Lancashire says hard market will continue in 2023

Specialty insurance buyers can expect little relief this year after five years of rate increases, with further rises expected in 2023, according to Bermuda-based carrier Lancashire Holdings. The group expects property rates to continue to climb on the back of a tough reinsurance market and restricted capacity. Casualty lines will remain flat at historically high levels, predicts Lancashire. The group gave its outlook as it reported huge growth in gross premiums written last year of 35% to $1.7bn and a group renewal price index (RPI) of 108%. Lancashire reported a combined ratio of 97.7% despite hefty hits from Hurricane Ian and Ukraine-related losses. It said this demonstrates the benefit of growth and diversification. The group reported an operating profit of $26.4m against a loss of $11m in 2021. The underlying business is, however, healthy and has reported a 280% growth in premiums since 2017, when the market hardening started to kick in. Lancashire delivered a 50.1% increase in reinsurance premiums to $842.1m last year. It said this was primarily driven by new casualty business. This class also benefited from significant written premium being recognised from new policies bound in 2021. Lancashire said that strong growth was also seen in property reinsurance as rates continued to harden, with RPIs of 111%. “Aside from rate rises there was limited exposure growth in this class as the group maintained relatively stable risk levels, taking the increased margin through rate improvements, given we had already grown our footprint significantly during 2021,” said Lancashire. “In specialty reinsurance, all lines of business saw small increases in gross premiums written driven by new business growth. We continued to build out our specialty treaty account in areas such as energy, marine and political violence, adding to the already well-established sub-classes of aviation reinsurance and property retrocession,” added the group. Lancashire said that its insurance business benefited from the positive rating environment, inflationary pressure increasing values at risk, and the continued build out of new teams. “The most significant increases in this segment were in the property insurance class, where the group has continued to expand its property direct and facultative offering across all its underwriting platforms, including the newly established Australian platform. The group also added a new property construction line of business,” it explained. Lancashire said that it began 2023 with strong 1 January renewals, which saw a market-wide reassessment of property catastrophe risk. “Pricing, coverage, as well as terms and conditions, all responded favourably, substantially improving expected returns. We continue to remain disciplined in our underwriting, while taking advantage of increased rates,” said the group. A flood of new capacity to take advantage of the hard market has, so far, not occurred this time round, said Lancashire. “Increased demand for our products, due to recent industry loss experience and broader inflation, was not met by an increase in the supply of capacity, as investors repriced the cost of capital. Overall, this gave considerable momentum to the current favourable market dynamics, which we expect to continue at least at the current level as we go into the mid-year renewals,” it said. “In other lines, the pricing environment remains supportive, albeit rate rises were not as high as in property catastrophe lines of business. Our specialty book has seen five years of rate increases and this looks set to continue in 2023, while our casualty business is more stable, with rates remaining close to historical peaks,” reported the group. “As we look into 2023, wider capacity constraints – due particularly to the increasing cost of capital and historic loss activity – are expected to give us considerable opportunities to further strengthen our franchise at a time in the cycle of expanding margins,” said Alex Maloney, group CEO.

Lancashire says hard market will continue in 2023

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