Insurance underwriter Lancashire Holdings survived one of the toughest years for the insurance industry in living memory in 2011 and says things are beginning to look up.
The optimistic tone comes despite 2012 getting off to a bad start, with January's Costa Concordia cruise ship disaster. Based on an industry loss of $850m, Lancashire's exposure is estimated to be around $35m net of reinsurance and reinstatement premiums, though the final figure may yet change.
As for the 2011 results, the market liked the numbers, which were better than expected despite the plethora of natural disasters last year.
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Gross written premiums in the final quarter of the year rose to $109.6m from $94.0m the year before, driven by a 186.2% year-on-year increase in Marine business, while net premiums written improved to $102.4m from $93.7m.
For the whole of 2010, gross premiums written declined to $623.3m from $689.1m in 2010. Net insurances losses widened to $182.3m from $165.7m the year before.
Profit before tax tumbled to $218.6m from $339.2m and diluted earnings per share dived to $1.20 from $1.86 the year before, but profit before tax was at least ahead of market expectations of around $204m, which probably accounts for the 9p rise to 799.5p in the share price in the morning session.
The group said its fully converted book value per share at the end of 2011 stood at $7.62, up from $7.57 a year earlier.
Return on equity (RoE) in the fourth quarter eased to 2.7% from 6.4% a year earlier, while for the whole year RoE declined to 13.4% from 23.3%. The combined ratio - a measure of how well the underwriting business is doing (a lower number is better) - also took a turn for the worse in 2011 and in the final quarter; the 2011 ratio rose to 63.7% from 54.45 while in the fourth quarter the number shot up to 73.1% from 20.8%. Little wonder that Group Chief Executive Officer Richard Brindle described 2011 as "one of the most costly ever for the insurance industry".
"Having been tested once again, our RoE of 13.4% for the year is outstanding and will compare favourably with the results of our competitors. Lancashire has now increased book value per share, including dividends, for twenty-three out of the twenty-four quarters since its inception in 2005, and has achieved an impressive compound annual return of 19.5%," Brindle bragged.
Brindle said he is cautiously optimistic for the insurance pricing environment in 2012. It may be a cynical viewpoint, but insurers rarely have trouble bumping up premia after well-publicised disasters.
"The outlook is positive in many of our core areas. We saw attractive opportunities in the property retro market in the January 2012 renewal season. Property catastrophe pricing is showing improvement and, while it's hard to predict how far it will go, we are also seeing improving pricing in our energy and marine books," Brindle revealed.
Having announced a special dividend of 80 cents last year the company will top that off with a 10 cent payment by way of a final dividend for 2011.
Neil McConachie, President of the company and executive member of the board of directors, has decided to relinquish his executive role with effect from the end of 2012, having been with the company since its inception. He will continue as a non-executive director if the shareholders so wish.
The company also gave an update on its Accordion Reinsurance, its reinsurance "side-car" vehicle set up to enable reinsurance contracts to be collateralised.
Lancashire has secured additional capital from its existing Accordion side-car investors to deploy specifically for the 1st of April Japanese market renewals. The new capacity will focus on the Japanese Interests Abroad (JIA) programmes where early indications are that ceding companies will be most in need of new solutions and capacity.
The new capital of $75m will have the same draw down feature as the original Accordion capital commitment.
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