Lancashire grows P&C Re book 73%, third-party capital income rises

Specialty insurance and reinsurance group Lancashire Holdings has expanded its property and casualty reinsurance book by 73% in the first-half of the year, while income earned from its third-party capital and collateralised reinsurance  activities rose by 122% in the period.

Lancashire has been putting newly raised capital to work at renewals through 2021, with this expansion seen as an opportunity to put together some of the most profitable books of business it has seen in years.

Overall, gross premiums written increased by 40.7% year-on-year, but growth was most impressive in P&C reinsurance, where premiums grew 73% and at the same time Lancashire’s renewal price index sat at 111%, indicating much improved market pricing.

The company had a combined ratio of 80.7% for the first-half of 2021, which if winter storm Uri was excluded could have been as low as 65.7%.

As a result, Lancashire has reported half-year profits of $127.1 million, well up on the prior years $39.4 million.

Alex Maloney, Group Chief Executive Officer, commented on the strong first-half, “I am particularly pleased with the Group’s strong premium growth of 40.7% in the first half of the year. It has always been our strategy to write more business and deploy more of our capital when market conditions dictate, and these results amply demonstrate our persistent focus on delivering on our strategic aims. The Group achieved a growth in FCBVS of 2.4% for the half year, absent the one off debt redemption costs, the growth in FCBVS would have been 3.5%. The rating environment continues to be favourable for most of the products we sell, giving rise to a renewal price index of 111% and considerable organic growth.

“Importantly, we are starting to reap the benefit of the cumulative rate increases we have achieved over the past three years on our profitability. This is illustrated by our combined ratio of 80.7% for the half year.

“Looking ahead, we expect the rating environment to remain positive. In addition, the new teams that we have recently hired are expected to contribute to the Group’s growth in the future. Our continued commitment to underwriting discipline will be central to our success.”

Natalie Kershaw, Group Chief Financial Officer, added, “For the first half of 2021, we were very pleased to generate an underwriting profit of $127.1 million despite the impact of Winter Storm Uri in the first quarter of 2021. We did not incur any other significant losses and had positive reserve releases of $53.6 million in the period. Furthermore, the Group’s loss reserves for COVID-19 remain stable.”

The P&C reinsurance growth seen was largely driven by new business and rate increases in the property catastrophe and property retrocession classes of business, Lancashire explains.

The company said it has been able to “grow into the hardening market” in reinsurance business.

This will also have been positive for Lancashire Capital Management Limited, the third-party capital collateralised reinsurance underwriting arm of the company.

Having said that its third-party capital arm had underwritten its best portfolio since inception at the start of 2021, any writings through the second-quarter and at the mid-year will also have been profitable, although it should be noted that Lancashire Capital Management (LCM) does tend to write the majority of its book at 1/1.

The LCM business contributed much higher levels of income to Lancashire Holdings over the first-half of 2021, as profit commissions bounced back strongly.

Underwriting fees were slightly lower than the prior year at $2.4 million, but booked $3.6 million of profit commissions during the period as well.

Overall, that $6 million of income from the Lancashire Capital Management business was 122% up on the previous first-half when it was just $2.7 million.

Lancashire noted that the $3.6 million of profit commission booked this year so far came from the 2019 underwriting cycle, as profits are earned out.

However, the share of profit of associates dropped to $0.3 million, down from $1.1 million in the prior year, which reflects Lancashire’s equity interest in the LCM managed vehicle.

After recent years of loss impacts, the LCM vehicle continues to realise profits from prior years as collateral can be unlocked it seems. That process should continue over time and alongside its larger, stronger book written, the vehicle should deliver improved results for a period, major loss activity allowing.