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Lancashire turns the corner

Losses were large in 2017 but after several benign years, rates are starting to harden
February 15, 2018

The good news for insurer Lancashire (LRE) is that, after several benign years, premium rates are starting to harden. The bad news is that this is because the insurance industry lost over $100bn (£71bn) in 2017 on wildfires and earthquakes, making it one of the worst years for catastrophe losses.

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Not surprisingly, the combined ratio of losses as a percentage of premium income moved from 76.5 per cent in 2016 to a loss-making 124.9 per cent. This reflected a total of $534m of insurance losses and expenses, up from $384m a year earlier, but covered comfortably by reserves.

And with rates already showing signs of hardening, Lancashire intends to deploy capital where attractive underwriting opportunities arise, but stressed that excess capital would be returned to shareholders if no suitable opportunities appeared. In previous years, that has led to special dividend payments, although that seems less likely in the coming year as rising rates generate more investment opportunities.

Gross written premiums fell from $634m to $592m, mainly because of a fall in energy gross premiums, while renewals and new business saw marine gross premiums almost double.

Analysts at Numis are forecasting EPS for the year ending December 2018 of 53.1p a share, compared with a 6.3p loss in 2017.

LANCASHIRE (LRE)   
ORD PRICE:578MARKET VALUE:£1.16bn
TOUCH:578-579p12-MONTH HIGH:774pLOW: 578p
DIVIDEND YIELD:1.7%PE RATIO:na
NET ASSET VALUE:550¢COMBINED RATIO:124.9%
Year to    Gross premiumsPre-taxInvestment incomeDividend
31 Dec ($m) profit ($m)($m) per share (¢)*
 Year to 31 DecGross premiums ($m)Pre-tax profit ($m)Investment income ($m)Dividend per share (¢)*
 201368021825.415
 201490822728.615
 201564117229.815
 201663415029.815
 2017592-7330.515
 % change-7-+2-
 Ex-div:22 Feb   
 Payment:21 Mar   
 £1=$1.383 *Excludes special dividend of 75¢ in 2016 (95¢ in 2015; 170¢ in 2014)