Lancashire combined ratio jumps to 125% in 2017

Lancashire Holdings has reported a  combined ratio of 124.9 percent for 2017 compared to 76.5 percent in the previous year.

The specialty re/insurer faced damaging catastrophe losses in the summer months in the Caribbean, the Gulf of Mexico and US coastal regions as well as two sizeable earthquakes in Mexico. The run of catastrophe losses continued in the fourth quarter with the occurrence of wildfires across California.

These events have resulted in one of the most severe years for catastrophe losses to the industry, with the sum of such insured losses in excess of $100 billion, placing 2017 in the top three years for aggregate catastrophe losses in recent history.

“We plan our underwriting, reinsurance programme, capital and risk levels in anticipation of such scenarios,” said Lancashire CEO Alex Maloney.

Nevertheless, the natural catastrophes resulted in a net loss of $71.1 million for Lancashire in 2017 compared to a net profit of $153.8 million in 2016.

“In such a challenging year, the group has generated a negative RoE (return on equity) of 5.9 percent. Whilst I am not pleased to lose money, this is always a possibility for such types of event in any single underwriting year,” Maloney said.

“Overall we feel that we had the right underwriting strategy, risk levels and capital headroom to absorb these events when balanced against the underwriting opportunity that presented itself during 2017.”

However, gross premium written declined in 2017 to $591.6 million compared to $633.9 million in the previous year.

At the same time, Maloney showed some confidence that the operating environment is improving.

“The market has finally turned a corner and we are witnessing rate increases, or at least stability, across most of the classes of business we underwrite,” he said.

Following the 2017 catastrophes, Lancashire has increased its reinsurance protection. Ceded reinsurance premiums increased by $8.3 million, or 118.6 percent, for the fourth quarter of 2017 compared to the same period in 2016. The increased spend for the quarter was primarily driven by new cover purchased for the energy book and additional limit purchased for the Lloyd's segment. In the whole of 2017, ceded reinsurance increased by $18.4 million, or 10.5 percent compared to 2016. For the year the increase was due to additional limit purchased plus reinstatement premiums in connection with hurricanes Harvey, Irma and Maria.

Lancashire focuses on short-tail, specialty property re/insurance and has underwriting operations in Bermuda and London. Its five main business areas are aviation, energy, marine, property and Lloyd's.

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