Lancashire sees new flows in cat & property as market discipline improves

Lancashire Holdings, the specialty insurance and reinsurance group with a third-party capital management platform, is increasingly seeing new business flows that meet its return requirements across a range of business lines, in particular benefiting from growth across property catastrophe reinsurance, property direct and facultative, the company said this morning.

Lancashire believes that market discipline is returning, saying that, “Whilst some market indiscipline remains, it tends to be more isolated and contract specific than earlier in the year.”

Lancashire has always been an underwriter that has strict return requirements and looks to hold onto its capital until the opportunity is one that it can size itself to.

That’s where we find the company today, achieving 14% premium growth for the first nine months of 2020, while its renewal price index (RPI) for the year to-date stands at 112% and for the third-quarter of 2020 it reached an impressive 117%.

The company reported catastrophe losses of between $65 million and $75 million for the quarter, as Lancashire took its share of global hurricane, weather and likely fire activity.

The company also noted that an accumulation of specialty single risk losses in Q3 were $30 million above its attritional guidance.

Lancashire believes it is primed for growth now, with the January renewals likely a target opportunity for the company as it looks to put more capital to work into the hardening market.

Alex Maloney, Group Chief Executive Officer, said, “We continue to see strengthening premium rate increases across the majority of our business portfolio, with RPIs of 117% for the quarter and 112% for the year to 30 September. In addition, with certain competitors continuing to retrench, we have seen strong new business flows. Looking to the future, I am encouraged by the opportunity these trends provide for meaningful and disciplined growth. Rates continue to harden. The capital which we raised in June remains at our disposal to take full advantage of the opportunities that we believe lie ahead in 2021.

“Since we reported in July, the insurance industry has experienced a mix of both natural catastrophe losses, which are always a threat to communities and livelihoods during wind season, and an unusually frequent run of non- natural catastrophe risk losses. These losses come on top of the COVID-19 pandemic, which has been a stress to individuals, societies and economies and a material loss event for the (re)insurance industry. Within this difficult context, I am pleased to report that the Group’s COVID-19 loss estimate of approximately $42.0 million (net of reinsurance and reinstatement premiums) has remained unchanged since we reported in July.”

Maloney feels that recent losses are going to further hold up rates and perhaps create an environment for more prolonged firming, now anticipating improved market conditions right through 2021.

“As insurers, we expect to support our clients and to pay covered losses when they occur, and the sequence of both natural catastrophe and risk loss events during the year so far has impacted our, and the industry’s, profitability for the year to date. I would expect this to put further impetus on the industry to charge an adequate and sustainable price per unit of risk. Pricing, particularly in capital intensive lines of business, has increased significantly and I expect rates and terms of coverage to improve throughout 2021 in most of our core business lines,” he explained.

“Against this backdrop, our strategy and ability to operate effectively through the cycle, alongside the recent capital we have raised, leaves us well positioned and I am optimistic about the strategic opportunity available to Lancashire,” Maloney said.

Highlighting the opportunity to deploy more capital, the company said that it is seeing new business flows as well as improving rates and pricing.

“Within the property segment, the RPI was 108% for the nine month period ending 30 September 2020 and an encouraging 111% for the third quarter. As well as these rating trends in renewal business, we have seen an increase in new business flows, in particular within the property catastrophe and property direct and facultative classes. Whilst some market indiscipline remains, it tends to be more isolated and contract specific than earlier in the year,” the company noted.

Which all sets the stage for continued growth and also an opportunity for the Lancashire Capital Management, third-party capital management platform.

The Lancashire Capital Management unit, the firms third-party collateralised reinsurance arm that underwrites a multi-class, specialty and property catastrophe focused product used as retrocession by major reinsurance firms, has the ability to make so-called ‘special draws’ from investors should it choose.

This enables the unit to respond to market conditions and take advantage of them by raising additional funds and deploying more collateralised reinsurance limit, should it see the potential to do so.

In the current environment, particularly with the retro market stressed, it seems inevitable that Lancashire Capital Management will find attractive opportunities for its third-party investors and as a result may raise more capital for the 1/1 renewals.

That will enable Lancashire to put this third-party capital to work in generating additional new business flows, as its multi-class product may be particularly attractive at this time as global reinsurers battle with losses across their businesses and a contraction in the availability of collateralised retro reinsurance capacity.