The insured catastrophe loss experience of the past two years has demonstrated that rates in many lines of business had fallen too low, but signs of greater market discipline are starting to show, according to the Chief Executive Officer (CEO) of Lancashire Holdings Limited, Alex Maloney.
Following a prolonged soft reinsurance market landscape, large cat losses and subsequently disappointing post-event rate increases, the margins of insurers and reinsurers have been under pressure.
An abundance of both traditional and alternative reinsurance capital resulted in a muted rate response in 2018 following the losses in 2017, and while the January 2019 post-event price response was reportedly an improvement, market participants highlighted that more needs to be done.
Commenting on Lancashire’s Q1 2019 trading statement, CEO Maloney said the firm’s performance in 2019 has been encouraging, with both rate and business momentum, adding that underwriting margins are what the firm expected.
“There is evidence that the insurance and reinsurance markets in which we operate are now going through a period of transition. The heavy global insured losses sustained by the markets over the last 24 months have demonstrated that premium levels in many classes had fallen too low. However, we are now beginning to see early signs of greater market discipline,” said Maloney.
Both in Lloyd’s of London and elsewhere, companies are increasingly pulling back from, or exiting unprofitable lines, seemingly taking a greater stance against premium levels.
“Lancashire prides itself on its ability to manage the challenges of the insurance cycle through a combination of careful risk selection, planning and nimble capital management, all key pillars of our strategy. The Group has demonstrated its ability to respond flexibly to market conditions and take advantage of opportunities as they present themselves.
“In particular, we have been able to strengthen our presence and premium income in our specialty lines. Whilst pricing in our property reinsurance classes remains subdued outside of loss impacted territories, we believe that we have the expertise to develop profitable opportunities across our platforms and portfolios in this period of transition,” said Maloney.
Overall, gross written premiums (GWP) increased 0.6% in Q1 2019, to $217.2 million. By line of business, increases in property (1.6%), marine (38.3%), and aviation (47.5%), slightly offset a 25.7% decline in the energy segment, year-on-year. In the Lloyd’s segment, GWP remained stable at $86.9 million.
Lancashire notes a benign claims environment in the first-quarter of 2019, with no new major net losses. At the same time, Lancashire has reported a total investment return of 1.8% for the quarter, a significant improvement on the same period in 2018.