Lancashire Holdings preparing for wind season after mixed first half

Bermuda-based specialty insurance provider Lancashire Holdings issued its results for the six months ended 30 June on Thursday, reporting a fully-converted book value per share of $5.70, down from $6.23 a year ago.

The FTSE 250 company said its second quarter return on equity was 2.9%, down from 3.2%, while its year-to-date return on equity was in line with last year at 5.9%.

Second quarter return on tangible equity fell to 3.4% from 3.6%, while year-to-date return on tangible equity was higher at 6.9%, compared to 6.8%.

Lancashire’s operating return on average equity in the second quarter rose to 3.3% from 2.5%, and for the year-to-date the figure was 6.9%, up from 4.5%.

The board confirmed that dividends per common share at the interim stage would total five cents, in line with what was paid a year ago.

On the financial front, gross premiums written in the first half were $392.5m, up from $381.2m, while net premiums written fell to $234m from $239.8m.

Profit before tax was up to $74.9m from $66.7m, and profit after tax grew to $75.8m from $68.5m.

Lancashire’s comprehensive income slid to $64.4m from $74.6m a year ago, and its net operating profit was $78.3m, compared to $56.1m at the end of last year’s first half.

The company said diluted earnings per share were 38 cents, up from 34 cents, and operating diluted earnings per share were 39 cents, rising significantly from 28 cents a year ago.

Total investment return for the first half was 0.3%, a sizeable decrease from 1.5% in the comparative period, with the firm’s net loss ratio sliding to 15.1% from 26%.

Its combined ratio slipped to 67.1% from 78.4%, and its accident year loss ratio was 38.7%, down from 43.3%.

“With a strong underwriting result and a decent investment performance, despite the volatility in the investment market, the group has delivered a solid set of results for the year to date with an RoE of 5.9%,” said Lancashire Holdings group chief executive Alex Maloney.

“Our earlier predictions of how the insurance market would respond following the 2017 loss events are proving to be accurate.”

Maloney said pricing peaked at the January renewals, and the firm was now experiencing a decline from those levels, although it remained in positive territory for the year to date.

“We have still been able to take advantage of rate increases across most of our lines of business.

“While it may appear that our second quarter premiums don't support that statement, with a year on year reduction of 4.3%, the rate increases and growth we saw in the quarter are masked by the impact of the timing of renewal of some multi-year deals and some prior underwriting year premium that came through in the second quarter of 2017.

“We are pleased with the new business we have been able to add, in particular across our property book, and our new energy onshore and power underwriters are steadily building their books.”

Alex Maloney said the company would watch this year's wind season with interest.

“While we believe that there is still too much capital in the market, another year of losses may serve to dampen appetites.

“We are witnessing some of our competitors exiting unprofitable lines of business and Lloyd's is also beginning to take action on under-performing syndicates and lines of business.”

Time would tell what impact that would have on the market, Maloney quipped.

“In the meantime we will continue to execute our strategy - supporting our core clients and building out some new lines of business where the pricing and margins achievable make sense to do so.

“We expect our risk levels to therefore stay materially the same.”