Lancashire Capital Management Limited, the third-party capital collateralised reinsurance underwriting arm of specialty insurance and reinsurance group Lancashire Holdings, has reported a 52% increase in fees, profit commissions and profit shares earned in 2020, over the prior year.
The factor driving the increased fees earned for managing third-party reinsurance capital at Lancashire is a growing amount of premiums written through its Lancashire Capital Management (LCM) strategy.
Lancashire Capital Management (LCM) had grown by roughly 20% in 2019, and when the January 2020 reinsurance renewal season came along it had somewhere north of an estimated $600 million of limit available to deploy.
That growth has helped to drive higher underwriting fee income through to parent Lancashire Holdings for the year.
For 2020, LCM earned $10 million of underwriting fees, up on the prior years $7.9 million.
Driving this was the increased level of premiums under management compared to 2019, the company said, so reflective of higher third-party reinsurance capital assets under management.
For 2020 the amount of profit commission earned at LCM also rose, to $1.8 million, up from 2019’s $1 million.
Perhaps most impressively though and reflective of the performance of the LCM collateralized reinsurance strategy, Lancashire has also reported its share of profit of LCM as an associate, representing profits earned from its equity stake in LCM’s underwriting vehicle, at $10.7 million for 2020, up considerably on 2019’s $5.9 million.
Meaning the overall income earned from collateralised reinsurance activities at Lancashire reached an impressive $22.5 million for 2020, up on 2019’s $14.8 million.
Given the product written by LCM, a ully collateralised and multi-class reinsurance product that can combined catastrophe and certain specialty covers and is utilised by some of the largest reinsurers as retrocession, there’s a good chance the company will have been able to capitalise on the state of the retro market at this January renewals.
LCM has the ability to draw from investors to support its activities, dependent on the opportunity presented by market conditions and with Jan 20201 having seen some of the most attractive retro market conditions in a while, there is every chance that LCM may have written a larger book than the prior year, supported by more investor capital.
That will probably become clearer as this year progresses.
With parent Lancashire Holdings reporting its results this morning, there are other areas that may read across to increasing opportunity for the Lancashire Capital Management strategy.
Lancashire reports its renewal price index (RPI) at 112% for the year, indicative of firming renewal rates.
In property the RPI was 108%, while in specialty lines it was higher, at 113% in energy, 116% in marine and 121% in aviation.
As well as positive pricing trends, Lancashire also reported “an increase in new business flows, in particular within the property catastrophe class and the property direct and facultative classes.”
These all suggest more opportunity at higher returns for the Lancashire Capital Management strategy.