Lancashire sees up to $212m of cat losses, including Kinesis share

by Artemis on October 9, 2017

Specialty insurance and reinsurance group Lancashire Holdings Limited has estimated its ultimate net losses from hurricanes Harvey, Irma and Maria and the two recent Mexico earthquakes, putting them in a range from $106 million to $212 million, including its share of third-party capital vehicle Kinesis’ hit.

Lancashire’s third-party reinsurance capital unit Kinesis Capital Management offers a unique multi-class product in the insurance-linked securities (ILS) and collateralised reinsurance market. The products include property catastrophe exposures and so some impact to Kinesis positions was to be expected.

Lancashire said that its estimate of losses from recent events is after its own reinsurance recoveries and the cost of outwards and inwards reinstatement premiums. The estimate falls well within the re/insurers modelled loss ranges for these types of catastrophe events, the firm continued.

Alex Maloney, Group Chief Executive Officer, commented on Lancashire’s exposures; “The extensive news coverage turned our thoughts to those whose lives, livelihoods and businesses were devastated by these forces of nature. As we assess the financial impact of these losses for Lancashire, these events illustrate the value of our products to our clients. Lancashire’s combination of a strong balance sheet and market leading professional expertise allows us to service the current and future needs of our clients and their brokers and to meet the long term expectations of our investors and broader stakeholders.”

The $106 million to $212 million range includes exposures Lancashire has from its Bermuda, UK and Lloyd’s re/insurance operations, as well as from its own share in Kinesis.

The company has a 10% equity stake in Kinesis, meaning that it shares in the collateralised reinsurance market profits and losses, as well as having an alignment with its investor base.

Lancashire said it has exposure to hurricane risks in a number of lines of business, including property retrocession, property direct and facultative, property reinsurance, cargo, marine and energy.

Kinesis, being a multi-class collateralised reinsurance writer, underwrites a product that can include property catastrophe, marine and energy risks, so could also have taken some of its share of recent losses from multiple lines.

Lancashire’s estimate of losses is based on market data and assumptions, some provisional loss advices, limited client loss data and its own modelled loss projections. As a result, the final bill could differ from preliminary estimates, but by giving a substantial range Lancashire will hope to have captured the final impact within it.

Lancashire said that the final claims settlement for all of these events could be a relatively drawn out process, given the complexity of the multiple loss events.

The company will be hoping to capitalise on any market opportunities that arise due to the aggregation of recent industry losses, with the Kinesis vehicle having the ability to raise further capital through special draws from its investors when opportunity allows deployment of more capacity.

CEO Maloney recently explained that Kinesis had expanded its investor base and stood ready to take advantage of future opportunities, saying; “We had more investors in Kinesis this year, as we continue to build out our investor club, with many partners who can deploy multiples of their current stakes when the opportunity arises.”

The firm will now be hoping to capitalise on higher rates and any opportunities promoted by dislocation or a scarcity of reinsurance and retrocession capacity in which the Kinesis vehicle is able to participate.

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