REG-Lancashire Hld Ltd: Q2 2021 Earnings Release
28/07/2021 07:05
LANCASHIRE HOLDINGS LIMITED
28 July 2021
Hamilton, Bermuda
Lancashire Holdings Limited (“Lancashire” or “the Group”) announces
its results for the six months ended 30 June 2021.
Highlights:
* Gross premiums written increased by 40.7% year on year to $697.2 million,
with a positive renewal price index of 111%.
* Excellent underwriting performance, with a combined ratio of 80.7% (or 65.7%
excluding Winter Storm Uri).
* Further hiring of new teams, continuing to build out Lancashire’s book of
business.
* Successful long-term debt refinancing in the first half of 2021.
* Interim dividend of $0.05 per common share, in line with our dividend
policy.
Six months ended
30 June 2021 30 June 2020
Financial highlights ($m)
Gross premiums written 697.2 495.5
Net premiums written 427.9 282.5
Underwriting profit 127.1 39.4
Profit (loss) before tax 54.1 (23.0)
Comprehensive income (loss) (1) 33.6 (14.7)
Change in FCBVS (2,3) 2.4 % 7.2 %
Financial ratios
Total investment return 0.3 % 1.3 %
Net loss ratio 38.4 % 57.4 %
Combined ratio 80.7 % 106.9 %
Per share data
Fully converted book value per share $6.33 $6.16
Dividends per common share for the financial year $0.05 $0.05
Diluted earnings (loss) per share $0.19 $(0.13)
(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.
3 The change in FCBVS excluding the impact of the capital raise in June 2020
as at 30 June 2020 would have been (1.0%).
Alex Maloney, Group Chief Executive Officer, commented:
“I am particularly pleased with the Group’s strong premium growth of 40.7%
in the first half of the year. It has always been our strategy to write more
business and deploy more of our capital when market conditions dictate, and
these results amply demonstrate our persistent focus on delivering on our
strategic aims. The Group achieved a growth in FCBVS of 2.4% for the half
year, absent the one off debt redemption costs, the growth in FCBVS would have
been 3.5%. The rating environment continues to be favourable for most of the
products we sell, giving rise to a renewal price index of 111% and
considerable organic growth. Importantly, we are starting to reap the benefit
of the cumulative rate increases we have achieved over the past three years on
our profitability. This is illustrated by our combined ratio of 80.7% for the
half year.
My thanks go to our colleagues, who during this last year have demonstrated
their ability to work flexibly at home and in the office. We are currently
able to operate a flexible working model, with many of our people having
returned to a “COVID secure” office environment in both London and
Bermuda.
Looking ahead, we expect the rating environment to remain positive. In
addition, the new teams that we have recently hired are expected to contribute
to the Group’s growth in the future. Our continued commitment to
underwriting discipline will be central to our success.”
Natalie Kershaw, Group Chief Financial Officer, commented:
“For the first half of 2021, we were very pleased to generate an
underwriting profit of $127.1 million despite the impact of Winter Storm Uri
in the first quarter of 2021. We did not incur any other significant losses
and had positive reserve releases of $53.6 million in the period. Furthermore,
the Group’s loss reserves for COVID-19 remain stable.
Our overall profits were impacted by one-off costs of $18.7 million due to the
successful Tier 2 debt issuance and related refinancing in the period, which
has improved the capital efficiency of our balance sheet. The investment
portfolio remains relatively conservative, with a significant weighting to
fixed income assets. As a result, our investment returns, including unrealised
gains and losses, were negatively impacted by the yield curve steepening in
the first quarter of the year, resulting in a total investment return of 0.3%
for the first six months of 2021.
We started the year in a strong capital position following the successful $340
million equity raise in 2020. This, together with our recent debt refinancing,
has enabled us to grow our premium base substantially. Given premium pricing
is still improving across the majority of our book, we would expect to retain
any profits from 2021, over and above the payment of an ordinary dividend, to
fund further growth.
In line with our stated ordinary dividend policy, on 27 July 2021 the Board
declared an ordinary interim dividend of $0.05 per share.”
Underwriting results
Six months ended 30 June
Gross premiums written 2021 2020 Change Change RPI
$m $m $m % %
Property and casualty reinsurance 377.0 217.9 159.1 73.0 111
Property and casualty insurance 106.5 82.2 24.3 29.6 107
Aviation 58.4 50.2 8.2 16.3 113
Energy 107.6 91.7 15.9 17.3 112
Marine 47.7 53.5 (5.8) (10.8) 110
Total 697.2 495.5 201.7 40.7 111
As disclosed in our Q1 2021 trading statement on 29 April 2021, the Group’s
operating segments for the purposes of segmental reporting have been revised
in the current year. The prior period comparatives have been represented in
conformity with the current year view.
Gross premiums written increased by 40.7% in the first six months of 2021
compared to the same period in 2020, with the most significant growth in
dollar terms occurring in the property and casualty reinsurance segment. The
increase in this segment was primarily driven by new business and rate
increases in the property catastrophe and property retrocession classes of
business as we were able to grow into the hardening market at overall RPIs of
111%. New underwriting teams in the specialty reinsurance and accident and
health classes of business have also contributed to the growth in the first
half of 2021 and the Group has added casualty reinsurance to its underwriting
portfolio during this period.
The increase in the property and casualty insurance segment was primarily due
to growth in the property direct and facultative class of business as we
continued to build out our book at RPIs of 108%. We also saw opportunities to
write new business in the political risk class which benefited from increasing
transactions globally and opportunities in new territories.
Although the first half of the year is not a major renewal period for
aviation, this segment saw the highest overall RPI for the first six months of
2021 at 113%. We also added some new business in the aviation hull and
liability class during this period.
The increase in the energy segment was primarily driven by new business in the
downstream and liability classes, where the market was more dislocated. We
have also written more business in the power market as pricing continues to
improve. These increases were somewhat offset by a reduction in premium in the
upstream class of business where rate adequacy was more challenging and where
we had benefited from some positive exposure increases in the corresponding
period of 2020.
Marine represented the only segment that experienced a reduction in premium in
the first six months of 2021 compared to the same period in 2020. Although we
did write some new marine business across most classes, this was offset by
timing differences in the marine liability and marine hull classes where a
number of policies written in 2020 on a multi-year or non-annual basis were
not yet up for renewal, plus some non-renewals where terms were
unsatisfactory.
Outwards reinsurance premiums
Ceded reinsurance premiums increased by $56.3 million, or 26.4%, in the first
six months of 2021 compared to the same period in 2020, although the
percentage of premiums ceded as a proportion of premiums written decreased as
we retained more risk in the improving market. The increase in spend was
primarily due to the additional outwards reinsurance cover purchased for the
new lines of business entered into and the overall growth in gross premiums
written during the first half of 2021. The increase was also driven by a
combination of rate increases, additional limits purchased and the timing of
renewals.
Net insurance losses
The Group’s net loss ratio for the first six months of 2021 was 38.4%
compared to 57.4% for the same period in 2020. The accident year loss ratio
for the first six months of 2021, including the impact of foreign exchange
revaluations, was 56.3% compared to 55.4% for the same period in 2020.
Our net losses recorded in the first half of 2021 for Winter Storm Uri,
including the impact of reinsurance and inwards and outwards reinstatement
premiums, were $44.8 million and within the previously guided range. In the
first half of 2020, our net losses from the COVID-19 pandemic, including the
impact of reinsurance and inwards and outwards reinstatement premiums were
$41.6 million. The Group’s COVID-19 related losses remained stable in the
first half of 2021.
Excluding the impact of foreign exchange revaluations, the table below shows
the impact of Winter Storm Uri on the Group’s net loss ratio for the first
six months of 2021:
Net Losses Net Loss ratio
$m %
Reported at 30 June 2021 121.1 38.4 %
Absent Winter Storm Uri 69.9 22.6 %
(Note: The table does not sum to a total due to the impact of reinstatement
premium.)
Excluding the impact of foreign exchange revaluations, the table below shows
the impact of COVID-19 related losses on the Group’s net loss ratio for the
first six months of 2020:
Net Losses Net Loss ratio
$m %
Reported at 30 June 2020 132.4 57.4 %
Absent COVID-19 93.4 40.0 %
(Note: The table does not sum to a total due to the impact of reinstatement
premium.)
Prior year favourable development for the first six months of 2021 was $53.6
million, compared to $5.1 million of unfavourable development for the same
period in 2020. The favourable development in the first six months of 2021 was
primarily due to 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 unfavourable development during the first six months of 2020 was primarily
driven by a number of late reported losses from the 2019 accident year,
reserve deterioration on a couple of marine claims in the 2017 and 2019
accident years, in addition to adverse development on the 2010 New Zealand
earthquake in the property and casualty reinsurance segment.
The table below provides further detail of the prior years’ loss development
by class, excluding the impact of foreign exchange revaluations.
Six months ended 2021 2020
$m $m
Property and casualty reinsurance 6.7 (9.6)
Property and casualty insurance 17.6 5.9
Aviation 9.4 1.5
Energy 17.8 11.6
Marine 2.1 (14.5)
Total 53.6 (5.1)
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.
Six months ended 2021 2020
$m $m
2016 accident year and prior 16.7 (4.8)
2017 accident year 12.9 (5.2)
2018 accident year (1.6) 14.8
2019 accident year 1.8 (9.9)
2020 accident year 23.8 —
Total 53.6 (5.1)
Note: Positive numbers denote favourable development.
Investments
Net investment income, excluding realised and unrealised gains and losses, was
$14.7 million for the first six months of 2021, a decrease of 1.3% from the
same period in 2020. 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 gain of $7.4 million for the
first six months of 2021 compared to a gain of $22.0 million for the first six
months of 2020.
The Group’s investment portfolio, including unrealised gains and losses,
returned 0.3% for the first six months of 2021. The fixed maturity portfolios
had negative returns during the first quarter as the yield curve steepened
between the two-year and thirty-year part of the yield curve. These losses
were largely reversed in the second quarter due to a flattening of the yield
curve and narrowing of credit spreads. This resulted in year-to-date fixed
maturity portfolio returns that were flat to slightly negative. Positive
returns from other investments, including the hedge funds and principal
protected notes, allowed the overall investment portfolio to generate the
slightly positive return year-to-date.
The Group’s investment portfolio, including unrealised gains and losses,
returned 1.3% for the first six months of 2020 where returns were driven by
significant volatility as a result of the COVID-19 pandemic. Fixed maturities
recouped all of the losses from the first quarter of 2020, with hedge funds,
bank loans and private investment funds showing small losses on a year-to-date
basis.
The managed portfolio was as follows:
As at As at As at
30 June 2021 31 December 2020 30 June 2020
Fixed maturity securities 77.7 % 82.8 % 81.0 %
Cash and cash equivalents 12.1 % 8.5 % 11.8 %
Hedge funds 4.5 % 4.0 % 4.5 %
Private investment funds 4.3 % 4.7 % 2.7 %
Index linked securities 1.3 % — —
Other investments 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 2021 31 December 2020 30 June 2020
Duration 1.8 years 2.0 years 1.9 years
Credit quality A+ A+ AA-
Book yield 1.3 % 1.7 % 1.8 %
Market yield 0.8 % 0.7 % 1.1 %
Third Party Capital Management
The total contribution from third party capital activities consisted of the
following items:
Six months ended 2021 2020
$m $m
Lancashire Capital Management underwriting fees 2.4 2.7
Lancashire Capital Management profit commission 3.6 —
Lancashire Syndicates’ fees and profit commission 1.0 0.8
Total other income 7.0 3.5
Share of profit of associate 0.3 1.1
Total net third party capital management income 7.3 4.6
The amount of LCM profit commission recognised is driven by the timing of loss
experience, settlement of claims and collateral release and therefore varies
year on year. During the first six months of 2021 the Group recognised $3.6
million of profit commission from the 2019 underwriting cycle. The
share of profit of associate reflects Lancashire’s equity interest in the
LCM managed vehicle.
Other operating expenses
Other operating expenses were $66.1 million in the first six months of 2021
compared to $55.1 million in the first six months of 2020. A growth in
headcount has resulted in higher employee remuneration costs compared to the
prior year. There has also been an increase in expenditure on project
consultancy costs. The strengthening of the Sterling/U.S. Dollar exchange rate
relative to the prior year also contributed to an overall increase in other
operating expenses.
Capital
As at 30 June 2021, total capital available to Lancashire was approximately
$2.0 billion, comprising shareholders’ equity of $1.6 billion and $0.4
billion of long-term debt. Tangible capital was $1.8 billion. Leverage was
22.3% on total capital and 24.2% on total tangible capital. Total capital and
total tangible capital as at 30 June 2020 were $1.8 billion and $1.7 billion
respectively.
Long-term debt
In the first six months of 2021, the Group issued $450.0 million in aggregate
principal amount of 5.625% fixed-rate reset junior subordinated notes due
2041. The long-term debt was issued in two tranches forming part of the same
series of notes, with $400.0 million issued on 18 March 2021 and $50.0 million
issued on 31 March 2021. The fixed-rate interest is payable semi annually.
The majority of the net proceeds from the long-term debt issuance were used by
the Group to redeem its then-existing senior and subordinated indebtedness,
with the balance being used for general corporate purposes. Included in
financing costs of $30.7 million for the first six months of 2021 were $18.7
million of one-off costs associated with the refinancing of the long-term
debt.
The new long-term debt was approved as “Tier 2 Ancillary Capital” by the
Bermuda Monetary Authority and has further improved the Group’s coverage
ratio of available statutory capital and surplus over the BMA’s enhanced
capital requirement.
Dividends
Lancashire’s Board of Directors declared on 27 July 2021 an interim dividend
of $0.05 (approximately £0.04) per common share, which will result in an
aggregate payment of approximately $12.2 million. The dividend will be paid in
Pounds Sterling on 3 September 2021 (the “Dividend Payment Date”) to
shareholders of record on 6 August 2021 (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 2021 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 2:00pm
UK time / 10:00am Bermuda time / 9:00am EDT on Wednesday 28 July 2021. 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: 54650441#
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=FBBFF553-6B93-4DA3-9904-5D7605554BD3
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 2020):
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 $2.0 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 28 July 2021.
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.
30 June 2021 30 June 2020
Net insurance losses 121.1 132.4
Divided by net premiums earned 315.3 230.8
Net loss ratio 38.4 % 57.4 %
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 2021 30 June 2020
Net acquisition expense 67.1 59.0
Divided by net premiums earned 315.3 230.8
Net acquisition cost ratio 21.3 % 25.6 %
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 2021 30 June 2020
Other operating expenses 66.1 55.1
Divided by net premiums earned 315.3 230.8
Net expense ratio 21.0 % 23.9 %
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 2021 30 June 2020
Net loss ratio 38.4 % 57.4 %
Net acquisition cost ratio 21.3 % 25.6 %
Net expense ratio 21.0 % 23.9 %
Combined Ratio 80.7 % 106.9 %
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 2021 30 June 2020
Net insurance losses current accident year 175.2 128.3
Net premiums earned current accident year* 311.0 231.6
Accident year loss ratio 56.3 % 55.4 %
*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 2021 30 June 2020
Shareholders’ equity attributable to the Group 1,553,600,727.0 1,506,073,852
Common voting shares outstanding* 242,754,618 241,756,207
Shares relating to dilutive restricted stock 2,859,880 2,868,612
Fully converted book value denominator 245,614,498 244,624,819
Fully converted book value per share $ 6.33 $ 6.16
*Common voting shares outstanding comprise issued share capital less amounts
held in 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 2021 30 June 2020
Opening FCBVS $ (6.28) $ (5.84)
Q1 dividend per share $ — $ —
Q2 dividend per share $ 0.10 $ 0.10
Closing FCBVS $ 6.33 $ 6.16
Change in FCBVS* 2.4 % 7.2 %
*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 2021 30 June 2020
Total investment return 7.4 22.0
Average invested assets* 2,139.3 1,818.3
Approximate total investment return 0.3 % 1.2 %
Reported total investment return 0.3 % 1.3 %
*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 2021 30 June 2020
Gross premiums written by the group 697.2 495.5
LSL Syndicate 2010 - external Names portion of gross premiums written (unconsolidated) 90.8 81.5
LCM gross premiums written (unconsolidated) 124.5 119.4
Total gross premiums written under management 912.5 696.4
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”, “ANTICIPATES”, “AIMS”,
“PLANS”, “PROJECTS”, “FORECASTS”, “GUIDANCE”, “INTENDS”,
“EXPECTS”, “ESTIMATES”, “PREDICTS”, “MAY”, “CAN”,
“LIKELY”, “WILL”, “SEEKS”, “SHOULD”, OR, IN EACH CASE, THEIR
NEGATIVE OR COMPARABLE TERMINOLOGY. ALL SUCH STATEMENTS OTHER THAN STATEMENTS
OF HISTORICAL FACTS INCLUDING, WITHOUT LIMITATION, THE FINANCIAL POSITION OF
THE COMPANY AND ITS SUBSIDIARIES (THE “GROUP”), THE GROUP’S TAX
RESIDENCY, LIQUIDITY, RESULTS OF OPERATIONS, PROSPECTS, GROWTH, CAPITAL
MANAGEMENT PLANS AND EFFICIENCIES, ABILITY TO CREATE VALUE, DIVIDEND POLICY,
OPERATIONAL FLEXIBILITY, COMPOSITION OF MANAGEMENT, BUSINESS STRATEGY, PLANS
AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS (INCLUDING DEVELOPMENT
PLANS AND OBJECTIVES RELATING TO THE GROUP’S INSURANCE BUSINESS) ARE
FORWARD-LOOKING STATEMENTS. 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 ACTUAL DEVELOPMENT OF
LOSSES AND EXPENSES IMPACTING ESTIMATES FOR CLAIMS WHICH ARISE AS A RESULT OF
THE COVID-19 PANDEMIC WHICH IS AN ONGOING EVENT AS AT THE DATE OF THIS
RELEASE, WINTER STORM URI WHICH OCCURRED DURING THE FIRST QUARTER OF 2021,
HURRICANES LAURA AND SALLY, MIDWEST DERECHO STORM AND THE WILDFIRES IN
CALIFORNIA WHICH OCCURRED DURING THE THIRD QUARTER OF 2020, TYPHOON HAGIBIS
WHICH OCCURRED IN THE FOURTH QUARTER OF 2019, HURRICANE DORIAN AND TYPHOON
FAXAI WHICH OCCURRED IN THE THIRD QUARTER OF 2019, THE CALIFORNIAN WILDFIRES
AND HURRICANE MICHAEL WHICH OCCURRED IN THE FOURTH QUARTER OF 2018, HURRICANE
FLORENCE AND THE TYPHOONS THAT OCCURRED IN THE THIRD QUARTER OF 2018; 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
BUSINESSES 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 IMPLEMENT SUCCESSFULLY ITS
BUSINESS STRATEGY DURING ‘SOFT’ AS WELL AS ‘HARD’ MARKETS; THE PREMIUM
RATES WHICH MAY BE AVAILABLE AT THE TIME OF SUCH RENEWALS WITHIN THE GROUP’S
TARGETED BUSINESS LINES; THE POSSIBLE LOW FREQUENCY OF LARGE EVENTS;
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, INSURANCE LINKED FUNDS AND
COLLATERALISED SPECIAL PURPOSE INSURERS, AND THE RELATED DEMAND AND SUPPLY
DYNAMICS AS CONTRACTS COME UP FOR RENEWAL; THE EFFECTIVENESS OF THE GROUP’S
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 AND THE TIMING AND EXTENT
OF ANY SUCH CHANGES; 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 THE GROUP’S INVESTMENT PORTFOLIO; CHANGES IN GOVERNMENTAL
REGULATIONS OR TAX LAWS IN JURISDICTIONS WHERE THE GROUP CONDUCTS BUSINESS;
LANCASHIRE HOLDINGS LIMITED OR ANY OF THE GROUP’S 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
COMPANY; THE IMPACT OF THE EXPIRATION OF THE TRANSITION PERIOD ON 31 DECEMBER
2020 FOLLOWING THE UK’S WITHDRAWAL FROM THE EUROPEAN UNION ON THE GROUP’S
BUSINESS, REGULATORY RELATIONSHIPS, UNDERWRITING PLATFORMS OR THE INDUSTRY
GENERALLY; 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 CAPITAL MARKET CONDITIONS GENERALLY, WHICH MAY
AFFECT THE ABILITY OF THE GROUP TO MANAGE ITS LIQUIDITY.
ALL FORWARD-LOOKING STATEMENTS IN THIS RELEASE SPEAK ONLY AS AT THE DATE OF
PUBLICATION. LANCASHIRE HOLDINGS LIMITED 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 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 AND
CASUALTY REINSURANCE AND INSURANCE SEGMENTS. 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.
Consolidated statement of comprehensive income (loss)
For the six months ended 30 June 2021
Six months 2021 Six months 2020
$m $m
Gross premiums written 697.2 495.5
Outwards reinsurance premiums (269.3) (213.0)
Net premiums written 427.9 282.5
Change in unearned premiums (210.6) (129.3)
Change in unearned premiums on premiums ceded 98.0 77.6
Net premiums earned 315.3 230.8
Net investment income 14.7 14.9
Net other investment income 1.5 (15.5)
Net realised gains (losses) and impairments 5.7 10.6
Share of profit of associate 0.3 1.1
Other income 7.0 3.5
Net foreign exchange gains (losses) 1.6 (3.9)
Total net revenue 346.1 241.5
Insurance losses and loss adjustment expenses 136.2 159.2
Insurance losses and loss adjustment expenses recoverable (15.1) (26.8)
Net insurance acquisition expenses 67.1 59.0
Equity based compensation 7.0 7.0
Other operating expenses 66.1 55.1
Total expenses 261.3 253.5
Results of operating activities 84.8 (12.0)
Financing costs 30.7 11.0
Profit (loss) before tax 54.1 (23.0)
Tax charge (6.2) (3.0)
Profit (loss) after tax 47.9 (26.0)
Non-controlling interests (0.2) —
Profit (loss) after tax attributable to Lancashire 47.7 (26.0)
Net change in unrealised gains/losses on investments (14.5) 12.0
Tax credit (charge) on net change in unrealised gains/losses on investments 0.4 (0.7)
Other comprehensive (loss) income (14.1) 11.3
Total comprehensive income (loss) attributable to Lancashire 33.6 (14.7)
Net loss ratio 38.4 % 57.4 %
Net acquisition cost ratio 21.3 % 25.6 %
Administrative expense ratio 21.0 % 23.9 %
Combined ratio 80.7 % 106.9 %
Consolidated balance sheet
As at 30 June 2021
As at 30 June 2021 As at 30 June 2020 As at 31 December 2020
$m $m $m
Assets
Cash and cash equivalents 563.4 496.5 432.4
Accrued interest receivable 7.2 7.3 8.0
Investments 1,977.9 1,689.6 1,856.0
Inwards premiums receivable from insureds and cedants 550.7 459.1 371.9
Reinsurance assets
- Unearned premiums on premiums ceded 195.4 167.1 97.4
- Reinsurance recoveries 281.6 323.1 338.7
- Other receivables 22.3 27.6 31.1
Other receivables 21.0 33.3 27.3
Investment in associate 89.0 81.5 127.2
Property, plant and equipment 1.1 0.9 0.7
Right-of-use asset 14.8 16.8 16.1
Deferred acquisition costs 117.8 96.8 89.0
Intangible assets 154.5 154.5 154.5
Total assets 3,996.7 3,554.1 3,550.3
Liabilities
Insurance contracts
- Losses and loss adjustment expenses 978.0 888.6 952.8
- Unearned premiums 668.5 535.7 457.9
- Other payables 20.7 26.4 22.5
Amounts payable to reinsurers 214.6 179.6 151.7
Deferred acquisition costs ceded 19.9 17.2 19.6
Other payables 58.7 42.0 46.1
Corporation tax payable 2.4 1.6 1.5
Deferred tax liability 14.9 12.2 10.9
Interest rate swap — 1.3 —
Lease liability 19.8 19.6 20.9
Long-term debt 445.5 323.7 327.5
Total liabilities 2,443.0 2,047.9 2,011.4
Shareholders’ equity
Share capital 122.0 121.3 122.0
Own shares (12.1) (6.7) (21.2)
Other reserves 1,218.3 1,202.3 1,221.6
Accumulated other comprehensive income 19.5 24.8 33.6
Retained earnings 205.9 164.4 182.5
Total shareholders’ equity attributable to equity shareholders of Lancashire 1,553.6 1,506.1 1,538.5
Non-controlling interest 0.1 0.1 0.4
Total shareholders’ equity 1,553.7 1,506.2 1,538.9
Total liabilities and shareholders’ equity 3,996.7 3,554.1 3,550.3
Consolidated statement of cash flows
For the six months ended 30 June 2021
Six months 2021 Six months 2020
$m $m
Cash flows from (used in) operating activities
Profit (loss) before tax 54.1 (23.0)
Tax paid (1.6) (1.2)
Depreciation 1.6 1.7
Interest expense on long-term debt 12.6 8.2
Interest expense on finance leases 0.6 0.6
Interest and dividend income (18.7) (17.9)
Net amortisation of fixed maturity securities 3.6 1.6
Redemption cost on senior and subordinated loan notes 12.8 —
Other financing cost 3.4 —
Equity based compensation 7.0 7.0
Foreign exchange (gains) losses (0.5) 0.1
Share of profit of associate (0.3) (1.1)
Net other investment income (1.9) 15.0
Net realised (gains) losses and impairments (5.7) (10.6)
Net unrealised losses on interest rate swaps — 0.2
Changes in operational assets and liabilities
- Insurance and reinsurance contracts 57.3 (10.1)
- Other assets and liabilities 15.8 14.3
Net cash flows from (used in) operating activities 140.1 (15.2)
Cash flows used in investing activities
Interest and dividends received 23.1 19.0
Purchase of property, plant and equipment (0.7) —
Investment in associate 38.5 27.9
Purchase of investments (808.0) (619.3)
Proceeds on sale of investments 672.3 458.4
Net cash flows used in investing activities (74.8) (114.0)
Cash flows from financing activities
Interest paid (7.6) (8.3)
Other financing cost (3.4) —
Lease liabilities paid (2.1) (1.8)
Proceeds from issuance of common shares — 340.3
Proceeds from issue of long-term debt 445.4 —
Redemption of long-term debt (339.6) —
Dividends paid (24.3) (20.2)
Dividends paid to minority interest holders (0.5) (0.5)
Distributions by trust (1.0) (0.7)
Net cash flows from financing activities 66.9 308.8
Net increase in cash and cash equivalents 132.2 179.6
Cash and cash equivalents at the beginning of year 432.4 320.4
Effect of exchange rate fluctuations on cash and cash equivalents (1.2) (3.5)
Cash and cash equivalents at end of period 563.4 496.5
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