Lancashire Holdings Limited has reported profit before tax of $40.5 million ($39.1 million after-tax) for the first-half of 2019 and a weaker combined ratio of 86.6% as its loss ratio increased to 34.5%. Despite the weaker result year-on-year, the firm is encouraged by growing signs of improved discipline and pricing in the re/insurance market.
Year-on-year, Lancashire’s H1 2019 profit fell from $74.9 million as its combined ratio weakened from 67.1%. Comprehensive income improved slightly to $68.7 million, while the firm’s net operating profit declined from $78.3 million in H1 2018 to $42.9 million H1 2019.
At 34.5%, Lancashire’s loss ratio jumped from the 15.1% recorded a year earlier, and management highlighted some attritional losses in the period and “substantial” loss creep on prior year events.
Prior year favourable development declined year-on-year from $51.8 million to $15.9 million, driven mostly by $1.8 million of unfavourable development in Energy, compared with $29.9 million of favourable development in H1 2018. The Property, Marine, Aviation and Lloyd’s segments all recorded positive favourable development in the period, with Lloyd’s and Marine improving on the previous year.
Lancashire notes that the favourable development in both periods was primarily a result of general IBNR releases across most lines of business due to a lack of reported claims.
Group Chief Executive Officer (CEO), Alex Maloney, commented on the firm’s H1 2019 results: “I am pleased with our performance in the first half of 2019. I am also encouraged by the emerging evidence that the (re)insurance market is now experiencing the long anticipated improvements in discipline and pricing in many of the Group’s core business lines.
“We have seen good new business momentum in the first half of 2019, as we were able to benefit from our longstanding disciplined underwriting approach. In the face of a more cautious underwriting environment and evidence of market retrenchment in the specialty lines in which we write, we were able to take advantage of improving terms and demand.
“While the market overall was characterised by a number of attritional losses in the first half of 2019 and substantial loss creep on prior year events, it is worth noting that our ultimate net loss estimates for the 2018 and 2017 catastrophe events have remained largely stable, allowing us to deliver a solid combined ratio of 86.6% for the half year.”
Lancashire has posted gross premiums written (GPW) of $429.6 million for the six-month period, which is up 9.5% on the previous year. Strong premium growth occurred in both Property and Lloyd’s, while moderate growth in Aviation and Marine was offset by a decline in Energy by $7.7 million, or 11.4%.
In Q2 2019, Lancashire notes that it benefited from rate and exposure increases, while there was also new business across several lines, most notably political risk and property catastrophe lines, including the Florida market.
Ceded reinsurance premiums increased by $48.5 million, or 30.6% in the first-half of the year, which Lancashire says is mostly driven by a combination of additional cover purchased, which includes cover for some of the new lines of business it entered, the timing of renewals, and also higher reinstatement premiums.
Group Chief Financial Officer (CFO), Elaine Whelan, said: “The Group produced an RoE of 6.9% with a combined ratio of 86.6%. While we experienced some adverse development on the 2018 accident year due to some late reported claims, we had overall net favourable development on prior accident years. In addition, there were no major losses in the first six months of the year. Our investment strategy remains relatively conservative and our investment portfolio performed well with a net return of 3.2%. With expectations of interest rate reductions going forward, we have removed some of our interest rate hedges and that has led to a natural increase in the duration of our investment portfolio.
“Our renewals went well and were in line with expectations. We have seen some growth across several lines of business, including the new lines that we added last year. We continue to remain well capitalised to take advantage of the opportunities we see for the remainder of the year.”
Lancashire’s net investment income increased by 23.3% in H1 2019 when compared with the same period in 2018, to $19.6 million, while its investment portfolio earned 3.2% for the six-month period.
“Looking ahead, the recent evidence of better market discipline and pricing will take time to feed through to our bottom line. However, I believe that we have the talent and capability to capitalise on the next stage of the (re)insurance cycle, and our strategy has positioned us well to maximise the improving underwriting opportunity,” said Maloney.
