Lancashire positive despite profit dip

Lancashire Group CEO Richard Brindle tells investors that his company is ready for the hard work of 2014 despite annual results that indicate a slide in net operating profits and combined ratio.

Lancashire reports a net operating profit of $184.2 million and gross premiums written of $679.7 million, both down from year-end 2012 figures. The Group’s combined ratio, whilst strong at 70.2 percent, is up from 2012. Results for Cathedral, which Lancashire acquired in November, are included in the report.

Brindle says of the results: “there is a lot of gloom about the state of the market. But there is some truth in the old view that good underwriters prefer a soft market. In a hard market the benefits of superior risk selection and a focus on risk-adjusted return are cancelled out by the broad spread of strong pricing. In a soft market the strong underwriting franchises differentiate themselves.”

Brindle dismissed industry commentators who foresee the death of the traditional markets, pointing out that his Group’s clients “know that relationships are based on an understanding that claims are often a process of negotiation based on detailed policy understanding, which goes beyond the ability to model an output.”

Lancashire’s ceded reinsurance premiums decreased by 17.6 percent in for the year ended 2013; according to the company the overall decrease was driven by reduced reinstatement premiums on the Group’s marine and energy cover plus reduced use of alternative covers given declining underlying exposures. Rate changes and restructuring of marine and energy cover offset each other in premium terms, Lancashire reports, and the non-renewal of the property programme was almost “almost entirely offset by an increase in facultative covers purchased”.

Brindle concludes: “whilst it might be an exaggeration to say that we relish the prospect of the coming year, we don’t mind hard work, and we think our business model has evolved to cope very well with the softening market. And let’s remember that although rates are undoubtedly coming down, they’re doing so from what are historically high levels.”