LANCASHIRE
HOLDINGS LIMITED
10 August 2023
Hamilton, Bermuda
Lancashire
Holdings Limited (“Lancashire” or “the Group”) today announces its
results, under IFRS 17, for
the six months ended 30 June
2023.
Highlights:
•
Gross
premiums written increased by 26.2% to $1,184 million, insurance revenue of $720.9 million.
•
Insurance
service result $188.8 million; profit
after tax $159.2
million.
•
Discounted
combined ratio 71.4%, undiscounted combined ratio
79.2%.
•
Total
net investment return of 2.2%.
•
Interim
dividend of $0.05 per common
share.
For the
six months ended 30 June
|
2023
$m
|
2022
$m
|
Highlights
|
|
|
Gross premiums
written
|
1,184.0
|
938.1
|
Insurance
revenue
|
720.9
|
579.8
|
Insurance
service result
|
188.8
|
141.5
|
Net
investment return
|
63.2
|
(85.8)
|
Profit after
tax
|
159.2
|
31.0
|
|
|
|
Financial
ratios
|
|
|
Net
insurance ratio
|
62.8%
|
64.3%
|
Combined ratio
(discounted)
|
71.4%
|
72.6%
|
Combined ratio
(undiscounted)
|
79.2%
|
77.1%
|
Net
investment return
|
2.2%
|
(3.8%)
|
|
|
|
Per
Share data
|
|
|
Diluted book
value per share
|
$6.05
|
$5.75
|
Change in
diluted book value per share
|
12.2%
|
2.6%
|
Dividends per
common share for the financial year
|
$0.05
|
$0.05
|
Diluted
earnings per share
|
$0.66
|
$0.13
|
Adoption
of new accounting standards
The
Group adopted IFRS 17, Insurance Contracts and IFRS 9, Financial
Instruments: Classification and Measurement, for the first time on
1 January 2023. The unaudited
condensed interim consolidated financial statements for the six
months ended 30 June 2023 are being
reported under these new accounting standards, which have resulted
in a change to some of the Group's long standing Alternative
Performance Measures (APMs). These are defined at the end of this
release. Comparatives have been restated to reflect the consistent
application of IFRS 9 and IFRS 17.
Alex Maloney, Group Chief Executive Officer,
commented:
“We are very
pleased with our performance in the first half of 2023. Our
long-term strategy to develop a more diversified and
capital-efficient product portfolio is delivering the expected
benefits, with a half year change in diluted book value per share
of 12.2%.
Our
philosophy has always been to grow when market conditions are
favourable, while maintaining our approach to underwriting
discipline. During the first six months of 2023 we continued to
take advantage of the strong underwriting environment with gross
premiums written increasing 26.2% year-on-year. The undiscounted
combined ratio was a healthy 79.2%, or 71.4% on a discounted
basis.
The
rating environment remains positive across our product lines and we
do not see that changing during the remainder of the
year.
Our
investments have delivered a positive net return of 2.2% or
$63.2 million as we benefit from
higher yields due to the short duration of the
portfolio.
Lancashire has
long been recognised as a business that actively manages the
underwriting cycle and, when it makes sense to do so, seeks new
areas for disciplined growth.
With that in
mind, subject to all necessary approvals, we intend to expand our
international footprint and launch Lancashire Insurance U.S., which
will operate under a delegated underwriting arrangement with
Lancashire’s UK company platform.
Lancashire
Insurance U.S. will be complementary to our existing capabilities
and will give us the ability to write business that is within our
appetite and that we currently do not have access to.
The
new operation in the U.S. is expected to begin underwriting in
early 2024.
This is another
positive development for Lancashire and, with our reputation for
underwriting excellence and service to our clients, we believe
there are significant long-term prospects for us in the
U.S.
We
are excited by the opportunities ahead of us during the remainder
of 2023 and into 2024. Our capital position remains strong, giving
us the headroom to continue to take advantage of the positive
market conditions.
Of
course, striving to deliver out-performance requires a committed
and focused team across the business. I would particularly like to
mention our finance and actuarial colleagues who have been
exceptionally busy producing our first set of results on an IFRS 17
basis. While this is a significant change in accounting and
presentation, IFRS 17 does not affect the fundamentals of our
business or our underlying profitability.
We
always seek to attract, develop and retain good people and promote
our talent when the appropriate opportunities arise and during the
first half of the year we made a number of new senior appointments
across our teams.
The
Group also continues to focus on delivering on our environmental,
social and governance objectives. The Lancashire Foundation, which
has been operating since 2007, makes a tangible difference through
its support for charities that have a positive impact on our
communities and the environment. Additionally, we benefit from
being part of the insurance industry's discussions around climate
change through our membership of ClimateWise, which we joined last
year.
Finally, I
would like to take the opportunity to thank everyone at Lancashire
for their commitment to our business and, as always, our clients,
brokers and shareholders for their support.”
|
Six
months ended 30 June 2023
|
Six
months ended 30 June 2022
|
|
Reinsurance
$m
|
Insurance
$m
|
Total
$m
|
Reinsurance
$m
|
Insurance
$m
|
Total
$m
|
Gross premiums
written
|
658.0
|
526.0
|
1,184.0
|
548.8
|
389.3
|
938.1
|
RPI%
|
123%
|
111%
|
117%
|
107%
|
105%
|
106%
|
|
|
|
|
|
|
|
Insurance
revenue
|
336.6
|
384.3
|
720.9
|
261.4
|
318.4
|
579.8
|
Insurance
service expenses
|
(88.1)
|
(200.4)
|
(288.5)
|
(117.3)
|
(176.5)
|
(293.8)
|
Insurance
service result before reinsurance contracts
held
|
248.5
|
183.9
|
432.4
|
144.1
|
141.9
|
286.0
|
|
|
|
|
|
|
|
Allocation of
reinsurance premium
|
(89.3)
|
(123.4)
|
(212.7)
|
(74.3)
|
(109.5)
|
(183.8)
|
Amounts
recoverable from reinsurers
|
(66.0)
|
35.1
|
(30.9)
|
(6.7)
|
46.0
|
39.3
|
Net
expense from reinsurance contracts held
|
(155.3)
|
(88.3)
|
(243.6)
|
(81.0)
|
(63.5)
|
(144.5)
|
|
|
|
|
|
|
|
Insurance
service result
|
93.2
|
95.6
|
188.8
|
63.1
|
78.4
|
141.5
|
|
|
|
|
|
|
|
Gross
premiums written
Gross premiums
written increased by $245.9 million
or 26.2% for the first six months of 2023 compared to the same
period in 2022. The Group’s two principal segments, and the key
market factors impacting them, are discussed below.
Reinsurance
segment
A
significant portion of the increase in premiums in the reinsurance
segment was due to the continued build out of our casualty
reinsurance lines as well as new business written in our specialty
reinsurance class. In property reinsurance we saw the benefit of
significant rate increases contributing to growth. Overall the RPI
was 123% for the segment.
Insurance
segment
The
growth in the insurance segment was primarily driven by property
insurance with substantial rate increases in the property direct
and facultative line of business, in addition to the build out of
our Australia and construction
teams. New business written across all of our energy and marine
insurance lines also contributed to the strong premium growth. In
specialty insurance, the Group wrote more political risk business
on a multi-year basis than the prior year while really strong RPIs
contributed to the growth in aviation insurance. Overall the RPI
was 111% for the segment.
Insurance
revenue
Insurance
revenue is a new measure introduced by IFRS 17 and is comparable to
IFRS 4 gross premiums earned less inwards reinstatement premium and
is net of commission costs. Insurance revenue increased by
$141.1 million or 24.3% in the first
six months of 2023 compared to the same period in 2022. The market
factors driving the increase in gross premiums written also drove
the increase in insurance revenue. Gross premiums earned as a
percentage of gross premiums written was 69.8% compared to 68.0% in
the prior year as more earned premium came through in the current
year from policies bound in the prior year.
Allocation
of reinsurance premiums
Allocation of
reinsurance premiums on an IFRS 17 basis is comparable to IFRS 4
ceded earned premium less outward reinstatement premiums and is net
of outward commission costs. Allocation of reinsurance premiums
increased by $28.9 million or 15.7%
in the first six months of 2023 compared to the same period in
2022. The increase in our outwards reinsurance spend was primarily
driven by the renewal of the Group’s outward reinsurance programme
at higher rates than in 2022. There was also a higher level of
political risk and casualty quota share reinsurance spend driven by
the growth in inwards business and some new outwards reinsurance
contracts entered into as a result of the continued growth and
diversification in the inwards underwriting portfolio.
Net
Claims environment (Insurance service expenses less amounts
recoverable from reinsurers)
During the
first six months of 2023, the Group experienced net losses
(undiscounted, including reinstatement premiums) from catastrophe
and large loss events totaling $49.5
million. None of these events was individually material for
the Group.
During the
first six months of 2022, the Group experienced net losses
(undiscounted, including reinstatement premiums) from the conflict
in Ukraine, the Australian floods
and large loss events totaling $53.1
million.
Prior year
favourable ultimate loss development for the first six months of
2023 was $46.3 million, compared to
$64.6 million of favourable
development in 2022. The favourable development in 2023 was
primarily due to releases on the 2022 and 2021 accident year across
most lines of business due to a lack of reported claims, as well as
favourable development across some of the older accident years. On
an IFRS 17 basis, the prior year favourable development is
$72.1 million. This includes
$11.3 million favourable expense
provision releases as well as $13.6
million of reinstatement premium impact, largely due to a
reduction in outwards reinstatement premiums on catastrophe
losses.
In
the prior year the Group benefited from general reserve releases on
the 2021 accident year due to a lack of reported claims, as well as
some favourable development on some large claims from the 2018 and
2017 accident years.
Net
discounting benefit
The
table below shows the total net impact of discounting, by financial
statement line item.
For the
six months ended 30 June
|
2023
$m
|
2022
$m
|
Insurance
service expenses
|
46.5
|
26.3
|
Amounts
recoverable from reinsurers
|
(7.1)
|
(8.3)
|
Net
discount included in insurance service result
|
39.4
|
18.0
|
Finance
(expense) income from insurance contracts issued
|
(37.7)
|
28.0
|
Finance income
(expense) from reinsurance contracts held
|
14.1
|
(9.5)
|
Net
discount included in insurance finance (expense)
income
|
(23.6)
|
18.5
|
Total
net impact of discounting
|
15.8
|
36.5
|
The
total impact of discounting was a benefit of $15.8 million for the first six months of 2023
compared to $36.5 million in the
prior year. The discount included in the insurance service result
is higher than the same period in 2022 primarily due to reserves
established on the 2023 accident year applying higher discount
rates than the same period in the prior year. This is partly offset
by the unwind of previously booked discounting included in net
finance income. The majority of the Group’s loss reserves are
denominated in U.S. dollar where yield curves, having decreased in
the first quarter of 2023, have returned to levels more aligned
with the year-end position. The net effect is that the impact of
changes in yield curve assumptions has been relatively minor at
$2.1 million.
In
the prior year the discounting benefit was primarily driven by the
impact of a change in yield curve assumptions. There were
significant increases in yield curves throughout the year and
across the majority of the Group’s major currencies.
Investments
For the
six months ended 30 June
|
2023
$m
|
2022
$m
|
Total
net investment return
|
63.2
|
(85.8)
|
Total net
investment return increased by $149
million in the first six months of 2023 compared to the same
period in 2022.
The Group’s
investment portfolio, including unrealised gains and losses,
returned 2.2% for the first six months of 2023. The positive
returns were driven by $51.4 million
of investment income as our portfolio benefitted from higher
yields. The majority of
the unrealised gains were generated in the first quarter on the
fixed maturity portfolio due to a decline in treasury rates outside
of the one-year rate. In the second quarter, investment income
mitigated the negative returns from the upward shift in the yield
curve. All asset classes performed positively, with most of the
returns in the second quarter driven by the alternative asset
classes.
The
Group’s investment portfolio, including unrealised gains and
losses, returned negative 3.8% for the first six months of 2022.
The majority of the losses were driven by the significant
flattening of the yield curve and spread widening for the
investment grade corporate debt and bank loans.
The
managed portfolio was invested as follows:
As
at
|
30 June
2023
|
31
December 2022
|
Fixed maturity
securities
|
2,157.3
|
1,964.9
|
Managed cash
and cash equivalents
|
214.0
|
260.8
|
Private
investment funds
|
112.7
|
108.1
|
Hedge
funds
|
104.4
|
103.9
|
Index Linked
securities
|
—
|
28.2
|
Other
investments
|
(0.1)
|
(0.2)
|
Total
|
2,588.3
|
2,465.7
|
Key investment
portfolio statistics for our fixed maturities and managed cash
were:
As
at
|
30 June
2023
|
31
December 2022
|
Duration
|
1.7
years
|
1.6
years
|
Credit
quality
|
AA-
|
AA-
|
Book
yield
|
3.7%
|
2.9%
|
Market
yield
|
5.6%
|
5.0%
|
Other
operating expenses
For the
six months ended 30 June
|
2023
$m
|
2022
$m
|
Total operating
expenses
|
83.1
|
68.4
|
Directly
attributable expenses allocated to insurance service
expenses
|
(39.3)
|
(35.7)
|
Other
operating expenses
|
43.8
|
32.7
|
Total operating
expenses were $83.1 million in the
first six months of 2023 compared to $68.4
million in the first six months of 2022. The higher level of
total operating expenses was primarily driven by employee
remuneration costs, which have grown as a result of the increase in
headcount across the Group. Non-employee costs increased to a
lesser degree driven by increased IT expenditure, consulting fees
and costs associated with taking on additional London office space.
The
weakening Sterling/U.S. Dollar exchange rate relative to the prior
year partly offset this increase in the underlying cost
base.
$39.3 million or 47% of operating expenses are
considered directly attributable to the fulfillment of
(re)insurance contracts and have been re-allocated to insurance
service expenses and form part of the insurance service
result.
Capital
As
at 30 June 2023, total capital
available to Lancashire was
approximately $1.9 billion,
comprising shareholders' equity of $1.5
billion and $0.4 billion of
long-term debt. Tangible capital was $1.7
billion. Leverage was 23.3% on total capital and 25.7% on
tangible capital. Total capital and total tangible capital as at
30 June 2022 was $1.8 billion and $1.6
billion respectively.
Dividends
On 9 August 2023, Lancashire’s Board
of Directors declared an interim dividend of $0.05 (approximately £0.04) per common share,
which will result in an aggregate payment of approximately
$11.9 million. The dividend will be
paid in Pounds Sterling on 15 September
2023 (the “Dividend Payment Date”) to shareholders of record
on 18 August 2023 (the “Record Date”)
using the £ / $ spot market exchange rate at 12 noon London time on the Record Date.
Financial
Information
The Unaudited Condensed Interim Consolidated Financial
Statements for the six months ended
30 June 2023 are published on
Lancashire’s website at
www.lancashiregroup.com.
Analyst
and Investor Earnings Conference Call
There will be
an analyst and investor conference call on the results at
3:00pm UK time / 11.00am Bermuda
time / 10:00am EST on Thursday
10 August 2023. The conference call
will be hosted by Lancashire
management.
Participant
Registration and Access Information:
Audio
conference call access:
https://register.vevent.com/register/BI4bf0795bd1a54d1c9333eba85e482420
Please register
at this link to obtain your personal audio conference pin and call
details
Webcast
access:
https://onlinexperiences.com/Launch/QReg/ShowUUID=72EEDFFF-C6DA-4F6F-A31F-90444D3F1059
Please use this
link to register and access the call via webcast
A
webcast replay facility will be available for 12 months and
accessible at:
https://www.lancashiregroup.com/en/investors/results-reports-and-presentations.html
For further
information, please contact:
Lancashire
Holdings Limited
|
|
Christopher
Head
|
+44
20 7264 4145
chris.head@lancashiregroup.com
|
Jelena
Bjelanovic
|
+44
20 7264 4066
jelena.bjelanovic@lancashiregroup.com
|
|
|
FTI
Consulting
|
|
Edward
Berry
|
Edward.Berry@FTIConsulting.com
|
Tom
Blackwell
|
Tom.Blackwell@FTIConsulting.com
|
About
Lancashire
Lancashire, through its UK and Bermuda-based operating subsidiaries, is a
provider of global specialty insurance
and reinsurance products. The Group companies carry the following
ratings (unchanged from 2022):
|
Financial
Strength
Rating(1)
|
Financial
Strength
Outlook(1)
|
Long
Term Issuer
Rating(2)
|
A.M.
Best
|
A
(Excellent)
|
Stable
|
bbb+
|
S&P Global
Ratings
|
A-
|
Stable
|
BBB
|
Moody’s
|
A3
|
Stable
|
Baa2
|
(1)
Financial Strength Rating and Financial Strength Outlook apply to
Lancashire Insurance Company Limited and Lancashire Insurance
Company (UK) Limited.
(2)
Long Term Issuer Rating applies to Lancashire Holdings
Limited.
Lancashire
Syndicates Limited benefits from Lloyd’s ratings: A.M. Best: A
(Excellent); S&P Global Ratings: A+ (Strong); and Fitch: AA-
(Very Strong).
Lancashire, through its UK and Bermuda-based operating subsidiaries, is a
provider of global specialty insurance and reinsurance
products.
Lancashire’s
common shares trade on the premium segment of the Main Market of
the London Stock Exchange under the ticker symbol LRE. Lancashire has its head office and registered
office at Power House, 7 Par-la-Ville Road, Hamilton HM 11,
Bermuda.
The
Bermuda Monetary Authority is the Group Supervisor of the
Lancashire Group.
For
more information, please visit Lancashire’s website at
www.lancashiregroup.com.
This release
contains information, which may be of a price sensitive nature,
that Lancashire is making public
in a manner consistent with the UK Market Abuse Regulation and
other regulatory obligations. The information was submitted for
publication, through the agency of the contact persons set out
above, at 07:00 BST on 10 August 2023.
Alternative
Performance Measures (APMs)
As
is customary in the insurance industry, the Group also utilises
certain non-GAAP measures in order to evaluate, monitor and manage
the business and to aid users’ understanding of the Group.
Management believes that the APMs included in the Financial
Statements are important for understanding the Group’s overall
results of operations and may be helpful to investors and other
interested parties who may benefit from having a consistent basis
for comparison with other companies within the industry. However,
these measures may not be comparable to similarly labelled measures
used by companies inside or outside the insurance industry. In
addition, the information contained herein should not be viewed as
superior to, or a substitute for, the measures determined in
accordance with the accounting principles used by the Group for its
unaudited condensed interim consolidated financial statements or in
accordance with GAAP.
In
compliance with the Guidelines on APMs of the European Securities
and Markets Authority and as suggested by the Financial Reporting
Council, as applied by the Financial Conduct Authority, information
on APMs which the Group uses is described below. This information
has not been audited.
Effective from
1 January 2023, the Group adopted
IFRS 9, Financial Instruments: Classification and Measurement and
IFRS 17: Insurance Contracts. These new accounting standards
resulted in a change to some of the Group's long standing APMs.
Comparatives have been restated to reflect the consistent
application of IFRS 9 and IFRS 17 and to align with the current
definition of the APMs.
All
amounts, excluding share data, ratios, percentage or where
otherwise stated, are in millions of U.S. dollars.
Net
insurance ratio:
Ratio, in per cent, of net insurance expenses to net insurance
revenue. Net insurance expenses represent claims related insurance
service expenses less amounts recoverable from reinsurers. Net
insurance revenue represents insurance revenue less allocation of
reinsurance premium. This ratio gives an indication of the
underlying profitability per $1.00 of
net insurance revenue in the financial year.
|
|
Restated
|
For the
six months ended
|
30 June
2023
|
30 June
2022
|
Insurance
service expense
|
288.5
|
293.8
|
Amounts
recoverable from reinsurers
|
30.9
|
(39.3)
|
Net
insurance expense
|
319.4
|
254.5
|
|
|
|
Insurance
revenue
|
720.9
|
579.8
|
Allocation of
reinsurance premium
|
(212.7)
|
(183.8)
|
Net
insurance revenue
|
508.2
|
396.0
|
|
|
|
Net
insurance ratio
|
62.8%
|
64.3%
|
Operating
expense ratio:
Ratio, in per cent, of other operating expenses, excluding
restricted stock expenses, to net insurance revenue. This ratio
gives an indication of the amount of operating expenses expected to
be paid out per $1.00 of net
insurance revenue in the financial year.
|
|
Restated
|
For the
six months ended
|
30 June
2023
|
30 June
2022
|
Other operating
expenses
|
43.8
|
32.7
|
Net
insurance revenue
|
508.2
|
396.0
|
Operating
expense ratio
|
8.6%
|
8.3%
|
Combined
ratio (discounted):
Ratio, in per cent, of the sum of net insurance expenses plus other
operating expenses to net insurance revenue.
|
|
Restated
|
For the
six months ended
|
30 June
2023
|
30 June
2022
|
Net
insurance ratio
|
62.8%
|
64.3%
|
Net
operating expense ratio
|
8.6%
|
8.3%
|
Combined
ratio (discounted)
|
71.4%
|
72.6%
|
Combined
ratio (undiscounted):
Ratio, in per cent, of the sum of net insurance expense plus other
operating expenses to net insurance revenue. This ratio excludes
the impact of the discounting recognised within net insurance
expenses. The Group aims to price its business to ensure that the
combined ratio (undiscounted) across the cycle is less than
100%.
|
|
Restated
|
For the
six months ended
|
30 June
2023
|
30 June
2022
|
Combined
ratio
|
71.4%
|
72.6%
|
|
|
|
Discount
included in net insurance expense
|
39.4
|
18.0
|
Net
insurance revenue
|
508.2
|
396.0
|
Discounting
impact on combined ratio
|
7.8%
|
4.5%
|
|
|
|
Combined
ratio (undiscounted)
|
79.2%
|
77.1%
|
Diluted
book value per share ('DBVS') attributable to the
Group:
Calculated
based on the value of the total shareholders’ equity attributable
to the Group and dilutive restricted stock units as calculated
under the treasury method, divided by the sum of all shares and
dilutive restricted stock units, assuming all are exercised. Shows
the Group net asset value on a diluted per share basis for
comparison to the market value per share.
|
|
Restated
|
As
at
|
30 June
2023
|
31
December 2022
|
Shareholders’
equity attributable to the Group
|
1,468,687,750
|
1,326,124,728
|
Common voting
shares outstanding*
|
238,863,740
|
238,333,570
|
Shares relating
to dilutive restricted stock
|
4,025,541
|
3,700,547
|
Fully converted
book value denominator
|
242,889,281
|
242,034,117
|
Diluted
book value per share
|
$6.05
|
$5.48
|
*Common voting
shares outstanding comprise issued share capital less amounts held
in trust.
Change
in DBVS:
The
internal rate of return of the change in DBVS in the period plus
accrued dividends. Sometimes referred to as RoE. The Group’s aim is
to maximise risk-adjusted returns for shareholders across the cycle
through a purposeful and sustainable business culture.
|
|
Restated
|
As
at
|
30 June
2023
|
31
December 2022
|
Opening
DBVS
|
($5.48)
|
($5.70)
|
Q1
dividend per share
|
—
|
—
|
Q2
dividend per share
|
$0.10
|
$0.10
|
Q3
dividend per share
|
—
|
$0.05
|
Q4
dividend per share
|
—
|
—
|
Closing
DBVS
|
$6.05
|
$5.48
|
Change in
DBVS*
|
12.2%
|
(1.2%)
|
*Calculated
using the internal rate of return
Adjusted
profit over average shareholders' equity:
During 2022, a
review of financial metrics for annual bonus purposes was
undertaken. Shareholders were consulted on a proposal to move from
Change in DBVS to a simplified measure of RoE. For the 2023 annual
bonus, financial performance will be measured on the basis of
simple ROE adjusted for unrealised gains and losses and discounting
with targets set by reference to the RFR based on the average 13
week U.S. Treasury rates.
|
|
Restated
|
As
at
|
30 June
2023
|
31
December 2022
|
Profit (loss)
for the period
|
159.2
|
(15.5)
|
Net
unrealised (gains) losses on investments
|
(18.3)
|
103.0
|
Total net impact
of discounting
|
(15.8)
|
(85.9)
|
Adjusted
profit (loss) for the period
|
125.1
|
1.6
|
|
|
|
Opening
shareholders' equity
|
1,326.1
|
1,393.4
|
Q1
shareholders' equity
|
1,380.7
|
1,386.6
|
Q2
shareholders' equity
|
1,468.7
|
1,391.9
|
Q3
shareholders' equity
|
—
|
1,425.0
|
Q4
shareholders' equity
|
—
|
1,326.1
|
Average
shareholders' equity
|
1,391.8
|
1,384.6
|
|
|
|
Adjusted
profit over average shareholders' equity
|
9.0%
|
0.1%
|
Total
investment return:
Total
investment return in percentage terms, is calculated by dividing
the total investment return by the investment portfolio net asset
value, including managed cash on a daily basis. These daily returns
are then annualized through geometric linking of daily returns. The
return can be approximated by dividing the total investment return
excluding foreign exchange by the average portfolio net asset
value, including managed cash. The Group’s primary investment
objectives are to preserve capital and provide adequate liquidity
to support the Group’s payment of claims and other obligations.
Within this framework we aim for a degree of investment portfolio
return.
For the
six months ended 30 June
|
2023
$m
|
2022
$m
|
Total investment
return
|
63.2
|
(85.8)
|
Average invested
assets*
|
2,527.0
|
2,271.7
|
Approximate
total investment return
|
2.5%
|
(3.8%)
|
Reported
total investment return
|
2.2%
|
(3.8%)
|
*Calculated as
the average between the opening and closing investments and our
externally managed cash.
Gross
premiums written:
The Group adopted IFRS 17 on I January
2023. Under IFRS 4, the previous insurance accounting
standard, the Group reported gross premiums written on the
consolidated income statement as amounts payable by the insured,
excluding any taxes or duties levied on the premium, including
brokerage and commission deducted by intermediaries and any inwards
reinstatement premiums. The Group continues to report gross
premiums written as a growth metric and non-GAAP APM. The table
below reconciles gross premiums written on an IFRS 4 basis to
insurance revenue on an IFRS 17 basis.
For the
six months ended 30 June
|
2023
$m
|
2022
$m
|
Gross premiums
written1
|
1,184.0
|
938.1
|
Change in
unearned premiums1
|
(357.6)
|
(300.5)
|
Gross
earned premium1
|
826.4
|
637.6
|
Less
reinstatement premium and expected premium
|
(4.2)
|
(7.2)
|
Less
commission and non-distinct investment components
|
(101.3)
|
(50.6)
|
Total
insurance revenue
|
720.9
|
579.8
|
1
Numbers presented in the table above for the comparative period are
as previously reported for the six month period 30 June 2022.
Gross
premiums written under management:
The
gross premiums written under management equals the total of the
Group’s consolidated gross premiums written plus the external names
portion of the gross premiums written in Syndicate 2010 plus the
gross premiums written in Lancashire Capital Management Limited on
behalf of Kinesis Reinsurance Limited. The Group aims to operate
nimbly through the cycle. We will grow in existing and new classes
where favourable and improving market conditions exist, whilst
monitoring and managing our risk exposures and not seek top-line
growth for the sake of it in markets where we do not believe the
right opportunities exist
For the
six months ended 30 June
|
2023
$m
|
2022
$m
|
Gross premiums
written by the group
|
1,184.0
|
938.1
|
LSL
Syndicate 2010 - external Names portion of gross premiums written
(unconsolidated)
|
92.8
|
100.0
|
LCM
gross premiums written (unconsolidated)
|
—
|
38.4
|
Total
gross premiums written under management
|
1,276.8
|
1,076.5
|
NOTE
REGARDING RPI METHODOLOGY
THE
RENEWAL PRICE INDEX (“RPI”) IS AN INTERNAL METHODOLOGY THAT
MANAGEMENT USES TO TRACK TRENDS IN PREMIUM RATES OF A PORTFOLIO OF
INSURANCE AND REINSURANCE CONTRACTS. THE RPI WRITTEN IN THE
RESPECTIVE SEGMENTS IS CALCULATED ON A PER CONTRACT BASIS AND
REFLECTS MANAGEMENT’S ASSESSMENT OF RELATIVE CHANGES IN PRICE,
TERMS, CONDITIONS AND LIMITS AND IS WEIGHTED BY PREMIUM VOLUME. THE
RPI DOES NOT INCLUDE NEW BUSINESS, TO OFFER A CONSISTENT BASIS FOR
ANALYSIS. THE CALCULATION INVOLVES A DEGREE OF JUDGEMENT IN
RELATION TO COMPARABILITY OF CONTRACTS AND THE ASSESSMENT NOTED
ABOVE. TO ENHANCE THE RPI METHODOLOGY, MANAGEMENT MAY REVISE THE
METHODOLOGY AND ASSUMPTIONS UNDERLYING THE RPI, SO THE TRENDS IN
PREMIUM RATES REFLECTED IN THE RPI MAY NOT BE COMPARABLE OVER TIME.
CONSIDERATION IS ONLY GIVEN TO RENEWALS OF A COMPARABLE NATURE SO
IT DOES NOT REFLECT EVERY CONTRACT IN THE PORTFOLIO OF CONTRACTS.
THE FUTURE PROFITABILITY OF THE PORTFOLIO OF CONTRACTS WITHIN THE
RPI IS DEPENDENT UPON MANY FACTORS BESIDES THE TRENDS IN PREMIUM
RATES.
NOTE
REGARDING FORWARD-LOOKING STATEMENTS:
CERTAIN
STATEMENTS AND INDICATIVE PROJECTIONS (WHICH MAY INCLUDE MODELLED
LOSS SCENARIOS) MADE IN THIS RELEASE OR OTHERWISE THAT ARE NOT
BASED ON CURRENT OR HISTORICAL FACTS ARE FORWARD-LOOKING IN NATURE
INCLUDING, WITHOUT LIMITATION, STATEMENTS CONTAINING THE WORDS
“BELIEVES”, “AIMS”, “ANTICIPATES”, “PLANS”, “PROJECTS”,
“FORECASTS”, “GUIDANCE”, “INTENDS”, “EXPECTS”, “ESTIMATES”,
“PREDICTS”, “MAY”, “CAN”, “LIKELY”, “WILL”, “SEEKS”, “SHOULD”, OR,
IN EACH CASE, THEIR NEGATIVE OR COMPARABLE TERMINOLOGY. SUCH
FORWARD LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER IMPORTANT FACTORS THAT COULD CAUSE THE
ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE GROUP TO BE
MATERIALLY DIFFERENT FROM FUTURE RESULTS, PERFORMANCE OR
ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS. FOR A DESCRIPTION OF SOME OF THESE FACTORS, SEE THE
GROUP’S ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2022 AND THE GROUP’S UNAUDITED
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX
MONTHS ENDING 30 JUNE 2023. IN
ADDITION TO THOSE FACTORS CONTAINED IN THE GROUP’S 2022 ANNUAL
REPORT AND ACCOUNTS AND THE GROUP’S UNAUDITED CONDENSED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDING
30 JUNE 2023, ANY FORWARD-LOOKING
STATEMENTS CONTAINED IN THIS RELEASE MAY BE AFFECTED BY: THE IMPACT
OF THE ONGOING CONFLICT IN UKRAINE, INCLUDING ANY ESCALATION OR EXPANSION
THEREOF, ON THE GROUP’S CLIENTS, RESERVES, THE CONTINUED
UNCERTAINTY OF THE SITUATION IN RUSSIA, INCLUDING ISSUES RELATING TO COVERAGE
AND THE IMPACT OF SANCTIONS, THE SECURITIES IN OUR INVESTMENT
PORTFOLIO AND ON GLOBAL FINANCIAL MARKETS GENERALLY, AS WELL AS ANY
GOVERNMENTAL OR REGULATORY CHANGES, ARISING THEREFROM; THE NUMBER
AND TYPE OF INSURANCE AND REINSURANCE CONTRACTS THAT THE GROUP
WRITES OR MAY WRITE; THE GROUP’S ABILITY TO SUCCESSFULLY IMPLEMENT
ITS BUSINESS STRATEGY DURING ‘SOFT’ AS WELL AS ‘HARD’ MARKETS; THE
PREMIUM RATES WHICH MAY BE AVAILABLE AT THE TIME OF SUCH RENEWALS
WITHIN ITS TARGETED BUSINESS LINES; INCREASED COMPETITION ON THE
BASIS OF PRICING, CAPACITY, COVERAGE TERMS OR OTHER FACTORS; AND
CYCLICAL DOWNTURNS OF THE INDUSTRY. ALL FORWARD-LOOKING STATEMENTS
IN THIS RELEASE OR OTHERWISE SPEAK ONLY AS AT THE DATE OF
PUBLICATION. LANCASHIRE EXPRESSLY
DISCLAIMS ANY OBLIGATION OR UNDERTAKING (SAVE AS REQUIRED TO COMPLY
WITH ANY LEGAL OR REGULATORY OBLIGATIONS INCLUDING THE RULES OF THE
LONDON STOCK EXCHANGE) TO
DISSEMINATE ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKING
STATEMENT TO REFLECT ANY CHANGES IN THE GROUP’S EXPECTATIONS OR
CIRCUMSTANCES ON WHICH ANY SUCH STATEMENT IS BASED. ALL SUBSEQUENT
WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE
GROUP OR INDIVIDUALS ACTING ON BEHALF OF THE GROUP ARE EXPRESSLY
QUALIFIED IN THEIR ENTIRETY BY THIS NOTE. PROSPECTIVE INVESTORS
SHOULD SPECIFICALLY CONSIDER THE FACTORS IDENTIFIED IN THIS RELEASE
AND THE REPORT AND ACCOUNTS AND THE UNAUDITED CONDENSED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS NOTED ABOVE WHICH COULD CAUSE
ACTUAL RESULTS TO DIFFER BEFORE MAKING AN INVESTMENT
DECISION.
Consolidated
statement of comprehensive income
|
|
Restated
|
For the
six months ended 30 June
|
2023
$m
|
2022
$m
|
Insurance
revenue
|
720.9
|
579.8
|
Insurance
service expenses
|
(288.5)
|
(293.8)
|
Insurance
service result before reinsurance contracts
held
|
432.4
|
286.0
|
Allocation of
reinsurance premium
|
(212.7)
|
(183.8)
|
Amounts
recoverable from reinsurers
|
(30.9)
|
39.3
|
Net
expense from reinsurance contracts held
|
(243.6)
|
(144.5)
|
Insurance
service result
|
188.8
|
141.5
|
Net
investment return
|
63.2
|
(85.8)
|
Finance
(expense) income from insurance contracts issued
|
(37.7)
|
28.0
|
Finance income
(expense) from reinsurance contracts held
|
14.1
|
(9.5)
|
Net
insurance and investment result
|
228.4
|
74.2
|
Share of profit
of associate
|
5.2
|
2.5
|
Other
income
|
1.1
|
2.3
|
Net
foreign exchange (losses) gains
|
(1.0)
|
6.2
|
Other operating
expenses
|
(43.8)
|
(32.7)
|
Equity based
compensation
|
(7.2)
|
(3.7)
|
Financing
costs
|
(15.5)
|
(14.7)
|
Profit
before tax
|
167.2
|
34.1
|
Tax
charge
|
(8.0)
|
(3.1)
|
Profit
after tax
|
159.2
|
31.0
|
|
|
|
Earnings
per share
|
|
|
Basic
|
0.67
|
0.13
|
Diluted
|
0.66
|
0.13
|
Consolidated
statement of financial position
|
|
Restated
|
As
at
|
30
June
2023
$m
|
31
December 2022
$m
|
Assets
|
|
|
Cash and cash
equivalents
|
620.3
|
548.8
|
Accrued
interest receivable
|
14.0
|
11.3
|
Investments
|
2,374.3
|
2,204.9
|
Reinsurance
contract assets
|
427.5
|
474.3
|
Other
receivables
|
27.2
|
30.0
|
Corporation tax
receivable
|
—
|
1.1
|
Investment in
associate
|
24.3
|
59.7
|
Property, plant
and equipment
|
4.4
|
1.1
|
Right-of-use
assets
|
18.6
|
20.3
|
Intangible
assets
|
177.5
|
172.4
|
Total
assets
|
3,688.1
|
3,523.9
|
Liabilities
|
|
|
Insurance
contract liabilities
|
1,678.0
|
1,673.5
|
Other
payables
|
54.9
|
44.6
|
Corporation tax
payable
|
3.3
|
—
|
Deferred tax
liability
|
13.7
|
10.3
|
Lease
liabilities
|
23.2
|
23.3
|
Long-term
debt
|
446.3
|
446.1
|
Total
liabilities
|
2,219.4
|
2,197.8
|
Shareholders’
equity
|
|
|
Share
capital
|
122.0
|
122.0
|
Own
shares
|
(30.8)
|
(34.0)
|
Other
reserves
|
1,226.0
|
1,221.9
|
Retained
earnings
|
151.5
|
16.2
|
Total
shareholders’ equity
|
1,468.7
|
1,326.1
|
Total
liabilities and shareholders’ equity
|
3,688.1
|
3,523.9
|
Consolidated
statements of cash flows
|
|
Restated
|
For the
six months ended 30 June
|
2023
$m
|
2022
$m
|
Cash
flows from operating activities
|
|
|
Profit before
tax
|
167.2
|
34.1
|
Adjustments
for:
|
|
|
Tax
paid
|
(0.1)
|
(1.3)
|
Depreciation
|
1.8
|
1.5
|
Interest
expense on long-term debt
|
12.9
|
12.9
|
Interest
expense on lease liabilities
|
0.8
|
0.5
|
Interest
income
|
(41.4)
|
(17.2)
|
Dividend
income
|
(5.1)
|
(3.5)
|
Net
realised losses
|
3.7
|
14.0
|
Net
unrealised (gains) losses
|
(18.3)
|
93.8
|
Equity based
compensation
|
7.2
|
3.7
|
Foreign
exchange losses (gains)
|
0.6
|
(11.0)
|
Share of profit
of associate
|
(5.2)
|
(2.5)
|
Changes
in operational assets and liabilities
|
|
|
–
Insurance and reinsurance contracts
|
44.2
|
(49.3)
|
–
Other assets and liabilities
|
18.0
|
(0.4)
|
Net
cash flows from operating activities
|
186.3
|
75.3
|
Cash
flows used in investing activities
|
|
|
Interest income
received
|
38.7
|
16.0
|
Dividend income
received
|
5.1
|
3.5
|
Purchase of
property, plant and equipment
|
(3.4)
|
—
|
Internally
generated intangible asset
|
(5.1)
|
(4.4)
|
Investment in
associate
|
40.6
|
33.5
|
Purchase of
investments
|
(551.0)
|
(700.7)
|
Proceeds on
sale of investments
|
398.3
|
507.7
|
Net
cash flows used in investing activities
|
(76.8)
|
(144.4)
|
Cash
flows used in financing activities
|
|
|
Interest
paid
|
(12.9)
|
(12.9)
|
Lease
liabilities paid
|
(2.0)
|
(1.8)
|
Dividends
paid
|
(23.9)
|
(24.3)
|
Share
repurchases
|
—
|
(11.7)
|
Distributions
by trust
|
—
|
(0.4)
|
Net
cash flows used in financing activities
|
(38.8)
|
(51.1)
|
Net
increase (decrease) in cash and cash equivalents
|
70.7
|
(120.2)
|
Cash and cash
equivalents at beginning of period
|
548.8
|
517.7
|
Effect of
exchange rate fluctuations and other on cash and cash
equivalents
|
0.8
|
(6.9)
|
Cash
and cash equivalents at end of period
|
620.3
|
390.6
|