Lancashire swings to loss after increased Covid-19 loss estimate

Lancashire Holdings reported a “resilient” business model in its first half on Wednesday, despite the global disruption caused by Covid-19, as gross premiums written increased 15.3% year-on-year to $495.5m (£382.23m), although it did swing to a loss before tax of $23m.

The London-listed, Bermuda-domiciled insurance company said that was ahead of rate for the six months ended 30 June, with its group renewal price index standing at 111%.

It said it saw “strong” underlying underwriting performance, with a combined ratio of 88.9% absent the Covid-19 loss estimate, or 106.9% including Covid-19.

Net premiums written rose to $282.5m, from $222.6m year-on-year, although the company’s underwriting income slid to $39.4m from $79.4m.

Lancashire swung to a loss before tax of $23m, from profits of $40.5m a year ago, while its comprehensive loss for the period was $14.7m, compared to income of $68.7m in the first half of 2019.

The firm said investments “rebounded” in the second quarter, resulting in a total net investment return of 1.3% for the six month period, down from 3.2%.

Its net loss ratio rose to 57.4% from 34.5%, and its combined ratio for the first half was 106.9%, rising from 86.6% a year prior.

The board declared an interim dividend of five US cents per common share.

“In the face of the challenges generated by the Covid-19 pandemic to both sides of the balance sheet, there has been a retrenchment in (re)insurance market risk capital and capacity,” said chief executive officer Alex Maloney.

“In the year to 30 June, we have witnessed double-digit percentage rate increases in many of our lines of business and accelerated rating dislocation in the catastrophe exposed reinsurance lines, resulting in rises in the range of 20% to 30% for 1 June renewals in Florida.

“I believe that the economic fundamentals now dictate that this pricing trend is likely to strengthen throughout 2020 and into 2021 across a number of our business lines, and that current market conditions present an attractive opportunity for growth consistent with our strategy of deploying capital in line with the insurance market cycle.”

Maloney said the company was “pleased” to have executed a successful equity capital raise on 10 June, which would allow Lancashire to deploy capital to take advantage of the growth opportunities presented by an improving pricing environment.

“The effects of Covid-19 as a loss event to the insurance and reinsurance markets remain both ongoing and uncertain.

“For Lancashire, the current estimated impact of the Covid-19 loss event has been assessed consistent with our usual internal processes for deriving ultimate loss estimates, albeit that there is higher uncertainty with this event.”

During the second quarter, the company increased its Covid-19 loss estimate to around $42m, from $35m, net of reinsurance and reinstatement premiums.

“As noted in the our first quarter trading statement, Lancashire does not write the following lines of business - travel insurance, trade credit, accident and health, directors’ and officers’ liability, medical malpractice, and long-term life,” Maloney noted.

“The group also has minimal exposure to mortgage business and is exposed to a small number of event cancellation contracts.”

Alex Maloney said that, in the “rapidly changing” market, Lancashrie was seeing “attractive opportunities” to develop many of its existing lines of business, and to establish new ones.

“Our business is well positioned to grow our underwriting portfolio and to develop opportunities to improve the risk adjusted returns for our business and our investors.”

At 0904 BST, shares in Lancashire Holdings were down 5.06% at 770p.