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Nov 05, 2020

Lancashire Holdings Q3 Trading Statement

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Lancashire published its Q3 Trading Statement to the LSE this morning.

Extracts as follows and the full announcement is available here

Highlights

  1. Gross premiums written increased by 14% year on year to $658.7 million
  2. Group RPI (Renewal Price Index) of 112% for the first nine months of 2020
  3. Catastrophe losses in the range of $65.0 - $75.0 million in the third quarter
  4. Specialty single risk losses in the quarter were $30 million above our attritional guidance
  5. No change to the previously announced COVID-19 loss estimate of approximately $42.0 million
  6. Year to date total net investment return, including unrealised gains and losses, of 2.4%

Alex Maloney, Group Chief Executive Officer, commented:

“We continue to see strengthening premium rate increases across the majority of our business portfolio, with RPIs of 117% for the quarter and 112% for the year to 30 September. In addition, with certain competitors continuing to retrench, we have seen strong new business flows. Looking to the future, I am encouraged by the opportunity these trends provide for meaningful and disciplined growth. Rates continue to harden. The capital which we raised in June remains at our disposal to take full advantage of the opportunities that we believe lie ahead in 2021.

As insurers, we expect to support our clients and to pay covered losses when they occur, and the sequence of both natural catastrophe and risk loss events during the year so far has impacted our, and the industry’s, profitability for the year to date. I would expect this to put further impetus on the industry to charge an adequate and sustainable price per unit of risk. Pricing, particularly in capital intensive lines of business, has increased significantly and I expect rates and terms of coverage to improve throughout 2021 in most of our core business lines.

Gross premiums written: Q3 2020 vs Q3 2019:


30 September 2020 $m

30 September 2019 $m

Change $m

Change %

RPI %

Property

384.3

347.7

36.6

10.5

108

Energy

118.0

103.7

14.3

13.8

111

Marine

75.3

62.0

13.3

21.5

116

Aviation

81.1

64.6

16.5

25.5

122

Total

658.7

578.0

80.7

14.0

112

Claims environment

In the third quarter of 2020, Lancashire experienced an active loss environment across both its catastrophe and specialty business lines. These loss events reflect the nature of the insurance products offered by the Group’s trading subsidiaries as part of their usual business and are well within the Group’s risk tolerances.

a) 2020 losses

In what has been an above-average year in terms of North Atlantic hurricane frequency, the Group has had exposure to a number of recent natural catastrophe events, including hurricanes Laura and Sally, Midwest derecho storm and the wildfires in California. Our ultimate loss estimate, net of reinsurance and reinstatement premiums, from these natural catastrophe events, is expected to be in the range of $65.0 million to $75.0 million for the quarter ended 30 September 2020. This is approximately equivalent to our ten-year average annual loss exposure to such events.

b) Attritional losses

In addition, the Group suffered an accumulation of single risk losses as a result of exposures to a number of recent loss events across the Group’s specialty business lines, impacting all of our segments. …… Our ultimate loss estimate, net of reinsurance and reinstatement premiums, from these risk loss events is approximately $30.0 million for the quarter ended 30 September 2020 above our usual attritional guidance.

Covid-19

As at 30 September 2020, the Group’s COVID-19 ultimate loss estimate, net of reinsurance and reinstatement premiums, amounted to approximately $42.0 million, which has remained unchanged from half year 2020.

Reserves

Prior year favourable development for the year to date and quarter was $11.2 million and $16.3 million respectively, compared to $42.6 million and $26.7 million for the equivalent periods in the prior year.

Investment returns

The Group’s investment portfolio total return was 2.4%

Comment

We await news about the quantum of the derecho storm in Iowa which may well affect Syndicate 2010 but otherwise positive news for the market's prospects in these classes for 2021.