LANCASHIRE
HOLDINGS LIMITED
GROWTH IN FULLY
CONVERTED BOOK VALUE PER SHARE, ADJUSTED FOR DIVIDENDS, OF 6.9%
YEAR TO DATE
COMBINED RATIO OF
86.6% YEAR TO DATE
INTERIM DIVIDEND
OF $0.05 PER COMMON SHARE
FULLY CONVERTED
BOOK VALUE PER SHARE OF $5.52 AS AT
30 JUNE 2019
25 July
2019
Hamilton,
Bermuda
Lancashire Holdings Limited (“Lancashire” or “the Group”) today
announces its results for the six months ended 30 June 2019.
Financial highlights
|
30 June 2019 |
30 June 2018 |
Fully converted
book value per share |
$5.52 |
|
$5.70 |
|
Return on
equity1– YTD |
6.9 |
% |
5.9 |
% |
Return on tangible
equity2 – YTD |
7.9 |
% |
6.9 |
% |
Operating return on
average equity – YTD |
3.9 |
% |
6.9 |
% |
Dividends per
common share for the financial year3 |
$0.05 |
|
$0.05 |
|
1 Return on equity is defined as the change in fully
converted book value per share, adjusted for dividends.
2 Return on tangible equity excludes
goodwill and other intangible assets.
3 See “Dividends” below for Record Date
and Dividend Payment Date.
|
Six months ended |
|
30 June 2019 |
30 June 2018 |
Highlights
($m) |
|
|
Gross premiums
written |
429.6 |
|
392.5 |
|
Net premiums
written |
222.6 |
|
234.0 |
|
Profit before tax |
40.5 |
|
74.9 |
|
Profit after
tax1 |
39.1 |
|
75.8 |
|
Comprehensive
income1 |
68.7 |
|
64.4 |
|
Net operating
profit1 |
42.9 |
|
78.3 |
|
|
|
|
Per share
data |
|
|
Diluted earnings per
share |
$0.19 |
|
$0.38 |
|
Diluted earnings per
share - operating |
$0.21 |
|
$0.39 |
|
|
|
|
Financial
ratios |
|
|
Total investment
return (including internal currency hedging) |
3.2 |
% |
0.3 |
% |
Net loss ratio |
34.5 |
% |
15.1 |
% |
Combined ratio |
86.6 |
% |
67.1 |
% |
Accident year loss
ratio |
40.5 |
% |
38.7 |
% |
1 These amounts are attributable to Lancashire and
exclude non-controlling interests.
Alex
Maloney, Group Chief Executive Officer, commented:
“I am pleased with our performance in the first half of
2019. I am also encouraged by the emerging evidence that the
(re)insurance market is now experiencing the long anticipated
improvements in discipline and pricing in many of the Group’s core
business lines. We have seen good new business momentum in the
first half of 2019, as we were able to benefit from our
longstanding disciplined underwriting approach. In the face of a
more cautious underwriting environment and evidence of market
retrenchment in the specialty lines in which we write, we were able
to take advantage of improving terms and demand. While the market
overall was characterised by a number of attritional losses in the
first half of 2019 and substantial loss creep on prior year events,
it is worth noting that our ultimate net loss estimates for the
2018 and 2017 catastrophe events have remained largely stable,
allowing us to deliver a solid combined ratio of 86.6% for the half
year.
Looking ahead, the recent evidence of better market discipline
and pricing will take time to feed through to our bottom line.
However, I believe that we have the talent and capability to
capitalise on the next stage of the (re)insurance cycle, and our
strategy has positioned us well to maximise the improving
underwriting opportunity.”
Elaine
Whelan, Group Chief Financial Officer, commented:
“The Group produced an RoE of 6.9% with a combined ratio of
86.6%. While we experienced some adverse development on the 2018
accident year due to some late reported claims, we had overall net
favourable development on prior accident years. In addition, there
were no major losses in the first six months of the year. Our
investment strategy remains relatively conservative and our
investment portfolio performed well with a net return of 3.2%. With
expectations of interest rate reductions going forward, we have
removed some of our interest rate hedges and that has led to a
natural increase in the duration of our investment
portfolio.
Our renewals went well and were in line with expectations. We
have seen some growth across several lines of business, including
the new lines that we added last year. We continue to remain well
capitalised to take advantage of the opportunities we see for the
remainder of the year.”
Underwriting results
|
Six months ended |
Gross premiums
written |
30 June 2019 |
30 June 2018 |
Change |
Change |
RPI |
|
$m |
$m |
$m |
% |
% |
|
|
|
|
|
|
Property |
164.3 |
|
144.1 |
|
20.2 |
|
14.0 |
|
107.0 |
|
Energy |
60.1 |
|
67.8 |
|
(7.7 |
) |
(11.4 |
) |
104.0 |
|
Marine |
27.4 |
|
23.9 |
|
3.5 |
|
14.6 |
|
112.0 |
|
Aviation |
12.2 |
|
8.8 |
|
3.4 |
|
38.6 |
|
100.0 |
|
Lloyd’s |
165.6 |
|
147.9 |
|
17.7 |
|
12.0 |
|
107.0 |
|
Total |
429.6 |
|
392.5 |
|
37.1 |
|
9.5 |
|
107.0 |
|
Gross premiums written increased by 9.5% in the first six months
of 2019 compared to the same period in 2018. The Group’s five
principal segments, and the key market factors impacting them, are
discussed below.
Property gross premiums written increased by 14.0% for the first
six months of 2019 compared to the same period in 2018. While the
1 January 2019 property catastrophe
renewals experienced flat to low-single digit rate reductions, the
second quarter renewal season saw the Group benefit from rate and
exposure increases. There was also new business across several
lines of business particularly in the political risk and property
catastrophe lines of business, including some new opportunities in
the Florida market. The strong
deal flow was only partially offset by the impact of multi-year
contracts that were not yet due to renew.
Energy gross premiums written decreased by 11.4% for the first
six months of 2019 compared to the same period in 2018. While there
was new business in the worldwide offshore and onshore energy
classes, the same period in the prior year had a higher level of
exposure-related premium increases arising on prior underwriting
year risk-attaching business in the worldwide offshore and
construction energy classes. The prior year also benefitted from
the restructuring of an existing multi-year deal.
Marine gross premiums written increased by 14.6% for the first
six months of 2019 compared to the same period in 2018. The
increase in the marine segment was driven primarily by multi-year
contracts renewing in the marine hull and marine P&I
classes.
Aviation gross premiums written increased by 38.6% for the first
six months of 2019 compared to the same period in 2018. The first
half of the year is not a major renewal period for the aviation
segment. However, there were exposure increases on prior
underwriting year risk-attaching business in the aviation
deductible class that were only partially offset by exposure
decreases in the AV52 and satellite classes.
In the Lloyd’s segment gross premiums written increased by 12.0%
for the first six months of 2019 compared to the same period in
2018. The increase was primarily due to new business in the energy
and aviation classes of business. Compared to the prior year
premiums in the property reinsurance and property direct and
facultative classes were flat. While there was some new business in
those classes, part of the portfolio was repositioned to
participate on higher layers and certain contracts were not renewed
due to less attractive rates.
*******
Ceded reinsurance premiums increased by $48.5 million, or 30.6%, for the first six months
of 2019 compared to the same period in 2018. The increase in spend
was primarily due to a combination of additional cover purchased
including cover for some of the new lines of business we have
entered, the timing of renewals plus higher reinstatement
premiums.
*******
Net premiums earned as a proportion of net premiums written was
95.6% in the first six months of 2019 compared to 93.2% for the
same period in 2018.
*******
The Group’s net loss ratio for the first six months of 2019 was
34.5% compared to 15.1% for the same period in 2018. The accident
year loss ratio for the first six months of 2019, including the
impact of foreign exchange revaluations, was 40.5% compared to
38.7% for the same period in 2018. There were no significant net
losses in either period.
Prior year favourable development for the first six months of
2019 was $15.9 million, compared to
$51.8 million of favourable
development for the same period in 2018. The favourable development
in both periods was primarily due to general IBNR releases across
most lines of business due to a lack of reported claims. However,
the first six months of 2019 included some 2018 accident year
claims in the energy and Lloyd’s segments. In the prior period, the
Group benefitted from a reduction on prior accident year energy
claims.
The table below provides further detail of the prior years’ loss
development by class, excluding the impact of foreign exchange
revaluations.
|
Six months ended |
|
30 June 2019 |
30 June 2018 |
|
$m |
$m |
|
|
|
Property |
9.3 |
|
18.4 |
|
Energy |
(1.8 |
) |
29.9 |
|
Marine |
7.8 |
|
5.0 |
|
Aviation |
0.5 |
|
1.0 |
|
Lloyd’s |
0.1 |
|
(2.5 |
) |
Total |
15.9 |
|
51.8 |
|
Note: Positive numbers denote favourable development.
Excluding the impact of foreign exchange revaluations, previous
accident years’ ultimate losses developed as follows during 2019
and 2018:
|
Six months ended |
|
30 June 2019 |
30 June 2018 |
|
$m |
$m |
2009 accident year and
prior |
1.7 |
|
11.4 |
|
2010 accident
year |
2.6 |
|
— |
|
2011 accident
year |
1.9 |
|
3.7 |
|
2012 accident
year |
0.5 |
|
(1.5 |
) |
2013 accident
year |
0.5 |
|
2.3 |
|
2014 accident
year |
(0.2 |
) |
2.0 |
|
2015 accident
year |
— |
|
5.1 |
|
2016 accident
year |
9.0 |
|
19.8 |
|
2017 accident
year |
10.0 |
|
9.0 |
|
2018 accident
year |
(10.1 |
) |
— |
|
Total |
15.9 |
|
51.8 |
|
Note: Positive numbers denote favourable development.
The ratio of IBNR to total net loss reserves was 34.8% at
30 June 2019 compared to 42.5% at
30 June 2018.
The total estimated net loss, excluding the impacts of inwards
and outwards reinstatement premiums and our share of the losses
from Kinesis, for the 2018 and 2017 reported catastrophe losses
were as follows:
|
As at |
As at |
As at |
|
30 June 2019 |
31 December 2018 |
30 June 2018 |
|
$m |
$m |
$m |
2018 loss
events1 |
102.5 |
|
104.9 |
|
n/a |
2017 loss
events2 |
163.5 |
|
164.7 |
|
160.3 |
|
1 The 2018 loss events include hurricanes Florence and
Michael, typhoons Jebi, Mangkhut and Trami and the California wildfires, plus loss events
within our marine portfolio.
2 The 2017 loss events include hurricanes Harvey, Irma and
Maria, the two earthquakes in Mexico plus the California wildfires.
Investments
Net investment income, excluding realised and unrealised gains
and losses, was $19.6 million for the
first six months of 2019, an increase of 23.3% from the same period
in 2018. 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 $57.1 million for the first
six months of 2019 compared to a gain of $5.4 million for the first six months of
2018.
The Group’s investment portfolio earned 3.2% for the first six
months of 2019. Returns were driven by a strong equity market
combined with both a decrease in treasury yields and a narrowing of
credit spreads. This resulted in positive performance in all
asset classes, particularly in the bank loan, equity and hedge fund
portfolios. During the first half of 2018 investment returns
were dampened by an increase in treasury yields and also modest
credit spread widening. The portfolio generated a positive return
due to strong returns from the Group’s hedge fund and bank loan
portfolios, as well as the Group’s short treasury futures position,
which mitigated some of the impact from the rise in treasury
yields.
The corporate bond allocation represented 32.6% of managed
invested assets at 30 June 2019
compared to 28.0% at 30 June
2018.
The managed portfolio was as follows:
|
As at |
As at |
As at |
|
30 June 2019 |
31 December 2018 |
30 June 2018 |
Fixed maturity
securities |
82.1 |
% |
85.4 |
% |
82.0 |
% |
Hedge funds |
9.5 |
% |
8.5 |
% |
8.9 |
% |
Cash and cash
equivalents |
6.9 |
% |
4.8 |
% |
7.8 |
% |
Equity securities |
1.5 |
% |
1.3 |
% |
1.3 |
% |
Total |
100.0 |
% |
100.0 |
% |
100.0 |
% |
Key investment portfolio statistics were:
|
As at |
As at |
As at |
|
30 June 2019 |
31 December 2018 |
30 June 2018 |
|
|
|
|
Duration |
1.8 Years |
1.5 years |
1.6 years |
Credit quality |
A+ |
A+ |
AA- |
Book yield |
2.7 |
% |
2.7 |
% |
2.3 |
% |
Market yield |
2.4 |
% |
3.1 |
% |
2.8 |
% |
Lancashire Third Party Capital
Management
The total contribution from third party capital activities
consists of the following items:
|
Six months ended |
|
30 June 2019 |
30 June 2018 |
|
$m |
$m |
|
|
|
Kinesis underwriting
fees |
1.9 |
|
2.0 |
|
Lloyd’s fees &
profit commission |
0.9 |
|
0.8 |
|
Total other
income |
2.8 |
|
2.8 |
|
Share of profit (loss)
of associate |
0.1 |
|
(2.4 |
) |
Total net third
party capital managed income |
2.9 |
|
0.4 |
|
Total other income for the first six months of 2019 was
consistent with the same period in 2018. Kinesis profit commission
is driven by the timing of loss experience and collateral release
and varies year on year. Given the catastrophe events of 2018 and
2017 the Group has not recognised any Kinesis profit commission in
either period. The share of profit (loss) of associate reflects
Lancashire’s 10% equity interest in the Kinesis vehicle.
Other operating expenses
Other operating expenses consist of the following items:
|
Six months ended |
|
30 June 2019 |
30 June 2018 |
|
$m |
$m |
|
|
|
Employee remuneration
costs |
29.9 |
|
30.9 |
|
Other operating
expenses |
20.9 |
|
19.9 |
|
Total |
50.8 |
|
50.8 |
|
Employee remuneration costs and other operating expense for the
first six months of 2019 are in line with the corresponding period
in 2018. An increase in underlying employment costs due primarily
to general salary increases and increased headcount was more than
offset by a reduction in variable compensation and the impact of
the depreciation in Sterling rates relative to the prior period.
Equity based compensation
The equity based compensation expense was $3.8 million in the first six months of 2019
compared to $3.8 million in the same
period last year. The equity based compensation charge was driven
by anticipated vesting levels of active awards based on current
performance expectations.
Capital
As at 30 June 2019, total capital
available to Lancashire was $1.445
billion, comprising shareholders’ equity of $1.121 billion and $324.1
million of long-term debt. Tangible capital was $1.291 billion. Leverage was 22.4% on total
capital and 25.1% on total tangible capital. Total capital and
total tangible capital as at 30 June
2018 were $1.478 billion and
$1.324 billion respectively.
The Group will continue to review the appropriate level and
composition of its capital with the intention of managing capital
to enhance risk-adjusted returns on equity.
Dividends
During the first quarter of 2019, the Lancashire Board of
Directors declared a final dividend in respect of 2018 of
$0.10 (approximately £0.08) per
common share. The dividend, totalling $20.1
million, was paid on 27 March
2019 to shareholders recorded on 22
February 2019.
Lancashire announces that its Board of Directors has declared an
interim dividend for 2019 of $0.05
(approximately £0.04) per common share, which will result in an
aggregate payment of approximately $10.1
million. The dividend will be paid in Pound Sterling on
6 September 2019 (the “Dividend
Payment Date”) to shareholders of record on 9 August 2019 (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 at:
https://www.linkassetservices.com/shareholders-and-investors/shareholder-services-uk.
Financial Information
The Unaudited Condensed Interim Consolidated Financial
Statements for the six months ended 30 June
2019 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 1:00pm UK time /
9:00am Bermuda time / 8:00am
EDT on Thursday 25 July 2019.
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
|
Confirmation Code: |
80359966# |
URL for additional international dial in numbers:
https://events.arkadin.com/ev/docs/NE_W2_TF_Events_International_Access_List.pdf
The call can also be accessed via webcast, for registration and
access:
https://event.on24.com/wcc/r/2031991/944538E12AEEFBB48C4E745927C97CB1
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:
|
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.
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 of
approximately $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 head office and registered
office at Power House, 7 Par-la-Ville Road, Hamilton HM 11,
Bermuda.
For more information, please visit Lancashire’s website at
www.lancashiregroup.com.
The Bermuda Monetary Authority (“BMA”) is the Group Supervisor
of the Lancashire Group with effect from 1
January 2019.
Lancashire Insurance Company Limited is regulated by the BMA,
with its registered office at Power House, 7 Par-la-Ville Road,
Hamilton HM 11, Bermuda.
Lancashire Insurance Company (UK) Limited is authorised by the
Prudential Regulation Authority (“PRA”) and regulated by the
Financial Conduct Authority (“FCA”) and the PRA, with its
registered office at Level 29, 20 Fenchurch Street, London EC3M 3BY, United Kingdom.
Cathedral Underwriting Limited is authorised by the PRA and
regulated by the FCA and the PRA. It is also authorised and
regulated by Lloyd’s, with its registered office at Level 29, 20
Fenchurch Street, London EC3M 3BY,
United Kingdom.
Kinesis Capital Management Limited is regulated by the BMA, with
its registered office at Power House, 7 Par-la-Ville Road, Hamilton
HM 11, Bermuda.
This release contains information, which may be of a price
sensitive nature that Lancashire
is making public in a manner consistent with the EU Market Abuse
Regulation and other regulatory obligations. The information was
submitted for publication, through the agency of the contact
persons set out above, at 07:00 BST
on 25 July 2019.
Alternative Performance Measures
As is customary in the insurance industry, the Group also
utilises certain non-GAAP measures (“Alternative Performance
Measures” or “APMs”) in order to evaluate, monitor and
manage the business and to aid users’ understanding of the
Group. In compliance with the Guidelines on APMs of the
European Securities and Markets Authority, we give information on
APMs in the table below. This information has not been audited.
Management believes that the APMs included in this release and
accompanying supplementary materials 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 labeled 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.
The following APMs included in this release and accompanying
supplementary materials have not been prepared in accordance with
the accounting principles used by the Group for its audited and /
or interim consolidated financial statements. Below is an
explanation of the definition of these APMs as well as information
regarding their relevance:
APM |
Definition |
Relevance |
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. |
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 |
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. |
Accident year loss
ratio |
The accident year
loss ratio is calculated using the accident year ultimate liability
re-valued 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. |
Combined ratio |
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 significantly less than 100 per cent. |
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's net
asset value on a diluted per share basis for comparison to the
market value per share. |
Return
on equity (“RoE”)
(RoE is also sometimes referred to as the change in FCBVS adjusted
for dividends) |
The internal rate of
return of the change in FCBVS in the period, plus dividends
accrued. Tangible RoE attributable to the Group excludes intangible
assets from capital. |
The Group's aim is to
maximise risk adjusted returns for its shareholders across the
cycle. |
Operating return on
average equity |
Calculated as the net
operating income (loss), divided by the average equity over the
period, adjusted for dividends
declared. Net
operating income (loss) excludes; realised gains and losses net of
impairments, foreign exchange and tax. |
This metric gives an
indication of the average percentage return generated by the
Group's core business. |
Total investment
return |
Total investment
return measures investment income and net realised and unrealised
gains and losses produced by the Group’s managed investment
portfolio. |
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 the Group aims for a degree of
investment portfolio return. |
NOTE REGARDING RPI METHODOLOGY
LANCASHIRE’S RENEWAL PRICE INDEX (“RPI”) IS AN INTERNAL
METHODOLOGY THAT ITS MANAGEMENT USES TO TRACK TRENDS 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 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 LANCASHIRE’S PORTFOLIO. 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”, “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 GROUP’S FINANCIAL POSITION, 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
HURRICANE MICHAEL AND THE WILDFIRES WHICH IMPACTED PARTS OF
CALIFORNIA DURING THE FOURTH
QUARTER OF 2018, HURRICANE FLORENCE, THE TYPHOONS AND MARINE LOSSES
THAT OCCURRED IN THE THIRD QUARTER OF 2018, HURRICANES HARVEY, IRMA
AND MARIA AND THE EARTHQUAKES IN MEXICO THAT OCCURRED IN THE THIRD QUARTER OF
2017 AND THE WILDFIRES WHICH IMPACTED PARTS OF CALIFORNIA DURING THE FOURTH 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
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’ 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; 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; 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 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; AND THE
IMPACT OF “BREXIT” (FOLLOWING THE UK’S NOTIFICATION TO THE EUROPEAN
COUNCIL UNDER ARTICLE 50 OF THE TREATY ON EUROPEAN UNION ON
29 MARCH 2017) AND FUTURE
NEGOTIATIONS REGARDING THE UK’S RELATIONSHIP WITH THE EU 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. 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.
Consolidated statement of
comprehensive income
|
Six
months |
Six months |
|
2019 |
2018 |
|
$m |
$m |
|
|
|
Gross premiums
written |
429.6 |
|
392.5 |
|
Outwards reinsurance
premiums |
(207.0 |
) |
(158.5 |
) |
Net premiums
written |
222.6 |
|
234.0 |
|
|
|
|
Change in unearned
premiums |
(104.2 |
) |
(87.5 |
) |
Change in unearned
premiums on premiums ceded |
94.3 |
|
71.6 |
|
Net premiums
earned |
212.7 |
|
218.1 |
|
|
|
|
Net investment
income |
19.6 |
|
15.9 |
|
Net other investment
income |
7.3 |
|
3.1 |
|
Net realised (losses)
gains and impairments |
(0.2 |
) |
(2.0 |
) |
Share of profit (loss)
of associate |
0.1 |
|
(2.4 |
) |
Other income |
2.8 |
|
2.8 |
|
Net foreign exchange
losses |
(2.3 |
) |
(1.4 |
) |
Total net
revenue |
240.0 |
|
234.1 |
|
|
|
|
Insurance losses and
loss adjustment expenses |
152.0 |
|
51.1 |
|
Insurance losses and
loss adjustment expenses recoverable |
(78.6 |
) |
(18.2 |
) |
Net insurance
acquisition expenses |
59.9 |
|
62.7 |
|
Equity based
compensation |
3.8 |
|
3.8 |
|
Other operating
expenses |
50.8 |
|
50.8 |
|
Total
expenses |
187.9 |
|
150.2 |
|
|
|
|
Results of
operating activities |
52.1 |
|
83.9 |
|
Financing costs |
11.6 |
|
9.0 |
|
Profit before
tax |
40.5 |
|
74.9 |
|
Tax (charge)
credit |
(1.4 |
) |
0.8 |
|
Profit after
tax |
39.1 |
|
75.7 |
|
Non-controlling
interests |
— |
|
0.1 |
|
Profit after tax
attributable to Lancashire |
39.1 |
|
75.8 |
|
|
|
|
Net change in
unrealised gains/losses on investments |
30.4 |
|
(11.6 |
) |
Tax (charge) credit on
net change in unrealised gains/losses on investments |
(0.8 |
) |
0.2 |
|
Other comprehensive
income (loss) |
29.6 |
|
(11.4 |
) |
|
|
|
Total comprehensive
income attributable to Lancashire |
68.7 |
|
64.4 |
|
|
|
|
Net loss ratio |
34.5 |
% |
15.1 |
% |
Net acquisition cost
ratio |
28.2 |
% |
28.7 |
% |
Administrative expense
ratio |
23.9 |
% |
23.3 |
% |
Combined
ratio |
86.6 |
% |
67.1 |
% |
|
|
|
Basic earnings per
share |
$ |
0.19 |
|
$ |
0.38 |
|
Diluted earnings per
share |
$ |
0.19 |
|
$ |
0.38 |
|
|
|
|
Change in fully
converted book value per share |
6.9 |
% |
5.9 |
% |
Consolidated balance sheet
|
As at 30 June 2019 |
As at 30 June 2018 |
As at 31 December 2018 |
|
$m |
$m |
$m |
Assets |
|
|
|
|
|
|
|
Cash and cash
equivalents |
232.8 |
|
212.4 |
|
154.6 |
|
Accrued interest
receivable |
6.6 |
|
6.7 |
|
6.8 |
|
Investments |
1,581.3 |
|
1,689.4 |
|
1,659.0 |
|
Inwards premiums
receivable from insureds and cedants |
425.4 |
|
384.7 |
|
318.1 |
|
Reinsurance
assets |
|
|
|
- Unearned premiums on
premiums ceded |
151.0 |
|
112.8 |
|
56.7 |
|
- Reinsurance
recoveries |
306.4 |
|
238.7 |
|
322.9 |
|
- Other
receivables |
43.2 |
|
20.5 |
|
9.8 |
|
Other receivables |
56.2 |
|
45.3 |
|
35.3 |
|
Investment in
associate |
65.2 |
|
36.5 |
|
67.1 |
|
Property, plant and
equipment |
1.3 |
|
2.0 |
|
1.4 |
|
Right-of-use
asset |
19.5 |
|
— |
|
— |
|
Deferred acquisition
costs |
84.8 |
|
80.9 |
|
74.2 |
|
Intangible assets |
153.8 |
|
153.8 |
|
153.8 |
|
Total
assets |
3,127.5 |
|
2,983.7 |
|
2,859.7 |
|
|
|
|
|
Liabilities |
|
|
|
Insurance
contracts |
|
|
|
- Losses and loss
adjustment expenses |
884.1 |
|
826.8 |
|
915.0 |
|
- Unearned
premiums |
474.8 |
|
438.4 |
|
370.6 |
|
- Other payables |
40.8 |
|
39.9 |
|
36.0 |
|
Amounts payable to
reinsurers |
178.2 |
|
113.2 |
|
81.3 |
|
Deferred acquisition
costs ceded |
11.4 |
|
4.3 |
|
7.1 |
|
Other payables |
54.7 |
|
67.6 |
|
45.4 |
|
Corporation tax
payable |
2.1 |
|
0.3 |
|
0.9 |
|
Deferred tax
liability |
12.3 |
|
14.9 |
|
11.2 |
|
Interest rate
swap |
1.4 |
|
0.1 |
|
0.4 |
|
Lease liability |
22.5 |
|
— |
|
— |
|
Long-term debt |
324.1 |
|
325.1 |
|
324.3 |
|
Total
liabilities |
2,006.4 |
|
1,830.6 |
|
1,792.2 |
|
|
|
|
|
Shareholders’
equity |
|
|
|
Share capital |
101.0 |
|
100.7 |
|
101.0 |
|
Own shares |
(5.3 |
) |
(5.0 |
) |
(9.4 |
) |
Other reserves |
867.9 |
|
860.6 |
|
869.0 |
|
Accumulated other
comprehensive income (loss) |
15.3 |
|
(12.9 |
) |
(14.3 |
) |
Retained earnings |
141.9 |
|
209.4 |
|
120.9 |
|
Total
shareholders’ equity attributable to equity
shareholders of Lancashire |
1,120.8 |
|
1,152.8 |
|
1,067.2 |
|
Non-controlling
interest |
0.3 |
|
0.3 |
|
0.3 |
|
Total shareholders’
equity |
1,121.1 |
|
1,153.1 |
|
1,067.5 |
|
Total liabilities
and shareholders’ equity |
3,127.5 |
|
2,983.7 |
|
2,859.7 |
|
|
|
|
|
Basic book value per
share |
$5.57 |
|
$5.74 |
|
$5.31 |
|
Fully converted book
value per share |
$5.52 |
|
$5.70 |
|
$5.26 |
|
Consolidated statements of cash
flows
|
Six months |
Six months |
Twelve months |
|
2019 |
2018 |
2018 |
|
$m |
$m |
$m |
Cash flows used in
operating activities |
|
|
|
Profit before tax |
40.5 |
|
74.9 |
|
33.6 |
|
Tax paid |
— |
|
(3.3 |
) |
(3.3 |
) |
Depreciation |
2.0 |
|
0.7 |
|
1.4 |
|
Interest expense on
long-term debt |
9.4 |
|
8.8 |
|
18.1 |
|
Interest expense on
finance leases |
0.7 |
|
— |
|
— |
|
Interest and dividend
income |
(19.2 |
) |
(17.5 |
) |
(36.6 |
) |
Net amortisation of
fixed maturity securities |
(1.0 |
) |
0.3 |
|
(0.6 |
) |
Equity based
compensation |
3.8 |
|
3.8 |
|
7.9 |
|
Foreign exchange
losses (gains) |
2.0 |
|
(0.2 |
) |
(4.3 |
) |
Share of loss (profit)
loss of associate |
(0.1 |
) |
2.4 |
|
7.1 |
|
Net other investment
(income) losses |
(7.3 |
) |
(3.1 |
) |
3.9 |
|
Net realised losses
(gains) and impairments |
0.2 |
|
2.0 |
|
5.1 |
|
Net unrealised losses
(gains) on interest rate swaps |
1.0 |
|
(1.9 |
) |
(1.6 |
) |
Changes in operational
assets and liabilities |
|
|
|
- Insurance and
reinsurance contracts |
(51.2 |
) |
(87.3 |
) |
(51.5 |
) |
- Other assets and
liabilities |
(9.0 |
) |
17.0 |
|
18.3 |
|
Net cash flows used
in operating activities |
(28.2 |
) |
(3.4 |
) |
(2.5 |
) |
Cash flows from
(used in) investing activities |
|
|
|
Interest and dividends
received |
19.4 |
|
16.9 |
|
35.9 |
|
Purchase of property,
plant and equipment |
(0.6 |
) |
(0.1 |
) |
(0.2 |
) |
Investment in
associate |
2.0 |
|
20.5 |
|
(14.8 |
) |
Purchase of
investments |
(522.9 |
) |
(530.1 |
) |
(1,143.1 |
) |
Proceeds on sale of
investments |
639.6 |
|
484.1 |
|
1,115.8 |
|
Net cash flows from
(used in) investing activities |
137.5 |
|
(8.7 |
) |
(6.4 |
) |
Cash flows used in
financing activities |
|
|
|
Interest paid |
(9.4 |
) |
(8.8 |
) |
(18.0 |
) |
Lease liabilities
paid |
(1.8 |
) |
— |
|
— |
|
Dividends paid |
(20.1 |
) |
(20.0 |
) |
(70.2 |
) |
Distributions by
trust |
(1.0 |
) |
(2.5 |
) |
(2.6 |
) |
Purchase of shares
from non-controlling interest |
— |
|
— |
|
(0.3 |
) |
Net cash flows used
in financing activities |
(32.3 |
) |
(31.3 |
) |
(91.1 |
) |
Net increase
(decrease) in cash and cash equivalents |
77.0 |
|
(43.4 |
) |
(100.0 |
) |
Cash and cash
equivalents at the beginning of year |
154.6 |
|
256.5 |
|
256.5 |
|
Effect of exchange
rate fluctuations on cash and cash equivalents |
1.2 |
|
(0.7 |
) |
(1.9 |
) |
Cash and cash
equivalents at end of period |
232.8 |
|
212.4 |
|
154.6 |
|