(Reuters) - Lancashire Holdings (LRE.L) said on Thursday it was well placed to tackle a challenging year ahead, after the insurer reported better-than-expected 2016 profit despite a tough underwriting environment.
Shares in the company touched a record high after the insurer said it was carrying a "bit more" capital buffer as of Jan. 1 than it typically would, giving it a choice between investing for growth if opportunities arise and returning capital if tough conditions persist.
Competition from investment funds has piled on pressure on speciality insurers and reinsurers, even as they face cut-throat pricing competition, with the Western world not having seen any large-scale catastrophes since Hurricane Sandy in 2012.
Against this backdrop, better-than-expected investment returns helped the company, which writes policies for heavy-duty assets such as oil rigs, ships and aircraft, post pretax profit of $150.4 million (120 million pounds) for the year ended Dec. 31, ahead of analysts' estimate of $130 million according to a company-compiled consensus.
Fourth-quarter investment income came in at $13 million, beating analysts' consensus, which Bernstein attributed to higher income from Kinesis, Lloyd's fees and profit commissions due to timing effects.
"These results demonstrate the continuing relevance of Lancashire as a top underwriter and its ability to navigate tough underwriting conditions through a judicious mix of risk and reward," Shore Capital analyst Eamonn Flanagan wrote.
The insurer brought more reinsurance last year to reduce the impact of market volatility on its business and its increased its capital holdings, its head of investor relations said.
"There's an abundance of capacity in this industry and that's not leaving as such ... and having more capital gives us other options... it's a prudent thing to be doing at this time," Jonny Creagh-Coen told Reuters.
On top of global challenges, London-listed insurers are grappling with uncertainty over their ability to continue selling products to EU customers after Britain leaves the EU, and some are drawing up plans to potentially set up EU bases.
Creagh-Coen said Bremuda-based Lancashire would it would follow the lead of the government and Lloyd's of London [SOLYD.UL], the insurance marketplace of which it is a part, to decide what contingency plan to adopt.
"When Lloyd's and the government move, we shall make decisions. We're monitoring the situation very carefully but at this stage no decision has been made as there is nothing to base the decision on," he said.
"We have Bermuda, London and Lloyd's... so we have optionality (and) there's time, so there's no need to panic."
Lloyd's is considering five locations for its EU base and is set to make an announcement by the middle of April at the latest.
Reporting by Esha Vaish and Noor Zainab Hussain in Bengaluru