February 15, 2018 / 7:39 AM / 3 months ago

UK insurer Lancashire forecasts tough 2018 as loss hits shares

(Reuters) - Lloyd’s of London insurer Lancashire swung to a loss in the fourth quarter, the costliest ever for insurers and reinsurers due to natural disasters, and said 2018 would be challenging.

Lancashire’s shares fell 5 percent after it reported a pretax loss of $3.2 million (£2.3 million) for the three months to the end of 2017, below market consensus of a profit of $6.75 million.

Shares in the insurer, which writes policies for heavy-duty assets such as oil rigs, ships and aircraft, were the second top percentage loser on London’s midcap index.

Analysts pointed to weaker-than-expected gross written premiums, which fell about 29 percent to $67.4 million, and a deterioration in its combined ratio to 119.5 percent from 79 percent. A ratio above 100 percent means less was earned in premiums than paid out in claims.

Insurers had to pay record claims of about $135 billion last year after hurricanes, earthquakes and fires in North America.

TURNED CORNER

Lancashire, which had previously recorded a net loss of $165 million from hurricanes Harvey, Irma and Maria and earthquakes in Mexico, joined other Lloyd’s insurers such as Beazley in forecasting the first major reversal in insurance rates since Hurricane Katrina in 2005, the costliest natural disaster in U.S. history.

Rates had stagnated or slipped in past years because of fierce competition.

CEO Alex Maloney said that 2018 would be another challenging year for the industry, but struck a more upbeat tone.

“With the impairment of capital due to these catastrophe losses... the market has finally turned a corner and we are witnessing rate increases, or at least stability, across most of the classes of business we underwrite,” Maloney said.

Some reinsurers were expecting double-digit property reinsurance price rises after last year’s catastrophe losses, but prices rose less than expected, with competition limiting them to single-digit percentages.

Lancashire did not say how much the increase had been, but said that the outlook was bullish enough for it to believe that all of its capital would be put into products this year.

RBC analyst Kamran Hossain, who has a “sector perform” rating on Lancashire, said in a note that he expected mid-year renewals to show stronger price increases than seen in January.

“If opportunities do not present themselves going forward, we would expect Lancashire to revert back to its position of returning surplus capital to shareholders,” he said.

Reporting by Noor Zainab Hussain and Esha Vaish in Bengaluru; Additional reporting by Carolyn Cohn in London; Editing by Amrutha Gayathri/Gopakumar Warrier/Alexander Smith

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