RBC upgrades Lancashire Holdings to 'sector perform'

“Whilst we had always seen Lancashire as a high quality underwriting operation, company-specific issues at the end of 2015 led to our ‘underperform’ rating. We believe that these issues are now behind us and upgrade,” the Canadian bank said.

RBC said it sees less severe premium declines going forward. It pointed out that last year was particularly difficult for the group as premiums fell 30%. A large part of this drop due to energy insurance pricing and premiums coming off materially following the fall in the oil price.

However, RBC reckons pricing in energy insurance is likely to have bottomed out given the price declines seen at the end of 2015 and beginning of this year and some of the large losses seen in the market year to date.

“We now believe that Lancashire will be more willing to defend its premium base than our previous expectation and now see premiums falling less rapidly.”

RBC highlighted the departure of a number of senior staff at Lancashire subsidiary Cathedral since the end of 2015 and said the insurer has since hired a number of individuals with excellent industry CVs.

“Although some of the new underwriters will not join the business until later in the year, we expect that Cathedral should be able to defend its premiums to a greater extent than we had previously expected.”

At 1052 BST, Lancashire shares were up 0.4% to 633.50p.