Lancashire reports mixed third quarter, downplays impact of Matthew

Lancashire Holdings announced its results for the third quarter of 2016 and the nine months to 30 September on Thursday, with its fully converted book value per share down to $6.55 at period end, from $6.78 a year earlier.

The FTSE 250 company reported a return on equity for the quarter of 3.1%, up from 2.6% a year earlier, with a return on equity for the year-to-date of 10.5%, up from 9.3%.

Its third quarter return on tangible equity was 3.7%, up from 2.9%, while that measure for the year-to-date was 12.2%, from 7.6%.

Lancashire’s operating return on average equity was 3.1% for the quarter, up from 2.7%, while for the year-to-date it was 7.6%, down from 9.0%.

Gross premiums written for the quarter totalled $108.2m, down from $120.4m a year earlier, while for the nine months to 30 September they totalled $538.8m, down from $544m.

Net premiums written for the quarter were $92m, down from $110.1m, while profit before tax hit $42.9m, up from $32.9m.

For the year-to-date, net premiums written were $370.6m, down from $394.4m, while profit before tax was down to $99.5m from $121.5m.

Profit after tax was $42.9m for the quarter, up from $34.1m, while it reduced to $102.7m for the year-to-date, down from $126.7m.

Comprehensive income for the quarter was $41.6m, up from $30.3m, with net operating profit increasing to $40.1m from $37.1m, while on a year-to-date basis comprehensive income was down marginally to $123.3m from $124.8m, and net operating profit slipped to $98.1m from $127.6m.

Diluted earnings per share were 21 cents during the quarter, up from 17 cents, while they were down in the year-to-date to 51 cents, from 64 cents.

“The Group's results for the third quarter have once again been strong,” said group CEO Alex Maloney.

“Our RoE of 3.1% for the quarter and 10.5% for the year to date demonstrate our ability to deliver excellent results through the insurance cycle and during challenging market conditions.

“These results are a tribute to the quality of our people throughout the group and an illustration of the fruits of disciplined underwriting and prudent risk selection.”

Maloney noted that in early October - and therefore not within the financial reporting period states - Hurricane Matthew ripped through the Caribbean and onwards to impact Florida, Georgia and the Carolinas.

“The terrible toll of lives, principally in Haiti, was a further reminder of the devastating power of the forces of nature.

“On these occasions our thoughts go out to those personally affected by such tragedies,” he said.

“However, as an insured event affecting the US, the level of insured damage was less than it might have been in other circumstances.”

Maloney said Matthew is an attritional loss for the insurance sector as a whole, certainly not of a size to constitute the ‘market moving event’ which sooner or later will occur.

“However, it is a timely reminder of the volatility and unpredictability of loss events in our industry and will contribute to the further erosion of margins and profitability across the sector.”

Maloney added that the results and the salutary lesson of Matthew demonstrated the value of Lancashire’s strategy of managing the insurance cycle, which during the current soft market phase demands that it maintains a core book of business.

“Our strategy is unchanged as we are working to maintain our long term profitable underwriting relationships whilst managing our outwards exposure through the purchase of well-priced targeted reinsurance.”