Cathedral acquisition and Richard Brindle retirement added to costs
Specialist London-listed insurer Lancashire made a profit of $104.7m (£61.4m) in the first half of 2014, down 22% on the $134.1m it made in the same period last year.
The biggest cause of the reduction was a 66% jump in expenses to $266m (H1 2013: $160.5m).
Employee pay costs rose 30% to $22.5m (H1 2013: $17.3m), partly because of the retirement of previous Lancashire chief executive Richard Brindle in the second quarter and also because of a “slight” increase in headcount.
Brindle’s retirement package included $1.8m of salary and benefits and $8.2m in accelerated vesting and cash settlement relating to the company’s share-based incentive scheme.
Expenses also included $6.9m of goodwill amortisation relating to Lancashire’s acquisition of Lloyd’s insurer Cathedral in the fourth quarter of 2013.
Lancashire’s combined operating ratio (COR) rose 11.8 percentage points to 70.6% in the first half of 2014 from 58.8% in the same period last year.
Within this the loss ratio increased 11 points to 34.5% from 23.5%. Lancashire attributed the increase to the lack of a one-off benefit in 2013 from the settlement of an industry loss warranty relating to Hurricane Sandy.
The company said there were “no significant losses” in the period and that attritional losses were also “relatively low”.
Gross written premiums increased by 50% to $635.1m (H1 2013: $423.9m) largely because of the Cathedral acquisition.
New Lancashire chief executive Alex Maloney noted the heavy competition in the global insurance industry.
He said: “There can be no doubt that the additional capital in our industry, not just new capital but also the undistributed retained earnings of many of our peers, is driving competition on pricing, terms and conditions.”
“Most of this competition is still responsible and leaves acceptable underwriting margins and volumes for those underwriters like Lancashire, Cathedral and Kinesis who have the ability, experience and track-record that clients and brokers rely on to lead and structure policies.
“However there are areas of the market where there are instances of indiscipline, and Lancashire is always prepared to let underpriced business go.”