Lancashire reports H1 growth in marine

Re/insurer Lancashire has said in its H1 report that growth in the marine segment was primarily driven by new business, particularly in the marine cargo and marine liability classes of business. The marine liability class also had a strong RPI of 115%, compared to the same period in the prior year.

For the group, gross premiums written increased by 34.6% year-on-year to $938.1m.

The Group Renewal Price Index (RPI) was 106% and a combined ratio of 78.2% led to a pre-tax profit for the half of $78.0m.

However, there was a net investment return of negative 3.8%, primarily driven by unrealized losses.

Six months ended 30 June 2022 30 June 2021
Gross premiums written  938.1  697.2
Net premiums written  622.6  427.9
Underwriting profit  164.5  127.1
Profit before tax  78.0  54.1
Comprehensive (loss) income  (7.1)  33.6
Total investment return (3.8%) 0.3%
Net loss ratio 37.9% 38.4%
Combined ratio 78.2% 80.7%

Group CEO Alex Maloney said that Lancashire was continuing to see “attractive rate increases across a number of business lines” with a renewal price index for the first six months of 106%.

The previously given range of $20m to $30m for potential incurred losses within Ukraine has developed well. Ultimate net losses incurred within Ukraine since the start of the conflict were towards the lower end of Lancashire’s initial range, at $22.0m (excluding the impact of reinstatement premiums).

Maloney said that the company believed that the strong rate environment for many of its products was “the best we have seen for more than a decade and that it will continue through the second half of 2022 and into 2023”. This will include risk-adjusted rate rises and attractive opportunities across lines impacted by the conflict in Ukraine.

However, H1 2022 saw a volatile investment environment. The upwards trend in US interest rates led to an investment return of minus 3.8% – in dollar terms an investment loss of $85.8m. This includes $83.0m of unrealized losses on Lancashire’s fixed maturity AFS portfolio. It was noted that the return to a higher interest rate environment should boost future earnings in the portfolio.

Segmental information Gross Premiums Written

$m 2022 2021 Change % Change % RPI %
P/C reinsurance  548.0  377.0  171.0  45.4 107
P/C insurance  149.6  106.5  43.1  40.5 105
Aviation  58.3  58.4  (0.1)  (0.2) 106
Energy  115.4  107.6  7.8  7.2 103
Marine  66.8  47.7  19.1  40.0 106
Total  938.1  697.2  240.9  34.6 106

The Group’s net loss ratio for the six months ended 30 June 2022 was 37.9%, down from 38.4% in 2021. The accident year loss ratio for the six months ended 30 June 2022, including the impact of foreign exchange revaluations, was 53.5%, down from 56.3% in the same period in 2021.

During H1 2022 Lancashire experienced net losses from the ongoing events in Ukraine and the Australian floods, as well as a number of smaller weather and risk losses. None of these events was individually material for the Group.

The first half of 2021 included $51.2m of net losses for Winter Storm Uri, excluding the impact of reinstatement premiums. Absent Winter Storm Uri the net loss ratio would have been 22.6% in the same period.

Prior year favourable development for the first six months of 2022 was $64.4m, compared to $53.6m of favourable development in 2021. The favourable development in 2022 was primarily due to general IBNR releases on the 2021 accident year across most lines of business due to a lack of reported claims, as well as favourable development on some large claims from the 2018 and 2017 accident years.

In the prior half year, the Group benefited from general IBNR releases across most lines of business due to a lack of reported claims. The Group also experienced favourable development from reserve releases on the 2017 and prior accident years.