Beazley drew a line under its failed tilt at rival Lloyd’s of London insurer Hardy by handing capital back to its shareholders with a 2.5p special dividend as it kicked off the market’s reporting season with a strong set of full-year results.
The company dropped its two month-long pursuit of Hardy in mid-December when its third offer, which valued the smaller business at £181m, was turned down as still too low.
Beazley’s approach was part of what could turn into a wave of merger and acquisition activity in the sector following the private equity buy-out agreed for Brit Insurance, sponsor of the England cricket team.
A number of the smaller businesses in the sector are seen as vulnerable to bids, including Hardy, Novae, Omega – which has had an approach from privately held rival Canopius – and Chaucer.
Chaucer is now in talks with Guy Hands’ Terra Firma, the private equity firm that confirmed on Tuesday it was considering an offer that is thought to be pitched at about 65p a share.
Andrew Horton, Beazley’s chief executive, said the company could still pursue acquisitions opportunistically, but that they were more likely to be teams of people or smaller private businesses than listed rivals.
The shares rose more than 8 per cent during the day, but finished up 6.6 per cent, or 7.9p, at 127.7p after the insurer reported pre-tax profits for 2010 that were 60 per cent higher at $250.8m (£156m), against $158.1m in the previous year.
Analysts said the special dividend would cheer investors while leaving the company with some flexibility to pursue other deals.
Mr Horton said: “Depending on how our trading goes, we will look to continue returning capital through share buy-backs.”
The improvement in profits was down to better underwriting as the company saw lower losses on reduced premiums as market rates decline in many areas.
Beazley’s investment return came in at less than half the level seen in 2009 – at $37.5m versus $88.1m – as the group focused on short-term, low-yielding debt so that it can reinvest at higher yields when interest rates begin to pick up.
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Beazley’s share price rise puts it in the rarefied few among Lloyd’s companies whose stock trades at a premium to its net tangible asset value per share – a key measure for valuing non-life insurers. Beazley’s NTA was 18 per cent higher at 124.4p at the full year, putting its shares at a slim near-3 per cent premium – which still falls some way shy of the 10 per cent-plus premiums put on more fancied rivals such as Hiscox, Amlin and Lancashire. But the premium is enough to almost certainly inoculate Beazley against the current bout of M&A fever infecting the sector.