Lancashire narrows third quarter losses, declares special dividend

Lancashire Holdings issued its results for the third quarter on Thursday, reporting a fully-converted book value per share of $5.54 for the period ended 30 September, up from $5.53 at the same time last year.

The FTSE 250 company said its return on equity was a negative 1.9%, compared to a negative 10.4% in the third quarter of 2017, while its return on equity for the year to date swung to a positive 3.9% from a negative 5.1% 12 months ago.

Its return on tangible equity for the quarter was a negative 2.2%, narrowing from a negative 11.9%, and for the year to date it was a positive 4.5% compared to a negative 5.8%.

The firm’s operating return on average equity in the third quarter narrowed to a negative 2.2% from a negative 11.6% a year ago, and for the year to date it had also swung to a positive 4.8% from a negative 7%.

Lancashire’s board declared a special dividend per common share of 20 US cents.

On the operational front, gross written premiums fell to $115.2m for the quarter, from $143m a year ago, with net written premiums dropping to $86.3m from $106.1m.

The company’s loss before tax was $25.3m, narrowing from $136.4m a year ago, with its net operating loss standing at $24.6m, compared to $139m a year ago.

Diluted losses per share were 12 cents, down from 67 cents.

“The third quarter of 2018 was at least as active as 2017 in terms of the number of events to impact the industry,” said group chief executive Alex Maloney.

“The magnitude of insured loss, however, has been much smaller.

“We have, nonetheless, produced a small loss for the quarter as a result of these events.”

Maloney said that, while it was “always” disappointing to lose money in any quarter, Lancashire remained in positive territory for the year-to-date.

“The loss events during the quarter are a well understood part of our business model; we are prepared for such events and they lie within our risk expectations.

“Overall, rates are directionally up on last year and, pleasingly, we continue to see rates improving across our specialty lines of business.”

In its property catastrophe lines, recent loss events could stimulate that market to maintain more discipline over pricing in the run up to the 1 January renewals, Lancashire claimed.

“While optically our gross premiums written have declined in the third quarter, rate increases and growth in the quarter are masked by the impact of quarter on quarter reinstatement premiums plus the impact of the timing of renewal of some multi-year deals in addition to exposure adjustments on prior underwriting year contracts,” Maloney explained.

“We have again added new business in the quarter, including across the new teams we have recruited into the group this year.

“With the market in a state of flux, and as others in the market exit lines of business that are underperforming, we are well positioned to build out our offering by attracting high-calibre underwriters to our team where we see opportunities.”

Alex Maloney also noted that the company had recently seen Lloyd's take a “tougher stance” on the need for market underwriting discipline, and for a return to pricing levels which were “fundamentally” profitable.

“The group's philosophy has, for many years, stressed the central importance of disciplined underwriting and we have a record of tailoring our income levels and our exposures accordingly and therefore welcome these actions.

“I believe we will have a growth opportunity in 2019 in our specialty lines,” Maloney said.

“The risk exposures in our property catastrophe lines are likely to remain at similar levels as for 2018, although we remain open to opportunities in these classes too.”