Insurance CEO’s warning on ‘tight margins’
The insurance industry is one major loss event away from a crisis, a company CEO has warned.
Alex Maloney, CEO of Lancashire Holdings, said the current regime of tight margins was “unsustainable” and a catastrophe could change the dynamics of the market.
Mr Maloney said: “My view, which has been supported by recent industry reports, is that the sector when taken as a whole is operating at very tight margins.
“In 2016, many insurers' results were bolstered by investment returns and foreign exchange gains, helping to stay in the black with very little contribution from underwriting results.”
He warned: “What is clear is that the insurance markets are currently operating at margins which will prove unsustainable in the long run.
“There are now clear signs of stress, with some evidence of retrenchment.
“Sooner or later, a major loss event will stress the system even further, bringing it to a position where capital will be impaired, which we believe will change the dynamics of the current market.
“Lancashire is well positioned relative to others to manage any future insurance market turbulence and to respond to the opportunities which will arise.
“Accordingly our strategy will remain the same and we expect to maintain our track record of consistent underwriting discipline for the longer-term interests of our shareholders and counterparties.”
Mr Maloney was speaking as Lancashire announced after tax profits of $30.3 million for the first quarter.
The figure is up $2 million on the $28.3 million recorded for the same period last year.
Diluted earnings per share totalled 15 cents, compared to 14 for the first quarter of 2016.
Lancashire wrote $196.5 million in gross premiums, $34.3 million or 14.9 per cent down on the $230.8 million in the first quarter of 2016.
Net investment income, excluding realised and unrealised gains and losses, was $6.5 million for the quarter, down 13.3 per cent.
Total investment return was a gain of $12.2 million for the quarter, compared to $13 million in the same period in 2016.
Mr Maloney said: “In what continues to be a difficult market, we have had a good first quarter delivering a return on equity of 2.7 per cent.
“Lancashire has always placed underwriting discipline at the core of its strategy. At the January renewal season we were able to both renew and strengthen the majority of our book of business.”
Mr Maloney added there appeared to be “slowing” in the decline in premium rates, with Lancashire prioritising its core clients and their brokers.
“We also ensure that we moderate our overall risk exposures, not only through discipline on our inwards books, but in our purchasing of well-priced outwards reinsurance.
“These are our principal tools for prudent exposure management in the current soft market.”