Lancashire Holdings, the specialty insurance and reinsurance underwriter, is targeting expansion of its book into 2021, to take advantage of the hardening and dislocated market, including into casualty risks, a new class of business to the firm.
Discussing the move, CEO Alex Maloney explained that, “It feels like the time for Lancashire to enter the casualty class,” during the firm’s Q2 2020 earnings call today.
Maloney went on to explain that expansion into casualty underwriting would target opportunities where the market requires capacity and is dislocated, as well as pricing having hardened, but added that he wouldn’t expect, even if the casualty expansion went particularly well, that casualty would make up more than 5% of Lancashire’s 2021 premiums.
“We’re not changing the shape of Lancashire,” Maloney told analysts, but the company now feels the time is right for expansion into a completely new class of underwriting business.
Lancashire has held back on expansion for a number of years, finding pricing often inadequate and the need for additional capacity lacking more broadly in the market.
But now, with insurance and reinsurance rates hardening, particularly in casualty, catastrophe lines and now more broadly due to Covid-19, Lancashire feels the time is right.
Lancashire raised approximately £277 million in an equity listing in the last quarter and now the underwriter is planning its deployment of that capital, over the coming months and into 2021, with expansion at profitable returns the goal.
CUO Paul Gregory discussed the expansion plans, explaining that Lancashire recently hired someone in the longer-tailed areas, for casualty underwriting.
He said that this is an area of the market that’s particularly dislocated and added, “We don’t have that expertise in-house currently, so we’re adding it for 2021.”
“We’ll only add people and teams if we think we can make money over the longer-term and if they fit our underwriting and culture,” Gregory said.
He also explained that Lancashire will be targeting expansion across its platform, in Bermuda, at Lloyd’s and in the company market.
“We’re looking to grow everywhere that we see opportunity. We will be asking for growth at Lloyd’s, but working with them on that,” Gregory said.
The company expects to add more risk into 2021, particularly as buying retrocession may not be as economical as it has been in recent years, but at the rates now available it seems Lancashire is not concerned about holding more risk.
Gregory said that Lancashire will be “looking to assume more risk going into 2021,” particularly where parts of reinsurance and retrocession markets are harder than others.
“In some places we may be forced to retain more risk than others, due to dislocation and how hard the market is at the time,” he explained.
In addition, Lancashire has already been writing more property catastrophe risk in 2020 and plans to do more so in 2021 again, as rates allow, which has resulted in PML’s rising for the company and Gregory explained that the company is prepared to write more cat as rates allow.
It’s, “No surprise we’re expanding our underwriting footprint,” Gregory said, adding that Lancashire has experienced good growth, particularly in property catastrophe and property direct.
“As the market continues to improve we will continue to expand,” he commented.
He also said that Lancashire expects to optimise its reinsurance in 2021, to better accommodate the increased risk and higher catastrophe exposure assumed.
Lancashire CEO Alex Maloney said this is all a sign of, “A return to profit based underwriting for the market,” adding that his company is not chasing volumes.
Maloney said that some areas of the market still require attention, with rates not yet attractive enough to deploy more capital.
Overall, Lancashire’s expansion will be driven by “risk-adjusted returns for our investors,” Maloney said. Adding that, “The larger the market disruption, the greater the opportunity for the Lancashire Group.”
Also saying that it is, “Impossible to predict how long the hardening phase of the market will last,” but Maloney said that those better positioned, like his company, stand ready to capitalise on it.
This morning Lancashire reported an elevated combined ratio for the first-half as the Covid-19 pandemic impacted its results.
