Lancashire Holdings Limited

Ladies and gentlemen, welcome to the Lancashire Holdings Limited first half 2024 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. I would now like to hand the conference over to our speakers today, Alex Maloney, Group CEO, Natalie Kershaw, Group CFO, Paul Gregory, Group CEO. Thank you, Alex. Please go ahead.

Okay, thank you very much. Good morning, everyone. Thank you for joining our call today. As always, I'll just give some brief highlights of the progress we've made so far this year and the priorities for our business. Paul will then focus on the underwriting trends. Natalie will cover the financials, and then we'll go to Q&A. We've delivered an outstanding result for the first half of 2024. It's our best ever since the inception of Lancashire. Our return on equity, as measured by the change in diluted book value per share of 14%, is the strongest it has ever been for the first six months of any year since Lancashire was formed. Importantly, both underwriting and investments have contributed strongly to the bottom line. Starting with underwriting, we continue to take advantage of favourable market conditions. We have grown our premiums by 8%. This is, again, in excess of the rate change we see which puts us well on track for the largest footprint we've had as a business for 2024. As I've said many times before, our long-term strategy is to grow when the underwriting opportunities are strong, and this is the delivery of that strategy. Importantly, the benefits of this growth are coming through to our earnings. In the first half of 2024, the industry has yet again seen high catastrophe losses and large risk events. Against this backdrop, we have delivered an excellent combined ratio of 73% or 82.2% on an undiscounted basis. And none of the first half of insured events were individually material for our group. Our investment portfolio performed strongly too, delivering the strongest dollar contribution to results in the half year. Overall, our best first half since Lancashire started nearly 20 years ago, back in 2005, And as such, we're in a position to affirm our full-year guidance for an undiscounted combined ratio of the mid-80s and a return on equity of around 20%. As I look to the rest of the year and into 2025, we continue to see attractive opportunities to deliver superior returns for our investors. By growing our existing lines, further expanding our newly minted U.S. operation, Or should the right team arise looking at new product lines? As I've said before, I'm extremely pleased that at this stage in the cycle, we have a healthy balance sheet to allow us plenty of flexibility to underwrite the opportunities we see. We continue to deliver what we said we would do. I'll now hand over to Paul to talk you through our underwriting trends.

Thank you, Alex. As Alex has just explained, it's been a very strong first half of the year. We're incredibly pleased with all aspects of underwriting performance in the first six months. We are seeing the benefits of the underwriting strategy we've put in place and executed over the past few years. We have produced significant underwriting profitability despite an active loss environment, and we have continued to grow ahead of rate. To give you a quick overview, the rating environment remains very supportive, with a year-to-date RPI of 102%. From a rating perspective, almost all our lines remain in a very healthy and attractive position. This is why we continue to grow ahead of rate, and we still see opportunities to do this in the second half of the year and beyond. We guided to approximately 10% growth in gross premiums, and whilst we're marginally behind this at half-year, we still feel this is a reasonable guide for fall year. Our underlying growth rate, which excludes impacts such as reinstatement premiums, is much closer to 10%. As ever, our focus will not be on hitting certain premium numbers, but underwriting the opportunity to build the best quality portfolio that we can. We have the most resilient portfolio in our history and are comfortable with the balance of our book. I'll now move on to more detail on the underwriting environment, starting with reinsurance. It's very pleasing that underwriting discipline is being maintained. Whilst it's fair to say there's more appetite from existing carriers to deploy, we did not see new capacity in the market. and we continue to see increased demand, particularly from our existing clients. As we'll keep reminding everyone, the majority of the products, the margins are extremely healthy. In property reinsurance, there was no material changes to attachment points or rating levels. Instead, as we saw at the mid-year renewals, if aggressive orders were sought, the market held firm with sensible underwriting prevailing. This is encouraging. Demand continues to increase for property reinsurance, which helps offset the increased willingness to deploy capacity. We see the property reinsurance market as a great place to be, with ample opportunity to write well-priced and structured business. Turning now to casualty reinsurance, the continued prior year loss development for the market helps keep the pressure on current underwriting years, with the market being able to continue to push for rate increases on the underlying business. As a reinsurer, we get the benefit of this underlying rate momentum, as well as seeing slight downward pressure on seeding commissions, both of which help maintain margin. We are very happy with the rate adequacy and margin embedded within our casualty reinsurance portfolio, and we remain confident in the prudence of our lost cost assumptions. I know you will get bored of us reminding you that we entered this class in 2021, so come from a position of strength, a time when a number of problems in those old underwriting years were already known. This allowed us to cater for them in our pricing and reserving. On top of this underwriting margin, we continue to hold very prudent reserves and will continue to do this for the foreseeable future, given the long-term nature of the class. Importantly, we are not seeing any trends that make us question our pricing assumptions at this stage. If I now look at our specialty reinsurance book, where we have continued to build out our offering. This was a targeted area of growth for us this year, and we achieved our objective by growing our existing client portfolio as well as adding new business. This will remain an area of growth for us in the coming years, given we are still relatively underweight. Now moving to the insurance segment. In the insurance lines, rating remains positive at mid-year. Much like reinsurance, there is an increased willingness from existing carriers to deploy more capacity, but on the whole, underwriting discipline remains. As with reinsurance, the majority of classes are sitting in a very strong position from a rating perspective, following seven years of compound rate increase, and this is the most important point. In property insurance, we anticipated growth, and we have been successful in achieving this. We have done this through our established property insurance portfolio, as well as our more recent initiatives, such as our Australian and US operations, as well as via our construction team. The robust nature of the rate environment has enticed others to grow in property, so competition will increase. Nevertheless, demand remains strong, and rating is at historically high levels. Outside of property, we see an orderly market in most other insurance classes. Any class with a casualty focus, such as energy liability and marine liability, are still seeing positive rate trends. This is an overspill of the broader casualty market dynamics. In lines such as marine, energy, and terrorism, There is more competition and rates have plateaued. Importantly, in the majority of classes, margins are at very healthy levels. In conclusion, we are very satisfied with where we are at mid-year. By growing our footprint when rating levels are good, as good as they are, just prolongs the earnings power of the portfolio, helping future underwriting years. We are encouraged that there remains good opportunity for more profitable growth for 2024 and beyond. I'll now hand over to Natalie.