Forecasts & Results

Lancashire plc releases H1 2023 trading statement

Posted 10/08/2023 – Quick takes

Lancashire Holdings Limited (the listed plc) has released its trading statement for the 6 months ending 30th June 2023.


  • Gross premiums written increased by 26.2% to $1,184m (H1 2022: $938m), insurance revenue of $720.9m (H1 2022: $880m)
  • Insurance service result $189m (H1 2022: $142m); profit after tax $159m (H1 2022: $31m)
  • Discounted combined ratio 71.4% (H1 2022: 72.6%), undiscounted combined ratio 79.2% (H1 2022: 77.1%)
  • Total net investment return of 2.2% (H1 2022: -3.8%)
  • Interim dividend of $0.05 per common share (H1 2022: $0.05)


Reinsurance segment
A significant portion of the increase in premiums in the reinsurance segment was due to the continued build out of casualty reinsurance lines as well as new business written in the specialty reinsurance class. In property reinsurance they saw the benefit of significant rate increases contributing to growth. Overall the RPI was 123% for the segment.

Insurance segment
The growth in the insurance segment was primarily driven by property insurance with substantial rate increases in the property direct and facultative line of business, in addition to the build out of the Australia and construction teams. New business written across all of the energy and marine insurance lines also contributed to the strong premium growth. In specialty insurance, the Group wrote more political risk business on a multi-year basis than the prior year while really strong RPIs contributed to the growth in aviation insurance. Overall the RPI was 111% for the segment.

Insurance revenue
Insurance revenue is a new measure introduced by IFRS 17 and is comparable to IFRS 4 gross premiums earned less inwards reinstatement premium and is net of commission costs. Insurance revenue increased by $141.1m or 24.3% in the first six months of 2023 compared to the same period in 2022. The market factors driving the increase in gross premiums written also drove the increase in insurance revenue. Gross premiums earned as a percentage of gross premiums written was 69.8% compared to 68.0% in the prior year as more earned premium came through in the current year from policies bound in the prior year.

Allocation of reinsurance premiums
Allocation of reinsurance premiums on an IFRS 17 basis is comparable to IFRS 4 ceded earned premium less outward reinstatement premiums and is net of outward commission costs. Allocation of reinsurance premiums increased by $28.9m or 15.7% in the first six months of 2023 compared to the same period in 2022. The increase in our outwards reinsurance spend was primarily driven by the renewal of the Group’s outward reinsurance programme at higher rates than in 2022. There was also a higher level of political risk and casualty quota share reinsurance spend driven by the growth in inwards business and some new outwards reinsurance contracts entered into as a result of the continued growth and diversification in the inwards underwriting portfolio.

Net Claims environment (Insurance service expenses less amounts recoverable from reinsurers)
During the first six months of 2023, the Group experienced net losses (undiscounted, including reinstatement premiums) from catastrophe and large loss events totalling $49.5m. None of these events was individually material for the Group. This compared with the first six months of 2022, where the Group experienced net losses (undiscounted, including reinstatement premiums) from the conflict in Ukraine, the Australian floods and large loss events totalling $53.1m. Prior year favourable ultimate loss development for the first six months of 2023 was $46.3m, compared to $64.6m of favourable development in 2022. The favourable development in 2023 was primarily due to releases on the 2022 and 2021 accident year across most lines of business due to a lack of reported claims, as well as favourable development across some of the older accident years. On an IFRS 17 basis, the prior year favourable development is $72.1m. This includes $11.3m favourable expense provision releases as well as $13.6m of reinstatement premium impact, largely due to a reduction in outwards reinstatement premiums on catastrophe losses. In the prior year the Group benefited from general reserve releases on the 2021 accident year due to a lack of reported claims, as well as some favourable development on some large claims from the 2018 and 2017 accident years.

Total net investment return increased by $149m in the first six months of 2023 compared to the same period in 2022. The Group’s investment portfolio, including unrealised gains and losses, returned 2.2% for the first six months of 2023. The positive returns were driven by $51.4m of investment income as the portfolio benefitted from higher yields. The majority of the unrealised gains were generated in the first quarter on the fixed maturity portfolio due to a decline in treasury rates outside of the one-year rate. In the second quarter, investment income mitigated the negative returns from the upward shift in the yield curve. All asset classes performed positively, with most of the returns in the second quarter driven by the alternative asset classes. This compares with the Group’s investment portfolio, including unrealised gains and losses, which returned negative 3.8% for the first six months of 2022. The majority of the losses were driven by the significant flattening of the yield curve and spread widening for the investment grade corporate debt and bank loans.

Alex Maloney, Group Chief Executive Officer, commented:

“Our long-term strategy to develop a more diversified and capital-efficient product portfolio is delivering the expected benefits, with a half year change in diluted book value per share of 12.2%. Our philosophy has always been to grow when market conditions are favourable, while maintaining our approach to underwriting discipline. During the first six months of 2023 we continued to take advantage of the strong underwriting environment with gross premiums written increasing 26.2% year-on-year. The undiscounted combined ratio was a healthy 79.2%, or 71.4% on a discounted basis. Lancashire has long been recognised as a business that actively manages the underwriting cycle and, when it makes sense to do so, seeks new areas for disciplined growth. With that in mind, subject to all necessary approvals, we intend to expand our international footprint and launch Lancashire Insurance U.S., which will operate under a delegated underwriting arrangement with Lancashire’s UK company platform. Lancashire Insurance U.S. will be complementary to our existing capabilities and will give us the ability to write business that is within our appetite and that we currently do not have access to. The new operation in the U.S. is expected to begin underwriting in early 2024.”

Alpha comment:

The statement includes a year on year improvement in the discounted combined ratio, but a slight increase in the undiscounted combined ratio. It was disappointing to see that the major losses experienced to date in 2023, albeit not individually of any great significance, totalled a similar amount to the losses in the first half of 2022 which included reserves for the war in Ukraine and the Australian floods. Prior year development was favourable but to a lesser extent than the first half of 2022. Investments have bounced back, from the realised and unrealised losses reported in 2022. Whist a combined ratio of under 80% is welcome, with such a heavy skew towards US reinsurance business, the second half of the year will be material in terms of loss exposure and the ultimate outcome of the results both for the Lancashire group, and for our involvement in syndicate 2010. The launch of their US E&S platform seems to be with a different structure to Beazley.

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