TIDMLRE
RNS Number : 3278V
Lancashire Holdings Limited
02 November 2017
LANCASHIRE HOLDINGS LIMITED
REDUCTION IN FULLY CONVERTED BOOK VALUE PER SHARE, ADJUSTED FOR
DIVIDS, OF 10.4% IN Q3 2017 AND 5.1% YEAR TO DATE
COMBINED RATIO OF 213.3% IN Q3 2017, 126.4% YEAR TO DATE
FULLY CONVERTED BOOK VALUE PER SHARE OF $5.53 AS AT 30 SEPTEMBER
2017
2 November 2017
London, UK
Lancashire Holdings Limited ("Lancashire" or "the Group") today
announces its results for the third quarter of 2017 and the nine
months ended 30 September 2017.
Financial highlights
30 September 30 September
2017 2016
--------------
Fully converted book value
per share $5.53 $6.55
Return on equity(1) - Q3 (10.4)% 3.1%
Return on equity(1) - YTD (5.1)% 10.5%
Return on tangible equity
(2) - Q3 (11.9)% 3.7%
Return on tangible equity
(2) - YTD (5.8)% 12.2%
Operating return on average
equity - Q3 (11.6)% 3.1%
Operating return on average
equity - YTD (7.0)% 7.6%
Special dividend per common
share - $0.75
----------------------------- --------- --- --------- ---
(1) Return on equity is defined as growth in fully converted
book value per share, adjusted for dividends.
(2) Return on tangible equity excludes goodwill and other
intangible assets.
Three months ended Nine months ended
30 September 30 September 30 September 30 September
2017 2016 2017 2016
--------------
Highlights ($m)
Gross premiums written 143.0 108.2 524.2 538.8
Net premiums written 106.1 92.0 345.9 370.6
(Loss) profit before
tax (136.4) 42.9 (69.7) 99.5
(Loss) profit after
tax(1) (134.2) 42.9 (65.7) 102.7
Comprehensive (loss)
income(1) (131.7) 41.6 (57.1) 123.3
Net operating (loss)
profit(1) (139.0) 40.1 (82.9) 98.1
Per share data
Diluted (loss) earnings
per share ($0.67) $0.21 ($0.33) $0.51
Diluted (loss) earnings
per share - operating ($0.69) $0.20 ($0.41) $0.49
Financial ratios
Total investment
return including
internal currency
hedging 0.6% 0.6% 2.1% 2.2%
Net loss ratio 175.4% 25.3% 79.2% 28.0%
Combined ratio 213.3% 73.8% 126.4% 75.6%
Accident year loss
ratio 193.2% 29.6% 96.7% 45.0%
------------------------- --------- --------- --------- ---------
(1) These amounts are attributable to Lancashire and exclude
non-controlling interests.
Alex Maloney, Group Chief Executive Officer, commented:
"In July I reported on the generally lower level of catastrophe
losses during 2017 and the resultant continued downwards pricing
pressures on insurance risk. In contrast, the last couple of months
have witnessed a series of damaging hurricanes in the Caribbean,
the Gulf of Mexico and U.S. coastal regions and two significant
earthquakes in Mexico. These have tragically devastated and
disrupted lives and livelihoods, wreaking havoc in communities and
businesses. These events have been a stark reminder that we operate
in the risk business. We offer insurance and reinsurance products
which respond to catastrophic loss events which are irregular and
unpredictable in their short term frequency and severity. At such
times Lancashire expects to pay losses, and this is reflected in
our results for the third quarter and the year to date.
These events also show the value of our strategic priorities.
Our discipline as underwriters means that we prioritise the
appropriate risk selection for all stages of the insurance cycle.
In risk management we continuously monitor and moderate our net
risk exposures, in particular through the use of a sensibly
structured reinsurance programme. In our capital management we
ensure that we hold sufficient capital to meet the current and
future needs of our business, returning to our investors the
capital we do not need for our business requirements.
Although it is still too early for the precise quantification of
market losses, it is clear that catastrophe underwriters
industry-wide have experienced losses of many billions of dollars,
which will have depleted capital and stressed balance sheets across
the global insurance sector. For Lancashire our estimated net
losses fall comfortably within our expectations for such
catastrophe events, serving as further evidence of our disciplined
approach to underwriting.
After many years of soft pricing conditions we are at last
seeing some evidence of an increase in pricing, particularly in
catastrophe exposed lines. The first major test of the market
dynamics will be the year-end insurance and reinsurance renewal
round. Many product lines will be loss-affected and I would expect
to see a return across the sector to more disciplined underwriting
standards and pricing which reflects the true risks and
exposures.
At Lancashire we pride ourselves on understanding the insurance
cycle. Whilst there can be no guarantee of a market improvement, I
believe that we are now entering a period where market dynamics
dictate that there should be a meaningful adjustment to the pricing
of the products we sell. In previous years, following uneventful
wind seasons, Lancashire has returned surplus capital to its
shareholders by way of a special dividend. That is not the case
this year. I am confident that the likely change in underwriting
conditions affords us an opportunity to deploy the capital which we
hold more advantageously, both to service the needs of our clients
and their brokers and to continue creating long term value for our
shareholders. Lancashire's strategy remains to maximise
risk-adjusted returns across the insurance cycle."
Elaine Whelan, Group Chief Financial Officer, commented:
"The third quarter of 2017 witnessed an extraordinary level of
loss activity. With the occurrence of hurricanes Harvey, Irma and
Maria and the Mexican earthquakes, the industry has incurred
substantial losses. We have recorded a net loss across our three
platforms from these events of $165.0 million, after recoveries and
the impact of inwards and outwards reinstatement premiums. Our RoE
is negative 10.4% and our combined ratio is 213.3% for the third
quarter of 2017. Our RoE for the year to date is negative 5.1%.
While we have incurred a loss in the quarter and for the year to
date, we anticipate an improvement in rates following these events.
Our outlook for 2018 is more positive than it has been for some
time. We therefore do not intend to declare a special dividend this
year; we expect to put all of our capital to work to take advantage
of improving market conditions. However, we will continue to pay
our standard ordinary dividend, in line with our stated dividend
policy."
Renewal Price Index for major classes
The Renewal Price Index ("RPI") is an internal methodology that
management uses to track trends in premium rates on a portfolio of
insurance and reinsurance contracts. The RPI is calculated on a per
contract basis and reflects our assessment of relative changes in
price, terms, conditions and limits on like for like renewals only,
and is weighted by premium volume (see "Note Regarding RPI
Methodology" at the end of this announcement for further guidance).
The RPI does not include new business, to offer a consistent basis
for analysis. The following RPIs are expressed as an approximate
percentage of pricing achieved on similar contracts written in
2016, with our Lloyd's segment shown separately in order to aid
comparability:
RPI Lancashire (excluding Lloyd's segment)
Class YTD 2017 Q3 2017 Q2 2017 Q1 2017
--------------------------- ---------- --------- --------- ---------
Aviation (AV52) 90% 92% 90% 90%
Gulf of Mexico energy* 93% - 93% 88%
Energy offshore worldwide 97% 87% 104% 94%
Marine 89% 93% 88% 89%
Property retrocession
and reinsurance 95% 95% 97% 94%
Terrorism 94% 95% 93% 94%
Lancashire (excluding
Lloyd's segment) 94% 93% 95% 93%
--------------------------- ---- --- ---- ----- ----
*There was no renewing Gulf of Mexico energy business written in
the third quarter of 2017.
RPI (Lloyd's segment)
Class YTD 2017 Q3 2017 Q2 2017 Q1 2017
----------------------- ---------- --------- --------- ---------
Aviation 99% 103% 102% 96%
Energy 97% 100% 97% 95%
Marine 97% 98% 98% 97%
Property retrocession
and reinsurance 96% 97% 94% 97%
Terrorism 91% 94% 97% 91%
Lloyd's segment 97% 97% 97% 97%
----------------------- ---- --- ----- ----- ----
Underwriting results
Gross premiums written
Q3 YTD
2017 2016 Change Change 2017 2016 Change Change
$m $m $m % $m $m $m %
---------- ----- ----- ------ ------ ----- ----- ------ --------
Property 46.8 39.7 7.1 17.9 177.0 190.4 (13.4) (7.0)
Energy 24.4 14.1 10.3 73.0 96.8 102.4 (5.6) (5.5)
Marine 15.3 4.9 10.4 212.2 58.4 32.4 26.0 80.2
Aviation 5.3 11.0 (5.7) (51.8) 12.9 28.2 (15.3) (54.3)
Lloyd's 51.2 38.5 12.7 33.0 179.1 185.4 (6.3) (3.4)
-----
Total 143.0 108.2 34.8 32.2 524.2 538.8 (14.6) (2.7)
---------- ----- ----- ----- ----- ----- ----- ----- -----
Gross premiums written increased by 32.2% in the third quarter
of 2017 compared to the same period in 2016. In 2017 to date, gross
premiums written decreased by 2.7% compared to the first nine
months of 2016. Gross premiums earned increased by 14.2% in the
third quarter of 2017 compared to the same period in 2016 and
decreased by 2.7% in the first nine months of 2017 compared to the
same period in 2016. The Group's five principal segments, and the
key market factors impacting them, are discussed below.
Property gross premiums written increased by 17.9% for the third
quarter of 2017 compared to the same period in 2016 and decreased
by 7.0% in the first nine months of 2017 compared to the first nine
months of 2016. The increase for the quarter was primarily due to
$7.0 million of reinstatement premiums in connection with
hurricanes Harvey, Irma and Maria. The decrease for the year to
date is primarily due to multi-year contracts in the property
catastrophe, political risk and terrorism classes which were
written in 2016 that are not yet due to renew. This reduction was
partly offset by the reinstatement premiums mentioned above, some
multi-year contract renewals, new business written in the property
catastrophe book and some new business written in the political
risk book. Business flow in the political risk class is generally
less predictable than other classes due to the specific nature of
each deal.
Energy gross premiums written increased by 73.0% for the third
quarter of 2017 compared to the same period in 2016 and decreased
by 5.5% in the first nine months of 2017 compared to the first nine
months of 2016. The increase in the quarter was due to exposure
increases on prior underwriting year risk-attaching business and
some non-annual deals renewing in the worldwide offshore book. The
decrease for the year to date was mainly due to the timing and
renewal of non-annual deals in the worldwide offshore book, partly
offset by exposure increases on prior underwriting year
risk-attaching business.
Marine gross premiums written increased by 212.2% for the third
quarter of 2017 compared to the same period in 2016 and increased
by 80.2% in the first nine months for 2017 compared to the first
nine months of 2016. The majority of the increase for the quarter
and the year to date was due to the timing of non-annual renewals
together with an increase in prior underwriting year risk-attaching
business due to changes in the underlying exposure. There was also
some new pro-rata business written.
Aviation gross premiums written decreased by 51.8% for the third
quarter of 2017 compared to the same period in 2016 and decreased
by 54.3% in the first nine months of 2017 compared to the first
nine months of 2016. The decrease for the quarter and the year to
date was due to exposure reductions in the satellite book and on
prior underwriting year risk-attaching business in the AV52
book.
In the Lloyd's segment gross premiums written increased by 33.0%
for the third quarter of 2017 compared to the same period in 2016
and decreased by 3.4% in the first nine months of 2017 compared to
the first nine months of 2016. The increase for the quarter was
primarily due to $10.0 million of reinstatement premiums in
connection with hurricanes Harvey, Irma and Maria plus the Mexican
earthquakes. The decrease for the year to date was driven by the
property, energy and terrorism books as rates remained under
pressure due to overcapacity in the market, partially offset by the
increase in reinstatement premiums during the quarter.
*******
Ceded reinsurance premiums increased by $20.7 million, or
127.8%, for the third quarter compared to the same period in 2016
and increased by $10.1 million, or 6.0%, for the first nine months
ended 30 September 2017 compared to the corresponding period in
2016. The increased spend for the quarter and year to date is
primarily due to reinstatement premiums in connection with
hurricanes Harvey, Irma and Maria plus the Mexican earthquakes,
together with some additional limit purchased and the timing of
certain renewals.
*******
Net premiums earned as a proportion of net premiums written was
112.2% in the third quarter of 2017 compared to 118.8% for the same
period in 2016 and 96.7% in the nine months to 30 September 2017
compared to 97.1% in the same period in 2016. With fairly
consistent volumes, and less impact from multi-year deals and
reinsurance renewal timings, the earnings ratios are relatively
stable.
*******
The third quarter of 2017 was characterised by significant
catastrophe activity, in the form of hurricanes Harvey, Irma and
Maria, in addition to the two earthquakes in Mexico. As a result,
the Group's net loss ratio for the third quarter of 2017 was 175.4%
compared to 25.3% for the same period in 2016 and 79.2% for the
nine months ended 30 September 2017 compared to 28.0% for the same
period in 2016. The accident year loss ratio for the third quarter
of 2017, including the impact of foreign exchange revaluations, was
193.2% compared to 29.6% for the same period in 2016 and 96.7% for
the nine months ended 30 September 2017 compared to 45.0% for the
same period in 2016.
Our net losses recorded for the quarter in relation to the
catastrophe events above, excluding the impact of inwards and
outwards reinstatement premiums and our share of losses from
Kinesis, was $153.8 million. While reserves have been recorded,
significant uncertainty exists on the eventual ultimate losses in
relation to the hurricanes and earthquakes as loss information
after these types of events can take some time to obtain. The
Group's reserve estimate was derived from a combination of market
data and assumptions, a limited number of provisional loss advices,
limited client loss data and modeled loss projections. As
additional information emerges, the Group's actual ultimate loss
may vary, perhaps materially, from the current reported reserves.
The final settlement of all claims is likely to take place over a
considerable period of time.
There were no other significant net losses during the first nine
months of 2017. Other than some mid-sized energy losses during the
first half of 2016, there were no significant net losses in either
the third quarter or the first nine months of 2016.
Excluding the impact of foreign exchange evaluations, the
following table shows the impact of current accident year
catastrophe events on the Group's loss ratio:
Q3 YTD
Losses Loss Losses Loss
ratio ratio
$m % $m %
--------------------------- --------- ------------ ----------- -----------
Reported loss ratio at
30 September 2017 208.7 175.4% 264.8 79.2%
Absent hurricane Harvey 157.6 135.5% 213.7 64.4%
Absent hurricane Irma 151.2 129.3% 207.3 62.4%
Absent hurricane Maria 175.1 146.5% 231.2 69.0%
Absent Mexico earthquakes 197.1 165.6% 253.2 75.7%
Absent all catastrophe
events 54.9 47.9% 111.0 33.6%
--------------------------- --------- -------- ----------- ------
Note: The table does not sum to a total due to the impact of
reinstatement premiums.
Prior year favourable development for the third quarter of 2017
was $19.9 million, compared to favourable development of $4.9
million for the third quarter of 2016. Favourable development was
$57.7 million for the nine months ended 30 September 2017, compared
to favourable development of $61.9 million for the same period in
2016. The favourable development in all periods was primarily due
to general IBNR releases across most lines of business due to a
lack of reported claims. The third quarter of 2016 saw some
deterioration on one specific marine loss.
The table below provides further detail of the prior years' loss
development by class, excluding the impact of foreign exchange
valuations.
Q3 YTD
2017 2016 2017 2016
$m $m $m $m
---------- --------- ------------ ---------- ------------
Property 7.5 9.0 17.7 30.6
Energy 5.9 3.0 16.1 20.7
Marine 3.1 (8.0) 14.6 1.3
Aviation 0.7 0.8 2.4 3.2
Lloyd's 2.7 0.1 6.9 6.1
---------
Total 19.9 4.9 57.7 61.9
---------- --------- -------- ---------- ----------
Note: Positive numbers denote favourable development.
Excluding the impact of foreign exchange revaluations, previous
accident years' ultimate losses developed as follows during 2017
and 2016:
Nine Nine
months months
ended ended
30 September 30 September
2017 2016
$m $m
------------------------------ ------------- ---------------
2007 accident year and prior 0.4 (0.7)
2008 accident year 0.3 1.1
2009 accident year 0.2 0.4
2010 accident year 2.0 1.8
2011 accident year 8.8 8.2
2012 accident year 3.4 4.8
2013 accident year 2.6 (4.8)
2014 accident year 4.5 13.7
2015 accident year 18.7 37.4
2016 accident year 16.8 -
-------------
Total 57.7 61.9
------------------------------ ------------- -----------
Note: Positive numbers denote favourable development.
The ratio of IBNR to total net loss reserves was 53.9% at 30
September 2017 compared to 37.0% at 30 September 2016.
Investments
Net investment income, excluding realised and unrealised gains
and losses, was $8.0 million for the third quarter of 2017, an
increase of 14.3% from the third quarter of 2016. Net investment
income was $22.7 million for the first nine months of 2017, a
decrease of 1.3% compared to the same period in 2016. 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 $11.3
million for the third quarter of 2017 compared to a gain of $11.6
million for the third quarter of 2016 and a gain of $38.4 million
for the first nine months of 2017 compared to a gain of $41.6
million for the same period in 2016.
The Group's investment portfolio generated a return of 0.6%
during the third quarter of 2017 and 2.1% for the first nine months
of 2017. During the third quarter of 2017 the Group's fixed
maturity portfolio generated modest returns as the slight increase
in treasury yields was offset by the narrowing of credit spreads
and coupon income. The portfolio return also benefited from strong
returns from the hedge fund, bank loan and equity portfolios. The
third quarter of 2016 produced the same overall return of 0.6%,
driven by very similar factors.
Despite the increase in treasury yields in the first nine months
of 2017, the investment portfolio produced a return of 2.1% due to
the narrowing of credit spreads, coupon income and strong returns
in the Group's risk-asset portfolios. For the first nine months of
2016, the Group's investment portfolio return of 2.2% was driven by
the notable decline in treasury yields and narrowing of credit
spreads, benefiting the fixed maturity, bank loan and equity
portfolios.
The corporate bond allocation represented 32.1% of managed
invested assets at 30 September 2017 compared to 30.7% at 30
September 2016.
The managed portfolio was as follows:
As at As at As at
30 September 31 December 30 September
2017 2016 2016
------------------- -------------- ------------- --------------
Fixed maturity
securities 80.7% 81.4% 82.4%
Cash and cash
equivalents 9.6% 10.4% 9.1%
Hedge funds 8.5% 7.0% 6.8%
Equity securities 1.2% 1.2% 1.7%
Total 100.0% 100.0% 100.0%
------------------- --------- -------- ---------
Key investment portfolio statistics were:
As at As at As at
30 September 31 December 30 September
2017 2016 2016
Duration 1.8 years 1.8 years 1.7 years
Credit quality A+ A+ AA-
Book yield 2.0% 1.8% 1.7%
Market yield 2.0% 1.9% 1.5%
---------------- -------- --- ------- --- -------- ---
Lancashire Third Party Capital Management
The total contribution from third party capital activities
consists of the following items:
Q3 YTD
2017 2016 2017 2016
$m $m $m $m
---------------------------------- --------------- ------ -------------- ----------
Kinesis underwriting fees 2.2 2.2 3.6 3.3
Kinesis profit commission 0.5 - 5.9 3.2
Lloyd's fees & profit commission 0.4 0.8 1.5 3.7
---------------------------------- ----------- ------ ---------- --------
Total other income 3.1 3.0 11.0 10.2
---------------------------------- ----------- ------ ---------- --------
Share of (loss) profit
of associate (13.1) 2.7 (11.7) 4.4
---------------------------------- ----------- ------ ---------- --------
Total third party capital
managed (loss) income (10.0) 5.7 (0.7) 14.6
---------------------------------- ----------- ------ ---------- --------
The Kinesis profit commission is driven by the timing of loss
experience and collateral release and therefore varies from quarter
to quarter. The higher Kinesis profit commission for the year to
date is due to the timing of recognition of a loss amount for the
January 2015 underwriting cycle which resulted in the continuing
retention of some collateral and consequently lower profit
commission recognised in 2016. The share of loss of associate for
the third quarter and year to date 2017 reflects Lancashire's 10%
equity interest in the Kinesis vehicle and is entirely driven by
the significant catastrophe activity in the quarter. The reduction
in Lloyd's fees and profit commission is driven by the relative
profitability of the underwriting years impacting each period.
Other operating expenses
Other operating expenses consist of the following items:
Q3 YTD
2017 2016 2017 2016
$m $m $m $m
----------------------------- ---------- --------- ---- ------
Employee remuneration costs 2.8 14.7 31.0 46.8
Other operating expenses 10.2 9.2 32.0 28.3
Total 13.0 23.9 63.0 75.1
----------------------------- ---------- --------- ---- ----
Employee remuneration costs for the third quarter and first nine
months of 2017 were $11.9 million and $15.8 million lower than the
respective periods in 2016. The lower compensation charges are
primarily driven by lower variable compensation in addition to a
benefit from the depreciation of Sterling relative to the prior
year.
Other operating expenses for both the third quarter and first
nine months of 2017 were $1.0 million and $3.7 million higher than
the respective periods in 2016. The increase for the quarter and
year to date is due to the timing of certain expenses. The increase
for the year to date also includes some additional software
costs.
Equity based compensation
A credit of $2.9 million was recorded for equity based
compensation in the third quarter of 2017 compared to an expense of
$1.7 million in the same period last year and a credit of $0.1
million for the first nine months of 2017 compared to an expense of
$10.1 million in the same period last year. The equity based
compensation charge is driven by anticipated vesting levels of
active awards based on current performance expectations. The
decrease in the quarter was due to incorporating the third quarter
loss into the performance estimates combined with the lapsing of
awards of former Cathedral employees on their departure from the
Group.
Capital
As at 30 September 2017, total capital available to Lancashire
was $1.441 billion, comprising shareholders' equity of $1.116
billion and $325.4 million of long-term debt. Tangible capital was
$1.288 billion. Leverage was 22.6% on total capital and 25.3% on
total tangible capital. Total capital and total tangible capital as
at 30 September 2016 were $1.644 billion and $1.490 billion
respectively.
The Group will continue to review the appropriate level and
composition of capital for the Group with the intention of managing
capital to enhance risk-adjusted returns on equity.
Dividends
During the third quarter of 2017, the Lancashire Board of
Directors declared an interim dividend in respect of 2017 of $0.05
(approximately GBP0.04) per common share. The dividend, totalling
$10.0 million, was paid on 6 September 2017 to shareholders of
record on 11 August 2017.
Shareholders interested in participating in the dividend
reinvestment plan ("DRIP"), or other services including
international payment, are encouraged to contact the Group
registrars, Capita Asset Services for more details at:
http://www.capitaassetservices.com
Financial information
Further details of our 2017 third quarter results can be
obtained from our Financial Supplement. This can be accessed via
our website 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 EDT on Thursday 2nd November
2017. 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:
US +1 646 254 3362
US toll free 1877 280 2342
UK +44(0)20 3427 1900
UK toll free 0800 279 4977
Toronto, Canada +1 416 216 4141
Confirmation
Code: 5091989
The call can also be accessed via webcast, please go to our
website at:
http://www.lancashiregroup.com/en/investors.html or
https://edge.media-server.com/m6/p/bj72m29w to register.
A webcast replay facility will be available for 12 months and
accessible at
http://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
Jonny Creagh-Coen +44 20 7264 4066
jcc@lancashiregroup.com
Haggie Partners +44 20 7562 4444
David Haggie (David Haggie mobile
+44 7768332486)
About Lancashire
Lancashire, through its UK and Bermuda-based operating
subsidiaries, is a global provider of specialty insurance and
reinsurance products. The Group companies carry the following
ratings:
Financial Financial Long Term
Strength Strength Issuer
Rating (1) Outlook(1) Rating (2)
A.M. Best A (Excellent) Stable bbb
S&P Global Ratings A- Positive 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.
Cathedral benefits from Lloyd's ratings: A.M. Best: A
(Excellent); S&P Global Ratings: A+ (Strong); and Fitch: AA-
(Very Strong).
Lancashire has capital in excess of $1.4 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 corporate headquarters and mailing address at 29th Floor, 20
Fenchurch Street, London EC3M 3BY, United Kingdom and its
registered office at Power House, 7 Par-la-Ville Road, Hamilton HM
11, Bermuda.
For more information on Lancashire and Lancashire's subsidiary
and Lloyd's segment, Cathedral Capital Limited ("Cathedral"), visit
Lancashire's website at www.lancashiregroup.com
The UK Prudential Regulation Authority ("PRA") is the Group
Supervisor of the Lancashire Group.
Lancashire Insurance Company Limited is regulated by the Bermuda
Monetary Authority ("BMA") in Bermuda.
Lancashire Insurance Company (UK) Limited is authorised by the
PRA and regulated by the Financial Conduct Authority ("FCA") and
the PRA in the UK.
Kinesis Capital Management Limited is regulated by the BMA in
Bermuda.
Cathedral Underwriting Limited is authorised by the PRA and
regulated by the FCA and the PRA in the UK. It is also authorised
and regulated by Lloyd's.
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 GMT on
2nd November 2017.
NOTE REGARDING RPI METHODOLOGY
LANCASHIRE'S RENEWAL PRICE INDEX ("RPI") IS AN INTERNAL
METHODOLOGY THAT ITS MANAGEMENT USES TO TRACK TRS IN PREMIUM RATES
OF A PORTFOLIO OF INSURANCE AND REINSURANCE CONTRACTS. THE RPI
WRITTEN BY THE LANCASHIRE COMPANIES IN THE RESPECTIVE SEGMENTS IS
CALCULATED ON A PER CONTRACT BASIS AND REFLECTS LANCASHIRE'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 OF LANCASHIRE MAY REVISE THE METHODOLOGY AND ASSUMPTIONS
UNDERLYING THE RPI, SO THE TRS 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 LANCASHIRE'S PORTFOLIO. THE FUTURE PROFITABILITY OF THE
PORTFOLIO OF CONTRACTS WITHIN THE RPI IS DEPENT UPON MANY FACTORS
BESIDES THE TRS IN PREMIUM RATES.
NOTE REGARDING FORWARD-LOOKING STATEMENTS:
CERTAIN STATEMENTS AND INDICATIVE PROJECTIONS (WHICH MAY INCLUDE
MODELED 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", "PLANS", "PROJECTS", "FORECASTS",
"GUIDANCE", "INTS", "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
GROUP'S FINANCIAL POSITION, LIQUIDITY, RESULTS OF OPERATIONS,
PROSPECTS, GROWTH, CAPITAL MANAGEMENT PLANS AND EFFICIENCIES,
ABILITY TO CREATE VALUE, DIVID 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
HURRICANES HARVEY, IRMA AND MARIA AND THE EARTHQUAKES IN MEXICO,
THAT OCCURRED IN THE THIRD QUARTER OF 2017; THE IMPACT OF COMPLEX
AND UNIQUE CAUSATION AND COVERAGE ISSUES ASSOCIATED WITH
ATTRIBUTION OF LOSSES TO WIND OR FLOOD DAMAGE OR OTHER PERILS SUCH
AS FIRE OR BUSINESS INTERRUPTION RELATING TO SUCH EVENTS; POTENTIAL
UNCERTAINTIES RELATING TO REINSURANCE RECOVERIES, REINSTATEMENT
PREMIUMS AND OTHER FACTORS INHERENT IN LOSS ESTIMATION; 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 DIVIDS; 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' RATING 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; A
CYCLICAL DOWNTURN OF THE INDUSTRY; THE IMPACT OF A DETERIORATING
CREDIT ENVIRONMENT FOR ISSUERS OF FIXED MATURITY INVESTMENTS; THE
IMPACT OF SWINGS IN MARKET INTEREST RATES, CURRENCY EXCHANGE RATES
AND SECURITIES PRICES; CHANGES BY CENTRAL BANKS REGARDING THE LEVEL
OF INTEREST RATES; THE IMPACT OF INFLATION OR DEFLATION IN RELEVANT
ECONOMIES IN WHICH THE GROUP OPERATES; THE EFFECT, TIMING AND OTHER
UNCERTAINTIES SURROUNDING FUTURE BUSINESS COMBINATIONS WITHIN THE
INSURANCE AND REINSURANCE INDUSTRIES; THE IMPACT OF TERRORIST
ACTIVITY IN THE COUNTRIES IN WHICH THE GROUP WRITES RISKS; A RATING
DOWNGRADE OF, OR A MARKET DECLINE IN, SECURITIES IN THE GROUP'S
INVESTMENT PORTFOLIO; CHANGES IN GOVERNMENTAL REGULATIONS OR TAX
LAWS IN JURISDICTIONS WHERE THE GROUP CONDUCTS BUSINESS; ANY OF THE
GROUP'S BERMUDIAN SUBSIDIARIES BECOMING SUBJECT TO INCOME TAXES IN
THE UNITED STATES OR THE UNITED KINGDOM; THE INAPPLICABILITY TO THE
GROUP OF SUITABLE EXCLUSIONS FROM THE UK CFC REGIME; ANY CHANGE IN
UK GOVERNMENT POLICY WHICH IMPACTS THE CFC REGIME OR OTHER TAX
CHANGES; AND THE IMPACT OF THE "BREXIT" VOTE AND FUTURE
NEGOTIATIONS REGARDING THE U.K'S RELATIONSHIP WITH THE E.U., ON THE
GROUP'S BUSINESS, REGULATORY RELATIONSHIPS, UNDERWRITING PLATFORMS
OR THE INDUSTRY GENERALLY.
ALL FORWARD-LOOKING STATEMENTS IN THIS RELEASE 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.
Consolidated statement of comprehensive (loss) income
Q3 Q3 YTD YTD
2017 2016 2017 2016
$m $m $m $m
------------------------------ ---------- --------- ---------- ------------
Gross premiums written 143.0 108.2 524.2 538.8
Outwards reinsurance
premiums (36.9) (16.2) (178.3) (168.2)
Net premiums written 106.1 92.0 345.9 370.6
------------------------------ ------ ----- ------ --------
Change in unearned premiums 36.4 48.9 (46.9) (48.2)
Change in unearned premiums
on premiums ceded (23.5) (31.6) 35.4 37.5
Net premiums earned 119.0 109.3 334.4 359.9
------------------------------ ------ ----- ------ --------
Net investment income 8.0 7.0 22.7 23.0
Net other investment
income (losses) 0.4 4.0 (1.5) 3.5
Net realised gains (losses)
and impairments 0.5 1.9 8.6 (5.5)
Share of (loss) profit
of associate (13.1) 2.7 (11.7) 4.4
Other income 3.1 3.0 11.0 10.2
Net foreign exchange
gains 1.2 0.8 3.1 3.5
Total net revenue 119.1 128.7 366.6 399.0
------------------------------ ------ ----- ------ --------
Insurance losses and
loss adjustment expenses 336.7 43.9 413.8 178.8
Insurance losses and
loss adjustment expenses
recoverable (128.0) (16.2) (149.0) (78.1)
Net insurance acquisition
expenses 32.1 29.1 95.0 96.1
Equity based compensation (2.9) 1.7 (0.1) 10.1
Other operating expenses 13.0 23.9 63.0 75.1
Total expenses 250.9 82.4 422.7 282.0
------------------------------ ------ ----- ------ --------
Results of operating
activities (131.8) 46.3 (56.1) 117.0
Financing costs 4.6 3.4 13.6 17.5
(Loss) profit before
tax (136.4) 42.9 (69.7) 99.5
Tax credit 2.3 0.1 4.4 3.4
(Loss) profit after tax (134.1) 43.0 (65.3) 102.9
--------
Non-controlling interests (0.1) (0.1) (0.4) (0.2)
------ -----
(Loss) profit after tax
attributable to Lancashire (134.2) 42.9 (65.7) 102.7
------------------------------ ------ ----- ------ --------
Net change in unrealised
gains/losses on investments 2.4 (1.3) 8.6 21.2
Tax provision on net
change in unrealised
gains/losses on investments 0.1 - - (0.6)
------ ----- ------ --------
Other comprehensive income
(loss) 2.5 (1.3) 8.6 20.6
------------------------------ ------ ----- ------ --------
Total comprehensive (loss)
income attributable to
Lancashire (131.7) 41.6 (57.1) 123.3
------------------------------ ------ ----- ------ --------
Net loss ratio 175.4% 25.3% 79.2% 28.0%
Net acquisition cost
ratio 27.0% 26.6% 28.4% 26.7%
Administrative expense
ratio 10.9% 21.9% 18.8% 20.9%
Combined ratio 213.3% 73.8% 126.4% 75.6%
------------------------------ ------ ----- ------ --------
Basic (loss) earnings
per share $(0.67) $0.22 $(0.33) $ 0.52
Diluted (loss) earnings
per share $(0.67) $0.21 $(0.33) $ 0.51
Change in fully converted
book value per share (10.4)% 3.1% (5.1)% 10.5%
Consolidated balance sheet
As at As at As at
30 September 30 September 31 December
2017 2016 2016
$m $m $m
------------------------------------- ------------- ------------- --------------
Assets
Cash and cash equivalents 280.0 289.8 308.8
Accrued interest receivable 7.1 6.6 6.6
Investments 1,702.3 1,842.9 1,648.4
Inwards premiums receivable
from insureds and cedants 361.8 315.0 270.0
Reinsurance assets
- Unearned premiums on premiums
ceded 69.3 67.7 33.9
- Reinsurance recoveries 251.5 149.9 136.7
- Other receivables 12.7 15.0 16.5
Other receivables 43.3 41.2 43.6
Corporation tax receivable - - 1.1
Investment in associate 12.8 26.5 49.7
Property, plant and equipment 3.0 5.8 5.3
Deferred acquisition costs 86.9 93.2 81.5
Intangible assets 153.8 153.8 153.8
Total assets 2,984.5 3,007.4 2,755.9
------------------------------------- ------------ ------------ -----------
Liabilities
Insurance contracts
- Losses and loss adjustment
expenses 890.9 708.7 679.8
- Unearned premiums 420.4 447.4 373.5
- Other payables 55.2 38.9 37.4
Amounts payable to reinsurers 83.0 64.2 52.7
Deferred acquisition costs
ceded 1.1 0.7 0.4
Other payables 71.4 71.6 61.0
Corporation tax payable 0.4 3.2 -
Deferred tax liability 17.0 21.1 18.7
Interest rate swap 3.0 7.0 3.7
Long-term debt 325.4 323.4 320.9
Total liabilities 1,867.8 1,686.2 1,548.1
------------------------------------- ------------ ------------ -----------
Shareholders' equity
Share capital 100.7 100.7 100.7
Own shares (13.2) (24.8) (23.2)
Other reserves 867.7 882.4 881.6
Accumulated other comprehensive
income (loss) 2.2 10.1 (6.4)
Retained earnings 159.0 352.6 254.6
Total shareholders' equity
attributable to equity
shareholders of LHL 1,116.4 1,321.0 1,207.3
------------------------------------- ------------ ------------ -----------
Non-controlling interest 0.3 0.2 0.5
Total shareholders' equity 1,116.7 1,321.2 1,207.8
Total liabilities and shareholders'
equity 2,984.5 3,007.4 2,755.9
------------------------------------- ------------ ------------ -----------
Basic book value per share $5.58 $6.64 $6.07
Fully converted book value
per share $5.53 $6.55 $5.98
Consolidated statements of cash flows
Nine Nine Twelve
months months months
2017 2016 2016
$m $m $m
-------------------------------------- ------- ------- -----------
Cash flows (used in) from operating
activities
(Loss) profit before tax (69.7) 99.5 150.4
Tax refunded (paid) 1.3 (1.3) (1.3)
Depreciation 1.6 1.7 2.3
Interest expense on long-term
debt 12.2 12.2 15.6
Interest and dividend income (28.1) (29.1) (38.5)
Net amortisation of fixed maturity
securities 2.5 3.9 5.0
Equity based compensation (0.1) 10.1 10.7
Foreign exchange losses 6.2 (1.4) (2.3)
Share of (loss) profit of associate 11.7 (4.4) (5.1)
Net other investment losses
(gains) 1.5 (3.5) (6.9)
Net realised (gains) losses
and impairments (8.6) 5.5 2.4
Net unrealised (gains) losses
on interest rate swaps (0.7) 2.2 (1.1)
Changes in operational assets
and liabilities
- Insurance and reinsurance
contracts 51.0 (62.7) (71.7)
- Other assets and liabilities 15.0 7.8 (10.6)
Net cash flows (used in) from
operating activities (4.2) 40.5 48.9
-------------------------------------- ------ ------ --------
Cash flows from investing activities
Interest and dividends received 27.6 29.0 38.4
Purchase of property, plant
and equipment (0.5) (0.3) (0.4)
Investment in associate 25.2 25.4 2.9
Purchase of investments (843.9) (992.8) (1,214.0)
Proceeds on sale of investments 809.5 940.1 1,341.8
Net cash flows from investing
activities 17.9 1.4 168.7
-------------------------------------- ------ ------ --------
Cash flows used in financing
activities
Interest paid (14.0) (13.5) (15.4)
Dividends paid (29.9) (29.8) (178.9)
Dividends paid to minority
interest holders (0.6) (0.5) (0.5)
Distributions by trust (3.8) (2.9) (2.9)
Net cash flows used in financing
activities (48.3) (46.7) (197.7)
-------------------------------------- ------ ------ --------
Net (decrease) increase in
cash and cash equivalents (34.6) (4.8) 19.9
Cash and cash equivalents at
the beginning of year 308.8 291.8 291.8
Effect of exchange rate fluctuations
on cash and cash equivalents 5.8 2.8 (2.9)
Cash and cash equivalents at
end of year 280.0 289.8 308.8
-------------------------------------- ------ ------ --------
This information is provided by RNS
The company news service from the London Stock Exchange
END
QRTZMMGMGMLGNZZ
(END) Dow Jones Newswires
November 02, 2017 03:00 ET (07:00 GMT)
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