LANCASHIRE
HOLDINGS LIMITED
27 July
2022
Hamilton,
Bermuda
Lancashire Holdings Limited (“Lancashire” or “the Group”)
announces its results for the six months ended 30 June 2022.
Highlights:
- Gross premiums written increased by 34.6% year-on-year to
$938.1 million
- Group RPI (Renewal Price Index) of 106%
- Excellent underwriting performance, with a combined ratio of
78.2%
- Profit before tax of $78.0
million
- Total net investment return of negative 3.8%, primarily
driven by unrealised losses
- Interim dividend of $0.05 per
common share, in line with our dividend policy
|
Six months ended |
|
30
June 2022 |
30
June 2021 |
| Financial
highlights ($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 |
$6.33 |
| Dividends per common
share for the financial year |
$0.05 |
$0.05 |
| Diluted 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.
Alex
Maloney, Group Chief Executive Officer, commented:
“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 $938.1 million. We
continue to see attractive rate increases across a number of
business lines with a renewal price index for the first six months
of 106%.
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 $78.0 million.
We previously gave a range of $20
million to $30 million for
potential incurred losses within Ukraine. Our ultimate net losses incurred
within Ukraine since the start of
the conflict are towards the lower end of our initial range at
$22.0 million (excluding the impact
of reinstatement premiums).
We continue to closely monitor our exposure with regards to
Russia, which remains a complex
and fluid situation. We believe that any potential losses would be
within our risk tolerances, and would not impact our strategy or
our ability to deliver on our ambitious growth plans.
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
Ukraine.
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 $85.8
million. This includes $83.0
million of unrealised losses on our fixed maturity AFS
portfolio due to market value changes. Overall, our investment
strategy remains conservative and the return to a higher interest
rate environment should boost future earnings in our portfolio.
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.”
Underwriting results
|
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
Australia and new business in
property construction. This class had an overall RPI of 106%.
Aviation
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.
Energy
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 Gulf of
Mexico class resulted in a reduction in premium that was
more than offset by new business in other classes.
Marine
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 $46.2 million
or 17.2% compared to the first six months of 2021.
Net insurance losses
The Group’s net loss ratio for the six months ended 30 June 2022 was 37.9% compared to 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% compared to 56.3% in the same
period in 2021.
During the first six months of 2022, the Group 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 $51.2
million of net losses for Winter
Storm Uri, excluding the impact of reinstatement premiums.
Absent Winter Storm Uri our net loss
ratio would have been 22.6% in the same period.
Prior year favourable development for the first six months of
2022 was $64.4 million, compared to
$53.6 million 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.
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 |
2022 |
2021 |
|
$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.
Investments
Net investment income, excluding realised and unrealised gains
and losses, was $17.3 million for the
first six months of 2022, an increase of 17.7% compared to
2021.
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 $85.8
million. This includes $83.0
million of unrealised losses on our fixed maturity AFS
portfolio for the first six months of 2022. The losses were
primarily driven by the Federal Reserve’s response to inflation and
volatile financial markets. The yield curve flattened
significantly, and spreads widened for investment grade corporate
debt and bank loans.
The Group’s investment portfolio, including unrealised gains and
losses, returned 0.3% (gain of $7.4
million) for the first six months of 2021. Fixed maturity
portfolio returns were flat to slightly negative offset by positive
returns from other investments, including the hedge funds and
principal protected notes.
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% |
Third Party Capital Management
The total contribution from third party capital activities
consisted of the following items:
| For the six months
ended 30 June |
2022 |
2021 |
|
$m |
$m |
|
|
|
| Lancashire Capital
Management underwriting fees |
0.9 |
2.4 |
| Lancashire Capital
Management profit 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 Lancashire Capital Management profit commission
recognised is driven by the timing of loss experience, settlement
of claims and collateral release and therefore varies year on year.
The share of profit of associate reflects Lancashire’s equity
interest in the Lancashire Capital Management managed vehicle.
Other operating expenses
Other operating expenses were $68.4
million in the first six months of 2022 compared to
$66.1 million in the first six months
of 2021. A growth in headcount has resulted in higher underlying
employee remuneration costs compared to the prior year alongside an
increase in audit fees, travel costs and fees and subscriptions.
The weakening Sterling/U.S. Dollar exchange rate relative to the
prior year partly offset this increase in the underlying cost
base.
Capital
As at 30 June 2022, total capital
available to Lancashire was approximately $1.8 billion, comprising shareholders’ equity of
$1.4 billion and $0.4 billion of long-term debt. Tangible capital
was $1.7 billion. Leverage was 24.5%
on total capital and 26.9% on total tangible capital. Total capital
and total tangible capital as at 30 June
2021 were $2.0 billion and
$1.8 billion respectively.
Share repurchases
During the six months ended 30 June
2022, Lancashire repurchased 2,431,517 of its common shares
(out of a maximum Board-approved limit for this share repurchase of
3,000,000 common shares). These repurchases were made pursuant to
and in accordance with the general authority granted by
shareholders at Lancashire's Annual General Meeting held on
27 April 2022 and will be used to
satisfy a number of future exercises of awards under the Company’s
Restricted Share Scheme.
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
27 April 2022, Lancashire intends to
purchase up to a further 3,000,000 of its common shares of
$0.50 each in order to satisfy a
number of future exercises of awards under its Restricted Share
Scheme. A further announcement in accordance with Listing Rule 12.4
will be made in due course.
Dividends
Lancashire’s Board of Directors declared on 26 July 2022 an interim dividend of $0.05 (approximately £0.04) per common share,
which will result in an aggregate payment of approximately
$12.0 million. The dividend will be
paid in Pounds Sterling on 2 September
2022 (the “Dividend Payment Date”) to shareholders of record
on 5 August 2022 (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.
Financial Information
The Unaudited Condensed Interim Consolidated Financial
Statements for the six months ended 30 June
2022 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 Wednesday 27 July 2022.
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 |
PIN
code: 80848891#
|
URL for additional international dial in numbers:
https://events-ftp.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://onlinexperiences.com/Launch/QReg/ShowUUID=AD44C7F8-612E-4DA6-9DC9-B2E299EA3555
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 07703 330 199 |
| 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 (unchanged from 2021):
|
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.
Lancashire Syndicates Limited 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 $1.8 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.
The Bermuda Monetary Authority (“BMA”) is the Group Supervisor
of the Lancashire Group.
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 UK domestic law by
virtue of the European Union (Withdrawal) Act 2018, as amended, 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 27 July 2022.
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 European
Securities and Markets Authority, as applied by the FCA,
information on APMs which the Group uses is described below. This
information has not been audited. All amounts, excluding share
data, ratios, percentages or where otherwise stated, are in
millions of U.S. dollars.
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. The net loss ratio may also be presented with net
insurance losses absent catastrophe and other large losses.
|
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:
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.
|
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:
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.
|
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):
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
less than 100%.
|
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 $1.00 of net premium earned in an accident
year.
|
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 Employee Benefit Trust.
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 |
$ 0.10 |
| Closing FCBVS |
$ 5.67 |
$ 6.33 |
| Change 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 |
| LSL Syndicate 2010 -
external Names portion of gross premiums written
(unconsolidated) |
100.0 |
90.8 |
| 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 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. FOR A DESCRIPTION OF SOME OF THESE FACTORS, SEE THE
GROUP’S ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2021. IN ADDITION TO THOSE FACTORS
CONTAINED IN THE GROUP’S 2021 ANNUAL REPORT AND ACCOUNTS, ANY
FORWARD-LOOKING STATEMENTS CONTAINED IN THIS RELEASE MAY BE
AFFECTED BY: THE IMPACT OF THE ONGOING CONFLICT IN UKRAINE, INCLUDING ANY ESCALATION OR EXPANSION
THEREOF, ON THE GROUP’S CLIENTS, RESERVES, THE CONTINUED
UNCERTAINTY OF THE SITUATION IN RUSSIA, INCLUDING ISSUES RELATING TO COVERAGE
AND THE IMPACT OF SANCTIONS, THE SECURITIES IN OUR INVESTMENT
PORTFOLIO AND ON GLOBAL FINANCIAL MARKETS GENERALLY, AS WELL AS ANY
GOVERNMENTAL OR REGULATORY CHANGES, ARISING THEREFROM; AND A
CONTINUATION IN FINANCIAL MARKET VOLATILITY AND OTHER ADVERSE
MARKET CONDITIONS GENERALLY. ALL FORWARD-LOOKING STATEMENTS IN THIS
RELEASE OR OTHERWISE 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
AND THE REPORT AND ACCOUNTS NOTED ABOVE WHICH COULD CAUSE ACTUAL
RESULTS TO DIFFER BEFORE MAKING AN INVESTMENT DECISION.
Consolidated statement of
comprehensive (loss) income
For the six months ended 30 June 2022
|
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 recoverable |
(40.6) |
(15.1) |
| 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 investments |
1.5 |
0.4 |
| Other comprehensive
loss |
(81.5) |
(14.1) |
|
|
|
| Total comprehensive
(loss) income attributable to Lancashire |
(7.1) |
33.6 |
|
|
|
| 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 2022 |
As at
30 June 2021 |
As at
31 December 2021 |
|
$m |
$m |
$m |
| Assets |
|
|
|
|
|
|
|
| Cash and cash
equivalents |
390.6 |
563.4 |
517.7 |
| Accrued interest
receivable |
8.3 |
7.2 |
7.1 |
| Investments |
2,132.8 |
1,977.9 |
2,048.1 |
| Inwards premiums
receivable from insureds and cedants |
755.5 |
550.7 |
490.6 |
| Reinsurance
assets |
|
|
|
| - Unearned premiums on
premiums ceded |
236.2 |
195.4 |
117.8 |
| - Reinsurance
recoveries |
428.8 |
281.6 |
418.8 |
| - Other
receivables |
41.5 |
22.3 |
38.2 |
| Other receivables |
32.0 |
21.0 |
18.8 |
| Investment in
associate |
87.6 |
89.0 |
118.7 |
| Property, plant and
equipment |
0.6 |
1.1 |
0.8 |
| Right-of-use
assets |
12.1 |
14.8 |
13.4 |
| Deferred acquisition
costs |
173.9 |
117.8 |
121.6 |
| 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
adjustment expenses |
1,311.4 |
978.0 |
1,291.1 |
| - Unearned
premiums |
898.4 |
668.5 |
597.9 |
| - Other payables |
30.6 |
20.7 |
20.3 |
| Amounts payable to
reinsurers |
295.3 |
214.6 |
205.6 |
| Deferred acquisition
costs ceded |
25.9 |
19.9 |
27.0 |
| Other payables |
51.9 |
58.7 |
37.4 |
| Corporation tax
payable |
1.7 |
2.4 |
1.6 |
| Deferred tax
liability |
12.8 |
14.9 |
12.2 |
| 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
comprehensive (loss) income |
(78.6) |
19.5 |
2.9 |
| Retained earnings |
134.0 |
205.9 |
83.9 |
| Total shareholders’
equity attributable to equity shareholders of LHL |
1,372.7 |
1,553.6 |
1,412.3 |
| Non-controlling
interests |
0.5 |
0.1 |
0.5 |
| Total shareholders’
equity |
1,373.2 |
1,553.7 |
1,412.8 |
| Total liabilities
and shareholders’ equity |
4,462.2 |
3,996.7 |
4,069.5 |
|
|
|
|
Consolidated statement of cash
flows
For the six months ended 30 June 2022
|
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 notes |
— |
12.8 |
| Net realised /
unrealised losses on interest rate swaps |
— |
3.4 |
| 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 activities |
(51.1) |
66.9 |
| Net (decrease)
increase in cash and cash equivalents |
(120.2) |
132.2 |
| Cash and cash
equivalents at the beginning of year |
517.7 |
432.4 |
| Effect of exchange
rate fluctuations on cash and cash equivalents |
(6.9) |
(1.2) |
| Cash and cash
equivalents at end of period |
390.6 |
563.4 |