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Lancashire reports increases in premium rates and new business volumes

5th November 2020 - Author: Luke Gallin

In announcing its trading statement for the first nine months of the year, Lancashire Holdings Limited has reported a 14% increase in gross premiums written (GPW) to $658.7 million, and a group renewal price index (RPI) of 112% for the period.

lancashire-logoLancashire attributes the year-on-year rise in GPW to increases in both premium rates and new business volumes.

Starting with the firm’s property segment, and the RPI was 108% for 9M 2020 and 111% for Q3 2020, while GPW in this part of the business increased by 10.5% to $384.3 million. The company adds that alongside rating trends in renewal business, it witnessed an increase in new business flows during the period, notably in the property catastrophe and property direct and facultative classes.

In Energy, the RPI was 111% for 9M 2020 while GPW jumped by almost 14% to $118 million. Lancashire notes good growth in this segment during the period, notably in power and downstream energy classes of business.

Within the company’s marine segment, the RPI was 116% for the nine month period, while GPW increased year-on-year by 21.5% to $75.3 million. Lancashire highlights the retraction in marine market capacity and says that as a result, it continues to see more new business at prices that meet its return criteria.

RMS

The RPI in aviation was 122% for the period, while GPW in this line increased by a significant 25.5% to $81.1 million. Lancashire says that GPW growth in this part of the business was due to a combination of new business and rate improvements across all sub-classes of the portfolio.

The third-quarter of 2020 was an active quarter in terms of catastrophe events, and Lancashire experienced an active loss environment across its catastrophe and specialty lines of business. The Group has exposure to Hurricanes Laura and Sally in the U.S., the Midwest derecho storm, alongside the wildfires in California.

As a result of these events, Lancashire has announced an ultimate loss estimate, net of reinsurance and reinstatement premiums, of between $65 million and $75 million for the third-quarter of 2020. According to the company, this amount is roughly equivalent to its ten-year average annual loss exposure to such events.

On top of these losses, Lancashire also experienced an accumulation of single risk losses as a result of exposures to numerous recent events across its specialty business lines, which impacted all segments. The ultimate loss estimate for these events, net of reinsurance and reinstatement premiums, is around $30 million for Q3 2020 above its usual attritional guidance.

Regarding the ongoing COVID-19 pandemic, Lancashire states that as of the end of September 2020, its ultimate loss estimate, net of reinsurance and reinstatement premiums, remains unchanged from the half-year at around $42 million.

For the first nine months of the year, prior year favourable development reached $11.2 million and $16.3 million for the third-quarter of 2020.

Group Chief Executive Officer (CEO), Alex Maloney, commented: “In what has been a uniquely challenging year to date, I am pleased with the resilience demonstrated by our people, our business model and our operations. Having successfully worked from home throughout the lockdown earlier in the year, we were able during the quarter to move to a flexible mixed office and homeworking model across our two offices. However, as a result of the recent UK Government announcement our UK team has again largely reverted to homeworking and our Bermuda office remains open. In any event, we continue to operate in a seamless manner and interact with our brokers and clients, while continuing to prioritise the safety and well-being of our people and external partners.

“We continue to see strengthening premium rate increases across the majority of our business portfolio, with RPIs of 117% for the quarter and 112% for the year to 30 September. In addition, with certain competitors continuing to retrench, we have seen strong new business flows. Looking to the future, I am encouraged by the opportunity these trends provide for meaningful and disciplined growth. Rates continue to harden. The capital which we raised in June remains at our disposal to take full advantage of the opportunities that we believe lie ahead in 2021.”

As we wrote at the time, Lancashire previously announced the successful completion of the placing of new common shares, raising gross proceeds of approximately £277 million as it looks to take advantage of improved pricing.

“Since we reported in July, the insurance industry has experienced a mix of both natural catastrophe losses, which are always a threat to communities and livelihoods during wind season, and an unusually frequent run of non-natural catastrophe risk losses. These losses come on top of the COVID-19 pandemic, which has been a stress to individuals, societies and economies and a material loss event for the (re)insurance industry. Within this difficult context, I am pleased to report that the Group’s COVID-19 loss estimate of approximately $42.0 million (net of reinsurance and reinstatement premiums) has remained unchanged since we reported in July.

“As insurers, we expect to support our clients and to pay covered losses when they occur, and the sequence of both natural catastrophe and risk loss events during the year so far has impacted our, and the industry’s, profitability for the year to date. I would expect this to put further impetus on the industry to charge an adequate and sustainable price per unit of risk. Pricing, particularly in capital intensive lines of business, has increased significantly and I expect rates and terms of coverage to improve throughout 2021 in most of our core business lines.

“Against this backdrop, our strategy and ability to operate effectively through the cycle, alongside the recent capital we have raised, leaves us well positioned and I am optimistic about the strategic opportunity available to Lancashire,” said Maloney.

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