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Cats push Lancashire to Q3 loss, firm eyes specialty line growth in 2019

1st November 2018 - Author: Luke Gallin

Lancashire Holdings Limited has reported a net operating loss of $24.6 million and a combined ratio of 135.2% for the third-quarter of 2018 as a result of catastrophe events. However, the firm remains in positive territory for the first-nine months of the year and sees growth opportunities in 2019.

Despite an improvement on the third-quarter of last year, Lancashire fell to a net operating loss in the quarter, driven by catastrophe losses that resulted in a net negative return on equity for the quarter for the group, of 1.9%.

Lancashire’s loss ratio in Q3 2018 reached 77.2%, which, while an improvement on the 175.4% recorded in the same period last year, still contributed to a net operating loss, although the firm’s Chief Executive Officer (CEO), Alex Maloney, did stress that “loss events during the quarter are a well understood part of our business model; we are prepared for such events and they lie within our risk expectations.”

“The third quarter of 2018 was at least as active as 2017 in terms of the number of events to impact the industry. The magnitude of insured loss, however, has been much smaller. We have, nonetheless, produced a small loss for the quarter as a result of these events. While it’s always disappointing to lose money in any quarter, we remain in positive territory for the year to date,” said Maloney.

Gross premiums written (GPW) declined year-on-year to $115.2 million, while net premiums written (NPW) fell to $86.3 million, year-on-year. At the same time, GPW for the first-nine months of 2018 fell slightly to $507.7 million year-on-year, while NPW declined slightly to $320.3 million.

As noted by Maloney, the firm remains in positive territory for the year-to-date, and has reported net operating income for the period of $53.7 million, compared with a net operating loss of $82.9 million for the same period in 2017.

The Q3 2018 combined ratio stands at 135.2% and 61.3% for the first-nine months of the year, compared with 213.3% and 126.4% in 2017, respectively.

Commenting on rates, Maloney said: “Overall, rates are directionally up on last year and, pleasingly, we continue to see rates improving across our specialty lines of business. In our property catastrophe lines, recent loss events may stimulate that market to maintain more discipline over pricing in the run up to the January 1 renewals.

“While optically our gross premiums written have declined in the third quarter, rate increases and growth in the quarter are masked by the impact of quarter on quarter reinstatement premiums plus the impact of the timing of renewal of some multi-year deals in addition to exposure adjustments on prior underwriting year contracts. We have again added new business in the quarter, including across the new teams we have recruited into the Group this year.”

Looking forward, Maloney added that the company believes it will have a growth opportunity in 2019 in its specialty lines, and expects its risk exposures in property catastrophe business to remain at similar levels as for 2018, adding that the firm does remain open to opportunities here.

“With the market in a state of flux, and as others in the market exit lines of business that are underperforming, we are well positioned to build out our offering by attracting high-calibre underwriters to our team where we see opportunities. We have also recently seen Lloyd’s take a tougher stance on the need for market underwriting discipline and for a return to pricing levels which are fundamentally profitable,” said Maloney.

Elaine Whelan, Group Chief Financial Officer (CFO), also commented on the firm’s outlook for next year: “Our outlook for 2019 is a continuation of current market trends. We expect to maintain our core book of business and continue to expand our specialty insurance lines of business. While we will take advantage of any opportunities we see in the reinsurance lines, due to further enhancements in our reinsurance program, we do not anticipate needing any more capital for those.”

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