LANCASHIRE
HOLDINGS LIMITED
30 April
2020
Hamilton,
Bermuda
Lancashire Holdings Limited (“Lancashire” or “the Group”) today
announces its trading statement for the three months ended
31 March 2020.
Trading statement highlights
• Resilient business model and operational capabilities despite
COVID-19 global disruption
• Approximately $35.0 million of
COVID-19 claims estimated for the quarter, including the impact of
reinsurance and reinstatement premiums
• Gross premiums written increased by 11.8% year on year to
$242.8 million
• Group Renewal Price Index of 108%
• Total net investment return, including unrealised gains and
losses, of negative 1.9% in the quarter
|
Three months ended |
|
31 March 2020 |
31 March 2019 |
Gross premiums
written |
$242.8m |
$217.2m |
Renewal Price
Index |
108 |
% |
103 |
% |
Total net investment
return (including unrealised gains and losses) |
(1.9 |
%) |
1.8 |
% |
Alex
Maloney, Group Chief Executive Officer, commented:
“Firstly, I want to extend my sympathy to those of our
colleagues and friends who have suffered illness or personal loss
at this time. I also want to thank our people for their
dedication and professionalism in ensuring the smooth running of
our business during what have been challenging and unprecedented
times.
Since early March our London
and Bermuda offices have
successfully moved to a home working model which has enabled us to
continue to underwrite and to service the needs of our clients and
their brokers. The Lloyd’s, London
and international insurance markets have effectively moved to a
model of remote trading and Lancashire has been fully equipped
to handle this transition.
Our purpose as a business is to deliver bespoke risk solutions
that protect our clients and support economies, businesses and
communities in the face of uncertain loss events and to manage our
own risk exposures and capital resources. Whilst the world’s
attention is naturally focused on the current pandemic crisis, we
should remember that this is one of many possible risks, and that
risk management is our field of expertise. We therefore continue to
work with our brokers and clients to deliver our insurance and
reinsurance products in all our areas of specialism including swift
payment of valid claims. Whilst we expect economic challenges
for clients in a number of sectors, including aviation, marine and
energy, we have thus far seen demand hold up in many of our
business classes.
Looking at the developments during the first quarter, the
January 2020 renewal season saw an
increase in our year on year premium income of about 12% and an RPI
of 108%. This is evidence of improved market discipline and,
with the recent stress to many insurance industry balance sheets,
we consider that the need for improved risk pricing will continue
during 2020.
In terms of the impact of the current pandemic on Lancashire’s
own business and capital resources, we have established provisional
reserves for pandemic related liabilities of approximately
$35.0 million. In line with the
broader market, our investment portfolio delivered a negative total
net investment return of 1.9% for the first quarter, which is to a
large degree, driven by unrealised losses. This was in line with
our expectations of performance given the stressed market
conditions.
As a business we constantly monitor our risk exposures against
the capital we hold, so we can meet the expectations of our
policyholders, regulators, rating agencies and
shareholders. Yesterday, at our AGM, our shareholders approved
our final dividend for the year 2019 of $0.10 per share, which the Board had recommended
in February 2020. We have carefully
considered guidance from both regulatory and shareholder bodies in
relation to the use of capital, including payment of dividends at
the present time. Whilst we continue to monitor developments,
the Board considers that the business is well capitalised to
meet all of its obligations to our policyholders and to afford
appropriate headroom for growth opportunities. In view of this, the
Board determined that the Company should put the previously
announced dividend resolution to shareholders at yesterday’s AGM,
where it received strong support.
Our thoughts remain with those front-line workers and people in
wider society who have been most impacted by the current crisis.
The Lancashire Foundation has been active in donating to projects
which support certain disadvantaged communities impacted by this
pandemic in both Bermuda and the
UK. Lancashire has no intention of
furloughing any employees, nor have we participated in any
government loan schemes or similar arrangements.
In the face of this real world “stress test” I have been
impressed by the resilience of our business model and the
professionalism of our people. The Group retains a robust
solvency buffer and we stand ready to meet the challenges and
opportunities that lie ahead.”
COVID-19 update
Resilient business model and
operational capabilities
The COVID-19 pandemic is an ongoing situation making it
exceptionally difficult to predict what the ultimate impact for the
Group or the industry will be. We have established a reserve of
approximately $35.0 million of
losses, net of reinsurance and reinstatement premiums, in the first
quarter of 2020 based on a review of our book and potential
COVID-19 exposures arising in the first quarter of the year. This
is principally in relation to our property segment. Given the
ongoing nature of the pandemic our final COVID-19-related losses
may be materially different from those booked to date.
We do not write the following lines of insurance business:
travel insurance; trade credit; accident and health; Directors’ and
Officers’ liability; medical malpractice; and long-term life. We
have minimal exposure to mortgage business and are exposed to a
small number of event cancellation contracts.
The Group has more than adequate liquidity and solvency headroom
and management will continue to monitor and regularly review the
longer term impact of the COVID-19 pandemic on the Group.
Looking after our people and
supporting our communities
We are pleased to say that all our employees continue to do a
tremendous job in navigating the challenges of working from home.
The safety of our staff and all our stakeholders is of paramount
importance to us, and we have the capability to continue to trade
remotely in these unique circumstances.
In continuing to support our communities, the Lancashire
Foundation has made a donation of £100,000 to COVID-19 causes, to
be split between Bermuda and the
UK. In the UK, the Foundation will focus its support in two main
areas, being: (i) the support of key NHS workers, and (ii)
assisting vulnerable people in Lancashire’s local community in
London. In Bermuda the majority of the funds will be
donated to the Bermuda Hospital with the remaining balance
supporting a charitable food bank to tackle food insecurity, an
issue that has become more acute for the vulnerable in the current
crisis.
Open for business
Lancashire remains fully open
for business and will continue to service the needs of our clients,
brokers, shareholders and other key stakeholders as we always have
done.
Dividends
On 12 February 2020, the Board of
Directors declared a payment of an ordinary dividend of
$0.10 per common share, subject to a
shareholder vote of approval at the AGM on 29 April 2020, which would result in an aggregate
payment of approximately $20.1
million. The final dividend was approved by shareholders at
yesterday’s AGM, and the dividend is due to be paid on 5 June 2020 to shareholders of record on
11 May 2020.
Business update
Gross premiums written
|
Three months ended |
|
|
31 March 2020 |
31 March 2019 |
Change |
Change |
RPI |
|
$m |
$m |
$m |
% |
% |
Property |
152.4 |
|
137.6 |
|
14.8 |
|
10.8 |
|
104 |
|
Energy |
35.6 |
|
29.7 |
|
5.9 |
|
19.9 |
|
109 |
|
Marine |
25.0 |
|
29.7 |
|
(4.7 |
) |
(15.8 |
) |
114 |
|
Aviation |
29.8 |
|
20.2 |
|
9.6 |
|
47.5 |
|
117 |
|
Total |
242.8 |
|
217.2 |
|
25.6 |
|
11.8 |
|
108 |
|
The Group’s operating segments for the purposes of segmental
reporting have been revised in the current year. Management and the
Board of Directors review the Group’s business primarily by four
principal segments: Property, Energy, Marine and Aviation. The
gross premiums written and previously reported in the Lancashire
Syndicates segment are now reported across the four principal
operating segments. The prior period comparatives have been
re-presented in conformity with the current year view.
Gross premiums written increased by 11.8% in the first three
months of 2020 compared to the same period in 2019. The
Group’s four principal segments, and the key market factors
impacting them, are discussed below.
The increase in property gross premiums written was driven
primarily by new business across all lines of business with rate
and exposure increases also contributing to the growth. These
increases were somewhat offset by a reduced level of reinstatement
premium compared to the same period in 2019 and some business we
did not renew.
Energy gross premiums written increased primarily due to new
business and rate and exposure increases in the upstream energy,
downstream energy and power classes of business. The increase in
the upstream energy class was partially offset by timing
differences on the renewal of non-annual policies and exposure
adjustments on policies bound in prior underwriting years.
The decrease in marine gross premiums written was due to timing
differences on the renewal of non-annual policies in the marine
hull and total loss class, which more than offset new business and
rate and exposure increases in the marine cargo class. In the first
quarter of 2019 the marine builders’ risk class also benefited from
exposure increases on policies bound in prior underwriting
years.
Aviation gross premiums written increased primarily due to new
business in the aviation deductible and the aviation hull and
liability class of business, as well as exposure increases on
policies bound in prior underwriting years in the AV52 class.
Claims environment
The attritional claims environment during the first quarter of
2020 was more active than the first quarter of 2019, with some
weather and single risk losses in the quarter.
The Group's total ultimate loss estimates net of reinsurance and
the impact of inwards and outwards reinstatement premiums for the
2018 and 2017 major catastrophe events and the 2019 wind losses
remained stable in the aggregate during the quarter.
Investments
The Group’s investment portfolio total return (including
unrealised gains and losses) was negative 1.9% for the first
quarter of 2020. The majority of the unrealised losses were driven
by the bank loan and hedge fund portfolios given the significant
spread widening in credit and volatility in equities. The short
duration and higher credit quality of our fixed income portfolios
helped to mitigate the losses during the quarter, where we saw
positive returns in our treasuries, agency debt and agency
structured products, given the reduction in interest rates by the
Federal Reserve. In addition, any exposure to equities and equity
linked products had matured or been sold prior to March, which
helped to mitigate our losses during the quarter.
Since the end of the quarter, we have seen a narrowing of
spreads and increased liquidity given the significant numbers of
programmes put in place by the Federal Reserve to increase
liquidity and enable normal market functioning. This has helped
reverse some of the initial negative movements in our
portfolio.
The managed investment portfolio statistics were:
|
31 March 2020 |
31 March 2019 |
Duration |
2.0 years |
1.6 years |
Credit quality |
A+ |
A+ |
Book yield |
2.2 |
% |
2.7 |
% |
Market yield |
2.4 |
% |
2.8 |
% |
Managed investments
($m) |
$1,565.3 |
$1,746.4 |
Analyst and Investor Conference
Call
There will be an analyst and investor conference call on the
trading statement at 1:00pm UK time /
9:00am Bermuda time / 8:00am
EDT on Thursday 30 April 2020.
The conference call will be hosted by Lancashire management.
Participant Access
Dial in 5-10 minutes prior to the start time using the number /
confirmation code below:
United Kingdom -
Toll free: |
08003589473 |
United
Kingdom - Local: |
+44 3333000804
|
United
States - Toll free: |
+1 855 85 70686 |
United
States - Local: |
+1 6319131422 |
PIN Code |
94958604# |
URL for additional international dial in numbers:
https://events.arkadin.com/ev/docs/NE_W2_TF_Events_International_Access_List.pdf
The call can also be accessed via webcast, for registration and
access:
https://event.on24.com/wcc/r/2266403/60B45F1C64683125327AD708485C1B56
A webcast replay facility will be available for 12 months and
accessible at:
https://www.lancashiregroup.com/en/investors/results-reports-and-presentations.html
For further information, please contact:
Lancashire Holdings
Limited |
|
Christopher Head |
+44 20
7264 4145
chris.head@lancashiregroup.com |
Jelena
Bjelanovic |
+44 20
7264 4066
jelena.bjelanovic@lancashiregroup.com |
|
|
FTI
Consulting |
+44 20
37271046 |
Edward
Berry |
Edward.Berry@FTIConsulting.com |
Tom Blackwell |
Tom.Blackwell@FTIConsulting.com |
About Lancashire
Lancashire, through its UK and
Bermuda-based operating
subsidiaries, is a provider of global specialty insurance and
reinsurance products.
Lancashire has capital of
approximately $1.5 billion and its
common shares trade on the premium segment of the Main Market of
the London Stock Exchange under the ticker symbol LRE. Lancashire has its head office and registered
office at Power House, 7 Par-la-Ville Road, Hamilton HM 11,
Bermuda.
The Bermuda Monetary Authority is the Group Supervisor of the
Lancashire Group.
For more information, please visit Lancashire’s website at
www.lancashiregroup.com.
This release contains information, which may be of a price
sensitive nature that Lancashire
is making public in a manner consistent with the EU Market Abuse
Regulation and other regulatory obligations. The information was
submitted for publication, through the agency of the contact
persons set out above, at 07:00 BST
on 30 April 2020.
NOTE REGARDING RPI METHODOLOGY:
THE RENEWAL PRICE INDEX (“RPI”) IS AN INTERNAL METHODOLOGY THAT
MANAGEMENT USES TO TRACK TRENDS IN PREMIUM RATES OF A PORTFOLIO OF
INSURANCE AND REINSURANCE CONTRACTS. THE RPI WRITTEN IN THE
RESPECTIVE SEGMENTS IS CALCULATED ON A PER CONTRACT BASIS AND
REFLECTS MANAGEMENT’S ASSESSMENT OF RELATIVE CHANGES IN PRICE,
TERMS, CONDITIONS AND LIMITS AND IS WEIGHTED BY PREMIUM VOLUME. THE
CALCULATION INVOLVES A DEGREE OF JUDGEMENT IN RELATION TO
COMPARABILITY OF CONTRACTS AND THE ASSESSMENT NOTED ABOVE. TO
ENHANCE THE RPI METHODOLOGY, MANAGEMENT MAY REVISE THE METHODOLOGY
AND ASSUMPTIONS UNDERLYING THE RPI, SO THE TRENDS IN PREMIUM RATES
REFLECTED IN THE RPI MAY NOT BE COMPARABLE OVER TIME. CONSIDERATION
IS ONLY GIVEN TO RENEWALS OF A COMPARABLE NATURE SO IT DOES NOT
REFLECT EVERY CONTRACT IN THE PORTFOLIO OF CONTRACTS. THE FUTURE
PROFITABILITY OF THE PORTFOLIO OF CONTRACTS WITHIN THE RPI IS
DEPENDENT UPON MANY FACTORS BESIDES THE TRENDS IN PREMIUM
RATES.
NOTE REGARDING ALTERNATIVE PERFORMANCE
MEASURES:
THE GROUP USES ALTERNATIVE PERFORMANCE MEASURES TO HELP EXPLAIN
BUSINESS PERFORMANCE AND FINANCIAL POSITION. THESE MEASURES HAVE
BEEN CALCULATED CONSISTENTLY WITH THOSE AS DISCLOSED IN THE GROUP’S
ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2019.
NOTE REGARDING FORWARD-LOOKING
STATEMENTS:
CERTAIN STATEMENTS AND INDICATIVE PROJECTIONS (WHICH MAY INCLUDE
MODELLED LOSS SCENARIOS) MADE IN THIS TRADING STATEMENT OR
OTHERWISE THAT ARE NOT BASED ON CURRENT OR HISTORICAL FACTS ARE
FORWARD-LOOKING IN NATURE INCLUDING, WITHOUT LIMITATION, STATEMENTS
CONTAINING THE WORDS “BELIEVES”, “ANTICIPATES”, “PLANS”,
“PROJECTS”, “FORECASTS”, “GUIDANCE”, “INTENDS”, “EXPECTS”,
“ESTIMATES”, “PREDICTS”, “MAY”, “CAN”, “LIKELY”, “WILL”,
“SEEKS”, “SHOULD”, OR, IN EACH CASE, THEIR NEGATIVE OR COMPARABLE
TERMINOLOGY. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND
UNKNOWN RISKS, UNCERTAINTIES AND OTHER IMPORTANT FACTORS THAT COULD
CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE GROUP
TO BE MATERIALLY DIFFERENT FROM FUTURE RESULTS, PERFORMANCE OR
ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS. FOR A DESCRIPTION OF SOME OF THESE FACTORS, SEE THE
GROUP’S ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2019. IN ADDITION TO THOSE FACTORS
CONTAINED IN THE GROUP’S ANNUAL REPORT AND ACCOUNTS, ANY
FORWARD-LOOKING STATEMENTS CONTAINED IN THIS TRADING STATEMENT MAY
BE AFFECTED BY THE IMPACT OF THE COVID-19 PANDEMIC ON THE GROUP’S
CLIENTS, THE SECURITIES IN OUR INVESTMENT PORTFOLIO AND ON GLOBAL
FINANCIAL MARKETS GENERALLY AS WELL AS ANY GOVERNMENTAL OR
REGULATORY CHANGES INCLUDING POLICY COVERAGE ISSUES ARISING
THEREFROM.
ALL FORWARD-LOOKING STATEMENTS IN THIS TRADING STATEMENT OR
OTHERWISE SPEAK ONLY AS AT THE DATE OF PUBLICATION. LANCASHIRE EXPRESSLY DISCLAIMS ANY OBLIGATION
OR UNDERTAKING (SAVE AS REQUIRED TO COMPLY WITH ANY LEGAL OR
REGULATORY OBLIGATIONS INCLUDING THE RULES OF THE LONDON STOCK EXCHANGE) TO DISSEMINATE ANY
UPDATES OR REVISIONS TO ANY FORWARD-LOOKING STATEMENT TO REFLECT
ANY CHANGES IN THE GROUP’S EXPECTATIONS OR CIRCUMSTANCES ON WHICH
ANY SUCH STATEMENT IS BASED. ALL SUBSEQUENT WRITTEN AND ORAL
FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE GROUP OR INDIVIDUALS
ACTING ON BEHALF OF THE GROUP ARE EXPRESSLY QUALIFIED IN THEIR
ENTIRETY BY THIS NOTE. PROSPECTIVE INVESTORS SHOULD SPECIFICALLY
CONSIDER THE FACTORS IDENTIFIED IN THIS TRADING STATEMENT WHICH
COULD CAUSE ACTUAL RESULTS TO DIFFER BEFORE MAKING AN INVESTMENT
DECISION.