On the back of a very challenging third-quarter for reinsurers, Lancashire Holdings expects to take advantage of a return to more disciplined underwriting practices and improved pricing that reflects true risks and exposures.
Like numerous insurers and reinsurers, Lancashire reported a loss for the third-quarter of 2017, as the combined impacts of hurricanes Harvey, Irma, Maria, and the two Mexico earthquakes, tested the balance sheets of market players.
The overall insured loss from the events remains unknown and will likely take some time to fully materialise, with industry estimates hovering around the $100 billion mark. But whatever the total number is, the events experienced in Q3 is a reminder to the industry that it operates in the risk business, something that was highlighted by Lancashire’s Chief Executive Officer (CEO), Alex Maloney.
“We offer insurance and reinsurance products which respond to catastrophic loss events which are irregular and unpredictable in their short term frequency and severity. At such times Lancashire expects to pay losses, and this is reflected in our results for the third quarter and the year to date,” said Maloney.
Maloney, like other industry experts and executives, said it’s too early to tell exactly what impact the events will have on the marketplace, with many hoping for large rate increases at the upcoming renewals after years of declining rates.
“After many years of soft pricing conditions we are at last seeing some evidence of an increase in pricing, particularly in catastrophe exposed lines. The first major test of the market dynamics will be the year-end insurance and reinsurance renewal round. Many product lines will be loss-affected and I would expect to see a return across the sector to more disciplined underwriting standards and pricing which reflects the true risks and exposures,” said Maloney.
He continued to highlight the company’s focus and pride in understanding the insurance cycle, and while it might not be certain that the market will improve after recent events, he feels the sector is “entering a period where market dynamics dictate that there should be a meaningful adjustment to the pricing of the products we sell.”
For Lancashire, the events in the third-quarter resulted in a net loss across its three platforms of $165 million, a negative return on equity (RoE) of 10.4%, and a combined ratio of 213.3%.
Maloney also explained that market conditions mean it’s not going to pay a special dividend this year, but he’s confident that the shifting underwriting environment will enable the company to take advantage of market opportunities, something that was also mentioned by Lancashire’s Chief Financial Officer (CFO), Elaine Whelan.
“While we have incurred a loss in the quarter and for the year to date, we anticipate an improvement in rates following these events. Our outlook for 2018 is more positive than it has been for some time. We therefore do not intend to declare a special dividend this year; we expect to put all of our capital to work to take advantage of improving market conditions. However, we will continue to pay our standard ordinary dividend, in line with our stated dividend policy,” said Whelan.
