REG-Lancashire Hld Ltd: Final Results
10/02/2023 07:15
LANCASHIRE HOLDINGS LIMITED
10 February 2023
Hamilton, Bermuda
STRONG PREMIUM GROWTH AND DIVERSIFICATION
DRIVES UNDERWRITING PROFIT
Lancashire Holdings Limited (“Lancashire” or “the Group”) announces
its results for the year ended 31 December 2022.
Highlights:
* Gross premiums written increased by 35% year-on-year to $1.7 billion; Group
RPI of 108%.
* Combined ratio of 97.7%, demonstrating the benefit of growth and
diversification.
* Total net investment return of negative 3.5%, primarily driven by unrealised
losses.
* Final dividend declared of $0.10 per common share, subject to shareholder
approval.
* Strong start to 2023 at 1 January renewals.
Year ended
31 December 2022 31 December 2021
Financial highlights ($m)
Gross premiums written 1,652.3 1,225.2
Net premiums written 1,188.0 816.1
Underwriting profit 150.8 69.0
Loss before tax (2.8) (56.8)
Comprehensive loss (1) (92.6) (92.9)
Change in FCBVS (2) (6.7%) (5.8%)
Financial ratios
Total investment return (3.5%) 0.1%
Net loss ratio 58.3% 67.6%
Combined ratio 97.7% 107.3%
Per share data
Fully converted book value per share $5.24 $5.77
Dividends per common share for the financial year $0.15 $0.15
Diluted loss per share ($0.01) ($0.26)
(1) These amounts are attributable to Lancashire and exclude non-controlling
interests.
2 Defined as the change in fully converted book value per share, adjusted for
dividends. See the section headed “Alternative Performance Measures”
below.
Alex Maloney, Group Chief Executive Officer, commented:
“I’m very pleased to report that Lancashire continued its strong growth
trajectory during 2022, increasing gross premiums written year-on-year by 35%
to $1.7 billion and delivering a combined ratio of 97.7%. In the five years
since 2017 our gross premiums written have increased by almost 280%.
Our robust underwriting performance in 2022 came against a backdrop of high
industry losses and a volatile macroeconomic environment.
In line with our ‘underwriting comes first’ principle, we have continued
to expand our footprint and take full advantage of the organic growth
opportunities and rate increases being seen across the majority of our product
lines.
This growth has come from those lines where we have longer-term strength and
expertise and from those we have added over the past few years as part of our
actions to diversify and fortify our portfolio.
Traditionally, Lancashire has been seen as an established writer of natural
catastrophe risk business meaning that when such events occur it is expected
to impact our performance. However, during 2022 we have demonstrated that the
growth and diversification of recent years now allows us to absorb significant
catastrophe losses, such as hurricane Ian. While this event is estimated to be
the second most costly hurricane on record, we have still produced a net
underwriting profit.
This is a notable positive step-change for the business and testament to the
clear long-term strategy we have set out.
Catastrophe and weather related losses for the year, excluding the impacts of
reinstatement premiums, were $218.4 million. This includes the impact of
hurricane Ian, which was within our expectations for these types of events and
at the lower end of the $160 million to $190 million range provided at Q3.
We previously set aside $22 million for direct claims emanating from the
conflict in Ukraine. In Q4, we subsequently revised this to include an
additional management margin for any potential indirect claims related to the
conflict across a number of classes. Our potential claims related to the
conflict now total $65.8 million. Given the nature of the conflict, the
ultimate claims relating to the event are subject to a high level of
uncertainty.
On investments, the volatility in the global financial markets and higher
interest rates have understandably affected our 2022 investment result, which
was negative 3.5% including mark-to-market losses. These losses are largely
unrealised and were the most significant driver of the negative change in
FCBVS of 6.7% for the year. Going forward, we expect to see higher investment
income as a result of the higher interest rate environment.
From a capital perspective, we held a very strong position throughout the year
and we have the necessary headroom to continue to write profitable business,
and deliver returns, during what we expect to be a harder market in 2023.
As we look into 2023, wider capacity constraints – due particularly to the
increasing cost of capital and historic loss activity – are expected to give
us considerable opportunities to further strengthen our franchise at a time in
the cycle of expanding margins.
I very much look forward to the opportunities for further profitable growth
that the next 12 months may bring, and I’d like to thank all of our
colleagues for their hard work, and our investors, clients, and their brokers
for their support during the past year.”
Business Update
Strong start to 2023
Lancashire began 2023 with strong 1 January renewals, which saw a market-wide
reassessment of property catastrophe risk. Pricing, coverage, as well as terms
and conditions, all responded favourably, substantially improving expected
returns.
We continue to remain disciplined in our underwriting, while taking advantage
of increased rates.
Increased demand for our products, due to recent industry loss experience and
broader inflation, was not met by an increase in the supply of capacity, as
investors repriced the cost of capital. Overall, this gave considerable
momentum to the current favourable market dynamics, which we expect to
continue at least at the current level as we go into the mid-year renewals.
In other lines, the pricing environment remains supportive, albeit rate rises
were not as high as in property catastrophe lines of business. Our specialty
book has seen five years of rate increases and this looks set to continue in
2023, while our casualty business is more stable, with rates remaining close
to historical peaks.
Our people
During 2022, we have continued to strengthen our underwriting teams and our
organisational infrastructure through key internal promotions and external
hires.
Lancashire aims to retain and attract the best people in our industry. Our
underwriters have market-leading expertise and our support functions are
vitally important in the overall delivery of our growth strategy.
We made a number of senior appointments from within our existing underwriting
teams during the year. This is testament to the strength of talent, knowledge
and experience that we have at Lancashire, in underwriting and across the
wider business.
Our long-term investment in developing our people means that we are able to
reward and promote colleagues across the Group when suitable opportunities
arise.
We are also enhancing and expanding our capabilities in a range of areas
including business development, human resources, procurement, change and
vendor management, and sustainability.
We have always recruited on merit which has given us the benefits of a diverse
employee community and we continue to look at how we can bring more people
into the industry from a range of backgrounds.
Fundamentally we are a people business and we have a high level of engagement
from all our colleagues. Keeping our positive culture and making Lancashire a
place that develops, retains and attracts quality people is central to our
success going forward.
Operational excellence
Lancashire has continued to review and refine our systems and processes to
ensure we are operating as efficiently as possible.
This includes enhancing our collation and use of data, and modelling
capabilities. In addition, we have successfully delivered a number of new
technology solutions into the business as part of our wider transformation
programme. We have also continued to prepare for the transition to IFRS 17.
Taking responsibility
In May 2022, we were pleased to join the ClimateWise organisation, through
which we will be able to collaborate with others and better support our
clients in their journey to transition away from carbon-based forms of energy.
By utilising our long-standing expertise, we can help the insurance industry,
and its clients, rise to the shared challenges we all face in this area. We
continue to have an active dialogue on environmental, social and governance
issue with all our stakeholders.
Community support
Through the Lancashire Foundation we have always sought to support charities
that have a positive impact on the communities they serve. The cost-of-living
crisis has made that need even more acute. During 2022 the Foundation’s
focus on social causes has been increasingly valuable and effective. The
Foundation’s support for homeless charities in our communities in London and
Bermuda is particularly apt and the organisations we have funded include in
their ethos a long-term goal of helping people back on their feet. This fully
aligns with the goals of the Foundation. Donations from the Foundation in 2022
totaled $0.6 million. Since 2007, the Foundation has donated $22.3 million to
good causes globally.
Underwriting results
Year ended 31 December
Gross premiums written 2022 2021 Change Change RPI
$m $m $m % %
Reinsurance 842.1 561.0 281.1 50.1 108
Insurance 810.2 664.2 146.0 22.0 108
Total 1,652.3 1,225.2 427.1 34.9 108
The Group's operating segments for the purpose of segmental reporting have
been revised in 2022. This reflects an internal management restructuring that
occurred in the second half of the year.
Reinsurance gross premiums written
The significant increase in premiums in the reinsurance segment is primarily
due to new business in the casualty reinsurance class as we continue our
successful build out of the new product lines within this class. This class
also benefited from significant written premium being recognised from new
policies bound in 2021.
Strong growth was also seen in property reinsurance. Rates continued to harden
with RPIs of 111%. Aside from rate rises there was limited exposure growth in
this class as the Group maintained relatively stable risk levels, taking the
increased margin through rate improvements, given we had already grown our
footprint significantly during 2021.
In specialty reinsurance, all lines of business saw small increases in gross
premiums written driven by new business growth. We continued to build out our
specialty treaty account in areas such as energy, marine and political
violence, adding to the already well-established sub-classes of aviation
reinsurance and property retrocession.
Overall, for the reinsurance segment, reinstatement premiums were $45.1
million in 2022 compared to $42.8 million in the prior year.
Insurance gross premiums written
There was increased premium in the majority of insurance classes during the
year. A combination of the positive rating environment, inflationary pressure
increasing values at risk, and the continued build out of new teams all
contributed to the growth in 2022.
The most significant increases in this segment were in the property insurance
class where the Group has continued to expand its property direct and
facultative offering across all its underwriting platforms, including the
newly established Australian platform. The Group also added a new property
construction line of business.
The energy and marine insurance classes grew through the addition of new
underwriting teams and product expansion, particularly in the marine liability
and cargo and specie lines of business.
Outwards reinsurance premiums
Although in dollar terms the spend increased by $55.2 million or 13.5%
compared to 2021, the proportion of outwards reinsurance premiums to gross
premiums written has decreased year-on-year. The increase in reinsurance spend
is primarily driven by the growth of the inwards portfolio and, to a lesser
degree, by an increase in outwards reinstatement premium.
Net acquisition costs
Net acquisition costs were $261.2 million in 2022 compared to $157.0 million
in 2021, and the Group’s net acquisition costs ratio for the year ended 31
December 2022 was 26.4% compared to 22.5% in 2021. The increase is primarily
driven by the reinsurance segment where a change in business mix has seen more
premium growth in proportional lines of business, which incur higher
commission costs.
Net insurance losses
The Group’s net loss ratio for the year ended 31 December 2022 was 58.3%
compared to 67.6% in 2021. The accident year loss ratio for 2022, including
the impact of foreign exchange revaluations, was 69.9% compared to 81.0% in
2021.
During 2022, we experienced net losses from catastrophe, weather and large
loss events of $308.8 million, excluding the impacts of reinstatement
premiums. Within this, catastrophe and weather related losses for the year
ended 31 December 2022, excluding the impacts of reinstatement premiums, were
$218.4 million. This includes $163.3 million from hurricane Ian.
Our provision for large risk events for the year amounted to $90.4 million and
include $65.8 million related to the ongoing conflict in Ukraine and $24.6
million from an accumulation of four large losses in the energy upstream and
power generation lines of business.
Excluding the impact of foreign exchange revaluations, the table below shows
the impact of the current year loss events on the Group’s net loss ratio for
the year ended 31 December 2022:
Net Losses Net Loss ratio
$m %
Reported at 31 December 2022 576.4 58.3%
Absent catastrophe and weather events 358.0 35.7%
Absent large losses 486.0 48.8%
Absent catastrophe, weather and large loss events 267.6 26.3%
(Note: The table does not sum to a total due to the impact of reinstatement
premium.)
During 2021, our total net catastrophe, weather and large losses, excluding
the impact of reinstatement premiums, were $306.4 million.
Excluding the impact of foreign exchange revaluations, the table below shows
the impact of the current year loss events on the Group’s net loss ratio for
the year ended 31 December 2021.
Net Losses Net Loss ratio
$m %
Reported at 31 December 2021 470.5 67.6%
Absent catastrophe and weather events 232.9 33.2%
Absent large losses 401.7 57.7%
Absent catastrophe, weather and large loss events 164.1 23.4%
(Note: The table does not sum to a total due to the impact of reinstatement
premium.)
Prior year favourable development for 2022 was $100.5 million, compared to
$86.5 million of favourable development in 2021. The favourable development in
2022 was primarily due to general IBNR releases on the 2021 and 2020 accident
years and across most lines of business due to a lack of reported claims.
There was also favourable development on natural catastrophe loss events from
the 2019 and 2018 accident years as well as beneficial claims settlements on
risk losses in the 2017 accident year.
The favourable development in 2021 was primarily driven by general IBNR
releases on the 2020 accident year across most lines of business, due to a
lack of reported claims. 2021 also included favourable development on the 2017
accident year, mainly from reserve releases on natural catastrophe loss
events, as well as some beneficial claims settlements from earlier accident
years.
The table below provides further detail of the prior years’ loss development
by segment, excluding the impact of foreign exchange revaluations.
Year ended 31 December 2022 2021
$m $m
Reinsurance segment 45.3 22.2
Insurance segment 55.2 64.3
Total 100.5 86.5
Note: Positive numbers denote favourable development.
The table below provides further detail of the prior years’ loss development
by accident year, excluding the impact of foreign exchange revaluations.
Year ended 31 December 2022 2021
$m $m
2017 accident year and prior 19.9 36.1
2018 accident year 13.6 7.1
2019 accident year 13.7 8.8
2020 accident year 27.5 34.5
2021 accident year 25.8 —
Total 100.5 86.5
Note: Positive numbers denote favourable development.
Investments
Net investment income, excluding realised and unrealised gains and losses, was
$43.7 million for 2022, an increase of 90.0% compared to 2021. Total
investment return, including net investment income, net other investment
income, net realised gains and losses, impairments and net change in
unrealised gains and losses, was a loss of $76.7 million in 2022 compared to a
gain of $1.3 million for 2021.
In a year of significant volatility, the investment portfolio generated a
negative return of 3.5%. The returns were driven primarily from interest rate
increases and the widening of credit spreads, resulting in losses in all asset
classes. The majority of the losses were unrealised. It is expected that the
majority of the unrealised losses will reverse over the next couple of years,
given the short duration of the portfolio.
In 2021, the investment portfolio generated a small positive return of 0.1%.
While the portfolio had been hit in 2021 by rising rates, the losses were
somewhat mitigated by the strong returns in the majority of the risk assets,
notably the bank loans, hedge funds and the private investment funds.
The managed portfolio was as follows:
As at As at
31 December 2022 31 December 2021
Fixed maturity securities 79.8% 78.4%
Managed cash and cash equivalents 10.5% 11.2%
Private investment funds 4.4% 4.6%
Hedge funds 4.2% 4.5%
Index linked securities 1.1% 1.3%
Total 100.0% 100.0%
Key investment portfolio statistics for our fixed maturities and managed cash
were:
As at As at
31 December 2022 31 December 2021
Duration 1.6 years 1.8 years
Credit quality AA- A+
Book yield 2.9% 1.3%
Market yield 5.0% 1.0%
Third Party Capital Management
The total contribution from third party capital activities consisted of the
following items:
Year ended 31 December 2022 2021
$m $m
Lancashire Capital Management underwriting fees 3.1 10.6
Lancashire Capital Management profit commission 0.9 5.2
Lancashire Syndicates’ fees and profit commission 2.5 2.4
Total other income 6.5 18.2
Share of loss of associate (6.5) (3.9)
Total net third party capital management income — 14.3
The amount of Lancashire Capital Management profit commission recognised is
driven by the timing of loss experience, settlement of claims and collateral
release and therefore varies year on year. The share of loss of associate
reflects Lancashire’s equity interest in the Lancashire Capital Management
managed vehicle.
Other operating expenses
Other operating expenses were $128.7 million in 2022 compared to $119.6
million in 2021. A growth in headcount has resulted in higher underlying
employee remuneration costs compared to the prior year alongside an increase
in audit fees, travel costs and fees and subscriptions. The weakening
Sterling/U.S. Dollar exchange rate relative to the prior year partly offset
these increases in the underlying cost base.
Capital
As at 31 December 2022, total capital available to Lancashire was
approximately $1.7 billion, comprising shareholders’ equity of $1.3 billion
and $0.4 billion of long-term debt. Tangible capital was $1.5 billion.
Leverage was 26.0% on total capital and 28.9% on total tangible capital. Total
capital and total tangible capital as at 31 December 2021 were $1.9 billion
and $1.7 billion respectively.
Share repurchases
During the year ended 31 December 2022, Lancashire repurchased 4,589,592 of
its common shares (out of an overall, maximum Board-approved limit of
9,000,000 common shares, conducted via three separate share repurchase
programs). These repurchases totalled $23.3 million and were made pursuant to
and in accordance with the general authority granted by shareholders at
Lancashire's Annual General Meeting held on 27 April 2022 and will be used to
satisfy a number of future exercises of awards under the Company’s
Restricted Share Scheme.
Dividends
The Lancashire Board declared the following dividends during 2022:
* A final dividend relating to 2021 of $0.10 per common share; and
* An interim dividend of $0.05 per common share.
Lancashire announces that its Board of Directors has declared a final dividend
of $0.10 (approximately £0.08) per common share, subject to a shareholder
vote of approval at the AGM to be held on 26 April 2023, which will result in
an aggregate payment of approximately $23.8 million. On the basis that the
final dividend is approved by shareholders at the AGM, the dividend will be
paid in Pounds Sterling on 2 June 2023 (the “Dividend Payment Date”) to
shareholders of record on 5 May 2023 (the “Record Date”) using the £ / $
spot market exchange rate at 12 noon London time on the Record Date.
Shareholders interested in participating in the dividend reinvestment plan
(“DRIP”), or other services including international payment, are
encouraged to contact the Group’s registrars, Link Asset Services, for more
details.
Financial Information
The Audited Consolidated Financial Statements for the year ended 31 December
2022 are published on Lancashire’s website at www.lancashiregroup.com.
The 2022 Annual Report and Accounts are expected to be circulated to
shareholders’ from 13 March 2023 and will also be made available on
Lancashire’s website.
Analyst and Investor Earnings Conference Call
There will be an analyst and investor conference call on the results at 1:00pm
UK time / 9:00am Bermuda time / 8:00am EST on Friday 10 February 2023. The
conference call will be hosted by Lancashire management.
The full details for participant access to the audio conference call and
webcast are set out below. Please note that audio conference call users are
required to register in advance for the call and upon registration will
receive a personal PIN number to access the call.
Participant Access Information:
Audio conference:
https://register.vevent.com/register/BId86a9fde64f74a11acd46b6a7765f759
Webcast access:
https://onlinexperiences.com/Launch/QReg/ShowUUID=175AC6D5-CDD1-43E4-AFD7-48829EB8B531
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. The Group
companies carry the following ratings (unchanged from 2021):
Financial Strength Rating ((1)) Financial Strength Outlook ((1)) Long Term Issuer Rating ((2))
A.M. Best A (Excellent) Stable bbb+
S&P Global Ratings A- Stable BBB
Moody’s A3 Stable Baa2
(1) Financial Strength Rating and Financial Strength Outlook apply to
Lancashire Insurance Company Limited and Lancashire Insurance Company (UK)
Limited.
(2) Long Term Issuer Rating applies to Lancashire Holdings Limited.
Lancashire Syndicates Limited benefits from Lloyd’s ratings: A.M. Best: A
(Excellent); S&P Global Ratings: A+ (Strong); and Fitch: AA- (Very Strong).
Lancashire, through its UK and Bermuda-based operating subsidiaries, is a
provider of global specialty insurance and reinsurance products.
Lancashire’s 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 Market Abuse
Regulation (EU) No. 596/2014 as it forms part of UK domestic law by virtue of
the European Union (Withdrawal) Act 2018, as amended, and other regulatory
obligations. The information was submitted for publication, through the agency
of the contact persons set out above, at 07:00 GMT on 10 February 2023.
Alternative Performance Measures (APMs)
As is customary in the insurance industry, the Group utilises certain non-GAAP
measures in order to evaluate, monitor and manage the business and to aid
users’ understanding of the Group. Management believes that the APMs
included in the Financial Statements are important for understanding the
Group’s overall results of operations and may be helpful to investors and
other interested parties who may benefit from having a consistent basis for
comparison with other companies within the industry. However, these measures
may not be comparable to similarly labelled measures used by companies inside
or outside the insurance industry. In addition, the information contained
herein should not be viewed as superior to, or a substitute for, the measures
determined in accordance with the accounting principles used by the Group for
its audited consolidated financial statements or in accordance with GAAP.
In compliance with the Guidelines on APMs of the European Securities and
Markets Authority, as applied by the FCA, information on APMs which the Group
uses is described below. This information has not been audited. All amounts,
excluding share data, ratios, percentages or where otherwise stated, are in
millions of U.S. dollars.
Net loss ratio:
Ratio, in per cent, of net insurance losses to net premiums earned. This ratio
gives an indication of the amount of claims expected to be paid out per $1.00
of net premium earned in the financial year. The net loss ratio may also be
presented with net insurance losses absent catastrophe and other large losses.
31 December 2022 31 December 2021
Net insurance losses 576.4 470.5
Divided by net premiums earned 988.4 696.5
Net loss ratio 58.3% 67.6%
Net acquisition cost ratio:
Ratio, in per cent, of net insurance acquisition expenses to net premiums
earned. This ratio gives an indication of the amount expected to be paid out
to insurance brokers and other insurance intermediaries per $1.00 of net
premium earned in the financial year.
31 December 2022 31 December 2021
Net acquisition expenses 261.2 157.0
Divided by net premiums earned 988.4 696.5
Net acquisition cost ratio 26.4% 22.5%
Net expense ratio:
Ratio, in per cent, of other operating expenses, excluding restricted stock
expenses, to net premiums earned. This ratio gives an indication of the amount
of operating expenses expected to be paid out per $1.00 of net premium earned
in the financial year.
31 December 2022 31 December 2021
Other operating expenses 128.7 119.6
Divided by net premiums earned 988.4 696.5
Net expense ratio 13.0% 17.2%
Combined ratio (KPI):
Ratio, in per cent, of the sum of net insurance losses, net acquisition
expenses and other operating expenses to net premiums earned. The Group aims
to price its business to ensure that the combined ratio across the cycle is
less than 100%.
31 December 2022 31 December 2021
Net loss ratio 58.3% 67.6%
Net acquisition cost ratio 26.4% 22.5%
Net expense ratio 13.0% 17.2%
Combined Ratio 97.7% 107.3%
Accident year loss ratio:
The accident year loss ratio is calculated using the accident year ultimate
liability revalued at the current balance sheet date, divided by net premiums
earned. This ratio shows the amount of claims expected to be paid out per
$1.00 of net premium earned in an accident year.
31 December 2022 31 December 2021
Net insurance losses current accident year 676.9 557.0
Divided by net premiums earned current accident year* 968.6 687.9
Accident year loss ratio 69.9% 81.0%
*For the accident year loss ratio, net premiums earned excludes inwards and
outwards reinstatement premium from prior accident years.
Fully converted book value per share (‘FCBVS’) attributable to the Group:
Calculated based on the value of the total shareholders’ equity attributable
to the Group and dilutive restricted stock units as calculated under the
treasury method, divided by the sum of all shares and dilutive restricted
stock units, assuming all are exercised. Shows the Group net asset value on a
diluted per share basis for comparison to the market value per share.
31 December 2022 31 December 2021
Shareholders’ equity attributable to the Group 1,267,882,107 1,412,308,553
Common voting shares outstanding* 238,333,570 241,839,109
Shares relating to dilutive restricted stock 3,700,547 2,805,365
Fully converted book value denominator 242,034,117 244,644,474
Fully converted book value per share $ 5.24 $ 5.77
*Common voting shares outstanding comprise issued share capital less amounts
held in the Employee Benefit Trust.
Change in FCBVS (KPI):
The internal rate of return of the change in FCBVS in the period plus accrued
dividends. Sometimes referred to as ROE. The Group’s aim is to maximise
risk-adjusted returns for shareholders across the cycle through a purposeful
and sustainable business culture.
31 December 2022 31 December 2021
Opening FCBVS $ (5.77) $ (6.28)
Q1 dividend per share $ — $ —
Q2 dividend per share $ 0.10 $ 0.10
Q3 dividend per share $ 0.05 $ 0.05
Closing FCBVS $ 5.24 $ 5.77
Change in FCBVS* (6.7%) (5.8%)
*Calculated using the internal rate of return.
Total investment return (KPI):
Total investment return in percentage terms, is calculated by dividing the
total investment return excluding foreign exchange by the investment portfolio
net asset value, including managed cash on a daily basis. These daily returns
are then annualised through geometric linking of daily returns. The return
can be approximated by dividing the total investment return excluding foreign
exchange by the average portfolio net asset value, including managed cash. The
Group’s primary investment objectives are to preserve capital and provide
adequate liquidity to support the Group’s payment of claims and other
obligations. Within this framework we aim for a degree of investment portfolio
return.
31 December 2022 31 December 2021
Total investment return (76.7) 1.3
Average invested assets* 2,387.0 2,167.5
Approximate total investment return (3.2%) 0.1%
Reported total investment return (3.5%) 0.1%
*Calculated as the average between the opening and closing investments and our
externally managed cash.
Total shareholder return (KPI):
The increase/(decrease) in share price in the period, measured on a total
return basis, which assumes the reinvestment of dividends. The Group’s aim
is to maximise the Change in FCBVS over the longer term and we would expect
that to be reflected in our share price and multiple. This is a long-term
goal, recognising that the cyclicality and volatility of both the insurance
market and the financial markets in general will impact management’s ability
to maximise the Change in FCBVS in the immediate term. The total return
measurement basis used will generally approximate the simple method of
calculating the increase/(decrease) in share price adjusted for dividends as
recalculated below.
31 December 2022 31 December 2021
Opening share price $ (7.17) $ (9.88)
Q1 dividend per share $ — $ —
Q2 dividend per share $ 0.10 $ 0.10
Q3 dividend per share $ 0.05 $ 0.05
Q4 dividend per share + closing share price $ 7.86 $ 7.17
Total shareholder return 11.7% (25.8%)
Comprehensive income returned to shareholders (KPI):
The percentage of comprehensive income returned to shareholders equals the
total capital returned to shareholders through dividends and share repurchases
in a given year, divided by the Group’s comprehensive income. The Group aims
to carry the right level of capital to match attractive underwriting
opportunities, utilising an optimal mix of capital tools. Over time, through
proactive and flexible capital management across the cycle, we aim to maximise
risk-adjusted returns for shareholders.
31 December 2022 31 December 2021
Capital returned 59.5 43.3
Comprehensive loss attributable to the Group (92.6) (92.9)
Comprehensive income return to shareholders n/a* n/a*
*The % comprehensive income returned to shareholders is n/a when reporting a
comprehensive loss for the period.
Gross premiums written under management (KPI):
The gross premiums written under management equals the total of the Group’s
consolidated gross premiums written plus the external names portion of the
gross premiums written in LSL Syndicate 2010 plus the gross premiums written
in LCM. The Group aims to operate nimbly through the cycle. We will grow in
existing and new classes where favourable and improving market conditions
exist, whilst monitoring and managing our risk exposures and not seek top-line
growth for the sake of it in markets where we do not believe the right
opportunities exist.
31 December 2022 31 December 2021
Gross premiums written by the group 1,652.3 1,225.2
LSL Syndicate 2010 - external Names portion of gross premiums written (unconsolidated) 160.0 142.3
LCM gross premiums written (unconsolidated) 38.4 135.9
Total gross premiums written under management 1,850.7 1,503.4
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 RPI DOES NOT INCLUDE NEW BUSINESS, TO OFFER A CONSISTENT
BASIS FOR ANALYSIS. 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 FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS AND INDICATIVE PROJECTIONS (WHICH MAY INCLUDE MODELLED LOSS
SCENARIOS) MADE IN THIS RELEASE OR OTHERWISE THAT ARE NOT BASED ON CURRENT OR
HISTORICAL FACTS ARE FORWARD-LOOKING IN NATURE INCLUDING, WITHOUT LIMITATION,
STATEMENTS CONTAINING THE WORDS “BELIEVES”, “AIMS”, “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. THESE FACTORS
INCLUDE, BUT ARE NOT LIMITED TO: THE IMPACT OF THE ONGOING CONFLICT IN
UKRAINE, INCLUDING ANY ESCALATION OR EXPANSION THEREOF, ON THE GROUP’S
CLIENTS, RESERVES, THE CONTINUED UNCERTAINTY OF THE SITUATION IN RUSSIA,
INCLUDING ISSUES RELATING TO COVERAGE AND THE IMPACT OF SANCTIONS, THE
SECURITIES IN OUR INVESTMENT PORTFOLIO AND ON GLOBAL FINANCIAL MARKETS
GENERALLY, AS WELL AS ANY GOVERNMENTAL OR REGULATORY CHANGE ARISING THEREFROM;
AND A CONTINUATION IN FINANCIAL MARKET VOLATILITY AND OTHER ADVERSE MARKET
CONDITIONS GENERALLY; THE ACTUAL DEVELOPMENT OF LOSSES AND EXPENSES IMPACTING
ESTIMATES FOR CLAIMS WHICH ARISE AS A RESULT OF THE HURRICANE IAN, WHICH
OCCURRED IN THE THIRD QUARTER OF 2022, COVID-19 PANDEMIC, THE KENTUCKY
TORNADOES, HURRICANE IDA AND THE EUROPEAN STORMS WHICH OCCURRED IN THE SECOND
HALF OF 2021, WINTER STORM URI WHICH OCCURRED DURING THE FIRST QUARTER OF
2021, HURRICANES LAURA AND SALLY, THE MIDWEST DERECHO STORM AND THE WILDFIRES
IN CALIFORNIA WHICH OCCURRED IN 2020, THE 2020 AND 2021 LARGE LOSS EVENTS
ACROSS THE GROUP’S SPECIALTY BUSINESS LINES, TYPHOON HAGIBIS IN THE FOURTH
QUARTER OF 2019, HURRICANE DORIAN AND TYPHOON FAXAI IN THE THIRD QUARTER OF
2019, THE CALIFORNIAN WILDFIRES AND HURRICANE MICHAEL WHICH OCCURRED IN THE
FOURTH QUARTER OF 2018, HURRICANE FLORENCE, THE TYPHOONS AND MARINE LOSSES
THAT OCCURRED IN THE THIRD QUARTER OF 2018, HURRICANES HARVEY, IRMA AND MARIA
AND THE EARTHQUAKES IN MEXICO, THAT OCCURRED IN THE THIRD QUARTER OF 2017 AND
THE WILDFIRES WHICH IMPACTED PARTS OF CALIFORNIA DURING 2017; THE IMPACT OF
COMPLEX AND UNIQUE CAUSATION AND COVERAGE ISSUES ASSOCIATED WITH ATTRIBUTION
OF LOSSES TO WIND OR FLOOD DAMAGE OR OTHER PERILS SUCH AS FIRE OR BUSINESS
INTERRUPTION RELATING TO SUCH EVENTS; POTENTIAL UNCERTAINTIES RELATING TO
REINSURANCE RECOVERIES, REINSTATEMENT PREMIUMS AND OTHER FACTORS INHERENT IN
LOSS ESTIMATIONS; THE GROUP’S ABILITY TO INTEGRATE ITS BUSINESS AND
PERSONNEL; THE SUCCESSFUL RETENTION AND MOTIVATION OF THE GROUP’S KEY
MANAGEMENT; THE INCREASED REGULATORY BURDEN FACING THE GROUP; THE NUMBER AND
TYPE OF INSURANCE AND REINSURANCE CONTRACTS THAT THE GROUP WRITES OR MAY
WRITE; THE GROUP’S ABILITY TO SUCCESSFULLY IMPLEMENT ITS BUSINESS STRATEGY
DURING ‘SOFT’ AS WELL AS ‘HARD’ MARKETS; THE PREMIUM RATES WHICH MAY
BE AVAILABLE AT THE TIME OF SUCH RENEWALS WITHIN ITS TARGETED BUSINESS LINES;
POTENTIALLY UNUSUAL LOSS FREQUENCY; THE IMPACT THAT THE GROUP’S FUTURE
OPERATING RESULTS, CAPITAL POSITION AND RATING AGENCY AND OTHER CONSIDERATIONS
MAY HAVE ON THE EXECUTION OF ANY CAPITAL MANAGEMENT INITIATIVES OR DIVIDENDS;
THE POSSIBILITY OF GREATER FREQUENCY OR SEVERITY OF CLAIMS AND LOSS ACTIVITY
THAN THE GROUP’S UNDERWRITING, RESERVING OR INVESTMENT PRACTICES HAVE
ANTICIPATED; THE RELIABILITY OF, AND CHANGES IN ASSUMPTIONS TO, CATASTROPHE
PRICING, ACCUMULATION AND ESTIMATED LOSS MODELS; INCREASED COMPETITION FROM
EXISTING ALTERNATIVE CAPITAL PROVIDERS AND INSURANCE-LINKED FUNDS AND
COLLATERALISED SPECIAL PURPOSE INSURERS, AND THE RELATED DEMAND AND SUPPLY
DYNAMICS AS CONTRACTS COME UP FOR RENEWAL; THE EFFECTIVENESS OF ITS LOSS
LIMITATION METHODS; THE POTENTIAL LOSS OF KEY PERSONNEL; A DECLINE IN THE
GROUP’ S OPERATING SUBSIDIARIES’ RATINGS WITH A.M. BEST, S&P GLOBAL
RATINGS, MOODY’S OR OTHER RATING AGENCIES; INCREASED COMPETITION ON THE
BASIS OF PRICING, CAPACITY, COVERAGE TERMS OR OTHER FACTORS; CYCLICAL
DOWNTURNS OF THE INDUSTRY; THE IMPACT OF A DETERIORATING CREDIT ENVIRONMENT
FOR ISSUERS OF FIXED MATURITY INVESTMENTS; THE IMPACT OF SWINGS IN MARKET
INTEREST RATES, CURRENCY EXCHANGE RATES AND SECURITIES PRICES; CHANGES BY
CENTRAL BANKS REGARDING THE LEVEL OF INTEREST RATES; THE IMPACT OF INFLATION
OR DEFLATION IN RELEVANT ECONOMIES IN WHICH THE GROUP OPERATES; THE EFFECT,
TIMING AND OTHER UNCERTAINTIES SURROUNDING FUTURE BUSINESS COMBINATIONS WITHIN
THE INSURANCE AND REINSURANCE INDUSTRIES; THE IMPACT OF TERRORIST ACTIVITY IN
THE COUNTRIES IN WHICH THE GROUP WRITES RISKS; A RATING DOWNGRADE OF, OR A
MARKET DECLINE IN, SECURITIES IN ITS INVESTMENT PORTFOLIO; CHANGES IN
GOVERNMENTAL REGULATIONS OR TAX LAWS IN JURISDICTIONS WHERE THE GROUP CONDUCTS
BUSINESS; LANCASHIRE OR ITS BERMUDIAN SUBSIDIARIES BECOMING SUBJECT TO INCOME
TAXES IN THE UNITED STATES OR IN THE UNITED KINGDOM; THE IMPACT OF THE CHANGE
IN TAX RESIDENCE ON STAKEHOLDERS OF THE GROUP; AND THE FOCUS AND SCRUTINY ON
ESG-RELATED MATTERS REGARDING THE INSURANCE INDUSTRY FROM KEY STAKEHOLDERS OF
THE GROUP, AND ANY ADVERSE ASSET, CREDIT, FINANCING OR DEBT OR CAPITAL MARKET
CONDITIONS GENERALLY WHICH MAY AFFECT THE ABILITY OF THE GROUP TO MANAGE ITS
LIQUIDITY. ANY ESTIMATES RELATING TO LOSS EVENTS INVOLVE THE EXERCISE OF
CONSIDERABLE JUDGEMENT AND REFLECT A COMBINATION OF GROUND-UP EVALUATIONS,
INFORMATION AVAILABLE TO DATE FROM BROKERS AND INSUREDS, MARKET INTELLIGENCE,
INITIAL AND/OR TENTATIVE LOSS REPORTS AND OTHER SOURCES. JUDGEMENTS IN
RELATION TO LOSS ARISING FROM NATURAL CATASTROPHE AND MAN-MADE EVENTS ARE
INFLUENCED BY COMPLEX FACTORS. THE GROUP CAUTIONS AS TO THE PRELIMINARY NATURE
OF THE INFORMATION USED TO PREPARE SUCH ESTIMATES AS SUBSEQUENTLY AVAILABLE
INFORMATION MAY CONTRIBUTE TO AN INCREASE IN THESE TYPES OF LOSSES. ALL
FORWARD-LOOKING STATEMENTS IN THIS RELEASE 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 RELEASE AND THE
REPORT AND ACCOUNTS NOTED ABOVE WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER
BEFORE MAKING AN INVESTMENT DECISION.
Consolidated statement of comprehensive income
For the year ended 31 December 2022
2022 2021
$m $m
Gross premiums written 1,652.3 1,225.2
Outwards reinsurance premiums (464.3) (409.1)
Net premiums written 1,188.0 816.1
Change in unearned premiums (223.2) (140.0)
Change in unearned premiums on premiums ceded 23.6 20.4
Net premiums earned 988.4 696.5
Net investment income 43.7 23.0
Net other investment (loss) income (4.5) 3.8
Net realised (losses) gains and impairments (22.7) 6.1
Share of loss of associate (6.5) (3.9)
Other income 6.5 18.2
Net foreign exchange (losses) gains (3.6) 3.5
Total net revenue 1,001.3 747.2
Insurance losses and loss adjustment expenses 922.7 667.6
Insurance losses and loss adjustment expenses recoverable (346.3) (197.1)
Insurance acquisition expenses 298.8 188.6
Insurance acquisition expenses ceded (37.6) (31.6)
Equity based compensation 8.6 11.1
Other operating expenses 128.7 119.6
Total expenses 974.9 758.2
Results of operating activities 26.4 (11.0)
Financing costs 29.2 45.8
Loss before tax (2.8) (56.8)
Tax charge (0.5) (4.8)
Loss for the year (3.3) (61.6)
Loss for the year attributable to:
Equity shareholders of LHL (3.3) (62.2)
Non-controlling interests — 0.6
Net change in unrealised losses on investments (93.2) (31.6)
Tax credit on net change in unrealised losses on investments 3.9 0.9
Other comprehensive loss (89.3) (30.7)
Total comprehensive loss attributable to Lancashire (92.6) (92.9)
Net loss ratio 58.3% 67.6%
Net acquisition cost ratio 26.4% 22.5%
Administrative expense ratio 13.0% 17.2%
Combined ratio 97.7% 107.3%
Consolidated balance sheet
As at 31 December 2022
2022 2021
$m $m
Assets
Cash and cash equivalents 548.8 517.7
Accrued interest receivable 11.3 7.1
Investments 2,204.9 2,048.1
Inwards premiums receivable from insureds and cedants 688.3 490.6
Reinsurance assets
– Unearned premiums on premiums ceded 141.4 117.8
– Reinsurance recoveries 592.1 418.8
– Other receivables 96.8 38.2
Other receivables 30.1 18.8
Corporation tax receivable 1.1 —
Investment in associate 57.2 118.7
Property, plant and equipment 1.1 0.8
Right-of-use assets 20.3 13.4
Deferred acquisition costs 180.8 121.6
Intangible assets 172.4 157.9
Total assets 4,746.6 4,069.5
Liabilities
Insurance contracts
– Losses and loss adjustment expenses 1,780.8 1,291.1
– Unearned premiums 821.1 597.9
– Other payables 52.9 20.3
Amounts payable to reinsurers 268.2 205.6
Deferred acquisition costs ceded 32.9 27.0
Other payables 44.1 37.4
Corporation tax payable — 1.6
Deferred tax liability 9.3 12.2
Lease liabilities 23.3 17.9
Long-term debt 446.1 445.7
Total liabilities 3,478.7 2,656.7
Shareholders’ equity
Share capital 122.0 122.0
Own shares (34.0) (18.1)
Other reserves 1,221.9 1,221.6
Accumulated other comprehensive (loss) income (86.4) 2.9
Retained earnings 44.4 83.9
Total shareholders’ equity attributable to equity shareholders of LHL 1,267.9 1,412.3
Non-controlling interests — 0.5
Total shareholders’ equity 1,267.9 1,412.8
Total liabilities and shareholders’ equity 4,746.6 4,069.5
Consolidated statement of cash flows
For the year ended 31 December 2022
2022 2021
$m $m
Cash flows from operating activities
Loss before tax (2.8) (56.8)
Tax paid (2.1) (3.2)
Depreciation 3.1 3.3
Interest expense on long-term debt 25.8 25.8
Interest expense on lease liabilities 0.8 1.1
Interest income (46.1) (34.1)
Net amortisation of fixed maturity securities (0.2) 7.0
Redemption cost on senior and subordinated loan notes — 12.8
Net realised / unrealised losses on interest rate swaps — 3.4
Equity based compensation 8.6 11.1
Foreign exchange gains (4.9) (0.4)
Share of loss of associate 6.5 3.9
Net other investment loss (income) 3.8 (4.7)
Net realised losses (gains) and impairments 22.7 (6.1)
Changes in operational assets and liabilities
– Insurance and reinsurance contracts 313.1 285.6
– Other assets and liabilities (4.5) (4.9)
Net cash flows from operating activities 323.8 243.8
Cash flows used in investing activities
Interest received 50.0 42.7
Purchase of property, plant and equipment (0.7) (0.7)
Purchase of underwriting capacity (4.2) (0.2)
Internally generated intangible asset (10.3) (3.2)
Investment in associate 55.0 4.6
Purchase of investments (1,130.2) (1,348.5)
Proceeds on sale of investments 845.5 1,118.5
Net cash flows used in investing activities (194.9) (186.8)
Cash flows (used in) from financing activities
Interest paid (25.8) (20.8)
Interest rate swap — (3.4)
Lease liabilities paid (3.6) (4.0)
Proceeds from issue of long-term debt — 445.4
Redemption of long-term debt — (339.6)
Dividends paid (36.2) (36.4)
Dividends paid to minority interest holders — (0.5)
Repurchase of shares from non-controlling interest (1.1) —
Share repurchases (23.3) (6.9)
Distributions by trust (0.8) (1.0)
Net cash flows (used in) from financing activities (90.8) 32.8
Net increase in cash and cash equivalents 38.1 89.8
Cash and cash equivalents at beginning of year 517.7 432.4
Effect of exchange rate fluctuations and other items on cash and cash equivalents (7.0) (4.5)
Cash and cash equivalents at end of year 548.8 517.7
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