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Illogical to decline potential cat opportunity: Lancashire CEO Maloney

5th November 2021 - Author: Luke Gallin

Alex Maloney, Chief Executive Officer (CEO) of Lancashire Holdings, confirmed yesterday that the specialty re/insurer intends to maintain its catastrophe footprint for 2022, stating that it would be “counter to our DNA” to retreat from an improved underwriting opportunity.

In announcing its results for the first nine months of the year, Lancashire revealed that its property and casualty reinsurance book grew by 85% as the firm took advantage of the favourable rate environment to deploy more capital.

At the same time, however, this higher exposure resulted in Lancashire reporting net losses from Hurricane Ida and the European floods in July of between $165 million and $185 million.

A rise in losses from secondary perils has seen insured catastrophe losses run above-average again in 2021, and this is on the back of some heavy loss years.

Consequently, some reinsurers have discussed pulling back from the catastrophe space as the market approaches the key January 1st, 2022 renewals.

But this doesn’t include Lancashire.

Speaking yesterday during its 9M 2021 conference call, CEO Maloney underlined his firm’s near-term capital position and catastrophe exposures as a fair reflection of the potential underwriting opportunities 2022 holds.

“We believe that following the active cat year of 2021 and the expected reduction in supply of products, such as retro, underwriting for 2022 will be attractive,” said Maloney.

“I know some of our peers have talked about retrenching, but based on our current view of the attractiveness of the 2022 cat opportunity, we expect to maintain our cat footprint for that year.

“Equally, we will always be driven by the underwriting opportunity, as we are across the whole underwriting portfolio,” he continued.

During the call, Maloney was questioned on his confidence in Lancashire’s cat book considering others in the market pulling back.

“The first thing I would say is, it seems illogical to me to decline an opportunity before you even see it,” said Maloney.

“We sit here today, and nothing’s really been priced for 2022, the pricing environment could be stronger than we think, it could be worse than we think. So, I think, what we’re trying to say is that we don’t believe our cat footprint is wrong, currently.

“When we look at the losses we’ve had, they don’t surprise us for the type of events we’ve had. I think it’s in our DNA to look at cat as we do any other product line, and when premiums are going up we see that as an opportunity. But, equally, we’re not going to grow our cat book if we don’t think we’re getting paid for it, or the rates don’t go up sufficiently.”

Maloney expressed optimism that rates, especially in the cat space, will rise for 2022. And while it’s unclear exactly how far they will go, he reiterated that cutting back at this point, is “illogical to us.”

“The 2022 underwriting opportunity will improve again as we expect to continue to see positive rate movements,” Maloney added.

“Therefore, we expect meaningful growth next year, but not as profound as 2021. All the time pricing improves we expect to grow, all the time we can find new profitable opportunities we expect to invest.

“Our 100% focus is to deploy our long-term strategy to maintain our DNA. Growth at this point of the cycle, as rates continue to rise, will future proof our business and help us navigate the more difficult parts of the underwriting cycle.”

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