Lancashire Holdings Limited

Welcome to the Lancashire Q2 2025 earnings conference call. The speakers today will be Alex Maloney, Natalie Kershaw, and Matthew Narbon. I'll now turn the call over to Alex. Please go ahead.

Good afternoon, everyone. Thank you for joining our call today. You will notice in the operator's introduction that Matt is presenting the underwriting portion of our call today. This is because Paul is on sabbatical, which is one of the benefits of working in Lancashire. After 10 years of being with us, you can take a well-deserved short break, which is what Paul is doing. So today, I will give some highlights on the progress the business has made so far this year. Matt, our Deputy Chief Underwriting Officer, who some of you know, will then focus on the underwriting trends. Natalie will cover the financials, and then we then go to Q&A. I want to start by saying that the first half of 2025 was very much the demonstration of our strategy in action. Even with the sizeable industry loss of California wildfires in Q1, we end the first half with an annualised ROE of about 15%. In fact, Q2 was our most profitable second quarter ever in our history. You can see that the work we have been doing since 2018 to make the group more resilient to cat losses has worked. This strong result allows us to, at this stage, upgrade our ROE expectations to high teens for the 2025 year. As a reminder, this assumes the same level of catastrophe and large losses as the second half of 2024 when we had hurricanes Milton and Helene. The insurance market conditions remain favourable and most lines fundamentally are well priced. As we have talked about before, after many years of rate increases, we are now seeing a more competitive market. This isn't in the form of new capital entering the market, rather it's the existing players looking to deploy more. There's still more capital in the industry but it tends to be more disciplined capital. This doesn't change our strategy of disciplined growth. As I've said many times before, we lead with underwriting and we will continue to grow above rate while the cycle is supportive of the strong returns for our investors and Matt will talk a bit more about this shortly. Our capital permission remains robust with solvency comfortable above requirements. This allows us to pursue selective growth and return capital when excess builds. Active management of our capital and risk exposures remains central to our strategy in order to deliver attractive, less volatile returns through cycle. You can see this in the first half of 2025 for our higher teens ROE expectation for this year. As I've said before, I'm extremely pleased that at this stage in the cycle we have a healthy balance sheet that allows us plenty of flexibility to underwrite the opportunities we see. The quality of the business we have built and the talent we have in our organisation together means that we can continue to deliver on our strategy of delivering more sustainable returns for our shareholders. With that, I'll hand over to Matt now to talk you through the underwriting trends.

Okay, thank you Alex. For those of you who have not had the chance to meet yet, I've been with Lancashire for about 14 years in total. and I took on the Deputy CUO role earlier this year. Today, I'd like to pick up on three of the themes Alex mentioned. Firstly, our strong half year results show that our strategy is working. The market conditions as we see them remain attractive. And finally, as we said before, at this stage of the cycle, we will continue to focus on disciplined growth ahead of rate. Taking these in turn, our strategy is working. The first half of 2025 saw insured natural catastrophe losses of about $80 billion globally, the second highest recorded for the first half of any year. In this context, our combined ratio reflects disciplined underwriting and an exceptionally resilient portfolio. What's more, our Q2 underwriting results are the strongest Lancashire has seen of any quarter since inception. As such, the first half of the year is evidence of the delivery of our strategy. This has not happened overnight. You all know that we started building a more resilient business as soon as cycle turned in 2018. We've consistently invested in building a more adaptable and more diversified business. We've expanded our underwriting capabilities, added complementary lines and new distribution channels, and brought in high-caliber teams to better seize opportunities across the cycle. Turning to market conditions, they remain attractive. As Alex mentioned, the rating environment remains healthy and most lines remain fundamentally well-priced. Demand for our products remains strong, but we're seeing existing companies deploying more capital. So far, this is coming through in a disciplined way and in line with our expectations for this year. We're only seeing the early phases of a softening market at portfolio level. Most importantly, terms and conditions and attachment points are broadly holding steady. All this bodes well for future underwriting results. You can see our focus on disciplined growth in the first half of 2025 as our premiums grew nearly 6% or nearly 3% excluding reinstatement premiums. As we said before, we want to grow ahead of rate in the current market as margins remain strong. But different lines of business are seeing somewhat different dynamics and our approach has to be selective. To give you a bit of colour by line, I'll start with our reinsurance business. It's fair to say that there's not been a material change in our view of the market. Within property reinsurance, we continue to see a disciplined market and have taken the opportunity to grow with some of our core clients. Our casualty book is now largely at scale, with growth coming through existing contracts and prior year premiums. The market is broadly stable, with generally flat commissions on quota share contracts. Our specialty reinsurance book comprises of two main parts. The property retrocession book, which we've deliberately scaled back for this year in response to pricing pressure, and our marine energy and terror reinsurance book, which we continue to expand through healthy new business. If I turn now to the insurance segment, property insurance is currently seeing the biggest headwinds and we continue to adjust our portfolio. Risk selection remains key. Over the last few years, we've been building a group portfolio, accessing a broader diversity of territories, diversity in the size of our clients, a range of different distribution channels operating across our various platforms in London, the US and Australia. All of this enables us to actively manage our portfolio and mitigate some of these pressures. Elsewhere, we continue to see good momentum in our marine and energy classes. In particular, within the energy liability segment on our US platform, which continues to benefit from the broader pressures in casualty. In this regard, our US platform build-out continues to progress well. In particular, we're pleased with the strong team we've been able to recruit and the quality portfolio they've built so far. Looking to the second half, our focus remains firmly on continuing to build on our existing strategy. Growing where margins are strong, maintaining discipline and positioning our portfolio to continue delivering sustainable returns beyond 2025. We remain comfortable with the growth premiums written growth indication we gave you earlier this year of low single-digit growth. I'll now hand over to Natalie to run through the detailed financials.

Thanks, Matt. Hello, everyone. I am very pleased with our first-half performance, which is a real demonstration of the resilience we have built into the business over the past number of years. We are now able to withstand significant market losses such as the California wildfires and still make good returns for our shareholders. I would like to draw your attention to three highlights. Notwithstanding the significant California wildfire loss in Q1, we have produced positive underwriting results with an insurance service result of $156 million. Our investment performance is excellent with the overall return for the half year at 3.7%. With our first half performance being better than expected at Q1, we would expect returns in the high teens for the year, assuming similar levels of loss activity in H2 as last year. A summary of our results for the year is laid out on slide 5. Insurance revenue increased by 8.9% compared to the first half of 2024, to $930 million. The main component of insurance revenue is premium earnings. where we are benefiting from the considerable growth in gross premiums written over the last few years. The allocation of reinsurance premium is slightly lower than the same period in 2024. We continually refine our reinsurance purchasing and have been able to make more efficient purchases across the group given the growth of the Inwards Book and the increasingly diversified portfolio. The allocation of reinsurance premiums as a percentage of insurance revenue was 22% down from 25% in the prior year. Our undiscounted combined ratio was 97.8% or 87.4% on a discounted basis. Even with sizeable industry losses in the first half of the year, we have still been able to produce an insurance service result of £155.7 million. This is testament to the successful growth and diversification of the business. and our focus on overall profit and return on capital. Absent the impact of the catastrophe and large losses and reserve releases, the underlying performance of the business is comparable to the first half of 2024. Our operating expense ratio is marginally higher than 2024 at 8.8% compared to 7.8%. Employment costs are the most significant driver of the increase due to additional headcounts supporting business growth. These headcount increases also result in higher related expenses such as building costs, IT expenses and so on. Please note that our headline combined ratio includes all expenses incurred by the group, operating as well as underwriting related, and therefore may not be comparable to headline combined ratios reported by others given that we include all our costs. Our overall tax charge can fluctuate slightly from period to period, depending on the relative profitability of different entities within the group. As a reminder, we have a five-year exemption from Bermuda corporate income tax due to our limited geographical extent. Therefore, we do not expect a significant uplift in the overall tax charge until 2030. Moving on to the claims environment on slide six. The first half of 2025 recorded the highest H1 insured losses since 2011 and was also well above the long-term average for loss activity. Lancashire incurred net catastrophe and weather losses of 172 million, of which the Californian wildfires made up the majority. Large risk losses totaled 39.2 million. Turning now to our reserving, our confidence level of 85% is in line with recent periods. This represents a net discounted risk adjustment of £278.2 million or 15.1% of total net insurance contract liabilities. There has been no change to our reserving approach or philosophy and we expect the disclosed reserving confidence level to remain within the 80th to 90th percentile band unless there is a change in our reserving risk appetite. The disclosed percentile will move around within this range from period to period depending on the mix of reserves and our view of their associated uncertainty. Prior year releases totalled 109.1 million in the first half of 2024. This was due to prior year IBNR releases, as well as reductions in prior year catastrophe reserves. In particular, 2025 has benefited from the positive development of some prior year catastrophe events, notably Hurricanes Milton and Helen from 2024. plus a number of older catastrophe and large loss events. As I have said before, the timing of reserve releases can vary significantly quarter to quarter given the nature of the risk that we are exposed to. The total impact of discounting in the year was a net benefit of 19 million compared to a net benefit of 40 million in the same period of 2024. The initial discount of 75.7 million has increased due to the growth in the underwriting portfolio and the impact of catastrophe and large loss activity in the first half of the year, increasing overall reserves. Discount rates across all our major currencies decreased throughout the period. This resulted in a 17.9 million impact from the change in discount rate assumptions applied in a year. The net unwind of the initial discount previously recognised was 38.8 million. The impact of the sustained high interest rate environment is seen in the growing unwind period on period. Moving on to slide eight. The investment portfolio performed exceptionally well in the first half of the year, generating an overall investment return of 3.7%. The returns were driven primarily from investment income benefiting from higher yields, as well as higher prices from falling treasury rates. The private investment funds also had strong returns in the first half of the year. The weakening US dollar resulted in FX gains on the non-US dollar portfolios and cash that are held for hedging purposes. These offset FX losses on our non-US dollar liabilities resulting in a small FX loss of 1.4 million in the income statement. The investment portfolio remains relatively conservative with an overall credit rating of A+. We will continue to maintain a short high credit quality portfolio with some diversification to balance the overall risk-adjusted return. Now moving on to capital on slide nine. We continue to remain extremely well capitalized across all capital metrics and in a strong position going into wind season. Looking at the BSCR, the ratio is just over 257%. The profitability in the period means we have generated quite a lot of capital. which is offset by the £96.5 million paid for our final regular and our special dividends. In addition, we continue to grow the business. With that, I'll now hand back to Alex to conclude.

Okay, thanks Natalie. To conclude, the key messages I want to leave you with today is the first half of 2025 is a demonstration of our strategy in action. The strong results allow us to upgrade our ROE expectations for this year. And we still believe we're in a very attractive underwriting market. So as always, we will be disciplined on growth. We will continue to actively manage our capital from the position of strength and remain confident in our ability to deliver strong returns through the remainder of 2025 and beyond. So we will now hand over back to the operator for questions, please.

Thank you. If you do wish to ask a question, please press star 1 on your telephone keypad. If you wish to withdraw your question, you may do so by pressing star 2 again to cancel. Once again, please press star 1 to register for a question. There will be a brief pause while questions are being registered. Your first question comes from the line of Vash Kozelia from Goldman Sachs. Your line is now open.

Hi, thank you for the opportunity. So I have two questions. One is on the RPI. So you mentioned it's moved to 96%, which is a modest bursting from the first quarter. But just wanted to understand how do you expect the combined ratios to develop into 2026 on the back of the reducing prices? That's the first question. And the second one on reserve releases. So within the press release, I see you mentioned underwriting years 21, 23, 24. So just wanted to understand the fact that 2022 is excluded. Does that imply that Hurricane Ian is not a part of the PYD? And we were hearing just this morning from one of your peers that they're seeing positive development from Hurricane Ian. So could you remind us where do you stand on this particular loss event? Thank you.

Okay, so I'll just start on the RPI question. So if you look at our group, our RPI for our underwriting portfolio, the way we think about it, it's marginally off the peak of a great market. So modest softening at this stage, which as Matt said, very much means that we're more than happy to continue to grow product lines and happy with underlying price point. I think looking forward to 2026 is a bit premature. Clearly you're on our Olympic hurricane season and clearly the 2026 market will be driven by any loss activity we see through the rest of 26. So I think it's too early to call what happens this year at this point. Our market is always driven by results and returns, whether that's positive or negative. So I think once we're through, peak hurricane season will have a much better view of where 2026 goes. I'll again just reiterate, we believe after seven years of compound rate change, the industry is still close.

Hi Bash, it's Natalie. I'll answer your question on reserve releases. As you've noted, we've highlighted in the press release the years that were most significant for us when it came to releases. And as I mentioned in the script, the most significant losses this quarter were hurricanes Helen and Milton. There's no change to our reserving approach or philosophy. We update our reserves based on new information we may get from our students, which means we don't necessarily release the results from prior year reserves exactly the same time as our peers may do. There's nothing you should be really reading into that. Obviously, our reserve releases can be highly variable because we write large losses, and it's very dependent on when we get the information in that allows us to make decisions on our own reserves.

Got it. So on that point, could I just clarify that, and then probably just a bit of a reminder, in the past you have not released from IAN, or at least you have not called out IAN in the past, right?

We haven't called out Ian in the past, no. It's not to say we haven't released from Ian in the past. Fair.

Fair. No, fine taken. Thank you so much.

Thank you. Your next question comes from the line of Shanti Kang from Bank of America Merrill Lynch. Your line is now open.

Hi. Thanks for taking my questions. You obviously updated your ROE target to high teens today from mid-teens. So I'm just curious to understand the underlying drivers for that. Is that really related to stronger reserve releases in H1 or perhaps a higher investment result? Or does that actually affect the kind of structural step up in earnings as a result of book management? And then my second question is just kind of looking forward about your growth strategy. You talked a little bit about a couple of lines you're looking to grow in. But could you tell us about other areas where you're more excited to grow or areas that you're seeing where there's more softening? and how that's going to influence your appetite into the second half of this year. Thank you.

Hi, Shanti. It's Natalie. I'll take your first question. Yes, you're correct. Really, the updated guidance is due to us, as we've heard, having the best Q2 that we've had in our history. So we've updated guidance based on that. It's not related to any expectations for the second half of the year. It's purely a reflection of the excellent result that we've had so far.

Thanks, Shanti. I'll pick up the second question on growth strategy. If I just reflect again per my script on the first half of the year, we've seen opportunities with some of our core clients in property reinsurance. We continue to expand our specialty reinsurance play, which helps offset some of the reduction that we spoke to you about in property retro because of pricing softening. We do indicate that the build-out of our Lancashire US E&S platform continues to go well. We've recruited high-calibre teams and continue to find opportunity, particularly in the energy liability space, and we think Lancashire US will continue to be a growth area for business over the coming years.

Your next question comes to the line of Joseph Lins from Autonomous. Your line is now open.

Hi there. Thanks for taking my questions. Just wanted to ask about one of the comments about the timing of the aviation contracts. Was this a positive or a negative for growth in the first half? And if it's negative, is there anything else that we can expect in the second half of the year that might kind of reinvigorate growth and specialty? The other question that I want to ask is around the retention level. You noted it increased by three points year-on-year. Is that something that we can expect to continue as the book continues to grow and reinsurance retro cycle soften? and how will the impact of acquiring the remaining capacity from the syndicate impact that as well? Thank you very much.

So let me just take the syndicate capacity question first. So as we've put in our press release, we have made an offer to the third-party capital providers on one of our syndicates in Lloyds which was a mandatory offer on where we purchased over the years. So as a business, we actively backed some of that capacity over the years and we passed the thresholds. That is subject to sort of Lloyd's approval, but we do believe that that will get approved later in the year. That will allow us to over the next couple of years that will allow us to look at various different options for our Lloyds business and create other opportunities for us to manage our capital and purchase to reinsurance as the market softens. I think what we're not saying here is we're not saying that we're going to expand our catastrophe footprint. We've been very clear for the last few years to say we're very happy with the portfolio. We like the catastrophe book of business we have and the pricing we have, but we're not going to change the diversification of the business due to the buyout of the names on our syndicate in Lloyds. So any blend of reinsurance we have moving forward will always be based on the opportunity of the market and how we hedge our exposures with whatever market we see in front of us.

I'll take question one on the timing of aviation contracts. Not much to see here other than the moving of dates of some of our contracts. As you'll know, the vast majority of aviation renews in Q3 and Q4, so we'll be developing the portfolio towards the back end of the year. There will always be some other opportunities in specialty growth in Q3 and Q4. But Q1 and Q2 really do dominate. We'll go and look for those where we can find them. We'll remain very selective in what we choose to do. And as I mentioned earlier, we'll continue to focus on building out our U.S. platform.

Okay, thank you.

Thank you. Your next question comes from the line of Cameron Hassan from J.P. Morgan. Your line is now open.

Thank you. Good afternoon, everyone. Two questions for me. The first one is just coming back to the 3010 kind of squeeze out. I'm just trying to think through numbers. I guess the syndicate had about 400 million last year. 20% is about 80 million sterling. Is that something we should probably, you know, assuming everything goes through, we should begin to factor in from the beginning of 26 or phasing? Just interested in kind of how much of a tailwind that will be for kind of, you know, the group, like how soon? And the second question, and you might find this irritating, so apologies in advance. There was a lot of speculation last week after a relatively new name in the market talked about reserve development in a bad way on the Russia-Ukraine reserves and aviation. For the purpose of clarity, would it be possible just to confirm if there was something to say you would have said it, particularly given court cases closed in the middle of June. So just some final clarity on that and apologies if that's very irritating. Thank you.

So let's do your second question first, Cam, and then we'll do the Seneca question between myself and Natalie. So as we said previously, given the complex nature of this scenario, from the very start of this was that claims would evolve over time and there would be an element of negotiation. So far I think that's played out. It's fair to say that this is probably the most complex claim we've ever been involved in and probably the market. So when we set our reserve at the end of 2022, We followed our usual reserve in practice and as you guys know, we pay a lot of attention to how we reserve complex claims. Generally, we've been on the right side of the line. Obviously, it can always change. But so far, we're happy with the reserve we set and that remains unchanged at this point. But as with any claim, until everything's been finalised, there's always a level of and I think for the industry that applies for this scenario. The legal aspect of this continues and I think for us in the wider industry, everyone is keeping a close eye on the mounting legal costs but exactly as you said, at this point we're happy with where we are today. Our view hasn't really changed but I suppose the key point is this continues to be a complex claim that we expect for several more years. On the syndicate side, Natalie can give you some more of the financials, but if you think about it, we had to make a mandatory offer, which we were happy to do. We believe that will be successful. It's syndicate 2010, not a 3010 syndicate. but your numbers are about correct. So effectively it's a small acquisition of business that we already like and underwrite ourselves that will bring us an element of growth into 26 and obviously Natalie can talk about how we're going to finance that and what it means for special dividends or any dividends going forward but I do want to make the point we are not expanding our capital print on a net basis for 20 years. We're not going back for the diversification we've built at Lancashire. We will assume more gross cash exposure marginally, but we will manage that accordingly like we do all of our cash exposures.

Hi, Cameron. It's Natalie. Just on the financial side, there's almost two elements to the transaction. The first is the actual purchase. which I'm sure you can work out yourself, but it's essentially 50 million pounds and that becomes an intangible asset that comes off your capital. As you can see, we've got that on the capital slide in the investor presentation. And then into next year as we write more business or take more business onto our own books from the syndicate, there will be a capital implication of that. But what I want to be very clear on is that, as everybody knows, we've been very, very cautious on capital recently. We've been holding a buffer above our required headroom in order that we can take advantage of any opportunities such as this when they become available to us. So the purchase of the syndicate is not going to impact how we think about any capital returns. towards the second half of the year, we will do our usual process after wind season, look at our earnings for the year and then make decisions based off that. And this is almost a separate thing, which is making use of the capital buffer that we had built up over time.

It seems like a very sensible use of capital. I was just kind of intrigued. It was more on the, if I take what the syndicate wrote last year, 20% of that you didn't have, whether I should... know very simplistically assuming nothing else moves i take 20 to the premium etc and i put it into the range of the business or whether there's a slower phasing of business or it just goes straight in from the beginning of 2026. you could take that as an estimate cameron but we're not um we're always like when we get into next year but it would be a reasonable estimate and matt wants to add something

Hi Cameron, we've been doing this for a number of years. We continue to grow our shares, so we continue to learn through exactly the same pattern that has done in the recent years.

That's right, thanks everyone.

Thank you. Your next question comes to the line of Ivan Bokhmert from Barclays. Your line is now open.

Hi, good afternoon. Thank you very much. I wanted to ask a question about the capital generation. Maybe for the second half of the year, What's your outlook? How do you feel about that SDR ratio developing and do you think that with the current market outlook you would need to hold any earnings for future growth or you could potentially distribute all of it this year? My second question, I guess somewhat traditional, but just thinking about the reserve releases, maybe you could update us on the reserve buffers held for the casualty business. I think you've You've been increasing some of the writings of premium on some of the prior years. How does that affect your strategy of holding that buffer for longer? And the final question, a very small one. I've noticed that there have been some rising onerous loss components in your insurance liabilities. Maybe you could just share some color on what lines of business that may have been related to. Thanks.

Hi, Evan. It's Natalie. I'll have a stab at all of those. On the capital generation point, as I just said to Cameron, we'll take our usual approach to capital returns as we get into Q3 post-win season. We'll look at the market ahead of us in 2026 and make decisions based off that. If you think about the last couple of years, what we've done is made relatively significant capital returns at the end of Q3. And then when we get into the beginning of the following year, once we've refined the portfolio, we've made small additional returns then. So I'd expect that we'd go through exactly the same process this year. On the casualty reserve release question, as you know, we've been reserving casualty very prudently since we went into business. There's no change there. We have definitely not started releasing any of the casualty reserve buffers that we have. And we don't expect to for at least a couple of years yet. So there's still a lot of prudence building up in the casualty reserves. And then on onerous losses, there's nothing really significant there in the context of the portfolio. They're really immaterial. You get onerous losses on IFRS 17 based on your There may be, there's one or two contracts where we've made very conservative assumptions in our business planning process, which then leads to an onerous loss component. It doesn't mean that we really expect that those contracts will be loss making. It's more of an accounting issue rather than anything else. And it's reflective of our conservative approach, which as you know, we're conservative across the board really. So hopefully that was helpful. Okay, thank you.

Thank you. Your next question comes from the line of Abid Hussain from Panmure Liberum. Your line is now open.

Oh, hello. Hi, everyone. Thanks for taking my question. The first one is just coming back to the syndicate, I think the syndicate 2010 that you had to make the mandatory offer on. I'm just Just wondering, the purchase price, I think it works out to be something like 60p per pound of capacity. Just curious, how does that compare with past purchases or sort of other purchases across other syndicates more broadly, not just yours? So just kind of curious about the pricing level. And then the second question is also on pricing, but actually just in terms of the market and rates, really. trying to understand sort of how far we are from pricing being inadequate from your comments it seems actually we're quite a bit away from from that you called out that we're actually just in the very early parts of a soft cycle I can see that given the strong rates over the last few years so just a little bit more a little bit more color from your sort of perspective and then Just related to that, did the large loss events in 1H, I mean, you've called out that they've been significant and the largest ever since 2011, I think you said. Did they have any impact on pricing? Are they likely to have any impact on pricing over the remainder of the year?

Okay, I'll take most of those, though. On the Seneca buyouts, you can't really compare So buying out a syndicate capacity is quite rare where you have these type of structures. So obviously our syndicate 2010 has names on that syndicate, which is what happened when we built Cathedral, and a complete buyout of names is quite unusual. So I don't think you can really compare it to history because it's Obviously there's annual auctions every year and the price of those auctions are very much like anything in life really. The price of the auctions is very much driven by supply and demand and so again it's quite parallel on maybe a very limited amount of capacity that comes to sale versus what we've done here. The way that we have brought out the capacity is clearly there's a technical price which has to be approved between the managing agents and Lancashire so there needs to be an independent operation and then clearly there needs to be some form of premium to buy out the opportunity for names to continue to underwrite in 2010. So I don't think there is a parallel. We're very happy with The fact that we have been able to purchase the Sinica from the names, that's not because any of the names capacity was a problem for Lancashire, but it just gives us more flexibility and some operational probably efficiencies over the next few years, which will be very timely if the market continues to soften. I think it's a good trade for Lancashire. It gives us a bit more flexibility moving forward. I think our comment on rates as the industry. Firstly, you don't go from a market where you've had seven years of aggregate rate change to a soft market in six months. That just doesn't happen. So we don't believe it's a soft market and our comment is very kind of macro on for our underwriting portfolio, we believe most classes of business that we underwrite are more than adequately priced. That's not to say there's not business in the market which is inadequate. There are some classes of business that we are quite negative on. And good underwriting companies will always move with the opportunities. That's not to say every single piece of business to the market rights is more than adequate and no one should worry about discipline as rates come off. But it's general in our portfolio and there's classes of business where we're not very bullish at the moment. So we'll continue to underwrite the cycle. That's our primary job. But in general, we are not panicking about where the market is after minimal negative rate movement after seven years of compound rate change.

Got it. Thank you.

Last question. Sorry, just take me through that last question again.

I thought I've lost my train of thought.

Yeah, the large loss events. Again, I think what H1 proves to you is Losses don't move markets, margins do. So California was a very large loss in Q1 for the industry and for Lancashire, yes there's been some individual increases on contracts for those clients as you would expect. You could have called it a broad increase in for that sector. I think that's just a function of where we are in the cycle and where the margins are in the industry. Again, if you look back in history, there's some underwriting years where actually quite a lot of events happen or the loss cost is quite large, but if there's plenty of margin in the system, no one worries too much. I think if you are absorbing losses at this stage of the cycle, it's obviously much easier than at the bottom end of the cycle.

too much change. Yeah, that makes sense. Thank you.

Thank you. As a reminder, if you do wish to ask a question, please press star 1 on your telephone keypad. Your next question comes to the line of Ben Cohen from RBC Capital Markets. Your line is now open.

Oh, hi there. Thanks very much. Hope you're all well. I just wanted to come back on the DSCR. On the that you have that waterfall. Is there anything to call out in terms of the capital needed?

Ben, sorry to interrupt you. We can't hear you. Do you mind speaking up, please? I think if you just get closer to your microphone.

Sorry. Sorry. I can't hear you. Yes. Yes, apologies. If that's any better. Sorry, my question was just about the capital that you consumed in business growth and in the man-made capital. model changes. Is that H1 weighted at all, or would it be reasonable to assume a similar sort of headwind in the second half? And the second question, which is related, and apologies, kind of coming back to this, the BSVI has been coming down, I guess, as you've been growing and you've been returning capital to shareholders. I take your point about looking at net income maybe for the full year dividend. Can you just remind us where you are most comfortable with that BSCR coverage ratio. Can that continue to come down sort of materially and what's your sort of hard floor or sort of softer floor? Thank you.

Hi, Ben. It's Natalie. So I'll take the BSCR questions probably one at a time. On the man-made cat charge, That's basically done for this year. Now that is a charge that's coming in over three years. So we had 10% went in last year. We put the 10% in this year and then there'll be another 10% approximately next year. And that's really a VMA model change in the BSCR. On the business growth, obviously a significant element of the capital charges are based on the catastrophe business. Most of that and the outward RI relates to that is done in the first half of the year, but we will have growth in the second half of the year, growth in the casualty reserves, so there will be some continued business growth increases in the second half of the year. From where we're comfortable, we've always said we're comfortable with the BSTR above 200%. What we're thinking of doing is in the investor day towards the end of this year, we're going over some of the capital that we've been over with you guys before, because obviously the BMA have now put these man-made cap charges in their models. In the rating agency models, they've moved to an IFRS 17 basis, so there has been quite a lot of moving parts going on within the capital models in the last couple of years. So we are going to do a more detailed update of that in the investor day at the end of the year. But there's no change towards saying, you know, we're happy anything around and above 200% for the BMA.

Great. Thank you very much.

Thank you. As there are no further questions, I will return the call to Alex for closing remarks.

Okay. Thank you very much for your questions today, and we'll end the call there.

This now concludes our presentation. Thank you for attending. You may all disconnect.