of business where the IBNR proportion of the total reserve is high will typically display greater variations between initial estimates and final outcomes because of the greater degree of difficulty of estimating these reserves. Classes of business where claims are typically reported relatively quickly after the claim event tend to display lower levels of volatility.

During the period, the Company refined its methodology for estimating claims reserves on its direct business, including revising the actuarial methodology behind determining the risk margin to determine the appropriate level of margin in reserves and updating the calculation methodology behind the provision for future claims handling expenses. These changes have been accounted for prospectively as a change in estimate and have not had a material impact on the financial performance or position of the company in the current period.

Claims provisions include claims reserves as calculated in accordance with the definition of the limit of liability contained in the aggregate excess of loss agreement with BUL. To the extent that a claim provision is recognised on an open contract at the reporting period, it is reflected as an outstanding claim reserve, which may increase or decrease depending on the final declared results of the syndicates under the relevant reinsurance contracts.

Acquisition costs

Acquisition costs incurred comprise brokerage, premium levies and staff-related costs of underwriters acquiring new business and renewing existing contracts. The proportion of acquisition costs in respect of unearned premiums is deferred at the balance sheet date and recognised in later periods when the related premiums are earned.

(d) Financial instruments

Recognition and derecognition

Financial instruments are recognised in the balance sheet at such time that the Company becomes a party to the contractual provisions of the financial instrument. A financial asset is derecognised when:

Financial liabilities are derecognised if the Company's obligations specified in the contract expire, are discharged or cancelled.

Financial assets and liabilities measurement

On acquisition of a financial asset or liability, the Company will measure the asset or liability at transaction price, except for those financial assets and liabilities at fair value through profit or loss (FVTPL), which are initially measured at fair value. The exception to this is when the arrangement constitutes a financing transaction however, the Company does not make use of any such arrangements.

Except for derivative financial investments and borrowings, all financial investments are designated as FVTPL upon initial recognition because they are managed and their performance is evaluated on a fair value basis. Information about derivative financial instruments is provided internally on a fair value basis to key management. The investment strategy is to invest and evaluate performance with reference to fair values.

Fair value measurement

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction on the measurement date. Fair value is a market-based measure and in the absence of observable market prices in an active market, it is measured using the assumptions that market participants would use when pricing the asset or liability.

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 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 the SOCI depending on the individual facts and circumstances of the transaction but not later than when 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 are recognised in the SOCI when incurred. Financial instruments at FVTPL are continuously measured at fair value, and changes therein are recognised in the SOCI. Net changes in the fair value of financial instruments at FVTPL exclude interest and dividend income, as these items are accounted for separately.

Investment income

Investment income consists of dividends, interest, realised and unrealised gains and losses and foreign exchange gains and losses on financial assets or liabilities at FVTPL. Interest is recognised on an accrual basis. 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 balance sheet date, and the carrying value at the previous year end or purchase value during the year.

Derivative financial instruments

Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at their fair value. 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. The best evidence of fair value of a derivative at initial recognition is the transaction price.

Derivative assets and liabilities are offset and the net amount reported in the balance sheet 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.

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 profit or loss account over the period of the borrowings using the effective interest method.

Impairment of financial assets

Assessment is made at each reporting date whether there is objective evidence that a financial asset or group of financial assets measured at amortised cost is impaired. A financial asset or group of financial assets 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 or group of financial assets that can be reliably estimated.

If there is objective evidence that impairment exists, the amount of the loss is measured as the difference between the assets carrying amount and the value of the estimated future cash flows discounted at the financial asset's original effective interest rate. Where a loss is incurred this is recognised in the statement of comprehensive income.

(e) Cash and cash equivalents

This consists of cash at bank and in hand and deposits held at call with banks and other short-term, highly liquid investments with maturities of three months or less from the date of acquisition.

(f) Other creditors

Other creditors principally consist of amounts due to group companies. These are stated at amortised cost using the effective interest rate method.

(g) Taxation

The charge for taxation is based on the profit for the year and takes into account taxation deferred because of timing differences between the treatment of certain items for taxation and accounting purposes. Current tax is provided on the Company's taxable profits at amounts expected to be paid using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is provided, using the liability method, on timing differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax assets are recognised on the balance sheet to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised.

In the current year, the Company has applied the amendment to FRS 102 in relation to International Tax Reform - Pillar Two Model Rules from 01 January 2023, as issued by the FRC. It introduces a mandatory temporary exemption from recognising and disclosing deferred taxes arising from the Pillar Two rules and requires targeted disclosure. The Company is in the scope of Pillar Two, and has therefore not taken into account the effects of Pillar Two when measuring deferred tax assets and liabilities or recognised any deferred tax relating to it. For more detail see note 7.

(h) Foreign currency translation

Transactions in foreign currencies are translated to the Company's functional currency at the foreign exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated to the functional currency at the foreign exchange rate ruling at that date. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.

Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are retranslated to the functional currency at foreign exchange rates ruling at the dates the fair value was determined. Foreign exchange differences arising on translation are recognised in the profit or loss account. For the purpose of foreign currency translation, unearned premiums and deferred acquisition costs are treated as if they are monetary items.

The results and financial position of the Company's European branches which have a functional currency different from the Company's presentation currency are translated into the presentation currency as follows:

2 Risk Management

The Company 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 sections below outline the Company's risk appetite and explain how it defines and manages each category of risk.

Risk management framework

Corporate governance

The Board gives high priority to risk management and risk control. Procedures are in place within the Company to ensure that risks are being measured, monitored and reported adequately and effectively to the Risk Committee. The Company is subject to regular internal audit review which is carried out by the Group internal audit function.

Capital management

The Company is required to maintain minimum capital requirements as set out in the European Union (Insurance and Reinsurance) Regulations 2015 (S.I. 485/2015). Regulations stipulate that the Company should maintain capital, allowable for solvency purposes, of at least the calculated threshold amount. At no time during the year has the Company failed to meet this requirement. The Company uses an approved internal model to calculate its regulatory solvency capital requirement. During the year, the Group and the Company applied to the CBI for model change approval. This was approved on 2 February 2024 and has been reflected in the Company's year end Solvency II reporting and in particular in the Company's Solvency and Financial Condition Report.

The internal model is used by management to aid decision making, in particular in terms of business planning, reinsurance purchasing, setting risk appetites, long term planning, exposure management and reserving.

The Company monitors capital against internal metrics and sets an internal risk appetite in relation to solvency coverage. At no time during the year has the Company failed to meet these target capital levels.

The Company's capital strategy is to:

The Company holds a significant amount of the Group's capital. Since inception the Company has always been well capitalised and the capital base has grown with earnings. The capital structure of the Company consists of subordinated loans as disclosed in note 15, and shareholder funds attributable to equity interests, comprising capital contributions and the profit or loss account as disclosed in the statement of changes in equity and note 11, respectively.

In 2016, the Company issued $250m of subordinated tier 2 notes due in 2026. In 2019, the Company issued $300m additional subordinated tier 2 notes due in 2029.

The amount of dividend paid is determined by the solvency of the Company and the requirements of the Group.

The Company holds a level of capital over and above its regulatory requirements. The amount of surplus capital held is considered on an ongoing basis in light of the current regulatory framework, opportunities for growth and a desire to maximise returns. Available capital and capital requirements are projected as part of the Company's five year business plan, which in turn is considered as part of the ORSA process.

More detailed information about the Company's capital strategy, capital management and capital position can be found in the Company's Solvency and Financial Condition Report (available at www.beazley.com).

2.1 Insurance risk

The Company issues insurance contracts under which it accepts significant insurance risk from persons or organisations that are directly exposed to an underlying loss from an insured event. 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 Company:

The Board reviews detailed underwriting information relating to the syndicate business reinsured by the Company through its excess of loss arrangements with BUL. The below section provides an overview of the underwriting risk associated with the underlying syndicate business as well as the insurance/reinsurance business underwritten directly by the Company through its European branches. This reflects how the Board monitors and manages the business and the associated risks.

The Company'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, geography and size. The annual business plans for each underwriting team reflect the Company's underwriting strategy, and set out the classes of business, the territories and the industry sectors in which business is to be written. These plans are approved by the Board of Beazley Furlonge Limited (BFL), for syndicate business, and by the Board of Beazley Insurance dac (BIDAC) for insurance/reinsurance business. These plans are monitored by the monthly Group Underwriting Committee and the Company Insurance Management Committee and the quarterly Company Reinsurance Underwriting Group.

The Company's 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 the financial exposure, loss history, risk characteristics, limits, deductibles, terms and conditions and acquisition expenses.

The Company 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 Company 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 (RDS). 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 Company is exposed.

The Company 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 include natural catastrophes, 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 and the frequency and severity of natural catastrophes, the Company continues to monitor its exposure. Where possible the Company 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. The Company also has exposure to man-made claim aggregations, such as those arising from terrorism and data breach events.

The Company chooses to underwrite data breach insurance within the Cyber Risks division and indirectly through the reinsurance contract with BUL using its team of specialist underwriters, claims managers and data breach services managers. Other than for affirmative cyber coverage, the Company's preference is to exclude cyber exposure where possible.

To manage the potential exposure, the Board has approved 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, and physical damage scenarios. Whilst it is not possible to be precise, as there is sparse data on actual aggregated events, these severe scenarios are expected to be very infrequent. 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. The reinsurance programmes purchased by Beazley, whether directly by the Company or indirectly by syndicates 2623 and 3623, would partially mitigate the cost of most, but not all, data breach catastrophes.

b) Reinsurance risk

Reinsurance risk to the Company 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 separately below.

The Company's reinsurance programmes complement the underwriting team business plans and seek to protect Company capital from an adverse volume or volatility of claims on both a per risk and per event basis. In some cases the Company 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 Group's 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, monitors and instigates our responses to any erosion of the reinsurance programmes.

c) Claims management risk

Similar to section 2.1(a) above, the following section provides an overview of the claims management processes carried out by the Company in respect of its direct insurance/reinsurance business, as well as the processes carried out at a syndicate level in respect of the business covered by the Company's reinsurance contracts with BUL.

Claims management risk may arise within the Company 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 Beazley brand and undermine its ability to win and retain business or incur punitive damages. These risks can occur at any stage of the claims lifecycle.

Beazley'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 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. An external independent actuary also performs an annual review to produce a statement of actuarial opinion for the syndicates (a significant element of this business being ultimately reinsured to BIDAC).

The objective of the Company'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, actuarial, claims, and finance representatives.

In accordance with the terms of the reinsurance contracts, the Company records an outstanding claim reserve in respect of any open year reinsurance contract with BUL which, at the reporting date, is in a loss making position for the Company. The Company receives detailed information on BUL underwriting and claims activity. Further information in relation to the claims recorded under these contracts is provided in note 1 and note 12 to the financial statements.

A five percent increase or decrease in total gross claims liabilities would have the following effect on profit or loss and equity:

Due to the reinsurance contracts with BUL, indirect reserve risk in relation to the reinsured syndicates exists for the Company. As at 31 December 2023, the level of net outstanding and IBNR claims within the reinsured syndicates totalled $4,457.9m (2022: $4,263.4m). The Company also monitors its exposure to insurance risk by location. 99% (2022: 98%) of risks underwritten by the Company are located in Europe.

2.2 Strategic risk

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

2.3 Market risk

Market risk arises from adverse financial market movements in addition to other external market forces. The three key components of market risk are foreign exchange, interest rate, and prices of assets and derivatives. Each element is considered in further detail below.

Foreign exchange risk

The functional and reporting currency of the Company is US dollar. As a result, the Company is mainly exposed to fluctuations in exchange rates for any non-dollar denominated transactions and net assets. The Company deals in five main currencies, US dollars, UK sterling, Canadian dollars, Swiss francs and Euro. Transactions in all non-US dollar 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. The Company holds the majority of its net assets in US dollars. The following table summarises the carrying value of net assets categorised by currency:

The Company's assets are predominantly matched by currency to the principal underlying currencies of its insurance liabilities. The Company monitors its currency risk position on a regular basis. While the Company does carry currency risk (as outlined in the above table), this is not material to the Company's ability to meet its claims and other obligations as they fall due. Fluctuations in the Company's trading currencies against the US dollar would result in a change to net asset value.

The table below gives an indication of the impact on net assets of a % change in relative strength of US dollar against the value of UK sterling, Canadian dollar, Euro, and Swiss franc simultaneously. The analysis is based on the current information available.

Interest rate risk

Some of the Company's financial instruments, including financial investments, are exposed to movements in market interest rates. The Company manages interest rate risk by primarily investing in short to medium duration financial assets along with cash and cash equivalents. The Company's Board monitors the duration of these assets on a regular basis.

The following table shows the average duration at the reporting date of the financial instruments. Duration is a commonly used measure of volatility which gives a better indication than maturity of the likely sensitivity of the portfolio to changes in interest rates.

In November 2016, the Company issued $250m of subordinated tier 2 notes due in 2026. Annual interest, at a fixed rate of 5.875%, is payable on this debt. In September 2019, the Company issued $300m of additional subordinated tier 2 notes due in 2029. Annual interest, at a fixed rate of 5.5%, is payable each year on this debt.

Sensitivity analysis

The Company holds financial assets and liabilities that are exposed to interest rate risk. Changes in interest yields, with all other variables constant, would result in changes in the capital value of debt securities and a change in value of borrowings and derivative financial instruments. This will affect reported profits and net assets as indicated in the below table:

Price risk

Equity securities that are recognised on the balance sheet at their fair value are susceptible to losses due to adverse changes in prices. This is referred to as price risk. Investments are made in debt securities and equities depending on the Company's appetite for risk. These investments are well diversified with high quality, liquid securities. The Board has established comprehensive guidelines with investment managers setting out maximum investment limits, diversification across industries and concentrations in any one industry or company. 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 Company establishes fair value using valuation techniques. This includes using recent arm's length market transactions, reference to 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.

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. The Company actively manages operational risks and minimises them where appropriate. This is achieved by implementing and communicating guidelines to staff and other third parties. The Company also regularly monitors the performance of its controls and adherence to these guidelines through the risk management reporting process.

Key components of the Company's operational control environment include:

2.5 Regulatory and legal risk

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

2 Risk Management continued

2.6 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. The two main components of Group risk are contagion and reputation.

Contagion risk is the risk arising from actions of one part of the Group which could adversely affect any other part of the Group. The Company 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.

Reputation risk is the risk of negative publicity as a result of the Group's contractual arrangements, customers, products, services and other activities. 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.

2.7 Liquidity risk

Liquidity risk arises where cash may not be available to pay obligations. The Company is exposed to daily calls on its available cash resources, principally from claims arising from its insurance business which is an industry norm. In the majority of the cases, these claims are settled from the premiums received held as assets. The Company avoids the risk of having insufficient liquid assets to meet expected cash flow requirements. The Company's approach is to manage its liquidity position so that it can reasonably survive a significant individual or market loss event. This means that the Company maintains sufficient liquid assets, or assets that can be translated 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 following is an analysis by business segment of the estimated timing of the net cash flows based on the net claims liabilities balance held at 31 December 2023 and 31 December 2022:

Maturity

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

2.8 Credit risk

This risk arises due to the failure of another party to perform its financial or contractual obligations to the Company in a timely manner. The Company accepts credit risk overall and recognises credit risk is aligned to its appetite for insurance risk. The primary sources of credit risk for the Company are:

The Company's core business is to accept significant insurance risk and the appetite for other risks is low. This protects the Company's capital from erosion so that it can meet its insurance liabilities. Aside from intra-group exposure, the Company limits exposure to a single counterparty or a group of counterparties and analyses the geographical locations of exposures when assessing credit risk. The investment committee has established comprehensive guidelines for the Company's investment managers regarding the type, duration and quality of investments acceptable to the Company. The performance of investment managers is regularly reviewed to confirm adherence to these guidelines. The Company 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:

The following tables summarise the Company's concentrations of credit risk:

The carrying amount of financial assets at the reporting date represents the maximum credit exposure. At 31 December 2023, the Company held no financial assets that were past due or impaired, either for the current year under review or on a cumulative basis based on all available evidence (2022: nil). Financial investments falling within the unrated category comprise hedge funds and equity funds for which there is no readily available market data to allow classification within the respective tiers.

2.9 Management of climate risk

The changing global climate is recognised as an important emerging risk due to its widespread potential impact on the global population, environment and economy. A key aspect of the Group's business model is to support our clients who have been affected by natural catastrophes, helping them return to pre-catastrophe conditions as soon as possible. The Company, as a core part of the Group, follows the Group's responsible business strategy and the Company's Board receives regular reporting in this area. As a specialist insurer, various classes of business we underwrite are subject to the effect climate change presents to the risk environment.

As part of the underwriting process, we work with our insureds to understand the risks facing their organisations, including applicable climate-related risks and to tailor insurance coverages to mitigate the associated financial risks.

We acknowledge and accept that over time climate change could impact the risks facing our insureds and we aim to manage the resulting risk to the Company and the Group as described below:

Pricing risk:

This is the risk that current pricing levels do not adequately consider the prospective impact of climate change, resulting in systemic underpricing of climate-exposed risks. The Group's business planning process establishes how much exposure in certain classes of business or geographic area we wish to accept. We benefit from a feedback loop between our claims and underwriting teams to ensure that emerging claims trends and themes can be contemplated in the business planning process, the rating tools and the underwriter's risk-by-risk transactional level considerations. Our underwriters are empowered to think about climate risk during their underwriting process in order to determine the implication on each risk.

Catastrophe risk:

This is the risk that current models do not adequately capture the impact of climate change on the frequency, severity or nature of natural catastrophes or other extreme weather events (e.g. wildfires) that could drive higher-than-expected insured losses. The Group utilises commercial catastrophe models to facilitate the estimation of aggregate exposures based on the Group's underwriting portfolio. These catastrophe models are updated to reflect the latest scientific perspectives. Catastrophe models are evolving to include new or secondary perils which may be related to climate change. In addition, the Group runs a series of natural catastrophe RDS on a monthly basis which monitor the Group's exposure to certain scenarios that could occur. These RDS include hurricanes in the US, typhoons in Japan, European windstorms and floods in the UK.

Reserve risk:

This is the risk that established reserves are not sufficient to reflect the ultimate impact climate change may have on paid losses. This includes unanticipated liability risk losses arising from our clients facing litigation if they are held to be responsible for contributing to climate change, or for failing to act properly to respond to the various impacts of climate change. With support from our Group actuarial team, claims teams and other members of management the Group establishes financial provisions for our ultimate claims liabilities. The Group maintains a consistent approach to reserving to help mitigate the uncertainty within the reserves estimation process.

Asset risk:

This is the risk that climate change has a significant impact across a number of industries which may negatively impact the value of investments in those companies. The Group considers the impact of climate change on its asset portfolio by seeking to incorporate an assessment of environmental risks in the investment process. We subscribe to the research services of a specialist company in the field of environmental, social and governance research and have integrated their proprietary ratings into the internal credit process applied to investments in corporate debt securities. A minimum standard for ESG performance is defined and companies not meeting the required standard will be excluded from the approved list of issuers. The analysis also includes consideration of the sustainability of each Company with regard to the potential decline in demand in specific sectors.

External event risk:

This is the risk that the physical impact of climate-related events has a material impact on our own people, processes and systems, leading to increased operating costs or the inability to deliver uninterrupted client service. The Group has business continuity plans in place to minimise the risk of an interrupted client service in the event of a disaster.

Commercial management risk:

The Group aims to minimise where possible the environmental impact of our business activities and those that arise from the occupation of our office spaces. As we operate in leased office spaces our ability to direct environmental impacts is limited. However, we do choose office space with climate change mitigation in mind, and engage with our employees, vendors and customers in an effort to reduce overall waste and our environmental footprint.

Credit risk:

As a result of material natural catastrophe events, there is a risk that our reinsurance counterparties are unable to pay reinsurance balances due to the Company or the Group. If the frequency or severity of these events is increased due to climate change this could cause a corresponding increase in credit risk. An important consideration when placing our reinsurance programme is evaluation of our counterparty risk. Every potential reinsurer is evaluated through a detailed benchmarking, which considers financial strength ratings, capital metrics, performance metrics and other considerations.

Regulatory and legal risk:

Regulators, investors and other stakeholders are becoming increasingly interested in companies' responses to climate change. Failure to appropriately engage with these stakeholders and provide transparent information may result in the risk of reputational damage or increased scrutiny. The Company and the Group regularly monitors the regulatory landscape to ensure that we can adhere to any changes in relevant laws and regulations. This includes making any necessary regulatory or statutory filings with regard to climate risk.

Liquidity and capital risk:

Linked to the underwriting and credit risks noted above, there is a risk that losses resulting from unprecedented natural disasters or extreme weather could erode our ability to pay claims and remain solvent. The Company and the Group establishes capital at a 1:200 level based on the prevailing business plan.

The Group runs RDS, with natural catastrophe and cyber being run on a monthly basis, in order to determine the impact of different risks. This modelling process is overseen by the Exposure Management Team, who have developed a Complex and Emerging Underwriting Risks Protocol. This sets out the activities in place to review the potential/ complex/or emerging risks relating to underwriting and there are circa 60 deterministic realistic disaster scenarios (D-RDS) used to monitor the most significant. A recent focus has been on testing and stressing assumptions. Following this, a series of activities has been initiated to embed good practices, ensuring that the risk landscape is frequently reviewed using claims trends, early flag, and external expert input.

These include:

These scenarios are either modelled, using data drawn from third party modelling partners, or non-modelled, where experts across the Group collaborate to determine the impact. An example of our approach to non-modelled risks is our approach to wildfires, an increasing event due to the impacts of climate change. The modelling takes into account the impact of sector, geography and business segment, in order to determine the Group's exposure. In turn this helps to drive decision making across the business. The Group is currently enhancing the number of scenarios it runs to ensure we further understand the financial impact of climate related risk on the business.

On a bi-annual basis, the risk team reviews the Group's risk assessment. These assessments are a collaborative effort with all the business functions, and are an opportunity to identify emerging risks, review existing risks, and provide appropriate mitigation measures to reduce/manage the risk. This assessment is inward looking and primarily concentrates on operational processes, whilst helping to encourage open dialogue with risk owners. This assessment is where the Group's own response to climate change is noted, with the appropriate action to deliver improvements detailed.

3 Segmental analysis

a) Reporting segments

Segment information is presented in respect of reportable segments, which are determined by applying IFRS 8 as prescribed by FRS 102. These are based on the Company's management and internal reporting structures and represent the level at which financial information is reported to management and relevant management committees, being the chief operating decisionmaker.

The Company aligns its underwriting divisions with that of the wider Beazley Group. Accordingly, the Company has determined that its reporting segments are as follows:

Cyber Risks

This segment underwrites cyber and technology risks.

Digital Risks

This segment underwrites a variety of marine, contingency and SME liability risks through digital channels such as e-trading platforms and broker portals.

MAP Risks

This segment underwrites marine, political and contingency business.

Property Risks

This segment underwrites first party property risks and reinsurance business.

Specialty Risks

This segment underwrites a wide range of liability classes, including employment practices risks and directors and officers, as well as healthcare, lawyers and international financial institutions.

Intra-group Reinsurance

This segment includes the intra-group reinsurance contract with BUL.

b) Segment information

The segmental results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Those items that are allocated on a reasonable basis are split based on each segment's capital requirement which is taken from the Group's most up-to-date business plan. The reporting segments do not cross-sell business to each other. Finance costs and taxation have not been allocated to operating segments as these items are determined at a consolidated level and do not relate to operating performance.

The above ratios represent the direct insurance/reinsurance business written through the Company's European branch network. The claims ratio is the ratio of net claims to net earned premium. The expense ratio is the ratio of the sum of expenses for acquisition of insurance contracts and administrative expenses to net earned premiums. The combined ratio is the ratio of the sum of net insurance claims, expenses for acquisition of insurance contracts and administrative expenses to net earned premiums. This is also the sum of the expense ratio and the claims ratio. All above three ratios are calculated excluding the impact of foreign exchange.

An analysis of gross premiums written by reference to the location of the risk insured by the Company is provided below.

c) Particulars of business

4 Net investment return

Investment income derived from financial assets and income from intercompany financing arrangements are trading income and are included in the Company's technical account as the assets are held to support the Company's reinsurance and insurance activities.

5 Net operating expenses

Acquisition expenses represents the brokerage and commissions on direct business written through the branches.

Net operating expenses include:

Fees payable in respect of other assurance services primarily relate to the audit of regulatory returns.

6 Staff costs

The aggregate payroll costs of these persons were as follows:

Of the amount disclosed in the table above, $0.6m (2022: $0.5m) was paid by the Company to directors employed directly by the Company. The remaining amount represents an estimated allocation of the emoluments paid or payable by the Group to certain directors as part of their Group wide executive management role. The estimated allocation is based on an estimate of the qualifying services, including management of the affairs of the Company, they provided to the Company during the year.

The average number of persons employed by the Company (including executive directors) during the year, analysed by category, was as follows:

7 Taxation

Factors affecting the tax charge for the current period

The tax charge of $97.1m (2022: $10.0m) for the year is higher (2022: higher) than the standard rate of corporation tax in Ireland, 12.5% due to the differences explained below.

Deferred tax assets of $7.3m (2022: $2.7m), relating to tax losses, which depend on the availability of future taxable profits, have been recognised in respect of the German branch of the Company. The Company has concluded that it is probable that the deferred tax assets will be recovered using the estimated future taxable profits based on the approved business plans.

Pillar Two Taxes

The Organisation for Economic Co-operation and Development released the Pillar Two framework to ensure that large multinational enterprises pay a minimum effective corporate tax rate of 15% on the income arising in each jurisdiction in which they operate. In December 2023, the Irish Government enacted legislation to implement these new rules in respect of fiscal years beginning on or after 31 December 2023. For the Company therefore, the first impacted accounting period is the one beginning on 1 January 2024.

The Company is in the scope of Pillar Two and we continue to assess its development. In December 2023, Ireland enacted a Qualified Domestic Minimum Top-Up Tax such that in-scope businesses pay at least a 15% effective tax rate on their profits. The impact on the Company will depend on the actual profits that arise in Ireland in each period, but based on the financial year 2023 profit we estimate an impact of an additional c. $19m of corporate income tax would have been payable in Ireland if the new legislation had been effective for the current financial year. The profits on the Company's direct business are taxed in jurisdictions with a statutory tax rate above 15%.

8 Financial assets and liabilities

Carrying values of financial assets and liabilities

The table below analyses financial instruments measured at fair value at the 31 December 2023, by the level in the fair value hierarchy into which the fair value measurements is categorised:

The table below analyses financial instruments measured at fair value at the 31 December 2022, by the level in the fair value hierarchy into which the fair value measurements is categorised:

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 and treasury bills of government and government agencies 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, exchange rates). Included within level 2 are government bonds and treasury bills which are not actively traded, corporate bonds, asset backed securities and mortgagebacked securities.

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.

The Company holds derivative financial instruments, both assets and liabilities. The Company 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 Company. The Company had the right and intention to settle each contract on a net basis.

Valuation approach

The valuation approach for fair value assets and liabilities classified as Level 2 is as follows:

(a) For the level 2 debt securities, the Company's fund administrator obtains the prices used in the valuation from independent pricing vendors. The independent pricing vendors derive an evaluated price from observable market inputs. These inputs are verified in their pricing assumptions such as weighted average life, discount margins, default rates, and recovery and prepayments assumptions for mortgage securities.

(b) For hedge funds, the pricing and valuation of each fund is undertaken by administrators in accordance with each underlying fund's valuation policy. Individual fund prices are communicated by the administrators to all investors via the monthly investor statements. The fair value of the hedge fund portfolios are calculated by reference to the underlying net asset values of each of the individual funds.

9 Cash and cash equivalents

10 Deferred acquisition costs

11 Share capital and other reserves

There is one share with a nominal value of €1 in issue. A capital contribution of $536.3m was received from Beazley plc on 29 June 2009. The Company also holds a foreign exchange translation reserve of $45.8m (2022: $48.6m). This primarily arose on the change of functional currency to US Dollar in 2010. Movements in the reserve occur due to exchange differences from translating foreign operations to US dollar. This resulted in a gain of $2.8m in 2023 (2022: loss of $3.8m).

The profit or loss account of $1,208.5m was comprised of profits carried forward from previous years of $535.9m (2022: $798.5m) and a profit after tax for the financial year of $672.6m (2022: $42.4m).

The Company did not pay or declare any dividend during the year (2022: $305.0m). Please see note 19 for further information on dividends declared after the balance sheet date.

12 Technical provisions

12.1 Technical provisions breakdown

As shown in note 1 above, outstanding claims include claims reserves in respect of the Company's insurance activities, as well as claims reserves held in respect of the Company's reinsurance contracts with BUL. The current year gross claims and unearned premium reserves are split as follows:

12.2 Direct business technical provisions reconciliation

a) Claims and loss adjustment expenses

The below sets out the movements in the gross and reinsurance technical provisions for the year for the Company's direct business.

b) Unearned premiums reserve

12.3 Loss development tables

The following tables show the estimates of cumulative ultimate claims for each successive underwriting year. The tables reflect the gross and net claims development of direct insurance/reinsurance business written through the Company's European branch network and the claims development of open year intra-group reinsurance contracts in place with BUL. The final table reconciles the claims development of all insurance and reinsurance activities to the balance sheet of the Company. Each table is split by underwriting year.

As shown by the tables below, the company has benefited from improvements in held claim estimates in the year, in particular on the 2021 and 2022 underwriting years. These ultimate claim estimate reductions were seen mostly in the Company's Specialty Risks division.

2018ae refers to 2018 and earlier years.

All open intra-group reinsurance contracts are currently profit-making for the Company and thus no outstanding claims amounts are being carried at the balance sheet date.

13 Debtors arising from reinsurance activities

The following table displays the amounts due from BUL under the excess of loss reinsurance agreements. Debtors arising from reinsurance activities are recognised when a reinsurance contract is in a profitable position at the reporting date.

The following table provides an additional split of reinsurance debtors, into each open year of account contract in place at the reporting date:

14 Funds at Lloyd's

The Funds at Lloyd's (FAL) to support the underwriting of BUL on syndicates 2623 and 3623 have been provided by the Company by way of deposits of $914.7m (2022: $959.7m). The FAL included in financial assets on the Company's balance sheet, may consist of certain approved assets only and are subject to a deed of charge in favour of Lloyd's. In return for providing the FAL, BUL pays the Company an annual fee.

In addition, the Company acts as a guarantor in respect of the Group's banking facility of $450.0m (2022: $450.0m). As at 31 December 2023, $225.0m (2022: $225.0m) of the facility has been drawn down by the Group and placed as a letter of credit at Lloyd's to support the FAL of BUL.

15 Financial liabilities

Fair value

The fair value of the tier 2 subordinated debt is based on quoted market price.

In November 2016, the Company issued $250m of subordinated tier 2 notes due in 2026. Annual interest, at a fixed rate of 5.875% is payable each year. In September 2019, the Company issued $300m additional subordinated tier 2 notes due in 2029. Annual interest, at a fixed rate of 5.5% is payable each year. All subordinated debt is listed on the London Stock Exchange. Interest paid on this debt during 2023 was $31.6m (2022: $31.6m).

16 Other debtors

All of the above amount is due within one year.

17 Other creditors

Included in the amounts due to group companies, is $69.3m due to BUL in respect of profit commissions. Of this amount $30.0m is due after more than one year. All other creditors are due within one year.

18 Ultimate parent undertaking

The ultimate parent undertaking is Beazley plc, incorporated and resident in the United Kingdom. The largest and the smallest group in which the results of the Company are consolidated is that headed by Beazley plc. The accounts of Beazley plc are available to the public at www.beazley.com and at 22 Bishopsgate, London EC2N 4BQ, United Kingdom.

19 Post balance sheet events

On 8 March 2024, the Board approved a dividend of $300.0m payable to its sole shareholder, Beazley Ireland Holdings plc. As a non-adjusting post balance sheet event, this dividend has not been reflected in the Company's financial statements for the year ended 31 December 2023. There are no other events that are material to the operations of the Company that have occurred since the reporting date.

20 Company information

Beazley Insurance designated activity company is a designated activity company incorporated in Ireland with registered number 464758. The Company was granted a Certificate of Authorisation from the Central Bank of Ireland on 7 July 2017 to underwrite non-life insurance business. The registered office is 2 Northwood Avenue, Santry, Dublin, DO9 X5N9.

Directors and advisors

Directors

A P Cox (British) (resigned 11 December 2023)

J Dunne

S M Lake (British) (resigned 12 December 2023)

E J McGivney

P O Desaulle (French) (Chair)

M Moore

K P Murphy

P Ruane

Secretary

J Wright (appointed 27 June 2023)

R Yeoman (resigned 27 June 2023)

Registered office

2 Northwood Avenue

Santry

Dublin

D09 X5N9

Registered number

464758

Auditor

Ernst & Young

Harcourt Centre

Dublin 2

Ireland

Banker

Bank of America Europe Designated Activity Company (BofA Europe)

2 Park Place

Hatch Street

Dublin 2

Ireland

Solicitors

William Fry

2 Grand Canal Square

Dublin

D02 A342

Beazley Insurance dac

2 Northwood Avenue

Santry

Dublin

D09 X5N9

Ireland

T +353 (0)1 854 4700

info@beazley.ie

www.beazley.com