Amid tough competition and falling prices, it's a difficult time to be writing premiums in the speciality insurance market. The good news for shareholders in Lancashire Holdings (LRE) is that the company is focusing on the quality underwriting it is known for and taking defensive measures to weather the storm. Or lack thereof, climatically speaking: an absence of natural disasters is a key reason why competition to insure is so fierce.
Interim results showed falls in gross premiums written across all product lines, most notably in energy, where a soft insurance market and a falling oil price combined to reduce gross premiums by 56 per cent. But the decreases in gross premiums earned were less sharp: just a 19 per cent decrease in energy premiums and 14.2 per cent across all lines. That reflects multi-year deals written in 2014 in anticipation of further price falls.
Underwriting discipline was also reflected in the 75.1 per cent combined ratio of claims to premiums, in line with 2014 and showing how the insurer is not sacrificing its industry-leading margins to keep volumes up. Lancashire is also taking advantage of low pricing to buy reinsurance.
Broker Numis is forecasting $199m of full-year pre-tax profits and EPS of 64.4p, down from $227m and 77.3p in 2014.
LANCASHIRE HOLDINGS (LRE) | ||||
|---|---|---|---|---|
| ORD PRICE: | 657p | MARKET VALUE: | £1.30bn | |
| TOUCH: | 656-658p | 12-MONTH HIGH: | 686p | LOW: 480p |
| DIVIDEND YIELD: | 1.5% | PE RATIO: | 36 | |
| NET ASSET VALUE: | 673¢ | COMBINED RATIO: | 75.1% | |
| Half-year to 30 Jun | Gross premiums ($m) | Pre-tax profit ($m) | Investment income ($m) | Dividend per share (¢) |
|---|---|---|---|---|
| 2014 | 635 | 98.9 | 14.7 | 5 |
| 2015 | 424 | 88.6 | 14.6 | 5 |
| % change | -33 | -10 | -1 | - |
Ex-div: 27 Aug Payment: 25 Sep *Excludes 170¢ special dividend in 2014. £1 = $1.56 | ||||
