TIDMLRE
LANCASHIRE HOLDINGS LIMITED
28 July 2021
Hamilton, Bermuda
Lancashire Holdings Limited ("Lancashire" or "the Group") announces its results
for the six months ended 30 June 2021.
Highlights:
* Gross premiums written increased by 40.7% year on year to $697.2 million,
with a positive renewal price index of 111%.
* Excellent underwriting performance, with a combined ratio of 80.7% (or
65.7% excluding Winter Storm Uri).
* Further hiring of new teams, continuing to build out Lancashire's book of
business.
* Successful long-term debt refinancing in the first half of 2021.
* Interim dividend of $0.05 per common share, in line with our dividend
policy.
Six months ended
30 June 2021 30 June 2020
Financial highlights ($m)
Gross premiums written 697.2 495.5
Net premiums written 427.9 282.5
Underwriting profit 127.1 39.4
Profit (loss) before tax 54.1 (23.0)
Comprehensive income (loss)1 33.6 (14.7)
Change in FCBVS2,3 2.4 % 7.2 %
Financial ratios
Total investment return 0.3 % 1.3 %
Net loss ratio 38.4 % 57.4 %
Combined ratio 80.7 % 106.9 %
Per share data
Fully converted book value per share $6.33 $6.16
Dividends per common share for the financial $0.05 $0.05
year
Diluted earnings (loss) per share $0.19 $(0.13)
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.
3 The change in FCBVS excluding the impact of the capital raise in June 2020 as
at 30 June 2020 would have been (1.0%).
Alex Maloney, Group Chief Executive Officer, commented:
"I am particularly pleased with the Group's strong premium growth of 40.7% in
the first half of the year. It has always been our strategy to write more
business and deploy more of our capital when market conditions dictate, and
these results amply demonstrate our persistent focus on delivering on our
strategic aims. The Group achieved a growth in FCBVS of 2.4% for the half year,
absent the one off debt redemption costs, the growth in FCBVS would have been
3.5%. The rating environment continues to be favourable for most of the
products we sell, giving rise to a renewal price index of 111% and considerable
organic growth. Importantly, we are starting to reap the benefit of the
cumulative rate increases we have achieved over the past three years on our
profitability. This is illustrated by our combined ratio of 80.7% for the half
year.
My thanks go to our colleagues, who during this last year have demonstrated
their ability to work flexibly at home and in the office. We are currently able
to operate a flexible working model, with many of our people having returned to
a "COVID secure" office environment in both London and Bermuda.
Looking ahead, we expect the rating environment to remain positive. In
addition, the new teams that we have recently hired are expected to contribute
to the Group's growth in the future. Our continued commitment to underwriting
discipline will be central to our success."
Natalie Kershaw, Group Chief Financial Officer, commented:
"For the first half of 2021, we were very pleased to generate an underwriting
profit of $127.1 million despite the impact of Winter Storm Uri in the first
quarter of 2021. We did not incur any other significant losses and had positive
reserve releases of $53.6 million in the period. Furthermore, the Group's loss
reserves for COVID-19 remain stable.
Our overall profits were impacted by one-off costs of $18.7 million due to the
successful Tier 2 debt issuance and related refinancing in the period, which
has improved the capital efficiency of our balance sheet. The investment
portfolio remains relatively conservative, with a significant weighting to
fixed income assets. As a result, our investment returns, including unrealised
gains and losses, were negatively impacted by the yield curve steepening in the
first quarter of the year, resulting in a total investment return of 0.3% for
the first six months of 2021.
We started the year in a strong capital position following the successful $340
million equity raise in 2020. This, together with our recent debt refinancing,
has enabled us to grow our premium base substantially. Given premium pricing is
still improving across the majority of our book, we would expect to retain any
profits from 2021, over and above the payment of an ordinary dividend, to fund
further growth.
In line with our stated ordinary dividend policy, on 27 July 2021 the Board
declared an ordinary interim dividend of $0.05 per share."
Underwriting results
Six months ended 30 June
Gross premiums written 2021 2020 Change Change RPI
$m $m $m % %
Property and casualty reinsurance 377.0 217.9 159.1 73.0 111
Property and casualty insurance 106.5 82.2 24.3 29.6 107
Aviation 58.4 50.2 8.2 16.3 113
Energy 107.6 91.7 15.9 17.3 112
Marine 47.7 53.5 (5.8) (10.8) 110
Total 697.2 495.5 201.7 40.7 111
As disclosed in our Q1 2021 trading statement on 29 April 2021, the Group's
operating segments for the purposes of segmental reporting have been revised in
the current year. The prior period comparatives have been represented in
conformity with the current year view.
Gross premiums written increased by 40.7% in the first six months of 2021
compared to the same period in 2020, with the most significant growth in dollar
terms occurring in the property and casualty reinsurance segment. The increase
in this segment was primarily driven by new business and rate increases in the
property catastrophe and property retrocession classes of business as we were
able to grow into the hardening market at overall RPIs of 111%. New
underwriting teams in the specialty reinsurance and accident and health classes
of business have also contributed to the growth in the first half of 2021 and
the Group has added casualty reinsurance to its underwriting portfolio during
this period.
The increase in the property and casualty insurance segment was primarily due
to growth in the property direct and facultative class of business as we
continued to build out our book at RPIs of 108%. We also saw opportunities to
write new business in the political risk class which benefited from increasing
transactions globally and opportunities in new territories.
Although the first half of the year is not a major renewal period for aviation,
this segment saw the highest overall RPI for the first six months of 2021 at
113%. We also added some new business in the aviation hull and liability class
during this period.
The increase in the energy segment was primarily driven by new business in the
downstream and liability classes, where the market was more dislocated. We have
also written more business in the power market as pricing continues to improve.
These increases were somewhat offset by a reduction in premium in the upstream
class of business where rate adequacy was more challenging and where we had
benefited from some positive exposure increases in the corresponding period of
2020.
Marine represented the only segment that experienced a reduction in premium in
the first six months of 2021 compared to the same period in 2020. Although we
did write some new marine business across most classes, this was offset by
timing differences in the marine liability and marine hull classes where a
number of policies written in 2020 on a multi-year or non-annual basis were not
yet up for renewal, plus some non-renewals where terms were unsatisfactory.
Outwards reinsurance premiums
Ceded reinsurance premiums increased by $56.3 million, or 26.4%, in the first
six months of 2021 compared to the same period in 2020, although the percentage
of premiums ceded as a proportion of premiums written decreased as we retained
more risk in the improving market. The increase in spend was primarily due to
the additional outwards reinsurance cover purchased for the new lines of
business entered into and the overall growth in gross premiums written during
the first half of 2021. The increase was also driven by a combination of rate
increases, additional limits purchased and the timing of renewals.
Net insurance losses
The Group's net loss ratio for the first six months of 2021 was 38.4% compared
to 57.4% for the same period in 2020. The accident year loss ratio for the
first six months of 2021, including the impact of foreign exchange
revaluations, was 56.3% compared to 55.4% for the same period in 2020.
Our net losses recorded in the first half of 2021 for Winter Storm Uri,
including the impact of reinsurance and inwards and outwards reinstatement
premiums, were $44.8 million and within the previously guided range. In the
first half of 2020, our net losses from the COVID-19 pandemic, including the
impact of reinsurance and inwards and outwards reinstatement premiums were
$41.6 million. The Group's COVID-19 related losses remained stable in the first
half of 2021.
Excluding the impact of foreign exchange revaluations, the table below shows
the impact of Winter Storm Uri on the Group's net loss ratio for the first six
months of 2021:
Net Net Loss
Losses ratio
$m %
Reported at 30 June 2021 121.1 38.4 %
Absent Winter Storm Uri 69.9 22.6 %
Note: The table does not sum to a total due to the impact of reinstatement
premium.
Excluding the impact of foreign exchange revaluations, the table below shows
the impact of COVID-19 related losses on the Group's net loss ratio for the
first six months of 2020:
Net Net Loss
Losses ratio
$m %
Reported at 30 June 2020 132.4 57.4 %
Absent COVID-19 93.4 40.0 %
Note: The table does not sum to a total due to the impact of reinstatement
premium.
Prior year favourable development for the first six months of 2021 was $53.6
million, compared to $5.1 million of unfavourable development for the same
period in 2020. The favourable development in the first six months of 2021 was
primarily due to 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 unfavourable development during the first six months of 2020 was primarily
driven by a number of late reported losses from the 2019 accident year, reserve
deterioration on a couple of marine claims in the 2017 and 2019 accident years,
in addition to adverse development on the 2010 New Zealand earthquake in the
property and casualty reinsurance segment.
The table below provides further detail of the prior years' loss development by
class, excluding the impact of foreign exchange revaluations.
Six months ended 2021 2020
$m $m
Property and casualty reinsurance 6.7 (9.6)
Property and casualty insurance 17.6 5.9
Aviation 9.4 1.5
Energy 17.8 11.6
Marine 2.1 (14.5)
Total 53.6 (5.1)
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.
Six months ended 2021 2020
$m $m
2016 accident year and prior 16.7 (4.8)
2017 accident year 12.9 (5.2)
2018 accident year (1.6) 14.8
2019 accident year 1.8 (9.9)
2020 accident year 23.8 -
Total 53.6 (5.1)
Note: Positive numbers denote favourable development.
Investments
Net investment income, excluding realised and unrealised gains and losses, was
$14.7 million for the first six months of 2021, a decrease of 1.3% from the
same period in 2020. 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 $7.4 million for the first
six months of 2021 compared to a gain of $22.0 million for the first six months
of 2020.
The Group's investment portfolio, including unrealised gains and losses,
returned 0.3% for the first six months of 2021. The fixed maturity portfolios
had negative returns during the first quarter as the yield curve steepened
between the two-year and thirty-year part of the yield curve. These losses were
largely reversed in the second quarter due to a flattening of the yield curve
and narrowing of credit spreads. This resulted in year-to-date fixed maturity
portfolio returns that were flat to slightly negative. Positive returns from
other investments, including the hedge funds and principal protected notes,
allowed the overall investment portfolio to generate the slightly positive
return year-to-date.
The Group's investment portfolio, including unrealised gains and losses,
returned 1.3% for the first six months of 2020 where returns were driven by
significant volatility as a result of the COVID-19 pandemic. Fixed maturities
recouped all of the losses from the first quarter of 2020, with hedge funds,
bank loans and private investment funds showing small losses on a year-to-date
basis.
The managed portfolio was as follows:
As at As at As at
30 June 2021 31 December 2020 30 June 2020
Fixed maturity 77.7 % 82.8 % 81.0 %
securities
Cash and cash 12.1 % 8.5 % 11.8 %
equivalents
Hedge funds 4.5 % 4.0 % 4.5 %
Private investment funds 4.3 % 4.7 % 2.7 %
Index linked securities 1.3 % - -
Other investments 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 2021 31 December 2020 30 June 2020
Duration 1.8 years 2.0 years 1.9 years
Credit quality A+ A+ AA-
Book yield 1.3 % 1.7 % 1.8 %
Market yield 0.8 % 0.7 % 1.1 %
Third Party Capital Management
The total contribution from third party capital activities consisted of the
following items:
Six months ended 2021 2020
$m $m
Lancashire Capital Management underwriting fees 2.4 2.7
Lancashire Capital Management profit commission 3.6 -
Lancashire Syndicates' fees and profit commission 1.0 0.8
Total other income 7.0 3.5
Share of profit of associate 0.3 1.1
Total net third party capital management income 7.3 4.6
The amount of LCM profit commission recognised is driven by the timing of loss
experience, settlement of claims and collateral release and therefore varies
year on year. During the first six months of 2021 the Group recognised $3.6
million of profit commission from the 2019 underwriting cycle. The
share of profit of associate reflects Lancashire's equity interest in the LCM
managed vehicle.
Other operating expenses
Other operating expenses were $66.1 million in the first six months of 2021
compared to $55.1 million in the first six months of 2020. A growth in
headcount has resulted in higher employee remuneration costs compared to the
prior year. There has also been an increase in expenditure on project
consultancy costs. The strengthening of the Sterling/U.S. Dollar exchange rate
relative to the prior year also contributed to an overall increase in other
operating expenses.
Capital
As at 30 June 2021, total capital available to Lancashire was approximately
$2.0 billion, comprising shareholders' equity of $1.6 billion and $0.4 billion
of long-term debt. Tangible capital was $1.8 billion. Leverage was 22.3% on
total capital and 24.2% on total tangible capital. Total capital and total
tangible capital as at 30 June 2020 were $1.8 billion and $1.7 billion
respectively.
Long-term debt
In the first six months of 2021, the Group issued $450.0 million in aggregate
principal amount of 5.625% fixed-rate reset junior subordinated notes due 2041.
The long-term debt was issued in two tranches forming part of the same series
of notes, with $400.0 million issued on 18 March 2021 and $50.0 million issued
on 31 March 2021. The fixed-rate interest is payable semi annually.
The majority of the net proceeds from the long-term debt issuance were used by
the Group to redeem its then-existing senior and subordinated indebtedness,
with the balance being used for general corporate purposes. Included in
financing costs of $30.7 million for the first six months of 2021 were $18.7
million of one-off costs associated with the refinancing of the long-term debt.
The new long-term debt was approved as "Tier 2 Ancillary Capital" by the
Bermuda Monetary Authority and has further improved the Group's coverage ratio
of available statutory capital and surplus over the BMA's enhanced capital
requirement.
Dividends
Lancashire's Board of Directors declared on 27 July 2021 an interim dividend of
$0.05 (approximately £0.04) per common share, which will result in an aggregate
payment of approximately $12.2 million. The dividend will be paid in Pounds
Sterling on 3 September 2021 (the "Dividend Payment Date") to shareholders of
record on 6 August 2021 (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 2021 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 2:00pm
UK time / 10:00am Bermuda time / 9:00am EDT on Wednesday 28 July 2021. 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: 54650441#
URL for additional international dial in numbers: https://event.sharefile.com/
d-s84220495bb4b47b2abfff950788bcd35
The call can also be accessed via webcast, for registration and access: https:/
/onlinexperiences.com/Launch/QReg/ShowUUID=FBBFF553-6B93-4DA3-9904-5D7605554BD3
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 (unchanged from 2020):
Financial Financial Long Term
Strength Strength Issuer
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
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 $2.0 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 28 July 2021.
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.
30 30
June June
2021 2020
Net insurance losses 121.1 132.4
Divided by net 315.3 230.8
premiums earned
Net loss ratio 38.4 % 57.4 %
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 30
June June
2021 2020
Net acquisition 67.1 59.0
expense
Divided by net 315.3 230.8
premiums earned
Net acquisition cost 21.3 % 25.6 %
ratio
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 30
June June
2021 2020
Other operating 66.1 55.1
expenses
Divided by net 315.3 230.8
premiums earned
Net expense ratio 21.0 % 23.9 %
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 30
June June
2021 2020
Net loss ratio 38.4 % 57.4 %
Net acquisition cost 21.3 % 25.6 %
ratio
Net expense ratio 21.0 % 23.9 %
Combined Ratio 80.7 % 106.9 %
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 30
June June
2021 2020
Net insurance losses 175.2 128.3
current accident year
Net premiums earned 311.0 231.6
current accident year*
Accident year loss 56.3 % 55.4 %
ratio
*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 30
June June
2021 2020
Shareholders' 1,553,600,727.0 1,506,073,852
equity attributable
to the Group
Common voting 242,754,618 241,756,207
shares outstanding*
Shares relating to 2,859,880 2,868,612
dilutive restricted
stock
Fully converted 245,614,498 244,624,819
book value
denominator
Fully converted $ 6.33 $ 6.16
book value per
share
*Common voting shares outstanding comprise issued share capital less amounts
held in 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 30
June June
2021 2020
Opening FCBVS $ (6.28) $ (5.84)
Q1 dividend per share $ - $ -
Q2 dividend per share $ 0.10 $ 0.10
Closing FCBVS $ 6.33 $ 6.16
Change in FCBVS* 2.4 % 7.2 %
*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 30
June June
2021 2020
Total investment 7.4 22.0
return
Average invested 2,139.3 1,818.3
assets*
Approximate total 0.3 % 1.2 %
investment return
Reported total 0.3 % 1.3 %
investment return
*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 30
June June
2021 2020
Gross premiums written 697.2 495.5
by the group
LSL Syndicate 2010 - 90.8 81.5
external Names portion
of gross premiums
written
(unconsolidated)
LCM gross premiums 124.5 119.4
written
(unconsolidated)
Total gross premiums 912.5 696.4
written under
management
NOTE REGARDING RPI METHODOLOGY
THE RENEWAL PRICE INDEX ("RPI") IS AN INTERNAL METHODOLOGY THAT MANAGEMENT USES
TO TRACK TRS 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 TRS 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 DEPENT UPON
MANY FACTORS BESIDES THE TRS 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", "AIMS", "PLANS",
"PROJECTS", "FORECASTS", "GUIDANCE", "INTS", "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 FINANCIAL
POSITION OF THE COMPANY AND ITS SUBSIDIARIES (THE "GROUP"), THE GROUP'S TAX
RESIDENCY, LIQUIDITY, RESULTS OF OPERATIONS, PROSPECTS, GROWTH, CAPITAL
MANAGEMENT PLANS AND EFFICIENCIES, ABILITY TO CREATE VALUE, DIVID 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 CLAIMS WHICH ARISE AS A RESULT OF THE
COVID-19 PANDEMIC WHICH IS AN ONGOING EVENT AS AT THE DATE OF THIS RELEASE,
WINTER STORM URI WHICH OCCURRED DURING THE FIRST QUARTER OF 2021, HURRICANES
LAURA AND SALLY, MIDWEST DERECHO STORM AND THE WILDFIRES IN CALIFORNIA WHICH
OCCURRED DURING THE THIRD QUARTER OF 2020, TYPHOON HAGIBIS WHICH OCCURRED IN
THE FOURTH QUARTER OF 2019, HURRICANE DORIAN AND TYPHOON FAXAI WHICH OCCURRED
IN THE THIRD QUARTER OF 2019, THE CALIFORNIAN WILDFIRES AND HURRICANE MICHAEL
WHICH OCCURRED IN THE FOURTH QUARTER OF 2018, HURRICANE FLORENCE AND THE
TYPHOONS THAT OCCURRED IN THE THIRD QUARTER OF 2018; 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
ESTIMATIONS; 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 DIVIDS; 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' RATINGS 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 AND THE TIMING AND EXTENT OF ANY SUCH CHANGES; 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 HOLDINGS LIMITED 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; THE IMPACT OF THE EXPIRATION OF THE
TRANSITION PERIOD ON 31 DECEMBER 2020 FOLLOWING THE UK'S WITHDRAWAL FROM THE
EUROPEAN UNION ON THE GROUP'S BUSINESS, REGULATORY RELATIONSHIPS, UNDERWRITING
PLATFORMS OR THE INDUSTRY GENERALLY; THE FOCUS AND SCRUTINY ON ESG-RELATED
MATTERS REGARDING THE INSURANCE INDUSTRY FROM KEY STAKEHOLDERS OF THE GROUP;
AND ANY ADVERSE ASSET, CREDIT, FINANCING OR DEBT CAPITAL MARKET CONDITIONS
GENERALLY, WHICH MAY AFFECT THE ABILITY OF THE GROUP TO MANAGE ITS LIQUIDITY.
ALL FORWARD-LOOKING STATEMENTS IN THIS RELEASE SPEAK ONLY AS AT THE DATE OF
PUBLICATION. LANCASHIRE HOLDINGS LIMITED 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.
NOTE REGARDING COVID-19 LOSS:
OUR COVID-19 LOSS PRIMARILY RELATES TO EXPOSURES WITHIN OUR PROPERTY AND
CASUALTY REINSURANCE AND INSURANCE SEGMENTS. GIVEN THE ONGOING NATURE OF THE
COVID-19 PANDEMIC AND THE UNCERTAIN IMPACT ON THE INSURANCE INDUSTRY, THE
GROUP'S ACTUAL ULTIMATE LOSS MAY VARY, PERHAPS MATERIALLY, FROM THE CURRENT
ESTIMATE. THE FINAL SETTLEMENT OF ALL OF THESE CLAIMS IS LIKELY TO TAKE PLACE
OVER A CONSIDERABLE PERIOD OF TIME. LANCASHIRE DOES NOT WRITE THE FOLLOWING
LINES OF BUSINESS: TRAVEL INSURANCE; TRADE CREDIT; AND LONG-TERM LIFE AND PRIOR
TO THE COVID-19 PANDEMIC DID NOT WRITE DIRECTORS' AND OFFICERS' LIABILITY OR
MEDICAL MALPRACTICE. THE GROUP UNDERWRITES A SMALL NUMBER OF EVENT CANCELLATION
CONTRACTS AND HAS MINIMAL EXPOSURE THROUGH MORTGAGE, ACCIDENT AND HEALTH
BUSINESS.
Consolidated statement of comprehensive income (loss)
For the six months ended 30 June 2021
Six months Six months
2021 2020
$m $m
Gross premiums written 697.2 495.5
Outwards reinsurance premiums (269.3) (213.0)
Net premiums written 427.9 282.5
Change in unearned premiums (210.6) (129.3)
Change in unearned premiums on premiums ceded 98.0 77.6
Net premiums earned 315.3 230.8
Net investment income 14.7 14.9
Net other investment income 1.5 (15.5)
Net realised gains (losses) and impairments 5.7 10.6
Share of profit of associate 0.3 1.1
Other income 7.0 3.5
Net foreign exchange gains (losses) 1.6 (3.9)
Total net revenue 346.1 241.5
Insurance losses and loss adjustment expenses 136.2 159.2
Insurance losses and loss adjustment expenses (15.1) (26.8)
recoverable
Net insurance acquisition expenses 67.1 59.0
Equity based compensation 7.0 7.0
Other operating expenses 66.1 55.1
Total expenses 261.3 253.5
Results of operating activities 84.8 (12.0)
Financing costs 30.7 11.0
Profit (loss) before tax 54.1 (23.0)
Tax charge (6.2) (3.0)
Profit (loss) after tax 47.9 (26.0)
Non-controlling interests (0.2) -
Profit (loss) after tax attributable to Lancashire 47.7 (26.0)
Net change in unrealised gains/losses on investments (14.5) 12.0
Tax credit (charge) on net change in unrealised gains/ 0.4 (0.7)
losses on investments
Other comprehensive (loss) income (14.1) 11.3
Total comprehensive income (loss) attributable to 33.6 (14.7)
Lancashire
Net loss ratio 38.4 % 57.4 %
Net acquisition cost ratio 21.3 % 25.6 %
Administrative expense ratio 21.0 % 23.9 %
Combined ratio 80.7 % 106.9 %
Consolidated balance sheet
As at 30 June 2021
As at 30 As at 30 As at 31
June June December
2021 2020 2020
$m $m $m
Assets
Cash and cash equivalents 563.4 496.5 432.4
Accrued interest receivable 7.2 7.3 8.0
Investments 1,977.9 1,689.6 1,856.0
Inwards premiums receivable from insureds and 550.7 459.1 371.9
cedants
Reinsurance assets
- Unearned premiums on premiums ceded 195.4 167.1 97.4
- Reinsurance recoveries 281.6 323.1 338.7
- Other receivables 22.3 27.6 31.1
Other receivables 21.0 33.3 27.3
Investment in associate 89.0 81.5 127.2
Property, plant and equipment 1.1 0.9 0.7
Right-of-use asset 14.8 16.8 16.1
Deferred acquisition costs 117.8 96.8 89.0
Intangible assets 154.5 154.5 154.5
Total assets 3,996.7 3,554.1 3,550.3
Liabilities
Insurance contracts
- Losses and loss adjustment expenses 978.0 888.6 952.8
- Unearned premiums 668.5 535.7 457.9
- Other payables 20.7 26.4 22.5
Amounts payable to reinsurers 214.6 179.6 151.7
Deferred acquisition costs ceded 19.9 17.2 19.6
Other payables 58.7 42.0 46.1
Corporation tax payable 2.4 1.6 1.5
Deferred tax liability 14.9 12.2 10.9
Interest rate swap - 1.3 -
Lease liability 19.8 19.6 20.9
Long-term debt 445.5 323.7 327.5
Total liabilities 2,443.0 2,047.9 2,011.4
Shareholders' equity
Share capital 122.0 121.3 122.0
Own shares (12.1) (6.7) (21.2)
Other reserves 1,218.3 1,202.3 1,221.6
Accumulated other comprehensive income 19.5 24.8 33.6
Retained earnings 205.9 164.4 182.5
Total shareholders' equity attributable to 1,553.6 1,506.1 1,538.5
equity
shareholders of Lancashire
Non-controlling interest 0.1 0.1 0.4
Total shareholders' equity 1,553.7 1,506.2 1,538.9
Total liabilities and shareholders' equity 3,996.7 3,554.1 3,550.3
Consolidated statement of cash flows
For the six months ended 30 June 2021
Six Six
months months
2021 2020
$m $m
Cash flows from (used in) operating activities
Profit (loss) before tax 54.1 (23.0)
Tax paid (1.6) (1.2)
Depreciation 1.6 1.7
Interest expense on long-term debt 12.6 8.2
Interest expense on finance leases 0.6 0.6
Interest and dividend income (18.7) (17.9)
Net amortisation of fixed maturity securities 3.6 1.6
Redemption cost on senior and subordinated loan notes 12.8 -
Other financing cost 3.4 -
Equity based compensation 7.0 7.0
Foreign exchange (gains) losses (0.5) 0.1
Share of profit of associate (0.3) (1.1)
Net other investment income (1.9) 15.0
Net realised (gains) losses and impairments (5.7) (10.6)
Net unrealised losses on interest rate swaps - 0.2
Changes in operational assets and liabilities
- Insurance and reinsurance contracts 57.3 (10.1)
- Other assets and liabilities 15.8 14.3
Net cash flows from (used in) operating activities 140.1 (15.2)
Cash flows used in investing activities
Interest and dividends received 23.1 19.0
Purchase of property, plant and equipment (0.7) -
Investment in associate 38.5 27.9
Purchase of investments (808.0) (619.3)
Proceeds on sale of investments 672.3 458.4
Net cash flows used in investing activities (74.8) (114.0)
Cash flows from financing activities
Interest paid (7.6) (8.3)
Other financing cost (3.4) -
Lease liabilities paid (2.1) (1.8)
Proceeds from issuance of common shares - 340.3
Proceeds from issue of long-term debt 445.4 -
Redemption of long-term debt (339.6) -
Dividends paid (24.3) (20.2)
Dividends paid to minority interest holders (0.5) (0.5)
Distributions by trust (1.0) (0.7)
Net cash flows from financing activities 66.9 308.8
Net increase in cash and cash equivalents 132.2 179.6
Cash and cash equivalents at the beginning of year 432.4 320.4
Effect of exchange rate fluctuations on cash and cash (1.2) (3.5)
equivalents
Cash and cash equivalents at end of period 563.4 496.5
END
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July 28, 2021 02:00 ET (06:00 GMT)
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