LANCASHIRE HOLDINGS LIMITED - Q2 2022 Earnings Release
-- Gross premiums written increased by 34.6% year-on-year to
-- Group RPI (Renewal Price Index) of 106%
-- Excellent underwriting performance, with a combined ratio of 78.2%
-- Profit before tax of
-- Total net investment return of negative 3.8%, primarily driven by unrealised losses
-- Interim dividend of
$0.05per common share, in line with our dividend policy
Six months ended 30 June 2022 30 June 2021 Financial highlights ($m) 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) income1 (7.1) 33.6 Change in FCBVS2 0.0% 2.4% Financial ratios Total investment return (3.8%) 0.3% Net loss ratio 37.9% 38.4% Combined ratio 78.2% 80.7% Per share data Fully converted book value per share
$5.67 $6.33Dividends per common share for the financial year $0.05 $0.05Diluted earnings per share $0.30 $0.19
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.
“The Group delivered strong premium growth in the first half of the year with a 34.6% increase in gross premiums written year-on-year to
Over the past few years, we have successfully diversified our underwriting portfolio. I am pleased that we are seeing a strong performance from a number of these newer classes of business while we are also continuing to benefit from those products where we have longer-standing expertise. This has resulted in an excellent underwriting performance for the first half of 2022 with a combined ratio of 78.2% and profit before tax of
We previously gave a range of
We continue to closely monitor our exposure with regards to
While broader macro-economic issues are impacting the outlook for the global economy, we believe that the strong rate environment for many of our products is 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 includes risk-adjusted rate rises and attractive opportunities across lines impacted by the conflict in
During the first half of 2022, the investment environment has proved volatile and the upwards trend in US interest rates has resulted in a negative investment performance of 3.8% or in dollar terms an investment loss of
We continue to be strongly capitalised giving us the firepower to execute our long-term strategy to grow premiums where we believe there are attractive returns while retaining our strict focus on underwriting discipline.
In June we were pleased to announce a number of senior underwriting appointments, all of which were promotions from within our existing teams. Ensuring we have the right talent in the right roles is critical to our success as we look to maximise the Group’s underwriting prospects. Lancashire has always attracted some of the best people in the industry and we continue to develop our employees, wherever they work in the business, and give them opportunities to thrive in our positive and vibrant corporate culture.
As always, I would like to thank all our colleagues for their hard work and commitment and our brokers, clients and shareholders for their continued support.”
Six months ended 30 June Gross premiums written 2022 2021 Change Change RPI $m $m $m % % Property and casualty reinsurance 548.0 377.0 171.0 45.4 107 Property and casualty 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
Property and casualty reinsurance
The substantial growth in the property and casualty reinsurance segment was mainly due to new business in the casualty reinsurance and financial lines classes of business, which also benefitted from significant written premium being recognised from new policies bound in 2021. The RPI for this segment also remained strong at 107% further contributing to the premium increase.
Property and casualty insurance
The growth in the property and casualty insurance segment reflects the continued build-out of the property direct and facultative book of business, including our recent expansion in
The first half of the year was not a major renewal period for the aviation segment and, as a result, the gross premium written remained comparable to the prior year.
Most of our energy classes of business grew through the addition of new underwriting teams and product expansion across underwriting platforms to take advantage of the improving market conditions. Our decision to exit the
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.
Outwards reinsurance premiums
Although the proportion of outwards reinsurance premiums to gross written premium has decreased year-on-year, in dollar terms the spend increased by
Net insurance losses
The Group’s net loss ratio for the six months ended
During the first six months of 2022, the Group experienced net losses from the ongoing events in
The first half of 2021 included
Prior year favourable development for the first six months of 2022 was
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.
The table below provides further detail of the prior years’ loss development by class, excluding the impact of foreign exchange revaluations.
For the six months ended
30 June 20222021 $m $m Property and casualty reinsurance 23.1 6.7 Property and casualty insurance 16.7 17.6 Aviation 7.5 9.4 Energy 12.0 17.8 Marine 5.1 2.1 Total 64.4 53.6
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.
For the six months ended 30 June 2022 2021 $m $m 2017 accident year and prior 19.1 29.6 2018 accident year 10.6 (1.6) 2019 accident year 4.9 1.8 2020 accident year 8.6 23.8 2021 accident year 21.2 — Total 64.4 53.6
Note: Positive numbers denote favourable development.
Net investment income, excluding realised and unrealised gains and losses, was
The Group’s investment portfolio, including unrealised gains and losses, returned a negative investment performance of 3.8% or in dollar terms an investment loss of
The Group’s investment portfolio, including unrealised gains and losses, returned 0.3% (gain of
The managed portfolio was as follows:
As at As at As at 30 June 2022 31 December 2021 30 June 2021 Fixed maturity securities 85.2% 78.4% 77.7% Cash and cash equivalents 4.7% 11.2% 12.1% Private investment funds 4.6% 4.6% 4.3% Hedge funds 4.3% 4.5% 4.5% Index linked securities 1.3% 1.3% 1.3% Other investments (0.1%) — 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 2022 31 December 2021 30 June 2021 Duration 1.8 years 1.8 years 1.8 years Credit quality A+ A+ A+ Book yield 1.9% 1.3% 1.3% Market yield 3.5% 1.0% 0.8%
The total contribution from third party capital activities consisted of the following items:
For the six months ended
30 June 20222021 $m $m Lancashire Capital Managementunderwriting fees 0.9 2.4 Lancashire Capital Managementprofit commission 0.1 3.6 Lancashire Syndicates’ fees and profit commission 1.3 1.0 Total other income 2.3 7.0 Share of profit of associate 2.4 0.3 Total net third party capital management income 4.7 7.3
The amount of
Other operating expenses
Other operating expenses were
During the six months ended
Further intention to purchase own shares
Pursuant to and in accordance with the general authority granted by shareholders at Lancashire's Annual General Meeting held on
Lancashire’s Board of Directors declared on
Shareholders interested in participating in the dividend reinvestment plan (“DRIP”), or other services including international payment, are encouraged to contact the Group’s registrars,
The Unaudited Condensed Interim Consolidated Financial Statements for the six months ended
Analyst and Investor Earnings Conference Call
There will be an analyst and investor conference call on the results at
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: 80848891#
URL for additional international dial in numbers:
The call can also be accessed via webcast, for registration and access:
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 email@example.com Jelena Bjelanovic+44 20 7264 4066 firstname.lastname@example.org FTI Consulting +44 07703 330 199 Edward BerryEdward.Berry@FTIConsulting.com Tom BlackwellTom.Blackwell@FTIConsulting.com
Lancashire, through its
Financial Financial Long Term Issuer Strength Strength Rating(1) Outlook(1) 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
(2) Long Term Issuer Rating applies to
Lancashire has capital of approximately
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
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
Net loss ratio:
30 June 2022 30 June 2021 Net insurance losses 166.9 121.1 Divided by net premiums earned 440.5 315.3 Net loss ratio 37.9% 38.4%
Net acquisition cost ratio:
30 June 2022 30 June 2021 Net acquisition expense 109.1 67.1 Divided by net premiums earned 440.5 315.3 Net acquisition cost ratio 24.8% 21.3%
Net expense ratio:
30 June 2022 30 June 2021 Other operating expenses 68.4 66.1 Divided by net premiums earned 440.5 315.3 Net expense ratio 15.5% 21.0%
Combined ratio (KPI):
30 June 2022 30 June 2021 Net loss ratio 37.9% 38.4% Net acquisition cost ratio 24.8% 21.3% Net expense ratio 15.5% 21.0% Combined Ratio 78.2% 80.7%
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
30 June 2022 30 June 2021 Net insurance losses current accident year 231.3 175.2 Dividend by net premiums earned current accident year* 432.2 311.0 Accident year loss ratio 53.5% 56.3%
*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 2022 30 June 2021 Shareholders’ equity attributable to the Group 1,372,753,750 1,553,600,727 Common voting shares outstanding* 240,122,621 242,754,618 Shares relating to dilutive restricted stock 1,949,260 2,859,880 Fully converted book value denominator 242,071,881 245,614,498 Fully converted book value per share
$ 5.67 $ 6.33
*Common voting shares outstanding comprise issued share capital less amounts held in the
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 2022 30 June 2021 Opening FCBVS
$ (5.77) $ (6.28)Q1 dividend per share $ — $ — Q2 dividend per share $ 0.10 $ 0.10Closing FCBVS $ 5.67 $ 6.33Change in FCBVS* —% 2.4%
*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 2022 30 June 2021 Total investment return (85.8) 7.4 Average invested assets* 2,271.7 2,139.3 Approximate total investment return (3.8%) 0.3% Reported total investment return (3.8%) 0.3%
*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 2022 30 June 2021 Gross premiums written by the group 938.1
697.2 LSLSyndicate 2010 - external Names portion of gross 100.0 90.8 premiums written (unconsolidated) LCM gross premiums written (unconsolidated) 38.4 124.5 Total gross premiums written under management 1,076.5 912.5
NOTE REGARDING RPI METHODOLOGY
THE RENEWAL PRICE INDEX (“RPI”) IS AN INTERNAL METHODOLOGY THAT MANAGEMENT USES TO TRACK TRENDS IN PREMIUM RATES OF A PORTFOLIO OF INSURANCE AND REINSURANCE CONTRACTS. THE RPI WRITTEN IN THE RESPECTIVE SEGMENTS IS CALCULATED ON A PER CONTRACT BASIS AND REFLECTS MANAGEMENT’S ASSESSMENT OF RELATIVE CHANGES IN PRICE, TERMS, CONDITIONS AND LIMITS AND IS WEIGHTED BY PREMIUM VOLUME. THE RPI DOES NOT INCLUDE NEW BUSINESS, TO OFFER A CONSISTENT BASIS FOR ANALYSIS. THE CALCULATION INVOLVES A DEGREE OF JUDGEMENT IN RELATION TO COMPARABILITY OF CONTRACTS AND THE ASSESSMENT NOTED ABOVE. TO ENHANCE THE RPI METHODOLOGY, MANAGEMENT MAY REVISE THE METHODOLOGY AND ASSUMPTIONS UNDERLYING THE RPI, SO THE TRENDS IN PREMIUM RATES REFLECTED IN THE RPI MAY NOT BE COMPARABLE OVER TIME. CONSIDERATION IS ONLY GIVEN TO RENEWALS OF A COMPARABLE NATURE SO IT DOES NOT REFLECT EVERY CONTRACT IN THE PORTFOLIO OF CONTRACTS. THE FUTURE PROFITABILITY OF THE PORTFOLIO OF CONTRACTS WITHIN THE RPI IS DEPENDENT UPON MANY FACTORS BESIDES THE TRENDS IN PREMIUM RATES.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS AND INDICATIVE PROJECTIONS (WHICH MAY INCLUDE MODELLED LOSS SCENARIOS) MADE IN THIS RELEASE OR OTHERWISE THAT ARE NOT BASED ON CURRENT OR HISTORICAL FACTS ARE FORWARD-LOOKING IN NATURE INCLUDING, WITHOUT LIMITATION, STATEMENTS CONTAINING THE WORDS “BELIEVES”, “AIMS”, “ANTICIPATES”, “PLANS”, “PROJECTS”, “FORECASTS”, “GUIDANCE”, “INTENDS”, “EXPECTS”, “ESTIMATES”, “PREDICTS”, “MAY”, “CAN”, “LIKELY”, “WILL”, “SEEKS”, “SHOULD”, OR, IN EACH CASE, THEIR NEGATIVE OR COMPARABLE TERMINOLOGY. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND
Consolidated statement of comprehensive (loss) income
For the six months ended
Six months 2022 Six months 2021 $m $m Gross premiums written 938.1 697.2 Outwards reinsurance premiums (315.5) (269.3) Net premiums written 622.6 427.9 Change in unearned premiums (300.5) (210.6) Change in unearned premiums on premiums ceded 118.4 98.0 Net premiums earned 440.5 315.3 Net investment income 17.3 14.7 Net other investment (losses) income (9.4) 1.5 Net realised (losses) gains and impairments (10.7) 5.7 Share of profit (loss) of associate 2.4 0.3 Other income 2.3 7.0 Net foreign exchange (losses) gains (1.6) 1.6 Total net revenue 440.8 346.1 Insurance losses and loss adjustment expenses 207.5 136.2 Insurance losses and loss adjustment expenses (40.6) (15.1) recoverable Insurance acquisition expenses 127.2 82.3 Insurance acquisition expenses ceded (18.1) (15.2) Equity based compensation 3.7 7.0 Other operating expenses 68.4 66.1 Total expenses 348.1 261.3 Results of operating activities 92.7 84.8 Financing costs 14.7 30.7 Profit (loss) before tax 78.0 54.1 Tax charge (3.6) (6.2) Profit (loss) after tax 74.4 47.9 Profit (loss) for the period attributable to: Equity shareholders of LHL 74.4 47.7 Non-controlling interests — 0.2 Net change in unrealised losses on investments (83.0) (14.5) Tax credit on net change in unrealised losses on 1.5 0.4 investments Other comprehensive loss (81.5) (14.1) Total comprehensive (loss) income attributable (7.1) 33.6 to Lancashire Net loss ratio 37.9% 38.4% Net acquisition cost ratio 24.8% 21.3% Administrative expense ratio 15.5% 21.0% Combined ratio 78.2% 80.7%
Consolidated balance sheet
As at 30 June 2022 As at 30 June 2021 As at 31 December 2021 $m $m $m Assets Cash and cash 390.6 563.4 517.7 equivalents Accrued interest 8.3 7.2 7.1 receivable Investments 2,132.8 1,977.9 2,048.1 Inwards premiums 755.5 550.7 490.6 receivable from insureds and cedants Reinsurance assets - Unearned premiums 236.2 195.4 117.8 on premiums ceded - Reinsurance 428.8 281.6 418.8 recoveries - Other receivables 41.5 22.3 38.2 Other receivables 32.0 21.0 18.8 Investment in 87.6 89.0 118.7 associate Property, plant and 0.6 1.1 0.8 equipment Right-of-use assets 12.1 14.8 13.4 Deferred acquisition 173.9 117.8 121.6 costs Intangible assets 162.3 154.5 157.9 Total assets 4,462.2 3,996.7 4,069.5 Liabilities Insurance contracts - Losses and loss 1,311.4 978.0 1,291.1 adjustment expenses - Unearned premiums 898.4 668.5 597.9 - Other payables 30.6 20.7 20.3 Amounts payable to 295.3 214.6 205.6 reinsurers Deferred acquisition 25.9 19.9 27.0 costs ceded Other payables 51.9 58.7 37.4 Corporation tax 1.7 2.4 1.6 payable Deferred tax 12.8 14.9 12.2 liability Lease liability 15.1 19.8 17.9 Long-term debt 445.9 445.5 445.7 Total liabilities 3,089.0 2,443.0 2,656.7 Shareholders’ equity Share capital 122.0 122.0 122.0 Own shares (23.5) (12.1) (18.1) Other reserves 1,218.8 1,218.3 1,221.6 Accumulated other (78.6) 19.5 2.9 comprehensive (loss) income Retained earnings 134.0 205.9 83.9 Total shareholders’ 1,372.7 1,553.6 1,412.3 equity attributable to equity shareholders of LHL Non-controlling 0.5 0.1 0.5 interests Total shareholders’ 1,373.2 1,553.7 1,412.8 equity Total liabilities and 4,462.2 3,996.7 4,069.5 shareholders’ equity
Consolidated statement of cash flows
For the six months ended
Six months 2022 Six months 2021 $m $m Cash flows from operating activities Profit (loss) before tax 78.0 54.1 Tax paid (1.3) (1.6) Depreciation 1.5 1.6 Interest expense on long-term debt 12.9 12.6 Interest expense on lease liabilities 0.5 0.6 Interest income (17.2) (18.7) Net amortisation of fixed maturity securities 1.4 3.6 Redemption cost on senior and subordinated loan — 12.8 notes Net realised / unrealised losses on interest — 3.4 rate swaps Equity based compensation 3.7 7.0 Foreign exchange gains (2.4) (0.5) Share of (profit) loss of associate (2.4) (0.3) Net other investment losses (income) 9.2 (1.9) Net realised losses (gains) and impairments 10.7 (5.7) Changes in operational assets and liabilities - Insurance and reinsurance contracts (18.7) 57.3 - Other assets and liabilities (0.6) 15.8 Net cash flows from operating activities 75.3 140.1 Cash flows used in investing activities Interest received 19.5 23.1 Purchase of property, plant and equipment — (0.7) Internally generated intangible asset (4.4) — Investment in associate 33.5 38.5 Purchase of investments (700.7) (808.0) Proceeds on sale of investments 507.7 672.3 Net cash flows used in investing activities (144.4) (74.8) Cash flows (used in) from financing activities Interest paid (12.9) (7.6) Interest rate swap — (3.4) Lease liabilities paid (1.8) (2.1) Proceeds from issue of long-term debt — 445.4 Redemption of long-term debt — (339.6) Dividends paid (24.3) (24.3) Dividend paid to minority interest holders — (0.5) Share repurchases (11.7) — Distributions by trust (0.4) (1.0) Net cash flows (used in) from financing (51.1) 66.9 activities Net (decrease) increase in cash and cash (120.2) 132.2 equivalents Cash and cash equivalents at the beginning of 517.7 432.4 year Effect of exchange rate fluctuations on cash and (6.9) (1.2) cash equivalents Cash and cash equivalents at end of period 390.6 563.4