REG-Lancashire Hld Ltd: Q1 Trading Statement

Lancashire HoldingsAnnouncement

29/04/2021 07:05

LANCASHIRE HOLDINGS LIMITED

29 April 2021

Hamilton, Bermuda

Lancashire Holdings Limited (“Lancashire” or “the Group”) today
announces its trading statement for the three months ended 31 March 2021.

Trading statement highlights
* Gross premiums written increased by 46.1% year on year to $354.8 million,
with a renewal price index of 112%.
* Estimated Winter Storm Uri claims between $35 million and $45 million,
including the impact of reinsurance and reinstatement premiums.
* Continued build out of new classes of business (casualty reinsurance,
specialty reinsurance and accident and health) and underwriting teams.
* Successful $450.0 million debt issuance qualifying as Tier 2 Ancillary
Capital.
* Regulatory ECR ratio of approximately 220% as at 31 December 2020 (proforma
of approximately 285% including new debt issuance).
Alex Maloney, Group Chief Executive Officer, commented:

“I am very pleased to report that the Lancashire Group has grown its Q1
gross premium written significantly by 46.1% to $354.8 million (in Q1 2021)
from $242.8 million (in Q1 2020). This increase in our top line premium income
represents our strongest ever first quarter premium and has been supported by
the equity capital which we raised in June 2020. Our growth was driven by the
improved market conditions. We have increased revenue across many of our core
lines as well as achieving faster than expected momentum in some of our newer
business lines. 

Absent the estimated impact of Winter Storm Uri, our underlying financial
performance was strong. We look forward to the exciting opportunities that are
expected to develop throughout the year as we are able to more flexibly
combine the benefits of remote interaction with a return to the office
environment. This will provide the opportunity for greater engagement amongst
ourselves, our clients and our broader stakeholders. Furthermore, our strong
balance sheet, boosted by our recent debt raise, stands us in good stead to
fund the opportunities we see ahead.”

Business update

Gross premiums written

                                                          Three months ended                                
                                        31 March 2021     31 March 2020       Change        Change      RPI 
                                                   $m                $m           $m             %        % 
 Property and casualty reinsurance     223.0             113.1           109.9          97.2        111     
 Property and casualty insurance        39.2              39.3           (0.1)         (0.3)        106     
 Energy                                 45.2              35.6             9.6          27.0        115     
 Marine                                 21.8              25.0           (3.2)        (12.8)        112     
 Aviation                               25.6              29.8           (4.2)        (14.1)        116     
 Total                                 354.8             242.8           112.0          46.1        112     

Gross premiums written increased by 46.1% in the first three months of 2021
compared to the same period in 2020 largely due to growth in the property and
casualty reinsurance segment as the Group deployed further capital into the
hardening market. The increase in this segment was primarily driven by new
business as well as rate increases, particularly within the property
reinsurance and property retrocession classes. The overall RPI was 111% with
the property retrocession class experiencing a RPI of 115%. During the quarter
the Group also commenced underwriting casualty reinsurance and added new
underwriting teams in the specialty reinsurance and accident and health
classes of business. These new underwriting teams have contributed to the new
business growth through the first quarter of 2021 (but this is not reflected
in the RPIs since this is the first year of writing such business). As is
standard practice for Lancashire, we will reserve more conservatively for
these new lines as we continue to monitor underwriting and claims
experience.  

The energy segment saw growth in gross written premiums in the first quarter
of 2021. Rate and exposure increases in the energy liabilities and power and
utility classes were particularly strong and contributed to the growth in
gross premium written.

Gross premiums written for the remaining three segments, property and casualty
insurance, marine and aviation, were largely consistent with the first quarter
of 2020. All experienced positive RPIs offset by some timing differences on
multi-year contracts not yet due to renew in the marine segment and other
negative timing differences in the aviation segment.

Note that the Group’s operating segments for the purposes of segmental
reporting have been revised in the current year. Management and the Board of
Directors review the Group’s business primarily by five principal segments:
Property and casualty reinsurance, Property and casualty insurance, Aviation,
Energy and Marine. The gross premiums written in the Terrorism, Property D&F
and Political risk classes of business and previously reported in the Property
segment are now reported in the Property and casualty insurance operating
segment. The Aviation, Energy and Marine segments remain unchanged. The prior
period comparatives have been re-presented in conformity with the current year
view.

Claims environment

Our net losses recorded for the first quarter of 2021 in relation to Winter
Storm Uri, including the impact of reinsurance and inwards and outwards
reinstatement premiums, were estimated in the range of $35 million to $45
million.

The Groups total ultimate loss estimates net of reinsurance and the impact of
inwards and outwards reinstatement premiums for COVID-19 related losses
remained unchanged during the first quarter of 2021.

Prior year favourable development for the first quarter of 2021 was $4.7
million, compared to adverse development of $17.0 million for the same period
in 2020. The underlying attritional loss ratio for the quarter is consistent
with previous guidance and within the 35%-40% range.

Investments

                               31 March 2021     31 March 2020 
 Duration                          1.8 years         2.0 years 
 Credit quality                           A+                A+ 
 Book yield                     1.5 %             2.2 %        
 Market yield                   0.9 %             2.4 %        
 Managed investments ($m)           $2,141.2          $1,565.3 

The Group’s investment portfolio produced a flat total portfolio return for
the first quarter of 2021. The fixed maturity portfolios incurred losses with
the steepening of the yield curve with yields increasing by 50bps to 75bps
between the 5-year and 10-year parts of the yield curve. This loss was
mitigated by a slight narrowing of credit spreads and the strong returns in
the hedge fund and private debt portfolios.

Successful $450.0 million debt issuance

The Group issued $450.0 million in aggregate principal amount of 5.625%
fixed-rate reset junior subordinated notes due 2041. The net proceeds from the
debt issuance will be used by the Group to redeem its outstanding senior and
subordinated indebtedness, with the balance being used for general corporate
purposes.

The new debt has been approved as “Tier 2 Ancillary Capital” by the
Bermuda Monetary Authority and will further improve the Group’s coverage
ratio of available statutory capital and surplus over the BMA’s enhanced
capital requirement. The Group expects to report an ECR coverage ratio of
approximately 220% when it completes its Group 2020 year end filing with the
BMA by the end of May 2021.

Analyst and Investor Conference Call

There will be an analyst and investor conference call on the trading statement
at 1:00pm UK time / 9:00am Bermuda time / 8:00am EDT on Thursday 29 April
2021. The conference call will be hosted by Lancashire management and a
presentation will be made available on the Group’s website prior to the
call.

Participant Access

Dial in 5-10 minutes prior to the start time using the number / confirmation
code below:

 United Kingdom - Toll free:  08003589473      
 United Kingdom - Local:      +443333000804    
 United States - Toll free:   +1 855 85 70686  
 United States - Local:       +1 6319131422    
 PIN Code                     97040898#        

URL for additional international dial in numbers:
https://event.sharefile.com/d-s84220495bb4b47b2abfff950788bcd35

The call can also be accessed via webcast, for registration and access:
https://onlinexperiences.com/Launch/QReg/ShowUUID=E20D3E6F-08CD-4E4A-A849-C1629AF4823F

A webcast replay facility will be available for 12 months and accessible at:

https://www.lancashiregroup.com/en/investors/results-reports-and-presentations.html

For further information, please contact:

 Lancashire Holdings Limited                                                           
 Christopher Head             +44 20 7264 4145 chris.head@lancashiregroup.com          
 Jelena Bjelanovic            +44 20 7264 4066  jelena.bjelanovic@lancashiregroup.com  
                                                                                       
 FTI Consulting               +44 20 37271046                                          
 Edward Berry                 Edward.Berry@FTIConsulting.com                           
 Tom Blackwell                Tom.Blackwell@FTIConsulting.com                          

About Lancashire

Lancashire, through its UK and Bermuda-based operating subsidiaries, is a
provider of global specialty insurance and reinsurance products.

Lancashire has capital of approximately $2.3 billion and its common shares
trade on the premium segment of the Main Market of the London Stock Exchange
under the ticker symbol LRE. Lancashire has its head office and registered
office at Power House, 7 Par-la-Ville Road, Hamilton HM 11, Bermuda.

The Bermuda Monetary Authority is the Group Supervisor of the Lancashire
Group.

For more information, please visit Lancashire’s website at
www.lancashiregroup.com.

This release contains information, which may be of a price sensitive nature
that Lancashire is making public in a manner consistent with the EU Market
Abuse Regulation and other regulatory obligations. The information was
submitted for publication, through the agency of the contact persons set out
above, at 07:00 BST on 29 April 2021.

NOTE REGARDING RPI METHODOLOGY:

THE RENEWAL PRICE INDEX (“RPI”) IS AN INTERNAL METHODOLOGY THAT MANAGEMENT
USES TO TRACK TRENDS IN PREMIUM RATES OF A PORTFOLIO OF INSURANCE AND
REINSURANCE CONTRACTS. THE RPI WRITTEN IN THE RESPECTIVE SEGMENTS IS
CALCULATED ON A PER CONTRACT BASIS AND REFLECTS MANAGEMENT’S ASSESSMENT OF
RELATIVE CHANGES IN PRICE, TERMS, CONDITIONS AND LIMITS AND IS WEIGHTED BY
PREMIUM VOLUME. THE CALCULATION INVOLVES A DEGREE OF JUDGEMENT IN RELATION TO
COMPARABILITY OF CONTRACTS AND THE ASSESSMENT NOTED ABOVE. TO ENHANCE THE RPI
METHODOLOGY, MANAGEMENT MAY REVISE THE METHODOLOGY AND ASSUMPTIONS UNDERLYING
THE RPI, SO THE TRENDS IN PREMIUM RATES REFLECTED IN THE RPI MAY NOT BE
COMPARABLE OVER TIME. CONSIDERATION IS ONLY GIVEN TO RENEWALS OF A COMPARABLE
NATURE SO IT DOES NOT REFLECT EVERY CONTRACT IN THE PORTFOLIO OF CONTRACTS OR,
FOR EXAMPLE, NEW BUSINESS LINES WITHIN A SEGMENT. THE FUTURE PROFITABILITY OF
THE PORTFOLIO OF CONTRACTS WITHIN THE RPI IS DEPENDENT UPON MANY FACTORS
BESIDES THE TRENDS IN PREMIUM RATES.

NOTE REGARDING ALTERNATIVE PERFORMANCE MEASURES:

THE GROUP USES ALTERNATIVE PERFORMANCE MEASURES TO HELP EXPLAIN BUSINESS
PERFORMANCE AND FINANCIAL POSITION. THESE MEASURES HAVE BEEN CALCULATED
CONSISTENTLY WITH THOSE AS DISCLOSED IN THE GROUP’S ANNUAL REPORT AND
ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2020.

NOTE REGARDING FORWARD-LOOKING STATEMENTS:

CERTAIN STATEMENTS AND INDICATIVE PROJECTIONS (WHICH MAY INCLUDE MODELLED LOSS
SCENARIOS) MADE IN THIS TRADING STATEMENT OR OTHERWISE THAT ARE NOT BASED ON
CURRENT OR HISTORICAL FACTS ARE FORWARD-LOOKING IN NATURE INCLUDING, WITHOUT
LIMITATION, STATEMENTS CONTAINING THE WORDS “BELIEVES”, “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 2020.

ALL FORWARD-LOOKING STATEMENTS IN THIS TRADING STATEMENT OR OTHERWISE SPEAK
ONLY AS AT THE DATE OF PUBLICATION. LANCASHIRE EXPRESSLY DISCLAIMS ANY
OBLIGATION OR UNDERTAKING (SAVE AS REQUIRED TO COMPLY WITH ANY LEGAL OR
REGULATORY OBLIGATIONS INCLUDING THE RULES OF THE LONDON STOCK EXCHANGE) TO
DISSEMINATE ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKING STATEMENT TO
REFLECT ANY CHANGES IN THE GROUP’S EXPECTATIONS OR CIRCUMSTANCES ON WHICH
ANY SUCH STATEMENT IS BASED. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING
STATEMENTS ATTRIBUTABLE TO THE GROUP OR INDIVIDUALS ACTING ON BEHALF OF THE
GROUP ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THIS NOTE. PROSPECTIVE
INVESTORS SHOULD SPECIFICALLY CONSIDER THE FACTORS IDENTIFIED IN THIS TRADING
STATEMENT WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER BEFORE MAKING AN
INVESTMENT DECISION.

NOTE REGARDING COVID-19 LOSS:

OUR COVID-19 LOSS PRIMARILY RELATES TO EXPOSURES WITHIN OUR PROPERTY SEGMENT.
GIVEN THE ONGOING NATURE OF THE COVID-19 PANDEMIC AND THE UNCERTAIN IMPACT ON
THE INSURANCE INDUSTRY, THE GROUP’S ACTUAL ULTIMATE LOSS MAY VARY, PERHAPS
MATERIALLY, FROM THE CURRENT ESTIMATE. THE FINAL SETTLEMENT OF ALL OF THESE
CLAIMS IS LIKELY TO TAKE PLACE OVER A CONSIDERABLE PERIOD OF TIME.

LANCASHIRE DOES NOT WRITE THE FOLLOWING LINES OF BUSINESS: TRAVEL INSURANCE;
TRADE CREDIT; AND LONG-TERM LIFE AND PRIOR TO THE COVID-19 PANDEMIC DID NOT
WRITE DIRECTORS’ AND OFFICERS’ LIABILITY OR MEDICAL MALPRACTICE. THE GROUP
UNDERWRITES A SMALL NUMBER OF EVENT CANCELLATION CONTRACTS AND HAS MINIMAL
EXPOSURE THROUGH MORTGAGE, ACCIDENT AND HEALTH BUSINESS.



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