Bermuda-based re/insurer Lancashire has reported a net operating profit of $62.9m for the first quarter, down from $67.3m in the same period last year, on gross written premiums of $316.7m, up from $214.9m in Q1 2013. Net written premiums rose by a greater percentage, up to $204.4m, from $118.6m in the same period last year. The increase was due to the acquisition of Cathedral. That increased Lloyd's premiums from zero to $108.2m. Post-tax profit declined to $60.1m, from $77.9m.
Chief executive Alex Maloney, who has just taken over the role from Richard Brindle, said that the first quarter had been "a busy one on many fronts". This included the launch of Kinesis Capital Management, Kinesis Reinsurance 1 Ltd and Kinesis Holdings 1 Ltd, as well as Lloyd's approving Lancashire's business plan for the expansion of Cathedral Underwriting's Syndicate 3010.
Maloney said that Lancashire continued to see "strong submission levels for both new and renewal business". He also noted that, following the retirement of Brindle, the commitment to sound underwriting and capital management would not change.
Operations and IT are currently working to bring together all the London operations of Lancashire Group, which plans to move into the Walkie-Talkie building at 20 Fenchurch Street before the end of 2014.
Group chief financial officer Elaine Whelan said that the January and April renewals "went well and were in line with expectations". She added: "We will continue to monitor market developments over the rest of the year but, with no indication of any change in trading conditions, it is likely that we will return a substantial portion of our earnings later in the year".
Lancashire's Renewal Price Index showed an average 5% fall in rates, using an internal methodology that takes into account terms & conditions as well as price, covering only renewal business in order to provide consistent comparisons.
The bright spot in terms of pricing was Marine, while the softest market was Aviation (AV52), which reported a 13% decline.
In the ongoing sectors property declined 11% year on year to $117.5m, while Energy was up 9.7% to $49.9m. Marine declined to $26.7m from $29.6m, while Aviation rose to $14.4m from $7.8m.
Lancashire said that the decline in Property was driven mainly by reductions in the property retrocession book. This was offset in part by further expansion into the property catastrophe excess of loss book. The movements in Energy and Marine income were not seen by Lancashire as particularly significant because Q1 is not typically a major renewal period for either book.
In Aviation AV52, also known as Hull War and Excess, pricing and renewal rates remained under pressure, said Lancashire, with the large percentage increase relative to the same period last year being driven by adjustments to prior-year contracts. Lancashire is also increasing its business in aviation satellite, although the satellite book premium flow tends to be volatile, given irregular launch patterns.
|Lancashire RPI - Class||Q1 2014|
|Energy Offshore worldwide||95%|
|Property retro and reinsurance||89%|
The ex-Cathedral book, now Lancashire Lloyd's segment, wrote $108.2m in Q1, down 14.7% on the previous year, which does not appear in Lancashire's books. That decline largely reflected rate reductions, particularly in the property reinsurance sub-class. There was also an aviation quota share deal that was not renewed due to rates being unacceptable. Lancashire observed that the declines were partially offset by a continued strong rating in the direct and facultative binder portfolio.
In Q1 Lancashire ceded $52.6m in premiums to its Accordion sidecar. Accordion is now in run-off.
On the cession side, Lancashire observed that "the competitive rate environment enabled Cathedral to purchase similar levels of core cover, plus some additional cover for a reduction in cost compared with 2013".
The group's net loss ratio for Q1 was 34.1%, up from 17.2% for the same period in 2013. Prior year adverse development for Q1 was $10.1m, compared with favourable development of $16.9m in Q1 last year. The strong result in Q1 last year related to a settlement reached on Lancashire's North East Industry Loss Warranty.
Net investment income for the quarter was $7.1m, up 16.4% year on year. This increase was due to the growth of the fixed-income portfolio, following the acquisition of Cathedral.