Lancashire first-half impresses but sees continued pricing pressure

24th Jul 2014 12:18

Bermuda-based insurer Lancashire delivered net tangible assets (NTA) higher than analysts had forecast in the second quarter, with lower year-on-year profits in line with expectations. A combined ratio of 74.6 in the second quarter brings the year-to-date figure to 70.6%, with a profit before tax down 29% to £41.5m in the quarter and down 28% in the first six months of the year.The group's return on equity was 2.4% for the second quarter, falling to 1.3% due to the hefty retirement package and warrant exercises of outgoing founder Richard Brindle. Chief Executive Alex Maloney said additional capital in the industry, not just from new capital but also from undistributed retained earnings of many of its peers, was "driving competition on pricing, terms and conditions". However, he said this was at "responsible" levels so that underwriting margins and volumes for the company and some peers were "acceptable" in most areas of the market, and it was "always prepared to let underpriced business go". He noted industry discussion about whether pricing was reaching a floor, but said "on the whole we think there is still pressure on pricing and, with business more scarce in the second half of the year, we wouldn't be surprised to see some aggressive renewal targets".Broker Numis Securities said the company delivered "good results in a more competitive environment", including a "number of positives that should strengthen confidence in future earnings".Lancashire's price-to-net tangible assets (NTA) ratio of 1.37 is now around 20% cheaper than sector peers Amlin, Beazley and Hiscox.The stock was 5% higher at 635.5p by 13:25.OH