Specialty insurance and reinsurance group Lancashire Holdings Limited recently reported a $30 million net loss within its marine book of business, but analysis from Peel Hunt highlights how the company’s prudent use of reinsurance mitigated its exposure to third-quarter loss events.
Lancashire announced recently that it expects to record a negative return on equity (RoE) in the third-quarter of 2018 as a result of some expected catastrophe and marine losses, amounting to as much as $75 million.
Natural catastrophe events, including hurricane Florence, and typhoons Jebi, Mangkhut and Trami, are expected to result in net ultimate losses of between $25 million and $45 million, while the firm’s exposure to marine losses is expected to drive aggregate estimated ultimate net losses of approximately $30 million.
According to Peel Hunt analysts, the marine loss is consistent with Lancashire’s risk appetite and profile, and involves the total loss of a nearly completed luxury super-yacht which caught fire at a German wharf in September.
Lancashire’s gross exposure to the event was $70 million, although this was reduced to $12.5 million as a result of the firm’s reinsurance program. According to analysts, were this event to have occurred a few years ago, Lancashire’s retention would have been $25 million, which, “shows how LRE has been protecting capital as the market softened.”
Lancashire has broad exposure in the property and specialty reinsurance markets, meaning it is likely to suffer losses from any major events that occur around the world. As noted by analysts, the company’s prudent use of reinsurance through the softened market lowered its marine exposure retention in Q3, and Peel Hunt notes that its Q3 losses do not impact Lancashire’s ability to execute gradual growth of its specialty portfolio.