Specialist insurance and reinsurance group Lancashire Holdings continued its story of expansion throughout 2021, reporting a doubling in size of its property and casualty reinsurance portfolio during the year.
But high levels of natural disasters and weather-related losses meant Lancashire posted a loss for the year, which had a ripple effect on its third-party capital management business, Lancashire Capital Management.
Overall gross premiums were up 50% across the Lancashire business in 2021 as the company benefited from higher pricing and some of the best underwriting market conditions in years.
Non-life reinsurance premiums increased by 100% over the year, while insurance increased by 43%, aviation by 17%, energy by 28% and marine by 2.2%.
This rapid expansion of property and casualty reinsurance also provided opportunities for Lancashire Capital Management, the company’s third-party capital-backed reinsurance underwriting arm throughout the year as well.
Overall, however, $306.4 million of severe weather events and losses took Lancashire’s combined ratio for the year 2021 to 107.3%.
This led the company to report a loss for the year of $92.9 million.
Alex Maloney, Group Chief Executive, commented on the year: “2021 has seen Lancashire successfully continue its long-term franchise development and expand into a number of new classes, with gross written premiums increasing by 50%.A large portion of this premium will continue to earn in 2022 and should ensure earnings resilience in the years to come.Executing this aspect of our strategy means we are well positioned for profitable growth under market conditions. the most attractive of recent years.
“However, 2021 has also been poor for returns. With Winter Storm Uri, Hurricane Ida, European storms and floods, and US Midwest tornadoes, among others, industry-wide estimates place insured losses from natural catastrophes between $105 billion and $130 billion, making it one of the costliest years on record. These events show the critical role industry plays in providing risk solutions that protect people, economies and businesses from uncertainty. When the worst happens it means disruption and hardship for many and we recognize the human impacts of these events.
“Financial losses are always disappointing, but 2021 was only the second full year in which Lancashire has recorded an overall loss since its inception. The strong underlying profitability after nearly four years of rate hikes, such as the illustrates the improvement in our loss ratio through attrition, was offset by weather and large risk events during the year. Given the magnitude and frequency of industry losses in 2021, these insurance losses were in line with our expectations and risk tolerances. Importantly, we followed our usual conservative reserving philosophy to estimate the impact, which has served us well over time. .
“Nevertheless, the overall impact of these events was an overall loss of $92.9 million, a combined ratio of 107.3% and a negative change in FCBVS of 5.8% for the year. Of this loss overall, $31.6 million relates to unrealized investment losses.
“Despite the disappointing returns of the past year, we are fully energized by the outlook for 2022 and profitable growth remains our primary objective.
“Our strong capital position allows us to execute our ambitious business plans in which we expect further rate increases on our existing portfolio, with new underwriting teams delivering additional premiums and new business growth across our lines. disaster and not disaster.”
Gross premiums during the year reached $1.2 billion for Lancashire as the company continued to deploy capital as market conditions improved.
Lancashire’s aim is to maximize the underwriting opportunity and the growth and expansion has truly reflected this in 2021, with a significantly expanded book created and a strong track built to continue adding scale.
The company expanded into the property catastrophe and property retrocession lines, using new capital it had raised for 2021, where it said the ratings environment continued to improve in 2021.
Lancashire also retained more risk in 2021, although its own external reinsurance and retroactive expenses increased by 39% or $114 million for the year.
Net losses were $470.5 million for the year, which was the driving factor behind the overall loss as high levels of severe weather and disasters weighed on returns for the business.
At Lancashire Capital Management Limited, the third party guaranteed capital reinsurance underwriting arm, 2021 was a positive year in many respects, although catastrophe claims activity weighed on its contribution to the business.
Underwriting fees for the year increased slightly to $10.6 million for 2021, while earned profit commissions climbed 189% to $5.2 million for the year, led to overall third-party capital fee income growth of 34% for the year thanks to guaranteed retro reinsurance products. .
But the catastrophe loss activity and Lancashire’s share of it resulted in a loss of $3.9 million via the company’s equity stake in the third-party vehicle, reducing overall contributions from the activity guaranteed retro reinsurance for the full year.
Lancashire said the loss, in terms of its stake in Lancashire Capital Management, was mainly due to natural disaster losses in the first and third quarters of 2021.
Some additional value could flow back to Lancashire from the third-party capital arm over the coming year, we imagine.
But the increase in underwriting charges and profit commissions reflects the growth of Lancashire Capital Management’s strategy over the past few years and given the expansion of the parent companies in 2021, the unit should be in a position to strength for 2022.
It should also be noted that the LCM vehicle tends to take profits from previous years as warranties may be unlocked and this may reoccur after the major loss activity of 2021.
With a larger and stronger underwritten portfolio and clear opportunities for its multi-class guaranteed reinsurance product through 2022, particularly in the challenging retro market, the third-party capital unit should continue to develop its earnings potential for the company until 2022 and offer a contribution, if the catastrophic losses allow it.