Lancashire Holdings Limited

Hello, and welcome to the Lancashire Holdings Limited Q2 2026 earnings call. Throughout the call, all participants will be in listen-only mode, and afterwards, there will be a question-and-answer session. Today, I'm pleased to present Alex Maloney, CEO. Please go ahead with your meeting.

Thank you. Good morning, everyone, and thank you for everyone who joined our call today. As usual, I'll start with the highlights of the six months before handing over to Paul and Natalie to provide more details behind the results. Overall, this has been a strong six-month period for Lancashire, with broadly stable income and an attractive annualised ROE of nearly 20%. This means Lancashire is well positioned to manage and capitalise on the next phase of the insurance cycle. At Lancashire, underwriting comes first and we have a focus on disciplined, profitable growth from a diversified portfolio. You can see the results of this approach in a broadly stable gross return premiums compared with a year ago and an undiscounted combined ratio of 91%. Importantly, we continue to invest in our franchise to diversify our underwriting opportunities. notably with planned expansion in US product lines including inland marine, financial lines and environmental liability. And of course we remain open to opportunities to further build on our highly successful underwriting team. We have made this targeted investment while keeping costs firmly under control, meaning that profit after tax increased by 30% to $142 million and we delivered an annualised ROE of 19.6%. Now thinking about the current environment, let me give you some high level thoughts on where we are in the cycle. As we have seen, pricing across many lines started to soften 12 months ago and in some cases this trend has accelerated in early 2026 as the industry capacity remains abundant. It is important to stress that conditions are not the same everywhere. For example, The pricing pressure appears most acute in property insurance but there is currently less pressure on casualty lines. This makes diversification important. At Lancashire we have a very experienced team who have successfully navigated cycles before and our underwriters are incentivised to deliver appropriate returns whilst remaining relevant to clients. Although others may be tempted to push for growth at any price, It is in our DNA to manage the cycle in a disciplined way and of course we are active buyers of reinsurance. So in this market we can manage our net exposures through more efficient reinsurance programs. Therefore with the tailwind of a good six months financial performance, prudent reserves and a consistently strong capital position, I'm confident that we enter the next phase of this cycle in robust shape and we will be able to deliver resilient lower volatility returns for our shareholders. With the usual caveats regarding the US win season, I'm happy to reiterate that we expect to deliver a high team's return on equity in the current financial year. I will now hand over to Paul to provide more details from our underwriting results.

Thanks Alex and good afternoon everyone. As Alex has just mentioned, it's been a strong underwriting performance in the first six months of the year. The underwriting business we've successfully built over the past number of years was designed to withstand challenges, whilst delivering appropriate return for our stakeholders. Last year we withstood the impact of the large California wildfires, and this year the challenges have been very different. A softening, more competitive marketplace, plus the outbreak of war in the Middle East. The broader, more diversified portfolio and ability to adjust quickly to market conditions allows us to deliver these robust underwriting results. We have the flexibility to adjust risk appetite within product lines as the market environment changes. This allows us to manage the cycle whilst maintaining relevance to our clients and brokers. We'd continue to strengthen our underwriting team with new underwriters and product offerings across multiple distribution channels, further strengthening our franchise value. will continue to attract and retain high caliber underwriters and will strengthen whenever we find the right underwriting talent. With these new lines, we are prepared to be patient in their build out. There will be no unrealistic expectations. The only expectation is that we underwrite any line of business in line with the current market conditions. And as I will explain, not all product lines are moving in the same direction or at the same pace. We have demonstrated repeatedly over the years that we adjust risk appetite and deploy capital as market conditions evolve. This discipline remains central to Lancashire's underwriting culture. We guide into a broadly stable top line and we remain on track to deliver this. Underlying this, however, there are a number of moving parts. There's no arguing that we're in a softening market, with most product lines demonstrating varying degrees of softening. As Alex has mentioned, at the sharper end of the softening are the property lines, with casualty lines far more stable. However, importantly, adequacy does remain across the majority of classes. In certain areas, there is definitely a real need for underwriting discipline, risk selection and the willingness and confidence to walk away from business if adequacy thresholds are not met. That said, there is still plenty of good business with healthy adequacy but there is now far more need for increased scrutiny as to what that business is. This is the stage of the cycle that underwriters need to earn their money. We have previously signalled we have strategically reduced our Inward Retro footprint, a decision driven by the intention to manage earnings volatility and natural catastrophe exposure as we move through this phase of the cycle. Offsetting this has been our increased share of Syndicate 2010 following the buyout of names capacity The continued maturity of Lancashire US, plus some elements of growth in certain specialty lines, both insurance and reinsurance. A number of specialty insurance classes we have seen increased demand for cover and significantly higher pricing for war related exposures, resulting in some additional premium opportunities. More generally, while pricing is moderating We continue to see increased demand and attractive opportunities where expected returns remain commensurate with the risk assumed. We are happy to reiterate our premium guidance as broadly stable, albeit as always with us the usual caveat will be we are not driven by top line targets, only market conditions and underwriting profitability. As we've previously stated, we look to manage our natural catastrophe footprint as we move through the cycle. Our PMLs for major perils and territories are trending downwards. There are two primary drivers of this change. The aforementioned downsizing of our Inward Retro portfolio and the greater use of efficient reinsurance. As market conditions evolve, we are increasingly focused on maximising risk-adjusted returns. The reduction in PMLs reflects this disciplined portfolio optimisation rather than lack of underwriting opportunity. In fact, in our property catastrophe portfolio, we've been able to grow with many of our core clients, but manage this growth with some judicious reinsurance purchasing. In conclusion, we are very happy with the first six months of the year. Yes, market conditions are more challenging than they've been for a number of years, and yes, there have been some challenges to navigate, such as the ongoing war in the Middle East. Yet we have delivered strong, underwriting results, stable top line, managed our risk levels, and continue to build our bench of underwriting talent and products offering. Lancashire was built for changing market conditions. The first half demonstrates that we continue to generate attractive underwriting returns, actively manage risk and allocate capital where we see the best opportunities for our shareholders. I'll now hand over to Natalie.

Thanks Paul and good afternoon everyone. We've delivered a strong and resilient first half with 142 million in profits. resulting in a 19.6% annualised return on equity. A clear demonstration of the earnings power of the business even in a relatively active loss environment. I'll highlight three key points from the half. First, our underranked performance remains robust. Despite global instability and a number of risk losses, we have delivered a 91% undiscounted combined ratio reflecting both the quality of the portfolio and our continued focus on disciplined underwriting and overall profitability. Second, our earnings profile is increasingly resilient. The scale and diversification of the business allows us to absorb volatility in a lost environment whilst also producing attractive returns for our shareholders. And thirdly, we remain very well positioned from a capital perspective. Our balance sheet continues to provide flexibility to support the business while maintaining our focus on return on capital and disciplined capital management.

Turning to our financial performance.

Insurance revenue for the first half is flat compared to 2025. As we highlighted previously, we continue to benefit from the earning through of significant premium growth delivered in prior years. The current year also reflects a more stable level of written premium. The allocation of reinsurance premium is £28 million higher than 2025. Outwards reinsurance spend has increased as we have taken the opportunity to expand quota share protection supporting both capital efficiency and earnings stability. Our undiscounted combined ratio for the period is 91%. This reflects continued strong underlying performance across the portfolio, including the impacts of current accident year losses, particularly relating to the war in the Middle East, which we have absorbed within our expected large risk budget. Prior year reserve releases are lower than the first half of 2025. This is primarily driven by some deterioration on the Baltimore Bridge loss, which has reduced the level of releases recognised in the period. We also recognise £15.2 million of other income this period, primarily relating to consortia fees. Around half of this is one-off in nature. Our operating expense ratio is marginally higher than 2025, at 9.2% compared to 8.8%. We now take 100% of the syndicate 2010 expenses due to the names buyout and continue to invest in the business, increasing headcount and associated costs. Operating expenses are running in line with expectations and I can confirm that the previous guidance that the quantum of operating expenses will be comparable to 2025 remains appropriate. Overall, the underlying performance of the business remains strong and consistent with our expectations for the portfolio. The next slide has further detail on the claims environment and our reserving. The loss environment in the first half has remained active. We have seen a number of large risk losses and activity linked to the Middle East conflict impacting the current accident year. Large and cap risk losses totalled $60 million. Importantly, all losses recorded are within our risk appetite and the diversification of the portfolio continues to allow us to absorb these events without materially impacting overall profitability. On reserving, our confidence level of 85% is in line with recent periods. This represents a net discounted risk adjustment of $287 million or 14.6% of total net insurance contract liabilities. There have been no changes in reserving assumptions in the period. Our stated preference to maintain the confidence level between 80-90% Under PIMS, our ongoing ability to release lost reserves from prior years. Prior year favourable development totalled £22 million in the first half. This reflected favourable development on older catastrophe losses and releases of 2025 IBNR, partially offset by adverse development on the Baltimore Bridge claim. We have now fully reserved the claim and have no remaining exposure beyond established reserves. Excluding Baltimore Bridge, reserve releases would have been more consistent with our long-term experience. Bear in mind that the 109 million of reserve releases recognised in the first half of 2025 reflected an unusually high level of favourable development on prior year catastrophe events. The net discounting benefit was 46 million in 2026 compared to 19 million in 2025. We benefited from an increase in rates in the period across all our major currencies. and are turning to investment. Investment income of £78 million was at a similar level to 2025. Total investment returns for the first half are lower than in 2025, reflecting a less favourable market backdrop compared to the prior year, which has resulted in just under £30 million of unrealised investment losses. The portfolio continues to perform in line with its core objectives of capital preservation and liquidity, and remains conservatively positioned with a focus on higher credit quality and short duration. On capital, our capital position remains strong. We continue to maintain significant headroom above regulatory and rating agency requirements, providing resilience to potential volatility and flexibility to support future underwriting opportunities and capital management decisions. I am happy to announce our usual interim dividend of 7.5 cents a share and aggregate payment of around $18 million. Overall this is a strong first half performance. We have delivered a solid underwriting result, resilient earnings despite an active loss environment and continued capital strength. This reinforces our confidence in the underlying performance of the business and our ability to deliver attractive returns through the cycle. With that I'll hand back to the operator to take questions.

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 to cancel. There will be a brief pause while questions are being registered. Your first question comes from Shanti Kang with Bank of America. Your line is now open.

Hi, thanks for taking my questions. The first one was just on the premium top line. I think that was down 3% year on year and I understand the book actions that you mentioned but into the second half of this year where are you expecting to pick up a bit more volume to kind of make up that broadly stable top line guide that you have and then the second question was really on casualty and you mentioned better pricing conditions in casualty but last week some of the large US games had a pretty cautious stance on casualty and particularly on general liability reserves in some places that was strengthened even on earlier years. I know that you booked the reserves at 100% combined ratio and you entered the market relatively recently, but how can we get comfortable with that booking at that level even given the lost cost trends arising? That would be helpful. Thank you.

Hi Shanti, it's Paul here. I'll take those questions. On the premium point, I've just obviously remind you that X reinstatement premiums, which were obviously quite significant in the first half last year with California wildfires, the actual underlying is minus one, which I would certainly categorise as broadly stable. And as I said in my script, we're happy with that guidance. Again, and I'll always do this, I'll always reiterate we're not being driven by a top line here. That's our expectation, but we'll adapt to market conditions, but we're happy with the Broadly stable on an underlying basis. On casualty, again, just slightly clarify the comments. We're not saying improvement in casualty. What we're saying is it's the more stable when it comes to rate change year on year, certainly more so than you're seeing in some of the property lines that are seeing some more significant softening. So our comment is around rate direction. but what I would say, and again you mentioned this quite rightly, obviously we've reserved our character support value very prudently since we've entered that class. I can't obviously talk about other peers but I'm pretty sure not many have been reserving at that level of loss ratio. What I can reiterate, and as I said previously, we're very comfortable with the reserve position we're taking and we still believe over time that the underlying business that they've written, there is margin there which we will realise over time. The casualty market is a very broad church. There's a lot of different classes of casualty within our casualty reinsurance portfolio and whilst our premium has remained relatively stable over the last few years, there's a lot of changes underlying that and that's very much in line with market conditions on the underlying book. So undoubtedly in some areas of the casualty market there is more challenge from a pricing perspective and price and adequacy perspective and then there's some other areas where we still feel that there's good margin and we're just trying to adjust our book accordingly.

Thanks, that makes sense. Could I just quickly follow up on the first question? I was just curious maybe into the second half of the year just where you think there's more volume or rate pickup just on the premium side maybe directionally where you're looking to deploy capital?

Look, the second half of the year, I'm definitely not saying we're going to see rate pick up in the second half of the year. We're definitely in a phase of the market where there's softening. Our view is that we can remain broadly stable from a top line perspective in the second half of the year. The second half of the year is more kind of specialty insurance dominated. A lot of the reinsurance classes, particularly on the property side, have already been underwritten. And looking at the market as we see here now, yes, there will be rating pressure in some of those lines. but we think we can still maintain broadly stable top line.

Okay, thanks. Your next question comes from Will Hardcastle with UBS. Your line is now open.

Hey, afternoon everyone. As you mentioned, the PMLs have reduced significantly. How do we think about that in terms of capital requirement reduction? Is there a a rule of thumb type calculation you can help us on about that impact and within that how much of the added protection has been acquired in traditional reinsurance markets versus alternative and a second question it looks to me that if I take the Gulf of Mexico hurricane exposure think about where that is as a percentage of your tangible capital relative to history we're probably about a cross cycle level at the moment I guess just wanted to sort of Relay that with yourselves and wonder if that aligns with your view and therefore if this market continues to soften in this environment do we think there's a reasonable amount more that we can reduce this number by? Thank you.

Hi Will, it's Natalie. Thanks for the questions. I'll take the first part of your PMR question and then Paul's going to jump in on the second part. so yeah the PMLs have significantly reduced at the 30th of June compared to the 31st of December which were the previously published PMLs I think one thing for you guys to note though is that the rating agency and the regulatory capital models that we do at the beginning of the year are based on the 1st of January PMLs and they would include a lot of the reductions that you've seen now published at 30th of June because it includes the 1st January Reinsurance Purchases and 1st January Renewals. So it's almost that the published PMRs at 30th June are slightly lagging what we have for the rating agencies and the regulators at the beginning of this year. So hopefully that makes sense. I can pass over to PJ for the second part.

Just quickly on that point, just to check, is that the rating agencies but what about that, the BSDR calculation that you provided at the full year, is that, that's already incorporated that, is that what you mean?

That's already, yeah, that's already incorporated a significant part of that the models are a little more forward looking if you think about it, that makes sense from a capital perspective Hi Will, on the traditional versus non-traditional reinsurance the vast majority of

Our reinsurance purchasing remains traditional reinsurance. We do have elements of non-traditional with partners that we've traded with for a number of years free cycle but I can confirm that the majority is traditional. And then more about your question on direction of PMLs. We've obviously seen a reasonable jump down in the last six months. I think I need to go back and check in terms of where we sit historically, but I don't think you're a million miles away. Looking forward, I think that it will depend on what happens in the market. There's a long way to go between now and the 1st of January. But as you'd expect from us, we'll continue to manage the cycle. And as we said before, the one benefit of a softening market is the availability and efficiency of reinsurance. And as you can see, we've started to use that lever. That's not saying we will necessarily see the same jumps down in PMLs but directionally if the market continues along this path then we will definitely be looking to manage our catastrophe exposure. One quick caveat on that is obviously to be fair to you the only numbers you really see to look at our catastrophe exposure is these PMLs but we also manage our business at all parts of the return period. and you don't necessarily get to see that so these are good directionally from a number point of view but they don't always show you the whole story.

Very helpful, thank you.

Your next question comes from Zash Rosalia with Pullman Facts. Your line is now open.

Hi, thank you for taking my questions. I have two please, one on your combined ratio and I appreciate from the outside it's a little bit difficult for us to really understand what's going on but would love to get some color from you as to How much of the combined ratio movement in this half has been due to the reserve strengthening that you've done for the Baltimore Bridge? And how much of it is just an effect of rate softening? That's the first one. The second one, just following some of the comments you made to the first question, and something that I noticed in your release about you using reserves to manage the business cycle, Could you just give us a little bit more colour on this particular comment, as in how should we think of reserve releases? I appreciate in the past you have said, you know, the five-year mark, but we're getting quite close to it. With the cycle softening, could you just give us some quantitative indication on how much is there? When could we expect it? Thanks.

Hi, Bash. It's Natalie. I'll take the first question on the combined ratio. I think are you comparing this to the guidance and asking why we're coming slightly higher than guidance? If that's the case, I suspect that is to do with the deterioration on the Baltimore Bridge claim which has impacted our prior releases for this half and they're probably therefore slightly lower than people were expecting. the underlying performance of the business is exactly in line with what we'd expect and there's nothing worrying going on there so we're perfectly happy with the underlying combined ratio that's completely in line with expectations and then on the casualty are you able to give us a little bit of colour on how much was reserved for Baltimore is that something you know willing to share at this stage We're not sharing that information because it's not a material enough number to disclose.

On the casualty reserve point, Vash, what we've said since we entered casualty was the earliest we would look at our casualty reserving would be five years. We entered the class kind of halfway through 2021. I'd obviously say even if we did it at the five-year point, which would be the earliest point we would look at it, It would be a very small part of the overall print. We only really underwrote for half of that year. So we're not at the point yet. We're obviously getting closer, but there's a little way to go yet.

Thank you. Your next question comes from Cameron Hussain with AP Morgan. Your line is now open.

So in terms of the 1 in 100 PMLs, you've clearly brought this down. On an annual basis, is there anything that we should think about in terms of the annual budget? I know you don't have a formal annual budget, but we should be assuming that CAT losses on an annual basis, having reduced to retro, etc., should be lower relative to premiums. The second question is on the comments Alex made in the statement around what you've got to help yourself out in the soft cycle. You mentioned strong capital base, I think we all understand that, but you also call that robust reserves. I guess looking forward, if the cycle, not if, I guess, as the cycle continues to soften, would you expect reserve releases to maybe pick up a little bit, particularly if the percentage of revenue particularly if the top line does decline a little bit. Thank you.

So, Ken, we missed the first part of your question, but I'll answer the second question and then if you can read around the first part. Sure. I think, look, if you think about where we are in the cycle and what I'm trying to say is, you know, we are huge believers in the cycle in our world and you can see the cycle turning and all the data's out. All we're saying is that we are a bigger business today than we've ever been. One thing that hasn't changed is we've always had very conservative reserves. So we've never had a year where we haven't had positive reserve releases. You can see that in our history. And so, therefore, we haven't changed our reserving practice. We believe there's margin in the casualty book. So we think over time there will be Reserve Reliefs, which will help our earnings through the more skinny years. And we just think that's a really conservative way to run our book. And if you go back to all the questions about casualty or the comments from some of the US carriers about casualty, again, that just backs up our view of why we reserve our casualty book the way we do, because we just don't want to have those years that some others have had. So, you know, we have been planning for the market to soften ever since the market hardened in 2018. as crazy as that sounds and as we go into the software part of the cycle which clearly we now are seeing across most classes of business we just think you know conservative reserves will help our earnings through the next stage of the cycle and everything we're trying to achieve is to have a better cross cycle return for our shareholders and that's one of the things we can use to achieve that.

Let me try again on the the First part of the question. So in terms of you brought down the 100 PMLs, so clearly kind of reducing kind of the retro business that you're writing. Should we think, you know, on an annual basis, I know you don't have an annual cap budget that you disclose to the market, but on an annual basis, would it be right to assume that your cap loss as a percentage of revenue should be lower because of the changes you've made? So I know it's very theoretical, but that was the first question.

No, I think that's... I'll take this, Cam. I think if you think about... You're going in the right direction if you think about the moving parts. So you're right, we've reduced our inwards retro portfolio. As you've seen, we've increased our use of reinsurance, and that certainly applies to the catastrophe lines of business. You can see that manifesting itself through the PMLs. but also not just those numbers, our footprint will be on a net basis shrinking as we move into the next part of the cycle. Obviously our earnings are not what they were in the last three years but as Alex has said, we're very much in the phase of we're actively managing the cycle. Yes, there are still some really good returns we had but we need to carefully manage as we move through this phase of the cycle and those actions that we've taken are just aligned to that.

So another thing I think that we're definitely more diversified than we've ever been. You saw that last year. So by definition our earnings are not as volatile compared to they were in the past around cap risk.

We are buying better insurance.

We are at the stage of the cycle where we're actively managing our underwriting, we're actually managing our capital and as we've said many times, efficient reinsurance and better products is the way we do that and we'll continue to do that if the market continues to soften.

Thanks very much.

The next question comes from Joseph Thunes with Autonomous. Please go ahead.

Hi there. Thanks for taking my questions. The first is just kind of looking through a slide deck on the appendix slide 17. I suppose I'm a little surprised to see the property reinsurance premiums kind of holding stable and sort of casualty maybe shrinking slightly. Just considering some of the comments that you've made today about sort of the where rates are and pricing and things. Can you kind of give us a little bit of flavour as to where you're growing in this sort of property segment in reinsurance and perhaps also sort of tie us out why casualty has sort of shrunk considering it's got some of the better rates on offer in the book. And the second question is around the loss ratio in the reinsurance book. Just given the you know benign that cat environment um sort of surprised the loss ratio isn't a bit better um sorry that's a bit cheeky but um just given that you know it's sort of higher than some of the previous years we've had um we're also benign that cat experience is this kind of the soft cycle effects kicking in or you know are there any losses that you can call out that sort of really maybe um you know that we maybe didn't factor in or weren't aware of thanks for taking my questions

Hi Joseph, I'll take the first question with regard to the property reinsurance and the casualty. Quickly on the casualty, to be honest, we expect our books to be pretty stable this year, it's more of a time in things and nothing really to see there. On the property side, we obviously, a lot of our property business is effectively catastrophe business and we look at what we want to do with our catastrophe footprint, but that's You know, where we get that from, we get that from the retro portfolio, which we've already talked about. We've been shrinking that. We get it from the property reinsurance portfolio. We also get it from the property insurance portfolio. Obviously, the conditions are well known in the property insurance portfolio. They are pretty challenging at the moment. There is still some good business to be had and some, you know, good out of scheme in areas, but it is more challenging. On the property reinsurance side, yes, the market is softening, but coming from an incredibly high base. We've not seen material impacts on things like retentions. There's a lot of progress made from 23 onwards in terms of the retentions that clients were taking on the property reinsurance portfolio. We've also seen a number of property reinsurance clients buy more limits so there's been opportunity to grow those core clients which I mentioned in my script. So of all the catastrophe exposed areas we've seen more opportunity in property reinsurance. and also, as you know, we've been able to buy quite comprehensive retro protection on that property reinsurance portfolio. So from a net basis, it makes a lot of sense. So hopefully that gives you some good colour there.

Hi, Joe. On your second question, the loss ratio in reinsurance, there isn't anything to worry about in that class of business. Obviously, that includes the casualty reinsurance, which we're still reserving at 100%. but it also includes a significant portion of the Dardie Baltimore Bridge claim as well, which is actually a reinsurance claim to us. So that's potentially the movement in there that you were missing.

Got it. Yeah, that makes sense in that case. Okay.

Thank you. The next question comes from Jane Strathclyde City. Please go ahead.

Thank you. Good afternoon, everyone. I had three questions, if I can. First question, just around the, I believe in a full year you mentioned that you expected stable reinsurance spend in dollar terms in 2026. Just trying to square that with what's happened on the P&Ls and the fact that the reinsurance allocated premium, or the insurance allocated premium at 1H was actually up 14%. That's the first question. And secondly, thank you for the colour around kind of the rating agency view of capital at the start of the year and you being clear that that was prospective looking as well. I just wanted to be clear that the capital management decisions at year end did take into account the fact that you would be lowering the P&Ls. so i.e. special dividends, more perspective and resetting your exit capital based on that view. And then finally if I can just, the other income line, there's a bit of a jump up in that profit commission on the aviation and construction lines. Is that kind of exceptional or how should we think about that line going forward? It's a fair jump and I'm just keen to understand how sustainable that would be. Thank you.

James, on the reinsurance piece, yeah, we said kind of broadly stable reinsurance spend, albeit trending upwards as we moved through the cycle. And there's a couple of things here. As we're moving through the cycle, there's been some opportunities to buy reinsurance that we believe will give us a better, more stable result. And then, as we've also mentioned, we have bought more... and so on. So we've got a lot of opportunities to move forward. We've got a lot of opportunities to move forward. Spend to increase just as by the same token and as we went through the harder cycle that reinsurance spend decreased.

Hi James, it's Natalie. I'll take the last two questions. On how we make capital decisions, we obviously always look at least six to 12 months out and we have a team that run the capital models prospectively looking out across that time horizon. So when we're making any form of special dividend, and we're always looking forward. So we would have taken into account the PMLs that you're seeing at the moment but also any other changes that might impact capital in the future year. So that is taken into account. Does that make sense?

It does but I'm still struggling to square that with the stable reinsurance spend that you mentioned at full year at the same time that you were making the capital management decisions because you've obviously produced those PMLs more than was expected at full year when the special dividend was decided. So just trying to square those two comments.

Yeah, so I suppose the outward reinsurance that we buy to manage capital is slightly different from some of the closer share reinsurance that Paul's just been talking about. So where you're managing capital, you're talking at much higher return periods, and we would have factored all that spend in, whereas the closer share reinsurance is more of an earnings protection. so it's more like reinsurance for two different reasons. So the reinsurance that was more like capital protection reinsurance would all have been factored in at the year end special dividend decision.

Okay, and then just on the other income point?

Yeah, on the other income, that's related to consortia fees that we're generating mainly in the London business It's a reflection of how we're able to lead markets in London and it's something we're looking to do more of in the future. Having said that, about half of the recognition in the first half of this year was a one-off. So for the time being, I'd be modelling about half that going forward and we can update more when we give full year guidance for 2027. Thank you.

I think you did mention that earlier, but I missed it. Thank you very much.

Thank you. The next question comes from Abir Hussain with Panama Liberum. Please go ahead.

Hi, everyone. I've got a couple of questions left. The first one is on cycle management. Are there any implications in this softening cycle versus the previous one from the fact that you now have a more diversified book of business, or do you just simply trim if pricing is an adequate, if there's a simple change? I'm really thinking here of the casualty book which creates some positive asset leverage and so that must be part of the equation in how the book evolves so just sort of any more colour around your thinking of how the book evolves this cycle versus the previous cycle and then the second question is on growth versus capital distribution Should we now expect a balance between the growth and distributions to tilt further from this year onwards, obviously towards distributions?

So I think I'm going to say that we're always going to manage the cycle and we always underwrite the opportunity in front of us. I think it's fair to say, and you've seen it from peers as well, the level of competition has definitely increased in Q2. There's an abundance of capital and confidence in the sector and that just means it's harder to grow. Now clearly we are growing some product lines because our premiums are flat, but I think it is fair to say the market continues to soften and hopefully we make good returns and we're very confident our returns cross cycle are better because we're a better business today. and more diversified business but it's fair to say you will see more distribution of capital if we can't find opportunity to grow our business and things can always change and we are in win season and something always does change and that's why the market's difficult but until that day comes we will be disciplined and this is the stage of the market where you have to underwrite, you have to be disciplined, you have to incentivise your underwriters to underwrite the correct way and we believe not everyone will do that but we will do that and we will manage the cycle like we always do.

Just quickly on your first question around managing the cycle and how it may look different this time around. I think there's a couple of key points to make. We definitely believe in managing the cycle as you know so we'll definitely look to manage our risk levels so that they're appropriate for the point of the cycle that we're at. and we definitely will be looking to make sensible underwriting decisions. I think if you think of us now as a far more diversified portfolio than we've ever had, so that might mean you see a slightly different Lancashire in this softening market than last. So clearly not all, and we've spoken about this today, not all parts of the business move in the same direction or even at the same pace. So that's going to lead to probably a more stable top line than you'd have seen previously and the options because of that diversified portfolio that we have from a reinsurance perspective which is obviously something we can use to manage our risk levels are greater than we had before.

Thank you.

Thank you. The next question comes from Ben Cohen with RBC. Please go ahead.

Hi there. Thank you very much. I had two questions. The first was just We sort of strip out kind of cat and the reserve release effect. It looks like the sort of the increase in the underlying combined ratio is tracking considerably slower than the rate declines that you've talked about. Could you maybe talk about how you see that going forward given that I guess at the moment it feels like rate increases are accelerating, i.e. whether you can sort of hold that Underline loss ratio sort of fairly stable. And the second question was looking forward to sort of after the summer. I just wonder what kind of message you think you'll be able to take to Monte Carlo. Obviously, bearing in mind that a lot will depend on the windstorm season. But as you see things now, what sort of conversations do you think you'll be able to have both, I guess, on the inward and on the outside? Looking forward to next time. Thank you.

Hi Ben, it's Natalie. I'll take the first question. Yeah, so the underlying attrition will track a little bit slower than what you're seeing on the headline RPIs because it takes, as we've said before, approximately 18 months for everything to earn fully through. So there'll always be a little bit of a lag between the RPIs that are published and the underlying attrition. Having said that, if we're able to pick through as PG has talked about I don't see how much kind of message is anything different really I mean we have

really deep relationships with clients where we sell multiple products and, you know, that's been enhanced ever since we decided we wanted casualty. So I think you're at the stage of the market where it's about relevance and importance with clients. I don't think that really changes for us. You know, we're always, you know, most of our book really is core clients that we've had cross-cycle. So I don't think there's much change. As I said, we are very much of the view that we continue to trade with the partners that we have throughout the cycle. So I don't think anything changes. Again, if there's an active wind season, we're not going to walk away with those clients. The price may change, but the book is going to be similar. There will always be adjustments around the edges. We're always obviously looking for new clients, but I think our message is consistent year on year, really.

Thank you very much.

Thank you. The next question comes from Daniel Wilson with Morgan Stanley. Please go ahead.

Hi. Morning, guys. Thank you for taking my questions. Just two quick ones to round off. You've been growing in both insurance and reinsurance along energy and marine. I'm just wondering, you know, given we've seen heavy losses in, you know, energy, and a lot of activity around the Middle East, what the competition is like in those markets right now and what the kind of environment is. If you could talk a bit more about that, that would be great. And then second question, in terms of the other income again, just following on that, you mentioned that you're looking to London market. Elaborate on how much business that you currently lead now and what's led to the decision to pursue more leading roles.

Thank you. Hi, Daniel. On the kind of marine and energy market, I'll take that. I think particularly in the marine line, anything war-related, as I mentioned in my script, you've seen a significant dislocation in pricing for obvious reasons in the last few months. and so on. In the energy space, obviously, again, this is a sector that's made up of a number of different components. You've got downstream power, energy casualty, and upstream energy. Again, outside of the casualty lines, which in energy, again, are broadly stable, some small rate increases in certain areas. Outside of that, again, you're seeing generally what you're seeing in the rest of the market, which is... you know general softening across most of those other subclasses. Now some of those subclasses have experienced some reasonable loss activity in the last six months to 18 months that's predominantly downstream. As yet that doesn't seem to be having an impact on rating for that class but as we always say Thank you very much.

Hi Daniel, on the consortia, I mean we've always led different lines of business and different products and we have actually always had some consortia. We have just expanded doing that recently and it is something that we are planning on giving more information on going forward. Now it's becoming a bit more of a significant part of the business. So we will disclose a bit more on that in the future.

Thank you.

Thank you. The next question comes from Wells Hardcastle at UBS. Please go ahead.

Oh, thanks for taking the follow-up. I'm just trying to marry up the timing on that raised BFCR from the 240 at four-year results to the 254 at Q1 with the reduced PMLs, the final special dividend announcement. Can you remind me again, sorry, what drove that uplift and was there anything to do with that PML change or was that already fully reflected in the initial 240? I'm just trying to understand, did you have reasonably high conviction that you'd already be over 250 when setting the final dividend? Thanks.

Hi Will, it's Natalie. I'll try and take that question. No, we don't set the dividend, I mean the first thing to note is we don't set dividends related to the BSCR as we've mentioned before, it's the rating agency capital restraints which are the most important. So We would have fully factored in the PMLs on both the AMBEST and S&P models when making the dividend decision. The PMLs on the BFCR didn't change. I think as I mentioned last quarter, the only things that changed really were in the refinement of the modelling of the balance sheet where we have to represent the balance sheet on a fully economic basis for the Bermuda capital model. and that can take quite a bit of time from our actuarial department following year end. So yeah, it's nothing to do with the PMLs.

Perfect.

Thank you. It's not the BSDR that's driving the dividend decision. I think that needs to be underlined as well.

Thank you. We have no further questions. I will turn the call back over to Alex Maloney.

Okay. Thank you for your questions today. We'll close the call there.

Ladies and gentlemen, this concludes the conference call for today. We thank you for participating and we ask that you please disconnect your lines.