Lancashire sees continued rate improvements, to rebrand Kinesis at 1/1

Specialty insurance and reinsurance group Lancashire Holdings Limited has continued to seek out profitable growth in a firming market and believes the rate improvements will continue into 2020, as the market shows increasing levels of discipline.

The company has also revealed that it will rebrand its third-party capital collateralised reinsurance underwriting arm Kinesis Capital Management in time for the renewals, bringing its name into line with the group as Lancashire Capital Management Limited.

Lancashire reported its results this morning, revealing almost 14% of premium growth in the third-quarter on the back of firming rates and an improved renewal price index of 106%.

In fact the company sees the outlook for rates as so positive that it has decided to retain all of its capital to take advantage of underwriting opportunities instead of issuing a special dividend, something the firm has always done, opportunistically looking to make use of its capital in the most profitable way, or returning it to investors when more prudent.

Lancashire has grown its book everywhere except for in the energy market, raising property premiums by 19%, marine by 31%, aviation by 60% and Lloyd’s business by 15% during the third-quarter.

All segments saw a renewal price index of 100 or better, but it seems in energy Lancashire still sees the need for more trajectory before it will commit more capital to the space.

Alex Maloney, Group Chief Executive Officer, commented on the trading in the third-quarter, “Once again the Atlantic and Pacific wind seasons have produced loss events which have disrupted lives and livelihoods, with tragic consequences. Lancashire’s products help our clients and ultimate insureds manage these volatile risks and to rebuild after such moments of disruption. The Group’s exposures to recent catastrophe loss events have been comfortably within our expectations.”

Lancashire took a total ultimate loss from hurricane Dorian and typhoon Faxai, after reinsurance and excluding the impact of inwards and outwards reinstatement premiums, of an estimated $33.2 million.

No other significant net losses have impacted the firm for the first nine months of the year and the company said it is now assessing the impacts from typhoon Hagibis.

It’s possible that the Kinesis multi-line collateralised retrocessional reinsurance product may have some exposure to these natural catastrophe events, although it’s unlikely to be particularly significant given how that is structured.

Maloney is particularly positive on the market outlook, having become more so with each quarter of late, “In the face of these market losses, which pose yet another challenge to the global insurance industry, the markets have now reached a point at which the pricing of both property and specialty risks has required reappraisal. There is an increasing industry focus on the need for more disciplined underwriting and better assessment of risk.

“We have benefited from that greater market discipline and have taken the opportunity to achieve measured, disciplined growth, in line with the underwriting opportunity and our strategy.”

The Kinesis strategy, which underwrites a multi-class, specialty and property catastrophe focused product used as retrocession by major reinsurance firms, is likely benefiting from the rate environment as well, perhaps to a degree that could allow the unit to raise a little more capital for the upcoming renewals.

“There is more progress for our industry to make in reaching a point at which the market operates at more sustainable levels. But I am encouraged that we are at a stage in the cycle where we are benefiting from the realisation across the market of the need to ensure long term, sustainable returns and underwriting discipline,” Maloney continued.

Explaining the decision to prepare to deploy more of Lancashire’s available capital, Maloney said, “Given our expectations of a continued improvement in the market in 2020, we intend to retain all of our current capital in order to be able to take full advantage of underwriting opportunities. Therefore, in line with our active capital management policy, we are not declaring a special dividend at this point. Our dividend policy remains unchanged and we fully expect to pay our normal final dividend next year. We will continue to actively monitor our capital levels versus underwriting opportunities and will update further at the time of our full year 2019 results.”

With Lancashire seeing more opportunities to deploy capital, it’s very likely that Kinesis is too.

Whether the collateralised vehicle could look to initiate a special draw, where it can call on investors to upsize on commitments, remains to be seen. But it’s clear that as the parent is seeing improved market conditions, so too will this strategy.

As mentioned at the beginning of this article, Lancashire is set to rebrand Kinesis to bring it into line with the group naming convention.

From January 2020, Kinesis Capital Management’s name will be changed to Lancashire Capital Management Limited, bringing the brand into line with the rest of the Lancashire Group of Companies, the firm explained.

There will be no change to the unites ownership, capital structure, executive management, underwriting personnel or business activities, with Kinesis continuing to deliver on business as usual.

Kinesis may stand relatively uniquely positioned to capitalise on market conditions at the January renewals, particularly given the crunch in retro capacity and lack of new funds being raised in that space.

This is likely to put Kinesis and its product in a position of strength, in terms of how it can dictate pricing and term with clients, as well as offering an opportunity for some additional growth.

Kinesis and Lancashire are notoriously selective though, so it’s unlikely we’ll see the unit growing particularly significantly. But it is a chance for the Kinesis product to cement a place for itself in the programs of major reinsurers that fear going into 2020 lacking retrocessional protection, so it will be interesting to see how that renewal pans out for the unit.