13th Feb 2014 10:03
LONDON (Alliance News) - Stronger fourth-quarter pretax profit wasn't enough for Lancashire Holdings Ltd to report higher pretax profits for all of last year.
Shares in the specialty reinsurer and insurer tumbled 4.6% to 720.50 pence following its earnings statement Thursday.
In the statement, Lancashire said it made a USD218.1 million pretax profit for 2013, compared with USD236.8 million the year previously.
That was despite a 6.8% increase in fourth-quarter pretax profit, which came to USD55.2 million.
Gross written premium fell by USD44.6 million to USD679.7 million in the year, but that figure was helped by a USD34.8 million rise in fourth-quarter gross written premiums, which amounted to USD130.8 million.
The reduction in profitability is hinted at in Lancashire's combined ratio, a measure of underwriting profitability, which rose to 70.2% from the 63.9% reported in 2012.
A combined ratio higher than 100% represents an underwriting loss, with anything below that representing a profit.
Coupled with a significant downturn in Lancashire's total investment return, which fell to just 0.3% from 3.1%, Lancashire's falling profitability was compounded by rising operating expenses as a result of an increase in salaries.
Operating expenses rose to USD85.0 million from USD78.4 million, with USD37.3 million being paid in salaries and benefits to the previous year's USD36.0 million.
Chief Executive Richard Brindle tried to allay what he perceived as "gloom" about the state of the market, which is facing lower rates and increasingly intense competition.
He said there is some truth to the adage that good underwriters prefer a soft market, because it enables them to distinguish themselves through superior risk selection.
"We can select the right clients and attachment points in a programme. We have a solid core portfolio but have the discipline to let go of under-priced, opportunistic business," Brindle said in a statement.
"Whilst it might be an exaggeration to say that we relish the prospect of the coming year, we don't mind hard work, and we think our business model has evolved to cope very well with the softening market. And let's remember that although rates are undoubtedly coming down, they're doing so from what are historically high levels in much of our business," he added.
It was a busy year for Lancashire as it acquired Cathedral Group in November and launched Kinesis, its permanent vehicle for third party capital.
"We don't share the gloomy outlook. With our three platforms comprising our permanent reinsurance asset management business in Kinesis, our top-performing Lloyd's business in Cathedral, and our leading specialist insurance and reinsurance businesses in Lancashire, together with our sound business model and outstanding team, we believe that we can navigate a course through this market, and indeed the next hard market when that comes," Brindle said.
A USD0.65 special dividend was paid, significantly lower than last year's USD1.95.
By Samuel Agini; [email protected]; @samuelagini
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