Lancashire lags London peers in rush from cat as new lines stumble
Lancashire has fallen behind its London market peers in its attempts to shift out of cat dependency, leaving the group near peak cat exposure, a key equity brokerage has warned.
“While Lancashire has sought to reduce catastrophe risk through adding new lines, the fact that it has been unable to grow tangible book value meaningfully has hindered the balancing effect,” analysts at UBS said in a report for investors.
Lancashire's cat exposures “have materially increased,” leaving the group at peak exposure across the decade in terms of US windstorm and “not too far off” peak for California earthquake and European windstorm.
UBS considers some uptick to have been natural given strong pricing conditions, but admits to being sufficiently “surprised by the extent of Lancashire's increase” to demand a higher cost of equity for Lancashire versus peers.
Rivals Beazley and Hiscox have fared better in their drives to distance themselves from cat risks. Both have managed to cut exposure to California earthquake and US windstorm by upwards of half as measured by the ratio of realistic disaster scenarios (RDS) to probable maximum loss (PML).
Beazley has built the portfolio shift on its drive into cyber & specialty lines while Hiscox has leveraged its forays into retail lines. Beazley's approach merits caution from investors as “the risk is fast evolving” in cyber, UBS analysts warn.
To its credit, Lancashire does appear best capitalized to handle a major event, analysts add.
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