Lancashire stable after year of dramatic change
In what its CEO described as a year containing the “most dramatic changes in our history” Lancashire Holdings reported broadly stable results for the full year 2013 with small decreases in its profits and premiums but an increase in its return on equity (ROE) for the year.
The company’s pre-tax profit was $218.1 million for the year, an 8.5 percent decrease on the $236.8 million it made in 2012. Its net written premiums also fell slightly to $557.6 million compared with $576.1 million it made the year before. Its combined ratio increased slightly to 70.2 percent compared with 63.9 percent in 2012 but its ROE for the year increased to 18.9 percent compared with 16.7 percent in 2012.
Richard Brindle, group chief executive of Lancashire, said he was pleased with the company’s performance and especially its ROE in what had been an exceptional year for the business. He also said that while market conditions were tough, he believes Lancashire can still flourish.
“2013 has seen the most dramatic changes in our history,” he said. “We have broadened our platforms, our core portfolio lines and our reinsurance purchasing capabilities, but without compromising our business model or our focus on underwriting.
“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.
“We can select the right clients and attachment points in a programme. We have a solid core portfolio but have the discipline to let go of under-priced, opportunistic business. And through the judicious use of reinsurance we can improve the risk-adjusted portfolio returns even when pricing is under pressure.
So 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 in much of our business.”
He also added that speculation by some that the rise of alternative capital could harm the traditional reinsurance model, were exaggerated. That said, he also confirmed that its own vehicle Kinesis has had a good start to the year.
“There are also signs that the panic that affected some commentators who foresaw decimation of the traditional markets was overdone. Many of our clients understand the value of the superior policy features offered by traditional markets like reinstatements and multi-year capacity. They 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.”
