Reinsurance News

It’s not a hard market, just a better one, says Lancashire Holdings

19th February 2018 - Author: Luke Gallin

Despite 2017 catastrophe losses driving rate increases at the January 1st, 2018 renewals season, the shift in demand and supply remains insufficient to push the sector into a hard market, according to Paul Gregory, Lancashire Holdings Group Chief Underwriting Officer (CUO) and Chief Executive Officer (CEO) of Lancashire Insurance Company (UK) Limited.

Lancashire logo“While conditions are better, the shift in demand and supply is not material enough to push us into a hard market, just a better one,” said Gregory, speaking during Lancashire’s fourth-quarter 2017 earnings call.

Overall, Lancashire management expressed positivity about market conditions and said the industry is heading in the right direction after years of falling rates and the high level of catastrophe losses experienced in the third and fourth-quarter of last year.

However, there’s a need to be realistic stressed Lancashire, highlighting that while rates have improved they didn’t increase as much as the firm would have liked, and that it’s important to remember that the marketplace is still going to be challenging in 2018.

“Yes rates are up and that’s great,” said Alex Maloney, Lancashire Group CEO, “but rates need to go up to a more sustainable level over a period of time,” he added.

As underlined by both Maloney and Gregory, the market definitely improved at 1/1 and has to some extent turned a corner, with noise of more disciplined underwriting in the market, something Lancashire expects to continue.

But demand appears to be relatively flat, and with the abundance of reinsurance capital in the space, from both traditional and alternative sources, the industry doesn’t seem to be approaching a hard market environment.

Maloney explained that were it a hard market then Lancashire would have raised more capital to take advantage of the opportunity, but ultimately he doesn’t feel the market has moved enough to take on more risk.

However, he explained that Lancashire is well positioned to take advantage of opportunities that do exist, and if the market dynamics shift and more opportunities arise throughout the year, the firm is well placed and able to access capital when needed.

During the call, Maloney also explained that the firm bought exactly the same amount of reinsurance protection for 2018 as it did for 2017, which, “is a clear indication of our view of opportunity for 2018, and a clear view of the availability of reinsurance at 1/1.”

At the same time, Lancashire revealed that it grew the limit sold by its third-party capital vehicle Kinesis Capital Management by roughly 30% at the renewals, suggesting that this may have risen to roughly $425 million for 2018.

Lancashire clearly feels the marketplace will remain challenging in 2018, and despite improvements at 1/1 which could persist throughout 2018, underlined its realistic approach to current market conditions that call for discipline as well as a desire to take advantage of any opportunities.

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