Lancashire grows strongly in Q1, Ukraine exposure lower than expected

Specialty insurance and reinsurance group Lancashire Holdings continued to grow strongly during the first-quarter of 2022, adding almost 35% in gross premiums written and also revealing a lower than anticipated ultimate net loss exposure to the ongoing conflict in Ukraine.

In 2021, Lancashire had reported a doubling in the size of its property and casualty reinsurance book over the course of the year.

Despite hard market conditions persisting, growth slowed a little in Q1 2022, although was still robust.

The property casualty reinsurance book expanded more than 39% during the quarter, with casualty a particular area of growth, while P&C insurance grew by 43% and niche specialty lines like marine grew 64%.

This was all at a renewal price index of 106%, with reinsurance seeing the best price increases at an RPI of 108%, according to the company.

Positively for the company’s shares this morning, currently up more than 13%, Lancashire reported a lower than expected level of loss expectation for the impacts of Russia’s invasion of Ukraine.

Alex Maloney, Group Chief Executive Officer, said, “We continue to monitor events across Ukraine and Russia with respect to potential exposure to losses in our political violence, aviation war and marine insurance classes, as well as our aviation and specialty reinsurance classes.

“We estimate that our ultimate net losses incurred within Ukraine are in the range of $20 million to $30 million.”

Adding that, “This continues to be a complex and evolving situation and we will give an update at the announcement of our half year results in July. While we continue to analyse our potential exposure scenarios in Russia, we consider that any potential losses would be within our risk tolerances, and would not impact our ability to deliver on our ambitious growth plans for 2022.”

Lancashire’s share price had been depressed and fallen considerably on an expectation among analysts and investors that the company might have a reasonably large exposure to specialty lines losses from the conflict in Ukraine.

But Lancashire’s UNL estimate is much lower and so, unsurprisingly, the share price has responded so far today.

Of course, the company may have retrocessional reinsurance in place to absorb losses, as it has typically been well-protected against complex events such as this.

Whether the third-party capital backed Lancashire Capital Management could hold any exposure is uncertain, as the unit writes a complex multi-class collateralised retrocession product that does include some specialty lines exposure, alongside catastrophe risk.

But the lower than expected Ukraine loss announcement should also read-across favourably for investors in the Lancashire Capital Management strategy as well, we’d imagine.

Maloney continued to state, “Against this backdrop, underlying trading conditions remain favourable and Lancashire has continued to deliver strong premium growth in the first quarter, with a 34.7% increase in gross premiums written year-on-year. In light of the potential for broader market dislocation, we remain confident that our strong balance sheet, robust capital position and talented underwriting teams, will give us further opportunities for profitable growth during 2022.”

It is interesting though, as if specialty focused underwriters like Lancashire report a lower than expected exposure to Ukraine, it leaves the question of who will take the larger shares of the losses coming from the significant impacts of Russia’s invasion of the country.

We are hearing that some of the private equity backed re/insurance players with a specialty focus are likely to be among the most-affected by losses from Ukraine, as well as the big four global reinsurers.

Proportionally to size though, it is those private equity backed writers that may find their Ukraine losses most troubling, on a capital basis, as the larger global reinsurance players will easily be able to absorb the impacts of the conflict within their earnings.