18th Feb 2016 10:46
LONDON (Alliance News) - Lancashire Holdings Ltd on Thursday said it expects current market trends to continue during 2016, with more pricing pressure, albeit at a slower rate, although the non-life insurer has been able to cut its exposure through reinsurance.
According to Chief Financial Officer Elaine Whelan, this leaves Lancashire "well positioned" for the current phase of the cycle.
"We are comfortable that at our current capital level, we are able to write the business we want to and be ready for any opportunities that may materialise," Whelan said.
The outlook came as Lancashire announced plans to pay a standard final ordinary dividend of USD0.10 per share for 2015. Including its interim dividend of USD0.05 and a special dividend of USD0.95, the total dividend for 2015 is USD1.10. The final and interim dividend matched those declared for the prior year, but the special component fell from USD1.70.
There had been hopes that Lancashire would add to the special dividend, which was declared back in December, though Eamonn Flanagan, an analyst at Shore Capital, said there had been "pretty clear indications" from Lancashire that such a move was unlikely.
"Given the group feels comfortable with its capital levels for the ongoing business, we expect the vast majority of earnings to continue to be paid out in dividends, unless there is a significant change in business opportunities," Fahad Changazi, an analyst at Nomura, said in a note. With the dividends declared Thursday, Lancashire returned 129% of comprehensive income in 2015.
Lancashire said pretax profit fell to USD171.7 million in 2015 from USD226.5 million the prior year, the company said, beating analyst expectations of USD163.0 million.
Gross written premiums dropped to USD641.1 million from USD907.6 million, with Chief Executive Alex Maloney pointing out that Lancashire does not consider top-line premium growth to be a "prudent objective for its own sake".
"In certain lines, such as the energy book, this means sharing to a degree our clients' pain and settling for an acceptable lower return on less risk. In other lines, such as our property catastrophe and terror books, we have continued to produce decent returns, partly due to low loss ratios - a product of yet another year of few major catastrophe losses within the most well developed insurance markets," Maloney said.
The group's combined ratio, a measure of underwriting profitability, weakened to 72.1% from 68.7%. A ratio of under 100% represents underwriting profitability.
The group's investment portfolio returned 0.7% in 2015, which the company said was a "good result" in light of the increase in treasury yields and the widening of credit spreads during the year. In the prior year, the investment portfolio returned 1.0%, primarily due to a reduction in treasury yields, which offset the slight widening of investment grade credit spreads.
The year was punctuated with a stronger-than-expected final quarter, even with pretax profit down to USD50.2 million in the three months to December 31, from USD91.5 million in the corresponding quarter the prior year.
Meanwhile, Lancashire said Martin Thomas will stand down as chairman in May, following nine years on the board. Peter Clarke, a former chief executive of FTSE 250 hedge fund manager Man Group PLC, and currently an independent non-executive director at Lancashire, will succeed Thomas.
"The Lancashire board has led by example on this count and with three women among our eight directors, Lancashire is within the top ten FTSE 250 boards in terms of its gender diversity. After nine years, it is the right time for a change, both for the business and for me," Thomas said.
As well as finance boss Elaine Whelan, Lancashire's board includes Emma Duncan, the editor of Intelligent Life, The Economist's sister magazine, and Samantha Hoe-Richardson, who chairs the insurer's audit committee.
Shares in Lancashire were down 0.8% at 624.05 pence on Thursday morning.
By Samuel Agini; [email protected]; @samuelagini
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