REG-Lancashire Holdings Ltd: Q2 2023 Earnings Release
10/08/2023 07:15
LANCASHIRE HOLDINGS LIMITED
10 August 2023
Hamilton, Bermuda
Lancashire Holdings Limited (“Lancashire” or “the Group”) today
announces its results, under IFRS 17, for the six months ended 30 June 2023.
Highlights:
• Gross premiums written increased by 26.2% to $1,184
million, insurance revenue of $720.9 million.
• Insurance service result $188.8 million; profit after
tax $159.2 million.
• Discounted combined ratio 71.4%, undiscounted combined
ratio 79.2%.
• Total net investment return of 2.2%.
• Interim dividend of $0.05 per common share.
For the six months ended 30 June 2023 $m 2022 $m
Highlights
Gross premiums written 1,184.0 938.1
Insurance revenue 720.9 579.8
Insurance service result 188.8 141.5
Net investment return 63.2 (85.8)
Profit after tax 159.2 31.0
Financial ratios
Net insurance ratio 62.8% 64.3%
Combined ratio (discounted) 71.4% 72.6%
Combined ratio (undiscounted) 79.2% 77.1%
Net investment return 2.2% (3.8%)
Per Share data
Diluted book value per share $6.05 $5.75
Change in diluted book value per share 12.2% 2.6%
Dividends per common share for the financial year $0.05 $0.05
Diluted earnings per share $0.66 $0.13
Adoption of new accounting standards
The Group adopted IFRS 17, Insurance Contracts and IFRS 9, Financial
Instruments: Classification and Measurement, for the first time on 1 January
2023. The unaudited condensed interim consolidated financial statements for
the six months ended 30 June 2023 are being reported under these new
accounting standards, which have resulted in a change to some of the Group's
long standing Alternative Performance Measures (APMs). These are defined at
the end of this release. Comparatives have been restated to reflect the
consistent application of IFRS 9 and IFRS 17.
Alex Maloney, Group Chief Executive Officer, commented:
“We are very pleased with our performance in the first half of 2023. Our
long-term strategy to develop a more diversified and capital-efficient product
portfolio is delivering the expected benefits, with a half year change in
diluted book value per share of 12.2%.
Our philosophy has always been to grow when market conditions are favourable,
while maintaining our approach to underwriting discipline. During the first
six months of 2023 we continued to take advantage of the strong underwriting
environment with gross premiums written increasing 26.2% year-on-year. The
undiscounted combined ratio was a healthy 79.2%, or 71.4% on a discounted
basis.
The rating environment remains positive across our product lines and we do not
see that changing during the remainder of the year.
Our investments have delivered a positive net return of 2.2% or $63.2 million
as we benefit from higher yields due to the short duration of the portfolio.
Lancashire has long been recognised as a business that actively manages the
underwriting cycle and, when it makes sense to do so, seeks new areas for
disciplined growth.
With that in mind, subject to all necessary approvals, we intend to expand our
international footprint and launch Lancashire Insurance U.S., which will
operate under a delegated underwriting arrangement with Lancashire’s UK
company platform.
Lancashire Insurance U.S. will be complementary to our existing capabilities
and will give us the ability to write business that is within our appetite and
that we currently do not have access to.
The new operation in the U.S. is expected to begin underwriting in early 2024.
This is another positive development for Lancashire and, with our reputation
for underwriting excellence and service to our clients, we believe there are
significant long-term prospects for us in the U.S.
We are excited by the opportunities ahead of us during the remainder of 2023
and into 2024. Our capital position remains strong, giving us the headroom to
continue to take advantage of the positive market conditions.
Of course, striving to deliver out-performance requires a committed and
focused team across the business. I would particularly like to mention our
finance and actuarial colleagues who have been exceptionally busy producing
our first set of results on an IFRS 17 basis. While this is a significant
change in accounting and presentation, IFRS 17 does not affect the
fundamentals of our business or our underlying profitability.
We always seek to attract, develop and retain good people and promote our
talent when the appropriate opportunities arise and during the first half of
the year we made a number of new senior appointments across our teams.
The Group also continues to focus on delivering on our environmental, social
and governance objectives. The Lancashire Foundation, which has been operating
since 2007, makes a tangible difference through its support for charities that
have a positive impact on our communities and the environment. Additionally,
we benefit from being part of the insurance industry's discussions around
climate change through our membership of ClimateWise, which we joined last
year.
Finally, I would like to take the opportunity to thank everyone at Lancashire
for their commitment to our business and, as always, our clients, brokers and
shareholders for their support.”
Six months ended 30 June 2023 Six months ended 30 June 2022
Reinsurance Insurance Total Reinsurance Insurance Total
$m $m $m $m $m $m
Gross premiums written 658.0 526.0 1,184.0 548.8 389.3 938.1
RPI% 123% 111% 117% 107% 105% 106%
Insurance revenue 336.6 384.3 720.9 261.4 318.4 579.8
Insurance service expenses (88.1) (200.4) (288.5) (117.3) (176.5) (293.8)
Insurance service result before reinsurance contracts held 248.5 183.9 432.4 144.1 141.9 286.0
Allocation of reinsurance premium (89.3) (123.4) (212.7) (74.3) (109.5) (183.8)
Amounts recoverable from reinsurers (66.0) 35.1 (30.9) (6.7) 46.0 39.3
Net expense from reinsurance contracts held (155.3) (88.3) (243.6) (81.0) (63.5) (144.5)
Insurance service result 93.2 95.6 188.8 63.1 78.4 141.5
Gross premiums written
Gross premiums written increased by $245.9 million or 26.2% for the first six
months of 2023 compared to the same period in 2022. The Group’s two
principal segments, and the key market factors impacting them, are discussed
below.
Reinsurance segment
A significant portion of the increase in premiums in the reinsurance segment
was due to the continued build out of our casualty reinsurance lines as well
as new business written in our specialty reinsurance class. In property
reinsurance we saw the benefit of significant rate increases contributing to
growth. Overall the RPI was 123% for the segment.
Insurance segment
The growth in the insurance segment was primarily driven by property insurance
with substantial rate increases in the property direct and facultative line of
business, in addition to the build out of our Australia and construction
teams. New business written across all of our energy and marine insurance
lines also contributed to the strong premium growth. In specialty insurance,
the Group wrote more political risk business on a multi-year basis than the
prior year while really strong RPIs contributed to the growth in aviation
insurance. Overall the RPI was 111% for the segment.
Insurance revenue
Insurance revenue is a new measure introduced by IFRS 17 and is comparable to
IFRS 4 gross premiums earned less inwards reinstatement premium and is net of
commission costs. Insurance revenue increased by $141.1 million or 24.3% in
the first six months of 2023 compared to the same period in 2022. The market
factors driving the increase in gross premiums written also drove the increase
in insurance revenue. Gross premiums earned as a percentage of gross premiums
written was 69.8% compared to 68.0% in the prior year as more earned premium
came through in the current year from policies bound in the prior year.
Allocation of reinsurance premiums
Allocation of reinsurance premiums on an IFRS 17 basis is comparable to IFRS 4
ceded earned premium less outward reinstatement premiums and is net of outward
commission costs. Allocation of reinsurance premiums increased by $28.9
million or 15.7% in the first six months of 2023 compared to the same period
in 2022. The increase in our outwards reinsurance spend was primarily driven
by the renewal of the Group’s outward reinsurance programme at higher rates
than in 2022. There was also a higher level of political risk and casualty
quota share reinsurance spend driven by the growth in inwards business and
some new outwards reinsurance contracts entered into as a result of the
continued growth and diversification in the inwards underwriting portfolio.
Net Claims environment (Insurance service expenses less amounts recoverable
from reinsurers)
During the first six months of 2023, the Group experienced net losses
(undiscounted, including reinstatement premiums) from catastrophe and large
loss events totaling $49.5 million. None of these events was individually
material for the Group.
During the first six months of 2022, the Group experienced net losses
(undiscounted, including reinstatement premiums) from the conflict in Ukraine,
the Australian floods and large loss events totaling $53.1 million.
Prior year favourable ultimate loss development for the first six months of
2023 was $46.3 million, compared to $64.6 million of favourable development in
2022. The favourable development in 2023 was primarily due to releases on the
2022 and 2021 accident year across most lines of business due to a lack of
reported claims, as well as favourable development across some of the older
accident years. On an IFRS 17 basis, the prior year favourable development is
$72.1 million. This includes $11.3 million favourable expense provision
releases as well as $13.6 million of reinstatement premium impact, largely due
to a reduction in outwards reinstatement premiums on catastrophe losses.
In the prior year the Group benefited from general reserve releases on the
2021 accident year due to a lack of reported claims, as well as some
favourable development on some large claims from the 2018 and 2017 accident
years.
Net discounting benefit
The table below shows the total net impact of discounting, by financial
statement line item.
For the six months ended 30 June 2023 $m 2022 $m
Insurance service expenses 46.5 26.3
Amounts recoverable from reinsurers (7.1) (8.3)
Net discount included in insurance service result 39.4 18.0
Finance (expense) income from insurance contracts issued (37.7) 28.0
Finance income (expense) from reinsurance contracts held 14.1 (9.5)
Net discount included in insurance finance (expense) income (23.6) 18.5
Total net impact of discounting 15.8 36.5
The total impact of discounting was a benefit of $15.8 million for the first
six months of 2023 compared to $36.5 million in the prior year. The discount
included in the insurance service result is higher than the same period in
2022 primarily due to reserves established on the 2023 accident year applying
higher discount rates than the same period in the prior year. This is partly
offset by the unwind of previously booked discounting included in net finance
income. The majority of the Group’s loss reserves are denominated in U.S.
dollar where yield curves, having decreased in the first quarter of 2023, have
returned to levels more aligned with the year-end position. The net effect is
that the impact of changes in yield curve assumptions has been relatively
minor at $2.1 million.
In the prior year the discounting benefit was primarily driven by the impact
of a change in yield curve assumptions. There were significant increases in
yield curves throughout the year and across the majority of the Group’s
major currencies.
Investments
For the six months ended 30 June 2023 $m 2022 $m
Total net investment return 63.2 (85.8)
Total net investment return increased by $149 million in the first six months
of 2023 compared to the same period in 2022.
The Group’s investment portfolio, including unrealised gains and losses,
returned 2.2% for the first six months of 2023. The positive returns were
driven by $51.4 million of investment income as our portfolio benefitted from
higher yields. The majority of the unrealised gains were generated in the
first quarter on the fixed maturity portfolio due to a decline in treasury
rates outside of the one-year rate. In the second quarter, investment income
mitigated the negative returns from the upward shift in the yield curve. All
asset classes performed positively, with most of the returns in the second
quarter driven by the alternative asset classes.
The Group’s investment portfolio, including unrealised gains and losses,
returned negative 3.8% for the first six months of 2022. The majority of the
losses were driven by the significant flattening of the yield curve and spread
widening for the investment grade corporate debt and bank loans.
The managed portfolio was invested as follows:
As at 30 June 2023 31 December 2022
Fixed maturity securities 2,157.3 1,964.9
Managed cash and cash equivalents 214.0 260.8
Private investment funds 112.7 108.1
Hedge funds 104.4 103.9
Index Linked securities — 28.2
Other investments (0.1) (0.2)
Total 2,588.3 2,465.7
Key investment portfolio statistics for our fixed maturities and managed cash
were:
As at 30 June 2023 31 December 2022
Duration 1.7 years 1.6 years
Credit quality AA- AA-
Book yield 3.7% 2.9%
Market yield 5.6% 5.0%
Other operating expenses
For the six months ended 30 June 2023 $m 2022 $m
Total operating expenses 83.1 68.4
Directly attributable expenses allocated to insurance service expenses (39.3) (35.7)
Other operating expenses 43.8 32.7
Total operating expenses were $83.1 million in the first six months of 2023
compared to $68.4 million in the first six months of 2022. The higher level of
total operating expenses was primarily driven by employee remuneration costs,
which have grown as a result of the increase in headcount across the Group.
Non-employee costs increased to a lesser degree driven by increased IT
expenditure, consulting fees and costs associated with taking on additional
London office space.
The weakening Sterling/U.S. Dollar exchange rate relative to the prior year
partly offset this increase in the underlying cost base.
$39.3 million or 47% of operating expenses are considered directly
attributable to the fulfillment of (re)insurance contracts and have been
re-allocated to insurance service expenses and form part of the insurance
service result.
Capital
As at 30 June 2023, total capital available to Lancashire was approximately
$1.9 billion, comprising shareholders' equity of $1.5 billion and $0.4 billion
of long-term debt. Tangible capital was $1.7 billion. Leverage was 23.3% on
total capital and 25.7% on tangible capital. Total capital and total tangible
capital as at 30 June 2022 was $1.8 billion and $1.6 billion respectively.
Dividends
On 9 August 2023, Lancashire’s Board of Directors declared an interim
dividend of $0.05 (approximately £0.04) per common share, which will result
in an aggregate payment of approximately $11.9 million. The dividend will be
paid in Pounds Sterling on 15 September 2023 (the “Dividend Payment Date”)
to shareholders of record on 18 August 2023 (the “Record Date”) using the
£ / $ spot market exchange rate at 12 noon London time on the Record Date.
Financial Information
The Unaudited Condensed Interim Consolidated Financial Statements for the six
months ended
30 June 2023 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 3:00pm
UK time / 11.00am Bermuda time / 10:00am EST on Thursday 10 August 2023. The
conference call will be hosted by Lancashire management.
Participant Registration and Access Information:
Audio conference call access:
https://register.vevent.com/register/BI4bf0795bd1a54d1c9333eba85e482420
Please register at this link to obtain your personal audio conference pin and
call details
Webcast access:
https://onlinexperiences.com/Launch/QReg/ShowUUID=72EEDFFF-C6DA-4F6F-A31F-90444D3F1059
Please use this link to register and access the call via webcast
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
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 2022):
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 UK 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 10 August 2023.
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 unaudited condensed interim consolidated financial statements or in
accordance with GAAP.
In compliance with the Guidelines on APMs of the European Securities and
Markets Authority and as suggested by the Financial Reporting Council, as
applied by the Financial Conduct Authority, information on APMs which the
Group uses is described below. This information has not been audited.
Effective from 1 January 2023, the Group adopted IFRS 9, Financial
Instruments: Classification and Measurement and IFRS 17: Insurance Contracts.
These new accounting standards resulted in a change to some of the Group's
long standing APMs. Comparatives have been restated to reflect the consistent
application of IFRS 9 and IFRS 17 and to align with the current definition of
the APMs.
All amounts, excluding share data, ratios, percentage or where otherwise
stated, are in millions of U.S. dollars.
Net insurance ratio:
Ratio, in per cent, of net insurance expenses to net insurance revenue. Net
insurance expenses represent claims related insurance service expenses less
amounts recoverable from reinsurers. Net insurance revenue represents
insurance revenue less allocation of reinsurance premium. This ratio gives an
indication of the underlying profitability per $1.00 of net insurance revenue
in the financial year.
Restated
For the six months ended 30 June 2023 30 June 2022
Insurance service expense 288.5 293.8
Amounts recoverable from reinsurers 30.9 (39.3)
Net insurance expense 319.4 254.5
Insurance revenue 720.9 579.8
Allocation of reinsurance premium (212.7) (183.8)
Net insurance revenue 508.2 396.0
Net insurance ratio 62.8% 64.3%
Operating expense ratio:
Ratio, in per cent, of other operating expenses, excluding restricted stock
expenses, to net insurance revenue. This ratio gives an indication of the
amount of operating expenses expected to be paid out per $1.00 of net
insurance revenue in the financial year.
Restated
For the six months ended 30 June 2023 30 June 2022
Other operating expenses 43.8 32.7
Net insurance revenue 508.2 396.0
Operating expense ratio 8.6% 8.3%
Combined ratio (discounted):
Ratio, in per cent, of the sum of net insurance expenses plus other operating
expenses to net insurance revenue.
Restated
For the six months ended 30 June 2023 30 June 2022
Net insurance ratio 62.8% 64.3%
Net operating expense ratio 8.6% 8.3%
Combined ratio (discounted) 71.4% 72.6%
Combined ratio (undiscounted):
Ratio, in per cent, of the sum of net insurance expense plus other operating
expenses to net insurance revenue. This ratio excludes the impact of the
discounting recognised within net insurance expenses. The Group aims to price
its business to ensure that the combined ratio (undiscounted) across the cycle
is less than 100%.
Restated
For the six months ended 30 June 2023 30 June 2022
Combined ratio 71.4% 72.6%
Discount included in net insurance expense 39.4 18.0
Net insurance revenue 508.2 396.0
Discounting impact on combined ratio 7.8% 4.5%
Combined ratio (undiscounted) 79.2% 77.1%
Diluted book value per share ('DBVS') 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.
Restated
As at 30 June 2023 31 December 2022
Shareholders’ equity attributable to the Group 1,468,687,750 1,326,124,728
Common voting shares outstanding* 238,863,740 238,333,570
Shares relating to dilutive restricted stock 4,025,541 3,700,547
Fully converted book value denominator 242,889,281 242,034,117
Diluted book value per share $6.05 $5.48
*Common voting shares outstanding comprise issued share capital less amounts
held in trust.
Change in DBVS:
The internal rate of return of the change in DBVS 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.
Restated
As at 30 June 2023 31 December 2022
Opening DBVS ($5.48) ($5.70)
Q1 dividend per share — —
Q2 dividend per share $0.10 $0.10
Q3 dividend per share — $0.05
Q4 dividend per share — —
Closing DBVS $6.05 $5.48
Change in DBVS* 12.2% (1.2%)
*Calculated using the internal rate of return
Adjusted profit over average shareholders' equity:
During 2022, a review of financial metrics for annual bonus purposes was
undertaken. Shareholders were consulted on a proposal to move from Change in
DBVS to a simplified measure of RoE. For the 2023 annual bonus, financial
performance will be measured on the basis of simple ROE adjusted for
unrealised gains and losses and discounting with targets set by reference to
the RFR based on the average 13 week U.S. Treasury rates.
Restated
As at 30 June 2023 31 December 2022
Profit (loss) for the period 159.2 (15.5)
Net unrealised (gains) losses on investments (18.3) 103.0
Total net impact of discounting (15.8) (85.9)
Adjusted profit (loss) for the period 125.1 1.6
Opening shareholders' equity 1,326.1 1,393.4
Q1 shareholders' equity 1,380.7 1,386.6
Q2 shareholders' equity 1,468.7 1,391.9
Q3 shareholders' equity — 1,425.0
Q4 shareholders' equity — 1,326.1
Average shareholders' equity 1,391.8 1,384.6
Adjusted profit over average shareholders' equity 9.0% 0.1%
Total investment return:
Total investment return in percentage terms, is calculated by dividing the
total investment return 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.
For the six months ended 30 June 2023 2022
$m $m
Total investment return 63.2 (85.8)
Average invested assets* 2,527.0 2,271.7
Approximate total investment return 2.5% (3.8%)
Reported total investment return 2.2% (3.8%)
*Calculated as the average between the opening and closing investments and our
externally managed cash.
Gross premiums written:
The Group adopted IFRS 17 on I January 2023. Under IFRS 4, the previous
insurance accounting standard, the Group reported gross premiums written on
the consolidated income statement as amounts payable by the insured, excluding
any taxes or duties levied on the premium, including brokerage and commission
deducted by intermediaries and any inwards reinstatement premiums. The Group
continues to report gross premiums written as a growth metric and non-GAAP
APM. The table below reconciles gross premiums written on an IFRS 4 basis to
insurance revenue on an IFRS 17 basis.
For the six months ended 30 June 2023 2022
$m $m
Gross premiums written 1 1,184.0 938.1
Change in unearned premiums 1 (357.6) (300.5)
Gross earned premium 1 826.4 637.6
Less reinstatement premium and expected premium (4.2) (7.2)
Less commission and non-distinct investment components (101.3) (50.6)
Total insurance revenue 720.9 579.8
1 Numbers presented in the table above for the comparative period are as
previously reported for the six month period 30 June 2022.
Gross premiums written under management:
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 Syndicate 2010 plus the gross premiums written in
Lancashire Capital Management Limited on behalf of Kinesis Reinsurance
Limited. 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
For the six months ended 30 June 2023 2022
$m $m
Gross premiums written by the group 1,184.0 938.1
LSL Syndicate 2010 - external Names portion of gross premiums written (unconsolidated) 92.8 100.0
LCM gross premiums written (unconsolidated) — 38.4
Total gross premiums written under management 1,276.8 1,076.5
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 2022 AND THE GROUP’S UNAUDITED CONDENSED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDING 30 JUNE 2023. IN
ADDITION TO THOSE FACTORS CONTAINED IN THE GROUP’S 2022 ANNUAL REPORT AND
ACCOUNTS AND THE GROUP’S UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS FOR THE SIX MONTHS ENDING 30 JUNE 2023, 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; 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; INCREASED COMPETITION ON THE BASIS OF PRICING, CAPACITY,
COVERAGE TERMS OR OTHER FACTORS; AND CYCLICAL DOWNTURNS OF THE INDUSTRY. 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 AND THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS NOTED ABOVE WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER BEFORE
MAKING AN INVESTMENT DECISION.
Consolidated statement of comprehensive income
Restated
For the six months ended 30 June 2023 $m 2022 $m
Insurance revenue 720.9 579.8
Insurance service expenses (288.5) (293.8)
Insurance service result before reinsurance contracts held 432.4 286.0
Allocation of reinsurance premium (212.7) (183.8)
Amounts recoverable from reinsurers (30.9) 39.3
Net expense from reinsurance contracts held (243.6) (144.5)
Insurance service result 188.8 141.5
Net investment return 63.2 (85.8)
Finance (expense) income from insurance contracts issued (37.7) 28.0
Finance income (expense) from reinsurance contracts held 14.1 (9.5)
Net insurance and investment result 228.4 74.2
Share of profit of associate 5.2 2.5
Other income 1.1 2.3
Net foreign exchange (losses) gains (1.0) 6.2
Other operating expenses (43.8) (32.7)
Equity based compensation (7.2) (3.7)
Financing costs (15.5) (14.7)
Profit before tax 167.2 34.1
Tax charge (8.0) (3.1)
Profit after tax 159.2 31.0
Earnings per share
Basic 0.67 0.13
Diluted 0.66 0.13
Consolidated statement of financial position
Restated
As at 30 June 2023 $m 31 December 2022 $m
Assets
Cash and cash equivalents 620.3 548.8
Accrued interest receivable 14.0 11.3
Investments 2,374.3 2,204.9
Reinsurance contract assets 427.5 474.3
Other receivables 27.2 30.0
Corporation tax receivable — 1.1
Investment in associate 24.3 59.7
Property, plant and equipment 4.4 1.1
Right-of-use assets 18.6 20.3
Intangible assets 177.5 172.4
Total assets 3,688.1 3,523.9
Liabilities
Insurance contract liabilities 1,678.0 1,673.5
Other payables 54.9 44.6
Corporation tax payable 3.3 —
Deferred tax liability 13.7 10.3
Lease liabilities 23.2 23.3
Long-term debt 446.3 446.1
Total liabilities 2,219.4 2,197.8
Shareholders’ equity
Share capital 122.0 122.0
Own shares (30.8) (34.0)
Other reserves 1,226.0 1,221.9
Retained earnings 151.5 16.2
Total shareholders’ equity 1,468.7 1,326.1
Total liabilities and shareholders’ equity 3,688.1 3,523.9
Consolidated statements of cash flows
Restated
For the six months ended 30 June 2023 $m 2022 $m
Cash flows from operating activities
Profit before tax 167.2 34.1
Adjustments for:
Tax paid (0.1) (1.3)
Depreciation 1.8 1.5
Interest expense on long-term debt 12.9 12.9
Interest expense on lease liabilities 0.8 0.5
Interest income (41.4) (17.2)
Dividend income (5.1) (3.5)
Net realised losses 3.7 14.0
Net unrealised (gains) losses (18.3) 93.8
Equity based compensation 7.2 3.7
Foreign exchange losses (gains) 0.6 (11.0)
Share of profit of associate (5.2) (2.5)
Changes in operational assets and liabilities
– Insurance and reinsurance contracts 44.2 (49.3)
– Other assets and liabilities 18.0 (0.4)
Net cash flows from operating activities 186.3 75.3
Cash flows used in investing activities
Interest income received 38.7 16.0
Dividend income received 5.1 3.5
Purchase of property, plant and equipment (3.4) —
Internally generated intangible asset (5.1) (4.4)
Investment in associate 40.6 33.5
Purchase of investments (551.0) (700.7)
Proceeds on sale of investments 398.3 507.7
Net cash flows used in investing activities (76.8) (144.4)
Cash flows used in financing activities
Interest paid (12.9) (12.9)
Lease liabilities paid (2.0) (1.8)
Dividends paid (23.9) (24.3)
Share repurchases — (11.7)
Distributions by trust — (0.4)
Net cash flows used in financing activities (38.8) (51.1)
Net increase (decrease) in cash and cash equivalents 70.7 (120.2)
Cash and cash equivalents at beginning of period 548.8 517.7
Effect of exchange rate fluctuations and other on cash and cash equivalents 0.8 (6.9)
Cash and cash equivalents at end of period 620.3 390.6
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