Lancashire Holdings's results hold up despite 'turbulent' 2016

Despite macroeconomic uncertainty insurer Lancashire Holdings' results for 2016 held up and while the company remains confident about 2017, it expects "market conditions to remain difficult for the foreseeable future”.

For calendar 2016, return on equity remained flat at 13.5% and for the final quarter it fell to 2.8% from 3.5% the previous year. Chief executive Alex Maloney said this was “an exceptional outcome” despite the trading environment.

He said: "The 2016 year proved a turbulent one for the global political and macroeconomic environment and the insurance market remained very challenging. Risk capital remains abundant, and there is continuing pressure upon pricing and terms and conditions. Against this background I am particularly pleased with the results for both the fourth quarter and the full year.”

The return on equity for 2016 also included relative contributions from the Lancashire, Cathedral and Kinesis businesses which were 9.1%, 3.6% and 0.8%, respectively, and were consistent with the previous year.

Chief financial officer Elaine Whelan said that while the company’s investment portfolio returned a small loss of 0.1% for the quarter, it performed in line with expectations in a rising yield environment, with risk assets and interest rate hedges protecting the portfolio.

The compound annual return since inception, excluding the impact of warrants, was 18.6%.

Gross premiums written slipped to $633.9m from $641.1m while net premiums written were down to $458.7m from $481.7m.

Pre-tax profit fell to $150.4m from $171.7m and profit after tax dipped to $153.8m from $181.1m.

Whelan said: “Our outlook for 2017 is for a continuation of current market trends. At 1 January we have once again been able to further reduce our exposure levels with additional reinsurance purchases, and our risk levels are lower now than at any other point in our history. We are therefore carrying a bit more of a capital buffer than we typically would, which gives us the ability to take advantage of any opportunities that may materialise this year.”

The company declared a final ordinary dividend of $0.10 per share, which will result in an aggregate payment of about $19.8m. Including its interim and special dividend for 2016, the company has returned 113.3% of comprehensive income for the year and 104.2% since inception.

Analysts at Shore Capital said: "Lancashire continues to exceed our expectations in respect of its underwriting abilities. A combined ratio of 76.5% for the year (2015: 72.1%) and 79% for the discrete fourth quarter of 2016 (Q4 15: 67.1%) is unlikely to be beaten by any of its UK quoted peers and demonstrates again the group’s ability to maintain discipline and eke out areas of profitability.

"Allied to this underwriting prowess is a continuing focus on capital discipline, with the total dividend for 2016 amounting to 90 cents (2015: 110 cents) testament to Lancashire’s focus on delivering value for shareholders. We remain of the view that all of these attributes, together with a powerful balance sheet, ensures Lancashire remains a highly prized acquisition target for those seeking a high calibre play on Lloyd’s, outside Lloyd’s and alternative capital."