Forecasts & Results
Lancashire reports combined ratio of 107.3% for the 2021 financial year
Posted 11/02/2022 – Quick takes
Lancashire has reported its group full year results for the financial year to 31st December 2021, including a pre-tax loss of US$56.8m (vs. a 2020 pre-tax profit of US$5.9m).
The overall group loss is primarily attributable to large catastrophe losses in 2021, including Winter Storm Uri (US), Hurricane Ida (US), Storm Bernd (Europe), Midwest tornadoes (US) and tropical storms (Australia).
Despite these heavy catastrophe losses, Lancashire’s group combined ratio improved by 0.5 percentage points to 107.3%, largely as a result of an improved expense ratio (17.2% in 2021 vs. 24.0% in 2020).
Group gross written premiums grew by c50% (US$1,225.2m in 2021 vs. US$814m in 2020), with Property & Casualty GWP up c80.5% in 2021 vs. 2020 largely due to growth in Property D&F.
There was also growth in Political Risk and the addition of three new classes of business: Accident & Health, Casualty Reinsurance and Specialty Reinsurance. These new classes of business have been chosen because they: (i) attract a low capital loading; (ii) are largely attritional (unlike Property Reinsurance); and (iii) exhibit low volatility.
The group renewal price index ended 2021 at 109%, vs. 112% at the end of 2020. The group is anticipating a fifth year of positive rate momentum in 2022.
The 2021 result was bolstered by US$86.5m of prior year reserve releases (vs. US$52m in 2020).
Net investment income, excluding realised and unrealised gains and losses, was US$23.0m, a decrease of 20.7% vs. 2020. The total investment return was a gain of US$1.3m for 2021 vs. a gain of US$69.1m in 2020.
Alex Maloney, Lancashire’s group CEO, said: “2021 saw Lancashire successfully continue the long-term build-out of its franchise and expand into a number of new classes … However, 2021 was also a poor one for returns … [with] insured losses from natural catastrophes [of] between $105bn and $130bn, making it one of the costliest years on record. These events show the critical role the industry plays in delivering risk solutions that protect people, economies and businesses from uncertainty.”
Clearly the group headline results are disappointing, but unsurprising given the nature of the group’s underwriting portfolio and the high level of natural catastrophe losses in 2021. Alpha continues to support the diversification of Lancashire’s underwriting in syndicate 2010 away from Property Reinsurance towards other classes of business and we look forward to seeing the fruits of this diversification being delivered to our members in due course.