Lancashire Holdings pleased with first half returns amid 'soft market'

Global specialty insurance provider Lancashire Holdings saw a fall in its fully-converted book value per share in the first half, it reported on Thursday, to $6.23 from $6.40.

The FTSE 250 firm posted a return on equity in the second quarter of 3.2% - precisely in line with the second quarter return last year - while its first half return for the six months to 30 June was 5.9%, down from 7.1% year-on-year.

Return on tangible equity in the second quarter was marginally higher at 3.6%, against 3.5% a year ago, while first half return on tangible equity was 6.8%, down from 8.2%.

Lancashire’s operating return on average equity was ahead in the second quarter, rising to 2.5% from 2%, while in the year-to-date it fell slightly to 4.5% from 4.6%.

“In the current continuing soft market I am very pleased with the RoE for the second quarter of 3.2% and 5.9% for the half year,” said group chief executive Alex Maloney.

“Premium rating pressure continues in the current market.”

Maloney said there was evidence from the insurance industry that many insurance classes were operating at marginal levels of profitability at best.

“The dynamics of the loss environment cannot be accurately predicted in the short term, but it is evident that so far in 2017 there has been a lower level of catastrophe losses than occurred in the first half of 2016, whilst there has continued to be an active run of risk losses in the market.”

During the second quarter, gross premiums written fell to $184.7m from $199.8m year-on-year, while the first half figure was $381.2m, falling from $430.6m.

Net premiums written were ahead in the second quarter at $163.5m, compared to $157m in 2016, while first half net premiums written stoof at $239.8m, down from $279.6m.

The company’s profit before tax improved to $38m from $30.1m in the second quarter, and $66.7m from $56.6m in the first half, whole its net operating profit in the second quarter was $30.9m, up from $25.6m, and $56.1m in the first half, falling from $58m year-on-year.

Diluted earnings per share were 19 cents in the second quarter, rising from 16 cents, and were 34 cents in the first half, up from 30 cents.

Second quarter diluted operating earnings per share rose to 15 cents from 13 cents, while they fell slightly to 28 cents in the first half, from 29 cents last year.

“The insurance industry has experienced further rationalisation through the process of cost cutting and another flurry of M&A activity,” Maloney said.

“Lancashire continues to respond to the pressures of the market by maintaining our underwriting excellence and discipline and keeping our overheads under control.”

Global headcount was around 200 people, and that gave Lancashire the size to retain “some of the best” underwriting talent whilst not having an infrastructure of such size and complexity as to require the business to "feed the beast" through imprudent top line growth, Maloney quipped.

“I believe that we are well positioned as we enter the wind season to provide solid risk-adjusted returns in what is a difficult market.

“Outwards reinsurance remains attractively priced and as a group we have purchased more reinsurance protection for hurricane risk than in previous years.

“We will review our capital needs following the wind season, whether that be to take advantage of underwriting opportunities or to return capital to our stakeholders.”

Lancashire Holdings said its total investment return, including internal currency hedging, was 0.8% in the second quarter and 1.5% in the first half, both slightly lower than the 0.9% and 1.6% respective figures reported at the same time last year.

Its second quarter net loss ratio was 12.1%, down from 28.6%, while its combined ratio fell t 69.8% from 80.6% and its accident year loss ratio was 39.5% compared to 62.7%.

For the first half, the net loss ratio fell to 26% from 29.1%, with a combined ratio rising to 78.4% from 776.2% and an accident year loss ratio of 43.4%, down from 51.6%.

“I would like to welcome Andrew McKee who joined us in June as the chief executive of Cathedral Underwriting Limited, our Lloyd's underwriting agency,” Alex Maloney added.

“Andrew's many years of experience will help to further strengthen and develop our Lloyd's business within our broader group strategy.

“That strategy continues to be one of responding to the harsh conditions of a difficult market with patience and discipline so as to achieve success over the longer insurance cycle.”

Lancashire’s board declared an interim dividend per common share of five cents, exactly the same as the interim dividend enjoyed by shareholders at the same time last year.