Lancashire: $4m of Kinesis profit commission to come from reserves

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Insurance and reinsurance firm Lancashire Group Holdings anticipates receiving an additional $4m of profit commission from its third-party capital and reinsurance-linked asset management division Kinesis over future quarters, as the reserves we discussed earlier are released.

In a sign that Lancashire and Kinesis expect the final losses that were reserved for will be much smaller than the amount reserved, CFO Elaine Whelan explained on the companies earnings call today that as much as $4m is expected to flow back through as collateral can be released and thus profit commissions on that portion realised.

As we reported earlier, Lancashire received lower profit commission due to collateral being locked up as reserves for non-elemental loss events suffered. It seemed likely, as we wrote, that at least a portion of the reserved collateral would get released and Whelan’s comments confirm this.

Whelan said that Lancashire “anticipates receiving another $4m of profit commission from the 1/1 2015 underwriting cycle.”

If that is the case then this will be on top of the $1.8m of profit commission from Kinesis reported for the first quarter of 2016, so taking the total for the quarter closer to $5.8m, which is up on Q1 2015’s $5.8m of Kinesis related profit commission.

Looking ahead, Whelan also provided a forecast for expected profit commission from the 2016 underwriting year, if it remains loss free. Whelan said that profit commission would be up to $6m for the 2016 underwriting cycle, but that this wouldn’t be realised until after the first quarter of 2017.

So it looks like the reduction in profit commission revealed in the Lancashire results is, as we explained, down to prudent reserving and the bulk of this is expected to flow back to Lancashire in quarters to come.

Also read:

Reserving impacts Lancashire’s profit commission from Kinesis.

Kinesis to return 15% to third-party investors for 2014 and 2015.

Kinesis third-party profit commission & fees add to Lancashire RoE.

Predictions for 2015: Darren Redhead, Kinesis Capital Management.

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