Lancashire Holdings Limited · LSE:LRE
Lancashire — Investor Day (November 2023)
40 slides from Lancashire's investor day presentation, November 2023
Slide 1: Investor Day 2023
Investor Day 2023 Underwriting Comes First – Balance Risk and Return Through The Cycle – Insurance Market Employer Of Choice
Slide 2: Safe harbour statement
Safe harbour statement NOTE REGARDING FORWARD-LOOKING STATEMENTS: CERTAIN STATEMENTS AND INDICATIVE PROJECTIONS (WHICH MAY INCLUDE MODELLED LOSS SCENARIOS) MADE IN THIS PRESENTATION OR OTHERWISE THAT ARE NOT BASED ON CURRENT OR HISTORICAL FACTS ARE FORWARD-LOOKING IN NATURE INCLUDING, WITHOUT LIMITA
Slide 3: Today's agenda
Today’s agenda Welcome Strategic review: Alex Maloney Capital management: Natalie Kershaw and Jennifer Wilson Claims and reserving: Steve Yeo and Jamie Grant Our Lloyd’s business: John Spence Q&A 2023 Investor Day Underwriting Comes First – Balance Risk and Return Through The Cycle – Insurance Marke
Slide 4: Strategic review
Strategic review Alex Maloney, Group CEO 2023 Investor Day Underwriting Comes First – Balance Risk and Return Through The Cycle – Insurance Market Employer Of Choice 4
Slide 5: Capital Management
Capital Management Natalie Kershaw, Group CFO Jennifer Wilson, Bermuda CFO and Head of FP&A 2023 Investor Day Underwriting Comes First – Balance Risk and Return Through The Cycle – Insurance Market Employer Of Choice 5
Slide 6: Capital management agenda
Agenda Strategy • Capital management • Portfolio diversification Capital models • Required capital in various models • AM Best 2023 Investor Day Underwriting Comes First – Balance Risk and Return Through The Cycle – Insurance Market Employer Of Choice 6
Slide 7: Three strategic priorities support our goal
Three strategic priorities support our goal Profitable growth Underwriting comes first Exploring opportunities for growth in markets where we believe the right long-term opportunities exist and rigorously monitoring and managing our risk exposures. Our goal is to Maximise risk-adjusted returns maxim
Slide 8: Balancing risk and return through the cycle
Balancing risk and return through the cycle Actively manage capital to support Preserve capital, provide liquidity and Encourage a culture of risk challenge, underwriting opportunities maintain a stable earnings stream questioning and understanding • Continue to maintain an appropriate • Prudent res
Slide 9: Maintaining a strong capital position
Maintaining a strong capital position • We maintain a relatively conservative capital position such that we can withstand a significant catastrophe event and still retain our ratings and regulatory solvency position. • Our disclosed AM Best capital adequacy ratio is significantly higher than peers g
Slide 10: Capital management: Balance risk and return through the cycle
Capital management: Balance risk and return through the cycle • Active capital management is at the heart of how we run the business. We have returned nearly $3bn since inception (3) and raised about $550m. • We monitor capital and headroom against internal, rating agency and regulatory requirements
Slide 11: Diversification strategy
Diversification strategy 2023 Investor Day Underwriting Comes First – Balance Risk and Return Through The Cycle – Insurance Market Employer Of Choice 11
Slide 12: Diversification strategy is working
Diversification strategy is working 2023 Investor Day Underwriting Comes First – Balance Risk and Return Through The Cycle – Insurance Market Employer Of Choice 12
Slide 13: Capital management
Capital management Informal collaboration Formal process • Small size = no silos and nimble decision • Formal quarterly Board reporting. making. 2022 – Hurricane Ian. Annual scenario testing. • Daily interaction to firm up 1 January • Recurring base scenarios (e.g. breakeven opportunities and outwar
Slide 14: Required capital methodology
Required capital methodology Each of the rating agency and regulatory models has their own proprietary calculation for required capital but the general building blocks are: Underwriting risk Asset risk Catastrophe risk charges Investment risk charges Premium risk charges Credit risk charges Loss res
Slide 15: Indicative required capital splits (post-diversification)
Indicative required capital splits (post-diversification) AM Best - cat stress S&P BSCR Investments Loss reserves Premiums Catastrophe reserves 2023 Investor Day Underwriting Comes First – Balance Risk and Return Through The Cycle – Insurance Market Employer Of Choice 15
Slide 16: Required capital – Catastrophe risk
Required capital – Catastrophe risk Catastrophe risk is generally measured by PML (‘Probable Maximum Loss’) and is the most significant driver of required capital. Each model utilises a different PML measure but in all models the main driver is U.S. Wind exposure. The AM Best cat stress model reduce
Slide 17: Required capital split
Required capital split Indicative AM Best Required Capital - 2020 vs 2022 2020 2022 Investments Loss reserves Premiums Catastrophe reserves Diversification 2023 Investor Day Underwriting Comes First – Balance Risk and Return Through The Cycle – Insurance Market Employer Of Choice 17
Slide 18: Stress scenario
Stress scenario Let’s consider the impact of an additional net loss of $300m (approximately equal to our 1 in 100 Gulf Wind PML) on our 2022 results: • Our BMA BSCR ratio would drop from 308% down to approximately 225%, not inconsistent with peers’ 2022 reported ratios • In the AM Best standard mode
Slide 19: Lancashire versus peer ratings
Lancashire versus peer ratings Criteria Lancashire Arch Argo Axis Beazley Convex Everest Fidelis Greenlight Re Hanover Hiscox Ren Re Sirius Point Best’s Financial Strength A A+ A- A A A A+ A A- A A A+ A- Rating Outlook Stable Stable Under review Stable Stable Stable Stable Negative Stable Stable Sta
Slide 20: Claims and reserving
Claims and reserving Steve Yeo, Group Head of Claims Jamie Grant, Head of Actuarial Reporting & LUK Chief Actuary 2023 Investor Day Underwriting Comes First – Balance Risk and Return Through The Cycle – Insurance Market Employer Of Choice 20
Slide 21: Claims and reserving agenda
Agenda The role of the claims function Reserving philosophy and process 2023 Investor Day Underwriting Comes First – Balance Risk and Return Through The Cycle – Insurance Market Employer Of Choice 21
Slide 22: What is the role of the claims function?
What is the role of the claims function? Pay valid Manage the Transparent and Triage standard But what claims quickly market expeditious v complex claims complexities response to loss determination do we of coverage encounter? 2023 Investor Day Underwriting Comes First – Balance Risk and Return Thro
Slide 23: Deepwater Horizon - April 20, 2010
Deepwater Horizon - April 20, 2010 • Deepwater Horizon was a Deepwater semi-submersible offshore drilling rig, owned by Transocean and leased to BP • BP, Anadarko Petroleum and Moex Offshore were co-venturers in the Macondo Prospect (MC252). BP were the ‘Operator’ • MC252 was located 41 miles off th
Slide 24: Costa Concordia – January 13, 2012
Costa Concordia – January 13, 2012 • Costa Concordia was a Costa Cruise vessel owned by Carnival Corporation • She was carrying around 3,200 passengers and 1,000 crew between Citavecchia and Savona • Captain Schettino ordered a deviation of the planned route to perform a ‘sail-by’ at Isola del Gigli
Slide 25: Covid-19 pandemic
Covid-19 pandemic • Coronavirus spread globally • Governments across the globe take action to prevent spread • Travel curtailed • Businesses closed • Public events cancelled • Wide-ranging claims brought, seeking coverage for loss resulting from such curtailments The issues • Is there loss? • When d
Slide 26: Hurricane Ian – September 28, 2022
Hurricane Ian – September 28, 2022 • Category 4 hurricane made landfall in Southwestern Florida • Catastrophic storm surge and significant wind damage to central Florida and Carolinas • Current PCS estimate $48.4bn (Initial PCS estimate $40bn) • Inflationary considerations The issues • Pre-loss expo
Slide 27: Reserving philosophy
Reserving philosophy “We have no appetite to set our reserves below the bottom end of the range of reasonable estimates, as determined by internal and external actuaries.” • Demonstrated history of a strong reserving base and P-Y releases • Strong reserve governance framework • Owned by actuarial •
Slide 28: Validated through external actuarial review twice annually
Our process actuarial review twice annually Attritional Claims Reserves Considerations Validated through external • Claims inflation • Standard actuarial techniques used to inform actuarial best estimate assumptions • Rate change / changes in book • Uplifts for management margin • Actual vs Expected
Slide 29: Risk adjustment and confidence level
Risk adjustment and confidence level • In any period, the level of margin (prudence) in the reserves is determined by management, based on the prevailing uncertainty at the time and the Group’s reserve risk appetite. • The margin directly informs the undiscounted risk adjustment under IFRS 17. • At
Slide 30: Claims inflation for the industry
Claims inflation for the industry • During 2022, inflation across the U.S. and Europe reached its highest level in around 40 years, continuing into 2023. Bank of England Monetary Policy Committee Report (August 2023) • Whilst this has generally been positive from a premium perspective subsequently,
Slide 31: Our Lloyd's business
Our Lloyd’s business John Spence, CEO Lancashire Syndicates 2023 Investor Day Underwriting Comes First – Balance Risk and Return Through The Cycle – Insurance Market Employer Of Choice 31
Slide 32: Lloyd's business agenda
Agenda How do we manage our Lloyd’s platform? The advantages of Lloyd’s How we are tracking against expectations The future opportunities for Lancashire 2023 Investor Day Underwriting Comes First – Balance Risk and Return Through The Cycle – Insurance Market Employer Of Choice 32
Slide 33: An extension of the Group
An extension of the Group The strategy of our syndicates is a good example of the Group strategy in practice: Grow a Improve capital diversified efficiency and earnings stream actively manage as market the syndicates’ conditions allow capacity Employ and Deliver accretive develop returns for talente
Slide 34: Why Lloyd's?
Why Lloyd’s? Nature / Client Talent Highly Lloyd’s Licensing complexity of business access access rated Europe •77 syndicates •3,400+ •Licensed in •Some •Some clients •Some •Lloyd’s is A+ •Lloyd’s coverholders over 70 business prefer underwriters rated by Europe as territories. only comes Lloyd’s pr
Slide 35: What did we do at Syndicate 3010?
What did we do at Syndicate 3010? Lancashire acquired the Cathedral group of companies in November 2013, including Cathedral Underwriting Limited (CUL) the Managing Agent of S3010 and S2010. 2013 Cargo and Specie 2015 2017 2019 2021 2023 CAPACITY £30m £60m £100m £100m £100m £100m £100m £150m £175m £
Slide 36: What did we do at Syndicate 2010?
What did we do at Syndicate 2010? Lancashire acquired the Cathedral group of companies in November 2013, including Cathedral Underwriting Limited (CUL) the Managing Agent of S3010 and S2010. 2021 Addition of Property Construction to 2015 2017 2019 Specialty 2023 CAPACITY £400m £350m £350m £306m £306
Slide 37: A diversified earnings stream
A diversified earnings stream 2023 Investor Day Underwriting Comes First – Balance Risk and Return Through The Cycle – Insurance Market Employer Of Choice 37
Slide 38: Performance against Lloyd's market
Performance against Lloyd’s market Performance versus Lloyd’s notional market benchmarks Syndicate 2019 2020 2021 2022 2023 YTD 3010 2010 Top quartile Second quartile Third quartile Fourth quartile Source: Lloyd’s 2023 Investor Day Underwriting Comes First – Balance Risk and Return Through The Cycle
Slide 39: Lancashire at Lloyd's
Lancashire at Lloyd’s 2023 Investor Day Underwriting Comes First – Balance Risk and Return Through The Cycle – Insurance Market Employer Of Choice 39
Slide 40: For more information
For more information Investor Relations Media Jelena Bjelanovic FTI Consulting Peter Krinks Lancashire Holdings Limited 200 Aldersgate, Lancashire Holdings Limited 20 Fenchurch Street, Aldersgate Street, 20 Fenchurch Street, London, EC3M 3BY London, EC1A 4HD London, EC3M 3BY E Tom.Blackwell@fticonsu