Reinsurance News

Price increases slow but sanity is returning to the market: Lancashire CEO

26th July 2018 - Author: Luke Gallin

Alex Maloney, the Group Chief Executive Officer (CEO) of Lancashire Holdings Limited, has said that while the firm has been able to take advantage of rate increases across most lines of business, pricing continues to decline from the peak witnessed at the January renewals.

Lancashire logoThe specialty insurance and reinsurance group has announced its second-quarter 2018 results, reporting a decline in net premiums written to $146.2 million, while its net operating profit increased from $30.9 million in Q2 2017 to $37.8 million this year.

Lancashire’s total investment return remained positive but fell from 0.8% in Q2 2017 to 0.5% in Q2 2018, while its net loss ratio increased to 18.5%. For the second-quarter of 2018 the re/insurer’s combined ratio strengthened slightly to 69.2%, compared with 69.8% a year earlier.

“With a strong underwriting result and a decent investment performance, despite the volatility in the investment market, the Group has delivered a solid set of results for the year to date with an RoE of 5.9%. Our earlier predictions of how the insurance market would respond following the 2017 loss events are proving to be accurate,” commented Maloney.

He added that pricing peaked at the January 2018 renewals, and although pricing remains positive year-to-date, the firm is experiencing a decline from the levels seen at 1/1, following the impacts of Q3 and Q4 2017 catastrophe events.

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The abundance of available reinsurance capital from both traditional and alternative sources continues to pressure the sector, and while price increases have been evident so far in 2018, market commentary suggests a deceleration trend.

Maloney highlighted the abundance of capital in the space, but did say that another year of loss might impact the appetite of some in the marketplace.

As noted previously, Lancashire’s Q2 premiums declined when compared with the previous year, but despite this, Maloney explained that the firm has “still been able to take advantage of rate increases across most of our lines of business.” Adding, that “rate increases and growth we saw in the quarter are masked by the impact of the timing of renewal of some multi-year deals and some prior underwriting year premium that came through in the second quarter of 2017.”

The trend of still positive but fading rate increases, combined with intense competition, has led some to pull back on unprofitable lines of business, something Lancashire has witnessed alongside Lloyd’s of London starting to address under-performing syndicates and lines of business.

“Time will tell what impact this will have on the market. In the meantime we will continue to execute our strategy – supporting our core clients and building out some new lines of business where the pricing and margins achievable make sense to do so. We expect our risk levels to therefore stay materially the same,” said Maloney.

During the company’s Q2 2018 earnings call, Maloney noted the distress in the marketplace, driven by the realisation that no hard market materialised to mask years of poor underwriting results.

He expressed confidence that further consolidation would occur in the sector throughout 2018, with or without losses, and that while this will be difficult for the market, it will ultimately lead to a more efficient marketplace in the future.

“I’m confident that we are finally seeing sanity in a marketplace that needs to go back to basics, and concentrate on profitable underwriting,” said Maloney.

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