Lancashire’s bullish 2019 results is evidence of ‘harder cycle’

Bermuda-based re/insurer Lancashire Holdings has reported significant gains in 2019, with dramatically increased profit, higher gross written premiums and a sharply improved combined ratio. It said that pricing improvements and disciplined underwriting were key factors affecting its healthy results.

Its gross premiums written were $706.7 million, compared with $638.5 million in 2018. Its pre-tax profit was $119.5 million, up from $33.6 million in 2018, and the company’s combined ratio was 80.9 percent, an improvement on the 2018 figure of 92.2 percent.

Alex Maloney, group chief executive officer, said: “The Lancashire Group has generated a strong RoE of 14.1 percent for the full year. Our results reflect the measured pricing improvement that we have witnessed during the course of the year and our disciplined underwriting approach, with top line premium growth and a strong contribution from our investment portfolio.

"These are pleasing results and are early evidence of the transition to the harder stage of the cycle within insurance markets. However, while Lancashire has achieved a profitable underwriting performance with a combined ratio of 80.9 percent for the full year, we are still of the belief that further pricing improvement is needed in many lines of business before the market returns to a more sustainable environment.

“Notwithstanding the Hagibis, Faxai and Dorian windstorm losses, which all occurred during the second half of the year, the aggregate market insured loss amounts are below what we have witnessed in recent years. In contrast, 2017 and 2018 generated exceptionally heavy insured catastrophe losses at a time of unsustainably weak margins.

“During 2019 however, the wider insurance markets have felt further stress through a combination of reserve deterioration on casualty books and in respect of prior year catastrophe loss reserves. Lancashire’s strategy of underwriting predominantly short-tail lines has insulated us from the reserving stress experienced in casualty insurance classes, and our reserving from prior year catastrophe events remains robust.

“But these developments illustrate that there is still a need for a continued focus on underwriting discipline. Over the last few quarters stronger investment performance has helped smooth earnings across the insurance market. Investment returns are part of our overall return for our shareholders. But our market must always insist on the right price for the underwriting risk which we take on.”

He added his thanks to Elaine Whelan, who is about to step down as group CFO. Whelan commented: “Our outlook for 2020 is for a continuation of rate improvements and we are retaining most of our capital to ensure we are fully able to take advantage of any underwriting opportunities that arise. We are, however, declaring our standard final ordinary dividend of 10 cents per share, subject to shareholder approval at our 2020 AGM. Including that dividend, we will have returned 105 percent of comprehensive income since inception.”

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