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Lancashire stress tested by catastrophe losses

One of the most severe years for catastrophe losses has proven to be a “stress test” for Lancashire Holdings.

The Bermudian-based company suffered a pre-tax loss of $3.2 million, or three cents per share, in the fourth quarter. For the year, the pre-tax loss was $72.9 million, or 36 cents per share.

There were declines across key indicators, including gross and net premiums written, and return on equity, which was 0.9 per cent lower for the quarter and 5.9 per cent down for the year, when compared with 2016.

Catastrophe losses weighted heavily, particularly in the second half of the year, with net losses of $147.3 million attributable to hurricanes Harvey, Irma, Maria and earthquakes in Mexico, during the third quarter, followed by $34.5 million of losses in the fourth quarter as a result of wildfires in California.

Alex Mahony, group chief executive officer, said the losses had provided “a real-time ‘stress test' for Lancashire's enterprise risk management function, so it is pleasing that we have passed another important test of our model”.

He added: “Overall we feel that we had the right underwriting strategy, risk levels and capital headroom to absorb these events when balanced against the underwriting opportunity that presented itself during 2017.”

Mr Mahony said that as a result of the impairment of capital among insurers and reinsurers following more than $100 billion of catastrophe losses, he felt “the market has finally turned a corner and we are witnessing rate increases, or at least stability, across most of the classes of business we underwrite”.

However, he believes this year to be challenging, but he expects Lancashire Group to maximise underwriting opportunities.

Elaine Whelan, group chief financial officer, said: “With improved rates at the January 1 renewals, and our current outlook, we continue to expect to put all of our current capital to work this year.”

Lancashire's net operating loss for the fourth quarter was $3.1 million, compared to a profit of $45.9 million for the same period in 2016. The group's operating loss for the year was $86 million, compared to a profit of $144 million in 2016. The combined ratio rose to 119.5 per cent in the fourth quarter, and 124.9 per cent for the year, up from 76.5 per cent.

Lancashire's fully converted book value per share fell 50 cents to $5.48 at the end of December, compared to $5.98 at the end of 2016. Gross premiums written for the fourth quarter were $67.4 million, down from $95.1 million year-on-year.

Separately, Lancashire announced that Tom Milligan, a non-executive director, is retiring from the board. He will stand down on March 31 and will not stand for re-election at the company's annual meeting.

Peter Clarke, Lancashire's chairman, said: “I would like to thank Tom for his valuable contribution as a member of our Board. In particular, Tom's executive knowledge in the insurance industry has helped inform our strategic planning in recent years and contributed to the success of our business.

“Tom has served as a director on the Lancashire board for over three years and he has decided to step down in order to pursue other opportunities. We wish Tom well for the future.”

Challenging year: Lancashire Holdings made a pre-tax loss of $3.2 million in the fourth quarter, and a pre-tax loss of $72.9 million for the year

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Published February 15, 2018 at 12:23 pm (Updated February 15, 2018 at 11:18 pm)

Lancashire stress tested by catastrophe losses

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