Analysts at Canaccord Genuity are upgrading earnings forecasts for Beazley (BEZ) after a meeting with the Lloyd's of London insurer's management yesterday.

Exchange rate benefits from Beazley's overseas operations are the main driver, writes Canaccord's Ben Cohen, contributing most of the 6% increase in earnings per share estimates for the year to 31 December 2016. Better-than-expected investment results also helped.

In a third quarter trading statement published 10 November, Beazley chief executive Andrew Horton said top-line growth was 2% year-to-date and the insurer's combined ratio, a measure of efficiency, was in line with historical averages at around 90%.

'Management stressed that the business was progressing to plan, with opportunities in Specialty outweighing pricing pressure at Lloyds,' writes Cohen in a commentary published today.

'The chief executive discussed plans to expand materially in European and International specialty lines with the recent hire of a team from XL Catlin.

'He cited the upcoming EU regulation to require the notification of data breaches from the second quarter of 2018 as spurring demand for cyber in Europe, although he concluded Beazley would not have the first-mover advantage it had when the US market for SME coverage started to grow.

'In large cyber, he stressed Beazley laid off most of its risk, with 80% of risk written under its recent Munich Re joint venture reinsured.'

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EARNINGS ESTIMATES
Beazley - Key financials ($m)
	2015	2016e	2017e
Net Earned Premium	1,699	1,688	1,782
Net Income	249	227	210
Earnings per share	30.9p	31.2p	31.8p
Dividend per share	20.5p	11.2p	11.9p
Combined ratio	87%	90%	92%
Source: Canaccord, 23 Nov - year-end: Dec

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Cohen adds that Beazley's special dividend payments look likely to dry up in the years ahead as increasing competition continues to weigh on sector profitability.

'We hold our view of a 10p special dividend for 2016 but concede this could be smaller or zero with a 2017 payment looking extremely unlikely.'

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