After several years of rate increases, underwriting conditions remain favourable with more lines of business achieving rate adequacy, but this shouldn’t be viewed as an invitation to relax underwriting discipline, according to executives at specialty insurance and reinsurance group, Lancashire Holdings.
Announcing its first half 2021 financials yesterday, Lancashire reported overall premium growth of 40.7%, year-on-year, driven in part by impressive premium expansion of 73% in its property and casualty (P&C) reinsurance book.
Additionally, the carrier’s renewal price index hit 111%, which signals much improved market pricing.
For H1 2021, the specialty re/insurer produced a combined ratio of 80.7%, which excluding the impacts of Winter Storm Uri, would have been a very impressive 65.7%.
“We’re very pleased that we’re executing our underwriting strategy and actively managing the underwriting cycle, and delivering strong levels of premium and earnings growth in an improving market,” said Paul Gregory, Group Chief Underwriting Officer (CUO), speaking during the company’s H1 earnings call yesterday.
Given the elevated level of catastrophe activity in the opening quarter of the year, a period which saw Lancashire book losses of between $35 million to $45 million from Uri’s impact in the U.S., the 80.7% combined is a very solid start to the year, explained Gregory.
“We obviously have the remainder of the year to navigate, but this puts us on a strong underwriting footing as we start to see the benefits of the underlying rate increases feed through into underwriting profitability,” he said.
Adding: “The rating environment remains favorable, with more business hitting adequacy levels, albeit it does remain a market where you still need to maintain underwriting discipline.”
For a number of subclasses of business, Gregory explained that rate rises have been evident for numerous quarters, while the trajectory remains positive.
“As you know, we are strong believers in the insurance cycle, so it’s inevitable that the pace of increase in some of these lines will slow at some point. So, we continue to focus on the cumulative rate movement and rate adequacy,” said Gregory.
Throughout the current hard market phase of the cycle, Lancashire’s management has consistently cautioned that while rate improvements are clearly welcomed, it’s important to remember that’s these rises have come from a very low starting point; suggesting that rate increases do not necessarily mean rate adequacy.
At the same time, the company’s message has always been that it will not underwrite business for the sake of it, but rather this will be driven by the opportunity that presents itself.
During the recent earnings call, Alex Maloney, Group Chief Executive Officer (CEO), expanded on this.
“The message to our underwriters is that, we want to grow as the underwriting opportunity improves. I think the point of clarification is, if you look at product lines and what we’ve consistently said about this market opportunity, is that some classes of business are better than others. And we’ve got classes of business that are 150% of adequacy, and we would probably argue are not adequate enough.
“So, it’s all about making sure that we’re putting heavy expansion into the classes of business that are the most profitable. And the classes that still require some attention, we’re moderating our view there,” said Maloney.
“And I think we have consistently said that about this opportunity. We haven’t subscribed to this is the best market we’ve ever seen, but it’s materially better than what it was. And I suppose the beauty of our businesses is the line of sight we have as management, is we can push our underwriters in the right direction,” he added.