REG-Lancashire Hld Ltd: Q2 2022 Earnings Release
27/07/2022 07:15
LANCASHIRE HOLDINGS LIMITED
27 July 2022
Hamilton, Bermuda
Lancashire Holdings Limited (“Lancashire” or “the Group”) announces
its results for the six months ended 30 June 2022.
Highlights:
* Gross premiums written increased by 34.6% year-on-year to $938.1 million
* Group RPI (Renewal Price Index) of 106%
* Excellent underwriting performance, with a combined ratio of 78.2%
* Profit before tax of $78.0 million
* Total net investment return of negative 3.8%, primarily driven by unrealised
losses
* Interim dividend of $0.05 per common share, in line with our dividend policy
Six months ended
30 June 2022 30 June 2021
Financial highlights ($m)
Gross premiums written 938.1 697.2
Net premiums written 622.6 427.9
Underwriting profit 164.5 127.1
Profit before tax 78.0 54.1
Comprehensive (loss) income (1) (7.1) 33.6
Change in FCBVS (2) 0.0% 2.4%
Financial ratios
Total investment return (3.8%) 0.3%
Net loss ratio 37.9% 38.4%
Combined ratio 78.2% 80.7%
Per share data
Fully converted book value per share $5.67 $6.33
Dividends per common share for the financial year $0.05 $0.05
Diluted earnings per share $0.30 $0.19
(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:
“The Group delivered strong premium growth in the first half of the year
with a 34.6% increase in gross premiums written year-on-year to $938.1
million. We continue to see attractive rate increases across a number of
business lines with a renewal price index for the first six months of 106%.
Over the past few years, we have successfully diversified our underwriting
portfolio. I am pleased that we are seeing a strong performance from a number
of these newer classes of business while we are also continuing to benefit
from those products where we have longer-standing expertise. This has resulted
in an excellent underwriting performance for the first half of 2022 with a
combined ratio of 78.2% and profit before tax of $78.0 million.
We previously gave a range of $20 million to $30 million for potential
incurred losses within Ukraine. Our ultimate net losses incurred within
Ukraine since the start of the conflict are towards the lower end of our
initial range at $22.0 million (excluding the impact of reinstatement
premiums).
We continue to closely monitor our exposure with regards to Russia, which
remains a complex and fluid situation. We believe that any potential losses
would be within our risk tolerances, and would not impact our strategy or our
ability to deliver on our ambitious growth plans.
While broader macro-economic issues are impacting the outlook for the global
economy, we believe that the strong rate environment for many of our products
is the best we have seen for more than a decade and that it will continue
through the second half of 2022 and into 2023. This includes risk-adjusted
rate rises and attractive opportunities across lines impacted by the conflict
in Ukraine.
During the first half of 2022, the investment environment has proved volatile
and the upwards trend in US interest rates has resulted in a negative
investment performance of 3.8% or in dollar terms an investment loss of $85.8
million. This includes $83.0 million of unrealised losses on our fixed
maturity AFS portfolio due to market value changes. Overall, our investment
strategy remains conservative and the return to a higher interest rate
environment should boost future earnings in our portfolio.
We continue to be strongly capitalised giving us the firepower to execute our
long-term strategy to grow premiums where we believe there are attractive
returns while retaining our strict focus on underwriting discipline.
In June we were pleased to announce a number of senior underwriting
appointments, all of which were promotions from within our existing teams.
Ensuring we have the right talent in the right roles is critical to our
success as we look to maximise the Group’s underwriting prospects.
Lancashire has always attracted some of the best people in the industry and we
continue to develop our employees, wherever they work in the business, and
give them opportunities to thrive in our positive and vibrant corporate
culture.
As always, I would like to thank all our colleagues for their hard work and
commitment and our brokers, clients and shareholders for their continued
support.”
Underwriting results
Six months ended 30 June
Gross premiums written 2022 2021 Change Change RPI
$m $m $m % %
Property and casualty reinsurance 548.0 377.0 171.0 45.4 107
Property and casualty insurance 149.6 106.5 43.1 40.5 105
Aviation 58.3 58.4 (0.1) (0.2) 106
Energy 115.4 107.6 7.8 7.2 103
Marine 66.8 47.7 19.1 40.0 106
Total 938.1 697.2 240.9 34.6 106
Property and casualty reinsurance
The substantial growth in the property and casualty reinsurance segment was
mainly due to new business in the casualty reinsurance and financial lines
classes of business, which also benefitted from significant written premium
being recognised from new policies bound in 2021. The RPI for this segment
also remained strong at 107% further contributing to the premium increase.
Property and casualty insurance
The growth in the property and casualty insurance segment reflects the
continued build-out of the property direct and facultative book of business,
including our recent expansion in Australia and new business in property
construction. This class had an overall RPI of 106%.
Aviation
The first half of the year was not a major renewal period for the aviation
segment and, as a result, the gross premium written remained comparable to the
prior year.
Energy
Most of our energy classes of business grew through the addition of new
underwriting teams and product expansion across underwriting platforms to take
advantage of the improving market conditions. Our decision to exit the Gulf of
Mexico class resulted in a reduction in premium that was more than offset by
new business in other classes.
Marine
Growth in the marine segment was primarily driven by new business particularly
in the marine cargo and marine liability classes of business. The marine
liability class also had a strong RPI of 115% compared to the same period in
the prior year.
Outwards reinsurance premiums
Although the proportion of outwards reinsurance premiums to gross written
premium has decreased year-on-year, in dollar terms the spend increased by
$46.2 million or 17.2% compared to the first six months of 2021.
Net insurance losses
The Group’s net loss ratio for the six months ended 30 June 2022 was 37.9%
compared to 38.4% in 2021. The accident year loss ratio for the six months
ended 30 June 2022, including the impact of foreign exchange revaluations, was
53.5% compared to 56.3% in the same period in 2021.
During the first six months of 2022, the Group experienced net losses from the
ongoing events in Ukraine and the Australian floods, as well as a number of
smaller weather and risk losses. None of these events was individually
material for the Group.
The first half of 2021 included $51.2 million of net losses for Winter Storm
Uri, excluding the impact of reinstatement premiums. Absent Winter Storm Uri
our net loss ratio would have been 22.6% in the same period.
Prior year favourable development for the first six months of 2022 was $64.4
million, compared to $53.6 million of favourable development in 2021. The
favourable development in 2022 was primarily due to general IBNR releases on
the 2021 accident year across most lines of business due to a lack of reported
claims as well as favourable development on some large claims from the 2018
and 2017 accident years.
In the prior half year, the Group benefited from general IBNR releases across
most lines of business due to a lack of reported claims. The Group also
experienced favourable development from reserve releases on the 2017 and prior
accident years.
The table below provides further detail of the prior years’ loss development
by class, excluding the impact of foreign exchange revaluations.
For the six months ended 30 June 2022 2021
$m $m
Property and casualty reinsurance 23.1 6.7
Property and casualty insurance 16.7 17.6
Aviation 7.5 9.4
Energy 12.0 17.8
Marine 5.1 2.1
Total 64.4 53.6
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.
For the six months ended 30 June 2022 2021
$m $m
2017 accident year and prior 19.1 29.6
2018 accident year 10.6 (1.6)
2019 accident year 4.9 1.8
2020 accident year 8.6 23.8
2021 accident year 21.2 —
Total 64.4 53.6
Note: Positive numbers denote favourable development.
Investments
Net investment income, excluding realised and unrealised gains and losses, was
$17.3 million for the first six months of 2022, an increase of 17.7% compared
to 2021.
The Group’s investment portfolio, including unrealised gains and losses,
returned a negative investment performance of 3.8% or in dollar terms an
investment loss of $85.8 million. This includes $83.0 million of unrealised
losses on our fixed maturity AFS portfolio for the first six months of 2022.
The losses were primarily driven by the Federal Reserve’s response to
inflation and volatile financial markets. The yield curve flattened
significantly, and spreads widened for investment grade corporate debt and
bank loans.
The Group’s investment portfolio, including unrealised gains and losses,
returned 0.3% (gain of $7.4 million) for the first six months of 2021. Fixed
maturity portfolio returns were flat to slightly negative offset by positive
returns from other investments, including the hedge funds and principal
protected notes.
The managed portfolio was as follows:
As at As at As at
30 June 2022 31 December 2021 30 June 2021
Fixed maturity securities 85.2% 78.4% 77.7%
Cash and cash equivalents 4.7% 11.2% 12.1%
Private investment funds 4.6% 4.6% 4.3%
Hedge funds 4.3% 4.5% 4.5%
Index linked securities 1.3% 1.3% 1.3%
Other investments (0.1%) — 0.1%
Total 100.0% 100.0% 100.0%
Key investment portfolio statistics for our fixed maturities and managed cash
were:
As at As at As at
30 June 2022 31 December 2021 30 June 2021
Duration 1.8 years 1.8 years 1.8 years
Credit quality A+ A+ A+
Book yield 1.9% 1.3% 1.3%
Market yield 3.5% 1.0% 0.8%
Third Party Capital Management
The total contribution from third party capital activities consisted of the
following items:
For the six months ended 30 June 2022 2021
$m $m
Lancashire Capital Management underwriting fees 0.9 2.4
Lancashire Capital Management profit commission 0.1 3.6
Lancashire Syndicates’ fees and profit commission 1.3 1.0
Total other income 2.3 7.0
Share of profit of associate 2.4 0.3
Total net third party capital management income 4.7 7.3
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 profit of associate
reflects Lancashire’s equity interest in the Lancashire Capital Management
managed vehicle.
Other operating expenses
Other operating expenses were $68.4 million in the first six months of 2022
compared to $66.1 million in the first six months of 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 this increase in the underlying cost
base.
Capital
As at 30 June 2022, total capital available to Lancashire was approximately
$1.8 billion, comprising shareholders’ equity of $1.4 billion and $0.4
billion of long-term debt. Tangible capital was $1.7 billion. Leverage was
24.5% on total capital and 26.9% on total tangible capital. Total capital and
total tangible capital as at 30 June 2021 were $2.0 billion and $1.8 billion
respectively.
Share repurchases
During the six months ended 30 June 2022, Lancashire repurchased 2,431,517 of
its common shares (out of a maximum Board-approved limit for this share
repurchase of 3,000,000 common shares). These repurchases 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.
Further intention to purchase own shares
Pursuant to and in accordance with the general authority granted by
shareholders at Lancashire's Annual General Meeting held on 27 April 2022,
Lancashire intends to purchase up to a further 3,000,000 of its common shares
of $0.50 each in order to satisfy a number of future exercises of awards under
its Restricted Share Scheme. A further announcement in accordance with Listing
Rule 12.4 will be made in due course.
Dividends
Lancashire’s Board of Directors declared on 26 July 2022 an interim dividend
of $0.05 (approximately £0.04) per common share, which will result in an
aggregate payment of approximately $12.0 million. The dividend will be paid in
Pounds Sterling on 2 September 2022 (the “Dividend Payment Date”) to
shareholders of record on 5 August 2022 (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 Unaudited Condensed Interim Consolidated Financial Statements for the six
months ended 30 June 2022 are published on Lancashire’s website at
www.lancashiregroup.com.
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 EDT on Wednesday 27 July 2022. 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 Toll: +44 3333000804
United States Toll-Free: +1 855 85 70686
United States Toll: +1 6319131422
PIN code: 80848891#
URL for additional international dial in numbers:
https://events-ftp.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://onlinexperiences.com/Launch/QReg/ShowUUID=AD44C7F8-612E-4DA6-9DC9-B2E299EA3555
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 07703 330 199
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 has capital of approximately $1.8 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 (“BMA”) 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 BST on 27 July 2022.
Alternative Performance Measures (APMs)
As is customary in the insurance industry, the Group also 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.
30 June 2022 30 June 2021
Net insurance losses 166.9 121.1
Divided by net premiums earned 440.5 315.3
Net loss ratio 37.9% 38.4%
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.
30 June 2022 30 June 2021
Net acquisition expense 109.1 67.1
Divided by net premiums earned 440.5 315.3
Net acquisition cost ratio 24.8% 21.3%
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.
30 June 2022 30 June 2021
Other operating expenses 68.4 66.1
Divided by net premiums earned 440.5 315.3
Net expense ratio 15.5% 21.0%
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%.
30 June 2022 30 June 2021
Net loss ratio 37.9% 38.4%
Net acquisition cost ratio 24.8% 21.3%
Net expense ratio 15.5% 21.0%
Combined Ratio 78.2% 80.7%
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.
30 June 2022 30 June 2021
Net insurance losses current accident year 231.3 175.2
Dividend by net premiums earned current accident year* 432.2 311.0
Accident year loss ratio 53.5% 56.3%
*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.
30 June 2022 30 June 2021
Shareholders’ equity attributable to the Group 1,372,753,750 1,553,600,727
Common voting shares outstanding* 240,122,621 242,754,618
Shares relating to dilutive restricted stock 1,949,260 2,859,880
Fully converted book value denominator 242,071,881 245,614,498
Fully converted book value per share $ 5.67 $ 6.33
*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.
30 June 2022 30 June 2021
Opening FCBVS $ (5.77) $ (6.28)
Q1 dividend per share $ — $ —
Q2 dividend per share $ 0.10 $ 0.10
Closing FCBVS $ 5.67 $ 6.33
Change in FCBVS* —% 2.4%
*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 annualized 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.
30 June 2022 30 June 2021
Total investment return (85.8) 7.4
Average invested assets* 2,271.7 2,139.3
Approximate total investment return (3.8%) 0.3%
Reported total investment return (3.8%) 0.3%
*Calculated as the average between the opening and closing investments and our
externally managed cash.
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.
30 June 2022 30 June 2021
Gross premiums written by the group 938.1 697.2
LSL Syndicate 2010 - external Names portion of gross premiums written (unconsolidated) 100.0 90.8
LCM gross premiums written (unconsolidated) 38.4 124.5
Total gross premiums written under management 1,076.5 912.5
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. FOR A DESCRIPTION OF
SOME OF THESE FACTORS, SEE THE GROUP’S ANNUAL REPORT AND ACCOUNTS FOR THE
YEAR ENDED 31 DECEMBER 2021. IN ADDITION TO THOSE FACTORS CONTAINED IN THE
GROUP’S 2021 ANNUAL REPORT AND ACCOUNTS, ANY FORWARD-LOOKING STATEMENTS
CONTAINED IN THIS RELEASE MAY BE AFFECTED BY: 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 CHANGES, ARISING
THEREFROM; AND A CONTINUATION IN FINANCIAL MARKET VOLATILITY AND OTHER ADVERSE
MARKET CONDITIONS GENERALLY. 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 (loss) income
For the six months ended 30 June 2022
Six months 2022 Six months 2021
$m $m
Gross premiums written 938.1 697.2
Outwards reinsurance premiums (315.5) (269.3)
Net premiums written 622.6 427.9
Change in unearned premiums (300.5) (210.6)
Change in unearned premiums on premiums ceded 118.4 98.0
Net premiums earned 440.5 315.3
Net investment income 17.3 14.7
Net other investment (losses) income (9.4) 1.5
Net realised (losses) gains and impairments (10.7) 5.7
Share of profit (loss) of associate 2.4 0.3
Other income 2.3 7.0
Net foreign exchange (losses) gains (1.6) 1.6
Total net revenue 440.8 346.1
Insurance losses and loss adjustment expenses 207.5 136.2
Insurance losses and loss adjustment expenses recoverable (40.6) (15.1)
Insurance acquisition expenses 127.2 82.3
Insurance acquisition expenses ceded (18.1) (15.2)
Equity based compensation 3.7 7.0
Other operating expenses 68.4 66.1
Total expenses 348.1 261.3
Results of operating activities 92.7 84.8
Financing costs 14.7 30.7
Profit (loss) before tax 78.0 54.1
Tax charge (3.6) (6.2)
Profit (loss) after tax 74.4 47.9
Profit (loss) for the period attributable to:
Equity shareholders of LHL 74.4 47.7
Non-controlling interests — 0.2
Net change in unrealised losses on investments (83.0) (14.5)
Tax credit on net change in unrealised losses on investments 1.5 0.4
Other comprehensive loss (81.5) (14.1)
Total comprehensive (loss) income attributable to Lancashire (7.1) 33.6
Net loss ratio 37.9% 38.4%
Net acquisition cost ratio 24.8% 21.3%
Administrative expense ratio 15.5% 21.0%
Combined ratio 78.2% 80.7%
Consolidated balance sheet
As at 30 June 2022
As at 30 June 2022 As at 30 June 2021 As at 31 December 2021
$m $m $m
Assets
Cash and cash equivalents 390.6 563.4 517.7
Accrued interest receivable 8.3 7.2 7.1
Investments 2,132.8 1,977.9 2,048.1
Inwards premiums receivable from insureds and cedants 755.5 550.7 490.6
Reinsurance assets
- Unearned premiums on premiums ceded 236.2 195.4 117.8
- Reinsurance recoveries 428.8 281.6 418.8
- Other receivables 41.5 22.3 38.2
Other receivables 32.0 21.0 18.8
Investment in associate 87.6 89.0 118.7
Property, plant and equipment 0.6 1.1 0.8
Right-of-use assets 12.1 14.8 13.4
Deferred acquisition costs 173.9 117.8 121.6
Intangible assets 162.3 154.5 157.9
Total assets 4,462.2 3,996.7 4,069.5
Liabilities
Insurance contracts
- Losses and loss adjustment expenses 1,311.4 978.0 1,291.1
- Unearned premiums 898.4 668.5 597.9
- Other payables 30.6 20.7 20.3
Amounts payable to reinsurers 295.3 214.6 205.6
Deferred acquisition costs ceded 25.9 19.9 27.0
Other payables 51.9 58.7 37.4
Corporation tax payable 1.7 2.4 1.6
Deferred tax liability 12.8 14.9 12.2
Lease liability 15.1 19.8 17.9
Long-term debt 445.9 445.5 445.7
Total liabilities 3,089.0 2,443.0 2,656.7
Shareholders’ equity
Share capital 122.0 122.0 122.0
Own shares (23.5) (12.1) (18.1)
Other reserves 1,218.8 1,218.3 1,221.6
Accumulated other comprehensive (loss) income (78.6) 19.5 2.9
Retained earnings 134.0 205.9 83.9
Total shareholders’ equity attributable to equity shareholders of LHL 1,372.7 1,553.6 1,412.3
Non-controlling interests 0.5 0.1 0.5
Total shareholders’ equity 1,373.2 1,553.7 1,412.8
Total liabilities and shareholders’ equity 4,462.2 3,996.7 4,069.5
Consolidated statement of cash flows
For the six months ended 30 June 2022
Six months 2022 Six months 2021
$m $m
Cash flows from operating activities
Profit (loss) before tax 78.0 54.1
Tax paid (1.3) (1.6)
Depreciation 1.5 1.6
Interest expense on long-term debt 12.9 12.6
Interest expense on lease liabilities 0.5 0.6
Interest income (17.2) (18.7)
Net amortisation of fixed maturity securities 1.4 3.6
Redemption cost on senior and subordinated loan notes — 12.8
Net realised / unrealised losses on interest rate swaps — 3.4
Equity based compensation 3.7 7.0
Foreign exchange gains (2.4) (0.5)
Share of (profit) loss of associate (2.4) (0.3)
Net other investment losses (income) 9.2 (1.9)
Net realised losses (gains) and impairments 10.7 (5.7)
Changes in operational assets and liabilities
- Insurance and reinsurance contracts (18.7) 57.3
- Other assets and liabilities (0.6) 15.8
Net cash flows from operating activities 75.3 140.1
Cash flows used in investing activities
Interest received 19.5 23.1
Purchase of property, plant and equipment — (0.7)
Internally generated intangible asset (4.4) —
Investment in associate 33.5 38.5
Purchase of investments (700.7) (808.0)
Proceeds on sale of investments 507.7 672.3
Net cash flows used in investing activities (144.4) (74.8)
Cash flows (used in) from financing activities
Interest paid (12.9) (7.6)
Interest rate swap — (3.4)
Lease liabilities paid (1.8) (2.1)
Proceeds from issue of long-term debt — 445.4
Redemption of long-term debt — (339.6)
Dividends paid (24.3) (24.3)
Dividend paid to minority interest holders — (0.5)
Share repurchases (11.7) —
Distributions by trust (0.4) (1.0)
Net cash flows (used in) from financing activities (51.1) 66.9
Net (decrease) increase in cash and cash equivalents (120.2) 132.2
Cash and cash equivalents at the beginning of year 517.7 432.4
Effect of exchange rate fluctuations on cash and cash equivalents (6.9) (1.2)
Cash and cash equivalents at end of period 390.6 563.4
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