Profits up, GWP down at Lancashire as CEO warns on 'unsustainable' rates

Lancashire Holdings enjoyed a rise in profits in the first quarter of 2017 though the company’s gross written premiums shrank significantly.

The net profit was $30.3 million, up from $28.3 million for the same period in 2016.

However, Lancashire’s gross premiums written in the first quarter of 2017 were $196.5 million, down 14.9 percent from $230.8 million year-on-year.

Group chief financial officer Elaine Whelan attributed this reduction to continued price and exposure reductions, but also to the timing of renewal of longer term deals across the property and energy books.

Specifically, property gross premiums written had decreased by 16.6 percent in the first quarter of 2017 compared to the same period in 2016.

Lancashire suggested the majority of the decrease was in the property-catastrophe excess-of-loss, political risk and terrorism lines of business, due to multi-year contracts written in Q1 that are not yet due to renew.

Energy gross premiums written were down 16.2 percent in the first quarter, which the group attributed to the timing of non-annual contract renewals in the worldwide offshore book, along with rates continuing to come under pressure.

In Lancashire’s Lloyd’s segment, gross premiums written decreased by 12.4 percent in Q1 2017 year-on-year. Lancashire suggested these were small reductions in most lines of business, as rates continue to face pressure due to overcapacity in the market.

Lancashire’s combined ratio in Q1 was 85.6 percent, an increase of 12.9 percentage points from last year.

Whelan commented: “With further reductions in exposure, and enhancements to our reinsurance programme, we continue to carry a capital buffer well in excess of our needs. We intend to retain that over the course of this year's US wind season for any opportunities that may arise. With more capital than we need, there are no current plans to raise capital.”

Alex Maloney, group CEO, added: My view, which has been supported by recent industry reports, is that the sector, when taken as a whole, is operating at very tight margins and indicates where we are in the cycle, even in what has been a relatively uneventful loss environment.

“In 2016 many insurers' results were bolstered by investment returns and foreign exchange gains, helping them to stay in the black with very little contribution from underwriting returns. What is clear is that the insurance markets are currently operating at margins which will prove unsustainable in the long run. There are now clear signs of stress, with some evidence of retrenchment.

“Sooner or later a major loss event will stress the system even further, bringing it to a position where capital will be impaired, which we believe will change the dynamics of the current market. Lancashire is well positioned relative to others to manage any future insurance market turbulence and to respond to the opportunities which will arise.”

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