The catastrophes of 2017 – from Harvey to Maria, and from Irma to Cyclone Debbie – may seem like a distant memory for most of us who weren’t directly involved, but for those who were impacted the costs continue to pile up. The same, can be said for insurers.
For further evidence look no further than Lancashire Holdings which has today revealed its fourth quarter results for 2017 and for the full year.
Over the 12-month period, the firm reported a net operating loss of $86 million (around £61.24 million) compared to a prior year profit of $144 million (around £102 million). Its gross premiums written also slumped from $633.9 million to $591.6 million year-on-year. The firm’s combined ratio for 2017 stood at a catastrophe-driven 124.9% compared to last year’s impressive 76.5%.
For group chief executive officer Alex Maloney, there was no doubt where the blame should be placed.
“Adding to what was already a significant loss year, the run of catastrophe losses continued in the fourth quarter with the occurrence of wildfires across California in essentially two separate sequences of loss activity,” he said. “These events have unfortunately resulted in one of the most severe years for catastrophe losses to the industry, with the sum of such insured losses in excess of $100 billion, placing 2017 in the top three years for aggregate catastrophe losses in recent history.
“Such events are not unprecedented and, as a catastrophe (re)insurer, we plan our underwriting, reinsurance programme, capital and risk levels in anticipation of such scenarios. Insurance is a cyclical business, the purpose of which is to smooth out the effect of losses from unpredictable catastrophe events over the course of time. That is as much the case for our business as it is for our clients.”
Maloney believes the events of 2017 provided a “real-time stress test” for the company’s risk management function and he remains confident in the company’s model.
“Overall, we feel that we had the right underwriting strategy, risk levels and capital headroom to absorb these events when balanced against the underwriting opportunity that presented itself during 2017,” he stressed.
On the positive side for the business there were notable increases in GWP among certain business segments. Its marine GWP, for example, increased by 91.7% during the fourth quarter of the year. However, this was offset by slumps elsewhere – energy GWP dropped 78.8% in the quarter, aviation slipped 50.0% and property gross premiums were down 27.8%.
Still, Elaine Whelan, chief financial officer, remained resolute.
“With improved rates at the January 01 renewals, and our current outlook, we continue to expect to put all of our current capital to work this year,” she said. “In line with our stated dividend policy we will continue with our ordinary dividend and are therefore declaring our standard final ordinary dividend of $0.10 per share.”
Separately, the firm also announced the retirement of Tom Milligan, a non-executive director of its board. Milligan will stand down effective March 31.
“I would like to thank Tom for his valuable contribution as a member of our board,” said Peter Clarke, Lancashire’s chairman. “In particular, Tom’s executive knowledge in the insurance industry has helped inform our strategic planning in recent years and contributed to the success of our business. Tom has served as a director on the Lancashire board for over three years and he has decided to step down in order to pursue other opportunities. We wish Tom well for the future.”