Bermuda-based Lancashire Holdings Limited has reported its highest ever gross premiums written (GPW) in 2021 at $1.2 billion, although the firm has fallen to a comprehensive loss for the year on the back of significant catastrophe losses and some unrealised investment losses.
Year-on-year, Lancashire’s GPW rose by an impressive 50%, as net premiums written (NPW) increased from $519 million in 2020 to $816 million in 2021.
Much of the growth in premiums occurred in the firm’s property and casualty (P&C) reinsurance book, which have doubled since 2020 to $560 million. In 2020, Lancashire raised a significant amount of capital which was used to fund its expansion in the property cat and property retro lines.
In P&C insurance, the company has reported premium growth of more than 43% to $211 million, primarily driven by growth in the property direct and facultative class.
Of course, a larger P&C book means potentially more losses from catastrophe events and in 2021, the group experienced net losses from significant weather and large loss events of $306.4 million, excluding reinstatement premiums.
Of this total, catastrophe losses, excluding reinstatement premiums, totalled $237.6 million and includes the impacts of winter storm Uri, Hurricane Ida, European storms and floods, and the Midwest tornadoes in the U.S. and the storms in Australia in the final quarter of 2021.
The firm also experienced large risk losses for 2021 of $68.8 million, mainly related to the unrest in South Africa in July.
In its Aviation book, Lancashire has achieved growth of almost 17% to $176 million, as the Energy book grew by 28% to $185 million, and the Marine book of business increased by over 2% to $94 million.
Across its books of business, Lancashire has reported a renewal price index of 109% for 2021.
As a result of the losses mentioned above, Lancashire’s group net loss ratio for 2021 increased to 67.6% compared with 59.6% in 2020.
During 2021, the group also experienced prior year favourable development of $86.5 million compared with $52 million in 2020, driven by general IBNR releases on the 2020 accident year across most lines of business.
All in all, Lancashire has reported an underwriting profit of $69 million for 2021 against a gain of $77 million a year earlier. However, the impacts of catastrophes and unrealised investment losses of $31.6 million, has seen the firm post a comprehensive loss of $92.9 million, compared with income of $24.3 million in 2020.
Year-on-year, Lancashire’s combined ratio improved slightly, from 107.8% in 2020 to 107.3% in 2021.
As well as providing reinsurance, Lancashire is also a buyer and in 2021, decided to reduce the amount of outwards reinsurance premiums to gross premiums written as it retained more risk in the hardening market.
But of course, rates in the reinsurance market are hardening and as such, Lancashire’s reinsurance spend increased by almost 39% to $114.4 million. The firm attributes this to cover purchased to protect new classes of inwards business that were entered into as well as reinstatement premiums, rate increases and increased limits, particularly within its P&C reinsurance segment.
On the asset side of the balance sheet, the company has reported 2021 net investment income, excluding realised and unrealised gains and losses, of $23 million, which is down almost 21% on 2020.
Alex Maloney, Group Chief Executive Officer, commented: “2021 saw Lancashire successfully continue the long-term build-out of its franchise and expand into a number of new classes, with gross premiums written increasing by 50%. Much of this premium will continue to earn through in 2022 and is expected to provide earnings resilience in future years. Delivery against this aspect of our strategy means we are well-positioned for profitable growth in the most attractive market conditions of recent years.
“However, 2021 was also a poor one for returns. With Winter Storm Uri, hurricane Ida, European storms and floods, and Midwest U.S. tornadoes, among others, industry-wide estimates place insured losses from natural catastrophes between $105 billion and $130 billion making it one of the costliest years on record. These events show the critical role the industry plays in delivering risk solutions that protect people, economies, and businesses from uncertainty. When the worst happens, it means disruption and hardship for many and we recognise the human impacts these events have.
“Financial losses are always disappointing but 2021 was only the second full financial year that Lancashire made an overall loss since its inception. Strong underlying profitability after nearly four years of rate increases, as illustrated by improvement in our attritional loss ratio, was offset by weather and large risk events during the year. Given the magnitude and frequency of industry losses in 2021, these insurance losses were in line with our expectations and risk tolerances. Importantly, we have followed our usual conservative reserving philosophy to estimate the impact, which has served us well over time.
“Nevertheless, the overall impact of these events was a comprehensive loss of $92.9 million, a combined ratio of 107.3%, and a negative change in FCBVS of 5.8% for the year. Of this comprehensive loss $31.6 million relates to unrealised investment losses.
“Despite the disappointing returns of the past year, we are fully energised by the prospects for 2022 and profitable growth remains our main goal.
“Our strong capital position allows us to execute our ambitious business plans in which we expect further rate increases on our existing portfolio, with new underwriting teams delivering additional premiums and new business growth within both our catastrophe and non-catastrophe lines.
“I would like to thank all our colleagues, investors, clients, and their brokers for their support during 2021.”
