Lancashire highlights positives despite loss

The CEO of Bermuda-based loss-making Lancashire has highlighted the company’s strong growth and robust underwriting performance against what he called a backdrop of high industry losses and a volatile macroeconomic environment.

The re/insurer made a $92.6 million loss for the year ended December 31, 2022, almost the same result as the same period a year earlier. Its profits were hit by its 2022 investment result, which was negative 3.5% including mark-to-market losses.

But it did enjoy solid growth and posted an underwriting profit. Its gross premiums written year-on-year increased by 35% to $1.7 billion; it delivered a combined ratio of 97.7%, an improvement on the 107.3% it posted a year earlier. Its underwriting profit was $150.8 million for the year, compared with $69 million a year earlier.

Alex Maloney, group CEO, said: “I’m very pleased to report that Lancashire continued its strong growth trajectory during 2022, increasing gross premiums written year-on-year by 35% to $1.7 billion and delivering a combined ratio of 97.7%. In the five years since 2017 our gross premiums written have increased by almost 280%.

Our robust underwriting performance in 2022 came against a backdrop of high industry losses and a volatile macroeconomic environment.

“In line with our ‘underwriting comes first’ principle, we have continued to expand our footprint and take full advantage of the organic growth opportunities and rate increases being seen across the majority of our product lines.

“This growth has come from those lines where we have longer-term strength and expertise and from those we have added over the past few years as part of our actions to diversify and fortify our portfolio.

“Traditionally, Lancashire has been seen as an established writer of natural catastrophe risk business meaning that when such events occur it is expected to impact our performance. However, during 2022 we have demonstrated that the growth and diversification of recent years now allows us to absorb significant catastrophe losses, such as hurricane Ian. While this event is estimated to be the second most costly hurricane on record, we have still produced a net underwriting profit.

“This is a notable positive step-change for the business and testament to the clear long-term strategy we have set out.

“Catastrophe and weather-related losses for the year, excluding the impacts of reinstatement premiums, were $218.4 million. This includes the impact of hurricane Ian, which was within our expectations for these types of events and at the lower end of the $160 million to $190 million range provided at Q3.

“We previously set aside $22 million for direct claims emanating from the conflict in Ukraine. In Q4, we subsequently revised this to include an additional management margin for any potential indirect claims related to the conflict across a number of classes. Our potential claims related to the conflict now total $65.8 million. Given the nature of the conflict, the ultimate claims relating to the event are subject to a high level of uncertainty.

“On investments, the volatility in the global financial markets and higher interest rates have understandably affected our 2022 investment result, which was negative 3.5% including mark-to-market losses. These losses are largely unrealised and were the most significant driver of the negative change in FCBVS of 6.7% for the year. Going forward, we expect to see higher investment income as a result of the higher interest rate environment.

“From a capital perspective, we held a very strong position throughout the year, and we have the necessary headroom to continue to write profitable business, and deliver returns, during what we expect to be a harder market in 2023.

“As we look into 2023, wider capacity constraints – due particularly to the increasing cost of capital and historic loss activity – are expected to give us considerable opportunities to further strengthen our franchise at a time in the cycle of expanding margins.

“I very much look forward to the opportunities for further profitable growth that the next 12 months may bring, and I’d like to thank all of our colleagues for their hard work, and our investors, clients, and their brokers for their support during the past year.”