Rate increases boost Lancashire Q1 profits
Rate increases and a benign loss environment combined to help specialty insurance provider Lancashire Holdings increase profits while growing gross premiums written in the first quarter of 2018 although its CEO warned that the demand-supply dynamic has not shifted sufficiently to bring about fundamental rate changes across the board.
The company made a pre-tax profit of $42.4 million in the first quarter of 2018 after $28.7 million in the same period a year earlier. Its combined ratio for the period improved to 65.2 percent from 85.6 percent over the period.
The company’s gross written premiums increased 9.8 percent year on year to $215.8 million. It enjoyed growth in property, energy, aviation and in its Lloyd’s business but its marine business shrank by 26 percent mainly because the timing of non-annual contracts renewed in the first quarter of 2017.
Its property gross premiums written increased by 8.1 percent for the first quarter of 2018 compared to the same period in 2017; its said with price increases across most of its property lines of business, the majority of the increase was due to those rate increases together with some new business. This was offset somewhat by prior underwriting year adjustments on the property political risk class where it saw some contract terms reduced due to loans that were re-structured.
Energy gross premiums written increased by 17.8 percent for the first quarter of 2018 compared to the same period in 2017. The first quarter is not a major renewal period for the energy book. The increase for the quarter was largely due to exposure increases on prior underwriting year risk-attaching business in the energy construction class.
Marine gross premiums written decreased by 26.6 percent for the first quarter of 2018 compared to the same period in 2017. The decrease was mainly due to renewal timing on non-annual contracts written in the first quarter of 2017.
Aviation gross premiums written increased by 25.0 percent for the first quarter of 2018 compared to the same period in 2017. The first quarter is not a major renewal period for the aviation segment and, although the percentage increase appears large, the dollar increase was small.
In its Lloyd’s segment gross premiums written increased by 18.1 percent for the first quarter of 2018 compared to the same period in 2017. While there were modest rate increases in the property book, together with some new business in both the property and aviation books, a large portion of the increase was due to exposure increases on prior underwriting year risk-attaching business
Alex Maloney, group chief executive, said: "I am pleased with an ROE of 2.9 percent for the first quarter which is a product of a strong underwriting result, helped by a relatively benign loss quarter, whilst successfully limiting the impact of a challenging investment environment.
“We have also seen an improved rating environment following the major catastrophe losses of 2017 with rate increases across a high proportion of our product lines, so we are in a slightly more interesting trading environment than we have been for a number of years.
“Whilst that is pleasing, the demand supply dynamic has not shifted sufficiently to bring about fundamental rate change across the board. In this environment the Group has continued to focus on the underwriting discipline of matching risk and return. The Group has written new business where the risk reward dynamics make sense; there were opportunities to do this during the first quarter with both existing and new clients.
“The rate improvements are very much in line with our communicated expectations following the experience of 1 January renewals. Although moving in the right direction, the rates have not yet improved enough to warrant a material increase in the Group's level of overall risk which currently remains broadly similar to that of 2017.
“In addition to rate improvements the energy sector is starting to show the first green shoots of recovery thanks to a more sustained period of stable oil prices. This should help bring demand, and therefore premium, back to the energy insurance market through 2018 and into 2019; the Group is very well placed to benefit from this should recovery in the sector continue.
“Overall we are pleased with our first quarter: The underwriting result is strong; our 2017 catastrophe loss reserves remain robust; and our investment portfolio performed in line with expectations given the environment."
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