Lancashire is in a mature trading position
having had over three years to develop
broker and client relationships. Across
most of its classes it is able to access all the
business that it wishes to review. In 2008
there were very substantial losses to the
(re)insurance markets both from insured
losses and balance sheet events including
losses from declining investment markets.
The outlook in the specialty insurance
and reinsurance markets is that there will
be a resultant general hardening of pricing
and some improvements to terms and
conditions in 2009; Lancashire supports
this view. Early indications are that pricing
and terms are meeting our expectations
that there will be a broad-based
improvement in pricing across most
of the lines of business that the Group
writes, as well as some areas of beneficial
improvements in terms and conditions.
As primarily an insurance provider, the
Group writes business over the course of
the year and results are not driven by the
strength of the 1 January renewal season.
The Group does write a substantial part of
its Property Retrocession book at 1 January,
however, and pricing has been in line
with expectations, with rate increases
in the region of 20 per cent and some
improvement in terms and conditions.
The Group’s next major line of business
renewal period is March through June on
its Energy Gulf of Mexico book. Current
expectations are substantial rate increases
with significant improvements in terms
and conditions. The Group’s Property
Direct and Facultative book is written
throughout the year. Rates in this line of
business are beginning to improve and
expectations are that rates will improve
through the first quarter of 2009 and
further throughout the year.
As rates in the insurance market improve,
the converse is true for Lancashire’s
reinsurance program. Reinsurance rates
are increasing and certain covers that the
Group may previously have purchased,
or had access to, may no longer be available
or at increased cost.
While the turmoil in the investment
markets continues, total investment returns
are expected to remain lower than have
historically been experienced. Lancashire
has a conservative investment strategy, with
the primary goal of maintaining capital.
The Group’s aim is to provide shareholders
with a risk-adjusted return on equity
of 13 per cent in excess of a risk free rate
over the insurance cycle. With the current
pricing expectations for the Group’s
preferred lines of business, the outlook
for 2009 is cautiously optimistic.
Neil McConachie
Chief Financial Officer
10 March 2009