Lancashire raises fresh cash as it targets rate rises and retro dislocation

Lancashire Holdings has raised some £277 million through the placement of new common shares as the company said it looks to take advantage of hardening rates in the market.

The speciality re/insurer placed 39,568,089 new common shares at a placing price of 700 pence per share. The placing price represented a discount of 3.6 percent to the closing share price of 726 pence on 9 June 2020. The shares represent approximately 19.5 percent of the existing issued common share capital of the company prior to the placing.

The company said it was raising the fresh cash to take advantage of re/insurance opportunities related to the increase in rates in the markets. It said it intends to use the proceeds to fund organic growth and take advantage of rate rises across the majority of its business lines.

It said its long-term strategy is to deploy more capital into a “hardening” market and to lower the amount of capital it deploys in “softer” markets, where pricing is weaker due to an over-supply of risk capital. On this basis, it has historically returned capital to investors when it has not been required.

It noted that after three years of heavy cat losses, which started to move rates upwards, the COVID-19 pandemic has generated re/insurance market losses both in terms of the claims environment and the negative impact on the investment markets.

“In the face of these challenges there has been a retrenchment in re/insurance market risk capital and capacity,” the company said. “This in turn has led recently to continued rate increases in many of the Group’s core insurance segments and accelerated rating dislocation in the catastrophe exposed reinsurance lines.”

It noted that it saw rate rises of 20%-30% for 1 June renewals in the Florida property catastrophe portfolio. “Lancashire expects the momentum of rising rates to continue in this and other classes of business across its portfolio during the rest of this year and throughout 2021,” it said.

“Whilst Lancashire remains strongly capitalised and has sufficient capital headroom to take some advantage of the current rate momentum, the rapid increase in rates and dislocation in reinsurance and retrocession markets that are currently being witnessed imply a return to a traditional “hard” market over the next six to 12 months. The Placing and resultant increase in capital will allow Lancashire to take full advantage of this market opportunity, if it develops in the way Lancashire considers likely.”