Lancashire Holdings Limited

Hello and welcome to the Lancashire Holdings Limited H1 2023 earnings call. Throughout the call, all participants will be in a listen-only mode and afterwards there will be a question and answer session. Please note this call is being recorded. Today I'm pleased to present Alex Maloney, Group CEO, Natalie Kershaw, Group CFO and Paul Gregory, Group CEO. I will now hand over to Alex Maloney. Please begin your meeting.

Okay, thank you, operator. Good morning, everyone. I will just give some brief highlights of our half-year results, then go to Paul for some underwriting, and then Natalie will cover the financials, and then we'll go to Q&A. So as I reflect on the progress our business has made during the first half of the year, I'm pleased to report that we continue to grow our business in line with our long-term strategy at the right time in the underwriting cycle. We continue to see the best underwriting conditions in a decade, for most classes of business we underwrite. Therefore, it's important that we grow our writings in excess of the rate change to maximise this opportunity. Our plan for the rest of 2023 is to continue to grow our business whilst continuing our work to diversify our underwriting portfolio. We see little ill discipline in the marketplace or new capital entering. Therefore, I expect underwriting conditions to be favourable for the foreseeable future. As our half-year results demonstrate, we are building a better, more diverse underwriting portfolio, which generates more profit against our capital base. We're using our capital more efficiently and remain in a strong capital position for future opportunity. As we enter this year's US hurricane season, our business is in a much stronger financial position than when we entered last year's hurricane season. Our profit buffer is multiples of where we were at this point last year. Our plan for our property cat and retro portfolios was to write a similar portfolio as we did last year. By that I mean to deploy similar capital to that space as we did in 22. We're already a major writer of cat business and therefore enjoying the better than budgeted underwriting conditions for these capital constrained classes of business. So we have a much better balance of capital exposed to the hurricane season and profit, which increases the probability of much better returns. So I'm very happy to report our business continues to deliver in line with our long-term strategy. We have a more diversified product mix where we aim to deliver lower earnings volatility, which should in turn produce better returns on capital. Therefore, we are growing our underwriting at the right time, using our capital more efficiently, and growing our earnings per share. Now I'd like to just pivot to Lancashire US. you would have seen the news that Lancashire will start underwriting in the US in 2024. This is an exciting opportunity for us and the next stage in the evolution of our business. We have, as always, been driven by the underwriting opportunity which currently presents itself in the US E&S market. We intend to offer product lines which suit our current appetite but do not find their way to any of our current underwriting hubs. Our intention is to very much write business that is brokered and underwriting in the US marketplace. We would adopt the same conservative approach to building our US business as we have done in other parts of our business that we have built out over the last five years. We always believe that you need to enter new product lines at the right time and with the right people, which is what we're doing in the US. So to summarize. Our long-term strategy of growing at this stage of the underwriting cycle and diversification of our underwriting portfolio is working. We continue to see underwriting opportunity for a foreseeable future, and Lancashire US will provide us with continued growth in the world's largest insurance market. I'll now hand over to Paul.

Thank you, Alex. As Alex has just mentioned, market conditions have continued to be favourable through the second quarter. and we've continued to execute on our long-held strategy of growing when the market opportunity is there. We have now seen 22 consecutive quarters of positive rating momentum. The rating environment we saw in Q1 was maintained through Q2 with a very healthy RPI of 117% for the first half of the year. More than just the headline rate, we are extremely happy with the profitability of the portfolio. First half of the year from an industry loss perspective was far from benign as there have been numerous CAT and non-CAT losses. As a result, the combined ratio of 79.2% is very pleasing, but our real focus is on the additional dollars of profit this produces given the larger premium base against a broadly similar level of capital. Importantly, we continue to see the benefits of the numerous investments made over the past five years. You'll recall I first talked about our investments in new classes back in 2018. It takes time for our investments to reach critical mass, but since then these classes we have entered have gained profitable scale and are now contributing to the bottom line. That is also our hope for the investment we're looking to make in the US too. It will take a bit of time, but it will ultimately help us deliver a more resilient underwriting contribution over the longer term. Whilst there is never a guarantee of profitability, as we're in the risk business, the market conditions and our decision to build out a more diversified underwriting footprint at the correct time just enhances the probability of healthy combined ratios and ROEs. And the portfolio we put in place should be able to absorb losses, yet still deliver less volatility and healthy levels of profitability. Most importantly, it should improve our ROE across the cycle. In the next two slides, I'll briefly touch on the market dynamics in both our reinsurance and insurance segments. The market conditions we saw in Q1 have remained during Q2 for all of our reinsurance lines. RPI for the reinsurance segment was 123% for the first half. We continue to build out the casualty portfolio and rating was broadly flat. We are very happy with the rating adequacy given we entered at the peak of the rating environment and continue to reserve this class extremely prudently. The specialty reinsurance portfolio also continues to grow in what is a strong market. Specific sectors such as aviation reinsurance have seen significant rate improvement as the year has progressed, helped by market losses and a retraction of retrocapacity. We anticipate specialty reinsurance being a core growth area for us in the coming years. In catastrophe-exposed lines such as Property Cat and Retro, the buoyant rating environment continued. The market was far more orderly than we saw at the 1st of January, but this didn't detract from the rating conditions. It's found its level, and there were no signs of softening during Q2 renewals. Our insurance segment continued to see strong rating momentum with an RPI of 111%. Of particular note, the property portfolio has seen continued strength in rating levels and even stronger demand. We've spoken much about the threat of inflation composed, but we've also tried to highlight there is a positive to inflation. It increases demand for our products, and increased demand at a time of limited supply only helps the market dynamics. The effect is clear as seen in property insurance, and this has given us the opportunity to grow in one of the best property markets we've seen. All other classes with the insurance segment continue to have positive rate momentum as the upward rating trajectory we've seen for the past five to six years endures. Classes such as aviation, power, marine, liability, and energy liability are all still seeing strong double-digit RPIs. Looking forward, we remain optimistic that market conditions will remain robust with rating adequacies in a really strong position. With new ventures such as the US, we anticipate a good runway for growth in the coming years with a foundation of strong underlying rating to support this and the future underwriting contribution. I'll now pass over to Natalie.