Forecasts & Results

Lancashire plc releases 3Q22 trading statement

Posted 03/11/2022 – Quick takes

Lancashire Holdings Limited (the listed plc) has released its trading statement for the 9 months ending 30th September.

  • Gross written premiums (GWP) increased by +34.3% year-on-year to US$1.3bn, driven primarily by growth in the property and casualty reinsurance segment. In turn, this was mainly due to new business in the casualty reinsurance and financial lines classes of business as well as the continued hardening in property reinsurance classes.
  • The group’s Renewal Price Index (RPI) was 107%. The RPIs for its divisions were: Property & Casualty reinsurance 108%; Property & Casualty insurance 106%; Aviation 111%; Energy 103%; and Marine 105%.
  • The group has estimated a net loss from Hurricane Ian in the range of US$160-190m, excluding the impact of reinstatement premiums.
  • The group’s total net investment return was a loss of -5.0%, primarily driven by unrealised losses in its fixed income portfolio. The duration of this book at 30th September 2022 was c1.7 years, so the group should see a recovery of most of these losses as the bonds mature (at par). Interestingly, the investment book (US$2.291bn) now has a book yield of 2.3% (1.3% at 3Q21) and a market yield of 4.6% (0.8% at 3Q21), which demonstrates the impact of the recent global central bank rate hikes on fixed income markets.

Alex Maloney, Group CEO, commented: “Our current estimate of the net impact of hurricane Ian […] is within our expectations for an event of this type. During 2022, Lancashire has continued to grow and diversify its underwriting portfolio and deliver on its underwriting strategy. This has been fuelled by solid rate increases and strong market conditions which has given us additional resilience. […] We expect the broader positive conditions to continue into 2023 and our strategy is to take advantage of attractive market opportunities […] We believe we are well-placed to manage inflationary pressures and have competence in dealing with previous inflationary and deflationary changes within a number of our product lines. Inflation will also present further opportunities for us as clients seek to purchase additional cover. Even allowing for the impact of hurricane Ian, and unrealised investment losses, our capital position remains strong and we will drive forward with our growth strategy and capitalise on the strong rate environment through our diversified product portfolio.”

Alpha comment

The impact of Hurricane Ian looks to be within expectations and the positive impact of reinstatement premiums could be quite significant for the group. The investment loss is, again, as expected and should largely unwind over the next c8 quarters.
Of note is the diversification of the Lancashire group underwriting portfolio, as illustrated by this graphic from the trading statement presentation:

Source: Lancashire plc

Alpha remains, therefore, somewhat frustrated with the lack of diversification of the underwriting within syndicate 2010 as compared with the group as a whole. That said, the underwriting conditions for capital supporters of syndicate 2010 into 2023 look to be clearly improving and the impact of Hurricane Ian has undoubtedly given the rate environment in property reinsurance a much needed boost.

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