Lancashire interim results

Posted 22/10/2021 – Quick takes

Lancashire Holdings, the UK-listed (re)insurance group that includes Lloyd’s syndicates 2010 & 3010, has announced its preliminary estimates for group exposures to a number of recent natural catastrophe events, including hurricane Ida and the European storms (Bernd, Volker and Xero). Lancashire currently believes that these natural catastrophe events will lead to aggregate net ultimate losses in a range of US$165-185m. In addition, Lancashire reported estimated ultimate net losses within its political violence portfolio related to the recent civil unrest in South Africa of approximately US$40m. Both estimates are net of outwards reinsurance recoveries. Lancashire will provide a more detailed update with its 3Q21 earnings update on 4th November. Alex Maloney, Group CEO of Lancashire, offer investors some crumbs of comfort within the statement, saying: “… these loss estimates are within our expectations for these types of events … the Company remains strongly capitalised to be able to take advantage of the improving market … The rating environment continues to improve …”

Alpha comment: The Lancashire Group share price has fallen c9% since the release of this update on Thursday 21st October – mid-way through the first capacity auction. Alpha asked Lancashire for an estimate as to the extent syndicate 2021 has been impacted, but Lancashire said that they were unable to disclose more information than that released via the regulatory update to the Group’s shareholders. In our recent pre-Auction report we wrote: “The impact of Ida is currently estimated to be above its US$12.5m retention (c4% of stamp), split roughly 50:50 between the D&F and Treaty books (the vast majority falling on 2021 rather than 2020). Bernd will not be a D&F loss for Lancashire, but will hit the Treaty book, but the overall impact is not yet disclosed.” Whatever the impact on s2010, it is not surprising to see an impact from Hurricane Ida given s2010’s exposure to both D&F Property & Property Reinsurance lines (approximately 80% of the book when combined). The net impact to the group of the South African political violence losses does seem high, but this should not, happily, affect syndicate 2010. However the continuing frequency and severity of cat losses does suggest that the catastrophe exposure carried by the Lancashire group will need to be reduced going forwards, as will probably that of syndicate 2010. This could be achieved by a restructuring of their two current Lloyd’s entities, which would also have the benefit of reducing the FAL requirements.’

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