6 November 2017Insurance

Lancashire faces rate increases from clients and retrocession

Bermuda-based specialty re/insurer Lancashire Holdings has decided against paying a special dividend in 2017 and instead to deploy the capital in a hardening market but analysts commented that the company also faces higher retrocession rates, according to a Bernstein note.

Lancashire is well positioned to benefit from the rising rates and in turn Bernstein has increased its earnings per share (EPS) estimates for the company by on average 8 percent, according to the note.

Market observers expect significant rate increases particularly in the property business after the industry incurred an expected $100 billion of insured losses in North America from natural catastrophes.

Lancashire reported a net loss of $139.0 million for the third quarter of 2017 compared to a net profit of $40.1 million in the same period a year ago. The combined ratio deteriorated significantly to 213.3 percent in the third quarter from 73.8 percent in the same period a year ago.

Bernstein warned that there are significant uncertainties around the level of rate increases and how localized they will be. It remains unclear how third party capital, excess and idle opportunistic capital in the market will react. “We suspect significant firming in rates will be followed by capital re-entering those markets – which would dampen any rate benefit,” the analysts wrote.

Additionally, Lancashire itself will face rising retrocession costs. Lancashire has benefitted from cheap retrocession and mitigated some of the impact from the nat cat season – retrocessionaires will look to earn this back, according to the Bernstein note.

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More on this story

Insurance
3 May 2018   Rate increases and a benign loss environment combined to help specialty insurance provider Lancashire Holdings increase profits while growing gross premiums written in the first quarter of 2018 although its CEO warned that the demand-supply dynamic has not shifted sufficiently to bring about fundamental rate changes across the board.
Insurance
15 February 2018   Lancashire Holdings has reported a combined ratio of 124.9 percent for 2017 compared to 76.5 percent in the previous year.
Insurance
2 November 2017   Specialty re/insurer Lancashire Holdings reported a net loss of $139.0 million for the third quarter compared to a net profit of $40.1 million in the same period a year ago.