Holdings Limited
Annual Report & Accounts 2023
Delivering
together
Our culture and focus
enables our success
Our values underpin
everything we do and are
at the core of our culture.
Leadership
Exhibiting passion and commitment in all aspects of
Lancashire life and inspiring others to do the same, we are…
These embedded values create
a culture which delivers in the
right way for all our stakeholders,
as we continue to grow and
move forward.
Aspirational
aspiring to deliver a superior service for our clients,
ourselves and our business partners, we are…
Nimble
in our decisions, actions and business processes, and
considerate of our environment and wider society, we are…
Collaborative
valuing teamwork and a diversity of skills and experience
and sharing in our success, and we are…
Straightforward
in conducting our business in an accountable, open,
honest and sustainable way.
Strategic report
2
3
4
6
Delivering together
2023 at a glance
Key performance indicators
Chair’s statement
Group Chief Executive’s review
Delivering our strategy
Business model
9
10 Our strategy
12
14
18
Financial review
Underwriting review
Business review
Delivering for our clients
Enterprise risk management
Principal risks
Delivering for our people
23
28
33 Our people and culture
Environmental, social and
governance report
Delivering sustainably
Chair’s introduction
41
43 Our ESG strategy and progress
Sustainability
Delivering for our communities
The Lancashire Foundation
2023 TCFD Report
Delivering responsibly
45
49
65
Governance
Financial statements
122 Independent auditor’s report
131 Consolidated primary statements
135 Accounting policies
148 Risk disclosures
167 Notes to the accounts
Additional information
196 Shareholder information
198 Glossary
205 Alternative Performance Measures
207 Contact information
Delivering as a responsible business
Board of Directors
Corporate governance report
Section 172
Committee reports
72
76
80
83
101 Directors’ Remuneration Report
118 Directors’ Report
121
Statement of Directors’ responsibilities
Delivering
together
Our long-term strategy is to manage the market
cycle and deliver strong returns for shareholders
through a portfolio of diversified products.
During 2023, we delivered on those objectives
with a disciplined approach to managing risk.
Find out more about how we’re delivering...
Our purpose – page 9
Our strategy – page 10
For our people – page 33
Sustainably – page 41
For our communities – page 45
As a responsible business – page 65
Lancashire Holdings Limited | Annual Report & Accounts 2023
1
2023 at a glance
2023 was a year
of delivering for all
our stakeholders
A strong, growing and sustainable business
We are a provider of global specialty insurance and reinsurance
products offering risk transfer solutions to brokers and clients.
We always strive for long-term and mutually beneficial
relationships with our clients and stakeholders.
We want to be the best and we are building on our strengths
Delivering
for our clients
Our (re)insurance products give people and businesses confidence
to operate, thrive and recover quickly if loss events occur.
$484.8m gross losses paid in 2023
8 core product groups with
associated business lines
• New visitor suite opened at our London office
• U.S. office opened to support the expansion of our client offering
Delivering
for our communities
$0.7m donated through the
Lancashire Foundation in 2023
60 individual organisations supported
12 employees attended our
Project Transform volunteering
programme in Tanzania
Delivering
for our investors
During 2023, we paid a total of
$155.3m in dividends to
our shareholders
Delivering
sustainable operations
100% of calculated GHG emissions
offset from our own operations
2
Lancashire Holdings Limited | Annual Report & Accounts 2023
Delivering
for our people
Our people are experts in their fields. From underwriting to support
functions, we strive to have strong, diverse and inclusive teams who
are focused on delivering our potential.
393 colleagues across our offices
Top10 employer in Bermuda in 2023
90% engagement score in
2023 all-staff survey
Key performance indicators
Change in DBVS
Combined ratio
(undiscounted)
Total investment return
(1.2)*
22
23
22
23
24.7
24.7%
82.6%
98.7*
22
(3.5)
82.6
23
5.7
5.7%
An excellent result due to profit after tax of
$321.5 million, reflecting a strong underwriting
performance complemented by positive
investment returns.
During 2023, we continued to implement our
long-term strategy to manage the market cycle
and deliver strong profitable growth through a
portfolio of diversified products. The combined
ratio (undiscounted) of 82.6% is a strong result
in a year with over $100bn of insured natural
catastrophe events.
The Group’s investment portfolio, including
unrealised gains and losses, returned 5.7% in 2023.
The positive returns were driven by $108.5 million
of interest and dividend income as our portfolio
benefited from higher yields. The Group also
benefited from net movement in unrealised gains
on our fixed income portfolios due to the expectation
of rate cuts in 2024.
Total shareholder
return
Insurance service result
Gross premiums written
under management
22
23
11.7
9.5
22
23
141.6
22
23
382.1
1,850.7
2,072.2
9.5%
$382.1m
$2.1bn
Our shares performed broadly in line with the FTSE
250 in 2023. However, the total shareholder return
of 9.5% was supported by a special dividend of $0.50
per share in the year. This is in line with Lancashire’s
proven track record of returning excess capital to
shareholders over time.
Insurance revenue grew 23.9% to $1,519.9 million
driven by growth in casualty reinsurance, specialty
reinsurance, property insurance and energy and
marine insurance. 2023 was reasonably active for
natural catastrophe and weather loss activity and
we also saw some risk losses in our energy classes.
However, none of these were individually material
to the Group.
The Group continues to expand and diversify its
underwriting portfolio by taking advantage of the
current hard phase of the insurance market cycle
and the associated rate increases across multiple
lines of business. In 2023, the Group also announced
the launch of Lancashire Insurance U.S., which
will operate under a delegated underwriting
arrangement with Lancashire’s UK company
platform. Underwriting will commence in 2024.
Key
KPI linked to Executive Directors’ remuneration.
For more information, see pages 101 to 117.
Alternative Performance Measures (APMs).
Refer to page 205.
* Comparative figures have been restated to reflect the
adoption of IFRS 9 and IFRS 17.
Lancashire Holdings Limited | Annual Report & Accounts 2023
3
Strategic report Chair’s statement
Our strength
and resilience
“ Our strong performance allowed
us to pay a special dividend in
December 2023. A further special
dividend was announced in March
2024, along with an increase in our
ordinary dividend of 50%.”
Peter Clarke
Non-Executive Chair
The Board is very pleased with the
performance of the business during
2023. As part of the Board’s annual
review of Lancashire’s strategic
priorities in 2023, we discussed
and affirmed three areas of focus:
underwriting comes first; balance risk
and return through the cycle; and
insurance market employer of choice.
4
Lancashire Holdings Limited | Annual Report & Accounts 2023
The management team have been committed to delivering on these
priorities and the performance of the business in 2023 is testament
to their success.
From an underwriting perspective, the business has continued to
grow with the market opportunity. These are some of the best market
conditions in over a decade, and Lancashire has always been a business
that is able to quickly and efficiently match capital to the best
underwriting opportunities. Gross premiums written increased by 16.9%,
and insurance revenue increased by 23.9%, as Alex discusses in his
review on page 6. The growth has come from a more diversified portfolio
which better mixes catastrophe risk with less volatile product lines.
This was the result of a strategic decision to diversify the portfolio that
has been implemented over the past five years, and I am pleased that
we are now seeing the results of that pivot come through in earnings
and in a healthy combined ratio (undiscounted) of 82.6% for 2023.
The performance of the business also resulted in a positive change
in diluted book value per share of 24.7%.
The strength of Lancashire’s business model has also allowed
us to increase our ordinary dividend by 50%.
Lancashire’s strong performance during 2023 was discussed at our third
quarter Board meeting, and the Board was pleased to approve a special
dividend of $119.5 million, which was paid in December 2023. The Board
also approved a buyback of Lancashire’s common shares. However,
no shares were repurchased under the programme. A further special
dividend was announced in March 2024.
While the underwriting result is key, the business has also benefited
from the higher interest rate environment within its investment
portfolio. The portfolio delivered a return of 5.7%, which is a welcome
outcome following the investment market volatility and negative returns
reported during 2022.
As Natalie discusses in her review, Lancashire has an extremely robust
capital position and has ample capital to fund its planned underwriting
during 2024 while rewarding its shareholders. The Group’s reserving
philosophy has traditionally been conservative for both newer and
more established lines of business. That remains the case, and there
are no plans to change this successful approach.
During 2023, the Group has also continued its focus on environmental,
social and governance matters. I discuss these in more detail in the
introduction to the Sustainability and Governance sections of this report,
starting on page 41. As always, I would like to commend the work of the
Lancashire Foundation and its efforts to help those less fortunate. This
includes putting ‘ESG into action’ through volunteering, particularly
through Project Transform, and in assisting a range of causes, which
during 2023 included a specific focus on the environment.
This is my final report to shareholders as I prepare to step down from
my roles as Chair and Non-Executive Director following the 2024 AGM,
having completed nine years’ service. I am delighted that Philip Broadley
has been appointed as Non-Executive Director of LHL and as the LHL
Chair designate. Philip has a wide breadth of experience across the sector
and beyond, and I know the Board and the Company will be in safe hands
under his stewardship.
As I reflect on the past nine years, Lancashire has changed considerably
and has grown from a relatively small underwriter of select risks to a
much larger, diversified business and a respected leader across the (re)
insurance sector. In 2016, my first year as Chair, the business wrote
$633.9 million of premium – and underwrites three times that today.
This growth has been accompanied by a commensurate investment
across our business in underwriting, actuarial and support functions.
Lancashire’s product suite has also expanded with the introduction of
many new lines of business. While catastrophe risk is still a significant
part of the portfolio, the less volatile lines now add ballast to the
business. Lancashire remains a lean and efficient company and is able
to react quickly when the right opportunities are available. None of this
could have been achieved without a dedicated and committed team and
I would like to thank Alex, Natalie and Paul, and the other members of
the management team, for their leadership. It has not always been easy
and we have seen some challenging periods, but I am confident that the
business is in excellent hands and that their passion for ongoing success
will be realised. I know that this commitment to the business is shared by
all employees across the Group, and I would like to thank them for their
hard work, enthusiasm and good humour. The Group’s headcount has
grown from 198 in my first year as Chair to nearly 400 today. Despite
this rapid expansion, Lancashire has retained its distinctive and vibrant
culture and will continue to do so.
So, as I sign off for a final time, I would like to thank all my colleagues
at Lancashire, my fellow Board members, both past and present, and
our shareholders for their fantastic support and dedication during my
tenure as Chair. I am extremely proud to have been the Chair of this
great company that places its clients, business partners, shareholders,
people and all stakeholders at the centre of everything it does. I offer
everyone at Lancashire my very best wishes for the future, and I look
forward to the continued success of the business in 2024 and beyond.
Chair designate Philip Broadley
Philip Broadley was appointed as a Non-Executive Director
in November 2023. Philip was also identified as the Chair
designate, and his appointment as Chair is expected to take
effect immediately following Lancashire’s 2024 AGM in
May 2024, subject to shareholder approval.
Philip is Senior Independent Director and Audit Committee Chair
at AstraZeneca PLC and a Non-Executive Director of Legal &
General Group Plc, and has held senior roles across financial
services, including as Group Finance Director at Prudential plc
and Old Mutual plc. He has also served as Chair of the 100 Group
of Finance Directors and as a member of the Code Committee of
The Takeover Panel.
Philip said: “Lancashire is in a period of robust growth in a strong
market environment. I join a business which is in very good hands.
I am extremely pleased to accept my appointment to the Board.
I look forward to working with Alex and all my colleagues at
Lancashire and to leading the LHL Board as Chair following
the 2024 AGM.”
Lancashire Holdings Limited | Annual Report & Accounts 2023
5
Strategic report Group Chief Executive’s review
Delivering our growth
and profit ambitions
I am extremely pleased with
Lancashire’s performance in 2023, its
development as a growing organisation,
and the future opportunities we see.
“ At the heart of our business is our belief in
the importance of managing the cycle. This
means we will take opportunities to grow
when the environment is right and, during
2023, we continued to focus on writing
profitable business during the best market
conditions we have seen for a decade.”
Alex Maloney
Group Chief Executive Officer
6
Lancashire Holdings Limited | Annual Report & Accounts 2023
We have delivered on our growth and profit ambitions, delivered for our
people, and within our communities. We have achieved this through our
unique culture and way of approaching our work and, as I look into 2024,
I am extremely encouraged by the opportunities that await us and our
ability to continue to deliver on our strategic objectives.
Delivering our growth and profit ambitions
At the heart of our business is our belief in the importance of managing the
cycle. This means we will take opportunities to grow when the environment
is right and, during 2023, we continued to focus on writing profitable
business during the best market conditions we have seen for a decade.
Gross premiums written increased by 16.9%, and insurance revenue
increased by 23.9%, during the year, due to a combination of new
business and rate rises across our portfolio. The insurance service result
increased by 169.8%. This excellent underwriting performance resulted
in a combined ratio (undiscounted) of 82.6% and, as our 2023 results
demonstrate, we have built a better balanced and more diverse
underwriting portfolio, which generated more profit against our capital
base. Our ultimate goal at Lancashire is to maximise risk-adjusted returns
for our shareholders. Our diversified product mix means we aim to have
lower earnings volatility and the ability to produce better returns on
capital and grow our diluted book value per share over the long term.
Due to the strong operational performance during the year, in the third
quarter we announced a special dividend of $0.50 per share. At its March
2024 meeting, the Board also agreed a further special dividend of $0.50
per common share.
We are always led by the underwriting opportunity, and we believe there
are significant opportunities going into 2024. We are well capitalised to
be able to fund those opportunities through internal earnings growth
while also rewarding our shareholders.
While Lancashire remains a significant insurer of catastrophe risk, since 2018
we have invested in our underwriting teams and added new product lines
that better balance that risk and inherent volatility. At the same time, we
have benefited from the positive underwriting conditions for catastrophe
business during the past 12 months. This mix of products during this phase
of the market cycle has resulted in higher returns and this has improved
our portfolio’s overall resilience to the impact of catastrophe losses.
We have now shown that we can manage volatility through a balanced
portfolio whilst also substantially growing the business. During 2023,
Lancashire did not incur any individually material catastrophe or large
risk losses and we were able to release reserves on prior years. As Natalie
discusses in her review on page 12, allocating our capital to the most
profitable opportunities remains our focus.
Delivering for Lancashire’s people
and communities
We are fundamentally a people business, and we believe that focusing on
our people as part of our strategy is crucial to our ongoing success. We
instil high expectations in our people and aim to offer a culture that is
diverse, unique and special. My role as CEO is to keep that positive culture
alive because it seeps into all areas of our business. The promise we make
to our people is that we will give them every opportunity to thrive and
develop their careers. The growth we have seen over the past few years
has increased the scope of the opportunities available. We also want to
reward people for their hard work, and I am always proud to be able to
announce our internal promotions – and we made 46 of those during
2023. We are all invested in Lancashire and committed to success.
I’ve been at Lancashire for 18 years, Paul Gregory has been here for 16 years
and Natalie Kershaw for 14 years. We also have underwriters who have
been with us for all or the majority of their careers. This tells its own story
– that we have a dedicated team who like what we do and how we do it.
That doesn’t mean we are afraid to question ourselves, but we always do
that in a positive way for a better outcome. We have also been incredibly
successful at attracting new talent to the Group in recent years to help us
challenge how we work across both underwriting and support services.
I was particularly pleased with the results of our 2023 employee survey
which showed strong support for our culture and the experience we offer
our people. Our overall engagement score (a common way to track how
companies are doing based on four core questions: recommending a
business as a good place to work, feeling proud to work there, being
motivated to do your best work, and intention to stay) was 90%. It’s an
important measure, and one that has increased since our last survey in
2021 and is 14 points higher than our peer benchmark. Our highest scores
were for being proud to work at Lancashire at 94%, while 92% of people
responding said they are motivated to do their best work and would
recommend Lancashire as a great place to work. This is great feedback,
showing that we are on the right path, and I look forward to developing
this engagement even further in 2024 and beyond (please see page 33
for more information).
Aside from our strong financial performance, I am also pleased with our
continued focus on environmental, social and governance matters. This
is particularly the case in our communities, where our ethos is supporting
those less fortunate through the work of the Lancashire Foundation.
During 2023, 12 employees travelled to Tanzania to assist with a
construction project and we believe it is initiatives like this that bring
social responsibility to life (please see page 48 for more information).
Seizing the opportunities and looking
ahead to 2024
During 2023, we announced the first significant geographical expansion
of our business since our inception. Lancashire Insurance U.S. will operate
under a delegated underwriting arrangement with Lancashire’s UK
company platform. It will allow us to write business that we could not
access before through new distribution channels and with new clients.
This development has been driven by the compelling underwriting
opportunity that we see in the U.S. Excess and Surplus market.
While we are being conservative in our initial approach, with our
reputation for underwriting excellence and service to our clients we
are excited by the long-term opportunities that we see. There will be
significant opportunities for Lancashire in 2024 with the continuing
strong rate environment across our product suite. Our strong capital
base means we will continue to write profitable business that is within
our appetite and respond quickly to new opportunities.
I remain focused on delivering our objectives and continuing the growth
and momentum we have built during 2023. Our franchise remains
resilient, and we have fantastic teams across the Group who are
dedicated to achieving our goals.
I would like to thank everyone at Lancashire for their hard work during
2023 and their commitment to the business. Going into 2024, we have
a strong vision for the future, and we have the right people, products
and operational expertise to deliver it.
Lancashire Holdings Limited | Annual Report & Accounts 2023
7
Strategic report Delivering
our strategy
“Our franchise remains
resilient and we have
fantastic teams across the
Group who are dedicated
to achieving our goals.”
Group CEO
Alex Maloney
8
Lancashire Holdings Limited | Annual Report & Accounts 2023
Business model
Our purpose
Deliver bespoke risk
solutions that protect
our clients and support
economies, businesses and
communities in the face of
uncertain loss events.
Manage our risk exposures
and capital resources
to generate returns for
our investors.
Support our people and
work with our stakeholders,
fostering a positive,
sustainable and open
business culture to the
benefit of society.
Our business model
Our vision is to be the leading underwriter of specialty insurance and reinsurance products.
We work to deliver that vision through our business model which focuses
on our core strengths.
Customer focus
• We value our long and mutually beneficial relationships with our clients and brokers
•
Our aim is to enable our clients to recover from loss events as soon as practicable
• We focus on customer service and ensure we are responsive, open and honest at all times
Expert people and
specialised products
Our experienced management team has a diverse skill set and is focused on delivering our strategy
•
• We have skilled teams across the Group and make decisions quickly and effectively through our lean
business operations
• We offer highly-specialised multi-class products with market barriers to entry
Disciplined risk and
capital management
• We maintain rigorous systems for risk monitoring and management
•
• We manage our underwriting portfolio through market cycles and reduce volatility
Our strong track record of capital management is central to our strategy
by optimising our capital
A diverse offering
• We have the ability to write business across our platforms
•
Through access to multiple markets we provide clients with bespoke solutions and ourselves
with underwriting opportunities
• We have a stable core book of business and disciplined underwriting approach
Delivering value for
Our people
Our policyholders
Our shareholders
Society
The environment
94%
of employees say
they are proud to
work at Lancashire
$484.8m
24.7%
$23m
2,907
gross losses paid in 2023
change in diluted
book value per share
donated through the
Lancashire Foundation
since 2007
carbon credits purchased
to support our continued
carbon-neutral status
Lancashire Holdings Limited | Annual Report & Accounts 2023
9
Strategic report Our strategy
Focusing on
our strategy
erwriting comes first
d
n
U
Profitable
growth
Our speed and agility in the
way we manage volatility
helps us underwrite our
core portfolio profitably
through the cycle, as well
as enabling us to explore
opportunities for growth in
markets where we believe
the right long-term
opportunities exist.
Our goal is to
maximise risk-adjusted
returns for our
shareholders
B
ala
n
c
e ris
k
a
n
d
r
e
t
u
r
n
t
h
r
o
u
g
h
t
h
e
c
y
c
l
e
Maximise
risk-adjusted
returns
Rigorously monitor and
manage our risk exposures
alongside capital availability
to enable us to operate
efficiently whilst seizing
opportunities when they
present themselves.
Positive culture
enables sustainability
Maintaining our positive culture and the ability to retain
and attract the best talent is key for success, coupled with
a strong focus on profitability and risk selection.
Insurance market emplo y e r o f c h o i
e
c
10
Lancashire Holdings Limited | Annual Report & Accounts 2023
erwriting comes first
d
n
U
B
ala
n
c
e ris
k
a
n
d
r
e
t
u
r
n
t
h
r
o
u
g
h
t
h
e
c
y
c
l
e
Strategic pillar
Objective
Focus
Delivery
Underwriting
comes first
Profitable
growth
• Continue to grow in classes
where favourable and improving
market conditions exist, and
explore new distribution
opportunities
• Reduce earnings volatility from
natural catastrophe risk
• Focus on maintaining a
diversified portfolio structure
and our core clients
• Gross premiums written of
$1,931.7 million in 2023
•
Insurance revenue of
$1,519.9 million in 2023
• New U.S. operation to begin
underwriting in 2024
Strategic pillar
Objective
Focus
Delivery
Balance risk and
return through
the cycle
Maximise
risk-adjusted
returns
• Actively manage capital to
support underwriting
opportunities
• Deploy capital quickly when it
is needed and have the discipline
to return it when it is not
• Encourage a culture of risk
challenge, questioning and
understanding
• Total capital available of
$1,954.5 million
• Total dividends paid to
shareholders of $155.3 million,
including special dividend
announced in Q3 2023 due to
strong operational performance
Strategic pillar
Objective
Focus
Delivery
Insurance market
employer of
choice
Positive
culture
enables
sustainability
• Foster entrepreneurial,
collaborative culture via
Lancashire values
• Further develop the Group’s
ESG principles to ensure we
operate responsibly as a business
• Continuously strive for
operational efficiency alongside
development of data capabilities
• Five-star employer award from
survey organisation WorkBuzz
• 90% Group-wide
engagement score
• First ClimateWise report
published detailing progress
on climate risk
Lancashire Holdings Limited | Annual Report & Accounts 2023
11
Strategic report
Financial review
A diversified and
capital-efficient portfolio
Lancashire’s strong financial
performance in 2023 clearly
demonstrated the benefits of our
growth and diversification strategy.
Natalie Kershaw
Group Chief Financial Officer
12
Lancashire Holdings Limited | Annual Report & Accounts 2023
For the year ended 31 December
Highlights
Gross premiums written
Insurance revenue
Insurance service result
Net investment return
Profit (loss) after tax
Dividends2
Net insurance ratio
Combined ratio (discounted)
Combined ratio (undiscounted)
Total investment return
Diluted book value per share
Change in diluted book value per share
2023
$m
20221
$m
1,931.7
1,519.9
382.1
160.5
321.5
155.3
65.1%
74.9%
82.6%
5.7%
$6.17
24.7%
1,652.3
1,226.5
141.6
(76.7)
(15.5)
36.2
83.4%
90.2%
98.7%
(3.5%)
$5.48
(1.2%)
1. Comparative figures have been restated to reflect the adoption of IFRS 9 and IFRS 17.
2. Dividends are included in the financial statement year in which they were recorded.
A diversified and
capital-efficient portfolio
Our long-term aim has been to develop a more diversified and
capital-efficient portfolio as we spread risk across catastrophe
and non-catastrophe related business.
This approach has resulted in a robust underwriting profit and
an undiscounted combined ratio of 82.6%, while maintaining
our usual discipline and focus on balancing risk and return.
Our strong operating performance and very healthy capital position
meant we were able to announce a special dividend of $0.50 per share at
our third quarter results, as well as a potential share buyback scheme of
up to $50 million. In March 2024 we also announced further capital
return actions, including a 50% increase in our ordinary dividends. This
illustrates the benefit of our diversified portfolio alongside our
considered approach to balancing our capital requirements – shaped by
the underwriting environment – and rewarding our shareholders.
Our undiscounted combined ratio of 82.6%, or 74.9% on a discounted
basis, translated into a net insurance services result of $382.1 million.
This was an increase of 169.8% compared to the same period last year.
The benefit of our growth over the last few years and additional
premiums written in newer and existing product lines resulted in
insurance revenue of $1,519.9 million, a 23.9% increase compared
to 2022.
Our overall profit after tax for the year was $321.5 million, resulting
in a change in diluted book value per share of 24.7%.
During 2023, market loss environment was reasonably active with
estimates for global insured losses from natural disasters hitting
$118 billion, according to Aon research. This is more than 30%
higher than the average since 2000.
Despite this, Lancashire did not incur any individually material loss
events. Total catastrophe, weather and large losses, (undiscounted
and net of reinstatement premiums), were $106.1 million.
The benefits of our diversification strategy to better balance the portfolio
and our established underwriting discipline and risk selection expertise
are clear in this context.
Lancashire has always maintained a conservative reserving philosophy
and this has continued in 2023. The confidence level of our net insurance
reserves is 88%, with a net risk adjustment of $239.1 million, or 16.7%
of net insurance contract liabilities. Our confidence level remains within
our preferred range of 80%-90%.
Additionally, favourable prior year loss development totalled
$78.8 million, primarily due to releases on the 2022 and 2021 accident
years across most lines of business. During 2023, our estimate of
potential claims from the conflict in Ukraine has remained stable.
Within our investment portfolio we have benefited from higher interest
rates and the portfolio returned 5.7% during the year, resulting in a
net investment return of $160.5 million. The overall credit rating of
our investment portfolio is AA-. We have always maintained a relatively
conservative investment portfolio. During 2024, we plan to modestly
increase the duration of the portfolio but we do not intend on making
any material changes to our investment strategy.
All in all, 2023 was a very strong year for Lancashire in which we were
able to demonstrate that we are delivering on our strategic objectives
through disciplined underwriting and maximising risk adjusted returns.
While we were able to return some capital to shareholders in 2023, we
ended the year with a strong capital position from which we can fund
future growth in 2024. Looking forward, active capital management
will continue to be at the heart of how we run the business.
This Annual Report is our first since the implementation of the IFRS 17
accounting standard. Although this has been a significant change in the
presentation of our financial performance it has not had a significant
impact on financial performance in 2023.
I would like to thank all my colleagues in the finance and actuarial teams
for their hard work and diligence during 2023 in preparing our financial
reports on the new basis. This has been a fantastic team effort and I am
extremely grateful for the expertise and commitment they have brought
to the task of continuing our established focus on transparency.
What is your thinking regarding
Lancashire’s capital requirements going
into 2024?
We have always focused on balancing risk and return through
the market cycle, and we manage our capital to support the
underwriting opportunities that we see. Our success has been
built on being able to deploy capital quickly when it’s needed
but also having the discipline to return it when it’s not. In fact,
Lancashire has returned approximately $3 billion since inception
and raised about $550 million. We believe that there will be
significant opportunities for Lancashire in 2024, and we are
confident that we have the capital headroom to make the
most of those opportunities, including the U.S. operation.
So, overall, the work we have put in to diversify the business puts
us in a really strong position to maximise the market opportunity
from a solid base. Our focus is always to provide the best returns
for our shareholders, and we will deploy our capital where it
makes the most sense and offers the greatest rewards.
Lancashire Holdings Limited | Annual Report & Accounts 2023
13
Strategic report Underwriting review
A more robust
portfolio
Our underwriting strategy has remained
simple since inception. We look to
actively manage the underwriting cycle.
Since 2018 we have been growing and
diversifying our underwriting portfolio,
taking advantage of market conditions
that have been improving each year.
The intention of this strategy has been to build out a more robust
portfolio that allows us to better absorb the inherent volatility of
the business we underwrite. Whilst we have seen continued rating
momentum over the past five years, there was a more marked
improvement in trading conditions in 2023 and this allowed us to
continue to deliver on our strategy. We are clearly seeing the benefits
of the investments in our business we have made alongside the improved
market conditions in our 2023 underwriting result. All classes within our
underwriting portfolio have contributed to an exceptional underwriting
result with an undiscounted combined ratio of 82.6%, which results in
an insurance service result of $382.1 million.
Paul Gregory
Group Chief Underwriting Officer
14
Lancashire Holdings Limited | Annual Report & Accounts 2023
It is these strong market conditions, as well as the continuing maturity
of newer lines of business that have allowed us to grow premiums by
16.9% to $1.9 billion – a record high for the Group. Since the turn of
the market in 2018 we have more than tripled our premiums, matching
our long-held strategy of managing the cycle. Whilst we anticipate a
more stable market in 2024, we again expect to grow our underwriting
footprint, supported by the creation of Lancashire U.S.. This is an exciting
next development for the Group, and a good example of the continued
investment in people within the underwriting function. It will be
spearheaded by Huw Jones as the CEO of that operation as he moves
from his role of Group Head of Specialty. We have a long tradition
of promoting from within to strengthen our underwriting team and this
continues to be a vital part of our continued success. Complementing
this, we continue to hire quality individuals externally to bring new
thoughts and ideas as our underwriting function evolves.
The dynamics across all our business segments have varied and we
cover these more specifically in the analysis that follows.
Loss activity from natural catastrophes continued around the world
in 2023, creating devastating consequences for those affected and
leading to significant economic and insured losses. It was another year
where estimated insured losses from natural catastrophes were above
$100 billion, ranging from the earthquake in Turkey and Syria, hurricanes
in Mexico, cyclones in Asia, to wildfires and severe convective storms
in the U.S. and storm activity in Europe. Given the changes to our
catastrophe exposed products in rating, attachment levels and structure
we have been able to produce profitable underwriting returns despite
a reasonably large amount of loss occurrences and cost.
The geopolitical tensions of 2022 continued throughout 2023. The
conflict in Ukraine continues with little sign of relenting, and the conflict
between Israel and Gaza adds to increased tensions in the Middle East.
Events such as these have far-reaching humanitarian and economic
consequences and undoubtedly bring loss exposure to the (re)insurance
market. The financial impact to (re)insurers remains uncertain, also
bringing with it a number of challenges and complexities for the
broader market and Lancashire. Whilst we have exposure to such
events, this has remained very manageable and within our risk
tolerances and expectations.
The market conditions in 2023 have been the most favourable we
have seen in over 10 years. The underwriting environment was very
supportive, as demonstrated by a portfolio RPI of 115%. Every class of
business delivered a positive year-on-year rate increase. For the majority
of product lines 2023 was the sixth straight year of positive rating. Given
that the market has struggled to make adequate underwriting returns
over the past few years this adjustment was needed.
“Strong market conditions, as well as the continuing maturity
of newer lines of business, have allowed us to grow premiums
by 16.9% to $1.9 billion – a record high for the Group.”
Segment
Reinsurance
Insurance
Total
Gross premiums written $m
Insurance revenue $m
RPI
2023
967.5
964.2
2022
842.1
810.2
1,931.7 1,652.3
2022
Variance
2023
714.9
560.4
125.4
805.0
154.0
666.1
279.4 1,519.9 1,226.5
Variance
154.5
138.9
293.4
2023
2022
122% 108%
110% 108%
115% 108%
Lancashire Holdings Limited | Annual Report & Accounts 2023
15
Strategic report Underwriting review continued
Reinsurance
Our reinsurance segment contains casualty reinsurance, property
reinsurance and specialty reinsurance. There has been significant
premium growth during 2023 of approximately 14.9%, with an
RPI of 122%. This was expected given the continued build-out of
casualty reinsurance and the strong rating environment for property
and specialty reinsurance.
Casualty reinsurance comprises casualty, professional and financial
lines, and accident and health reinsurance. The rating environment for
all these sub-classes has been broadly stable with an RPI of 101%.
Growth came from the continued maturity of the casualty sub-class and
professional and financial lines sub-classes. For the casualty sub-class
we are now close to a mature portfolio and if market conditions remain
broadly stable then we will not see the same levels of growth we have
seen in prior years. We understand that the inflationary and recessionary
environment can bring challenges to some of these longer tail classes.
Having entered these classes very recently, we have no legacy portfolio,
where reserve deterioration can become a negative drag on results, and
rating levels remain at historical highs. Whilst old casualty years written
before our entry into the class have no direct impact on our portfolio,
we continually review loss trends to ensure we are satisfied with the
underlying margin of our book. Our underwriting and reserving approach
to these lines will remain prudent as we build out this portfolio.
Property reinsurance comprises our catastrophe-exposed reinsurance
classes, as well as our excess of loss risk and other property treaty
portfolios. As anticipated, we saw a very dislocated market in 2023;
this is seen in the RPI of 134% for property reinsurance. There was a real
disconnect between demand and supply which resulted in hard market
conditions. Inflationary pressure pushed demand whilst supply was
restricted as carriers pulled back risk levels following multiple years
of inadequate returns. As significant as rate change was, the changes to
product structure and attachment levels meant the reinsurance product
moved toward one of balance sheet protection rather than an earnings
protection for buyers. This means that cedants have to retain more risk
before their reinsurance coverage is triggered. For reinsurers this
insulates the portfolio from the frequency of small to mid-size losses.
The value of these changes in structure was seen in underwriting results
during 2023. Despite a reasonable amount of loss activity, the majority
of losses were small to mid-size, with less impact to reinsurance products
than there would have been in prior years. In line with the Group’s
overall appetite for catastrophe risk, our aim was to keep net catastrophe
risk broadly stable year on year whilst optimising the portfolio. The hard
market conditions allowed us to achieve this objective in 2023. In 2024,
we will continue to optimise the portfolio, and anticipate a more stable
rating level.
Specialty reinsurance comprises our reinsurance offering for classes
such as aviation, marine and energy, as well as our property retrocession
portfolio. The rating environment across all of the sub-classes remained
positive during 2023, with an RPI of 138%. We continue to build out
our specialty treaty account in areas such as energy, marine and political
violence, adding to the already well-established sub-classes of aviation
reinsurance and property retrocession. Much like our property
reinsurance class, our risk appetite for the property retrocession
sub-class was broadly stable as we look to maintain the Group’s
natural catastrophe footprint. In line with the market our retrocession
portfolio increased in attachment point which insulated it from natural
catastrophe losses during 2023, yielding profitable underwriting results.
We have seen significant hardening in the aviation reinsurance market
as prior year market losses have deteriorated and capacity from a
number of carriers reduced. In the specialty classes we had modest
exposure to events, such as political unrest in the Middle East and
some large energy losses.
Insurance
Our insurance segment includes aviation insurance, casualty insurance,
energy and marine insurance, property insurance and specialty insurance.
We have seen another year of growth opportunities across this segment
with rates positive across all classes. The insurance segment RPI for 2023
was 110% with premium growth of approximately 19.0%. A combination
of the positive rating environment, inflationary pressure increasing values
at risk and the continued build out of new teams has contributed to the
growth we have seen in 2023.
Aviation insurance saw a less dramatic year than 2022. As a result of
the uncertainties arising from the Russia / Ukraine conflict the aviation
market hardened again during 2023 as is demonstrated by an RPI of
112%. The aviation industry itself continues to successfully rebound
strongly from COVID-19, with passenger demand continuing to climb
globally which aids demand for the product. Within our portfolio there
are sub-classes that are broadly stable from a rating perspective, given
rates have increased steadily over the past five years but remain at
healthy levels. War/terrorism exposed products have continued to
see meaningful increases in rating levels, which skews the overall RPI
positively. We remain underweight within certain segments of the
aviation portfolio where rating is inadequate for a broader risk appetite.
Should market conditions change, we would broaden our appetite, in
line with our overall underwriting strategy.
16.9%
increase in gross premiums written
16
Lancashire Holdings Limited | Annual Report & Accounts 2023
Casualty insurance is a small segment of the business and comprises
our accident and health insurance sub-class and a small amount of
professional lines insurance which is adjunct to our casualty reinsurance
class. Market conditions remain positive with an RPI of 102%.
Energy and marine insurance provides products across the spectrum
of the marine and energy sectors. The rating environment has remained
positive, with an RPI of 107% for 2023. Whilst each product was driven
by its own dynamics, all saw rate increases.
The challenges of inflation, volatile commodity prices and political unrest
remain. Both the marine and energy industries have long been exposed
to these risk factors, which we always consider in our underwriting
decisions when assessing risk. Importantly, we consider such events
both in terms of risk, as well as potential opportunity. Growth in our
cargo book, for example, has been aided not only by rate improvement
but also by the value of goods and commodities in transit rising which
increases the values at risk and also the demand for the product and
associated premium volumes. And within certain classes such as
upstream energy, there remains an abundance of insurance capacity
due to relatively low insured losses.
We continue to expand our knowledge and underwriting expertise to
support the transition within the energy sector, in line with our stated
strategy. The industry needs to evolve by offering products and services
that cater to the changing risks our clients face. Insurance will continue
to be a key risk management tool for the industry, supporting global
net-zero goals and the wider transition. Please see the ESG report
starting on page 41 for more information.
Property insurance comprises property direct and facultative
insurance and construction insurance. Trading conditions have been
very favourable with an RPI of 117% which is the highest within the
insurance segment. Premium growth in property insurance this year has
been driven by the favourable rating environment, inflationary pressures
increasing demand, and significantly reduced capacity for natural
catastrophe exposed risks. We anticipated favourable market conditions
but our expectations were surpassed with more rate and demand flowing
through. Our property offering in Australia has continued to mature well
as market conditions have been supportive. We anticipate similar success
in the U.S. with property insurance being a cornerstone product offering
of this new venture. The construction team continued their impressive
development since joining the Group with favourable market conditions
allowing us to develop this class ahead of expectations. Attractive
market conditions continue to support our property insurance segment
in 2024 and this combined with the opening of the U.S. operation should
provide ample profitable growth opportunities.
“ We almost certainly have the
most robust underwriting portfolio
in our history.”
Specialty insurance comprises our terrorism, political violence and
political and sovereign risks sub-classes. Following the conflict in
Ukraine last year, the terrorism and political violence market saw rate
improvement in 2023 – the first year for many years that has happened.
The RPI of 102% is driven by the positive rate change in terrorism and
political violence sub-classes. The world continues to be an extremely
volatile place amplified in 2023, with the continuation of the conflict in
Ukraine and the conflict in Israel and Gaza both adding further pressure
to global geopolitical tensions. We continue to navigate these challenges
in our underwriting and to date any losses have been very manageable.
As ever we remain vigilant to the ever-changing risk landscape and how
this should influence our underwriting decisions. The political and
sovereign risk portfolio is predominantly non-renewable business and
therefore is not subject to RPIs but the rating levels remain strong
against this backdrop, and the higher-interest rate environment has
seen improvement in the underlying terms and conditions. We have
delivered strong premium growth in these classes with a number of
new opportunities. The outlook for 2024 is currently relatively stable
from a rating perspective but, as the broader landscape remains volatile,
this is a class that could change quite quickly.
We are extremely proud of what the underwriting team achieved
in 2023. We almost certainly have the most robust underwriting
portfolio in our history. Rating adequacy in almost all of our products
is in a very strong position. The successful diversification of product lines,
investment in our underwriting team and growth at the right time in the
market cycle has created an excellent foundation to continue to develop
our underwriting footprint in the coming years.
We have always said that underwriting is a team sport, and the
exceptional underwriting result in 2023 is because of the underwriters
and all those across the business that support them in delivering
together as a team.
Lancashire Holdings Limited | Annual Report & Accounts 2023
17
Strategic report Business review
Underwriting results
James Irvine
Group Chief Underwriting Officer
– Reinsurance
James Flude
Group Chief Underwriting Officer
– Insurance
For the year ended
31 December 2023
31 December 2022
Gross premium written
RPI
Insurance revenue
Insurance service expenses
Insurance service result before reinsurance
contracts held
Allocation of reinsurance premium
Amounts recoverable from reinsurers
Net expense from reinsurance contracts held
Insurance service result
Net insurance ratio
Other operating expenses
Combined ratio (discounted)
Combined ratio (undiscounted)1
Reinsurance
$m
967.5
122%
714.9
(254.2)
460.7
(174.6)
(78.2)
(252.8)
207.9
61.5%
Insurance
$m
964.2
110%
805.0
(442.0)
363.0
(250.2)
61.4
(188.8)
174.2
68.6%
Reinsurance
$m
842.1
108%
560.4
(528.3)
32.1
(152.7)
140.0
(12.7)
19.4
95.2%
Insurance
$m
810.2
108%
666.1
(466.3)
199.8
(219.1)
141.5
(77.6)
122.2
72.7%
Total
$m
1,931.7
115%
1,519.9
(696.2)
823.7
(424.8)
(16.8)
(441.6)
382.1
65.1%
9.8%
74.9%
82.6%
Total
$m
1,652.3
108%
1,226.5
(994.6)
231.9
(371.8)
281.5
(90.3)
141.6
83.4%
6.8%
90.2%
98.7%
1. The combined ratio (discounted and undiscounted) is the ratio, in per cent, of the sum of net insurance expense plus all other operating expenses to net insurance revenue.
Gross premiums written
Gross premiums written increased by $279.4 million or 16.9% during
2023 compared to the same period in 2022. Excluding the impact of
reinstatement premiums and multi-year contracts, underlying growth in
gross premiums written was 17.8%. The Group’s two principal segments,
and the key market factors impacting them, are discussed below.
Reinsurance segment
The increase in the reinsurance segment was primarily driven by new
business in the casualty reinsurance classes as well as the continued
successful build out of our specialty reinsurance classes in a strong
rating environment. The property reinsurance classes also benefited
from strong RPIs and new business, albeit these were somewhat offset
by a lower level of reinstatement premiums than in 2022 due to higher
catastrophe losses in that year. Overall, the RPI was 122% for the
reinsurance segment up from 108% in the prior year.
Insurance segment
The increase in the insurance segment was primarily due to strong
growth in our property insurance lines of business, which include
property direct and facultative and also property construction. In these
classes we are seeing the benefit of a strong rating environment and also
a more mature book of business following the decision to add new teams
in recent years. Gross premiums written in the energy and marine lines
also increased meaningfully with new business across all lines of business
and rate and exposure increases in power and energy liabilities classes.
To a lesser extent, new business contributed to growth across all of our
casualty insurance lines of business. Rate and exposure increases were
the driver of growth in aviation insurance. Overall, the RPI was 110% for
the insurance segment.
18
Lancashire Holdings Limited | Annual Report & Accounts 2023
Insurance revenue
Insurance revenue comprises gross premiums earned less inwards
reinstatement premium, and is net of commission costs. Insurance
revenue increased by $293.4 million or 23.9% in 2023 compared to the
same period in 2022. The market factors driving the increase in casualty
reinsurance, property insurance and energy and marine insurance gross
premiums written also drove the increase in insurance revenue
recognised in the period.
Allocation of reinsurance premiums
Allocation of reinsurance premiums comprises ceded earned premium
less outward reinstatement premiums, and is net of outward commission
costs. Allocation of reinsurance premiums increased $53.0 million or
14.3% in 2023 compared to the prior year. This increase was largely
the result of the rate increases experienced upon renewal of the Group’s
outwards reinsurance programme, additional cover purchased for
some of the newer lines of business and a higher level of quota share
reinsurance spend driven by the growth in insurance revenue. Overall
the allocation of reinsurance premiums as a percentage of insurance
revenue was 27.9% down from 30.3% in the prior year.
Net claims
During 2023, the Group experienced net losses (undiscounted, including
reinstatement premiums) from catastrophe, weather and large loss
events totalling $106.1 million. None of these events were individually
material for the Group.
In comparison, during 2022, the Group experienced net losses
(undiscounted, including reinstatement premiums) from catastrophe,
weather and large loss events of $329.4 million. Within this, catastrophe
and weather related losses for the year ended 31 December 2022, were
$232.4 million. This included $181.0 million from hurricane Ian. Large
losses for the year amounted to $97.0 million.
Prior year development comprises the undiscounted movement in loss
reserves, expense provisions and reinstatement premiums. Favourable
development was $78.8 million in 2023 compared to favourable
development of $134.3 million in 2022. In 2023, there were reductions
in reserves for some of the 2022 natural catastrophe events. The 2022
year included reserve reductions from natural catastrophe loss events in
the 2019 and 2018 accident years as well as relatively large beneficial
claims settlements on risk losses in the 2017 accident year.
Net discounting benefit
The table below shows the total net impact of discounting, by financial
statement line item.
For the year ended 31 December 2023
Initial discount included in
insurance service result
Unwind of discount
Impact of change in
assumptions
Finance (expense) income
Total net discounting
income
For the year ended 31 December 2022
Initial discount included in
insurance service result
Unwind of discount
Impact of change in
assumptions
Finance income (expense)
Total net discounting
income (expense)
Insurance
contracts issued
$m
Reinsurance
contracts held
$m
101.9
(84.2)
(14.1)
(98.3)
3.6
(17.2)
28.4
3.3
31.7
14.5
Insurance
contracts issued
$m
Reinsurance
contracts held
$m
109.1
(39.7)
59.8
20.1
(36.6)
13.7
(20.4)
(6.7)
129.2
(43.3)
Total
$m
84.7
(55.8)
(10.8)
(66.6)
18.1
Total
$m
72.5
(26.0)
39.4
13.4
85.9
In 2023 discount rates across all our major currencies were at a relatively
high level throughout the year with a small decrease in the fourth
quarter. This drove the high initial discount impact and relatively low
change in assumption impact.
In comparison, 2022 began in a relatively low discount rate environment,
which then experienced significant increases across all currencies
throughout the year. This increase in rates resulted in a favourable
$39.4 million impact from the change in discount rate assumptions.
This was only partly offset by $26.0 million unwind of the initial discount
previously recognised in relation to prior accident years that had been
set in a lower rate environment.
Lancashire Holdings Limited | Annual Report & Accounts 2023
19
Strategic report Business review continued
Investment results
Denise O’Donoghue
Group Chief Investment Officer
Investments and liquidity
Since inception, the primary objectives for our
investment portfolio have been capital preservation
and liquidity, and we position our portfolio to limit
down-side risk in the event of market shocks. Those
objectives remain unchanged and are more important
than ever in today’s volatile markets. The year started
with elevated yields, which only continued
throughout the year, finishing with a 5.7% return.
The higher yield environment was a positive for
the reinvestment of income, maturities and sales
of securities. While rates were higher, there was
continued volatility with respect to geopolitical
tensions around the world and risk of a U.S. recession,
given the inverted yield curve. However, despite the
inverted yield curve, fundamentals remain strong
in the U.S. and recession risk has reduced toward
the latter part of the year. Given the volatility
and inverted yield curve, we remain cautious
but will look to modestly increase duration in
the first half of 2024. We will continue to maintain
a short, high credit quality portfolio with some
portfolio diversification to balance the overall
risk-adjusted return.
Our portfolio mix illustrates our conservative
philosophy, as shown in the chart below.
Investment performance
Net investment income, excluding realised and
unrealised gains and losses, was $108.5 million in
2023, an increase of 94.8% compared to 2022. Total
investment return, including net investment income,
net realised gains and losses and net change in
unrealised gains and losses, was $160.5 million in
2023 compared to a loss of $76.7 million in 2022.
In a year of continued volatility, the investment
portfolio generated an investment return of 5.7%.
The returns were driven primarily from investment
income given the higher yields during the year. While
the Federal Reserve raised rates by 1.0% this year,
the higher yields and tighter spreads mitigated any
losses on the portfolio. In addition, the risk assets,
notably the bank loans, hedge funds and private
credit, all contributed positively to the overall
investment return.
In 2022, the investment portfolio generated a
negative return of 3.5%. The returns were driven
primarily from interest rate increases and the
widening of credit spreads, resulting in losses in
all asset classes, most of which were unrealised.
Conservative portfolio structure – quality
Asset allocation
Total investment portfolio and managed cash
Credit quality
Fixed maturities and managed cash
Other government
bonds and agency debt:
3%
Private investment funds: 6%
BB or
below: 6%
BBB:
15%
U.S.
government
bonds and
agency debt:
24%
Managed cash and
short term securities:
13%
Duration
1.6 years
Corporate and
bank loans:
40%
Average credit
rating of AA-
A:
23%
AAA:
19%
AA:
37%
Non-agency
structured products:
10%
Agency structured products:
4%
20
Lancashire Holdings Limited | Annual Report & Accounts 2023
Other financial information
Hayley Johnston
Chief Executive Officer,
Lancashire Insurance Company
Limited and Reinsurance Manager
John Cadman
Group General Counsel and Chief
Executive Officer, Lancashire
Insurance Company (UK) Limited
John Spence
Chief Executive Officer,
Lancashire Syndicates Limited
Other operating expenses
For the year ended 31 December
Operating expenses – fixed
Operating expenses – variable
Total operating expenses
Directly attributable expenses
allocated to insurance service expenses
Other operating expenses
2023
$m
147.9
41.7
189.6
(82.2)
107.4
2022
$m
118.9
9.8
128.7
(70.4)
58.3
A significant driver of the increase in operating expenses is the increase
in variable costs related to remuneration of $31.9 million given the
strong financial performance of the Group. Fixed expenses have
increased by 24.4% or $29.0 million largely due to the Group’s growth
and subsequent impact on headcount. IT and consulting expenses also
increased during the year as we focused on upgrading our systems and
data capabilities.
For the year ended 31 December 2023, $82.2 million of operating
expenses were considered directly attributable to the fulfilment of
(re)insurance contracts issued, and have therefore been re-allocated to
insurance service expenses and form part of the insurance service result.
This compares to $70.4 million in 2022.
Bermuda corporate income tax
During 2024, the Group will continue to assess the potential impact of
the Economic Transition Adjustment introduced by the recent Bermuda
Corporate Income Tax legislation. Based on its current plans, the Group
does not anticipate that it will become subject to Bermuda corporate
income tax until 1 January 2030, as it expects to fall within the exclusion
within the Bermuda corporate income tax rules that means groups with
a limited international presence are excluded from scope for a period of
up to five years.
Capital
As at 31 December 2023, total capital available to Lancashire was
approximately $2.0 billion, comprising shareholders’ equity of
$1.5 billion and $0.5 billion of long-term debt. Tangible capital was
$1.8 billion. Leverage was 22.8% on total capital and 25.2% on tangible
capital. Total capital and total tangible capital as at 31 December 2022
was approximately $1.8 billion and $1.6 billion respectively.
Share repurchase
During the period commencing 22 November 2023 and ending on
29 February 2024, the Company had authorised a share repurchase
programme of its common shares of $0.50 each up to a maximum
consideration of $50 million. No shares were repurchased under the
programme. No other share repurchase programmes were conducted
during the year ended 31 December 2023.
Dividends
Lancashire’s Board of Directors has declared a special dividend of $0.50
per common share (approximately £0.39 per common share at the
current exchange rate), which will result in an aggregate payment of
approximately $119.0 million. The dividend will be paid in Pounds
Sterling on 12 April 2024 (the “Dividend Payment Date”) to shareholders
of record on 15 March 2024 (the “Record Date”) using the £ / $ spot
market exchange rate at 12 noon London time on the Record Date.
Lancashire also announces that its Board of Directors has declared a
final dividend of $0.15 (approximately £0.12) per common share, subject
to a shareholder vote of approval at the AGM to be held on 1 May 2024,
which will result in an aggregate payment of approximately
$36.0 million. On the basis that the final dividend is approved by
shareholders at the AGM, the dividend will be paid in Pounds Sterling
on 7 June 2024 (the “Dividend Payment Date”) to shareholders of
record on 10 May 2024 (the “Record Date”) using the £ / $ spot
market exchange rate at 12 noon London time on the Record Date.
Lancashire Holdings Limited | Annual Report & Accounts 2023
21
Strategic report Delivering
for our clients
“If our clients are impacted
by a loss, our aim is to
support them in recovering
as quickly and as fairly as
possible. It is our opportunity
to deliver on our promise to
pay, and we strive to do that
consistently across all claims
in a manner that is clear and
transparent to our client and
broker stakeholders.”
Steve Yeo
Group Head of Claims
22
Lancashire Holdings Limited | Annual Report & Accounts 2023
Enterprise risk management
Enterprise risk management
Everyone is a
risk manager
“ Our collaborative risk culture
is driven from the ‘top down’
via the Board and the executive
management team to the business,
with the management Risk
Return Committee central
to these processes.”
Louise Wells
Group Chief Risk Officer
Over the last five years, as Lancashire has
focused on growing in a strengthening
market, our corporate infrastructure has
developed to manage the changing risk
and support our growth.
Lancashire Holdings Limited | Annual Report & Accounts 2023
23
Strategic report Enterprise risk management continued
Effective risk management, underpinned by a strong collaborative risk
culture, has been vital in our success, enabling the business to deliver
on its strategic objective of balancing risk and return through the cycle.
The risk culture starts with us, the employees: everyone is a risk manager
at Lancashire.
During 2023, the risk management function expanded further to ensure
it had sufficient capacity and expertise to drive the development required
and deliver the expanding remit.
Key areas of development in 2023 were the emerging risk process,
more detail on which can be found on page 27; our forward-looking
risk assessments which articulate our opinion on future trends, risk
mitigation requirements and business actions by risk, and our ESG
reporting, both internal and external.
Our ClimateWise report was published on our website for the first
time in August 2023 and our TCFD report, which complements
our ClimateWise report, starts on page 49 of this report.
Geopolitical risk and macro-economic risks have continued to be
a focus during 2023 and that focus will carry over into 2024.
The ongoing conflict in Ukraine, as well as other potential areas of
conflict, and the increasing tensions in the Middle East, are examples
of issues that are closely monitored by the business to seek to ensure
exposure remains within appetite and expectations. As geopolitical
risks can change and evolve rapidly, these are factors that we carefully
consider in our underwriting decisions. Where appropriate, thematic
reviews are performed to provide a more detailed analysis of the risk
and potential impact.
Cyber security risk has also been a key area of focus in 2023 and again
will continue to be so in 2024. Cyber security risk is included within
the principal risk of operational risk, which is discussed on page 31.
Risk strategy
Our risk management strategy remains closely aligned with the
Group strategy, focused on adding value to the business and providing
assurance over both the most material risks and the emerging risks
to the Group. The Board is responsible for managing risk and retains
responsibility for the oversight of risk management activities.
The risk management function, led by the Group CRO, ensures there
is appropriate risk governance and a risk management framework to
support the Board, CEO and Group Executive Committee in managing
risk. It is critical that the risk management framework can adapt to the
changes associated with the delivery of the Group’s strategy. The risk
strategy is updated annually and the associated plan of work is approved
by the Board.
Risk management framework
The Group takes an enterprise-wide approach to managing risk. The
primary objective being to ensure that the capital resources held are
matched to the risk profile of the Group and that the balance between
risk and return is considered as part of all key business decisions. The
Group risk management framework sets out our approach to identifying,
assessing, mitigating, and monitoring the principal risks the Group faces.
The diagram on page 25 illustrates how the various parts of the risk
management framework come together to form Lancashire’s overall
Own Risk and Solvency Assessment (ORSA) process.
Our ORSA process is an ongoing analysis of the Group's risk profile and
its capital adequacy to support the business strategy over the business
plan horizon. The key activities within this process consider how the
financial and principal risks to which we are exposed may change over
the planning cycle, what drives these changes, and how resilient the
Group's resources are to a range of extreme but possible events. As
such, it is a key business management tool which is used to inform
key business decisions.
The ERM and ORSA activities are underpinned by our risk culture and
governance. Our collaborative risk culture is driven from the ‘top down’
via the Board and the executive management team to the business,
with the management Risk Return Committee central to these processes.
The RRC is the key management tool for monitoring and challenging the
assessment of risk on a regular basis. It seeks to optimise risk-adjusted
returns and facilitate the appropriate use of the Group's internal models,
including considering their effectiveness. Risk culture is also driven from
the ‘bottom up’ through the risk and control affirmation process. The
primary role of the Group CRO is to facilitate the effective operation
of ERM and the ORSA processes throughout the Group and to provide
day-to-day oversight and challenge on risk-related issues.
24
Lancashire Holdings Limited | Annual Report & Accounts 2023
ERM & ORSA
Key activities
Strategy review & challenge
• Review of business strategy with challenge from the Board
• Annual approval of a business strategy paper by the Board
• Development of ESG strategy and framework
Risk solvency & assessment
• Group CRO reports to
Board and Group
Executive Committee
• Production of quarterly
ORSA report for review
and approval by the Board
Capital management
• Capital and liquidity
management frameworks
• Review of internal model
policies, capital and
solvency appetites
• Full/proxy capital assessments
• Rating agency
capital assessments
• Stress and scenario testing
• Board quarterly review of
capital needs, headroom
and actions
Strategy review
& challenge
C u l ture &
Board
RRC
Govern a n c
e
Risk
identification
& assessment
Risk appetite
& tolerances
Risk
solvency &
assessment
Capital
management
Risk & business
management
Business
planning
Risk & business management
• Review of risk
management policies
• Assessment of
risk management
framework maturity
•
Integrated assurance
assessment
Business planning
• Stress and scenario
testing (business plan)
• Assessment of
management actions
• Group CRO review
of business plan
• Board business
• Emerging risk assessment
performance review
• ESG framework and strategy
• Board consideration of
• Review and approval of
business plan by the Board
stakeholder engagement
Key elements of ORSA
Board sign-off and embedding
Business strategy
Risks
Capital and solvency
Stress and scenario testing
Risk identification & assessment
• Quarterly risk and
control affirmations
• Quarterly emerging
risk working group
• Quarterly internal audit
reports to the Audit
Committee providing an
update on work performed
and analysis of root causes
of audit findings
• External audit reports to
the Audit Committee
• Audit Committee annual
review of the effectiveness
of financial controls
• Monthly CCWG
• Monthly ESG Committee
Risk appetite & tolerances
• Review of risk strategy and
‘attitude to risk’
• Review and measurement
of risk appetite and limits
• Review of Group
risk tolerances
• Management, Board and
subsidiary board approval
and monitoring of risk
appetite and tolerances
The ORSA processes are ongoing and operate throughout the year, with
the annual ORSA report summarising their outcome for management
and the Board on an annual basis. The quarterly ORSA update report
provides the Board with a point in time update on the key activities
listed above and the challenge provided by the Group CRO.
Risk governance is a major component of the overall risk management
framework and provides for clear roles and responsibilities in the
oversight and management of risk. It also provides a framework for
the reporting and escalation of risk and control issues across the Group.
Lancashire operates a three lines of defence governance model, which
is highlighted overleaf.
Lancashire Holdings Limited | Annual Report & Accounts 2023
25
Strategic report Enterprise risk management continued
Three lines of defence – governance framework
Key
Committee of the Board
Management Committee
Key Control Function
LHL
Board
Risk Return
Committee
Audit
Committee
Risk
Compliance
Actuarial
Internal Audit
Investment
Committee
Underwriting
& Underwriting
Risk Committee
Nomination,
Corporate
Governance &
Sustainability
Committee
Remuneration
Committee
Executive Management Committee
Investment Risk & Return Committee
View of Risk Committee
Reserving Committee
Reinsurance Security Committee
ESG Committee
Broker Vetting Committee
New Business Committee
Underwriting & Marketing Conference Call
1st line of defence
2nd line of defence
3rd line of defence
Risk owners within each business
function are responsible for promoting
a strong risk culture, managing their
risks within risk appetite and ensuring
the effectiveness of their controls.
Provides expert advice, challenge
and guidance together with providing
independent oversight to the first line
of defence to help ensure that risk taking
remains within risk appetite. Includes the
risk, compliance and actuarial functions,
reporting to the RRC via the CRO.
The internal audit team provides
independent assurance to the
Audit Committee, by assessing the
effectiveness of our risk management
processes and that risk controls are being
managed in line with approved policies,
appetite, frameworks and processes,
and helps verify that the internal control
system is effective. The Head of Internal
Audit reports to the Board Audit
Committee on internal control
framework issues.
26
Lancashire Holdings Limited | Annual Report & Accounts 2023
The Board retains responsibility for all risk within the Group and is
responsible for setting and monitoring the Group’s risk appetite and
tolerances, whereas the individual entity boards are responsible for setting
and monitoring entity-level risk tolerances. Risk tolerances represent the
maximum amount of capital, generally on a modelled basis, that the Group
and its entities are prepared to expose to certain risks. The Group’s appetite
for risk will vary marginally from time to time to reflect the potential risks
and returns that present themselves. However, protecting the Group’s
capital and maximising risk-adjusted returns for investors over the long
term are constants. All risk tolerances are subject to at least an annual
review and consideration by management and the respective boards. The
Board and individual entity boards review actual risk levels versus tolerances,
emerging risks, loss event and near miss reporting, key risk indicators, and an
overview of the control environment (driven by key control testing and
control affirmations, and supported by internal audit findings) at least
quarterly. In addition, on at least a monthly basis, management assesses
our PMLs against risk tolerances to ensure that risk levels are managed
in accordance with them.
The Group CRO provides regular reports to the management team
outlining the status of the Group's ERM activities and strategy, as
well as formal reports to the Board.
The Group CRO reports to the Chair of the Board and Group CEO
but ultimately has the right to report directly to the Group and entity
regulators if they feel that management is not appropriately addressing
areas of concern regarding the Group as a whole or any of the individual
operating entities.
Emerging risk
Lancashire defines emerging risk as a change in, or change in
understanding of, the internal or external risk environment that
could impact the validity of assumptions relating to strategy,
decision-making and/or risk management approach. An emerging
risk can arise in three ways:
Emerging risk process
We continue to perform a quarterly risk and control affirmation process
whereby the operation of all key controls is affirmed by the control
operators and then reviewed and approved by the risk owners. In
addition, the risk owners are required to affirm that their risks remain
appropriately documented and scored. The risks are scored on both a
gross basis (i.e., inherent risk pre-controls) and a net basis (i.e., residual
risk post the application of controls). The output from this process is
reported to the RRC and the Group and operating subsidiary audit
and risk committees or boards of directors as appropriate.
As at 31 December 2023, all Group entities were operating within
their Board-approved risk tolerances.
The quarterly ORSA reports prepared by the Group CRO to the Group
and subsidiary boards provide a timely analysis of current and potential
or emerging risks, compared against risk tolerances, along with their
associated capital requirements.
The 2024 annual ORSA report will be presented to the Board for review,
challenge and approval at the Q1 2024 Board meeting. The equivalent
reports for the operating subsidiaries will also be presented to their
boards for review, challenge and approval during Q1 2024. As a Lloyd’s
managing agent, LSL falls within the Society of Lloyd’s for Solvency II
reporting, preparing ORSA reports for each syndicate. LSL has its own
ERM framework to ensure it operates in line with the principles for
doing business at Lloyd’s.
• A genuinely new source of risk that has not existed before;
• A change in the way that an already identified risk can manifest
which may not be adequately managed through Lancashire’s
current risk management procedures; or
• A change in understanding of an already identified risk.
k
s
i
R
n
o
i
t
a
c
i
f
i
t
n
e
d
i
n
o
i
t
a
g
i
t
s
e
v
n
i
k
s
i
R
t
n
e
m
s
s
e
s
s
a
&
n
o
i
t
a
g
i
t
i
m
k
s
i
R
g
n
i
r
o
t
i
n
o
m
&
Emerging risk identified by the
business / ER forum
Risk Mgt. team horizon
scanning
Compliance team regulatory
horizon scanning
Regulatory-driven
investigations
Emerging Risk Identified
RM team-coordinated investigation
& provisional risk scoring
Engage with subject matter experts
RM research
lnput from ER forum
(as appropriate)
Revised risk scoring indicates materiality & required action
Stress & scenario
Business-agreed action
to mitigate risk
development
Stress & scenario
development
Risk level accepted, no
further action required
Action ongoing: “developing risk”
Outcome recorded into
emerging risk log
Emerging risk incorporated into BAU and action closed
Lancashire Holdings Limited | Annual Report & Accounts 2023
27
Strategic report
Principal risks
The process by which emerging risks are identified, investigated, assessed and reported is illustrated in the diagram on the previous page.
A growing number of emerging risks are identified by the business and the emerging risk forum run by the risk management function, a Group-wide
forum with cross-functional membership. A detailed log of all emerging risks identified is maintained including the anticipated impact, likelihood,
time horizon, velocity, longevity, risk sector, risk type and any actions required.
The top emerging risks for the Group are recorded on our emerging risk radar and discussed with risk owners, executive committees, the Board
and entity boards of directors each quarter. The emerging risk radar is therefore subject to an iterative process of review and oversight. Examples
of emerging risks discussed by the Board during the year include: climate change, operational strain (driven by growth), geopolitical risk, inflation,
tax and regulatory change, OECD global minimum tax and Bermuda corporate income tax, and cyber security risks.
Thematic reviews were performed during the year on potential geopolitical areas of conflict and on the potential impact of the OECD minimum
global tax and Bermuda corporate income tax.
Principal risks
Current assessment of principal risks
d
o
o
h
i
l
e
k
i
l
g
n
i
s
a
e
r
c
n
I
The Board evaluated the risks disclosed, alongside other factors, in the
assessment of the Group’s viability and prospects as set out in the going
concern and viability statement in the Directors’ report at page 118.
Given the broad reach of climate change and the risks associated with it,
we concluded these risks are most appropriately managed by including
their impact through existing principal risks, rather than a separate
climate change principal risk. The impact of climate change is therefore
covered in the following principal risks: underwriting, investment,
operational and strategic.
1
2
5
3
4
6
4
Key
Principal risk
1
2
3
Underwriting
4
(Re)insurance counterparty
Investment and Liquidity
5 Operational
Reserving
2023
6
Strategic
2022
Increasing financial and non-financial consequences
28
Lancashire Holdings Limited | Annual Report & Accounts 2023
Principal risks
Principal risk category/risk owner
Underwriting
UURC
Risk description and performance
Inadequate pricing of risk resulting
in insufficient premium to cover
any losses arising.
Failure to monitor exposure
accurately such that losses
exceed expectation.
Our underwriting performance
is discussed on page 14.
Our RPI for the insurance and
reinsurance segments was
122% and 110% respectively.
We remained within tolerance
for all PMLs and RDSs during 2023.
Key mitigating actions
We define our underwriting risk appetite and set risk tolerances as a
percentage of capital we are willing to risk for both natural catastrophe
events and man-made disasters.
PMLs for natural catastrophe perils are modelled monthly, and RDSs
for non-elemental perils are updated quarterly. Both are provided to
the RRC for review.
We model our portfolio against Lloyd’s RDS to assess potential losses.
We apply loads to and stress test stochastic models and develop
alternative views of losses using exposure damage ratios. We review
assumptions periodically to ensure they remain appropriate.
We use our RPI measure to track trends in premium rates for our
renewed business.
The RRC considers accumulations, clashes and parameterisation
of losses and models.
Underwriters’ have individual underwriting authorities they must
comply with.
Reinsurance is purchased to manage exposure and protect our
balance sheet.
Investment & liquidity
Investment Committee
We stress our portfolio to understand the impact of a range of realistic
loss scenarios including risk-on, risk-off and interest rate hike scenarios.
Risk description and performance
The risk of insufficient liquid
assets to pay claims when due.
The Group continues to have
excess liquidity compared to
tolerance and remained within
investment guidelines.
A biannual strategic asset allocation study is performed, the
recommendations from which are discussed at the Investment
Committee and presented to the Board for approval.
The IRRC meets quarterly and reports to the RRC and to the Investment
Committee via the CRO.
External investment managers are used to manage the portfolios.
The Group’s principal investment managers are signatories to the
UN Principles for Responsible Investment.
How the Board reviews this risk
The Board delegates oversight of
underwriting risk to the UURC. See
page 96 for how the committee
discharged its responsibilities in
this area. Management reports to the
UURC on underwriting performance,
strategy and risk tolerances.
The Board is engaged in the
development and implementation
of the Group’s underwriting
strategy, including the potential
risks to this such as geopolitical
risks and climate-related physical,
transition and litigation risks. The
Board reviews and approves the
underwriting risk appetite, the risk
tolerances and the structure of the
outwards reinsurance programme
on an annual basis.
The Board reviews performance
against risk tolerances on a
quarterly basis.
The Board delegates oversight of
investment risk to the Investment
Committee. See page 94 for how
the committee discharged its
responsibilities this year.
Management reports to the
Investment Committee on
investment performance, strategy
including asset allocation, and
risk tolerances.
The Investment Committee receives
and reviews the investment strategy,
guidelines and policies, risk appetite
and associated risk tolerances and
makes recommendations to the
Board in this regard.
The Committee monitors
performance against risk tolerances,
investment guidelines, carbon
intensity scores and a climate
value at risk measure quarterly.
Lancashire Holdings Limited | Annual Report & Accounts 2023
29
Strategic report Principal risks continued
Principal risks
Principal risk category/risk owner
Reserving
Audit Committee
Risk description and performance
The risk that established
reserves are inadequate
and claims exceed them.
The confidence level of 88%
is within our desired range.
(Re)Insurance and intermediary
counterparty risk
UURC
Risk description and performance
The risk our reinsurance
counterparties are unable
or unwilling to pay us in the
event of a loss.
The risk of mishandling by,
or failure of, our intermediaries.
The Group was within our stated
risk appetite and tolerance during
the year.
Key mitigating actions
Lancashire adopts a conservative reserving approach for all new classes
of business until they are established.
Actuarial and statistical data is used to set estimates of future losses.
These are reviewed by underwriters, claims staff and actuaries to ensure
they reflect the actual experience of the business.
Reserves are reviewed and approved by the Reserve Committee whose
members include representation from finance, actuarial and claims;
there are additional attendees from underwriting, legal and risk.
An independent review by external actuaries of reserve adequacy
is performed twice a year.
Our Broker Vetting Committee is responsible for the broker vetting
approval process and monitoring credit risk in relation to brokers.
Business is conducted using non-risk transfer TOBAs. Monies are held
by brokers in segregated client money accounts.
Board-approved counterparty credit limits are used, reinsurers must
meet minimum rating standards and collateral agreements are used
where appropriate.
The RSC approves counterparties within the framework set and
monitors first loss and aggregate limits against the approved tolerances.
How the Board reviews this risk
The Board delegates oversight
of reserving risk to the Audit
Committee. See page 83 for
how the committee discharged
its responsibilities this year.
Management reports to the Audit
Committee quarterly on reserves
for material new claims,
developments on established
reserves, the reserve margin
and confidence levels.
The Audit Committee receives
and considers the report from
the external actuary on reserve
adequacy. The Committee’s review
is also informed by the work
performed by the external auditor.
The UURC receives quarterly
information from management
with regard to broker distribution.
The CRO reports to the Board
on performance against Board-
approved risk tolerances.
Strategic objectives
Risk trends
Impact trend
Appetite trend
Underwriting comes first
Stable risk
Decreased risk
High
Moderate
Acceptable
Reassess
Increased risk
Low
Unacceptable
Balance risk and return
through the cycle
Insurance market
employer of choice
30
Lancashire Holdings Limited | Annual Report & Accounts 2023
Principal risks
Principal risk category/risk owner
Operational
Audit Committee & Board
Risk description and performance
The risk of inadequate or failed
internal processes, personnel,
systems or (non-insurance)
external events.
The Group did not have any
material operational loss
events during the year.
Key mitigating actions
The Group has a robust quarterly risk and control affirmation process
in place which is supported by detailed control testing.
IT availability risk is mitigated through disaster recovery and business
continuity plans which are tested annually.
IT integrity risk is mitigated through independent penetration tests and
restricting access to key systems to individuals who are qualified and
need to use them.
We have a cyber incident response plan to guide management in the
event a third party gains access to our systems. The annual test of this
is facilitated by a third-party specialist.
KRIs and KPIs are used to monitor performance against our cyber
risk appetite.
Strategic
Board
Risk description and performance
The risk of failing to devise and/or
implement an effective business
strategy that is aligned with risk
appetite and/or not adapting the
strategy/business plan for the
prevailing market conditions.
Strategic opportunities and capital planning are discussed at a
dedicated session attended by all Directors and members of the
management team.
A clear vision and strategic objectives that are well communicated
internally allowing the whole Group to understand their role and
contribution to the whole.
Town halls with all employees to communicate performance against
the strategic objectives.
Succession planning to ensure awareness of the strength in depth, or
lack of, and the necessary action in the event a key role becomes vacant.
How the Board reviews this risk
The Board delegates oversight
of internal controls and risk
management systems to the Audit
Committee. See page 83 for how
the committee discharged its
responsibilities this year. The Board
retains the responsibility for risk
oversight of IT and cyber risk.
The Group CEO and management
team manage the operation of the
business and report to the Board
and its committees.
The Audit Committee receives a
quarterly report form the Group
CRO summarising the results from
the quarterly risk and control
affirmation process and detailed
control testing, along with the
Group CRO’s opinion on the
overall control environment.
The Audit Committee reviews
this alongside the quarterly update
from the Head of Internal Audit.
The Board receives a quarterly
ORSA update report from the CRO
which includes by exception details
of loss events, performance against
operational risk KRIs, and changes
in the risk and control environment.
The COO reports to the Board on
operational matters, including the
programme of change, IT and
cyber security.
The Board retains responsibility for
the oversight of strategic risk. The
Group CEO and management team
lead in the delivery of strategy.
The Directors are involved in
setting the strategy and approve
the annual business plan.
The Board receives quarterly
updates on the Group’s
performance against the plan
in its execution of the strategy.
Lancashire Holdings Limited | Annual Report & Accounts 2023
31
Strategic report Delivering
for our people
94%
of our people say they are
proud to work at Lancashire
“We believe that giving our
people an opportunity to
feedback on their experience
of working at Lancashire is
vital in ensuring we deliver the
best possible environment, in
which colleagues can thrive
and reach their full potential.”
Sarah Rogers
Group Chief Human Resources Officer
32
Lancashire Holdings Limited | Annual Report & Accounts 2023
Our people and culture
A respectful, rewarding
and thriving work environment
Our people strategy helps us deliver one of our key goals –
to make Lancashire an employer of choice.
We are committed to retaining and attracting the best talent across
our markets and focus on delivering a respectful, rewarding and thriving
work environment across our locations.
Lancashire has continued to grow during 2023, and we have
been pleased to welcome a large number of new colleagues to
the business who each bring their own expertise and experiences.
At the heart of this are the Lancashire values (see insider cover).
These are the bedrock of what we do and how we expect our people
to behave whether in the office or outside with clients, brokers and
other stakeholders.
We believe this makes Lancashire both a diverse place to work and
a true catalyst for collaboration.
Total number
of employees
393
(permanent and FTC)
Voluntary annual
employee turnover
7.11%
Permanent employees
eligible for RSS awards
100%
Gender split of employees
Average tenure of employees
61%
39%
%
9
3
%
3
2
<1
1-3
%
6
1
4-6
Years
%
3
1
%
0
1
7-9
10+
% of women
in senior
management
45%
% of women on
the Group Executive
Committee
56%
Average age of employees
A
FE
D
B
C
Key
A:
<20
B:
20-29
C:
30-39
D:
40-49
E:
50-59
F:
60-69
Lancashire Holdings Limited | Annual Report & Accounts 2023
1%
24%
32%
26%
14%
2%
33
Strategic report
Our people and culture continued
Listening to our people
We believe that giving our people an
opportunity to feedback on their
experience of working at Lancashire is
vital in ensuring we deliver the best
possible environment in which colleagues
can thrive and reach their full potential.
During 2023, we carried out a full survey
which was open to all employees in all
locations to complete.
Importantly, the survey was confidential
and carried out on our behalf by a
third-party. This third-party support also
enables us to benchmark our responses to
organisations of a similar size.
Based on our results and the response
rate, Lancashire was awarded a five-star
employer award from the survey company,
which is given to top-performing employers
based on the surveys it runs for hundreds
of clients. Results were collated both for
the Group and for individual functions and
teams with more than five employees.
We are pleased that the response rate was
extremely high at 87%. This was 13 points
higher than the last survey in 2021.
Our overall engagement score was 90%,
an increase of 2% on the last survey and
14 points higher than the benchmark. The
results were presented to the Boards and
Group Executive Committee. Team
managers were also supplied with
local results to allow them to review
and discuss these with colleagues.
Our highest scores were for being proud
to work at Lancashire, at 94%, while 92%
of responders said they are motivated to
do their best work and would recommend
Lancashire as a great place to work.
We welcome the honest and constructive
feedback, and areas that did not score so
highly will be reviewed and action plans
put in place to address these.
The top ten words used by our employees to describe working at
Lancashire are:
Hard-working
Flexible
Focused
Collaborative
Respectful
Positive
Results-orientated
Friendly
Supportive
Ambitious
Engagement
score
90%
Proud to work
at Lancashire
94%
Response
rate
87%
Recommend Lancashire
as a great place to work
92%
34
Lancashire Holdings Limited | Annual Report & Accounts 2023
Positive
Results-orientated
Enhancing support for our people
A top ten employer
Lancashire was named a Top Ten employer in Bermuda in the annual
awards run by the island newspaper Royal Gazette. Lancashire was placed
seventh in the top 10 (out of 30+ participating companies). In 2021,
we came eighth. Our employees in Bermuda were instrumental in
our nomination, showing high levels of engagement.
Delivering leadership
Due to the growth of Lancashire in terms of headcount, management
are aware of the importance of communication to create a sense of
community and understanding.
We encourage a culture of meritocracy and openness, and senior
executives are available to discuss issues with employees on both
a formal and ad hoc basis.
Group CEO Alex Maloney communicates regularly with employees
on Company issues. Quarterly town hall meetings are held for all
colleagues where our progress against our strategic goals is reviewed,
and Group-wide corporate activities are highlighted.
A Non-Executive Director attends these events where they are asked
to discuss their role, recent Board discussions, and answer questions.
The Lancashire Employee Network
The Lancashire Employee Network (LEN) was launched in 2023 to
give colleagues an opportunity to get together to share knowledge
and experiences.
The LEN is led and managed by a group of employees from across the
business. Its initial focus is on running ‘lunch and learn’ sessions, hosting
internal and external speakers, and offering ‘soft skills’ training. Events
held during the year included a talk by a former SAS member on how
experiences from differing environments can be carried across to
business operations, a discussion with one of Lancashire’s shareholders
on their expectations of the business, and internal team events focusing
on individual areas of expertise to share knowledge and understanding.
Group CEO Alex Maloney was also interviewed for LEN sessions in
London and Bermuda, discussing his career and offering advice to
employees on maximising the opportunities available to them.
Delivering a best-in-class
working environment
During 2023, our London office was expanded and redesigned to
offer our employees a better working environment and our guests
an enhanced experience when visiting.
The work included a new visitor lounge and reception area and
state-of-the-art meeting rooms. Floor space was also reconfigured
to give colleagues more space and further encourage collaboration
within and across functions.
A modern organisation
Following the 2021 employee survey, a number of benefits,
with a particular focus on ‘family-friendly’ employment policies,
were introduced.
These included enhancements to maternity, paternity and adoption
leave, and the addition of a benefit of paid leave for IVF treatment
and pregnancy loss.
In line with other organisations, following the period of remote working
during the COVID-19 pandemic, Lancashire’s UK employees are able to
work flexibly. This includes both flexible working hours and working
from home for a period each week. These are discussed with managers
to ensure business operations continue as normal.
During 2023, we also developed a support framework for employees
experiencing the menopause, as part of our commitment to providing a
safe and inclusive environment and encouraging colleagues to have open
conversations. We recognise that there is no ‘one size fits all’ approach,
but expect people to be supportive of colleagues who may be affected
by the menopause. Additionally, some employees may benefit from
reasonable adjustments at work to support their symptoms.
Recognising long service
Lancashire has a long history of retaining employees, due to the focus we
place on wellbeing, rewarding people appropriately, and developing their
skills and talents.
We benefit from the experience and expertise of our people, many of
whom have spent large parts of their career with us. To acknowledge
this contribution, since 2022, we have offered a sabbatical benefit for
those who have served for 10 years or more.
Lancashire Holdings Limited | Annual Report & Accounts 2023
35
Strategic report Our people and culture continued
Attracting and growing talent
Delivering a diverse talent pool
Lancashire aims to attract people to the business who share
our values and can bring their talents to the benefit of the Group.
We actively recruit new employees at all levels from a range of
backgrounds and through a number of channels, whether direct
outreach, corporate social media, and through our website.
While it is important to attract experienced employees when appropriate
vacancies arise, we also believe that offering less experienced people,
who are beginning their careers, or who are making a significant career
change, is valuable to the business.
This includes recruiting a number of apprentices, who are offered
the opportunity to work with more experienced colleagues and
begin to progress in their chosen field.
In addition to attracting new employees, we are also focused
on developing our existing colleagues and promoting them to
new roles when opportunities arise.
During 2023, 46 colleagues were promoted internally across
our underwriting and support functions.
Our induction programme for new employees includes training
on diversity matters to support our focus on fairness and inclusion.
Apprentices
“It’s been really good so far and I am lucky
that I can work with people with lots of
different skills and experience. It gives
you a different perspective.”
Sienna will be working towards a Foundation Certificate in People
Practice. “There are several qualifications you can work towards,
right up to degree level. I am really glad I joined Lancashire
as it’s a big step forward in my career,” she said.
IT Business Support Apprentices Tyreque Muhammad and
Jenna Webster also applied for their roles after seeing an online
advertisement for the scheme. Jenna had been studying fashion
but decided that she wanted to move into IT, while Tyreque had
completed a self-taught IT course.
Jenna said: “It’s been really interesting coming from a different
background and into IT – it was a huge jump. I have learnt a lot
already and the team has been really good. The key thing is to
remember that there are no stupid questions – just ask and someone
will help. I am really proud of myself for joining Lancashire and I
wouldn’t have learnt as much just doing a course.”
Tyreque and Jenna will be working towards a professional
qualification as IT Business Support Technicians. Tyreque said:
“There’s been a lot to learn, and it is good to
be able to mix practical work with course work.
I wouldn’t have developed as much at this stage
without being in a team with experienced people,
and actually doing the job.”
During 2023, Lancashire was pleased to welcome a cohort
of apprentices to the business.
The group were recruited into a number of functions including HR
and IT. The Lancashire apprentice scheme aims to give young people
starting their careers an opportunity to learn through on-the-job
practical support and guidance while working towards formal
qualifications. Group HR Apprentice Sienna Ray applied for the
scheme after finding out about it online. She said one of the
attractions was the mix of live work and the ability to study.
36
Lancashire Holdings Limited | Annual Report & Accounts 2023
Training and development
To help employees make the best of their talents and meet their
ambitions, Lancashire has a number of training and professional
development initiatives.
Compulsory training
Additionally, we have a clear set of policies and procedures to uphold
our high standards of behaviour and to educate our employees on what
is expected of them.
Compulsory training is delivered to all new permanent employees,
including people working part time, and those on fixed-term contracts.
Topics covered include tax/regulatory operating guidelines, disclosure
(including the requirements of the Market Abuse Regulation 2016),
inspections, financial crime, ERM, cyber security, communications
etiquette/equality, diversity and inclusion, GDPR and conduct rules.
New employees are expected to complete this training during the
first three months of employment.
Further training is offered, depending on individual requirements.
The Board receives quarterly updates regarding completion
of these sessions.
We see real benefit in increasing people’s skills, experience
and knowledge – whether at a more junior level or within our
manager community.
During 2023, we carried out a pilot Management Development
Programme in order to gain feedback on the planned training
and ensure that it meets the needs of our team leaders.
The full programme will be rolled out in 2024 for new and existing
managers with three or more direct reports.
It is designed to equip managers with tools and techniques to help drive
individual and team performance across departments. Key objectives
include the role of managers at Lancashire, and what is expected of
them; inclusive leadership; how to appropriately manage team members’
performance; and adapting to change.
Lancashire’s training and professional study programme also offers
employees a range of support through our online ‘LMS – Insurance
Assess’ e-learning platform.
This provides compliance, soft skills, management and health and
wellbeing training, along with (re)insurance-specific training courses.
In some cases, financial incentives for professional qualifications are
available. All employees are encouraged to discuss training requirements
with their manager on an on-going basis and through more formal
performance review discussions.
Lancashire Holdings Limited | Annual Report & Accounts 2023
37
Strategic report Our people and culture continued
Diversity, equity and inclusion
Since its inception, Lancashire has had a strong focus on diversity, equity
and inclusion (DE&I). We believe that these important themes should
reflect not just gender and ethnicity but also ensure that we have a
range of talents available to the Group.
Our internal initiatives are led by our DE&I working group, which is
formed of employees from across the business. It is important that
our activities match the expectations of our people, and the Group
is reviewing the outputs from the 2023 employee survey and will
set out its agenda for the coming year in early 2024.
For a number of years, Lancashire has actively supported external
initiatives which seek to build more diverse, equitable and inclusive
businesses. These include the Hampton-Alexander and Davies Reviews
on gender diversity; and the FTSE Women Leaders Review, to improve
the representation of women on boards and in leadership positions.
The Group submits data annually to the Review.
The gender and ethnic diversity of the Board and the senior management
group is set out in the tables below. Additionally, the Chair’s statement
on our Diversity Policy is available on our website.
Our efforts in this area are supported by policies that help ensure
people do not face any discrimination as an employee or during
our recruitment process.
We operate a zero-tolerance approach to bullying and harassment and
all employees are encouraged to speak up about any issues of concern.
Our open corporate culture is a key driver in this and our Dispute
Resolution Policy, where issues cannot be initially resolved, can be
used by employees, without fear that they will be penalised in any way.
Our Anti-Harassment and Bullying Policy also offers employees a
mechanism through which they can raise issues of concern.
The tables below set out data about the sex and ethnicity of the Board and executive management as at 31 December 2023, in the format prescribed
by the Listing Rules.
Men
Women
Other categories
Not specified/prefer not to say
White British or other White (including minority-white groups)
Mixed/Multiple Ethnic Groups
Asian/Asian British
Black/African/Caribbean/Black British
Other ethnic group, including Arab
Not specified/prefer not to say
Number of
Board members
7
3
–
–
Number of
Board members
9
–
–
1
–
–
Number of senior
positions on the
Board (CEO, CFO,
SID and Chair)
3
1
–
–
Number in executive
management
4
5
–
–
Percentage of
the Board
70
30
–
–
Number of senior
positions on the
Board (CEO, CFO,
SID and Chair)
4
–
–
–
–
–
Number in executive
management
9
–
–
–
–
–
Percentage of
the Board
90
–
–
10
–
–
Percentage of
executive
management
44
56
–
–
Percentage of
executive
management
100
–
–
–
–
–
38
Lancashire Holdings Limited | Annual Report & Accounts 2023
Employee support and
industry initiatives
Supporting and rewarding
All permanent employees have an enhanced interest in the performance
and success of the Company through our RSS to ultimately become a
shareholder in LHL.
For a number of years the Group has provided free lunches on
specific days for employees to encourage them to interact in the
office during breaks.
Offering advice and information on health, wellbeing and financial
matters is also part of being a responsible and understanding employer.
During 2023, we held a number of events including marking World
Mental Health Day, highlighting the support available through our
Employee Assistance Programme (EAP), promoting the benefits available
from our health care provider, including health checks, and financial
wellbeing workshops focusing on topics such as cost of living support
and pensions.
Expert telephone support is available 24 hours a day through the EAP,
along with resources and information to support home life, work life
and physical and emotional health, and the opportunity to enrol in
self-help programmes.
The Group has volunteer first aid and wellbeing officers available to
employees, and Lancashire offers non-judgmental support for those
suffering mental health difficulties and ill-health.
Our responsibility as an employer
We comply with all relevant requirements with respect to human
rights, rights of freedom of association, collective bargaining, and
working time regulations.
We believe every employee, and prospective employee, should be
treated with dignity, respect and fairness. As an equal opportunity
employer, we do not discriminate, or tolerate discrimination, on
grounds of race, age, sex, sexual orientation, marital or civil partnership
status, gender reassignment, pregnancy or maternity, disability, religion
and/or beliefs.
All employees have a duty to treat colleagues, visitors, clients,
customers, suppliers and former staff members with dignity at all times.
Employees who believe they may have been discriminated against
are encouraged to raise the matter through our Grievance Procedure.
Abusive or discriminatory behaviour by an employee towards another
will be seriously and confidentially investigated and will be dealt with
in accordance with the Group’s disciplinary procedure.
We are also an Accredited Living Wage Employer, for our business
and our supply chain.
Our Global Employee Handbook, distributed to employees on joining
and available on our internal intranet, is supported by country-specific
supplements where relevant.
Leading market-wide discussion
Lancashire is a partner for the Insider Progress initiative, launched by the
Insurance Insider. Our support will ensure events are free for participants
across the industry from all backgrounds. Insider Progress is designed
to promote discussions around building an insurance workplace for
the future with a focus on DE&I. Our Group CFO Natalie Kershaw is a
member of the Insider Progress advisory board, which sets the agenda
for events and highlights topics and areas for discussion.
Lancashire is also a member of the Insurance Breakfast Club and
offers selected employees the valuable opportunity to participate in
its events. The Insurance Breakfast Club programme involves 10 months
of structured development and provides connections for people at a
crucial time in their careers. Its overall aim is to assist companies in
their development of female talent.
Lancashire Holdings Limited | Annual Report & Accounts 2023
39
Strategic report Delivering
sustainably
“The depth of experience
and insight within our teams
is invaluable in ensuring that
ESG matters are considered
and implemented across the
Company’s operations.”
Jelena Bjelanovic
Chair of the Lancashire ESG Committee
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Lancashire Holdings Limited | Annual Report & Accounts 2023
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Chair’s introduction
Embedding
a sustainable
culture for
a profitable
business
Peter Clarke
Non-Executive Chair
Lancashire’s approach to environmental,
social and governance matters continues
to evolve and support our purpose.
The strong financial results which the Company has delivered in 2023
are a result of our values-driven sustainable business culture. The Board,
and Alex and the management team, have a strong focus on the Group’s
operational effectiveness, which informs much of our debate in the
Board and its committees.
During 2023, the Group made considerable progress in delivering on
the areas of focus aligned with the pillars of our ESG strategy: being
a sustainable and responsible underwriter and investor; operating
responsibly in our own business practices and in managing and
monitoring our own carbon emissions; and delivering social
good through the Lancashire Foundation.
The Board debates and approves the ESG strategy and oversees
its implementation by management and within the business.
A report on the work of the Lancashire Foundation, including the
Project Transform volunteering initiative, can be found on pages 45
to 48 and information on our progress against our strategic
objective to be an employer of choice is outlined on page 33.
Reporting on our own emissions can be found on page 68.
The Group’s ESG Committee, chaired by our Group Head of Investor
Relations, reports quarterly to the Board and includes representatives
from across Lancashire’s operations, including senior members of the
underwriting, risk, legal, HR, finance and communications teams. This
depth of experience and insight is invaluable in ensuring that ESG
matters are considered and implemented across the Company’s
operations. Senior management also receive regular reports on the ESG
Committee’s activities and are fully engaged with all decision-making.
We believe our attention and influence is best put to use in focusing
on those areas where we can have a meaningful and more immediate
impact on society, our people and the environment. This includes
developing the potential of our people, and managing our own carbon
emissions through positive action such as carbon offsetting. Additionally,
the activities of the Lancashire Foundation are clear examples of the
importance of putting ESG into action rather than just words.
As in previous years, the discussion around climate change and other
environmental factors, and the best way to respond to those challenges,
has continued at both a governmental and local level in 2023.
As a responsible business, Lancashire actively plays a role in this debate
through our engagement with our clients as they go through their own
transition away from carbon-based energy, and we welcome the
opportunity to utilise our expertise in areas of risk management in
these discussions. During 2023, Lancashire also published its first report
to ClimateWise, which is available on our website, and continued
to support the aims of the Task Force on Climate-related Financial
Disclosures (TCFD). Our full TCFD report can be found on pages 49 to 64
which sets out clearly our progress in the area of climate change
management of risk and opportunity.
Lancashire Holdings Limited | Annual Report & Accounts 2023
41
Chair’s introduction continued
During 2023, the Board has continued its active engagement with the
Group’s stakeholders. In particular, our Non-Executive Directors regularly
meet with employees from across the business to discuss a range of
matters on both a formal and informal basis. Board members welcome
the opportunity to attend the quarterly Town Hall events which are
led by Alex Maloney to discuss the work of the Board and to answer
questions from employees. Presentations were also received at various
committees on a range of topics including feedback from the 2023
employee survey, underwriting opportunities within product classes,
and wider corporate developments and enhancements, such as the
plans for a U.S. operation.
Succession planning is also an important part of the Board’s work
to ensure that we have the appropriate skills, experience and expertise
to support the business.
During the year, we welcomed two new Non-Executive Directors to
Lancashire. In April, Bryan Joseph joined the Board and as a member of
the Audit and Underwriting and Underwriting Risk Committees. Bryan
has over 40 years’ experience as an actuary in the global insurance and
reinsurance industry. Later in the year, we announced the appointment
of Philip Broadley as a Non-Executive Director and as the LHL Chair
designate. He is expected to succeed me in that role, subject to
shareholder approval, following Lancashire’s 2024 AGM.
Our Senior Independent Director Robert Lusardi led the search for a
Chair successor and on behalf of the Board. I would like to thank him and
colleagues on the Nomination, Corporate Governance and Sustainability
Committee for their hard work and diligence.
Due to its relatively small size, the appointment or departure of a single
director may temporarily impact Board diversity and that is the case at
present, where the percentage of women on the Board is below our
stated objective of 40%. We plan to address this during 2024 and the
Board will continue to explore opportunities to further improve diversity
within its own make-up and across the wider Group.
We fully recognise the benefits of diversity across the Group, and the
importance of appointing high-quality Directors with a wide range of
backgrounds, skills, gender, ethnicity and diversity of thought. However, the
need to identify the best person for a role to best advance the business
and interests of the Group and all its stakeholders is also important.
With regard to the Group’s disclosure reporting obligations for diversity
targets under listing rule 9.8.6 R (a) the Company is able to report the
following position at the 2023 year end.
The Board has a 40% objective for women Directors on the Board and on
the Group’s principal executive management team. As at 31 December
2023, the percentage of female representation on the Board stood at
30% and within the executive management team at 56%. The Board
intends to take action as part of its succession planning to meet this
objective in the short to medium term. With Natalie Kershaw as our
Group CFO we are able to confirm that the Board continues to have at
least one woman in one of the four most senior positions on the Board.
In line with the recommendations set out in the Parker Review on ethnic
diversity, the Board has adopted the Parker Review objective to have at
least one qualifying Director on the Board by 2024. This objective is
currently met following the appointment of Bryan Joseph in 2023.
As a premium-listed company on the LSE, Lancashire measures its
corporate governance compliance against the requirements of the UK
Corporate Governance Code published by the UK FRC. This requires each
company with a premium listing to disclose how it has complied with
Code provisions or, if the Code provisions have not been complied with,
provide an explanation for the non-compliance. The Board’s Nomination,
Corporate Governance and Sustainability Committee monitors the
Group’s Code compliance quarterly and more information can be
found in the report starting on page 89. In addition, the Company also
monitors compliance with applicable corporate governance requirements
under Bermuda law and regulations. The Company is subject to group
supervision by the BMA, which also regulates LICL, the Group’s
Bermuda-incorporated (re)insurance entity. The Group’s UK insurance
entities are regulated by the PRA and the FCA, and Lloyd’s in the case
of LSL and Syndicates 2010 and 3010.
The Board has continued to focus on proactive and constructive
stakeholder engagement aligned to the Section 172 responsibilities of
boards under the UK Companies Act 2006. While not formally subject
to Section 172 as a matter of law, due to the Company’s incorporation
in Bermuda, we believe that, as a responsible business, complying with
those responsibilities is a matter of importance and that they provide
practical working tools by which we can monitor our engagement. The
Board’s statement regarding matters covered by Section 172 can be
found on page 80 which outlines examples of how the Board and the
business have factored in the needs of our stakeholders in their
discussions and decision-making.
I am pleased to say that, in the judgement of the Board, the Company
has complied with the principles and provisions as set out in the Code
throughout the year ended 31 December 2023, and has appropriately
considered those duties set out in Section 172.
42
Lancashire Holdings Limited | Annual Report & Accounts 2023
Our ESG strategy, impact, progress and areas of focus
During 2023, we have continued to deliver on the Group’s ESG strategy and priorities.
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1. People
and culture
Giving our people the environment,
tools, skills and support they need
to thrive in an open, honest and
diverse culture.
Progress in 2023
Focus
• High levels of employee engagement
measured through 2023 all-employee survey.
• Reported diversity aligned to FCA
disclosure requirements.
• Maintain high levels of engagement and
continue to offer formal and informal
channels for employee feedback.
• Gender Pay Gap reporting.
• Lancashire Employee Network launched
offering peer-to-peer information sessions
and external speakers.
• Expand activities for Lancashire Employee
Network to include soft skills training,
following feedback.
•
Increased use of social media to expand
hiring pool for vacancies.
• Continue to monitor applications to ensure
we attract a diverse talent pool.
• New employees continue to receive
training on diversity matters in employee
induction programme.
• Management Development Programme to
continue to be rolled out in 2024 for new
and existing managers.
2. Sustainable insurance
Ensuring our business considers
climate change and other ESG issues
in our underwriting decision-making.
• ESG insurance underwriting guidelines
reviewed and approved by the Board.
• Annual reporting aligned
to ClimateWise requirements.
• ESG-related premium evaluated and
reported to the Board quarterly.
• ESG insurance underwriting guidelines reviewed
by Board to ensure they are appropriate.
• Regular monitoring of energy clients’
• Maintain ESG-related premium
transition plans.
metrics and report to Board quarterly.
• Maintained active dialogue on ESG issues
• Continue engagement with ClimateWise
with clients and brokers.
• Published first public ClimateWise report.
and seek to improve reporting and disclosures
for 2024.
3. Responsible
investment
Demonstrating our commitment
to ESG, including responsibility
for our environment, through the
management of our investments.
• 96.7% of the Group’s principal investment
• Continue to monitor principal investment
managers are signatories to the UN Principles
for Responsible Investment.
managers as signatories to the UN Principles
for Responsible Investment.
• Continued to review and monitor ESG
investment guidelines as embedded in
external investment managers’ guidelines.
• Monitor the climate change risk sensitivity, ESG
profile and carbon intensity profile of the Group’s
investment portfolio with regard to developing
expectations and methodologies and keeping
within agreed guidelines.
4. Operating responsibly
Running our business as a good
corporate citizen, being a responsible
preserver of resources, and holding
our supply chain to the high standards
we apply to ourselves. Supporting
wider society through our corporate
and charitable activities including the
Lancashire Foundation. Meeting and
complying with legal, regulatory and
investor obligations on ESG.
• Group emissions reduced per FTE.
• Monitor and report annually the
• Fully offset calculated 2023 GHG market-based
Group’s emissions.
emissions by purchasing verified credits.
• Continue to fully offset calculated GHG
• More than $23 million donated to charitable
organisations since 2007.
• 2023 report submitted to Carbon
Disclosure Project.
• Continued to support and report against
the aims of the TCFD.
• Sustainable lighting installed as part
of London office refurbishment.
market-based emissions through purchasing
verified credits.
• Maintain and support the work of the Lancashire
Foundation through funding and volunteering.
• Continue to engage with Carbon Disclosure
Project and report against the aims of the TCFD.
• Maintain awareness of emerging frameworks
for future reporting requirements (for example
the Taskforce on Nature-related Financial
Disclosures (TNFD)).
Lancashire Holdings Limited | Annual Report & Accounts 2023
43
Delivering
for our communities
“The Lancashire Foundation’s funding
is linked to the Group’s financial results.
Our employees know that strong
business performance will allow us
to continue to support charities in the
communities where we operate, as well
as in communities around the world.”
Jennifer Wilson
Chair of the Lancashire Foundation
Donations Committee
44
Lancashire Holdings Limited | Annual Report & Accounts 2023
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The Lancashire Foundation
Our support is our way of giving back
The British Mountaineering Council’s Access and Conservation Trust was
also a beneficiary of a £45,000 donation. This charity funds projects to
protect cliffs, uplands, mountains and outdoor spaces across the United
Kingdom and Ireland.
The Foundation has also supported the Bermuda Underwater Exploration
Institute’s 2023 Youth Climate Summit. The week-long event engages
young people on global climate issues and is the foundation for a year of
youth-led activities focused on local climate action on conservation and
sustainability. Over 150 students aged 13 to 22, from across Bermuda,
were involved.
More widely, the Foundation has also helped those in need following
earthquakes in Turkey and Syria in early 2023. A donation of £50,000
was made to the Disasters Emergency Committee (DEC) via the British
Red Cross. The DEC is a group of 15 UK aid charities that work together
to raise funds quickly and efficiently at times of crisis overseas.
The Foundation also matched all employee donations to the DEC/British
Red Cross.
The Foundation also donates funds to enhance the impact of a range
of activities undertaken by colleagues.
For example, during 2023, colleagues in Bermuda took part in the
Relay for Life to raise funds to increase access to cancer prevention,
early detection, treatment and support at the Bermuda Cancer and
Health Centre.
Alongside a donation from the Foundation, employees made generous
personal donations via the proceeds from a silent auction and bake sale.
Lancashire’s people raised almost $21,000 and the overall event raised
over $800,000.
The Lancashire Foundation is funded
through a donation pool which is linked
to the Group’s financial results. This
means that our employees know that
strong business performance will assist
in supporting the wider community.
The Lancashire Foundation, which has been a UK-registered charity since
September 2012, receives 0.75% of Group profits with a minimum
threshold of $250,000 to a maximum of $750,000. The Board
periodically receives reports from the Foundation’s Trustees and a
designated Board representative meets with employees involved in
the Foundation annually to discuss the strategy for giving for the
upcoming year.
During 2023, the Lancashire Foundation continued its work supporting
a range of causes in our home markets and further afield. Since it was
formed in 2007, over $23 million has been donated by the Foundation
to charitable organisations.
A number of these causes have long-standing relationships with
Lancashire, and we are proud of the ongoing support we have
given them.
During 2023, the Foundation has focused on supporting causes working
to protect the environment. This followed a successful programme of
support for social causes in 2022.
The Foundation made a $50,000 donation as part of our partnership
with the charity Waterstart Bermuda, which plans to open a sustainable
campus and other initiatives on Burt Island. It will ultimately serve as
a microcosm of an ideal community and a role model in Bermuda and
more widely. Waterstart Bermuda’s mission is to promote personal
growth and environmental awareness through experiential education.
$23m
Since it was founded in 2007, over $23 million has been
donated by the Foundation to charitable organisations.
$50,000
donation as part of our partnership with the charity
Waterstart Bermuda which plans to open a sustainable
campus and other initiatives on Burt Island.
£50,000
The Foundation has also helped those in need following
earthquakes in Turkey and Syria in early 2023 donating to the
Disasters Emergency Committee via the British Red Cross.
Lancashire Holdings Limited | Annual Report & Accounts 2023
45
The Lancashire Foundation continued
“ We are proud of the ongoing support
we have given to our long-term partners.”
Our long-standing partnerships
The Family Centre in Bermuda
Lancashire has been supporting The Family Centre in Bermuda since
2007 to aid their work helping children suffering from emotional, social,
behavioural and trauma-based challenges. Assistance is available to any
Bermuda resident that meets the criteria and has the need. During the
year, in addition to the ongoing donation, a $100,000 donation was
made in honour of the Family Centre’s founder, Martha Dismont,
who passed away in 2023.
Tomorrow’s Voices
Tomorrow’s Voices is a Bermudian autism early intervention centre
which has been helping the community since 2007. It aims to assist
people diagnosed with autism or on the autism spectrum, starting
at the age of two.
Cancer Research UK
Cancer Research UK is the world’s largest independent cancer
research organisation and is dedicated to saving lives through
research, influence and information.
Causes close to our people
Importantly, the Foundation also encourages employees to nominate
charities that they believe would benefit from funding. We know that
even a relatively small single donation can have a big impact. More
than $56,000 was donated to organisations nominated by employees
during 2023. Donations to employee-nominated charities are a
minimum of £2,000. The Foundation’s Donations Committee
meets quarterly to review submissions from employees and make
recommendations for donations. The Committee is made up of
employees and their recommendations are submitted for approval
by the Foundation’s Trustees. Additionally, the Foundation provides
matching donations for fundraising endeavours such as marathons,
triathlons, and other activities by employees.
46
Lancashire Holdings Limited | Annual Report & Accounts 2023
St Giles Trust
The Lancashire Foundation is proud to have been supporting the
St Giles Trust for 10 years.
The charity helps people held back by poverty, dealing with addiction
or mental health problems, caught up in crime or a combination of
these issues and others.
During 2023, employees Sharyl Jauod and Florinda DeMaio volunteered
their time to restock the St Giles Trust pantry in London. The pantry
offers high-quality, nutritious and healthy food to those struggling
to feed themselves and their families.
E
S
G
–
S
u
s
t
a
n
a
b
i
i
l
i
t
y
Just some of the charities nominated by employees
which received funding from the Foundation during 2023.
Forget Me Not
Support Group
Supporting bereaved parents
and families of babies.
SCARS Bermuda
Reducing the risk of child sexual
abuse by raising public awareness,
educating adults on prevention,
and lobbying decision-makers
to protect children.
Haven House
Children’s Hospice
Providing high-quality palliative
and holistic care services to
babies, children and young
people and their families.
Usher Kids UK
Serving the needs of children and
young people and their families
living with Usher syndrome – a
rare cause of progressive deafness
and blindness.
Waves Music Therapy
– Toby’s Fund
Assisting children suffering
from complex trauma and/or
emotional and behavioural issues
through specialist music therapy.
WeSeeHope
Helping vulnerable children in
Southern and Eastern Africa
through early childhood
development, educational and
vocational-based training.
Friends of Treetops School
Refurbishing a sensory room for
children with disabilities.
Oakhaven Hospice
Providing support through
hospice and home care services.
Crohn’s & Colitis UK
Funding research into potential
cures and treatments and also
supporting those suffering from
these illnesses.
The Kevin Bell
Repatriation Trust
Assisting bereaved families
to repatriate the bodies of
loved ones.
George’s Windmills
Supporting children’s wards
and family areas connected
to hospitals.
It Takes a Village Foundation
Supporting vulnerable women
with education, food vouchers
and other necessary items, not
currently offered by the statutory
authorities or other charitable
organisations in Bermuda.
The Royal Marsden
Cancer Charity
Improving diagnosis
and personalised care
for cancer patients.
Home for Good
Providing a home for every child
who needs one via fostering,
adoption or supported lodgings.
Plymouth Hospitals Charity
– Derriford Children’s Wards
Improving a hospital ward or area
that needs extra care to make it
more friendly or calming for
people who need it.
Trees for Cities
Creating high-quality green
spaces in socially and
environmentally deprived
areas. They hope to plant
their 2,000,000th tree
in 2024.
Lancashire Holdings Limited | Annual Report & Accounts 2023
47
Project Transform
During 2023, Lancashire was pleased to relaunch Project Transform,
which offers employees the opportunity to take part in volunteering
activities overseas.
The first Project Transform visit took place in 2010 in the Philippines
and since then annual trips have been arranged, with a pause during
the COVID-19 pandemic. The Tanzania programme was organised
with the International Volunteer HQ organisation.
Figures from the UN Development Programme show that more than
57% of the population in Tanzania lives in poverty, making assistance
initiatives, such as Project Transform, extremely valuable.
The 2023 activity saw 12 employees from across the Group travel to
the country to assist with a construction project to build a new home
for 68-year-old widow Beatrice.
Team member Jamie Grant said: “When we arrived, she welcomed us
into her current house, a tumbledown shack with a low tin roof (secured
with rocks), no windows but plenty of holes in the mud walls, and only a
narrow sofa for a bed.”
During the week-long programme, the team helped clear an adjoining
plot, dig and pour the foundations and begin the construction of the new
home. The group were welcomed by members of the local community.
Team member Kelly Turner said: “Saying farewell to the local children
was very tough. These kids had been with us all week – watching our
progress, entertaining us with their singing and their dancing, as well as
taking every opportunity to encourage us to down tools and join them
in a game of street football.”
“The project team had coordinated gift bags for 25
children, colouring books and pencils for the younger
ones and exercise books and maths sets for the older
ones who were soon to be heading to senior school.”
“The team left Tanzania after a truly amazing
experience, with many team members having been
inspired to consider further volunteering work
when back in the UK/Bermuda, or further afield.”
48
Lancashire Holdings Limited | Annual Report & Accounts 2023
Sustainable insurance and responsible investment
2023 TCFD report
Meeting the challenges and
opportunities of ESG and climate
issues has been a focus within the
Lancashire business for many years.
Our underwriting mindset is grounded in a pragmatic understanding of
potential perils, their nature, and mitigation factors. The risks of climate
change on the insurance industry affect the asset and liability side of the
balance sheet. That double exposure drives us to work with our clients
to assist them with risk solutions that help them recover from the impact
of catastrophic events, including those associated with climate change.
We also act as a partner with our clients during their journey through
this phase of global carbon transition.
Lancashire operates in a subscription market that allows us to adjust
our insurance solutions and provide policyholders with flexibility as
their needs change to address climate-related challenges and planning.
Our approach to reporting
Every year, we build upon our increasing knowledge to move discussions
further in identifying the opportunities to work alongside our clients,
investors, and other stakeholders to address complex climate change
issues. The summary on the following pages details our disclosures,
which are consistent with the TCFD’s four core elements – governance,
strategy, risk management, and metrics and targets – underpinned
by 11 recommendations.
About this report
In compliance with the Financial Conduct Authority (FCA)
listing rules, these disclosures are consistent with the TCFD
recommendations and recommended disclosures.
Lancashire is a TCFD supporter and recognises the value of
consistent disclosures. Annual reporting against TCFD allows
us to understand climate-related business risks and opportunities.
Some additional guidance in the October 2021 TCFD Annex
requires more time for us to consider fully. We will continue
this review throughout 2024.
Our Scope 3 disclosures relate to the measurable emissions
referable to our own operations, as more specifically detailed
in this report. At this time, there is no commonly-adopted
methodology, nor the available data for accurate and comparable
measurement and apportionment of Scope 3 emissions referable
to the economic activity associated with the Group’s investment
portfolio or its (re)insureds; further details on our approach can
be found in the Strategy section of this report.
This report complements Lancashire’s ClimateWise Report dated
August 2023, our Principles for Sustainable Insurance disclosures
and our CDP submission.
Lancashire’s TCFD roadmap
In 2023, the Board assessed the prominent risks facing the Group,
including those that could threaten our business model, future
performance, solvency, or liquidity. This review stressed the 2023
business plan for several severe but plausible scenarios, including
climate change and the impact on capital evaluated. Since then, we
have completed annual disclosures relating to GHG emissions, focusing
on continuous improvement over time. Looking at our progress to date,
we can identify areas to focus on and prioritise combining short- and
long-term actions and commitments that support meeting the UK
government’s net-zero target by 2050.
Governance
Strategy
Risk Management
Metrics and Targets
The Four Core
Elements of
the TCFD
Governance
The organisation’s governance
around climate-related risks
and opportunities
Strategy
The actual and potential
impacts of climate-related
risks and opportunities on
the organisation’s business,
strategy and financial planning
Risk Management
The processes used
by the organisation to
identify, assess, and manage
climate-related risks
Metrics and Targets
The metrics and targets to
assess and manage relevant
climate-related risks and
opportunities
Lancashire Holdings Limited | Annual Report & Accounts 2023
49
ESG – Sustainability Sustainable insurance and responsible investment continued
Core areas of TCFD disclosure
Governance
Disclosure elements
Board’s oversight of climate-
related matters
See page 51
Management’s role in assessing
and managing climate-related
matters
See page 51
Strategy
Disclosure elements
Climate-related risks and
opportunities identified over the
short, medium and long term
See page 54
Impact of climate-related risks
and opportunities
See page 57
Resilience to climate-related risks
using scenarios analysis
See page 59
Risk Management
Disclosure elements
Processes for identifying,
assessing and managing
climate-related risks
See page 60
2023 Practice
• Continued to evolve Board oversight and monitoring of climate-related risks and opportunities,
actioned through Board committees with climate-specific related duties.
• Oversaw the strategic planning process and approved the annual update of the strategic plan,
including building on climate change risks and opportunities.
• Continued to focus on the actual and potential impacts of climate-related risks and opportunities
through our underwriting, risk and exposure management with wider oversight by the ESG
Committee across the business.
• Carried out climate-related risk and opportunities analysis, governed by the RRC, facilitated
by our Group CRO and delivered through strategic business units and functional groups.
2023 Practice
• Identified climate-related risks and opportunities using an internal view of risks and the impact
of physical and transitional risks.
• Continued to explore opportunities and manage risks and the impact they have on all aspects
of our business and strategy.
• Linked underwriting guidelines to our formal risk appetite and focused on assisting the broader
set of efforts to mitigate climate change’s impact on the economy and society.
• Conducted stress and scenario testing as part of our business planning process to get insight
into the impact natural catastrophe events could have on our business.
• Supplemented the underwriting approach with several sophisticated models that model
exposures and predict losses for hurricanes and other weather occurrences.
• We manage our capital by reference to sophisticated modeling using actuarial inputs relating
the Group’s exposure to major catastrophic events, including climate-driven catastrophes.
2023 Practice
• Continued dialogue with risk owners and subject matter experts across the Group including
annual underwriting strategy days to review current and anticipated climate risks.
• Continued to monitor PMLs of top elemental perils and continued to manage climate risk as a part
of underwriting and investment risk considerations and as a driver of our capital requirements.
• Continued to monitor ESG-related premiums to identify transition risk with these premiums
reviewed by the Board every quarter.
Integration into risk
management framework
See page 61
• Embedded climate-related risk into our ERM framework, by using qualitative and quantitative
risk analysis, and our risk appetite statements.
• Integrated climate risk tolerances in Group and individual entity risk appetite statements,
which are assessed at least annually.
• Continued to enhance the process for identifying climate-related risks and opportunities
with tools and frameworks used across the Group.
Metrics and Targets
Disclosure elements
Metrics used to assess climate-
related risks and opportunities
See page 62
Scope 1, 2, 3 GHG emissions
See page 63
Targets used to manage
climate-related risks and
opportunities
See page 64
2023 Practice
• Reported on PMLs and the outputs of how risk is monitored against various perils in different
global regions.
• Continued to test assumptions with external models challenging the macro and specific account levels.
• Reported Scope 1, 2 and 3 operational GHG emissions, relating to our own emissions, and
progress towards our path to the UK carbon net-zero in 2050.
• Disclosed operational emissions per full-time employee (FTE) against our target of a further
reduction in emissions per FTE of 15% by 2030.
• Monitored our net-zero target for 2050 for our own operations’ emissions and continually sought
innovative ways to make improvements.
• Established corporate policies in place and a commitment to offset our emissions for our own operations.
50
Lancashire Holdings Limited | Annual Report & Accounts 2023
Governance
Board’s oversight of climate-related matters
Our governance structure for managing the Group’s climate-related risks and opportunities is the same as for any other key risks and opportunities
identified on our risk register. Below is an overview of the organisational structure and how climate-related risks and opportunities are embedded
in our governance structure.
Governance
Board Oversight
Board and Board Committees
Board of Directors and its Committees
Oversees and approves our climate strategy and how we manage climate risks and opportunities.
Nomination,
Corp Governance &
Sustainability Committee
Oversees issues of
sustainability, including
developments in climate
change risk management
and reporting. Committee
makes recommendations to
the Board regarding the
ESG responsibilities of
the Company.
Investment Committee
Oversees the investment risks,
including sustainability risks, by
monitoring the portfolio’s
climate change risk sensitivity,
performance against a climate
Value at Risk (VaR) appetite
statement and the carbon
intensity of certain investment
assets as part of the regular
quarterly reporting process.
Management Oversight
Underwriting
& Underwriting
Risk Committee
Remuneration Committee
Audit Committee
Oversees the impacts as an
influence on insured perils of
climate change and transition
risk, as well as the broader
ESG risks, and articulates
appropriate appetites and
tolerances for the Group.
Oversees the Group’s
remuneration packages,
including the Group’s
remuneration structure,
ensuring they are in line
with the Group’s business
and ESG strategy.
Oversees our financial
reporting, internal and
external audit oversight,
internal controls and risk
management systems.
Oversees the disclosures of
the Group’s ESG strategy,
carbon accounting footprint
and offsetting, and the
Group’s TCFD report.
Executive Committee
Chief Executive Officer
Oversees and responsible for providing strategic direction and implementation regarding climate-related goals, risks, and disclosures.
Group Chief
Financial Officer
Group Chief
Risk Officer
Group Chief
Operating Officer
Group Chief
Human Resources
Officer
Group General
Counsel and Chief
Executive Officer
Lancashire
Insurance Company
(UK) Limited
Chief Executive
Officer Lancashire
Insurance Company
Limited and
Reinsurance
Manager
Chief Executive
Officer, Lancashire
Syndicates Limited
Group Chief
Underwriting
Officer and
LCM CEO
Management Committees and Forums
ESG Committee
Disclosure Committee
Investment Risk and Return Committee (IRRC)
Risk and Return Committee (RRC)
Reinsurance Security Committee (RSC)
View of Risk Committee
Lancashire Holdings Limited | Annual Report & Accounts 2023
51
ESG – Sustainability Sustainable insurance and responsible investment continued
Board oversight
The LHL Board is responsible for the oversight of climate-related risks
and opportunities. It oversees the Group’s ERM activities and receives
regular updates on material risks, including ESG-related risks and
opportunities. This is done through the Nomination, Corporate
Governance and Sustainability Committee, the Underwriting and
Underwriting Risk Committee, and the Investment Committee.
The Board’s five reporting committees provide oversight and
challenge management on progress against goals and targets.
The Nomination, Corporate Governance and Sustainability
Committee monitors issues of sustainability, including developments
in climate change risk management and reporting.
The Underwriting and Underwriting Risk Committee monitors the
Group’s underwriting exposure to catastrophic risks including those
influenced by the impacts of climate change on the transition and
physical risks, as well as strategic planning of ESG risks, and articulates
appropriate risk appetites and risk tolerances for the Group. The
Committee also monitors exposures versus the Board-approved
risk tolerances on a quarterly basis.
The Investment Committee monitors climate change risk sensitivity,
the ESG, and the carbon intensity profile of the Group’s investment
portfolio and investment risk parameters, which include specific
Board-approved climate-related investment guidelines applied
across the Group’s fixed maturity portfolio.
Director development
In 2024, our Group CRO will deliver a session on climate risk for Board
members. The objective is to share current and emerging risk practices,
regulatory developments, and evolving climate-related ESG issues. This
will build on the existing quarterly ORSA updates that the Group CRO
prepares, which informs on climate-related risk and capital implications.
ORSA updates report on the Group’s risk exposures and compare them
against risk tolerances, including natural catastrophe perils. Were
material breaches to occur, they would be presented and mitigation
strategies would be recommended. Emerging risks, including climate-
related financial risks are discussed, including their potential impact
on the business plan.
Governance
Examples of Board ESG and climate change
oversight in 2023
Annual review and approval of the Group’s:
• Strategy including ESG factors;
• Risk appetite statements, including climate-related reports
for the asset and liability side of our business; and
• Tolerances for elemental PMLs and non-elemental RDSs.
Review and approval of the Group’s:
• Insurance underwriting guidelines including ESG
considerations;
• Annual ORSA report and quarterly reporting, which contains
information on all risk categories highlighting material risk
considerations, including climate-related risk where
appropriate; and
• Stress test outputs as part of the annual business planning
exercise and the annual ORSA reporting process, including
climate-related scenarios.
Monitors performance against:
• VaR risk appetite statement as part of the regular quarterly
reporting process;
• Preference for the financial impact of the Climate VaR on
the Group’s actual fixed maturity portfolio;
• Investment portfolio performance referencing the MSCI
carbon sensitivity and ESG profile tool;
• Business underwritten within the Group against the strategic
plan and the Board-approved risk tolerances, including those
linked to climate-related catastrophe loss events; and
• ESG-related premium as a percentage of total premium
written.
Management’s role in assessing and managing climate-related matters
At the Executive Management level, the Group CEO is accountable for the development and execution of the Group strategy, setting the right
tone company-wide, and establishing our ESG priorities, including managing climate-related risks and opportunities and overseeing the process
for calculating the Group’s GHG emissions for its own operations and for the related purchase of offsetting credits.
The Group CUO is ultimately responsible for the business written by the Group, assisted by the segment and subsidiary CUOs and active underwriters.
Climate-related risks and opportunities related to the business written are assessed as part of the underwriting process. Each underwriter has
underwriting authority, in which climate-related underwriting guidelines are embedded.
The Group CRO is responsible for the implementation of the risk management framework, which includes facilitating the identification, assessment,
evaluation, and management of existing and emerging risks, and for ensuring these risks are considered and are properly included in management and
the Board oversight and decision-making process.
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Lancashire Holdings Limited | Annual Report & Accounts 2023
Management reporting
The key areas of monitoring the overall governance processes
and management reporting processes are:
• Achievement of strategic objectives;
• Business performance;
•
Investment performance and liquidity;
• Concentration exposure;
• Reserving adequacy;
• Capital requirements;
• Material risks faced by the business;
• Risk appetite and tolerance;
• Effectiveness of the control environment; and
• Compliance with laws and regulations.
ESG-linked compensation
The Group CEO and CFO’s performance-related compensation is
based on Company-wide performance and personal performance
objectives with a 75%/25% weighting. Their personal objectives
include ESG-related objectives. Achieving our ESG targets is a
fundamental component of our incentive plan, which the Board
approves. By aligning our incentive compensation awards to our
ESG performance, we have created a direct link between ESG-related
criteria and executive compensation.
Management-level ESG Committee
The ESG Committee, which was established by management in 2021,
is tasked with the oversight, co-ordination and internal management
of the Group’s ESG strategy. The ESG Committee reports to the
Nomination, Corporate Governance and Sustainability Committee
quarterly and regularly to the Group Executive Committee and is
supported by the Diversity, Equity & Inclusion Working Group.
Key developments are reported to the Nomination, Corporate
Governance and Sustainability Committee, as well as the Investment
and the Underwriting and Underwriting Risk, Audit and Remuneration
Committees as appropriate, and ultimately to the Board via the Group
CRO’s quarterly reporting and periodic reporting from the ESG
Committee Chair.
Governance
Management-level Risk and Return Committee
The RRC evaluates and monitors the Group’s modelled underwriting
PMLs and RDSs against the Group’s tolerance levels on a monthly and
quarterly basis, respectively. Lancashire underwrites predominantly
short-tail business, with loss exposures usually crystallising within a
policy period of 12 months. As a result, with PML levels updated monthly
and shared internally, we ensure we closely track both market pricing
and coverage conditions and the Group’s modelled climate-related loss
exposures; this information, in turn, is communicated quarterly to the
Board. Please see page 150 for more information.
Management-level Investment Risk and Return
Committee
The IRRC actively monitors the potential impacts of climate change-
related transitional risk on assets within the Group’s investment
portfolio. We work with our external portfolio managers to monitor
the carbon and ESG profile of the Group’s investment portfolio. The
requirement to monitor, develop and implement ESG and TCFD
principles is included within its terms of reference.
The Group CRO is a member or attendee of all the committees described
above and provides a link between each individual forum and the Group
Executive Committee.
Group-wide teams supporting climate initiatives
Our governance structure supports the effective oversight, management,
and execution of our climate-change ambitions across our business.
Our exposure management team — led by the Group Chief Actuary
— works alongside the Group Head of Exposure Management and
modelling professionals to ensure that climate-related physical risks
are modelled, with the sensitivity of peril parameters (frequency and
severity) assessed. The results inform decision-making with regards
to our strategy and portfolio.
In our underwriting operations, we manage climate risk by sharing
knowledge and guidance on the insurance underwriting guidelines that
are part of each underwriter’s authority. Adherence to underwriting
authority forms part of the annual performance appraisal process.
Our internal modelling expertise is supplemented with external vendor
models that support complying with the tolerances and preferences
created to manage our exposure, including loss events that climate
change trends may have shaped.
Lancashire Holdings Limited | Annual Report & Accounts 2023
53
ESG – Sustainability Sustainable insurance and responsible investment continued
Strategy
Strategy
We integrate climate-related opportunities into our business to build on our
strengths and capabilities.
The Group analyses its investment portfolio and uses tools to understand the resilience to climate-related scenarios, the carbon intensity of assets
and other ESG-related considerations. The Group does not yet have a sufficiently robust set of analytical tools and data to articulate a GHG baseline
for the investment portfolio, which might be used in target setting, but intends to work with its portfolio managers to refine the analytical tools and
available data in the coming years. Similarly, there is no insurance industry-wide common methodology for calculating and reporting GHG emissions
relating to an insured portfolio, and the Group does not yet have the data or a commonly accepted methodology to establish a meaningful baseline
or associated target for its underwriting activities. The Group intends to continue engaging with industry bodies and think tanks to develop its strategic
thinking in these areas, mainly through our participation in ClimateWise.
Climate-related risks and opportunities identified over the short, medium, and long term
Strategy and planning time frames
When evaluating the actual and potential impacts of climate-related risks and opportunities on our strategy and financial planning, we scrutinise three
sets of time frames.
Up to
5 years
5-15
years
15-30 years
from now
Short-term
Medium-term
Long-term
Short-term
We predominantly underwrite short-tail business, so the principal impact of climate-related risks and opportunities is on short-term strategy.
Potential impacts are mitigated by our ability to consider new data regarding the frequency and severity of elemental catastrophe events,
re-evaluate the portfolio annually, re-price physical risks and reset exposure levels.
Medium-term
Over the last several years, we have seen increased climate-related information provided in the underwriting process. We recognise that climate
change impacts the longer-term strategy regarding emerging risks. The Group’s casualty risk exposures, which have a medium-term time frame,
are not typically heavily influenced by catastrophic climate change-related loss events.
Long-term
Management works with some of the leading external catastrophe model providers to better capture the latest science that underlies and informs
developments in the short- and long-term climate-related assumptions in their stochastic models. These developments are included in the Group’s
management and Board-approved business strategy with a view towards 2030, which is reviewed and updated annually. More information can be
found on page 120.
The process by which management identify emerging risks, including those which are climate-related, is described on page 27 of the enterprise risk
management section. As part of this process the potential impact of the risks is assessed including magnitude, likelihood and time horizon. Risk
mitigation and monitoring plans are then put in place using a risk based approach to prioritise those considered most material and likely to impact
the business.
Board oversight of strategy
While our strategic planning is based on the period to 2030, the Board’s strategic discussions are informed by consideration of potential global future
trends in the medium- to longer-term scenarios. The Board examines the impacts of transitional climate change risk on our business, the Group’s
underwriting and investment portfolios, and associated strategies.
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Lancashire Holdings Limited | Annual Report & Accounts 2023
Strategy
Decarbonising economy to net-zero
Decarbonising the power sector is expected to be a key driver in transitioning the global economy. Globally, the shift will be to swap to alternative
energy sources. Investments and risk coverage will need to run parallel to this new lower carbon economy.
The Group may face the transitional risk of a declining premium environment in the traditional oil and gas sector, and transportation classes over
time, and/or the risk of exposure to climate change-related litigation. As the economy transitions from a carbon-based one towards a net-zero
future, we have considered the impact of new technology and how it will influence the whole energy sector including renewable energy risks,
which we underwrite.
We can mitigate loss of revenues from these declining sectors by working with clients as they transition, and insuring the infrastructure and assets
required for the transition.
Internal view of risk
In 2021, we developed a Climate Risk Radar, which was refreshed in 2023. It illustrates Lancashire’s current internal view of the physical and transition
risks from climate change, including the potential time horizon over which they may be faced, the potential magnitude of financial impact, and the
geographical region (for physical risks). It allows us to map the climate dependencies to understand where the disruption might occur and financially
impact our business from a physical or transition risk.
Climate change risk radar
Physical risks
Emergent
Region Perils
T
ra
n
siti
o
Extratropical Cyclone
Europe
Declining
Transport
Premium
External Factors
e.g. regulation
n
a
l
r
i
s
k
s
Litigation
Key
Time horizon
Long-term: 15-30 years from now
Medium-term: 5-15 years
Short-term: up to 5 years
Tropical Cyclone
Japan
Tropical Cyclone
United States
Wildfire
United States & Europe
Inland Flood
United States & Europe
Declining
Energy
Premium
Capital
Constraints
Impact on insurance
service results
High
Medium
Low
The arrows pointing inward indicate shortening time-frames for these risks.
Lancashire Holdings Limited | Annual Report & Accounts 2023
55
ESG – Sustainability Sustainable insurance and responsible investment continued
Strategy
Annual strategy days
The two annual underwriting strategy days for our insurance and reinsurance segments included the assessment of climate-related risks of current
and anticipated future risks. This includes but is not limited to transition risk arising from a decline in the value of assets to be insured, changing
energy costs, and liability risks that could arise from climate-related litigation. Physical, transition, and liability risks are considered by business
segment and geographical location, and the expected impact from the risks identified are tested for magnitude and timescale.
Over the last several years, we have continued to identify and articulate the financial impacts of physical and transitional climate-related risks;
examples are:
Physical risks
Extreme Weather
• Flooding
• Drought
• Rising sea levels
• Rising temperatures
• Wind
• Forest fires
• Convective storms
Transitional risks
• Legal and regulatory
• Market
• Technology
• Reputational
Potential effects of climate risk
Physical risk to our own operations is less material. We
do not have significant physical assets to be impacted by
physical risk, with the main impact of physical risk arising
from our underwriting portfolio as losses from elemental
catastrophic events. We do, however, have robust business
continuity processes in place.
Loss amplification factors, time frame, and magnitude
are considered for each extreme weather physical risk
identified, as are metrics by which these risks can be
monitored and reported.
Transitional risks that the Group may face include
the probability of a declining premium environment
in the traditional oil and gas sector or transportation
classes over time, or the risk of exposure to climate
change-related litigation.
The potential impact in terms of premium is thought
to range from low to medium for the relevant subsidiary
writing the business. However, the financial impact of
these risks on the Group ranges from very low to low due
to the inherent responsiveness in the Group’s underwriting
strategy. The impact would be expected to be felt in both
business segments, i.e., insurance and reinsurance.
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Lancashire Holdings Limited | Annual Report & Accounts 2023
Strategy
Impact of climate-related risks and opportunities
Climate-related opportunities
As a (re)insurer, the Group accepts and mitigates risk; for every risk identified, there is the potential for an opportunity. Opportunities will arise from
the investment in infrastructure required for the world’s transition to a lower-carbon economy; this infrastructure will require insurance which lies
within the Group’s existing classes of business and risk appetite. The demand for new environmental insurance products and services is also expected
to increase. We will work closely with existing clients to provide the insurance they need as they transition and access new market offerings in the
form of new assets and locations requiring insurance coverage.
A summary of the opportunities, their likelihood, time frame, and magnitude of impact on insurance service result is included in the table below.
Time frame
S
Risk Description
Political risk
insurance
Natural catastrophe
(re)insurance
Renewables
Decommissioning
insurance:
Oil & gas assets
Carbon capture:
injection of CO2 into
depleted gas fields
Environmental
insurance products
Parametric (weather)
insurance products
for food and
agriculture industry
Market Opportunity
Currently, a strong uptick in ESG-related funding
from our existing client base and this trend is expected
to continue.
Additional limit purchased by insureds and reinsurers
at improved pricing levels as catastrophe risk increases
with both earnings protection and capital protection
being sought.
The trend for global renewable electricity generation
is fully expected to continue. As our clients transition
from fossil fuels to renewable energy, there will be
sizeable opportunities in the market to grow this
part of our portfolio.
Energy transition will accelerate the decommissioning of
many offshore platforms and complexes. As these assets
reach the end of their commercial life, there will be
increased pressure to ensure that their decommissioning
is done in an environmentally friendly way with
appropriate risk management solutions.
Offshore carbon capture and storage may play a
major role in global efforts to reduce emissions
with appropriate risk management solutions.
Environmental insurance provides coverage for loss
or damages resulting from unexpected releases of
pollutants typically excluded in general property
and liability policies.
Industries will look at new ways of managing weather risk
where parametric triggers are more likely to offer a form
of indemnity.
M
M
M
M
M
M
Likelihood
Magnitude
L
L
L
/
Time frame
Short-term up to 5 years
S
Medium-term 5-15 years
M
Long-term 15-30 years from now
L
Short- to medium-term
M
S
Medium- to long-term
M
Likelihood
Magnitude
High
High
Medium
Medium
L
Low
Low
Lancashire Holdings Limited | Annual Report & Accounts 2023
57
ESG – Sustainability Sustainable insurance and responsible investment continued
Managing risk
Lancashire is exposed to the risk of heightened severity and frequency
of weather-related losses, which may be influenced by climate change.
We manage this risk using stochastic models from third-party vendors
with a long history of quality data governance. In addition, we adapt
these models based on our views of climate risk and our clients’
exposure data to create aggregate loss scenarios.
The modelling data and the capital deployment are closely monitored
by executive management. Likewise, the Board monitors this quarterly
as part of strategic risk and capital management, with the testing of
the models leading to changes in risk levels, reinsurance purchasing
and structuring strategy as required.
As part of the financial planning process, the assumptions within the
underwriting portfolio are reviewed, including the expected rate adequacy
and losses for each class of business. Several factors, including climate
change-related factors such as frequency and severity of elemental events
and the potential for associated claims inflation, drive our assumptions.
The level and availability of capital, as well as capital utilisation by
class of business, are also key considerations in the financial planning
process. The business mix is also reviewed, with new products and
lines considered where rates prove attractive and accretive.
Underwriting guidelines
Climate-related insurance underwriting guidelines have been embedded
within our Underwriting Authority framework since their development
in 2021. The guidelines monitor and guide underwriting in the more
carbon-intensive industries, restricting insurance policies covering
targeted activities in specific global regions. When a risk is unclear,
a referral process is in place. We continue to enhance how we track
premiums and policies according to their climate profile. We continue
to engage with our clients in the more carbon-intensive industries to
understand their progress on their net-zero commitments.
Business continuity processes
Lancashire’s exposure to physical risk in our operations is modest.
As a business with an office in Bermuda, we recognise that this area of
the world is vulnerable to catastrophic windstorm events and may be
affected by future climate change trends. All Lancashire offices have
business continuity processes (BCPs) and disaster recovery plans in
place. Specifically, the Bermuda management team and Board consider
hurricane and tsunami risks within the Bermuda office’s BCP.
Risk partnerships
Outside of physical risk, Lancashire has been a risk partner of businesses
operating in the aviation, marine and energy sectors worldwide for many
years. The risk solutions we provide help deliver the wider social benefits
of safer operations in a properly regulated environment with access to
capital resources to repair quickly and remediate damage in the event of
accidents or catastrophic failure.
Lancashire has strong relationships with brokers distributing our products
via larger international firms and smaller independent intermediaries. We
strive to be a trusted partner and add value through our expertise in risk
management and risk transfer. We will continue to support our clients in
meeting their business needs and in their journey to transition away from
carbon-based forms of energy.
58
Lancashire Holdings Limited | Annual Report & Accounts 2023
Strategy
Investment portfolio
We have tools to identify, measure, and manage the potential
impact of ESG and climate-related risks and opportunities on the
Group’s investment portfolio. This information is reviewed and reported
through the IRRC, the RRC, and the Board’s Investment Committee.
For the past three years, we have collaborated with our external portfolio
managers to monitor the carbon intensity and ESG profile of the Group’s
investment portfolio. The Group’s investment guidelines restrict
investments in companies that rely on thermal coal for power generation
or derive revenues from oil sands or Arctic oil/gas, as well as investments
in fixed maturity securities with high carbon intensity ratings. Compliance
with the investment guidelines is monitored every month and any
adjustments are approved by the Board and Investment Committee.
Every quarter, we monitor the climate VaR against the MSCI benchmark
by analysing the underlying securities measured by MSCI. Management’s
target preference is for the impact of climate change to be less detrimental
on our portfolio than the relevant benchmark at the same level.
Lancashire monitors the ESG profile of its fixed maturity portfolio for
those securities covered by the MSCI ESG rating tool. The majority of the
portfolio for the year-end of 2023 was designated within the “average”
ESG category. Please see the Investment Committee report starting
on page 94 for further information.
MSCI overall rating (%)
40
30
20
10
0
AAA
AA
A
BBB
BB
B
CCC
Lancashire total
MSCI benchmark
Percentages for the MSCI Benchmark data are up-scaled to compare with the Lancashire
securities that are covered by the MSCI.
External investment managers
As of 31 December 2023, 96.7% of our external investment portfolio was
administered by managers who are signatories to the United Nation’s
Principles for Responsible Investment. After stress testing, our year-end
analysis has shown that our investment portfolio, specifically the fixed
maturities, is more resilient to the impacts of climate change than the
relevant benchmark, which we have linked to a 1.5°C future pathway
scenario. In our last strategic asset allocation study, we recommended a
target percentage to be invested in a sustainable fund. In 2023, a portion
of the funds has been dedicated to an ESG sweep facility product, an
investment tool that directs cash into a money market fund account daily.
In 2024, we will continue to look at other suitable sustainable funds. We
are committed to working with external portfolio managers to refine our
analysis further.
Resilience to climate-related risks using
scenarios analysis
Stress and scenario tests
Stress and scenario testing and reverse stress tests are performed as part of
the annual business planning process and the yearly ORSA reporting process
that includes climate-related scenarios. The capital impacts from various
scenarios, including climate-related risks and opportunities, are presented to
the RRC and Board for review and discussion. We test against the prescribed
underwriting loss event scenarios outlined in the Bermuda Solvency Capital
Requirements (BSCR) every year. In 2023, stress testing was performed on
the Group’s business plans to understand the impact should the recent high
catastrophe event experience be more indicative of the average experience
than that currently predicted by the third-party catastrophe models.
Climate scenario used
The key climate change scenario used in the business plan and ORSA was
one where the timeline for the onset of climate change related risk was
deemed to accelerate. The scenario included physical risk assumptions with
regards to frequency and severity of major hurricanes, and transition risk
assumptions resulting in a stressed impact on inwards premiums and
outwards premiums. Loss ratios were increased and an inflationary impact
added, expenses were increased and investment return decreased. Overall,
the scenario reduced key metrics such as Diluted Book Value Per Share,
profit and return on average equity by circa 30%, but had sufficient capital to
meet regulatory and rating agency requirements. This led management to
conclude the Group has resilience to the impacts of climate change risk in its
strategy and business model.
New modelling tool
In 2022, we transitioned to a different catastrophe model provider to
increase the range of secondary perils we can model. As part of this
transition and our annual model review, we have explicitly considered
the impact of climate change to ensure our hazard selections within the
model are appropriate for our understanding of the current environment
and impact with respect to climate change.
In addition, our exposure management team has licensed a new tool
to perform climate-related scenario testing looking at the impact of
changes in the frequency and severity of hurricanes and the impact
of storm surge for specified temperature increases.
All material new models and model changes are validated via the View
of Risk Committee.
Wind only – example 1
Metric
Scenarios chosen: 0% change in frequency, 4% increase in severity (for 2°C of global warming)
Occurrence exceedance probability every 1 in 200 years
Wind only – example 2
Metric
Scenarios chosen: 15% decrease in frequency, 4% increase in severity (for 2°C of global warming)
Occurrence exceedance probability every 1 in 200 years
Strategy
Historic modelling
Every quarter, we model the Lloyd’s catastrophe RDSs for our current
portfolio to understand the present-day impact of their re-occurrence.
Such events include, but are not limited to, a Japanese typhoon based
on the 1959 typhoon Vera, Florida windstorms landing in Miami-Dade
County, and Pinellas County, Gulf of Mexico windstorm, Northeast
windstorm and Carolinas windstorm.
Wind scenarios 2°C of warming
The Group calculates its outputs for modelled wind exposures which
are estimated for a 2°C warming scenario, with frequency and severity
assumptions for this scenario drawn from published scientific research
reviewing multiple underlying published estimates of hurricane changes.
The high-level stress testing looked at the relative impact using current
Lancashire exposure values, applying established relationships for windspeed
changes in terms of both severity and frequency under the differing response
parameters, compared to current assumptions. The change in Lancashire
exposure (based on current values) is shown below, which we estimate has
a slightly lower impact than that for our estimate of the impact of overall
industry exposures, using the same set of climate scenario assumptions
and modelling.
Scenarios shown consider only the impact of the physical response of 2°C of
global warming upon hurricane activity in terms of estimated wind impacts
and do not consider the impact of additional physical parameters such as
changes in the level of expected storm surges or rainfall patterns. Frequency
and severity estimate of hurricane response under projected global climate
change are inherently uncertain, with individual modelling studies generating
significant variations in results for different hurricane metrics and regions, as
a result of using different underlying resolutions of climate models with
different underlying emission scenarios and warming ranges and/or different
temperature change baselines.
Reviews of individual studies apply methods and assumptions to standardise
results into common climate baselines, with then our own expert
interpretation applied to selected ranges for the most appropriate values for
our exposure footprint. Limitations of the scenarios are that calculations
assume exposure responses, and insurance conditions remain constant as per
today’s relationships to hurricane frequency and severity parameters. No
consideration is given to any specific mitigations (e.g., the construction of
additional sea defences) or specific adaptions (e.g., strengthened local
building codes, zoning regulations, etc.), or wider changes in policy responses.
Scenarios assume no changes in exposure values through inflation or from
underwriting decisions.
Lancashire percentage change in exposure (based on the current portfolio)
10%
Lancashire percentage change in exposure (based on the current portfolio)
8%
Resilience in our strategy
The following key factors lead the Board and management to conclude there is resilience in the Group’s strategy and business model to the impacts of
climate change risk: i) our book of business is largely short-tail; ii) we are able to model the geographical indications and economic impacts of climate
risk on the products we sell; and iii) we price based on flexible and dynamic risk analysis.
Lancashire Holdings Limited | Annual Report & Accounts 2023
59
ESG – Sustainability Sustainable insurance and responsible investment continued
Risk management
Risk Management
Our approach to managing the effects of climate change is through an enterprise risk
management (ERM) framework.
The impact of climate-related risks is managed within an existing ERM framework that functions as an active partner in business
decision-making, see risks page 27.
One of Lancashire’s key operating principles, which supports the Group’s strategy
to produce an attractive risk-adjusted total return to shareholders over the long term,
is to balance risk and return through the cycle.
Processes for identifying, assessing and
managing climate-related risks
Identifying climate risks
Climate-related risks are identified and assessed as part of the usual risk
identification and management process, including dialogues with risk
owners and subject matter experts across the Group, and discussions
at the Group’s Emerging Risk Forum and the ESG Committee.
n i t o r e d
e d
r
o
M o
n i t
o
M
Mitigated
Mitigated
M o n i
t o r ing of key areas
entified
ntified
Id
e
Id
Climate risks are a part of the
Group’s underwriting and
investment risk considerations
R
e
R
p
e
o
r
p
t
o
e
r
d
t
e
d
These risks are managed similarly to others: identified, monitored,
mitigated, and reported upon against tolerance as appropriate.
The emerging risk process on page 27 explains how emerging risks
are assessed for potential impact to the business, and the process for
establishing mitigating actions and ongoing monitoring. In addition to
these conversations, our insurance underwriting guidelines and our
processes and controls allow us to identify any risks written outside
predetermined criteria.
Climate-related risks specific to the (re)insurance portfolios are identified
and assessed as part of the day-to-day underwriting process by individual
underwriters in their analysis of specific risk information and, more
broadly, in the context of the wider portfolio during the daily UMCC
and the fortnightly RRC meetings.
Some examples of risks identified include the assets to be insured,
their physical location, weather-related perils that have impacted
that location, historical frequency, severity, and expected short- and
long-term changes.
The potential impact of all material risks is assessed through:
•
•
•
•
•
the development and monitoring of early warnings or triggers that
allows timely consideration of, and adequate response to, material risks;
the development and regular use of measurement techniques to
determine the relative materiality of identified risks at a Group
and entity level;
the identification of risks that are elevated relative to business
preference, to enable the prompting of remedial actions where
appropriate;
the development of processes for regular monitoring and updating
of risk assessments in response to changes to the internal and
external risk environment; and
the assessment of the adequacy of the internal control framework
in aggregate at a risk, entity or Group level.
Risk management methods include:
•
•
transferring part of the risk elsewhere;
treating or mitigating the risk;
• accepting or tolerating the level of risk;
• eliminating or terminating the risk; or
•
revising risk appetite levels or tolerating the breach for a defined
period of time.
60
Lancashire Holdings Limited | Annual Report & Accounts 2023
Risk management
Integration into risk management framework
The Group subscribes to a ‘three lines of defence’ governance model
with respect to the identification, ownership, monitoring and mitigation
of risk. Please see page 26.
The management of climate-related risk falls within this same
framework, which is fully embedded throughout the Group and includes
discussions on climate change as the core agenda item for the ESG
Committee. Read more on page 41 and page 53.
Annual review of risk tolerances
All risk tolerances are subject to at least an annual review and
consideration by the individual boards of directors. A yearly assessment
of risk tolerances enables designing a contrasting but appropriate risk
assessment. The Board is actively involved in identifying and considering
a balanced risk and reward trade-off as they establish the Risk Profile,
Risk Appetite, and Risk Tolerances to be used. The Board considers the
capital requirements of the business on at least a quarterly basis.
The Group’s exposure to natural catastrophe risks is one of the
key drivers of the capital held by the Group to support
its underwriting activities.
Underwriting strategy days
The underwriting strategy days for the insurance and reinsurance
segments also provide a good platform for reviewing current and
anticipated future climate-related risks. Examples of such risks include
transition risks arising from a decline in value of assets to be insured,
changing energy costs and liability risks that could arise from climate-
related litigation. Physical, transition and liability risks are considered by
business segment and geographical location, and the expected impact
from the risks identified is considered with respect to both magnitude
and timescale.
Engaging with stakeholders
We actively engage with our clients to understand their net-zero
transition pathways, evaluate new risk solutions, and provide insurance
cover for their business needs, including climate risk-related solutions.
We will work with our clients through a period of global energy transition
to help manage their operational and catastrophe-exposure risks in a
controlled and responsible way.
Monitoring and reporting PMLs
The PMLs related to the top perils are monitored and reported monthly
to the RRC and quarterly to the Board. These elemental perils are
primarily those that are directly influenced by global warming.
We monitor our PMLs as a percentage of tangible capital; the chart
on page 63 shows this for our 100-year Gulf of Mexico wind net PML
at 31 December.
Climate change may influence the severity and frequency of events that impact
policyholders, and Lancashire’s quick response to such post-loss situations can,
therefore, be seen as a competitive advantage.
Lancashire Holdings Limited | Annual Report & Accounts 2023
61
ESG – Sustainability Sustainable insurance and responsible investment continued
Metrics and Targets
Metrics and Targets
We are committed to measuring, tracking and reporting our operational performance against
our path to attaining our carbon net-zero ambition in 2050.
We have engaged with ClimatePartner to calculate our corporate carbon footprint through their five-step climate action strategy.
Metrics used to assess climate-related risks and opportunities.
Our risk appetite for underwriting risks is defined as a percentage of capital we are willing to lose in a specific event, and we set a capital loss tolerance
for and track the Company’s modelled PMLs to weather-related hurricane perils. Our underwriting strategy is based on several factors, (including but
not limited to):
• market conditions;
• available capital;
• market opportunities; and
• pricing adequacy
Impact of climate-related risk on the current portfolio
In the Strategy section starting on page 54, we described the work undertaken in 2023 to identify and articulate the financial impacts of climate-
related risks. The table below sets out the possible financial impact of physical risk based on our current portfolio. If exposure was to change materially
the financial impact could be more significant. However, the longer term impact to the Group should be managed by our ability to reprice contracts if
needed and develop new products.
Further detail is also included in the insurance risk disclosures on pages 149 to 153, where we have noted the geographical area of risks insured and the
Group’s exposure to certain peak zone elemental losses by geography as a percentage of tangible capital over a 100-year and 250-year return period.
Physical: acute and chronic
Tropical Cyclone
U.S. Windstorm – Gulf of Mexico
U.S. Windstorm – Non-Gulf of Mexico
Japan Typhoon
Extratropical Cyclone
European Windstorm
Time frame
Magnitude of impact
Potential financial impact Group net PML/ % of capital
Medium
Medium
Medium
High
High
Medium
$300.5 million/16.9%
$237.9 million/13.4%
$134.0 million/7.6%
Medium – Long
Medium
$161.4 million/9.1%
Mitigation
• Positive feedback loop in pricing models that reflect heightened risks from climate change
• Lancashire adjusts gross risk appetite wherever the risk is viewed as inappropriately priced for the exposure
• Outwards reinsurance is adapted to reflect the changing exposures
• Robust internal controls ensuring PMLs are monitored monthly by the RCC
• Additional secondary perils now modelled
• We continue to develop views on other perils
62
Lancashire Holdings Limited | Annual Report & Accounts 2023
PML as a percentage of GWP
The chart below illustrates the Gulf of Mexico one in a 100-year event, and how the PML as a percentage of gross written premium has been managed
over time.
Metrics and Targets
50
40
30
20
10
0
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Our PMLs are derived using stochastic models licensed from third-party vendors. These models include perils such as windstorm, convective storm,
wildfire and flood. The View of risk committee assesses the assumptions within the licensed model and, where appropriate, applies loadings to it.
Model outputs are regularly challenged at both the macro and specific account levels. The RRC reviews our PMLs and the actual in-force exposure
versus tolerance on a monthly basis. The loadings applied to the model are reviewed by the View of Risk Committee periodically to assess their
ongoing appropriateness.
Additionally, risk learning can be performed following a large catastrophe event to compare the actual loss versus the modelled loss to assess further
the appropriateness of the assumptions and loadings within the model and establish whether further adjustments are required.
Carbon intensity of fixed-income
The IRRC is cognisant of the potential impact transitional risk has on the Group’s assets within the investment portfolio. Carbon intensity limits have
been added to our fixed-income managers’ guidelines. We monitor our fixed-income portfolio’s carbon intensity and transition risk. Updates on these
metrics, including the investment portfolio’s exposure to climate-related risk, for those securities covered, as compared to the MSCI Climate VaR is
monitored and reported to the Investment Committee quarterly. The Lancashire Fixed Maturity portfolio has a target preference for the aggregate
climate risk measured by Climate VaR by MSCI, at the 1.5°C degrees global warming goal, in line with the Paris Accord, to have a lesser financial
impact than the relevant MSCI ESG benchmark.
Most of the investment portfolio at year-end 2023 comprised of fixed maturity securities, making up 83.8%, of which almost half were government-
related securities. We had 34.5% allocated to corporate bonds, of which we had a small exposure to climate-related risks. Further insight into the
structure of our financial portfolio can be found on page 20.
Scope 1, 2, and 3 GHG emissions
Measuring and offsetting
The Group is committed to managing the environmental impact of its business. We measure our carbon footprint to minimise its negative impact
through mitigation strategies and offsetting 100% of our greenhouse gas (GHG) emissions from our own operations to remain carbon neutral.
The ClimatePartner certification program provides insight into the effectiveness of our efforts to make progress on our 2050 net-zero ambition. Our
approach to reporting GHG emissions is to be transparent, aiming to continually refine our processes to reflect relevant standards, methodologies,
and, where appropriate, best practices.
During 2022, we instructed ClimatePartner to calculate and facilitate offsetting our carbon emissions; a report on the metrics collected can be found
on page 68.
CDP submission
The Group CRO and the Board oversee the Company’s annual submission to the CDP (previously known as the ‘Carbon Disclosure Project’) and note
that the information which is requested as part of that reporting process is aligned with the recommendations of the TCFD.
Lancashire Holdings Limited | Annual Report & Accounts 2023
63
ESG – Sustainability Metrics and Targets
Offsetting emissions
The Group commits to continue to offset 100% of Scope 1 and 2
emissions and 100% of the Scope 3 emissions pertaining to our
operations, which we are able to accurately calculate and exercise
sufficient control over at this time. These include business travel,
waste generated in operations, our employees’ commuting, and fuel
and energy-related activities not included within Scope 1 or Scope 2.
As a financial services company, we consider some emissions categories
to be either not applicable to our operations or that we have minimal
operational control over them. We are working with a specialist third
party and alongside others in the industry to understand how to
accurately calculate and track emissions within the unreported
categories where applicable.
Going forward
The Group will continue to benefit from the 100% renewable electrical
energy from our 20 Fenchurch Street London office location, a BREEAM
“Excellent” rated building. As the Group continues to search for
innovative ways to reduce our own emissions, we will continue to
challenge the status quo and propose ideas for consideration outside of
those related to business travel. We are always looking at ways to reduce
paper usage further, reduce water waste, improve recycling, and
eliminate single-use plastics. A list of the full metrics can be found in the
GHG disclosure section on pages 69 and 70.
For the Group’s investments, we continue to have a target of managing
the impacts of our fixed maturity portfolio by reference to a Climate
VaR appetite statement, as discussed in the risk management section.
For our underwriting exposure, Lancashire limits its tangible capital at
risk by referencing a series of PML loss exposure scenarios, including
climate-related loss scenarios. PMLs are regularly monitored and
reported to the Board every quarter and reflect real-time changes in
the Group’s underwriting portfolio. The Group’s stated tolerance is to
expose not more than 25% of its tangible capital by reference to any
one of its principal PMLs. More information on the reported outcomes
of this process can be found in the Financial Statements section under
Risk disclosures, see page 150; it further shows the details of the Group’s
principal PMLs, including those related to catastrophic weather loss
events linked to climate change risk.
Sustainable insurance and responsible investment continued
Digital capabilities
With global operations in London, Bermuda, Australia, and recently
in the U.S., as well as clients and brokers around the world, the
Lancashire Group has incurred the bulk of its carbon footprint from
business travel. Timely communication and knowledge sharing are
critical to our operation for employees to perform their jobs effectively.
We have adopted several digital solutions in our offices to reduce
inter-office travel and facilitate remote work and virtual collaborations.
All our offices have video and telephone conferencing capabilities at
all individual workstations and meeting rooms. As travel restrictions
started to lift in 2022, in-person conferences and events recommenced,
which saw an uptick in travel when it was considered safe for our
employees. Following the global pandemic, travel levels during 2023
are back to what we consider normal and necessary for our business
to maintain good relationships with our clients and stakeholders.
Targets used to manage climate-related
risks and opportunities
Net zero in 2050 objective
In 2021, the Group expressed its objective to meeting the UK
Government’s net-zero target by 2050. Our baseline year, 2015,
was selected because it was the first full year in our London office
at 20 Fenchurch Street, an energy-efficient building with a BREEAM
“Excellent” rating.
The following diagram shows our path to carbon net-zero in 2050,
illustrating the planned downward trajectory of our emissions per FTE
and the intended increase in offsetting projects that remove carbon from
the atmosphere.
Lancashire’s path to carbon net-zero in 2050
-16% CO2
per FTE
-15%
CO2 per FTE
2
O
C
s
n
o
i
s
s
i
m
e
2015
2020
2030
2050
Carbon emissions neutralised
Carbon emissions removed from atmosphere
In terms of the Group’s own emissions targets and the Group’s business
travel emissions, we have travel policies in place to reduce our impact
on the environment whilst balancing the needs of our employees and
Directors. For instance, our policy is not to ordinarily book a business
class airline ticket if the flight is less than five hours long.
64
Lancashire Holdings Limited | Annual Report & Accounts 2023
Delivering responsibly
We understand that we have an obligation to ensure we operate in a
responsible, respectful and sustainable way. Central to this is maintaining
high standards of business supported by appropriate policies, controls
and oversight.
We aim to be a good corporate citizen and a responsible preserver of
resources. To that end, the Group operates in line with all relevant
regulatory and legal requirements, giving particular regard to the
environmental, social and governance regulations of the BMA, PRA, FRC,
FCA, Lloyd’s, UNEP-FI, TCFD, Mandatory Greenhouse Gas Emissions
reporting/Streamlined Energy and Carbon Reporting (SECR), and Home
Office (Modern Slavery Statement Registry).
Our stakeholder responsibilities
Our
policyholders
Our
people
Society
and the
environment
Brokers
Regulators
Suppliers
Our
shareholders
and investors
A responsible approach to protect and support
Policy / area
Our approach
Health and safety We are less exposed to major incidents due to our operations being based in an office
environment. However, to ensure our people and visitors are supported and protected
we regularly consult with employees on health and safety issues.
We maintain risk assessments for tasks carried out by employees where potential danger has
been identified. Business Continuity, Disaster Recovery, and Fire Safety training, is mandatory
for all employees.
Whistleblowing
Our full Health and Safety Policy is communicated to employees on joining and is available
on the intranet.
Each Group entity has a designated whistleblowing champion, a Non-Executive Director, who
can be contacted if employees would prefer to raise concerns with them.
We encourage people to report any activity that may constitute a violation of laws, regulation
or internal policy, and reporting channels are provided to staff for this purpose within a
whistleblowing policy available on the Group intranet.
As part of our day-to-day operations, the Group collects and uses information about its
employees, policyholders, shareholders and others.
Data protection
and privacy
Information, however it is collected, recorded and used, must be handled and dealt with
correctly and in line with our data protection policies.
The Audit Committee of the Board has overall responsibility for data protection and privacy
and receives a quarterly report for review.
Stakeholder impact
Board oversight
Our people
Yes
Brokers
Regulators
Our shareholders
and investors
Society and the
environment
Our people
Regulators
Our shareholders
and investors
Yes
Our policyholders
Yes
Our people
Brokers
Regulators
Suppliers
The Group fully endorses and adheres to the principles of data protection as set out in the
relevant UK data protection legislation. All employees are expected to familiarise themselves
and comply with the regulations.
Our shareholders
and investors
Lancashire Holdings Limited | Annual Report & Accounts 2023
65
ESG – Sustainability Sustainable insurance and responsible investment continued
Policy / area
Our approach
Information
security
During 2023, we developed enhanced Information Security and Acceptable Usage Policies.
These policies provide good practice security principles presented in easily accessible terms
and designed to keep employees, the Company, and its information safe.
Cyber incident
response
Lancashire is aware of the risks from cyber security incidents and has a number of
technologies, processes and procedures in place to mitigate and respond to any issues
that may arise. These include ‘table-top’ exercises to stress test our plans, which are
attended by colleagues from appropriate functions across the Group.
Anti-slavery and
human trafficking
We are proud of the conditions of employment for all our employees throughout the
Lancashire Group. We consider that there is minimal risk that, within either the Lancashire
Group or the very limited supply chains which support our business activities, the Lancashire
Group is involved in, supportive of, or complicit in slavery and human trafficking.
Stakeholder impact
Board oversight
Our people
Yes
Regulators
Our suppliers
Our shareholders
and investors
Our policyholders
Yes
Our people
Brokers
Regulators
Suppliers
Our shareholders
and investors
Our policyholders
Yes
Our people
Society
The Group’s Anti-Slavery and Human Trafficking Statement is available on our website.
Brokers
Anti-Money
Laundering,
Bribery and
Financial Crime
Policy
The Group has appropriate procedures to prevent and/or report incidents of money
laundering, bribery and other forms of financial crime. A training programme is active to
ensure a widespread understanding of our policies. All Group employees are required to
report to their local Money Laundering Reporting Officer any potentially suspicious activity.
A report is received by the Audit Committee of the Board on a quarterly basis.
Procurement
Sanctions
Share dealing
Lancashire engaged with a strategic IT vendor (SCC) in 2023 to establish recycling services
for technology assets (e.g. mobile phones, laptops, servers, etc.) that are no longer required.
This partnership enables Lancashire and SCC to securely and environmentally process items
that are refurbished, remarketed or recycled.
Lancashire looks to ensure compliance with all applicable sanctions legislation in the
jurisdictions in which the Group operates. These include the sanctions regimes of the United
Nations, United Kingdom, Bermuda, United States and European Union. The processes and
systems are documented and approved annually by the LHL and relevant subsidiary boards.
Quarterly reports are provided to LHL and subsidiary boards to confirm whether there have
been any breaches, or not, during the period.
The Group’s Share Dealing Code places restrictions on the trading of LHL’s securities for
employee shareholders and, along with the Group’s Disclosure Policy, restricts the
disclosure of any confidential information.
66
Lancashire Holdings Limited | Annual Report & Accounts 2023
Regulators
Suppliers
Our shareholders
and investors
Our policyholders
Yes
Our people
Regulators
Our shareholders
and investors
Suppliers
Society
Our policyholders
Yes
Society
Brokers
Regulators
Regulators
Our shareholders
and investors
Our people
Understanding the role we play
A culture of responsibility
We understand that successfully operating a modern business comes
with increased responsibility.
Tax authorities
The Group maintains proactive relationships with relevant tax authorities
in order to comply with all its tax obligations. This requires us to keep
abreast of developments in tax legislation and to work with the tax
authorities to manage our tax risk.
Collaboration with third parties
During the course of our business operations, Lancashire utilises a
number of third-party suppliers. These providers complement our
in-house skills and we recognise the importance of these partnerships
and that success comes through openness and collaboration.
We strive to receive assurance that employers within the ancillary
services and limited supply chains used by the Group pay a Living Wage.
Payments to service providers are made in accordance with the
individual payment terms agreed. The Group’s UK subsidiary, LUK,
complies with its statutory reporting duty for payment practices and
performance in relation to qualifying contracts on a half-yearly basis.
Lancashire has its own responsibilities to those within its limited supply
chain. Any concerns arising over the ethical practices and human rights
records of insureds and potential clients would be considered as part of
the underwriting process.
We embed our values across our operations including showing
appropriate leadership and acting as a good corporate citizen
and a responsible preserver of resources.
Our regulators, rating agencies and lenders
The Group has an active programme of engagement with the
relevant regulatory bodies which provide the Group with supervision
and oversight.
This includes meetings, regular reporting or engaging with routine
regulatory reviews. The Board and management monitors changes
in regulatory and supervisory requirements closely.
Lancashire and its insurance subsidiaries are assessed for financial
strength and creditworthiness by three major rating agencies: A.M. Best,
S&P and Moody’s. We engage with each regularly to discuss financial
performance and when significant events occur, such as loss events.
We underwrite business successfully in all major regulated global
(re)insurance markets and purchase reinsurance coverage as
part of our capital management and regulatory compliance.
We operate in compliance with our credit facilities, which
support underwriting obligations.
Additionally, the syndicates benefit from Lloyd’s current ratings,
resources, brand and network of global licences.
The Group requires the flexibility to execute its strategy and react to
economic conditions, and values its strong relationships with its lenders.
Lancashire Holdings Limited | Annual Report & Accounts 2023
67
ESG – Sustainability Sustainable insurance and responsible investment continued
GHG reporting
Environmental impact and offsetting
The Group is committed to both understanding and managing the
environmental impact of its business operations and has engaged
ClimatePartner to calculate its corporate carbon footprint (CCF),
for the 2023 reporting year. The CCF reflects the total CO₂ emissions
released by the Company’s own business operations, within defined
system boundaries and for a specified period of time, with the
calculations based on the guidelines of the Greenhouse Gas Protocol
Corporate Accounting and Reporting Standard (GHG Protocol).
We are committed to measuring our carbon
footprint for our own operations annually,
to minimise its negative impact through
mitigation strategies, and to offsetting at least
100% of our calculated GHG emissions.
Historically, the Group has achieved its carbon-neutral status
for its own operations through the purchase of carbon credits,
predominantly in carbon avoidance programmes, which assist in
the creation and/or maintenance of systems and technologies that
replace carbon intensive processes.
In 2021, for the first time, the Group offset 15% of its emissions via a
carbon sequestration project, which aims to actively remove carbon
from the atmosphere, with the remainder of our carbon credits procured
via carbon avoidance projects.
We followed the same approach for 2022, but have increased the
allocation to carbon sequestration projects for 2023. This year we have
procured 20% of our carbon credits via a carbon sequestration project
with the remaining 80% offset in a carbon avoidance programme. We
report the emissions data for the Group in the table on page 69.
GHG overview and methodology
Our GHG inventory is used as a tool for meeting the Group’s carbon
reduction goal, understanding our energy consumption, identifying ways
to reduce our footprint, understanding energy and emission trends, and
improving our methodology in data collection.
Emissions data was calculated using the Company’s consumption data
and various emission factors researched by ClimatePartner. Wherever
possible, primary data was used. If primary data was not available,
secondary data from highly credible sources was used, with emission
factors taken from scientifically recognised databases such as ‘Ecoinvent’
and DEFRA.
Operational boundaries
Lancashire used an operational control approach to assess its boundaries
and identify all the activities and facilities for which it is responsible.
Per the ISO 14064-1 guidance, operational control is defined when an
organisation has control over its operation, and they have full authority
to introduce and implement its operating policies at the operational
level. We have reported 100% of our Scope 1 and Scope 2 CCF, along
with areas of our Scope 3 CCF with high levels of operational control.
Employee commuting
For the last two years, the Group has reported emissions associated
with its employees’ commuting and home working within its Scope 3
emissions. For this reporting period, a more detailed survey regarding our
employees’ commuting habits was undertaken, which was completed by
over 40% of employees globally. This change led to a significant
improvement in both the volume and quality of data collected, with a
subsequent reduction of estimated data employed by our consultant in
these CCF calculations. As a result of this improved data quality, we note
a reduction in our employee commuting emissions of 67.6%, from 515.8
tCO2e in 2021-2022 to 166.9 tCO2e, in this 2022-2023 reporting period.
International operation footprint
With active commercial operations in four countries, along with clients
and brokers around the globe, the Group has typically incurred the bulk
of its carbon footprint within Scope 3 due to airline travel. Historically,
these emissions were calculated based upon all the flights booked within
the reporting period. For the past two years, in order to improve the
accuracy of our reporting, we have changed the methodology to only
include the flights that were taken within the period.
Our offices
Our London office is already well optimised, as 20 Fenchurch Street has
a BREEAM ‘excellent’ certified performance rating. The building sources
100% renewable electricity on a tariff that is backed up by associated
Renewable Energy Guarantees of Origin (REGOs), with an appropriate
residual grid factor applied for our operations in Bermuda and Australia.
Representatives from the London office have engaged with the building
management’s ‘Green Building’ meetings and the property’s energy-
saving initiatives. We continue to work with the respective building
management teams in both Bermuda and Australia, in order to
participate in any applicable initiatives for the business, in each location.
FTE as intensity metric
Lancashire uses tCO2e per full time employee (FTEs) as its intensity
metric in its CCF. As the company grows, the FTEs count has increased
year-on-year, with significant recruitment in 2023. Although there
has been a small increase in total emissions, emissions per FTE have
decreased in this reporting period. The progress against our 2030 target
table on page 70 depicts the Group’s CCF for the current and prior
reporting period, noting the change in the reporting period and the
emissions broken down by source.
68
Lancashire Holdings Limited | Annual Report & Accounts 2023
Streamlined energy and carbon reporting disclosure – 1 July 2022 to 30 June 2023
Emissions from the combustion of fuel or the operation of any facility
including fugitive emissions from refrigerants use / tCO2e
Emissions resulting from the purchase of electricity, heat, steam or cooling by
the company for its own use / tCO2e
Gross emissions (Scope 1,2) / tCO2e
Energy consumption used to calculate above emissions /kWh
Total gross emissions (Scope 1, 2, 3) / tCO2e
tCO2e per FTE
Current 2023 reporting year
(market-based)
1 July 2022 to 30 June 2023
Previous 2022 reporting year
(market-based)
1 July 2021 to 30 June 2022
UK & Offshore
UK Only
UK & Offshore
UK Only
101.6
92.1
154.1
150.5
280.6
382.2
1,320,545.0
2,642.8
7.3
–
92.1
944,270.0
265.1
419.2
2,004,830.0
2,407.7
7.8
–
150.5
1,366,540.0
We have purchased a total of 2,907 carbon credits, to support our continued carbon-neutral status.
Fully offset own emissions
The Group has fully offset its calculated GHG market-based emissions
for 1 July 2022 to 30 June 2023 with ClimatePartner, by purchasing
verified credits in both carbon avoidance and carbon sequestration
programmes. A safety margin of 10% was applied to the total carbon
footprint incurred, to compensate for uncertainties in the underlying
data that naturally arise from using database values, assumptions,
or estimates.
Carbon credit breakdown
80% carbon avoidance
20% carbon sequestration
renewable energy projects in Asia
renewable energy in Chile and tree
planting in the UK
These offsetting proposals were discussed and agreed with the Group CEO.
Lancashire Holdings Limited | Annual Report & Accounts 2023
69
ESG – Sustainability Sustainable insurance and responsible investment continued
Encourage and support employees
The Board will continue to monitor the Group’s emissions from its own operations and be mindful of the Group’s strategic and business operational
requirements. We encourage the use of public transport, walking and cycling to commute to our places of work. As a result of the employee
commuting surveys completed in 2022 and 2023, we note that the majority of our employees commute to their place of work via public transport.
We continue to provide incentives for our London office employees to support this with a season ticket loan scheme as well as assistance in purchasing
bicycles, with all of our offices having designated storage.
Types of emissions
Scope 1
Direct emissions from Company facilities
Scope 2
Purchased electricity for own use
Scope 3
Activity
Heat (self-generated)
Refrigerant leakage
Electricity (stationary)
Business travel (flights, hotel nights, vehicles, and rail)
Employee commuting and home office
Fuel- and energy-related activities (upstream emissions for
electricity and heat)
Purchased goods and services (office paper and water)
Waste generated in operations
Gross emissions (tCO2e) (market-based)
Gross emissions per FTE (tCO2e/FTE)
Carbon credits
Total net emissions after offset (tCO2e)
Please note: all numbers quoted have been rounded to one decimal place.
1 July 2022 –
30 June 2023
77.2
24.4
1 July 2021 –
30 June 2022
135.6
18.5
280.6
2,006.4
166.9
79.1
6.9
1.3
2,642.8
7.3
2,907.0
–
265.1
1,348.0
515.8
116.0
7.0
1.7
2,407.7
7.8
2,648.5
–
Upstream fuel- and energy-related activities include Well-to-Tank and Transmission & Distribution emissions. These are emissions associated with the upstream processes of
extracting, refining and transporting raw fuel and the emissions associated with the electrical energy lost during transmission to our business.
Progress against our 2030 target
The following diagram shows the change in the Group’s emissions per FTE from the baseline year of 2015 against our current target of a further
reduction in emissions per FTE of 15% by 2030.
15
12
9
6
3
0
2015
2016
2017
2018
2019
2020
2021
2022
2023
Gross emissions per FTE (tCO2e/FTE)
Target
70
Lancashire Holdings Limited | Annual Report & Accounts 2023
Delivering as a
responsible business
“Strong corporate
governance is central
to Lancashire’s
long-term success.”
Peter Clarke
Non-Executive Chair
Lancashire Holdings Limited | Annual Report & Accounts 2023
71
ESG – Governance Board of Directors
Delivering oversight
Peter Clarke
Non-Executive Chair
B
I
N
R
Date of appointment to the Board: 9 June 2014
Board meeting attendance: 4/4
Skills, experience and qualifications:
Peter Clarke was Group Chief Executive of Man Group plc between April 2007 and February 2013. In 1993,
Mr Clarke joined Man Group plc, a leading global provider of alternative investment products and solutions
as well as one of the world’s largest futures brokers. He was appointed to the board in 1997 and served in a
variety of roles, including Head of Corporate Finance and Corporate Affairs and Group Company Secretary,
before becoming the Group Finance Director in 2000. During this period, he was responsible for investing
in and developing one of the leading providers of third-party capital insurance and reinsurance products.
In November 2005, he was given the additional title of Group Deputy CEO. Mr Clarke has previously
served as the Chair of the National Teaching Awards Trust. Mr Clarke took a first in Law at Queens’
College, Cambridge and is a qualified solicitor, having practised at Slaughter and May, and has
experience in the investment banking industry, working at Morgan Grenfell and Citibank.
External appointments/Other roles:
Mr Clarke is currently a Non-Executive Director of RWC Partners Limited, RWC Holdco Limited,
RWC Midco Limited and Lombard Odier Asset Management.
Philip Broadley
Non-Executive Director and Chair Designate
Date of appointment: 8 November 2023
Board meeting attendance: 0/0
B
Skills, experience and qualifications:
Philip Broadley was appointed as a Non-Executive Director to the Board and as Chair designate of the
Lancashire Board in November 2023. Mr. Broadley was Group Finance Director of Prudential plc from
2000 until 2008 and subsequently held the same position at Old Mutual plc from 2008 until 2014. He has
served as Chairman of the 100 Group of Finance Directors and as a member of the Code Committee of The
Takeover Panel. He chaired the Group Audit Committee of Legal & General for six years. Prior to his board
roles, Mr. Broadley began his career at Arthur Andersen in 1983, becoming a partner in 1993, where he
specialised in auditing banks and insurance companies. Mr. Broadley is a Fellow of the Institute of Chartered
Accountants in England and Wales. Mr. Broadley graduated in Philosophy, Politics and Economics from St.
Edmund Hall, Oxford, where he is now a St. Edmund Fellow. He holds an MSc in Behavioural Science from
the London School of Economics.
External appointments/Other Roles:
Mr. Broadley is Senior Independent Director and Audit Committee Chair at AstraZeneca PLC and a
Non-Executive Director of Legal & General Group Plc. He is Treasurer of the London Library and Chair
of the Board of Governors at Eastbourne College.
Alex Maloney
Group Chief Executive Officer
B
U
Date of appointment to the Board: 5 November 2010
Board meeting attendance: 4/4
Skills, experience and qualifications:
Alex Maloney joined Lancashire in December 2005 and was appointed Group Chief Executive Officer in
April 2014. On joining, Mr Maloney was responsible for establishing and building the energy underwriting
team and account and, in May 2009, was appointed Group Chief Underwriting Officer. Since November
2010, Mr Maloney has served as a member of the Board. Mr Maloney has also been closely involved in the
development of the Group’s Lloyd’s strategy. Mr Maloney has over 30 years’ underwriting experience and
has also worked in the New York and Bermuda markets.
72
Lancashire Holdings Limited | Annual Report & Accounts 2023
Natalie Kershaw
Group Chief Financial Officer
B
I
Date of appointment to the Board: 1 March 2020
Board meeting attendance: 4/4
Skills, experience and qualifications:
Natalie Kershaw joined Lancashire in December 2009 as the Group Financial Controller and has also
held the positions of Chief Financial Officer of Lancashire Insurance Company Limited and Group Chief
Accounting Officer. She has over 20 years’ experience of the insurance/reinsurance sector with previous
roles at Swiss Re, ALAS (Bermuda) Ltd and PwC. Ms Kershaw graduated from Jesus College, Oxford in 1996
with a first class degree in Geography and is a Fellow of the Institute of Chartered Accountants in England
and Wales.
Michael Dawson
Non-Executive Director
B
N
R
U
Jack Gressier
Non-Executive Director
B
R
U
A
Date of appointment to the Board: 3 November 2016
Board meeting attendance: 4/4
Skills, experience and qualifications:
Michael Dawson has more than 40 years’ experience in the insurance industry, having started his career
at Lloyd’s in 1979. He joined Cox Insurance in 1986 where he was the Chief Executive from 1995 to 2002.
In 1991, Mr Dawson formed and became the underwriter of Cox’s and subsequently Chaucer’s specialist
nuclear syndicate 1176, where he remains the active underwriter. Between 2005 and 2008, Mr Dawson was
appointed Chief Executive of Goshawk Insurance Holdings PLC and its subsidiary Rosemont Re, a Bermuda
reinsurer. Mr Dawson served on the Council of Lloyd’s from 1998 to 2001 and on the Lloyd’s Market Board
from 1998 to 2002.
External appointments/Other roles:
Mr Dawson is Deputy Chair of the Management Committee of Nuclear Risk Insurers Limited. He is also a
director of Knoll Investments Limited, Dawmouse Limited and Glengau Limited, all private family companies.
Date of appointment to the Board: 26 July 2022
Board meeting attendance: 4/4
Skills, experience and qualifications:
Jack Gressier has over 30 years’ experience in the insurance industry, including as Chief Operating Officer
of Axis Capital Holdings Ltd. and the Chief Executive Officer of its Insurance segment. He served as an
underwriter at Charman Underwriting Agencies from 1989 until 1998, when acquired by ACE Limited.
At ACE, he served in a number of senior roles including as a member of the Global Markets Executive
Underwriting Committee and was appointed Joint Active Underwriter of Syndicate 2488 and director
of the ACE Agency Board, where he served until joining AXIS in 2002.
External appointments/Other roles:
Currently serving as Non-Executive Chair to strategic intelligence firm, Herminius Holdings Ltd.
Key
Chair
B
Board of
Directors
A
I
N
R
U
Audit
Committee
Investment
Committee
Nomination, Corporate
Governance and
Sustainability Committee
Remuneration
Committee
Underwriting and
Underwriting Risk
Committee
Lancashire Holdings Limited | Annual Report & Accounts 2023
73
ESG – Governance Board of Directors continued
Bryan Joseph
Non-Executive Director
B
A
U
Robert Lusardi
Senior Independent
Non-Executive Director
B
A
I
R
Irene McDermott Brown
Non-Executive Director
B
N
R
Date of appointment to the Board: 26 April 2023
Board meeting attendance: 2/2
Skills, experience and qualifications:
Bryan is a Fellow of the Institute and Faculty of Actuaries with over 40 years of experience in the insurance
and reinsurance industry. Having started his career as a trainee actuary in Legal & General, Bryan held a
number of senior roles in the industry including partner and global chief actuary for PwC. Bryan left PwC in
2015 and founded Vario Partners LLP, an ILS consultancy specialising in transforming underwriting risk into
capital markets. In 2016, Bryan joined XL Catlin (now AXA XL) as an independent non-executive director
serving in a variety of non-executive director and committee Chair roles within the AXA XL group including
as Chair of the audit committees, and as Chair of XL Insurance Company SE, the group’s European and Asia
Pacific focused entity, overseeing its move to the Republic of Ireland and merger with AXA. Bryan stepped
down from all AXA XL Directorships in 2023 to take on his role with Lancashire.
External appointments/Other roles:
Bryan is a partner of Vario Partners LLP and a director of Vario Global Capital Limited, the Vario operating
company. Bryan was appointed as a Non-Executive Director for Sabre Insurance Group plc in June 2023.
Date of appointment to the Board: 8 July 2016
Board meeting attendance: 4/4
Skills, experience and qualifications:
From 1980 until 1998, Robert Lusardi was an investment banker in New York, ultimately as Managing
Director of the insurance and asset management industries. From 1998 until 2005, he was a member of
the Executive Management Board of XL Group plc, first as Group CFO then as CEO of one of their three
operating/reporting segments; from 2005 until 2010 he was an EVP of White Mountains (an insurance
merchant bank) and CEO of certain subsidiaries; and from 2010 to 2015 he was CEO of PremieRe Holdings,
a private insurance entity. He has been a director of a number of insurance-related entities including
Symetra Financial Corporation, Primus Guaranty Ltd., OneBeacon Insurance Group Ltd., Esurance Inc.,
Delos Inc., Pentelia Ltd. and FSA International Ltd. He received BA and MA degrees in Engineering and
Economics from Oxford University, an MBA from Harvard University and PhD from Barry University.
External appointments/Other roles:
He is also on the boards of Symetra Financial Holdings, Inc., a life insurer, and a Board member of Oxford
University’s 501(c)3 charitable organisation.
Date of appointment to the Board: 28 April 2021
Board meeting attendance: 4/4
Skills, experience and qualifications:
Irene McDermott Brown most recently held the position of Chief Human Resources Officer at M&G plc,
a FTSE 100 international savings and investments firm, retiring from that role on 31 December 2021. Her
executive career has included international human resources roles at Barclays, BP, and Cable and Wireless.
Ms McDermott Brown’s UK experience includes over 12 years at Mercury Communications, Digital
Equipment Company and the Electricity Supply Industry. She has an MSc from the London School of
Economics in Industrial Relations and is a Fellow of the Chartered Institute of Personnel and Development.
Key
74
Chair
B
Board of
Directors
A
I
N
R
U
Audit
Committee
Investment
Committee
Nomination, Corporate
Governance and
Sustainability Committee
Remuneration
Committee
Underwriting and
Underwriting Risk
Committee
Lancashire Holdings Limited | Annual Report & Accounts 2023
Sally Williams
Non-Executive Director
B
A
N
Christopher Head
Company Secretary
Date of appointment to the Board: 14 January 2019
Board meeting attendance: 4/4
Skills, experience and qualifications:
Sally Williams has more than 30 years’ experience in the financial services sector, with extensive risk,
compliance and governance experience, having held senior positions with Marsh, National Australia
Bank and Aviva. Ms Williams is a chartered accountant and spent the first 15 years of her career with
PricewaterhouseCoopers, where she was a director specialising in financial services risk management
and regulatory relationships. She also undertook a two-year secondment from PwC to the Supervision
and Surveillance Department at the Bank of England. Ms Williams is also a Director of Lancashire
Insurance Company (UK) Limited.
External appointments/Other roles:
Ms Williams is a Non-Executive Director of Family Assurance Friendly Society Limited (OneFamily),
where she is chair of both their Audit Committee and their With Profits Committee, and a member
of the Risk, Nominations and Member and Customer Committees. Ms Williams is also a Non-Executive
Director of Close Brothers Group plc and Close Brothers Limited, where she is a member of their Audit
and Risk Committees.
Skills, experience and qualifications:
Christopher Head is a qualified solicitor and joined Lancashire in September 2010. He was appointed
Company Secretary of LHL in 2012 and advises on issues of corporate governance and generally on legal
affairs for the Group. He also advises on the structuring of Lancashire’s third-party capital underwriting
initiatives, which have included the Accordion and Kinesis facilities. Prior to joining Lancashire, he was
in-house Counsel with the Imagine Insurance Group, advising specifically on the structuring of reinsurance
transactions. He transferred to Max at Lloyd’s in 2008 as Lloyd’s and London Counsel. Between 1998
and 2006, Mr Head was Legal Counsel at KWELM Management Services Limited, where he managed an
intensive programme of reinsurance arbitration and litigation for insolvent members of the HS Weavers
underwriting pool. Mr Head worked until 1998 at Barlow Lyde & Gilbert in the Reinsurance and
International Risk Team. Mr Head has a History MA and legal qualification from Cambridge University.
Director skills matrix
Corporate Governancei
Strategyii
Accounting / Audit
Insurance / Reinsurance
Corporate Financeiii
Investmentiv
Actuarial / Reserving
Risk Managementv
ESGvi
Leadershipvii
Digital and Technology oversight and resourcingviii
Listed Capital Markets Experience
8
6
8
10
9
10
10
6
i.
ii.
iii.
iv.
v.
vi.
Including legal, regulatory
and compliance
Including business
development and M&A
Including equity, debt and
corporate funding projects
Including investment treasury,
portfolio and asset-liability
management
Including internal control
and internal audit processes
Including sustainability
and climate change
vii. Including senior management
experience, people
management, succession,
culture and communication.
viii. Including oversight of data
management, information
security and cyber
0
1
2
3
4
5
6
7
8
9
10
Number of Directors with relevant skills
Lancashire Holdings Limited | Annual Report & Accounts 2023
75
ESG – Governance Corporate governance report
Board Committees
Board and Committee administration
The Board of Directors is responsible for the leadership, strategy and
control and the long-term success and sustainability of Lancashire’s
business. The Board has reserved a number of matters for its decision,
including responsibility for setting the Group’s values and standards,
and approval of the Group’s strategic aims and objectives. The Board
has delegated certain matters to Committees of the Board, as described
below. Copies of the Schedule of Board-Reserved Matters and Terms of
Reference of the Board Committees are available on the Company’s
website at www.lancashiregroup.com.
The Board has approved and adopted a formal division of responsibilities
between the Chair and the Group CEO. The Chair is responsible for the
leadership and management of the Board and for providing appropriate
support and advice to the Group CEO. The Group CEO is responsible
for the management of the Group’s business and for the development
of the Group’s strategy and commercial objectives. The Group CEO
is responsible, along with the executive team, for implementing the
Board’s decisions.
The Board and its Committees meet on at least a quarterly basis. At the
regular quarterly Board meetings, the Directors review all areas of the
Group’s business, strategy and risk management and receive reports
from management on underwriting, reserving, reinsurance, finance,
investments, capital management, internal audit, risk, legal and
regulatory developments, compliance, climate change risk, ESG and
sustainability and other matters affecting the Group. Management
provides the Board with the information necessary for it to fulfil its
responsibilities. In addition, presentations are made by external advisers
such as the independent actuary, the investment managers, the external
auditors, the remuneration consultants and the corporate brokers. The
Board Committees are authorised to seek independent professional
advice at the Company’s expense.
The Board also meets to discuss strategic planning matters in addition
to the customary schedule of quarterly meetings. The Board dedicated
time to strategic opportunities and capital planning at a dedicated Board
strategy session which was held in April 2023 in which all Directors and
invited members of the management team participated.
The Chair holds regular meetings with the Non-Executive Directors,
without the Executive Directors present, to discuss a broad range of
matters affecting the Group. The Chair also holds regular meetings
with the Chairs of the Group’s principal operating subsidiaries: LICL,
LUK, LSL and LCM.
All Directors attended the scheduled quarterly proceedings of the 2023
Board and their relevant Committees meetings, with the exception of
Peter Clarke who was unable to attend the November Investment
Committee meeting due to illness.
76
Lancashire Holdings Limited | Annual Report & Accounts 2023
The Directors
Appointments to the Board are made on merit, against objective criteria,
and with due regard to the right balance of skills, experience, knowledge,
independence and diversity required for the Board to operate effectively
as a whole. These areas are considered in detail by the Nomination,
Corporate Governance and Sustainability Committee. The Board
considers all the Non-Executive Directors to be independent within
the meaning of the Code. Michael Dawson, Robert Lusardi, Jack Gressier,
Irene McDermott Brown and Sally Williams are independent, as each
is independent in character and judgement and has no relationship
or circumstance likely to affect his or her independence. Peter Clarke
was independent upon his appointment as Chair on 4 May 2016.
Bryan Joseph joined the Board as a Non-Executive Director with effect
from 26 April 2023. The appointment of Mr Joseph was facilitated by the
specialist recruitment agency Per Ardua Associates Ltd which conducted
a Non-Executive Director search exercise under the direction of the
Nomination, Corporate Governance and Sustainability Committee and
Peter Clarke as the Company Chair. Per Ardua Associates Ltd prepared
an independent candidate report which was considered at the
Nomination, Corporate Governance and Sustainability Committee.
Close consideration was given to the balance of skills and experience
on the Board. The Board also considered the question of Mr Joseph’s
independence of character and judgement, and determined that he
should be considered independent on his appointment. Bryan Joseph
was appointed, during 2023, as a member of the Audit and the
Underwriting and Underwriting Risk Committees.
Philip Broadley joined the Board as a Non-Executive Director and as
the Board Chair designate with effect from 8 November 2023. The
appointment of Mr Broadley was facilitated by the specialist recruitment
agency Spencer Stuart which conducted a Non-Executive Director search
exercise under the direction of the Nomination, Corporate Governance
and Sustainability Committee. Robert Lusardi as the Senior Independent
Director oversaw the Board process for the selection of the Board Chair.
Spencer Stuart prepared an independent candidate report which was
considered at the Nomination, Corporate Governance and Sustainability
Committee meeting held on 7 November 2023. The Board considers
that Mr Broadley has a range of skills and experience appropriate to
providing the required strategic leadership to the Board and the business.
The Board also considered the question of Mr Broadley’s independence
of character and judgement, and considered that he should be
considered independent on his appointment. Subject to shareholder
approval at the Company’s 2024 AGM , Mr Broadley will assume the
role of LHL Board Chair at the conclusion of the AGM on 1 May 2024.
Please see the Nomination, Corporate Governance and Sustainability
Committee Report on page 89 for more details of the appointment
process and the consideration of the respective skills of Mr Joseph and
Mr Broadley within the context of Board succession planning and the
need for an appropriate balance of skills and perspectives on the Board
and its Committees. The question of Mr Broadley’s Committee
memberships will be considered during the course of 2024.
At the Board meeting held on 5 March 2024, further to a
recommendation by the Nomination, Corporate Governance and
Sustainability Committee, the Board affirmed its judgement that
seven of the ten members of the Board are independent in their roles as
Non-Executive Directors. The Board noted that Peter Clarke, having been
appointed as a Non-Executive Director on 9 June 2014, and the Chair
on 4 May 2016, had completed his ninth full year of service as a Director
to the Company and would no longer be considered independent under
the guidance of the Code. Peter Clarke will therefore not stand for
re-election at the 2024 AGM. Therefore, in the Board’s judgement, the
Board’s composition complies with the Code requirement that at least
half the Board, excluding the Chair, should comprise Non-Executive
Directors determined by the Board to be independent.
In accordance with the provisions of the Company’s Bye-laws and the
Code, and for 2024 with the exception of Peter Clarke, all the Directors
are subject to election (in the case of Mr Broadley and Mr Joseph) or
re-election annually at each AGM.
Information and training
On appointment, the Directors receive written information regarding
their responsibilities as Directors and information about the Group.
An induction process is tailored for each new Director in the light of
his or her existing skill set and knowledge of the Group and includes
meetings with senior management and visiting the Group’s operations.
Information and advice regarding the Company’s official listing, legal
and regulatory obligations and on the Group’s compliance with the
requirements of the Code are also provided on a regular basis. An
analysis of the Group’s compliance with the Code is collated and
summarised in quarterly reports together with a more general summary
of corporate governance developments, which are prepared by the
Group’s legal and compliance department for consideration by the
Nomination, Corporate Governance and Sustainability Committee.
That Committee also receives reports from the ESG Committee Chair
on its work. The Directors have access to the Company Secretary and
the Group General Counsel who are responsible for advising the Board
on all legal and governance matters.
The Directors also have access to independent professional advice as
required. Regular sessions are held between the Board and management
as part of the Company’s quarterly Board meetings, during which
in-depth presentations covering areas of the Group’s business are
made. During these presentations the Directors have the opportunity
to consider, challenge and help shape the Group’s commercial strategy.
The Directors are also encouraged to seek supplementary know-how
training suitable to their roles offered by the many external providers of
training pertinent to governance, in particular the roles of Non-Executive
Directors, and to consider their training needs and priorities as part of the
year-end performance evaluation for the Board and its Committees.
Board performance – 2023 evaluation
A formal performance evaluation of the Board, its Committees and
individual Directors is undertaken on an annual basis and the process
is initiated by the Nomination, Corporate Governance and Sustainability
Committee led by the Chair of the Board. The aim of this work is to
assess the effectiveness of the Board and its Committees in terms of
performance and risk oversight, strategic development, stakeholder and
employee engagement, composition, skillset, supporting processes and
management of the Group. The evaluation is forward-looking in terms
of identifying strategic priorities and actions as well as considering
performance, training and development needs for the Directors within
the context of the work of each Committee and that of the Board.
The 2023 evaluation process for the Board and each of its Committees
was conducted internally and was based on a set of questionnaires which
were prepared by the Company Secretariat and agreed with the Board
Chair and the Chairs of each of the Committees and made available
to participants using a web-based platform. The Group’s principal
operating subsidiaries, LICL, LUK, LSL and LCM also carried out
performance appraisals facilitated by the respective company secretaries.
The reports covering the subsidiary boards and relevant committees
including recommendations were discussed with the respective
subsidiary chairs and have been discussed within the relevant subsidiary
boards. Key themes from those subsidiary evaluations were also reported
to the LHL Board.
The 2023 LHL Board and Committee evaluation process involved each
Director as well as the Company Secretary, the Group CRO, Group
General Counsel and other Committee members and members of
senior management who were invited to review and complete online
questionnaires. Further to this process the Company Secretary prepared
an evaluation report for the Board which collated feedback from the
responses on an anonymised basis and identified a series of themes
covering both areas of effectiveness and potential actions and areas for
further discussion or development. The summary reports were discussed
between the Company Secretary and the Board Chair and the relevant
Committee Chairs before being distributed to each of the Directors. The
Chair invited feedback on key findings in the evaluation reports prior to
their finalisation.
The performance evaluation reports were formally tabled and
discussed at meetings of the Nomination, Corporate Governance and
Sustainability Committee and the Board held in March 2024, and each
of the other Committees discussed the report pertinent to its own
operation and performance. The reports identified a number of key
strengths of the Board and its Committees, including; dynamics and
chairing; skills and expertise of both Non-Executive and Executive
Directors; effective oversight of strategy and performance; effective
shareholder and stakeholder engagement; strong Committee reporting;
an open, candid and collaborative Board culture; effective risk
management and controls; an effective Group structure and governance;
and good company secretariat support. The Board discussions on the
reports were led by the Chair.
Lancashire Holdings Limited | Annual Report & Accounts 2023
77
ESG – Governance Corporate governance report continued
In summary, in its consideration of the 2023 performance evaluation
reports, the Board concluded that it operates effectively and has a good
blend of insurance, financial, regulatory and other relevant expertise. All
Non-Executive Directors are committed to the continued success of the
Group and to making the Board and its Committees work effectively.
Attendance at Board meetings was found to be good. The Group CEO
and the Group CFO, the Company’s Executive Directors, were also found
to be operating effectively.
• To continue to monitor expected legislative and regulatory changes
in the area of UK financial reporting, audit and associated regulation;
and
• To monitor changes to the Bermuda, UK and global tax rules and
to consider the strategic implications.
The Board will continue to review its procedures, training requirements,
effectiveness and development during 2024.
The Board also concluded that appropriate infrastructure, processes
and governance mechanisms are in place to support the effective
performance of the Board and its Committees. The Board is also
considered to manage risk effectively. Furthermore, the number
of Directors on the Board and the balance of skills is considered
to be appropriate.
The Board acknowledges the need to actively address the gender
and diversity balance of the Board in its succession planning.
Further to the Board engagement with the evaluation process and
consideration of the reports, the Board concluded that Board and
Committee oversight of strategy, risk tolerances and controls had
operated effectively. Management’s presentation to the Board of
strategy had generated a useful discussion of the longer term strategic
trajectory of the Group and good progress had been made in the
establishment of a Group U.S. underwriting presence. The processes for
Board and Chair succession had been well managed and had operated
effectively. Implementation of the IFRS 17 accounting reporting standard
during the year had been well implemented by management and
discussed effectively within the Board and its Committees.
Engagement between the Board and the workforce was considered to be
generally strong and beneficial to the operation of the business. Effective
workforce engagement will continue to be a priority for the Board. For
further information on workforce engagement, please see Peter Clarke’s
introduction to the Sustainability and Governance sections starting on
page 41 and the report from the Nomination, Corporate Governance
and Sustainability Committee starting on page 89.
Other strategic priorities identified by the Board for the year ahead
included ensuring a balance between the maintenance of a robust capital
base for the Group, capable of supporting the strategic growth plans for
the business and the Group’s strategic objective of actively managing its
capital. The Board and management are also committed to maintaining
a close focus on recruitment, skills, employee retention and training to
further strengthen and build a workforce equipped to deliver the Group’s
strategic growth plans.
The Board identified a number of areas for training and specific themes
for monitoring over the coming year, including the following:
• To review strategic opportunities for growth and the related
resourcing requirements;
• To monitor the progress in the establishment of the Group’s new
U.S. underwriting platform;
The Chair’s performance appraisal was led by the Senior Independent
Director, who consulted with the Non-Executive Directors with input
from the Executive Directors during August 2023. The Chair was
considered to be effective in facilitating strategic decision-making,
whilst ensuring an appropriate level of challenge and a culture of
constructive discussion.
Following the year-end, the Chair met with the Group CEO, and the
Group CEO met with the Group CFO, to conduct a performance
appraisal in respect of 2023 and to set targets for 2024. The results
of these performance evaluations were discussed by the Chair and
the Non-Executive Directors and are reported in the Directors’
Remuneration Report commencing on page 101.
Relations with shareholders
During 2023, the Group’s Head of Investor Relations, usually
accompanied by one or more of the Group CEO, the Group CUO, the
Group CFO, the Chair or a senior member of the underwriting team,
made presentations to major shareholders, analysts and the investor
community. Formal reports of these meetings were provided to the
Board on at least a quarterly basis.
Conference calls with shareholders and analysts hosted by senior
management are held quarterly following the announcement of the
Company’s quarterly financial results or trading statements. The Group
CEO, Group CUO and Group CFO are generally available to answer
questions on these calls.
Shareholders are invited to request meetings with the Chair, the Senior
Independent Director and/or the other Non-Executive Directors by
contacting the Group Head of Investor Relations. All of the Directors are
expected to be available to meet in person or virtually with shareholders
at the Company’s 2024 AGM.
The Chair of the Remuneration Committee led a shareholder advisory
exercise with the Group’s largest shareholders regarding the Board’s
remuneration plans during early 2024.
The Company commissions regular independent shareholder analysis
reports, and also receives periodic reports from the Group’s Head of
Investor Relations on feedback from shareholders and analysts.
The Company’s bye-laws are governed by Bermuda Company Law
and subject to approval of shareholders in a general meeting. The
bye-laws are available on the Company website. A copy of the
Company’s bye-laws is also available for inspection at the
Company’s registered office.
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Lancashire Holdings Limited | Annual Report & Accounts 2023
Committees
The Board has established Audit, Investment, Nomination, Corporate
Governance and Sustainability, Remuneration, and Underwriting and
Underwriting Risk Committees. Each of the Committees has written
Terms of Reference, which are reviewed regularly and are available on
the Company’s website. The Committees’ Terms of Reference were
reviewed by the Board during 2023 and considered again as part of the
2023 year-end performance evaluation process. The Committees’ Terms
of Reference are considered to be in line with current best practice.
The Committees are generally scheduled to meet quarterly, although
additional meetings and information updates are arranged as business
requirements dictate. Director attendance at the 2023 Board meetings
is set out on pages 72 to 75. A report from each of the Committees,
which covers Committee attendance, is set out at the front of each
of the Committee reports.
Enterprise risk management
The Board is responsible for setting the Group’s risk appetites, defining
its risk tolerances, and setting and monitoring the Company’s risk
management and internal control systems, including compliance with
risk tolerances. During 2023, the Board carried out a robust assessment
of the emerging and principal risks affecting the Group’s business model,
future performance, solvency and liquidity and the operation of internal
control systems.
Further discussion of the emerging and principal risks affecting the
Group, as well as the procedures in place to identify and manage them,
can be found in the ERM section of this report on page 23 and in the risk
disclosures section on page 148. The Group’s reporting of climate change
risk and its management within the business can be found in the TCFD
Report starting on page 49.
Each of the Committees is responsible for various elements of risk (see
the various Committee reports from page 83 for further detail). The
Group CRO reports directly to the Group and subsidiary boards and
facilitates the identification, evaluation, quantification and control of
risks at a Group and subsidiary level. The Group CRO provides regular
reports to the Group and subsidiary boards covering, amongst other
things, actual risk levels against tolerances, emerging risks, loss events
and near misses, key risk indicators, and an overview of the control
environment (driven by key control testing and control affirmations,
and supported by internal audit findings). The Board considers that
a supportive ERM culture, established at the Board and embedded
throughout the business, is of key importance. The facilitating and
embedding of ERM and helping the Group to improve its ERM practices
are a major responsibility assigned to the Group CRO. The Group
CRO’s remuneration is subject to annual review by the Remuneration
Committee. The Board is satisfied that the Company’s risk management
and internal control systems have operated effectively for the year under
review. In this regard, please see the Audit Committee report on page 83.
Lancashire Holdings Limited | Annual Report & Accounts 2023
79
ESG – Governance Corporate governance report continued
Section 172 – Delivering responsibly
for stakeholders
We engage with a range of stakeholders
through the course of our operations. We
value those relationships and aim to create
a healthy and sustainable corporate culture
that delivers on their expectations.
Our people
We aim to attract and retain the best talent across our underwriting and
support functions. Our positive and distinctive culture is supported by our
values which guide the way that we operate. We ask our people to tell
us their opinions on their experience with the Group through our annual
employee survey and value and act on their feedback. We believe in
offering the best possible working environment for employees and, during
2023, we enhanced our London office space and facilities. The Group is
committed to providing a range of policies that protect and support
colleagues in their day-to-day work and more widely. When attracting
new employees to the business, we value diversity, equity and inclusion
and train our hiring managers to ensure all candidates are treated fairly.
Our policyholders
We have long-standing relationships with many policyholders and use
our diverse product offering to foster effective partnerships with new
clients. Our policyholders are at the centre of everything we do, and
we strive for excellence in all our activities on their behalf.
Our experienced teams include our claims specialists, who have specific
and detailed knowledge of our diverse product lines and are focused on
ensuring a timely and equitable claim resolution for our clients. We aim
to adopt an approach to the claims handling process, which is proactive
and efficient, as well as transparent and flexible, while acting in
accordance with the terms and conditions of the (re)insurance policy
provided. This enables our clients to recover from the impact of loss
events as soon as practicable. We also operate in a highly-regulated
market, seeking to engage constructively with the Group’s regulators.
This regulation helps reinforce management’s focus on maintaining
an open culture, good risk management and a strong capital base.
Brokers
Lancashire strives to be a trusted partner to brokers distributing (re)
insurance solutions to our policyholders and, since inception, we have built
strong relationships with large international firms and smaller independent
intermediaries. Our expert understanding of risk management and transfer
adds value to our discussions with broker partners and we actively look
for new ways to further strengthen and enhance our relationships. Our
underwriters attend a number of industry events and conferences each
year where they are able to discuss our products and appetite for various
types of business with broker representatives. During 2023, these included
events in Monte Carlo, Baden-Baden, and Singapore. Our marketing
activities through corporate social media, our Company website and
hosting face-to-face events with brokers also encourages a good
understanding of our business and priorities. A new reception area
and visitor suite was also opened at our London office in 2023 to
create a professional and comfortable space for guests.
80
Lancashire Holdings Limited | Annual Report & Accounts 2023
Our universe of stakeholders
Lancashire
Foundation
Brokers
Society and the
environment
Our
policyholders
Communities
Board
engagement
and decision-
making
Government
and regulators
Our
shareholders
and investors
Our
people
Rating
agencies
Lenders
Service
providers
Our shareholders and investors
As a premium-listed company on the LSE we pride ourselves on our
mutually beneficial relationships with our shareholders and those
entities which lend to the Group. We maintain open and transparent
communication channels with them and work hard to foster good
relations through our active programme of engagement. Our relationship
with our shareholders is led by our Group Head of Investor Relations, in
collaboration with members of the Board and the wider Executive team.
This includes an Investor Day which was most recently held in London in
November 2023, which included presentations from our senior leaders on
our strategy, capital management, claims and reserving and our Lloyd’s
syndicates. These presentations are followed by a questions and answers
session. The Group’s corporate brokers provide guidance on investor
priorities and perception and meet regularly with the Board. We maintain
a regular and open dialogue with the Group’s main ratings agencies.
Society and the environment
Lancashire measures and offsets carbon emissions for our own
operations and seeks to be a responsible underwriter and investor.
We align our activities to the global transition to net-zero. Within
underwriting, we continue to support our clients as they transition and
reduce GHG emissions and through active engagement with them with
regard to our ESG Underwriting Guidelines. The Lancashire Foundation
makes a tangible difference to communities across our markets and
beyond, through charitable donations and utilising the talent and
energy of our people for good.
Responsible Board decision making
The Code requires formal disclosure around the interests of and engagement with stakeholders, and the duties falling upon boards under Section 172
of the UK Companies Act 2006. Although the Company is incorporated in Bermuda and is therefore not subject to the UK Companies Act
requirements, the Board continues to pay close attention to developments in English law and governance best practice.
In this 2023 Annual Report and Accounts, we give an overview of how both the Board and the business have factored in the needs of our stakeholders in
their discussions and decision making in all areas of performance review, strategy, risk and capital management. To that end, this section should be considered
together with the rest of this report as the Company’s comprehensive summary of its Directors’ compliance with their equivalent Section 172 duties.
Section 172 responsibilities in focus
Capital return to shareholders
Criteria considered (See table)
Relevant stakeholders
Our shareholders
Our people
Our policyholders and brokers
Government and regulators
Due to the robust capital position of the Group, arising from the strong operational performance of the business during 2023, the Board approved a
special dividend of $0.50 per common share, which was paid to shareholders on 15 December 2023. Additionally, the Board approved expenditure of
up to $50 million to repurchase Lancashire’s shares. No shares were repurchased under the programme. Including the final and interim dividends paid
during 2023 the total dividend to shareholders during the year amounted to $0.65 per common share. In taking these capital deployment decisions,
the Board considered the capital requirements for the business to support its underwriting and wider business plans for 2024. The Board also discussed
requirements for capital held in light of the Group’s regulatory capital requirements and with regard to the market credit rating agency models. The
Board concluded that Lancashire’s performance and diversification strategy over recent years has both improved its capital efficiency and strengthened
its overall capital position. The Board also actively considered the needs of the Group’s policyholders as a key part of capital planning. The Company’s
financial security and balance sheet strength is a key part of its offering to its (re)insured policyholders. Additionally, the Board noted that employees
who are members of the RSS were eligible to share in the company’s strong performance through the special dividend.
Board succession planning
Criteria considered (See table)
Relevant stakeholders
Our policyholders and brokers
Government and regulators
Our shareholders
Our people
Society
Environment
During 2023, two new appointments to the Board were approved. In November, Philip Broadley was appointed as a Non-Executive Director and as
the LHL Chair designate. His appointment as Chair is expected to take effect immediately following Lancashire’s 2024 AGM, subject to shareholder
approval. The search for a Chair successor was led by Robert Lusardi, Lancashire’s Senior Independent Director, who assumed the role of Chair for all
relevant Board and Committee discussions. The appointment process was conducted through Lancashire’s Nomination, Corporate Governance and
Sustainability Committee and approved by the LHL Board. In April, Bryan Joseph was also appointed as a Non-Executive Director and a member of
both the Audit and Underwriting and Underwriting Risk Committees. Philip and Bryan bring significant additional expertise to the Board to help us
deliver on our strategic ambitions.
Growth in premiums written and
geographic expansion
Criteria considered (See table)
Relevant stakeholders
Our policyholders and brokers
Government and regulators
Our shareholders
Our people
Society
Environment
Lancashire continued to grow premiums written in 2023 with an increase of 16.9%. This growth included business written in both existing and newer
lines of business. The Board discusses the growth strategy of the business at its quarterly meetings and meets with senior underwriters to understand
current market dynamics, risks and opportunities. Additionally, all Board members attend the quarterly UURC. During 2023 the Board also considered
and approved the expansion of the business through the launch of Lancashire Insurance U.S. Lancashire Insurance U.S. will operate under a delegated
underwriting arrangement with Lancashire’s UK company platform and is expected to begin underwriting in early 2024. The U.S. operation will be
complementary to our existing capabilities. This growth strengthens the policy offering to our clients and further enhances the societal benefits of
the risk management (re)insurance products we offer, delivers opportunity for our people, and generates returns for our investors. It is implemented
with due regard to legal and regulatory requirements and close consideration of the capital demands of our business.
Lancashire Holdings Limited | Annual Report & Accounts 2023
81
ESG – Governance
Corporate governance report continued
Section
172(1):
Duty to promote the success of the
company, with regard to:
The likely consequences of any decision
in the long term;
For further details, see:
The Group’s statement of purpose – page 9
The Group’s business model – page 9
The interests of the company’s
employees;
The need to foster the company’s
business relationships with suppliers,
customers and others;
The impact of the company’s operations
on the community and the environment;
The desirability of the company
maintaining a reputation for high
standards of business conduct; and
The need to act fairly as between
members of the company.
The Group’s strategic goal and three priorities: that Underwriting comes first; balancing risk
and return through the cycle; operating as an insurance market employer of choice – pages
10 and 11
Embedding a sustainable culture for a profitable business – page 41
The Board’s assessment of the Group’s viability and prospects as set out in the going concern
and viability statement – page 120
The importance of our people, and the business’s focus on Lancashire’s values, culture,
diversity & inclusion, training and development and workforce engagement – page 33
Our business depends upon the strong business relationships that we build and maintain
with our core and broader stakeholders. All Board members attend the quarterly UURC and,
during 2023, gave close consideration to business development opportunities as summarised
in the Committee’s report – page 96
Society and the environment form part of our ‘core’ set of stakeholders. The Board is
engaged with the impact of the Company’s operations through its oversight of the
Lancashire Foundation, the Group’s submission to the CDP, the annual offsetting of our own
operations’ GHG emissions, and our commitments to report against the UNEP FI Principles
for Sustainable Insurance (see our website for details) and address the requirements of the
TCFD – page 49 to 64.
Through its compliance with the Code, the Company strives to operate in line with high
standards of governance expectation and business conduct. A healthy and sustainable
corporate culture is embedded throughout the business, which is assessed by the Board
through various channels – page 92
The Audit Committee oversees the Group’s implementation of whistleblowing
arrangements, and other systems and controls for the prevention of fraud, bribery and
money laundering – page 88
The Board is committed to treating the Company’s shareholders fairly, and engaging with
them through a broad programme of investor relations activities, meetings (including the
AGM), and targeted consultations; be that with our substantial shareholders, the Company’s
own employees, private individuals, or via shareholder advisory groups. See ‘Section 172
responsibilities in focus’, regarding the Board’s consideration of the balance between
underwriting opportunities and the payment of dividends – page 81
82
Lancashire Holdings Limited | Annual Report & Accounts 2023
Committee reports
Audit Committee
“ The Audit Committee has worked closely with Natalie Kershaw and
the finance team in overseeing the implementation of the IFRS 17
and IFRS 9 accounting standards, effective from 1 January 2023. I
would like to thank all those within the business who have worked
hard in embedding these new standards, and in ensuring that the
Committee has been given the appropriate tools for oversight of
their implementation. The Committee has remained focused on
challenging the key accounting judgements, assessing the integrity
and fair presentation of the Group’s financial reporting, and
reviewing the maintenance and effectiveness of the Group’s internal
controls. The Committee also monitored and reviewed the activities
and performance of internal and external audit.”
Sally Williams
Chair of the Audit Committee
Committee membership
The Audit Committee comprises four independent Non-Executive
Directors and is chaired by Sally Williams. The qualifications for each of
the Committee members are detailed on pages 72 to 75. The Committee
members bring a diverse range of experience in finance, risk, control
and business, with particular experience in the specialty insurance and
reinsurance sectors. The Board has confirmed that the members of the
Committee have the necessary expertise to provide effective challenge
to management; this includes the chair.
The Group’s internal and external auditors have the right of direct
access to both the management team and the Audit Committee.
The Audit Committee’s detailed Terms of Reference are available
on the Group’s website.
Committee members
Sally Williams (Chair)
Simon Fraser
Jack Gressier
Bryan Joseph
Robert Lusardi
Meetings attended
4/4
2/2
1/1
2/2
4/4
Following the 2023 AGM Simon Fraser stepped down as a Director of the Board
and Committee member with effect from 26 April 2023. As part of the Board’s longer
term succession planning, Bryan Joseph joined the Committee on 26 April 2023 and
Jack Gressier became a member on 9 August 2023.
Principal responsibilities of the Committee
• Monitoring and reviewing significant accounting judgements;
• Monitoring the integrity of financial and narrative reporting
including recommending to the Board if this is fair, balanced
and understandable;
• Reviewing the activities and effectiveness of Group internal audit;
• Reviewing the effectiveness and quality of the external audit process,
the independence of the external auditor and the findings from the
audit with the external auditor;
• Recommending the appointment of the external auditor and the
approval of their fees;
• Overseeing the effectiveness of the Group’s internal controls and
risk management systems; and
• Monitoring compliance, whistleblowing, speaking up mechanisms
for financial irregularities, risk and fraud.
Specific details of the Committee’s responsibilities and activities in
these principal areas during the year are set out in the table on the
following pages.
Lancashire Holdings Limited | Annual Report & Accounts 2023
83
ESG – Governance Having reviewed and challenged these areas, the Committee concurred
with management’s valuation of the Group’s loss reserves and the
relevant disclosures around loss reserving and related assumptions
in the Group’s consolidated financial statements.
Assessment of premium allocation approach
(“PAA”) eligibility
The Committee’s work in this area relates to the implementation of
the IFRS 17 accounting standard. IFRS 17 includes an option to apply
the premium allocation approach, which is designed to simplify the
measurement of insurance and reinsurance contracts. Judgement is
applied when performing the PAA eligibility assessment on insurance
and reinsurance contracts with a coverage period of more than 1 year.
The Committee discussed and agreed with management the basis on
which the Group would apply judgment in determining that it is eligible
to apply the PAA measurement model to its portfolios and groups of
contracts as the measurement of the liability for remaining coverage
and asset for remaining coverage is not reasonably expected to differ
materially from that calculated under the general measurement model.
This assessment was made following detailed modelling of the Group’s
insurance contracts under IFRS 17.
Risk culture and controls and
financial reporting
Other key areas of review and challenge by the Committee were in areas
of the effectiveness of the business’s control environment; the continued
integrity of external financial reporting; and the oversight of corporate
and risk culture through the reporting of the internal audit and risk
management functions.
Going concern basis of accounting and
longer term viability
The Audit Committee reviewed and challenged the going concern
assessment prepared by management at both its July 2023 and March
2024 meetings, with particular consideration of capital management,
the current underwriting and loss environment, the composition
and liquidity of the investment portfolio, long-term debt financing
arrangements, strategic and financial forecasts over the business
planning horizon, and stress and scenario testing (including climate-
change risk scenarios). These factors are also relevant in providing
assurance to the Board on the longer term viability of the Group’s
business strategy.
Having reviewed and challenged these areas, the Committee concurred
with management’s going concern assessment, together with the
relevant disclosures in respect of going concern and longer term
viability within the Group’s consolidated financial statements.
Committee reports continued
Summary of key areas of Audit Committee challenge
IFRS 17 and IFRS 9 implementation
2023 was the year in which both IFRS 17 and IFRS 9 accounting
standards were implemented. Preparing for this new standard has been a
multi-year project requiring significant change to accounting systems
and processes. The Committee recognises the very considerable efforts
by our finance and actuarial teams in delivering this successfully.
The Committee devoted additional time to reviewing reports received
from the finance team relating to the assumptions, judgements,
restatements, changes to APMs and other changes arising from this
implementation, together with the related disclosures in the financial
statements.
Significant areas of judgement and estimation
An annual paper is presented by management to the Committee that
details the areas of judgement and estimation in the preparation of the
consolidated financial statements. This is scrutinised and challenged by
the Committee. Key areas of judgement and estimation challenged by
the Committee during the year are discussed below.
Measurement of insurance contracts issued and
reinsurance contracts held
The most significant area of judgement and estimation considered
by the Committee during 2023 related to the Group’s measurement
of insurance contracts issued and reinsurance contracts held. These are
recognised on the statement of financial position as ‘insurance contract
liabilities’ and ‘reinsurance contract assets’. As a result of the judgemental
nature of these balances, changes in assumptions made may materially
change the fulfilment cashflows that make up these balances. The
estimation of the fulfilment cashflows is a complex actuarial process
which incorporates a significant amount of judgement, in particular
in relation to the estimation of the liability for incurred claims and
the asset for incurred claims (i.e. the gross and net loss reserves).
The Committee’s primary areas of focus and challenge relates to the
adequacy of these gross and net loss reserves. The Committee held
regular sessions with the Group Chief Actuary and the Group Head of
Claims during the year to discuss reserving and claims developments.
The Committee also received independent estimates of the Group’s
loss reserves from an external actuary and compared these third-party
estimates to those of the Group at its second and fourth quarter Audit
Committee meetings.
During the year the committee discussed and challenged:
• developments in reserves across the Group’s entities;
•
•
reserving for loss events which occurred during the year, together
with reserve developments in respect of prior year losses;
the impact of inflation on the Group’s approach to reserving and
related assumptions;
• developments in the Group’s reserving approach;
•
the IFRS 17 risk adjustment maintained within insurance contract
liabilities above the established actuarial best estimate; and
•
the IFRS 17 confidence level for the Group’s margin adjusted reserves.
KPMG LLP conducted a detailed re-projection of the Group’s loss
reserves as part of the annual financial statement audit.
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Lancashire Holdings Limited | Annual Report & Accounts 2023
How the Committee discharged its responsibilities
Financial and narrative reporting
Committee
responsibility
Monitors the integrity of
the Group’s consolidated
financial statements,
including its annual and
half-yearly reports, annual
reporting arising under
applicable supervisory rules,
interim management
statements, preliminary
announcements and any
other formal statements
relating to the Group’s
financial performance.
Reviews and reports to
the Board on significant
financial reporting issues
and judgements contained
in the consolidated
financial statements.
Reviews the content of
the Annual Report and
Accounts and advises the
Board on whether, taken as
a whole, it is fair, balanced
and understandable, and
provides the information
necessary for shareholders
to assess the Group’s
performance, business
model and strategy.
Committee activities
At each meeting the Committee reviewed the Group’s management accounts, including the annual
consolidated financial statements, as well as the Annual Report and Accounts, and other public financial
disclosures for the purpose of recommending their approval by the Board. The Group’s annual regulatory
reports, prepared in accordance with the BMA’s reporting requirements, were reviewed in April 2023 at the
Audit Committee meeting prior to their recommendation to the Board for approval. The Committee also
monitored the activities of the Group’s Disclosure Committee and reviewed the Group’s financial releases
and accompanying earnings call investor presentations.
During 2023, the Committee received, discussed and challenged regular and ad hoc reports and presentations
from management in the following areas.
• Loss reserving, and developments to the Group’s reserving process (see the Summary of key areas of Audit
Committee challenge section above).
• The implementation of IFRS 17 and IFRS 9 and the related enhancements to the Group’s finance procedures
and IT framework.
• Discussing financial reporting related changes arising from the implementation of IFRS 17 and IFRS 9 and
other new or significant accounting treatments (including related party transactions).
• Developments in accounting and financial reporting requirements impacting the consolidated financial
statements.
• The new Bermuda corporate income tax rules established in 2023.
• Changes made to APMs due to implementation of IFRS 17.
• The activities of the finance team.
• The 2023 assessment of the Group’s ability to continue as a going concern and the longer term viability
of the business (see narrative above and page 120 for further details).
• Key risk and controls including those relating to information security as part of regular risk controls
reporting, together with quarterly confirmatory compliance statements from the Group’s legal and
compliance function.
• The activities of LHL’s subsidiary companies boards and audit committees.
• Reports from the external auditors and discussion with them, covering audit planning, the results of
the external auditor assessment of key financial statement judgements and estimates, control testing,
misstatements identified and other audit and accounting matters.
The Committee also attended a training session delivered by the management team to the Board on the
Group’s implementation of the IFRS 17 and IFRS 9 accounting standards.
The Audit Committee continued its practice of holding engagement sessions with the Group CFO, the Group
Head of Internal Audit, the Group Chief Actuary and the External Auditor without management present.
Judgements and estimation in the consolidated financial statements
The Committee gave detailed consideration to the areas of significant judgement and estimation uncertainty
applied in preparing the consolidated financial statements involving a range of views and challenge from the
Committee members, the management team and the external auditors. See the summary on the significant
areas of judgement and estimation uncertainty applied by management on page 84.
The Committee reviewed the early drafts of the 2023 Annual Report and Accounts in order to keep apprised
of its key themes and messages. Ahead of presentation to the Committee, a thorough review process of the
Annual Report and Accounts was conducted to help ensure disclosures were balanced and accurate. The
Committee carefully reviewed the Group’s performance and reporting in light of the principal and emerging
risks. The Committee carefully reviewed the clarity of the new disclosures made in accordance with IFRS 17
and IFRS 9, and relating to APMs, including consideration of the overall presentation of APMs to ensure that
they are properly explained, reconciled and not given undue prominence. The Committee reviewed the final
draft of the 2023 Annual Report and Accounts at the March 2024 Audit Committee meeting, together with
the external auditor’s report. The Committee advised the Board that, in its view, the 2023 Annual Report and
Accounts, taken as a whole, is fair, balanced and understandable, and provides the information necessary for
shareholders to assess the Group’s performance, business model and strategy.
Lancashire Holdings Limited | Annual Report & Accounts 2023
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ESG – Governance Committee reports continued
How the Committee discharged its responsibilities continued
External audit oversight
Committee
responsibility
Committee activities
Oversees the relationship
with the Group’s external
auditors, approves their
remuneration and terms of
engagement, and assesses
annually their independence
and objectivity, taking into
account relevant legal,
regulatory and professional
requirements, together with
the Group’s relationship
with the external auditors
as a whole. This includes an
annual assessment of the
qualifications, expertise
and resources, and
independence of the
external auditors and the
effectiveness of the external
audit process.
The development and
implementation of a formal
policy on the provision of
non-audit services by the
external auditors, taking
into consideration any
threats to the independence
and objectivity of the
external auditors.
Makes a recommendation
to the Board, to be put to
shareholders for approval
at the AGM, in relation
to the appointment,
re-appointment or
removal of the Group’s
external auditors.
The Committee considered the appropriateness of the annual external audit plan, and whether appropriate
professional scepticism was applied by KPMG LLP to key accounting judgements such as reserving. The
committee noted that KPMG LLP’s work included a detailed re-projection of the Group’s loss reserves.
Following its review, the Committee was satisfied that the external audit plan was appropriate and hence
did not need to request changes to this plan. Following the Committee’s approval of the external audit plan
the Committee received regular reports from the external auditors, including an ongoing assessment of the
effective delivery of the audit compared to the plan.
KPMG LLP’s terms, scope of engagement and fees were discussed, challenged and subsequently approved by
the Committee during the year.
Following the 2022 year-end audit, the Committee performed an assessment led by the Committee Chair,
of the effectiveness of the external audit process. This year the evaluation focused on the following areas:
independence, professional scepticism and culture; the quality of audit expertise; auditor quality control; audit
planning; and audit performance and evaluation. The assessment was discussed at the April 2023 Audit
Committee meeting. The process identified a number of potential areas for enhancement that were factored
into the audit planning process for 2023. Overall, the Committee was able to conclude that the external audit
process was operating effectively, both with respect to the service provided by KPMG LLP and management’s
continued support of the audit process.
The Committee reviewed a letter from the external auditor to the management team setting out certain
findings and recommendations in respect of the control environment observed during the 2022 audit, together
with management responses in each area identified.
The Committee reviewed the independence of the external auditors at the half-year and year-end meetings,
taking into account any non-audit services provided and related fee arrangements. The Committee concluded
that KPMG LLP remain independent.
Pursuant to its annual review process, the Committee received a recommendation from management and
approved and adopted a formal non-audit services policy in April 2023. The policy stipulates the approvals
required for various types of non-audit services that may be provided by the external auditors, as well as those
from which the external auditors are excluded, and is made available on the Group’s website. During 2023,
KPMG LLP provided $0.6 million of non-audit services to the Group relating to the half-year reporting review,
PRA Solvency II and Lloyd’s regulatory returns. The Committee gave careful consideration to the nature of the
non-audit services provided, the suitability of KPMG LLP as the supplier of the non-audit services and the level
of fees charged and has determined that they do not affect the independence and objectivity of KPMG LLP
as auditors.
The 2023 financial year was the seventh financial year in which KPMG LLP acted as the Group’s external
auditors. The incumbent lead audit partner is Salim Tharani, who assumed this role in February 2022 and
has now completed two full years as the designated KPMG LLP lead audit partner. In conformance with the
required rules, provisions and good corporate governance, the Group will be required to tender for the external
audit ahead of the 2027 year end. The Committee will consider in due course its plan for the tender process.
The external audit fee arrangements across the Group were agreed after discussion between the Committee,
management, and KPMG LLP.
The Committee and the Board are recommending the re-appointment of KPMG LLP as external auditors at
the 2024 AGM.
The Committee monitored the developing corporate governance and regulatory landscape relating to the
governance, delivery and conduct of the external audit.
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How the Committee discharged its responsibilities continued
Internal audit oversight
Committee
responsibility
Committee activities
Monitors and assesses the
role and effectiveness of
the Group’s internal audit
function in the overall
context of the Group’s
risk management system,
ensuring it has unrestricted
scope, and the necessary
resources and access to
information to enable
it to fulfil its mandate
in accordance with
appropriate professional
standards.
The Group’s internal audit function reports directly to the Committee. The Committee oversaw the
appointment of a new Head of Group Internal Audit during the year. The Group Head of Internal Audit
presented the annual internal audit strategy and plan to the Committee for review, discussion and approval.
The internal audit plan considers current and emerging risks which impact the business and adopts a risk
weighted approach.
The Committee received reports from the Group Head of Internal Audit summarising the status of the
internal audit plan; findings from internal audits conducted in the period; and the status of actions taken
by management to implement recommendations arising. The internal audit programme also covers the
assessment of the Group’s culture, including risk culture, for each audit undertaken. An overall summary
of observations identified in respect of the Group’s culture is presented to the Committee and discussed
in open and closed Committee sessions.
The Committee reviewed and approved the Internal Audit Charter, which can be viewed on the Group’s
website. The Chair of the Committee undertook an annual review of the effectiveness of the internal audit
function and its activities. At its November 2023 meeting, the Committee discussed the report and its findings
and concluded that the internal audit function had operated effectively in the overall context of the Group’s
risk management system, has appropriate standing within the Group, and that the Group Head of Internal
Audit has the appropriate reporting lines to maintain independence.
Internal controls and risk management systems
Reviews the adequacy and
effectiveness of the Group’s
internal financial controls
systems that identify,
assess, manage and monitor
financial risks, and other
internal control and risk
management systems.
Reviews and approves the
statements to be included
within the Annual Report
and Accounts concerning
internal control, risk
management, including
the assessment of principle
and emerging risks, and the
statements regarding going
concern and viability.
The Board has ultimate responsibility for ensuring the maintenance of a robust framework of internal control
and risk management systems across the Group and has delegated the monitoring and review of these systems
to the Committee. The Committee reviewed and challenged the Group’s control environment, the results of
the risk and control affirmation review and testing work performed and the ongoing effective operation of
key controls.
At each meeting the Committee is presented with a report from the Group Head of Internal Audit, and reviews
findings relating to the control environment and management responses. In addition, the Committee received
from the Group Head of Internal Audit an annual assessment of the effectiveness of the Group’s governance,
risk and control framework for discussion, together with an analysis of themes and trends from the internal
audit work performed and their impact on the Group’s risk profile. The Group Head of Internal Audit gave
explicit consideration to management’s fraud risk assessment as part of this work. Fraud risk and the associated
controls were, otherwise, ordinarily considered by the Group internal audit function as part of the planning
phase for each audit conducted. The Committee and Board were satisfied that the governance, risk and
control framework continue to remain strong and appropriate for the Group, whilst noting those areas for
enhancement, action and improvement which had been identified through the Group’s established processes,
or internal audit and risk and controls monitoring. The Committee assisted the Board in determining the
appropriateness of adopting the going concern basis of accounting and in performing the assessment of
the viability of the group, as more fully described in the Directors’ Report at page 120.
Lancashire Holdings Limited | Annual Report & Accounts 2023
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ESG – Governance Committee reports continued
How the Committee discharged its responsibilities continued
Compliance, speaking up and fraud
Committee
responsibility
Committee activities
Reviews for adequacy
and security the Group’s
compliance, speaking
up and fraud controls.
The Committee conducted an annual effectiveness review of the Group’s policies and procedures relevant to
financial controls, and recommended the adoption by the Board of updated policies and procedures in respect
of: anti-money laundering; the prevention of bribery and financial crime (including the detection of fraud);
conflicts of interest; whistleblowing arrangements; and sanctions monitoring. The operation of the controls
that are documented in these policies and procedures are reported to the Committee on a quarterly basis in
the form of confirmatory compliance statements from the Group’s legal and compliance function, members
of which include the Group’s Money Laundering Reporting Officers and Group Data Protection Officer. The
Committee also keeps under review the adequacy and effectiveness of the Group’s legal and compliance
function, and receives regular updates on compliance training delivered to employees across the Group.
The Group’s whistleblowing policy and procedures provide an internal mechanism for the reporting,
investigation and remediation of any workplace wrongdoing, with arrangements in place that allow for the
independent investigation of such matters and appropriate follow-up action. A whistleblowing champion
has been appointed to each of the Group’s principal operating subsidiaries, as well as at a parent company
level, with the Chair of the Audit Committee serving in such capacity. The appointed whistleblowing champions
have responsibility for ensuring and overseeing the integrity, independence and effectiveness of the Company’s
policies and procedures on whistleblowing. The Group places a high priority on employees’ understanding of
this process to enable them to speak out with confidence when appropriate. This message, as well as the
arrangements that are in place, is regularly communicated to all employees.
Priorities for 2024
• To maintain the focus on the effectiveness of the Group’s control environment, the operation of the business’s financial reporting systems
and the integrity of external financial reporting;
• To continue to monitor and embed aspects of positive business culture in quarterly reporting, in particular regarding the Group’s financial
and risk control environment;
• To continue to monitor emerging practice in IFRS 17 reporting to enable the Committee to consider whether further refinements could
be made to the Group’s reporting; and
• To continue to monitor developments and implement recommendations relating to anticipated changes in the corporate governance,
corporate reporting, audit practice landscape, ESG, sustainability and climate reporting.
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Lancashire Holdings Limited | Annual Report & Accounts 2023
Nomination, Corporate Governance
and Sustainability Committee
“ The Committee has had a very active year, engaging fully with the
processes for Board and Chair succession. We appointed Bryan Joseph
as an independent Non-Executive Director in April 2023 and, under
the leadership of Rob Lusardi as our Senior Independent Director, the
Committee monitored and managed the process for the identification
and engagement with a range of potential candidates to join the Board
as its Chair designate. This culminated in the appointment of Philip
Broadley in November 2023. As I reach the end of my tenure as Board
and Committee Chair, I am confident that the Board benefits from
a broad diversity and has the right balance of skills and perspectives
to deliver strong, challenging, engaged and supportive governance
for our business for the years ahead.”
Peter Clarke
Chair of the Nomination, Corporate Governance and Sustainability Committee
Committee membership
The majority of the Nomination, Corporate Governance and
Sustainability Committee members are independent Non-Executive
Directors. The Committee Chair is Peter Clarke, who is also the Chair
of the Board.
Committee members
Peter Clarke (Chair)
Michael Dawson
Sally Williams
Irene McDermott Brown
Meetings attended
4/4
4/4
4/4
4/4
Principal responsibilities of the Committee
• Reviews the structure, size and composition (including the skills,
knowledge, independence, experience and diversity) of the Board
and oversees Board engagement with the workforce;
• Considers succession planning for the Directors and other senior
executives;
• Nominates candidates to fill Board vacancies;
• Makes recommendations to the Board concerning Non-Executive
Director independence, membership of Committees, suitable
candidates for the role of Senior Independent Director, and the
re-election of Directors by shareholders;
• Reviews the Company’s corporate governance arrangements
and compliance with the Code;
• Monitors and makes recommendations to the Board regarding
the environmental, social and governance responsibilities of the
Company; and
• Makes recommendations to the Board concerning the charitable
and corporate social responsibility activities of the Company and
donations to the Lancashire Foundation.
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ESG – Governance Committee reports continued
How the Committee discharged its responsibilities
Corporate governance
Committee
responsibility
Chair succession
Committee activities
The Committee approved the appointment of Spencer Stuart as the independent external recruitment
consultancy to carry out a search for candidates for the role of Board Chair, to succeed Peter Clarke in that role
following the conclusion of the 2024 AGM. The Chair search process was led by the Board’s Senior Independent
Director (SID) Robert Lusardi.
The Committee agreed a detailed specification, which was structured with regard to the requirements of both
the Chair role and broader Board succession considerations, and held regular meetings with representatives
of Spencer Stuart during the course of 2023. Numerous meetings were held between Directors, members of
management and the candidates. The Company Secretary assisted in conducting due diligence and in giving
advice around governance requirements for candidates under consideration. All Directors were involved in
meeting and approving the principal candidates emerging from the search process.
The Committee considered questions of experience, skills, fitness and a formal paper on independence
(with due regard to the requirements of the Code) in recommending to the Board the appointment of Philip
Broadley. The Board determined Mr Broadley to be independent in character and judgement on appointment.
The Committee and Board paid close regard to the agreed role specification and noted Mr Broadley’s 40 years’
experience in the insurance and financial services sectors, including as executive and non-executive director on
a number of UK listed boards. The Committee and the Board concluded that Mr Broadley brings a wealth of
strategic and leadership skills to Lancashire’s Board and is a suitable candidate for the role of Board Chair.
Mr Broadley was appointed as a Non-Executive Director with effect from 8 November 2023, and, subject
to shareholder approval at the 2024 AGM, will assume the role of Board Chair following the 2024 AGM
on 1 May 2024. A detailed induction programme has been arranged for Mr Broadley.
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How the Committee discharged its responsibilities continued
Corporate governance
Committee
responsibility
Committee activities
Board and Committee
composition and
effectiveness and succession
The Committee discussed in its meetings the balance of skills and experience on the Board and its Committees.
The Committee regularly discussed Board succession and skills planning over the year and monitored the
diversity of the Board members.
The Committee formally considered the questions of independence, the skills and fitness in recommending to
the Board the appointment of Bryan Joseph, who was appointed as a Non-Executive Director with effect from
26 April 2023. The Committee paid close regard to the agreed role specification and noted Mr Joseph’s many
years’ experience as an actuary in the global insurance and reinsurance industry and his wider board experience,
including his service as director, audit committee chair and chair of an insurance company within the Axa XL
group and his knowledge and expertise within the insurance and reinsurance third party capital sector.
The Committee also approved the appointment of Mr Joseph to the Underwriting and Underwriting Risk
Committee and the Audit Committee.
During the year, the Committee also oversaw the appointment of Jack Gressier as a member of the Audit
Committee.
The Committee reviewed the composition of the Board at its November 2023 meeting, and it considered that
the balance of skills, knowledge, independence, experience and diversity continues to be appropriate for the
Group’s business to meet its strategic objectives. The Committee noted in its discussions that the Board had
met its Parker review objective for the Board of having at least one director from a minority ethnic background.
The Committee has also noted that, due to the appointment of two male Non-Executive Directors during
2023, the gender balance of the Board has decreased slightly. The Committee and Board remain committed
to an objective of having at least 40% female membership of the Board and intends to address this as part
of its succession planning over the next couple of years.
The Committee oversaw the process for the year-end review of the effectiveness of the Board, the Committees
and each of the Directors, which was facilitated internally by the Company Secretariat team, and led by the
Chair of the Board. The Committee and the Board were satisfied that the Board and each of its Committees
were operating effectively. Further details of the 2023 performance evaluation process and its outcomes can
be found on page 77.
In accordance with the provisions of the Code, all of the Directors are subject to annual (re)election by
shareholders. With the exception of Bryan Joseph and Philip Broadley who were appointed after the April
2023 AGM, all of the Group’s current Directors were elected or re-elected by shareholders at the 2023 AGM.
With the exception of Peter Clarke, who will not submit himself for election or re-election having completed
nine years’ service as a Director, all other serving Directors will be submitted for election or re-election at the
2024 AGM.
The Committee reviewed the Group’s fit and proper policy for Board appointments.
The Committee keeps under review the Company’s corporate governance arrangements, particularly the
Company’s compliance with the Code. The Committee reviewed the Company Secretariat’s checklist record
of the Company’s compliance with the Code on a quarterly basis.
Each Committee considered its Terms of Reference as part of the 2022 year-end evaluation process and has
recently completed a similar exercise as part of the 2023 evaluation. In light of this work the Committee
recommended a change to the Audit Committee Terms of Reference, relating to oversight of cyber, data and
IT security risks and controls, and a minor change to the Investment Committee Terms of Reference to capture
requirements for ESG and carbon data reporting for the investment portfolio. The Committee concluded that
the Terms of Reference for all the Committees were fit for purpose. The Committee reviewed and approved
changes to the Company’s Bye-Laws which were recommended to shareholders and which were approved at
the April 2023 AGM. In August 2023, the Committee reviewed and recommended to the Board minor revisions
to both the Board’s Schedule of Reserved Matters and to the document describing the division of
responsibilities between the Group CEO and the Chair.
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91
UK Code compliance
Governance documentation
ESG – Governance Committee reports continued
How the Committee discharged its responsibilities continued
Corporate governance
Committee
responsibility
Management and staff
appointments and
succession planning
Workforce engagement
Legal, regulatory
and governance
developments reform
Subsidiary boards
Sustainability
Sustainability and ESG
reporting
Committee activities
The Committee reviewed and recommended the approval and adoption by the Board of the Group’s succession
plan and talent management and development programme for the senior management population in
November 2023. The business has the objective of fostering a skilled and diverse workforce to meet the needs
of the business. The Committee engaged with Sarah Rogers, the newly appointed Group Chief HR Officer and
discussed with her plans for the enhancement of data collection and reporting for employees. The Committee
reviewed training and development proposals for a number of key employees across the Group as part of the
succession planning process.
With regard to its arrangements for workforce engagement the Board does not use the suggested methods
set out in the Code, but an alternative arrangement involving the designation of non-executive directors on a
rotating basis. During 2023, the Group continued the practice of the Group CEO holding ‘town hall’ meetings
with employees following the announcement of the Group’s quarterly results. In order to further enhance
arrangements for engagement between the Non-Executive Directors and members of the workforce, the
Committee arranged for these town hall meetings to be attended by the Chair of the Board or another
Non-Executive Director. In addition to Mr Clarke, the Non-Executive Directors participants in the town hall
meeting held during 2023 were Simon Fraser, Sally Williams and Bryan Joseph. The Board and Committee
also received the results of an employee engagement survey undertaken during 2023 which covered topics
including staff satisfaction and engagement (see page 33 for further details of the survey). The Directors
once again had the opportunity to meet with employees less formally at lunches and other social gatherings
organised around the time of the Board’s regular meetings in Bermuda. The Committee considered these
and other tools for workforce engagement at its November 2023 meeting and discussed arrangements
for workforce engagement during 2024. The Committee, and the Board, consider that the mechanisms
for workforce engagement and feedback have an appropriately high profile and this, in turn, informs
debate within the relevant Committees, the Board and the wider Group.
The Committee monitored developments in the areas of law, regulation and guidance relevant to the Group
and its operation. Topics covered included proposals for reform to corporate reporting requirements for UK
listed entities, developments in audit market reform and guidance, UK guidance with regard to ethnicity pay
data and developments in ESG regulation and practice.
The Committee and Board monitored the composition and appointments and changes to the Group’s
subsidiary boards.
The Committee received regular reports from Jelena Bjelanovic as Chair of the management ESG Committee
regarding the current and developing ESG regulatory landscape as well as the Group’s progress in these areas.
The Committee has continued to monitor developments in the area of the Group’s ESG responsibilities,
including the climate change risk management, data collection and reporting within the business
throughout its work in 2023. The Committee received feedback on the work of the Group’s newly
appointed sustainability manager, the activities of the Lancashire Employee Network and the Group’s
DE&I working group. The Committee noted the FCA consultation regarding the adoption of sustainability
disclosures reporting standards.
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How the Committee discharged its responsibilities continued
Environment
Committee
responsibility
Climate change risk and
opportunity and nature-
related risk
Social responsibility
Diversity, equity and
inclusion
The Lancashire Foundation
Committee activities
The Committee also periodically reviews developments in the areas of environmental sustainability and
climate change, and the management of related risks and opportunities. The Committee and Board reviewed
and ratified the Group’s 2023 CDP response and the Group’s ClimateWise submission. For more information
on these matters, please see the 2023 TCFD report starting on page 49. The Committee noted
recommendations with regard to a reporting framework produced by the Taskforce on Nature-related
Financial Disclosures (TNFD).
For data regarding the gender and ethnicity of the Board and executive management please refer to page 38.
The Chair’s introduction on page 41 covers the Board’s disclosures under the UK listing rules with regard to the
Company’s diversity targets. The Committee recommended approval of an updated Board diversity policy,
which is posted on the Company’s website, and covers the Board and each of its committees. The gender
makeup of each committee is included in the relevant committee reports. The Committee was pleased
that during 2023 the Board was able to meet its Board level Parker review objective for minority ethnic
representation. The Committee also discussed the option of the adoption of a Parker Review target for
the executive management group and its reports, which is an option which the Committee and Board will
keep under review pending enhancements to the Group’s data collation and management capabilities. The
Committee noted the drop in gender diversity on the Board and intends to address this as part of Board
succession planning. The Committee received a report from management on the Group’s gender pay gap
data and discussed areas for focus and action, including workforce communication.
The Committee is responsible for monitoring and making recommendations to the Board in relation to the
Company’s charitable giving policy and the operation of, and reporting requirements for, the Lancashire
Foundation. During 2023, the Committee received a report from the Foundation, including its objectives,
governance, approach to funding for 2024 and beyond, alongside its investment strategy, donations policy
and charitable activities, as well as the ways in which the Foundation engages employees throughout the
Group with its work and initiatives. The Committee made a recommendation to the Board that the Company
donate to the Foundation 0.75% of full-year Group profits (subject to a cap of $750,000 and a $250,000
collar), conditional on the determination of financial performance for the full year. For more information
regarding the work of the Lancashire Foundation, please see pages 45 to 48.
UK Modern Slavery Act
2015 and human rights
During 2023, the Committee recommended the approval by the Board of an updated anti-slavery and human
trafficking statement, a copy of which is posted on the Company’s website. The Committee discussed ongoing
work on the development of a Group human rights statement which was approved by the Board at its meeting
in March 2024.
Priorities for 2024
• To continue to ensure that the Company is able to effectively
discharge its governance responsibilities and to monitor and
report its compliance with the UK Corporate Governance Code;
• To support management in the development of the talent pipeline
and training and retention tools within the business;
• To review developments with regards to the Company’s
sustainability and ESG activities including management of
climate change risk and opportunity; and
• To monitor the Company’s progress on diversity and to consider
the Board’s objectives for female and ethnic minority membership
of the Board as part of its succession planning.
Lancashire Holdings Limited | Annual Report & Accounts 2023
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ESG – Governance Committee reports continued
Investment Committee
“ In 2023, the Group’s investment portfolio has contributed
materially to the Group’s overall returns, which accorded
with my expectations at the time of last year’s Annual Report.
In 2023, the relatively more stable and higher yield interest
rate environment, in conjunction with the relatively short
duration profile of the Lancashire portfolio tended to
reverse last year’s losses and to generate higher returns. The
investment portfolio is managed to support underwriting
opportunities and to provide adequate liquidity to match
the Group’s risk exposures. The growth of the business over
recent years, including the Group’s longer tail casualty
portfolio, has led to an increase in the size of the overall
investment portfolio. This increased portfolio size, together
with a higher interest rate environment is expected to
deliver enhanced net investment income in future years.”
Robert Lusardi
Chair of the Investment Committee
Committee membership
The Terms of Reference of the Investment Committee provide that the
Committee shall comprise at least two Non-Executive Directors (one
of whom may be the Chair of the Board) and the Group CFO and/or the
Group CIO. Any Executive Director may also serve on the Committee.
Principal responsibilities of the Committee
• Recommends investment strategies, guidelines and policies
to the Board and other Group entities to approve;
• Recommends and sets risk asset definitions and investment
risk tolerance levels;
The Investment Committee comprises one independent Non-Executive
Director, the Chair of the Board, one Executive Director (the Group CFO)
and the Group CIO (who is not a Director).
• Recommends to the relevant subsidiary Boards the appointment of
investment managers to manage the Group’s investments;
• Monitors the performance of investment strategies within the risk
Committee members
Robert Lusardi (Chair)
Peter Clarke*
Natalie Kershaw
Denise O’Donoghue
Meetings attended
4/4
3/4
4/4
4/4
*Peter Clarke was unable to attend the November 2023 meeting due to illness.
framework; and
• Establishes and monitors compliance with investment
operating guidelines.
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In 2022, the Committee had directed its external managers to begin
repositioning its portfolio to reduce the carbon intensity score, which
continued in 2023.
The Committee noted that 96.7% of the Group’s externally managed
investment portfolio is assigned to mangers which are signatories to
the UNPRI.
The Committee continues to operate a framework for the measurement
of climate sensitivity for corporate bonds within the fixed maturity
portfolio through the use of a Climate VaR, which is aligned with the
Paris Accord goal of limiting global temperature increases to a maximum
of 1.5°C, for the Group’s investment risk tolerance statements. The
Committee and Board have a preference for the financial impact of this
scenario on the Group’s fixed maturity portfolio, covered by MSCI, to
have a less detrimental impact than the MSCI benchmark model.
The Committee noted that the fixed maturity portfolio continues to
outperform the benchmark portfolio on the Climate VaR measure.
Priorities for 2024
• To build a diversified portfolio which supports Group
underwriting activities, contributes to growth in DBVS and is
balanced with the preservation of capital and the maintenance
of liquidity to pay claims;
• To increase portfolio duration to align with the longer overall
reserve duration as a result of the growth of the Group’s
casualty portfolio;
• To focus on the implications of macro-economic trends and
the measurement and monitoring of associated investment
risk within a framework of prudent investment risk
management; and
• To monitor the climate change risk sensitivity, ESG profile
and carbon intensity profile of the Group’s investment
portfolio with due regard to developing expectations
and methodologies.
How the Committee discharged
its responsibilities
During 2023, the Group’s investment portfolio generated $160.5 million,
representing a positive return of 5.7%. This strong return was driven by
the higher interest yield environment and the relatively short duration
of the portfolio. The Committee received regular comprehensive reports
from management regarding investment performance, strategy and risk
monitoring. The Committee continued to work constructively with
management to articulate, support and implement the Board’s
investment philosophy and discussed and agreed the resourcing
requirements for the Group’s investment department.
The Committee received regular reports from the professional
investment portfolio managers concerning their forward-looking view
of the macro-economic environment and implications for investment
asset classes and strategy. The Committee received presentations
from managers regarding potential new asset classes including senior
tranches of collateralised loan obligations.
The Committee considered regular reports on the performance of the
Group’s investment portfolios, including asset allocation and compliance
with pre-defined guidelines and tolerances; and recommended
amendments to portfolio investment guidelines to the Board. During
the year, the Committee approved an increased portfolio allocation to
CLOs and decided to progressively liquidate the Group’s hedge fund
portfolio, which, though positive, had not delivered the expected
risk-adjusted returns over the long term.
The Committee monitored a suite of investment portfolio risk analytics
throughout the year, including a 1 in 100 Value at Risk measure, realistic
disaster scenarios and realistic loss scenarios, credit risk and credit
quality, liquidity risk and other market risks. The Committee also
tracked FX exposure and its management.
The Committee monitors a number of tools to measure the ESG profile,
climate change risk exposure and carbon intensity of the Group’s
investment portfolio, including the MSCI ESG and carbon intensity rating
tools, with due regard to stakeholder expectations in these areas. The
Committee considers that most of the available tools and methodologies
for the ESG, carbon and climate factors are imperfect. Accordingly, the
Committee expects to further develop and refine its ability to analyse
these factors in future years, in consultation with the Group’s external
advisors and portfolio managers and aligned with the evolving market
and regulatory standards and expectations for the measuring and
reporting in these areas.
Notwithstanding these current perceived imperfections, the Committee
has tracked the carbon intensity of portfolio assets covered by the MSCI
carbon intensity rating (representing approximately 49% of portfolio
assets, since U.S. treasuries and structural assets, among others, are
not included).
Lancashire Holdings Limited | Annual Report & Accounts 2023
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ESG – Governance Committee reports continued
Underwriting Committee
“ We had another record-breaking year in 2023 for our highest ever
annual premium income, which was achieved through a combination
of a strong premium rating environment and organic growth in our
client base, particularly in our newer lines of business. The Committee
had actively monitored underwriting performance during the year and
also continues to approve and monitor the Group’s underwriting risk
tolerances and preferences and related performance. One of the
Committee’s roles is to monitor the Group’s reinsurance planning,
which is an important tool in managing our exposures across the
portfolio. Through a combination of disciplined underwriting in
well-priced markets and growth in non-catastrophe exposed lines,
the Group has built a more diversified book which has improved
our portfolio’s overall resilience to the impact of catastrophe losses.
The Committee has also monitored progress in implementing our
new U.S. underwriting platform.”
Alex Maloney
Group CEO and Chair of the Underwriting and Underwriting Risk Committee
Principal responsibilities of the Committee
• Reviews Group underwriting strategy, including consideration of
new lines of business;
• Oversees the development of, and adherence to, underwriting criteria,
limits, guidelines and authorities by operating company CUOs;
• Reviews underwriting performance;
• Reviews significant changes in underwriting rules and policies; and
• Monitors underwriting risk and its consistency with the Group’s risk
profile and risk appetite.
Committee membership
During 2023, the Underwriting and Underwriting Risk Committee
comprised one Executive Director (the Group CEO) and three Non-
Executive Directors (Bryan Joseph joined the Committee during the
second quarter), together with other senior members of the Group’s
underwriting and actuarial management teams (who are not Directors).
Committee members
Alex Maloney (Chair)
Jon Barnes
Michael Dawson
James Flude
Paul Gregory
Jack Gressier
James Irvine
Hayley Johnston
Bryan Joseph
Ben Readdy
Meetings attended
4/4
4/4
4/4
4/4
4/4
4/4
4/4
4/4
2/2
4/4
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Lancashire Holdings Limited | Annual Report & Accounts 2023
How the Committee discharged
its responsibilities
Strategic oversight
During 2023, the Committee continued to monitor the overarching
strategic priority for the business to maximise the underwriting
opportunity during the improved pricing environment of the current
insurance market cycle.
Management reporting to the Committee was developed for richer
underwriting information, which was re-configured to align with the
Group’s streamlined insurance and reinsurance reporting segments.
Reporting enhancements included dashboard presentation of data,
which is a product of the Group’s improved data warehouse and
data management capabilities as a key part of the Group’s IT
development strategy.
The Committee received regular updates on the Group’s strategic
underwriting plans and the Lloyd’s business plans, including related
capital requirements.
The Committee regularly reviewed progress in the development of the
Group’s U.S. underwriting initiative, and worked in conjunction with a
dedicated project committee, with Board and management participation,
which also monitored progress. The Committee also received reports on
a number of new business initiatives, including several which were
explored but not pursued.
The LCM platform did not deploy third party capital during 2023 and the
Committee monitored reserve movements on open Kinesis contracts.
Underwriting Performance
The Committee received regular reports on the Group’s underwriting
activities, including quarterly updates on gross premium written,
insurance and reinsurance pricing trends, and combined ratio
developments. In particular, the Committee considered the work
performed by management in repositioning some of the Group’s inwards
reinsurance lines.
The Committee received a management progress report on those classes
of business established during 2018. These included aviation deductible
reinsurance, and the energy power and energy downstream insurance
classes. All these lines are now contributing meaningfully to the Group’s
gross written premium.
The Committee received a presentation on the Group’s US mortgage
reinsurance protection portfolio and discussed an appropriate tolerance
for a mortgage risk PML scenario.
In April 2023, the Committee received a presentation from Syndicate
2010 property reinsurance underwriters relating to underwriting
optimisation work, which has been informed by improved data analysis.
Across the year the Committee monitored the progress made in building
a more diversified underwriting portfolio, within which catastrophe risk is
more broadly balanced against other non-correlating risks.
In April 2023, the Committee received a presentation on the Group’s
property insurance D&F lines of business, including a report on the
allocation of D&F risks between the Group’s LUK and Syndicate
platforms.
In April 2023, the Committee received a report on progress made by the
property construction underwriting team, first established during 2021.
The focus in this class is within the North American and Australian
markets.
The Committee received reports on underwriting conditions across a
number of business classes including changes in underwriting appetites
and client base.
The Committee discussed the Group’s Japan property reinsurance treaty
renewal season during April 2023.
The Committee also discussed data relating to insurance and reinsurance
pricing trends. There has been a strong improvement in the pricing
environment over recent years which has contributed to the Group’s
ability to grow its premium income materially.
At the half-year meeting, the Committee received its first report
summarising the (re)insurance service result performance calculated
under the new IFRS 17 accounting standard.
In August 2023, the Committee received an update of the Group’s
mid-year Florida property reinsurance renewals including pricing,
underwriting appetite, and positioning.
Underwriting Controls
In April 2023, the Committee recommended to the Board approval
of the Group’s underwriting controls policy and procedure.
The Committee reviewed and recommended to the Board the summary
of underwriting authorities and normal maximum lines by class of
business and the statements for the aggregate political risk exposures
by country.
Risk appetites and monitoring
The Committee reviewed and recommended to the Board the
Group’s underwriting PML and RDS risk tolerances and preferences.
The Committee reviewed at each of its meetings a summary of the
Group’s top PML and RDS exposures, including quarterly movements.
Through the review and monitoring of underwriting PMLs, the
Committee continued to monitor exposures to a range of natural
catastrophe risks, including regional windstorm and hurricane exposures,
and the articulation of an appropriate underwriting and risk management
strategy and management preference for these and other risk exposures
linked to climate change factors. The Committee is satisfied that the
Group’s underwriting strategy and reinsurance and risk management
programmes are appropriate for the management of underwriting risk
and natural catastrophe and climate linked exposures relating to these
factors. For more detail, please see the ERM report starting on page 23
and the Group’s TCFD report starting on page 49.
Lancashire Holdings Limited | Annual Report & Accounts 2023
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ESG – Governance Committee reports continued
The Committee also monitors the potential for conflicts and their
management within the business.
Oversight of reinsurance structures
The Group’s programme of outwards reinsurance protections is a core
risk and exposure management tool. The Committee reviewed the
structure, pricing and operation of the outwards reinsurance programme
and regularly discussed management reports covering outwards
reinsurance developments. The Committee’s work included a forward-
looking presentation by management regarding opportunities for the
Group’s reinsurance structure for 2024. The Committee also approved
the Group’s intra-group reinsurance approval controls.
Claims reporting
The Committee monitored the status of key claims, including reserve
developments during the course of the year. Topics discussed included
market loss developments on winter storm Elliott, COVID-related
market litigation developments and developments in aviation claims
relating to the conflict in Ukraine. The Committee also discussed
reserving, including within the context of the Group’s business plan
assumptions. At its November 2023 meeting, the Committee discussed
with management the Group’s potential policy exposures within Israel
and the Middle East.
Board engagement
During 2023, the Committee meetings were ordinarily attended
by all Board members. The Committee and Board seek to match the
Company’s capital to the underwriting requirements of the business
in all parts of the underwriting cycle. A more detailed analysis of the
Group’s underwriting performance appears in the underwriting and
business review starting on page 14.
Priorities for 2024
• To continue to monitor the development and implementation
of a forward-looking and disciplined underwriting strategy
with a focus on disciplined growth appropriate to the current
market opportunities and nimble use of the Group’s
underwriting platforms, within a framework of appropriate
risk tolerances;
• To work actively with management in the identification,
analysis and consideration of new underwriting opportunities,
including potential new lines of business, opportunities in new
markets, opportunities for the Group’s newly established U.S.
underwriting platform and opportunities for the managed
‘organic’ growth in the Group’s existing business lines;
• To consider opportunities for development of the Group’s
reinsurance structures; and
• To continue to foster a nimble, sustainable and responsive
underwriting culture, capable of responding to the needs of
clients, investors, employees and other stakeholders.
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Remuneration Committee
“ The 2023 year has been one of strong performance for the business, on
both the underwriting and investment side. This represents significant
delivery on our long term strategic objective of balancing risk and return
to generate attractive returns for our investors across the insurance cycle.
The Committee recognises the importance of management contribution
in leading the Lancashire team to achieve these outcomes.
The year has also been one of transition in a number of important respects.
Firstly, I would like to thank our shareholders for their strong support of
our Remuneration Policy at the 2023 AGM, which included a number of
minor changes. The Committee and Board have also tracked the
implementation of the new IFRS 17 insurance accounting standard and
performance outcomes during the year. The Committee also conducted a
tender for remuneration advisory services, which has resulted in the
appointment of PwC as our new advisor.
The Committee is satisfied that Lancashire’s remuneration structures
continue to ensure appropriate reward for our management and our
people, who are the Group’s key asset, and are strongly aligned with
the Group’s strategic priorities.”
Irene McDermott Brown
Chair of the Remuneration Committee
Committee membership
The Remuneration Committee comprises four independent
Non-Executive Directors and the Chair of the Board. Simon Fraser
stepped down from the Committee and the Board, having completed
nine years’ service, at the 2023 AGM.
Principal responsibilities of the Committee
• Sets the Remuneration Policy for all Directors and determines the
total individual remuneration packages of the Company’s Chair,
the Executive Directors, Company Secretary and other designated
senior executives, to deliver long-term benefits to the Group;
Committee members
Irene McDermott Brown (Chair)
Peter Clarke
Michael Dawson
Jack Gressier
Robert Lusardi
Simon Fraser
Meetings attended
4/4
4/4
4/4
4/4
4/4
2/2
• Recommends to the Board the financial and personal objectives for
each Executive Director and monitors the performance against these
objectives for the annual bonus;
• Determines each year whether awards will be made under the
Group’s RSS and, if so, the overall amount of such awards, the
individual awards to Executive Directors and other designated
senior executives, and the performance targets to be used;
• Ensures that contractual terms on termination or retirement,
and any payments subsequently made, are fair to the individual
and the Company; and
• Oversees any major changes in employee reward and benefit
structures throughout the Group.
Lancashire Holdings Limited | Annual Report & Accounts 2023
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ESG – Governance Committee reports continued
How the Committee discharged
its responsibilities
Throughout the year, the Committee kept under review the Group’s
performance and remuneration structures, in the light of due
consideration of investor and stakeholder input and interests.
At the 2023 AGM, the Board put to our shareholders a revised Directors’
Remuneration Policy, following a period of shareholder consultation led
by Irene McDermott Brown as the Committee Chair. The Policy has a
three-year term and was approved by shareholders with a majority of
92.9% of votes cast. The Remuneration Policy is summarised on page
105 of the Directors’ Remuneration Report. The vote on the 2022 Annual
Report on Remuneration received 92.2% of votes cast. The Committee
noted the strong level of shareholder support for the Directors’
Remuneration Policy and its implementation for the 2022 year.
Following shareholder feedback the Committee and Board agreed to
utilise a profit-related RoE measure for the annual bonus for Executive
Directors. The Committee and Board retained change in DBVS and TSR
as the metrics used in the longer term RSS equity-linked awards for
Executive Directors. The Committee monitored throughout the year the
financial performance of the business, which was reported for the first
time on the basis of the IFRS 17 and IFRS 9 accounting standards.
Under the leadership of Irene McDermott Brown the Committee
conducted a tender process for remuneration advisory services.
Following consideration of three shortlisted candidates (including Alvarez
& Marsal, the Group’s adviser in recent years) the Committee decided
to appoint PwC as the Group’s independent remuneration advisers. The
Committee felt that PwC had access to excellent comparative data for
UK and internationally listed businesses, and with regard to the insurance
and financial services sectors, and has informed experts capable of giving
practical remuneration advice.
During 2023, the Committee reviewed the Group’s incentive packages
for Executive Directors, for other designated senior executives within
the agreed remuneration framework and more generally for the staff
population, to ensure that remuneration is structured appropriately
in order to promote the long-term success of the Company. The
Committee reviewed industry benchmarking data for the Group’s
senior executive roles. In considering the salary and bonus awards for
the Executive Directors, as well as other designated senior executives,
the Committee also had regard to remuneration levels and practices
across the workforce. The Committee and the Board noted and discussed
the outcomes of the employee surveys conducted during the year and
the results of the Group’s gender pay gap data analysis.
The Committee also approved the grant of long-term incentive awards
under the Company’s RSS, considering a range of factors including the
Company’s share price movement. The Committee reviewed Executive
Directors’ shareholdings in the context of the Company’s share
ownership guidelines for senior/key executives. Share ownership targets
have either been met, or acceptable progress made in accordance with
guideline requirements. The Committee also discussed and agreed
proposals for the treatment of unvested RSS equity awards of
departing employees, including retirees.
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Lancashire Holdings Limited | Annual Report & Accounts 2023
In considering remuneration outcomes, the Committee gave formal
consideration to the questions of malus and clawback and made
enquiries with respect to the effective operation of the Group’s risk
and control framework.
The Committee reviewed and recommended to the Board two
supplementary schedules to the Group RSS rules, relating to RSS
awards made to U.S. and Canadian employees. These were duly
approved by the Board.
At the November 2023 meeting, the Committee and all Directors
received a presentation from PwC on developments in remuneration
practice. Discussion covered developments in law, regulation, best
practice and reporting obligations as well as the remuneration guidance
from leading shareholder advisory groups.
The Committee reviewed and recommended to the Board for approval
the Group’s Solvency II remuneration policy relevant to the management
population of staff within the Group’s UK regulated entities.
The Committee received market benchmarking data on fees for directors
of listed entities and operating insurance companies.
For discussion of the linkage between performance and remuneration
outcomes, please see Irene McDermott Brown’s introduction to the
Directors’ Remuneration Report on page 101. The Report also sets out
in greater detail 2023 remuneration for Executive Directors and the
Committee’s work in reviewing performance and outcomes and in
determining appropriate implementation of the Policy for 2024 (see
pages 108 to 117 for the full report).
Priorities for 2024
• To ensure the appropriateness and relevance of the Group’s
remuneration structures and alignment with the Board’s
business strategy and objectives, effective risk management
and the interests of stakeholders;
• To ensure that remuneration across the wider Group is
appropriate to retain and reward employees and remains
competitive and appropriate to meet the skills and resourcing
needs of the business; and
• To work with the Group’s independent remuneration adviser
to keep abreast of compensation levels amongst the Group’s
London, Bermudian and other international peers, and
appropriately reflect good market practices.
Directors’ Remuneration Report
Annual Statement
Dear Shareholder,
I am pleased to present the 2023 Directors’ Remuneration Report
to shareholders.
2023 has been a year of strong operational and financial performance.
For the third year in succession the business has achieved strong
premium growth in excess of the rates of growth in premium pricing
generating comprehensive income of $321.5 million, the highest since
2010. We have seen robust organic growth in our underwriting portfolio
and the addition of new underwriting lines, including the Group’s
casualty reinsurance portfolio over recent years, has diversified the
premium income streams and related policy exposures thereby creating
greater portfolio resilience to the Group’s catastrophe loss exposures.
Whilst there have been several smaller to medium-sized industry losses
during 2023, we have not witnessed any major catastrophe loss, which
has further enhanced the Group’s underwriting performance. Our
investment portfolio has also delivered strong returns and investment
performance has contributed meaningfully to Group returns.
In light of the strong financial performance, the Board has been very
pleased with the strong growth in DBVS of 24.7%, with an undiscounted
combined ratio of 82.6%. The Group’s simple RoE, being adjusted profit
over average shareholders’ equity, has been similarly strong at 20.0%.
Further detail on the RoE outturn is provided on page 109.
Expectations are that the current pricing environment and growth
opportunity will continue into 2024. Overall, as we enter 2024,
the Group is in a strong position to continue to maximise attractive
underwriting opportunities in what we expect will be a positive pricing
environment. The business has also reinforced its long-standing
commitment to active capital management and, in light of the
strong returns generated in 2023, the Board was able to declare in
November 2023 a special dividend of $0.50 per share which was paid
to shareholders during December 2023. The Board is confident that
the business has the required capital and resilience to support its
underwriting and growth plan for 2024 and the foreseeable future.
Against this background, total remuneration for our Group CEO and
Group CFO has increased in comparison to 2022. The principal driver
for this change is the strong performance delivery on the financial metric
of the annual bonus, which accounts for 75% of bonus outturn. The
financial element of annual bonus did not meet threshold in 2022
(see the comparison table for single figure remuneration on page 108). In
2023, the Directors’ Remuneration Policy operated in line with the
intentions set out in the 2022 Annual Report on Remuneration.
2023 AGM voting outcomes
Shareholders will recall that in the autumn of 2022, I led a consultation
exercise in which shareholder feedback was sought, with a particular
focus on proposals for the updated Directors’ Remuneration Policy,
which was included in last year’s report and is summarised in this report
(see page 105), and a proposal to modify the financial metrics used for
annual bonus purposes to include a new simple RoE measure – which
the Board adopted for the first time in 2023.
As is noted in the Remuneration Committee Report (see page 100) the
Committee was very pleased with the levels of shareholder support at
the 2023 AGM for the three year Directors’ Remuneration Policy and
report on remuneration both of which received over 92% of votes cast.
The Board and management continue to believe that there is a strong
link between the Remuneration Policy and business strategy. The
Committee and Board keep remuneration policy and performance
metrics under regular review to ensure appropriate focus and alignment
of our management team with the interests of our stakeholders. The
Committee and Board consider that the three-year Directors’
Remuneration Policy, which was set out in full in the 2022 Annual Report
and approved at the 2023 AGM, remains fit for purpose and no policy
changes are proposed at the 2024 AGM.
Performance outcomes for 2023
The Executive Directors’ 2023 annual bonus performance targets for
both financial and personal performance were stretching. The financial
element made up 75% of the annual bonus opportunity and was linked
to the Company’s simple RoE metric. 2023 RoE performance of 20.0%
exceeded the maximum level set by the Committee at the start of the
year (19.2% being the risk free rate, confirmed as 5.2%, plus 14%),
resulting in a 2023 annual bonus pay out for the financial performance
element at the maximum level. This was considered by the Committee
and Board to be an appropriate outcome for 2023 and therefore no
discretion was exercised by the Committee.
The Board considered that the Executive Directors performed extremely
well in achieving the agreed strategic aims for the business aligned with
their personal performance targets. The outcomes achieved included
strong organic growth in underwriting premium income, establishing and
embedding new lines of underwriting, the establishment of the Group’s
new U.S. underwriting presence, successfully implementing the new IFRS
17 and 9 accounting standards, managing risk within the business and
structuring a more diversified and resilient underwriting portfolio.
The business has continued to demonstrate high levels of operational
effectiveness, which has in turn driven the strong financial outcome for
the 2023 year. The Board also noted the dynamic action of management
in managing the Group’s capital and in managing and monitoring risk.
Lancashire Holdings Limited | Annual Report & Accounts 2023
101
ESG – Governance Directors’ Remuneration Report continued
The business was able not only to match its capital resources to the
Group’s underwriting activities but also to facilitate the payment to
our shareholders of a special dividend. The Board considers that our
Executive Directors have continued to provide the effective leadership
which has contributed to the Group’s strong financial performance
during the year and has placed Lancashire in a robust position to grow,
to return capital as appropriate and to withstand any future, more
challenging, parts of the cycle. Performance versus personal and
strategic objectives was assessed at 93% of maximum for the Group
CEO and 94% of maximum for the Group CFO, resulting in 2023 bonus
outcomes at 98% of maximum level for the Group CEO and 99% of
maximum level for the Group CFO (see page 110 for further details of
personal performance).
In relation to long-term incentives for Executive Directors, the 2021
Performance RSS awards were 85% based on the annual change in
DBVS targets and 15% on compound annual growth TSR targets over
the three-year period to 31 December 2023. The Company’s TSR
(calculated in U.S. dollars) for the performance period resulted in a
compound annual rate of negative 3.5%, resulting in 0% vesting for the
TSR component. The Change in DBVS performance over the three-year
performance period was assessed based on the change for each of the
three separate financial years as disclosed on page 111, resulting in nil
vesting in respect of the 2021 and 2022 years for this element and
33.3% vesting in respect of the 2023 year for this element of the 2021
Performance RSS awards. Therefore overall, the 2021 Performance RSS
awards will vest at 28.3%.
The Committee believes in setting challenging performance criteria and
having a significant proportion of the overall package linked to Company
performance. Furthermore, the Committee also continues to recognise
the need to ensure that Executive Directors are appropriately
remunerated and incentivised throughout every phase of the insurance
cycle. The Board seeks to ensure that Executive Director compensation
is structured in such a way as to discourage excessive risk to the business.
The Committee noted the 28.3% vesting of the 2021 RSS awards, which
was a result of the three-year performance delivered. This outcome is
relatively low and was a reflection of the challenging loss environment
faced by insurance markets in 2021 and 2022 and the Group’s strong
performance in 2023. The Committee is satisfied that there has been
sufficient linkage between longer-term performance and reward for
Executive Directors. The Committee also considers that the Executive
Directors will not benefit from any windfall gains; and as a result, no
discretion was applied to the formulaic outcome. The Committee
will continue to ensure that there is appropriate alignment between
executive remuneration and Company performance in line with the
Group’s cross-cycle return expectations and is satisfied that the Policy
operated as intended for 2023.
During the year, the Committee also engaged with management on
matters of broader employee engagement and remuneration. As a
committee, we value the opportunity to hear the views of employees
and to support management in gathering and considering feedback and
implementing changes. The Board and Committee received feedback
during the year on a Group-wide employee survey monitoring issues of
engagement, purpose and perception of management effectiveness and
structures. As in previous years, one of our Non-Executive Directors
routinely joins Alex in the Group CEO’s quarterly staff town hall
meetings. These are a forum for the presentation and discussion with
staff of the performance and operation of the business and the activities
and operation of the Board. They also afford Alex and the Board the
opportunity to address employee questions and receive feedback.
Application of Remuneration Policy for 2024
The Committee has reviewed and discussed the remuneration structures
to be used in 2024 in some detail and, following engagement with major
shareholders and agencies, is putting forward an adjustment to RSS
award level and increase to salary for the CEO. Both adjustments are
within Policy and address concerns related to international competitive
pressure for talent across the industry, highlighted in a remuneration
benchmarking study commissioned from our independent remuneration
adviser. The exercise considered the CEO remuneration levels of a
bespoke peer group of comparable UK and US-listed insurers and
reinsurers, primarily headquartered in the UK and Bermuda (taking note
of the size and complexity in each case, and paying particular attention
to the market capitalisation), to reflect the relevant talent market for
Lancashire. The Committee proposes a salary uplift equal to 10% for
Alex Maloney, comprised of an inflationary uplift of 5% plus an
additional 5% (the average uplift across the workforce for 2024 is 6.2%)
and an adjustment to RSS from the current level of 300% of salary to
350% of salary. The decision to adjust RSS in addition to salary is to
ensure the link between CEO remuneration and shareholder value is
maintained. No additional adjustment beyond an inflationary salary
uplift of 5% is proposed for the CFO.
The Annual Report on Remuneration provides detailed disclosure on
how the Policy will be implemented for 2024 and how Directors have
been paid in relation to 2023.
The disclosures provide our shareholders with the information necessary
to form a judgement as to the link between Company performance and
how the Executive Directors are paid. This Annual Statement, together
with the Annual Report on Remuneration, will be subject to an advisory
vote, and I hope that you will be able to support this resolution at the
forthcoming 2024 AGM. The Committee is committed to maintaining
an open and constructive dialogue with our shareholders on
remuneration matters and I welcome any feedback you may have.
Irene McDermott Brown
Chair of the Remuneration Committee
102
Lancashire Holdings Limited | Annual Report & Accounts 2023
Directors’ Remuneration Policy
As a Company incorporated in Bermuda, LHL is not bound by UK law
or regulation in the area of Directors’ remuneration to the same extent
that it applies to UK incorporated companies. However, by virtue
of the Company’s premium listing on the LSE, and for the purposes
of explaining its compliance against the requirements of the Code,
the Board is committed to providing full information on Directors’
remuneration to shareholders.
The Company’s current Remuneration Policy was approved
by shareholders at the 2023 AGM, which is effective for
a period of three years.
The Committee considers the Policy to be in line with best
practice and shareholder expectations.
The Remuneration Policy addresses the following principles as set out in the Code:
• Clarity – the Committee regularly engages with shareholders to
• Predictability – the range of possible reward outcomes is shown
in the ‘Illustrations of annual application of Remuneration Policy’
(see page 114 for full details), which demonstrates the potential
threshold, on-target and maximum scenarios of performance
and the resulting pay outcomes which could be expected.
• Proportionality – a significant proportion of pay is delivered
through variable remuneration. No variable remuneration will
be delivered for below threshold performance with incentives
only paying out if strong performance has been delivered by the
Executive Directors. The Committee has the discretion to override
outcomes if they are deemed inappropriate to ensure a robust link
between reward and performance.
• Alignment to culture – the Policy has been designed to support
the delivery of the Group’s long-term strategy, and the interests
of its shareholders and employees. Annual bonus performance
metrics include an assessment of whether each Executive
Director’s contribution aligns to the Group values. The Policy seeks
to appropriately motivate Executive Directors to deliver long-
term, sustainable performance which benefits all stakeholders.
take into account shareholder feedback (as it did in developing the
current Policy and proposals for 2024 implementation) and with
the workforce, as described in the Annual Statement on page 101,
to ensure there is transparency on the Remuneration Policy and
its implementation. The Remuneration Policy has a clear objective:
to enable the Group to attract, retain and motivate Executive
Directors of the highest calibre to further the Company’s interests
and to optimise long-term shareholder value creation, within
appropriate risk parameters.
• Simplicity – the Remuneration Policy is designed such that
the arrangements are considered easy to communicate
to all stakeholders. This includes variable pay which operates
as an annual bonus plan and a single LTIP. The objective
and rationale for each element of the Remuneration Policy
is clearly explained in the Policy table.
• Risk – the Committee considers that the structure of remuneration
does not encourage inappropriate risk-taking. The performance
metrics used ensure remuneration aligns to the Board’s strategic
objective which is to achieve attractive returns appropriate to
overall risk levels across the (re)insurance market cycle. There
is a mixture of short-term and long-term performance metrics
with an appropriate mix of performance conditions. Malus and
clawback provisions are in place across all incentive plans and
the Committee has the ability to use its discretion to override
formulaic outcomes. The Committee receives a report from the
Group CRO with regard to risk management developments which
may be relevant to remuneration outcomes, and also makes
inquiry with the Group Head of Internal Audit.
Lancashire Holdings Limited | Annual Report & Accounts 2023
103
ESG – Governance Directors’ Remuneration Report continued
Governance and approach
The Company’s Remuneration Policy is geared towards providing
a level of remuneration which attracts, retains and motivates Executive
Directors of the highest calibre to further the Company’s interests and
to optimise long-term shareholder value creation, within appropriate risk
parameters. The Remuneration Policy also seeks to ensure that Executive
Directors are provided with appropriate incentives to drive Company and
individual performance and to reward them fairly for their contribution
to the successful performance of the Company.
The Remuneration Committee and the Board have again considered
whether any element of the Remuneration Policy could conceivably
encourage Executive Directors to take inappropriate risks and have
concluded that this is not the case, given the following:
•
•
•
•
there is an appropriate balance between fixed and variable pay,
and therefore Executive Directors are not required to earn
performance-related pay to meet their day-to-day living expenses;
there is a blend of short-term and long-term performance metrics
with an appropriate mix of performance conditions, meaning that
there is no undue focus on any one particular metric;
in the case of Alex Maloney, the Group CEO, there is a high level of
share ownership, and in the case of Natalie Kershaw, who assumed
the role of Group CFO and Executive Director during 2020, there is
an appropriate opportunity to acquire a longer-term equity holding
on a measured basis, meaning that there is a strong focus on
sustainable long-term shareholder value; and
the Company has the power to claw back bonuses (including the
deferred element of the annual bonus) and long-term incentive
payments made to Executive Directors in the event of material
misstatements in the Group’s consolidated financial statements,
errors in the calculation of any performance condition, corporate
failure and material damage to the Group’s business or reputation
or the Executive Director ceasing to be a Director and/or employee
due to gross misconduct (see page 105 for a summary of the Policy).
The full Policy details are included in the 2022 Lancashire Holdings
Limited Annual Report.
How the views of shareholders are taken
into account
The Committee Chair and, where appropriate, the Company Chair
consult with major investors and representative bodies on any significant
remuneration proposal relating to Executive Directors. Views of
shareholders at the AGM, and feedback received at other times,
will be considered by the Committee. The Committee also takes into
account published guidance from shareholders and proxy agencies.
During 2023, management engaged regularly with investors touching
on matters including remuneration and wider workforce pay principles.
The Committee engaged specifically with the Group’s major
shareholders on the matter of CEO pay structure for 2024 which,
within the Policy parameters approved at the 2023 AGM, addresses
the challenges of an international competitive market in a proportionate
manner. A number of investors sought additional clarity on the
comparator group used, and we confirmed that this was based on listed
companies, taking into account the business mix, geographic market,
size and complexity compared to Lancashire and that, where
comparators were larger or smaller than Lancashire, this was
taken into account in the remuneration comparison.
How the views of employees are taken
into account
The Remuneration Committee takes into account levels of pay elsewhere
in the Group when determining the pay levels for Executive Directors.
The Remuneration Policy for all staff is, in principle, broadly the same as
that for Executive Directors in that any of the Group’s employees may be
offered similarly structured packages, with participation in annual bonus
and long-term incentive plans, although award types (restricted cash,
restricted stock or performance shares) and size may vary between
different categories of staff. For Executive Directors, with higher
remuneration levels, a higher proportion of the compensation package
is subject to performance pay, share-based remuneration and deferral.
This ensures that there is a strong link between remuneration,
Company performance and the interests of shareholders.
Reflecting good practice in this area, Executive Directors’ pension
provision is the same as the standard pension contributions made
to employees in the Group (in percentage of salary terms).
Whilst the Company does not expressly consult with employees on
Executive Directors’ remuneration, the Board and Committee, through
the structured arrangements for regular workforce engagement, do
receive employee feedback, including where relevant to matters of
remuneration. As noted above, the Committee is made aware of pay
structures across the wider Group when setting the Remuneration Policy
for Executive Directors. The Committee also reviews and approves the
size of any annual bonus pot to be distributed to employees and the
allocation of RSS awards or other LTI structures, and its practice in this
regard is well aligned with the expectations introduced within the Code.
There is a broad understanding across the business of the influence of the
financial performance of the Group on year-end remuneration outcomes
via town hall meetings and internal communication of quarter end
results with managers engaging directly with employees on their
contribution. The percentage change in remuneration table on page 116
shows that wider employee pay outcomes are broadly aligned to those
of senior executives, albeit with a less dramatic impact from financial
performance due to active management decisions in previous years to
soften the effect of more challenging years and the larger proportion
of variable components in senior executive pay.
104
Lancashire Holdings Limited | Annual Report & Accounts 2023
Remuneration Policy Summary
The following table summarises Lancashire’s Remuneration Policy which became binding on 26 April 2023 with 92.9% of votes cast in favour.
The full Policy can be reviewed in the 2022 Annual Report which can be found in the Results, Reports & Presentations section on the Group’s website,
www.lancashiregroup.com.
Maximum Potential Opportunity
• No maximum
Applicable Performance Measures
• None
• Maximum employer pension
• None
contribution of 10% in line with
wider workforce
Component
Salary
Pension and
other benefits
Operation/Key Features
• Typically reviewed annually with
regard to market conditions, role,
experience and peer group
• Percentage increases aligned
with workforce other than in
exceptional circumstances
• Money purchase pension
arrangement or cash alternative
• Benefits offered in line with
wider workforce
• Additional benefits can be
offered to support relocation
or local practice
• Reasonable business-related
expenses
Annual Bonus
• One third of annual bonus
• 400% of salary (2x target)
• At least 75% based on Financial
Long Term
Incentives (LTI)
deferred into Lancashire shares
vesting in three equal tranches
over three years
• Dividend equivalent is earned
on deferred portion
• Cash and deferred elements are
subject to malus and clawback
• Normally awarded annually
• Maximum 350% of salary
as nil-cost options or
conditional awards
• Vesting after three years with
a two-year holding period
• Dividend equivalent accrues
in cash or shares
• All awards are subject to
malus and clawback
Performance, e.g., growth in DBVS,
profit, comprehensive income,
combined ratio, investment return,
simple RoE or any other financial KPI
• No more than 25% based on
strategic/personal objectives
• Performance measures that reflect
the long-term strategy of the
business at the time of grant
• May include TSR, growth in DBVS,
Company profitability or any other
relevant financial or strategic
measure
Lancashire Holdings Limited | Annual Report & Accounts 2023
105
ESG – Governance Directors’ Remuneration Report continued
Remuneration Policy Summary continued
Component
Shareholding
requirements
Chair and
Non-Executive
Director fees
Committee
discretion
Operation/Key Features
• Executive Directors are expected to maintain an interest equivalent in value to no less than two times salary
• To be achieved within five years of appointment, with 50% of the shares (net of tax) from vesting RSS to be retained
until the required level is achieved
• Requirement to retain minimum shareholding level for two years post termination
• Chair receives a single fee for all responsibilities which is reviewed periodically by the Committee and Group CEO
• Non-Executive Directors receive a single fee for all responsibilities with the option to pay supplemental fees where
additional responsibilities are undertaken
• Any reasonable business expenses can be reimbursed
• The Committee has discretion within the Policy over a number of areas of bonus and LTI operation including, but
not limited to, participants, award timing, award size and vesting proportion, change of control arrangements, leaver
treatment, special circumstances including rights issues, corporate restructuring, special dividends and adjustments
to performance metrics, outcomes and deferral
• Any use of exceptional discretion to override formulaic outcomes would, where relevant, be explained in the Annual
Report on Remuneration, as appropriate
Approach to
recruitment
• Remuneration packages for new Executive Directors would be set in accordance with the terms of the Company’s
prevailing approved Remuneration Policy at the time of appointment, taking into account the skills and experience
of the individual
• The Committee may offer to compensate a new Executive Director for deferred or incentive pay deemed forfeit on
leaving a previous employer ensuring, where possible, that value, timing and performance requirements are consistent
with the forfeit awards
Service contracts
and loss of office
payments
• The Committee may also agree that the Company should meet appropriate relocation and expatriate expenses
• Notice periods for Executive Directors will normally be limited to six months and will not exceed 12 months
• Base salary and benefits will continue for the notice period, in the event that a proportion of the notice period
is not worked, the Executive Director would have no contractual right to bonus for this proportion
Leaver
arrangements
Non-Executive
Director terms
of appointment
Legacy
arrangements
Unexpired terms
• Depending on the leaver classification, an Executive Director may be eligible for certain payments or benefits to
•
continue after cessation of employment
If an Executive Director leaves on agreed terms, there may be payments after cessation of employment and, subject
to performance, the Committee has discretion to approve a bonus payment for the portion of the year worked with
or without a deferral requirement. The Committee also has discretion to treat unvested RSS awards in line with the
Good Leaver provisions contained within the plan rules
If an Executive Director resigns or is summarily dismissed, all payments will cease on the last day of employment
•
• Non-Executive Directors are appointed subject to re-election at the AGM and are terminable by either party on
six months’ notice
• Non-Executive Directors typically serve for up to six years, but can be invited to serve for an additional period
• Authority is given to the Company to honour commitments paid, promised to be paid or awarded prior to
commencement of this Policy, either under a previous Policy or made prior to appointment as a Director
• The Executive Directors are employed under service contracts with no fixed duration
• Non-Executive Directors have letters of appointment rather than service contracts
106
Lancashire Holdings Limited | Annual Report & Accounts 2023
Remuneration at a glance
Remuneration in the Group
Group CEO pay ratio to
the median colleagues
Total spend
on pay
31:1
2022 15:1
Alex Maloney
CEO
2,860
$135.1m
2022 $82.6m
Natalie Kershaw
CFO
819
809
2022 (£’000)
728
8
73
363
121
335
1,628
849
2023 (£’000)
764
9
76
1,503
751
606
3,709
1,861
586
2023 (£’000)
525
8
53
1,034
517
310
2,447
477
505
2022 (£’000)
453
7
45
229
77
171
983
2023 Total single figure remuneration
Salary
Benefits
Pension
Bonus paid in cash
Bonus deferred in shares
Long-term Incentive Plan (LTIP)
Total
2023 RSS awards granted
On 20 February 2023, RSS nil cost option awards were granted to the Group CEO and Group CFO. Details are set out below.
Director
Alex Maloney
Natalie Kershaw
Basis of award
% Salary
300%
275%
Date of grant
20-Feb-23
20-Feb-23
Number of
options granted
373,899
235,523
Lancashire Holdings Limited | Annual Report & Accounts 2023
107
ESG – Governance Directors’ Remuneration Report continued
Annual Report on Remuneration
This Annual Report on Remuneration together with the Chair’s statement, as detailed on pages 101 to 104 and 108 to 117, will be subject
to an advisory vote at the 2024 AGM. The following sections in respect of Directors’ emoluments have been audited by KPMG LLP:
• Single figure of remuneration
• Non-Executive Director fees
• Annual bonus payments in respect of 2023 performance
• Long-term share awards with performance periods ending in the year – 2021 RSS awards
• Scheme interests awarded during the year
• Directors’ shareholdings and share interests.
Single figure of remuneration
The following table presents the Executive Directors’ emoluments in GBP in respect of the years ended 31 December 2023 and 31 December 2022
for time served as an Executive Director.
Executive Director
Alex Maloney, Group CEO
Natalie Kershaw, Group CFO
Salary
£’000
764
728
525
453
Pension
£’000
76
73
53
45
Taxable
benefits4
£’000
9
8
8
7
Total Fixed
pay
£’000
849
809
586
505
Annual
bonus1
£’000
2,254
484
1,551
306
Long-term
incentives
(RSS)2,3 £’000
606
335
310
171
Total
Variable
pay £’000
2,860
819
1,861
477
Total
‘000
3,709
1,628
2,447
983
2023
2022
2023
2022
1. The final bonus earned by Executive Directors will be 98.4% of the maximum for the Group CEO, 98.5% of the maximum for the Group CFO. For full details of Executive Directors’
bonuses and the associated performance delivered, see pages 110 and 111. One third of the serving Executive Directors’ annual bonus is deferred into RSS awards without
performance conditions, vesting at 33.3% per year over a three-year period.
2. For 2023, the long-term incentive values are based on the 2021 Performance RSS awards which vested at 28.3% and are based on a three-year performance period that ended
on 31 December 2023. The values above are based on the average share price for the final quarter of 2023, being £6.0637, and includes the value of dividend equivalents accrued
up to 31 December 2023.
3. For 2022, the long-term incentive values are based on the 2020 RSS awards which vested at 19.8%, and have been restated using the share price as at the date of vesting
(10 February 2023) which was £6.145. The figures reflect the final number of shares that vested on 10 February 2023.
4. The benefits value shown reflects taxable benefits provided (Private Medical, Critical Illness, Dental and Gym reimbursement).
The following charts set out the above disclosed 2023 total remuneration received by serving Executive Directors as a percentage of their total
2023 remuneration.
Alex Maloney
LTI awards (RSS):
16.3%
Natalie Kershaw
LTI awards (RSS):
12.7%
Fixed Pay:
22.9%
Fixed Pay:
23.9%
Annual Bonus:
60.8%
Annual Bonus:
63.4%
108
Lancashire Holdings Limited | Annual Report & Accounts 2023
Non-Executive Director fees
The following table presents the Non-Executive Directors’ fees in respect of the years ended 31 December 2023 and 31 December 2022 for time
served as a Non-Executive Director.
Current Non-Executive Directors
Peter Clarke
Michael Dawson
Simon Fraser1
Jack Gressier2
Robert Lusardi
Irene McDermott Brown
Sally Williams3
Bryan Joseph4
Philip Broadley5
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
Fee $’0006
350
350
175
175
56
175
175
75
175
175
175
175
175
175
119
–
26
–
Other $’000
–
–
–
–
50
95
–
–
–
–
–
–
67
39
41
–
–
–
Total $’000
350
350
175
175
106
270
175
75
175
175
175
175
242
214
161
–
26
–
1. Simon Fraser stepped down from the Board on 26 April 2023 and from his role on the LSL Board on 18 May 2023, his fees represent his 2023 tenure.
2. Jack Gressier was appointed to the Board on 26 July 2022 and his fees represent his time as a Director.
3. Sally Williams was appointed to the LUK Board on 10 May 2022 and fees for LUK in 2022 represent her time as a Director in 2022.
4. Bryan Joseph was appointed to the Board on 26 April 2023 and the LSL Board on 1 August 2023. His 2023 fees represent his time as a Director.
5. Philip Broadley was appointed to the Board on 8 November 2023 and his fees represent his time as a Director.
6. LSL and LUK fees are paid in GBP at the average exchange rate for the month of payment.
Annual bonus payments in respect of 2023 performance
As detailed in the Remuneration Policy, each Executive Director participates in the annual bonus plan, under which performance is measured over
a single financial year.
Bonus targets were set at the beginning of 2023 and based on a clear split between Company financial performance and personal performance
on a 75:25 basis. The target value of bonus was 150% of salary for the Group CEO and Group CFO respectively, and the maximum payable was
two times the target value.
Financial performance
75% of the 2023 bonus was based on Company performance conditions and the extent to which these were achieved is as follows:
Performance measure
RoE
Payout
Financial performance
weighting (of total bonus) %
75
% of Target
Threshold %
RFR +5%
(10.2%)
25%
Target %
RFR +8%
(13.2%)
100%
Max %
RFR +14%
(19.2%)
200%
Actual
performance %
RFR +14.8%
(20.0%)
200%
2023 is the first year in which financial performance has been measured using simple RoE, it is also the year in which the IFRS 17 and IFRS 9 accounting
standards were implemented. The RoE outturn was calculated using adjusted profit after tax divided by average shareholders’ equity. Profit in the RoE
calculation was adjusted for elements considered to be outside management’s control, most significantly the change in unrealised investment gains
and losses, and on the impact of interest rate movements on the discounting of IFRS 17 loss reserves. Average equity was calculated as the average
of the opening and closing shareholders’ equity position, excluding the unrealised investment gains and losses and discounting impacts noted above.
The RFR was calculated with reference to the average 13 week UST rates for the year.
Lancashire Holdings Limited | Annual Report & Accounts 2023
109
ESG – Governance Directors’ Remuneration Report continued
Personal performance
25% of the 2023 bonus was based on performance against clearly defined personal objectives set at the start of the year.
The table below sets out a summary of the 2023 personal objectives for each Executive Director and some of the factors the Board has considered
to determine whether the objectives have been met.
Executive
Director
Alex Maloney
Personal strategic objectives
Business management and
leadership, including
transformation and values
Implementation of the
long-term business growth
and development strategy
ESG, with a focus on People
and Culture and continued
embedding and management
of environmental considerations
Natalie Kershaw
Business Management
and Leadership, including
transformation and values
Strategic Financial
Management supporting
growth and transformation
ESG, focusing on maintaining
environmental considerations
in investment portfolio
management, and continued
strong financial governance
Factors relevant to the Board’s determination for the 2023 performance year
Strategy of diversification executed and delivering strong financial returns.
Significant and tangible progress delivered on business transformation. Group COO
appointed to directly oversee the delivery of further efficiencies.
The Lloyd’s relationship continues to develop positively and efficiently.
Alex is highly regarded across all stakeholders as demonstrated in shareholder feedback,
counterparty interactions, and the strongly positive Employee Opinion Survey (EOS) results.
Leads by example in supporting and promoting the company values.
Ongoing execution of the diversification strategy is evident in the financial results.
Lancashire continues to attract leading talent to support the strategy and has built
the framework for a successful and measured expansion into the U.S. market.
Effective diversification and thoughtful capital allocation now enable capital returns
to shareholders while maintaining headroom and facilitating growth.
Significant focus and progress achieved on climate-related considerations in underwriting
and investments, and in risk and reporting.
Diversity continues to develop in terms of gender and ethnicity data tracking, and the
EOS results demonstrate strong support and inclusion levels across Lancashire. Talent
and succession planning is developing, positively supported by the new Group CHRO.
Governance continues to be strong at Lancashire, and the appointment of a new Chair
to work with management and the Board has been a successful demonstration of this.
Strong performance delivered across all aspects of business management and leadership.
IFRS 17 was implemented effectively and efficiently on time and below budget.
Strong cost management demonstrated and delivery on major aspects of transformation.
Effective team leadership with strong inter and intra departmental relationships
demonstrated by strong EOS scores.
Natalie is one of the strongest role models for Lancashire values with a commercial
focus and ability to challenge and cut through complexity within the business.
Robust and prudent capital management has facilitated business growth and has
directly contributed to the ability to deliver shareholder returns via special dividend.
Significantly more streamlined business planning that will continue to evolve and deliver.
Strong hiring decisions have added to the resilience and skills base of the finance function,
creating a platform that will continue to support business growth.
Investment performance continues to generate strong returns despite challenging market
conditions, making a material contribution to overall business performance in 2023.
The investment portfolio continues to perform strongly, while maintaining a responsible
approach to carbon intensity, via prudent management and oversight.
Natalie assumed the leadership role over the reward function during the transition to the
new Group CHRO. The approach to Group reward is now more structured and planned.
Natalie’s approach to financial governance and oversight is exemplary, resulting in high
quality reporting, facilitating strong business performance.
The personal targets were tailored to each of the Executive Directors, according to their respective roles and areas of personal development.
During the 2023 annual performance reviews of each Executive Director, a performance rating, determined following an evaluation process and
discussion and agreement of the outcomes with the Chair and members of the Board, was assigned to determine the level of bonus earned for delivery
versus personal strategic objectives. The bonus earned by the Executive Directors in relation to 2023 personal strategic objectives assessment is, for
the Group CEO, 70% of salary (being 93% of the maximum available for this element) and, for the Group CFO, 71% of salary (being 94% of the
maximum available for this element).
110
Lancashire Holdings Limited | Annual Report & Accounts 2023
A table of performance measures and total 2023 bonus achievement is set out below:
Executive Director
Alex Maloney1
Natalie Kershaw1
Financial performance
(max % of total bonus)
75% (of 75%)
75% (of 75%)
Personal performance
(max % of total bonus)
23% (of 25%)
24% (of 25%)
Bonus % of maximum
awarded
98%
99%
Total bonus value
£’000
2,254
1,551
Value of bonus paid in
cash (2/3 of total
bonus) £’000
1,503
1,034
Value of bonus
deferred into RSS
awards (1/3 of total
bonus)1 £’000
751
517
1. In line with the 2023 Remuneration Policy, one-third of total bonus award will be deferred into RSS awards with one-third of the award vesting annually over a three-year
period with the first third becoming exercisable in February or March 2025, subject to the Company not being in a closed period. Vesting is subject to continued employment.
Long-term share awards with performance periods ending in the year – 2021 RSS awards
The 2021 RSS awards were based on a three-year performance period ending on 31 December 2023 and vest following the determination of financial
results by the Board. The tables below set out the achievement against the performance conditions attached to the award and the resulting vesting.
Absolute compound annual growth in TSR
(relevant to 15% of the 2021 RSS awards)
Annual Change in DBVS (within the three year performance period)
(relevant to 85% of the 2021 RSS awards)1
Performance level
Below threshold
Threshold
Stretch or above
Actual achieved
Performance required (%)
Below 8
8
12 or above
(3.5)
% vesting
–
25
100
–
Performance required (%)
Below 6
6
13 or above
see note1
Note 1.
Change in DBVS
Vesting % of one third by performance year
2021 RSS Awards
2023
24.7%
100%
33.3%
2022
(6.7%)
0.0%
0.0%
% vesting
0
25
100
33.3
2021
(5.8)%
0.0%
0.0%
The table above shows the growth in DBVS for the performance period. The detailed vesting for each Executive Director is shown below.
Executive Director
Alex Maloney
Natalie Kershaw
Number of shares at grant
313,321
160,356
Number of shares to lapse
224,555
114,926
Number of shares to vest
88,766
45,430
Dividend accrual on vested
shares value1 £
67,464
34,528
Value of shares including
dividend accrual2 £
605,715
310,002
1. Dividend equivalents accrue on awards at the record date of a dividend payment and upon exercise the cash value of the accrued dividend equivalent is paid to the employee
on the number of vested awards net of tax required.
2. The value of vested shares is based on the 2021 RSS awards which vest at 28.3% and are based on a three-year performance period that ended on 31 December 2023.
The average share price rate for the final quarter of 2023 (£6.0637) is used for this calculation. No value is attributable to share price appreciation.
There is a two-year post-vesting holding requirement for the 2021 RSS awards for Executive Directors.
Scheme interests awarded during the year
The table below sets out the performance RSS awards that were granted to the serving Executive Directors as nil-cost options on 20 February 2023.
Executive Director
Alex Maloney
Natalie Kershaw
% Salary
300
275
Grant date2
20-Feb-23
20-Feb-23
Number of
awards granted
during the year
373,899
235,523
Face value of awards granted
during the year1
£
2,292,001
1,443,756
% vesting
at threshold
performance
25
25
1. The awards were based on the five-day average closing share price following announcement of the 2022 results, being £6.13 and the awards were granted as nil-cost options.
2. These awards are due to vest subject to performance conditions being met at the end of the performance period ending 31 December 2025 and becoming exercisable in the
first open period following the release of the Company’s 2025 year-end results.
Performance conditions attached to 2023 RSS Awards
Absolute compound annual growth in
TSR targets for RSS (15% weighting)
Annual internal rate of return of the Change in DBVS
targets for RSS (85% weighting)
As at
100%
25%
Nil
2020
12%
8%
< 8%
2021
12%
8%
<8%
2022
12%
8%
<8%
2023
12%
8%
<8%
As at
100%
25%
Nil
2020
13%
6%
< 6%
2021
13%
6%
<6%
2022
13%
6%
<6%
2023
13%
6%
<6%
See above for the vesting methodology to be applied for the RSS awards.
The table below sets out the deferred bonus RSS awards that were granted to the serving Executive Directors as nil-cost options on 20 February 2023.
Executive Director
Alex Maloney
Natalie Kershaw
Award Type
Deferred Bonus
Deferred Bonus
Grant date
20-Feb-23
20-Feb-23
Number of
awards granted
during the year
19,753
12,474
Face value of awards granted
during the year
£
121,086
76,466
% vesting annually
(without specific
performance conditions)
33.3
33.3
Lancashire Holdings Limited | Annual Report & Accounts 2023
111
ESG – Governance Directors’ Remuneration Report continued
Implementation of Remuneration
Policy for 2024
Base salary and fees
Executive Directors
Salaries effective from 1 January 2024 are set out below:
Group CEO – £840,000, a 10% increase
Group CFO – £551,250, a 5% increase
Salary uplifts for Group employees varied across the workforce skewed
towards the lowest paid cohort with an average of 7.2%, and an overall
average uplift for Group employees of 6.2% for 2024.
Non-Executive Directors
The Chairman’s and Non-Executive Directors’ fees are as follows
for 2024:
• The fee for the Board Chair will remain at $350,000 per annum.
• The Non-Executive Director fee will remain at $175,000 per annum.
Other fees
Sally Williams is a Non-Executive Director of LUK in which capacity
she will receive a fee of $70,000 per annum.
Bryan Joseph is a Non-Executive Director of LSL in which capacity
he will receive a fee of $100,000 per annum.
Annual bonus
For 2024, the Group CEO and the Group CFO will have a target bonus
of 150% of salary and, therefore, a maximum opportunity of 300% of
salary. This is within the approved policy limit and is in line with last
year’s opportunity and represents a maximum bonus opportunity
which is 100% of salary less than the set policy limit.
The financial and personal portions of the annual bonus will
remain unchanged with 75% on financial performance and 25%
on personal performance.
Financial performance (75%)
Financial performance for bonus purposes will be measured on the
basis of RoE (being profit divided by average equity).
Specific targets and ranges will be disclosed in full with the assessment
of financial performance in the 2024 Annual Report on Remuneration.
The Committee appreciates that this is a break from the historic practice
of disclosing targets prospectively but is of the view that, in the current
growth phase of the business, specific financial targets are commercially
sensitive and should be disclosed retrospectively.
Personal performance (25%)
This element of the bonus plan is based upon the individual achievement of clearly articulated objectives created at the beginning of each year.
The table below sets out a broad summary of the 2024 personal objectives for each Executive Director.
Executive Director
Alex Maloney
Personal performance
Business Management and Leadership; including oversight of change, talent and succession, relationship management,
and values
Growth Strategy; including opportunity identification, capital management oversight and engagement
Natalie Kershaw
ESG; with specific objectives related to environment, people and culture and governance
Business Management and Leadership, including values
Strategic Financial Management supporting growth
ESG, with a focus on maintaining environmental considerations in portfolio management, identifying and developing
talent and continued strong financial governance
Due to their close link to Business Strategy detail, personal objectives for both CEO and CFO are considered commercially sensitive at the present
time. Detailed objectives have been presented to and approved by the Committee and will be described in the 2024 Annual Report.
112
Lancashire Holdings Limited | Annual Report & Accounts 2023
Restricted Share Scheme
Award levels
2024 RSS award levels are as follows:
• Group CEO – RSS awards in respect of shares to the value of
The relevant elements of the RSS award will not vest if annual Change in
DBVS is below threshold, 25% of the relevant element of the RSS award
will vest at threshold, and 100% of the relevant element of the RSS
award will vest at maximum. Performance between threshold and
maximum is determined on a straight-line basis.
£2,940,000 (being 350% of salary)
The TSR target range for 2024 awards is:
• Group CFO – RSS awards in respect of shares to the value of
•
threshold – 8% compound annual growth; and
£1,515,938 (being 275% of salary)
• maximum – 12% compound annual growth.
The number of shares subject to the awards shall be determined based
on the closing average share price for a period of five trading days
immediately prior to the date of the award.
Absolute TSR will be measured for compound annual growth over
the full three-year performance period rather than looking at each
year separately.
Weighting
For 2024, the weighting is 85% on annual Change in DBVS and 15%
on absolute compound annual growth in TSR.
Target ranges
The annual Change in DBVS target range for 2024 awards is:
•
threshold – 6%; and
• maximum – 13%.
Within the three-year performance period each of the separate financial
years will be treated as a separate element, each one contributing
one-third to the overall outcome of the vesting of this element of the
RSS award. In each year, performance will be measured against the
target range to determine the ultimate level of vesting in respect of
one-third of the RSS award. Vesting will only occur after completion
of the full three-year performance period, and continued employment
of the Executive Director at the time of vesting.
None of the relevant elements of the award will vest if compound
annual growth in TSR is below threshold, 25% of the award will vest at
threshold, and 100% of the award will vest at maximum. Performance
between threshold and maximum is determined on a straight-line basis.
Overriding downwards discretion
If any year produces a return that the Committee believes is significantly
worse than competitors and reflects poor management decisions, the
Remuneration Committee will use its discretion to determine the extent
to which any relevant element of the RSS award shall vest fully (or to a
lesser extent) based on the performance over the full three-year period.
Post-vesting holding period
It is a requirement of RSS awards granted to Executive Directors that
they are expected to hold vested RSS awards (or the resultant net of
tax shares), which had a performance period of at least three years,
for a further period of not less than two years following vesting.
Post-employment holding requirements
In respect of RSS awards made after 1 January 2020, there is a
requirement on each Executive Director to retain 50% of the net of tax
shares resulting on exercise in order to hold an interest equivalent in value
of up to two times salary for a period of two years (or such other period
or amount as the Committee may in future determine) following the
date of termination of employment of the relevant Executive Director.
Lancashire Holdings Limited | Annual Report & Accounts 2023
113
ESG – Governance Directors’ Remuneration Report continued
The charts below show the potential total remuneration opportunities for the Executive Directors in 2024 at different levels of performance under
the Directors’ Remuneration Policy.
)
m
£
(
n
o
i
t
a
s
n
e
p
m
o
c
l
a
t
o
T
3.66
40%
34%
26%
0.93
100%
7.86
19%
37%
6.39
46%
39%
32%
15%
12%
Fixed pay
On-target
Maximum
Maximum +50%
growth in shares
Group CEO
3.78
40%
44%
4.54
17%
33%
36%
2.20
34%
38%
28%
On-target
16%
Maximum
14%
Maximum +50%
growth in shares
Group CFO
0.61
100%
Fixed pay
Fixed pay
Annual bonus
LTI awards (RSS)
LTI awards (RSS) + 50% share price growth
Fixed pay = 2024 Salary + Actual Value of 2023 Benefits + 2024 Pension Contribution.
On-target = Fixed Pay + Target Bonus (being half the Maximum Bonus Opportunity) + Target Value of 2024 RSS grant (assuming 50% vesting with
the face values of grant).
Maximum = Fixed Pay + Maximum Bonus Opportunity + Maximum Value of 2024 RSS grant (assuming 100% vesting with the face values of grant).
Maximum + 50% growth over performance period = Fixed Pay + Maximum Bonus Opportunity + Maximum Value of 2024 RSS grant + 50% share
price appreciation (assuming 100% vesting with the face values of grant).
Directors’ shareholdings and share interests
Formal shareholding guidelines were first introduced in 2012 and have subsequently been modified. The guidelines require the Group CEO and Group
CFO to build and maintain a shareholding in the Company worth two times annual salary as set out in the Policy Report.
Details of the Directors’ interests in shares are shown in the table below.
Total as at
1 January 2023
As at 31 December 2023
Number of common shares and nil cost option share interests
As at
Alex Maloney
Natalie Kershaw
Peter Clarke
Michael Dawson
Jack Gressier
Robert Lusardi
Irene McDermott Brown
Sally Williams
Bryan Joseph
Philip Broadley
1,964,157
614,379
82,500
20,000
–
48,000
–
11,082
–
–
Legally owned
810,899
52,840
82,500
20,000
–
48,000
8,663
11,082
4,076
–
Subject to
deferral under
the RSS
46,766
42,925
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Subject to
performance
conditions under
the RSS
1,102,298
608,313
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Unvested and not
subject to
performance
conditions under
the RSS
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Vested but
unexercised
awards under
other
share-based
plans
N/A
26,384
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Total
1,959,963
530,543
82,500
20,000
–
48,000
8,663
11,082
4,076
–
Shareholding
guideline
achieved
Yes
No
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Share ownership interest equivalent is defined as wholly owned shares or the net of taxes value of RSS awards which have vested but are unexercised and the net of tax value
of deferred bonus and/or non-performance RSS awards. Shares include those owned by persons closely associated with the relevant Executive Director.
On 24 February 2023 Alex Maloney, Group CEO, exercised 89,105 RSS nil cost options with an exercise price of £5.99602. The total gain on exercise
of the awards was £534,275, of which shares to the value of £252,980 were sold to cover applicable taxes and fees, resulting in a net gain of £281,295.
114
Lancashire Holdings Limited | Annual Report & Accounts 2023
Performance graph and total remuneration history for Group CEO
The following graph shows the Company’s performance, measured by TSR, compared with the performance of the FTSE 250 Index. The Company’s
common shares commenced trading on the main market of the LSE on 16 March 2009 and the Company joined the FTSE 250 Index on 22 June 2009
and is currently a constituent of this.
£
300
250
200
150
100
50
0
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
LRE LN Equity
FTSE 250 Index
Source: Datastream (Thomson Reuters)
This graph shows the value, by 31 December 2023, of £100 invested in LHL on 31 December 2013 compared with the value of £100 invested in the
FTSE 250 Index. The other points plotted are the values at intervening financial year ends.
The table below sets out the total single figure of remuneration for the Group CEOs over the last 10 years with the annual bonus paid as a percentage
of the maximum and the percentage of long-term share awards vesting in each year.
Total remuneration (£000s3)
Annual bonus (% of maximum)
LTI vesting (% of maximum)
20141
6,088
80
611
20142
1,453
73
50
2015
2,511
72
75
2016
2,758
76
67
2017
1,517
17
22.5
2018
1,067
19
–
2019
2,398
80
–
2020
3,193
60
48.2
2021
2,033
19
48.2
2022
1,628
22
19.8
2023
3,709
98
28.3
1. Richard Brindle was the Group CEO from 2005 until he retired from the Group and as a Director on 30 April 2014. Mr Brindle was afforded good leaver status and all RSS award
interests were vested upon his departure, using estimated TSR and RoE values (as then defined) at the time of his retirement. The amounts in the table above reflect all awards
which vested in 2014. Further particulars of the vesting were reported in the Group’s 2014 Annual Report and Accounts.
2. Alex Maloney was appointed Group CEO effective 1 May 2014, after the retirement of Mr Brindle. For the purposes of this table his numbers have been pro-rated to account
for only his time in office as CEO for 2014.
3. For the years 2014 – 2020 these figures were converted to GBP using the average exchange rate for the relevant year.
Lancashire Holdings Limited | Annual Report & Accounts 2023
115
ESG – Governance Directors’ Remuneration Report continued
Group Chief Executive Pay Ratio
2023
2022
Method
A
A
25th percentile Total Pay Ratio
54:1
24:1
Median Total Pay Ratio
31:1
15:1
75th percentile Total Pay Ratio
18:1
8:1
In 2022 the number of UK based employees of Group exceeded 250 for the first time and CEO pay ratio was reported. Financial performance in 2023
is significantly stronger than 2022 and a much greater proportion of CEO pay is directly linked to business financial performance versus the broader
workforce. This is the driver for the change to CEO pay ratio from 2022 to 2023. The table above sets out how the single total figure of remuneration
(STFR) for the Group Chief Executive compares to the STFR of the UK employees at the 25th percentile, median and 75th percentile in both 2023 and
2022. The UK employees included are those employed on 31 December and remuneration figures are determined with reference to the financial year
ending on 31 December for the relevant year. The value of each employee’s total pay and benefits was calculated using the single figure methodology
consistent with the CEO. No elements of pay have been omitted. Where required, remuneration was approximately adjusted to be full-time and
full-year equivalent basis based on the employee’s average full-time equivalent hours for the year and the proportion of the year they were employed.
The table below sets out the split between total remuneration (fixed and variable pay and benefits) and the salary component of that total for the
relevant 2023 employees. Lancashire has chosen to use methodology A (as defined in the applicable regulations) to calculate the figures in the tables
above and below because it is the most statistically robust methodology.
2023
25th percentile pay ratio
Median pay ratio
75th percentile pay ratio
Total Remuneration (£)
69,047
54:1
Base Salary (£)
45,000
17:1
Total Remuneration (£)
118,991
31:1
Base Salary (£)
85,900
9:1
Total Remuneration (£)
210,776
18:1
Base Salary (£)
127,100
6:1
Percentage change in Directors’ remuneration1
The following table sets out the percentage change in the aggregate value of salary, benefits and bonus for the Directors from the preceding year
and the average percentage change in respect of the employees of the Group taken as a whole.
As at
Executive Directors
Alex Maloney
Natalie Kershaw3
Non-Executive Directors
Peter Clarke
Philip Broadley
Michael Dawson
Simon Fraser4
Jack Gressier5
Bryan Joseph
Robert Lusardi
Irene McDermott Brown
Sally Williams
Employees of the parent
company6
Employees of the Group
2023
2022
2021
2020
Base salary/
Fees
Benefits2
Bonus
Base salary/
Fees
Benefits2
Bonus
Base salary/
Fees
Benefits2
Bonus
Base salary/
Fees
Benefits2
Bonus
5.0
15.9
–
N/A
–
(60.7)
134.0
N/A
–
–
13.5
N/A
10.4
5.0
16.0
–
N/A
–
–
–
N/A
–
–
–
N/A
14.1
365.5
407.2
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
168.5
4.0
16.0
–
N/A
–
5.9
N/A
N/A
–
–
34.1
N/A
7.5
4.3
13.4
–
N/A
–
–
N/A
N/A
–
–
–
N/A
7.9
23.1
16.0
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
105.0
(0.2)
16.2
(0.5)
11.1
(223.1)
(197.0)
–
N/A
–
–
N/A
N/A
–
N/A
–
N/A
15.2
–
N/A
–
–
N/A
N/A
–
N/A
–
N/A
27.5
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
(57.9)
3.1
N/A
–
N/A
–
–
N/A
N/A
–
–
–
–
8.7
–
N/A
–
N/A
–
–
N/A
N/A
–
–
–
–
17.5
(27.9)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
4.3
1. The change in remuneration for employees of the Group reported in the 2020 and 2021 annual reports and shown in the table above include the effect of headcount changes.
The figures presented for 2022 and 2023 represent employees in post on 31 December of the reported and prior year to provide a like-for-like comparison to Directors.
2. Benefits include pension and all taxable benefits as reported on page 108 in the Single Figure on Remuneration table.
3. The change to Natalie Kershaw’s salary in 2022 reflects salary paid including the mid-year adjustment previously disclosed. The 2023 change further reflects the effect of amending
salary at the mid-year point in 2022 and resulting pro-rata to that salary. There was no change in her CFO salary from 2020 to 2021. The apparent increase has arisen due to her
2020 salary shown being pro-rata following her appointment as Group CFO on 1 March 2020.
4. Simon Fraser stepped down from the Board on 26 April 2023, and from his role on the LSL Board on 18 May 2023 and his fees represent his 2023 tenure.
5. Jack Gressier was appointed to the Board on 26 July 2022 and his 2022 fees represent his time as a Director.
6. As the parent company does not have any employees, it is not possible to provide a percentage change in their pay and therefore the comparison is to the Group as a whole.
116
Lancashire Holdings Limited | Annual Report & Accounts 2023
Relative importance of the spend on pay
The following table sets out the percentage change in dividends and overall spend on pay in the year ended 31 December 2023 compared with the
year ended 31 December 2022.
Employee remuneration costs
Dividends
2023
$m
135.1
155.3
2022
$m
82.6
36.2
Percentage change
%
63.6
329.0
Committee members, attendees and advice
For Remuneration Committee membership and attendance at meetings through 2023, please refer to page 99 of this Annual Report and Accounts.
The Remuneration Committee’s responsibilities are contained in its Terms of Reference, a copy of which is available on the Company’s website.
These responsibilities include determining the framework for the remuneration, including pension arrangements, for all Executive Directors, the
Chair and senior executives. The Committee is also responsible for approving employment contracts for senior executives.
Remuneration Committee adviser
The Remuneration Committee is advised by the Executive Compensation practice at PwC since their appointment in July 2023. PwC replaced Alvarez
& Marsal (‘A&M’), who had been in place since 2020. Advisers hold discussions with the Remuneration Committee Chair regularly on Committee
processes and topics which are of particular relevance to the Company.
The primary role of the Committee adviser is to provide independent and objective advice and support to the Committee’s Chair and members.
The Committee is satisfied that the advice that it receives is objective and independent, noting that both PwC and A&M are signatories to the
Remuneration Consultants Group (‘RCG’) Code of Conduct which sets out guidelines for managing conflicts of interest, and have confirmed
to the Committee their compliance with the RCG Code.
The total fees paid to PwC in respect of its services to the Committee for the year ended 31 December 2023 were $31,606. Additionally fees totalling
$52,898 were paid to A&M in respect of services provided to the Committee during 2023 prior to the appointment of PwC. Fees are predominantly
charged on both agreed and ‘time spent’ bases.
Engagement with shareholders
Details of votes cast for and against the resolution to approve last year’s Remuneration Report are shown below along with the votes to approve
the 2023 Remuneration Policy; any matters discussed with shareholders during the year, are provided in the Annual Statement for 2023 starting
on page 101. Details on the 2023 AGM vote are also outlined in the statement.
For
Against
Total
Abstentions
Vote to approve 2022 Annual Report
on Remuneration (at the 2023 AGM)
Vote to approve 2023-2025
Remuneration Policy (at the 2023 AGM)
Total number of votes
165,996,639
14,137,270
180,133,909
125
% of votes cast
92.2
7.8
100.0
Total number of votes
166,150,636
12,769,776
178,920,412
1,213,622
% of votes cast
92.9
7.1
100.0
Please see page 101 for the Chair’s discussion of the 2023 AGM Remuneration vote outcomes.
Approved by the Board of Directors and signed on behalf of the Board.
Irene McDermott Brown
Chair of the Remuneration Committee
5 March 2024
Lancashire Holdings Limited | Annual Report & Accounts 2023
117
ESG – Governance Directors’ Report
Directors’ Report
Overview of the Group
LHL is a Bermuda incorporated company (Registered Company
No. 37415) with operating subsidiaries in Bermuda, London, the U.S.,
and Australia and two syndicates at Lloyd’s.
The Company’s common shares were admitted to trading on AIM
in December 2005 and were subsequently moved up to the Official
List and to trading on the main market of the LSE on 16 March 2009.
The shares have been included in the FTSE 250 Index since 22 June 2009
and have a premium listing on the LSE.
Principal activities
The Company’s principal activity, through its wholly-owned subsidiaries,
is the provision of global specialty, catastrophe and casualty insurance
and reinsurance products. An analysis of the Group’s business
performance can be found in the underwriting and business review
starting on page 14.
Dividends
During the year ended 31 December 2023, the following dividends
were declared:
• a final dividend of $0.10 per common share was declared on
9 February 2023 subject to shareholder approval, which was received
at the 2023 AGM. The final dividend was paid on 2 June 2023
in pounds sterling at the pound/U.S. dollar exchange rate
of 1.26135 or £0.0793 per common share;
• an interim dividend of $0.05 per common share was declared
on 9 August 2023 and paid on 15 September 2023 in pounds
sterling at the pound/U.S. dollar exchange rate of 1.2719
or £0.0393 per common share; and
• a special dividend of $0.50 per common share was declared
on 8 November 2023 and paid on 15 December 2023 in pounds
sterling at the pound/U.S. dollar exchange rate of 1.2429
or £0.4023 per common share.
Dividend policy
The Group intends to maintain a strong balance sheet at all times,
while generating an attractive risk-adjusted total return for shareholders.
We actively manage capital to achieve those aims. Capital management
is expected to include the payment of a sustainable annual (interim
and final) ordinary dividend, supplemented by special dividends
from time-to-time. Dividends will be linked to past performance
and future prospects.
Under most scenarios, the annual ordinary dividend is not expected
to reduce from one year to the next. Special dividends are expected
to vary substantially in size and in timing. The Board may cancel
the payment of any dividend between declaration and payment
for purposes of compliance with regulatory requirements or for
exceptional business reasons.
Current Directors
• Peter Clarke (Non-Executive Chair)
• Alex Maloney (Group Chief Executive Officer)
• Natalie Kershaw (Group Chief Financial Officer)
• Philip Broadley (Non-Executive Director and Chair designate)
• Michael Dawson (Non-Executive Director)
Jack Gressier (Non-Executive Director)
•
• Bryan Joseph (Non-Executive Director)
• Robert Lusardi (Senior Independent Non-Executive Director)
•
• Sally Williams (Non-Executive Director)
Directors’ interests
The Directors’ beneficial interests in the Company’s common shares
as at 31 December 2023 and 2022, including interests held by family
members, were as follows:
Irene McDermott Brown (Non-Executive Director)
Directors
Philip Broadley1
Peter Clarke
Michael Dawson
Simon Fraser2
Jack Gressier
Bryan Joseph3
Natalie Kershaw4
Robert Lusardi
Alex Maloney5
Irene McDermott Brown6
Sally Williams
Common shares held as
at 31 December 2023
–
82,500
20,000
N/A
–
4,076
52,840
48,000
810,899
8,663
11,082
Common shares held as
at 31 December 2022
N/A
82,500
20,000
3,000
–
N/A
77,922
48,000
910,899
–
11,082
1. Philip Broadley was appointed to the Board with effect from 8 November 2023.
2. Simon Fraser ceased being a Director on 26 April 2023. Mr Fraser held 3,000
shares in the Company as at 26 April 2023.
3. Bryan Joseph was appointed to the Board with effect from 26 April 2023. Mr Joseph
conducted the following transactions in the Company’s shares during 2023:
• 2 June 2023 – purchase of 2,200 shares at a price of £6.24 per share costing
£13,725.80.
• 29 June 2023 – purchase of 1,850 shares at a price of £5.78 per share costing
£10,696.70.
• 22 September 2023 – purchase of 26 shares at a price of £6.01 per share costing
£159.26.
4. The 77,922 shares held at 31 December 2022 included 25,082 shares held by her
spouse, Adam Burton. Natalie Kershaw conducted the following transactions in the
Company’s shares during 2023:
• 17 May 2023 – sale of 25,082 shares at a price of £6.28 per share totalling
£157,434.08 by Adam Burton.
5. Includes 181,819 shares owned by his spouse, Amanda Maloney. Alex Maloney
conducted the following transactions in the Company’s shares during 2023:
• 24 February 2023 – exercise of 89,105 RSS awards and related sale of 89,105
shares at a price of £5.99 per share realising £534,275.36.
• 24 February 2023 – sale of 100,000 shares at a price of £6.02 per share realising
£601,842.20.
6. Irene McDermott Brown conducted the following transactions in the Company’s
shares during 2023:
• 6 March 2023 – purchase of 5,054 shares at a price of £5.93 per share costing
£29,983.87.
• 22 March 2023 – purchase of 3,609 shares at a price of £5.58 per share costing
£19,984.73.
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Lancashire Holdings Limited | Annual Report & Accounts 2023
Transactions in own shares
Pursuant to the authority granted at the AGM held on 26 April 2023, the
Company announced on 22 November 2023 that it would commence a
share repurchase programme to expire on 29 February 2024. No shares
were repurchased under the programme.
Greenhouse gas emissions and
TCFD reporting
The Group’s greenhouse gas emissions are detailed on page 69. The
Group’s TCFD Report is included in this Annual Report and Accounts
starting on page 49.
Further details of the share repurchase authority and programme are set
out on page 188. The authority to repurchase shares is subject to renewal
at the 2024 AGM for an amount of up to 10% of the then issued
common share capital.
Directors’ remuneration
The Directors have decided to prepare voluntarily a Directors’
Remuneration Report in accordance with Schedule 8 to The Large
and Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008 made under the Companies Act 2006, as if those
requirements applied to the Company. Details of the Directors’
remuneration are set out in the Directors’ Remuneration Report
starting on page 101.
Substantial shareholders
As at 31 January 2024, the Company was aware of the following
interests of 5% or more in the Company’s issued share capital:
Shareholder
Baillie Gifford
Setanta Asset Management
GLG Partners
Polar Capital
BlackRock
No. of Shares
19,140,928
16,884,586
14,983,203
13,556,792
12,290,322
% of issued ISC
7.84
6.92
6.14
5.56
5.04
As at 5 March 2024, no further material changes have been notified to
the Company.
Corporate governance – compliance statement
The Company’s compliance with the Code is detailed in the
Sustainability and Governance reporting sections of this Annual Report
and Accounts on pages 40 to 121 and more particularly in Peter Clarke’s
introduction to those sections on page 41.
The Board considers, and the Company confirms, in accordance with
the principle of ‘comply or explain’, that the Company has applied
the principles and complied with the provisions and guidance set
out in the Code throughout the year ended 31 December 2023.
Health and safety
The Group considers the health and safety of its employees to be
a management responsibility equal to that of any other function.
The Group operates in compliance with health and safety legislative
requirements in Bermuda and the UK.
Employees
The Group is an equal opportunities employer and does not tolerate
discrimination of any kind in any area of employment or corporate life.
The Group believes that education and training for employees is a
continuous process and employees are encouraged to discuss training
needs with their managers. The Group’s health and safety, equal
opportunities, training and other employment policies are available
to all employees in the staff handbook which is located on the Group’s
Employee HR portal.
Creditor payment policy
The Group aims to pay all creditors promptly and in accordance with
contractual and legal obligations.
Financial instruments and risk exposures
Information regarding the Group’s risk exposures is included in the ERM
report starting on page 23 and in the risk disclosures section starting
on page 148 of the consolidated financial statements. The Group’s
use of derivative financial instruments can be found on page 158.
Accounting standards
The consolidated financial statements of the Group have been prepared
on a going concern basis in compliance with the IFRS accounting
standards, as adopted by the E.U.
Annual General Meeting
The Notice of the 2024 AGM, to be held on 1 May 2024 at the
Company’s head office, Power House, 7 Par-la-Ville Road, Hamilton
HM 11, Bermuda, is contained in a separate circular to shareholders
which is made available to shareholders at the same time as this
Annual Report and Accounts. The Notice of the AGM is also available
on the Company’s website.
Electronic and website communications
Provisions of the Bermuda Companies Act 1981 enable companies
to communicate with shareholders by electronic and/or website
communications. The Company will notify shareholders (either in
writing or by other permitted means) when a relevant document or
other information is placed on the website and a shareholder may
request a hard copy version of the document or information.
Lancashire Holdings Limited | Annual Report & Accounts 2023
119
ESG – Governance Going Concern
Based on the going concern assessment performed as at 31 December
2023, the Directors consider there to be no material uncertainties that
may cast significant doubt over the Group’s ability to continue to
operate as a going concern and to adopt the going concern basis of
accounting. The Directors have formed a judgement that there is a
reasonable expectation that the Group has adequate resources to
continue in operational existence as a going concern in the foreseeable
future, a period of at least 12 months from the date of signing the
Group’s consolidated financial statements.
Auditors
Resolutions will be proposed at the Company’s 2024 AGM to re-appoint
KPMG LLP as the Company’s auditors and to authorise the Directors to
set the auditors’ remuneration.
Disclosure of information to the auditors
Each of the persons who is a Director at the date of approval of this
Annual Report and Accounts confirms that:
•
•
so far as the Director is aware, there is no relevant audit information
of which the Company’s auditors are unaware; and
the Director has taken all the steps that he or she ought to have
taken as a Director in order to make himself or herself aware of
any relevant audit information and to establish that the Company’s
auditors are aware of that information.
Approved by the Board of Directors and signed on behalf of the Board.
Christopher Head
Company Secretary
5 March 2024
Directors’ Report continued
Going concern and viability statement
The performance review section starting on page 12 sets out details
of the Group’s financial performance, capital management, business
environment and outlook. In addition, further discussion of the principal
risks and material uncertainties affecting the Group can be found on
pages 23 to 31. Starting on page 148 the risk disclosures section of the
consolidated financial statements sets out the principal risks to which
the Group is exposed, including insurance, climate change, market,
liquidity, credit, operational and strategic, together with the Group’s
policies for monitoring, managing and mitigating its exposures to these
risks. Further details of the Group’s scenario testing and resilience to
climate change risk can be found in the TCFD Report starting on page 49.
The Board considers annually and on a rolling basis, a strategic plan for
the business which the Company progressively implements. The strategic
plan approved by the Board at its meeting on 9 August 2023 covered the
period to the year 2030. The Board also approved at its meeting on
8 November 2023 a management proposal for a more detailed
three-year business forecast covering 2024 to 2026, which (as in 2023
and prior years) will be revised and reviewed by the Board at each of its
quarterly meetings throughout 2024. The three year business plan period
aligns to the predominantly short-tail nature of the Group’s liabilities
and the agility in the business model, allowing the Group to adapt
capital and solvency quickly in response to market cycles, events and
opportunities. This is consistent with the outlook period in the Group’s
ORSA report. The Board receives quarterly reports from the Group CRO
and sets, approves and monitors risk tolerances for the business.
During 2023, the Board carried out a robust assessment of the principal
risks facing the Group, including those that would threaten its business
model, future performance, solvency or liquidity. As part of this
assessment the business plan was stressed for a number of severe but
plausible scenarios and the impact on capital evaluated. As we note in
the Audit Committee report on page 83 and throughout this Annual
Report and Accounts, the Board continues to monitor Group reserves
for a number of loss events including the conflict in Ukraine and various
natural catastrophe and specialty market loss events. The Board also
continued to monitor the conditions within the global investment
markets. The Audit Committee also considered a formal and thorough
‘going concern’ analysis from management at both its July 2023 and
March 2024 meetings (for further details see page 84 in the Audit
Committee report). The Directors believe that the Group is well placed
to manage its business risks successfully, having considered the current
economic outlook. Accordingly, the Board has a reasonable expectation
that, taking into account the Group’s current position, and subject to the
principal risks faced by the business, the Group will be able to continue in
operation and to meet its liabilities as they fall due for the period up to
31 December 2026, being the period considered under the Group’s
current three-year business plan.
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Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual Report
and Accounts and the Group’s consolidated financial statements
in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements
for each financial year that give a true and fair view of the state of
affairs of the Group and of the profit or loss of the Group for that
year. The consolidated financial statements have been prepared
in accordance with the IFRS accounting standards, adopted by the
E.U. Further detail on the basis of preparation is described in the
consolidated financial statements.
In preparing the consolidated financial statements, the Directors
are required to:
•
select suitable accounting policies and apply them consistently;
• make judgements and accounting estimates that are reasonable,
relevant and reliable;
•
•
state whether they have been prepared in accordance with
the IFRS standards;
state whether applicable accounting standards have been followed,
subject to any material departures disclosed and explained in the
Group’s consolidated financial statements;
• provide additional disclosures where compliance with the specific
requirements of IFRS standards are considered to be insufficient to
enable users to understand the impact of particular transactions,
events and conditions on the financial position and performance;
• assess the Group’s ability to continue as a going concern, disclosing,
as applicable, matters related to going concern; and
• use the going concern basis of accounting unless they either intend
to liquidate the Group or to cease operations or have no realistic
alternative but to do so.
The Directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Group’s transactions and
disclose with reasonable accuracy at any time the financial position of
the Group, and enable them to ensure that the consolidated financial
statements comply with applicable laws and regulations. They are also
responsible for such internal control as they determine is necessary to
enable the preparation of the consolidated financial statements that are
free from material misstatement, whether due to fraud or error, and also
have general responsibility for safeguarding the assets of the Group, and
hence for taking reasonable steps for prevention and detection of fraud
and other irregularities.
Directors’ responsibility statement
The Directors confirm that to the best of their knowledge:
•
•
•
the consolidated financial statements, prepared in accordance
with the IFRS accounting standards as adopted by the E.U.
give a true and fair view of the assets, liabilities, financial
position and profit of the Group;
the Board considers the Annual Report and Accounts, taken
as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Group’s
position and performance, business model and strategy; and
the strategy report including the business review section of
this Annual Report and Accounts includes a fair review of the
development and performance of the business and the position
of the Group, together with a description of the principal risks
and uncertainties that the Group faces.
Legislation in Bermuda governing the preparation and dissemination
of the consolidated financial statements may differ from legislation in
other jurisdictions. In addition, the rights of shareholders under Bermuda
law may differ from those for shareholders of companies incorporated in
other jurisdictions.
By order of the Board
5 March 2024
Lancashire Holdings Limited | Annual Report & Accounts 2023
121
ESG – Governance Independent Auditor’s Report to the Members of Lancashire Holdings Limited
1. Our opinion is unmodified
We have audited the consolidated financial statements of Lancashire Holdings Limited (“the Company”) for the year ended 31 December 2023 which
comprise the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of
changes in shareholders’ equity, the consolidated statement of cash flows, and the related notes, including the accounting policies on pages 135 to
147 of this Annual Report and Accounts.
In our opinion:
•
•
the consolidated financial statements give a true and fair view of the state of the Group’s affairs as at 31 December 2023 and of the Group’s profit
for the year then ended; and
the consolidated financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted by
the European Union.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities are
described below. We have fulfilled our ethical responsibilities under, and we remain independent of the Group in accordance with, UK ethical
requirements including the FRC Ethical Standard as applied to other listed entities. We believe that the audit evidence we have obtained is a sufficient
and appropriate basis for our opinion.
2. Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the consolidated financial
statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those
which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed, in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon and
we do not provide a separate opinion on these matters. In arriving at our audit opinion above, the key audit matters, in decreasing order of audit
significance, were as follows:
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Lancashire Holdings Limited | Annual Report & Accounts 2023
Estimation of incurred but not reported element of both liability for incurred claims and asset for incurred claims
(Claims incurred but not reported is an element of both the liability for incurred claims and the asset for incurred claims at 31 December 2023: $1,765.9 million
liability for incurred claims, $430.3 million asset for incurred claims; 31 December 2022: $1,644.5 million liability for incurred claims, $516.2m million asset for
incurred claims)
Refer to pages 83 to 88 (Audit Committee report), page 138 to 143 (accounting policy) and pages 178 to 183 (financial disclosures).
Risk vs 2022: <>
The risk
The Group maintains liabilities (and related reinsurance
assets) for incurred claims to cover the estimated ultimate
cost of settling all losses and loss adjustment expenses
arising from events which have occurred up to the balance
sheet date, regardless of whether those losses have been
reported to the Group. Incurred but not reported (IBNR)
claims is the most subjective component of the liability for
incurred claims and the asset for incurred claims.
Whilst the adoption of IFRS 17 affects the measurement of
the incurred claims, for example by including a risk
adjustment and requiring discounting, the adoption of IFRS
17 in the period had no effect on the estimation of IBNR.
There is high level of uncertainty within the IBNR portion of
the liability (and asset) for incurred claims related to the
estimate of the fulfilment cash flows for IBNR
Subjective valuation:
The liability for incurred claims represents the single largest
liability for the Group and the estimation of the IBNR
element is the most subjective. Valuation of the fulfilment
cash flows related to incurred but not reported liabilities is
highly judgemental because it requires a number of
assumptions to be made with high estimation uncertainty
such as initial expected loss ratios, large loss assumptions
and claim development patterns. The determination and
application of the methodology and performance of the
calculations are also complex. These judgemental and
complex calculations for the cash flows for incurred claims
are also used along with net to gross ratio assumptions to
derive the valuation of the related reinsurance asset for
incurred claims.
The effect of these matters is that, as part of our risk
assessment, we determined that valuation of the liability and
asset for incurred claims has a high degree of estimation
uncertainty, with a potential range of reasonable outcomes
greater than our materiality for the consolidated financial
statements as a whole, and possibly many times that amount.
Our response
We have used our own actuarial specialists to assist us in performing our procedures in
this area:
Our procedures included:
Controls design and implementation
Evaluating and testing the design and implementation of key controls over the
appropriateness of the methodology and actuarial assumptions used in the valuation
process of the portion of the liability (and asset) for incurred claims related to
undiscounted IBNR fulfilment cash flows.
Assessment of assumptions and methodology
Assessing and challenging the reserving assumptions and methodology (on a gross
and net of outwards reinsurance basis) based on our understanding of the reserving
policy within the Group. This has also involved comparing the Group’s reserving
methodology for the calculation of the IBNR fulfilment cash flows with industry
practice and understanding the rationale for any key differences.
Historical experience
Evaluating the reliability of the Group’s reserving estimates by monitoring the
development of losses against initial estimates.
Independent re-projections
Applying our own assumptions, across all attritional classes of business, to perform
re-projections on the liability for incurred claims (fulfilment cash flows) and asset
for incurred claims and comparing these to the Group’s projected results. Where
there were significant variances in the results, we have challenged the Group’s
assumptions with respect to the selected initial expected loss ratios or
development patterns.
Data reconciliations
Assessing the completeness and accuracy of the data used within the reserving
process by reconciling the actuarial source data to the financial systems.
Sector experience and benchmarking of large losses
Assessing and challenging the reserving assumptions by comparing the Group’s loss
experience to peers in the market, on a gross and net of outwards reinsurance basis,
including on a contract by contract basis for selected large loss and catastrophe
events.
We performed the tests above over the valuation rather than seeking to rely on the
Group’s controls because the nature of the balance is such that we would expect to
obtain audit evidence primarily through the detailed procedures described.
Assessing transparency
Considering the adequacy of the Group’s disclosures in respect of the valuation of
the liability (and asset) for incurred claims.
Lancashire Holdings Limited | Annual Report & Accounts 2023
123
Financial Statements Independent Auditor’s Report to the Members of Lancashire Holdings Limited continued
Eligibility for the Premium Allocation Approach (“PAA”)
Refer to pages 83 to 88 (Audit Committee report), page 136 (accounting policy)
Risk vs 2022: New risk in 2023
The risk
IFRS 17 was adopted by the Group on 1 January 2023. This new and
complex standard requires the Group to measure its groups of insurance
(and reinsurance) contracts using the General Measurement Model
(“GMM”) unless the criteria for measuring contracts using a simplified
Premium Allocation Approach (“PAA”) is met.
Our response
We have used our own actuarial specialists to assist us in performing
our procedures in this area.
The below responses are in respect of groups of contracts existing at
the transition balance sheet as well as those commencing during 2022
and 2023.
The Group has applied the PAA to simplify the measurement of groups
of insurance (and reinsurance) contracts.
Our procedures included:
Insurance (and reinsurance) contracts are eligible for the PAA if the
coverage period is one year or less. If the coverage period for any
insurance (or reinsurance) contract in a group of contracts is more than
one year, the Group is only eligible to apply the PAA to the group of
contracts if it reasonably expects that the PAA and GMM would not
produce materially different measurements of the liability (and asset)
for remaining coverage.
The Group has to consider and apply judgement to assess whether
significant variability in the fulfilment cash flows is expected. If
significant variability is expected at the inception of the group of
insurance (and reinsurance) contracts, then the PAA is not allowed.
The calculation for liability (and asset) for remaining coverage using the
GMM is complex and requires the Group to perform a forecast based
assessment. As part of this assessment the Group has calculated the
liability (and asset) for remaining coverage at inception of each of the
groups of contracts using the GMM approach and compared this with
same output under the PAA over the coverage period of the group of
contracts. The Group has then modelled a series of plausible scenarios to
test the extent of variability and assess whether the eligibility test is met.
There are a number of subjective assumptions used in this assessment
with high estimation uncertainty such as budgeted loss and expense
ratios, cash flow patterns and estimates of ultimate premium. There is
also subjectivity and judgement involved in concluding whether the
difference between the liability (or asset) for remaining coverage
calculated using the GMM is materially different to the PAA under what
are considered reasonable scenarios.
Control Design and implementation
Evaluating and testing the design and implementation of key controls
over the assessment of PAA eligibility for groups of insurance and
reinsurance contracts.
Assessment of assumptions and methodology
Assessing the appropriateness of the methodology used, qualitative
factors and key assumptions such as forecast ultimate loss ratios, cash
flow patterns and expense ratios.
Independent Recalculation
Independently recalculating the liability for remaining coverage (“LRC”)
under the General Measurement Model (GMM) and the Premium
Allocation Approach (PAA) and assessing whether the difference
between the two measurement models differ materially considering
both qualitative and quantitative factors.
Stress testing
Assessing the appropriateness of stresses applied on key assumptions by
management, independently performing stress tests on key assumptions
and evaluating whether groups of insurance and reinsurance contracts
continue to be eligible for the PAA under various scenarios.
Data reconciliations
Assessing the completeness and accuracy of the data used within the PAA
eligibility assessment by reconciling to approved forecasts by the Board.
We performed the tests above over the eligibility for the PAA rather
than seeking to rely on the Group’s controls because the nature of the
balance is such that we would expect to obtain audit evidence primarily
through the detailed procedures described.
Assessing transparency
Considering the adequacy of the Group’s disclosures in respect of key
judgements within the PAA eligibility assessment performed by the Group.
We continue to perform procedures over the valuation of expected estimated premium receipts (before adoption of IFRS 17, valuation of premiums
receivable from insureds and cedants which are estimated) and the valuation of level 3 investments. However, based on our risk assessment we have
not assessed these as the most significant risks of material misstatement in our current year audit and, therefore, they are not separately identified in
our report this year.
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3. Our application of materiality and an overview of the scope of our audit
Materiality for the consolidated financial statements as a whole was set at $14.0 million (2022: $12.0 million), determined with reference to a benchmark of
insurance revenue of which it represents 0.9% (2022: $12.0 million determined with reference to a benchmark of gross premiums written under IFRS 4, of
which it represented 0.7%). We consider insurance revenue to be the most appropriate benchmark given the size and complexity of the business as it provides
a stable measure year on year. We also compared our materiality against other relevant benchmarks (total assets, net assets and profit before tax) to ensure
the materiality selected was appropriate for our audit.
In line with our audit methodology, our procedures on individual account balances and disclosures were performed to a lower threshold, performance
materiality, so as to reduce to an acceptable level the risk that individually immaterial misstatements in individual account balances aggregate to a material
amount across the consolidated financial statements as a whole.
Performance materiality was set at 75% (2022: 75%) of materiality for the consolidated financial statements as a whole, which equates to $10.5 million
(2022: $9.0 million). We applied this percentage in our determination of performance materiality because we did not identify any factors indicating an
elevated level of risk.
We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding $0.7 million (2022: $0.6 million), in addition to
other identified misstatements that warranted reporting on qualitative grounds.
We were able to rely upon the Group’s internal control over financial reporting in several areas of our audit, where our controls testing supported this
approach, which enabled us to reduce the scope of our substantive audit work; in the other areas the scope of the audit work performed was fully substantive.
Of the Group’s nine (2022: ten) reporting components, we subjected five (2022: five) to full scope audits for Group purposes which were the parent Company
(LHL), UK insurance company (LUK), Bermudan insurance company (LICL), UK service entity (LISL) and the Group’s participation in Lloyd’s Syndicate 2010 and
3010. Including the audit of the consolidation adjustments, the components within our scope of work covered 100% of insurance revenue, 99.8% of total
assets and total liabilities (2022: 100% of gross premiums written, total assets and total liabilities under IFRS 4).
For the residual components, we performed analysis at an aggregated group level to re-examine our assessment that there were no significant risks of material
misstatement within these.
The Group team instructed component auditors as to the significant areas to be included within audit scope, including the relevant risks detailed above and the
information to be reported back.
The Group team determined the component materialities, which ranged from $3.5 million to $10.7 million (2022: $3.0 million to $8.9 million), having regard
to the mix of size and risk profile of the Group across the components.
The work on four of the five full scope components (2022: four of the five components) was performed by component auditors and work on one (2022: one)
full scope component was performed by the Group team.
In working with component auditors, we:
• Held planning calls with component audit teams to discuss the significant areas of the audit relevant to the components.
• Held planning calls with the component audit teams to discuss the impact of the adoption of IFRS 17 and 9 by the Group and the scope and timing
of the relevant audit work to be performed by the component audit teams.
•
Issued group audit instructions to component auditors on the scope of their work.
• Held risk assessment update discussions with the component audit teams before the commencement of the final phases of the audit led by the
Group engagement partner and engagement quality control partner.
• Visited Bermuda and UK (2022: Bermuda and UK) components in-person as the audit progressed to understand and challenge the audit approach
and organised video conferences with the partners and directors of the Group and component audit teams. At these visits and video conferences,
the findings reported to the Group team were discussed in more detail, and any further work required by the Group team was then performed by
the component audit teams.
•
Inspected component audit teams’ key work papers in person and/or using remote technology capabilities to evaluate the quality of execution of
the audits of the components.
Lancashire Holdings Limited | Annual Report & Accounts 2023
125
Financial Statements Independent Auditor’s Report to the Members of Lancashire Holdings Limited continued
4. The impact of climate change on our audit
In planning our audit, we performed a risk assessment, including enquiries of management, to determine how the impact of commitments made by
the Group in respect of the transition to net zero carbon emissions, as well as the physical risks of climate change, and transition risks faced by the
Group’s customer base, could impact on the financial statements and our audit. We held discussions with our own climate change professionals to
challenge our risk assessment. Through the procedures we performed, we did not identify any material impact of climate change on the Group’s
material accounting estimates and there was no significant impact of this assessment on our key audit matters.
The Group underwrites short-tail catastrophe risks. Climate change may result in an increase in the frequency and severity of climate-related
catastrophe events, leading to higher insurance pay-outs. However, the short-term nature of the Group’s insurance contracts means that the impact
of losses from catastrophes for the year ended 31 December 2023 is already recorded within the Group’s liability for incurred claims at the balance
sheet date. The Group considers this loss experience in evaluating individual risk exposures, and the setting of insurance premium rates for both new
policies and the periodic renewal of its existing insurance underwriting portfolio. The Group expects any increase in the frequency and severity of
climate-related catastrophe events to be reflected in future market premium rates. These considerations are factored into the Group’s going concern
assessments, in the assessment of which the Group performed a specific climate change stress scenario.
The Group also holds investments and assesses climate risk exposure within the portfolio. Given the predominantly short-term nature of these investments,
we have assessed that there is no significant risk related to climate with regards to the valuation of these investments at the balance sheet date.
Taking into account the extent of the headroom of the recoverable amount over the carrying amount of the cash generating units including the
Group’s intangible assets with indefinite useful lives, we assessed the risk of climate change to the carrying amount of these assets at the balance
sheet date to be not significant.
We have read the disclosures of climate related information in the Annual Report and Accounts and considered their consistency with the
consolidated financial statements and our audit knowledge.
5. Going concern
The directors have prepared the consolidated financial statements on the going concern basis as they do not intend to liquidate the Group or to cease
its operations, and as they have concluded that the Group’s financial position means that this is realistic. They have also concluded that there are no
material uncertainties that could have cast significant doubt over their ability to continue as a going concern for at least a year from the date of
approval of the consolidated financial statements (“the going concern period”).
We used our knowledge of the Group, its industry, and the general economic environment to identify the inherent risks to its business model and
analysed how those risks might affect the Group’s financial resources or ability to continue operations over the going concern period. The risk that we
considered most likely to adversely affect the Group’s available financial resources over this period was the valuation of the liability for incurred claims
given the estimation and judgement involved in setting these reserves.
We also considered less predictable but realistic second order impacts that could affect demand in the Group’s markets, such as the impact of climate change
on the Group’s results and operations, the performance of the investment portfolio, credit ratings for key insurance subsidiaries, solvency and capital adequacy.
We considered whether these risks could plausibly affect the liquidity and solvency in the going concern period by comparing severe, but plausible
downside scenarios and the degree of downside changes in assumptions that, individually and collectively, could result in a liquidity and solvency issue
taking into account the Group’s current and projected financial resources (a reverse stress test).
We considered whether the going concern disclosure on page 135 of the consolidated financial statements gives a full and accurate description of the
Directors’ assessment of going concern, including the identified risks and dependencies.
Our conclusions based on this work:
• we consider that the Directors’ use of the going concern basis of accounting in the preparation of the consolidated financial statements is appropriate;
• we have not identified, and concur with the Directors’ assessment that there is not, a material uncertainty related to events or conditions that, individually
or collectively, may cast significant doubt on the Group’s ability to continue as a going concern for the going concern period; and
• we have nothing material to add or draw attention to in relation to the Directors’ statement on page 120 of the consolidated financial statements on the
use of the going concern basis of accounting with no material uncertainties that may cast significant doubt over the Group’s use of that basis for the going
concern period, and we found the going concern disclosure on page 135 to be acceptable
However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements
that were reasonable at the time they were made, the above conclusions are not a guarantee that the Group will continue in operation.
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6. Fraud and breaches of laws and regulations – ability to detect
Identifying and responding to risks of material misstatement due to fraud
To identify risks of material misstatement due to fraud (“fraud risks”) we assessed events or conditions that could indicate an incentive or pressure to
commit fraud or provide an opportunity to commit fraud. Our risk assessment procedures included:
• Enquiring of Directors, the Audit Committee, internal audit, the Risk function, Head of Group legal and the Company Secretary, together with
inspection of policy documentation, as to the Group’s high-level policies and procedures to prevent and detect fraud, including the internal audit
function, and the Group’s channel for “whistleblowing”, as well as whether they have knowledge of any actual, suspected or alleged fraud.
• Reading Board and Audit Committee minutes.
• Considering remuneration incentive schemes and performance conditions for management remuneration which includes the annual change in
diluted book value per share and return on equity.
• Using analytical procedures to identify any unusual or unexpected relationships.
We communicated identified fraud risks throughout the audit team and remained alert to any indications of fraud throughout the audit. This included
communications from the Group audit team to full scope component audit teams of relevant fraud risks identified at the Group level and requests to
full scope component audit teams to report to the Group audit team any instances of fraud that could give rise to a material misstatement at the
Group level.
As required by auditing standards, and taking into account possible pressures to meet profit targets, recent revisions to guidance and our overall
knowledge of the control environment, we perform procedures to address the risk of management override of controls in particular the risk that
management may be in a position to make inappropriate accounting entries and the risk of bias in accounting estimates and judgements such as the
valuation of liability and asset for incurred claims. On this audit we do not believe there is a fraud risk related to revenue recognition because insurance
revenue is recognised based on standard non-complex revenue earning patterns.
We also identified a fraud risk in relation to the following area:
• The valuation of liability and asset for incurred claims due to the estimation required in setting these liabilities (and associated reinsurance asset)
and the ability for changes in the valuation to be used to impact profit.
In order to address the risk of fraud specifically as it relates to the valuation of liability and asset for incurred claims, we involved actuarial specialists to
assist in our challenge of management. We challenged management in relation to the selection of assumptions and the consistency of those
assumptions both year on year and across different aspects of the financial reporting process.
Further detail in respect of our procedures around the valuation of liability (and asset) for incurred claims is set out in the key audit matter disclosures
in section 2 of this independent auditor’s report.
In determining the audit procedures we took into account the results of our evaluation and testing of the operating effectiveness of some of the
Group-wide fraud risk management controls. The Audit Committee report on pages 83 to 88 also references the entity level controls in operation
across the Group.
We also performed procedures including:
•
Identifying journal entries and other adjustments to test for all full scope components based on risk criteria and comparing the identified entries to
supporting documentation. These included those posted by individuals who do not frequently post journals, those posted with descriptions
containing key words or phrases, those posted to unusual accounts including those related to cash, consolidation journals and post-closing journals
meeting certain criteria.
• Assessing whether the judgements made in making accounting estimates are indicative of a potential bias.
Lancashire Holdings Limited | Annual Report & Accounts 2023
127
Financial Statements Independent Auditor’s Report to the Members of Lancashire Holdings Limited continued
Identifying and responding to risks of material misstatement related to compliance with laws and regulations
We identified areas of laws and regulations that could reasonably be expected to have a material effect on the consolidated financial statements from
our general commercial and sector experience, through discussion with the Directors and other management (as required by auditing standards), from
inspection of the Group’s regulatory and legal correspondence and discussed with the Directors and other management the policies and procedures
regarding compliance with laws and regulations.
As certain entities within the Group are regulated, our assessment of risks involved gaining an understanding of the control environment including an
entity’s procedures for complying with regulatory requirements. This was achieved through the procedures noted above.
We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the
audit. This included communication from the Group audit team to full-scope component audit teams of relevant laws and regulations identified at the
Group level, and a request for full scope component auditors to report to the Group audit team any instances of non-compliance with laws and
regulations that could give rise to a material misstatement at the Group level.
The potential effect of these laws and regulations on the consolidated financial statements varies considerably.
Firstly, the Group is subject to laws and regulations that directly affect the consolidated financial statements including financial reporting legislation
(including related companies legislation), distributable profits legislation, taxation legislation and regulatory capital, solvency and liquidity regulations
and we assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items.
Secondly, the Group is subject to many other laws and regulations where the consequences of non-compliance could have a material effect on
amounts or disclosures in the consolidated financial statements, for instance through the imposition of fines, litigation or loss of regulatory approval
to write insurance contracts. We identified the following areas as those most likely to have such an effect: anti-bribery and certain aspects of company
legislation, recognising the financial and regulated nature of certain of the Group’s activities and its legal form. Auditing standards limit the required
audit procedures to identify non-compliance with these laws and regulations to enquiry of the Directors and other management and inspection of
regulatory and legal correspondence, if any. Therefore, if a breach of operational regulations is not disclosed to us or evident from relevant
correspondence, an audit will not detect that breach.
We discussed with the Audit Committee and those charged with governance matters related to actual or suspected breaches of laws or regulations,
for which disclosure is not necessary, and considered any implications for our audit.
Context of the ability of the audit to detect fraud or breaches of law or regulation
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the
consolidated financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For
example, the further removed non-compliance with laws and regulations is from the events and transactions reflected in the consolidated financial
statements, the less likely the inherently limited procedures required by auditing standards would identify it.
In addition, as with any audit, there remained a higher risk of non-detection of fraud, as these may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal controls. Our audit procedures are designed to detect material misstatement. We are not responsible
for preventing non-compliance or fraud and cannot be expected to detect non-compliance with all laws and regulations.
128
Lancashire Holdings Limited | Annual Report & Accounts 2023
7. We have nothing to report on the other information in the Annual Report and Accounts
The directors are responsible for the other information presented in the Annual Report and Accounts together with the consolidated financial
statements. Our opinion on the consolidated financial statements does not cover the other information and, accordingly, we do not express an audit
opinion or, except as explicitly stated below, any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether, based on our consolidated financial statements audit work, the
information therein is materially misstated or inconsistent with the consolidated financial statements or our audit knowledge. Based solely on that
work we have not identified material misstatements in the other information.
Directors’ remuneration report
In addition to our audit of the consolidated financial statements, the Directors have engaged us to audit the information in the Directors’
Remuneration Report that is described as having been audited, which the Directors have decided to prepare as if the Company was required to comply
with the requirements of Schedule 8 to The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (SI 2008 No.
410) made under the UK Companies Act 2006.
In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the UK Companies Act
2006, as if those requirements applied to the Company.
Disclosures of emerging and principal risks and longer-term viability
We are required to perform procedures to identify whether there is a material inconsistency between the Directors’ disclosures in respect of emerging
and principal risks and the viability statement, and the consolidated financial statements and our audit knowledge.
Based on those procedures, we have nothing material to add or draw attention to in relation to:
•
•
•
the Directors’ confirmation within the viability statement on page 120 that they have carried out a robust assessment of the emerging and
principal risks facing the Group, including those that would threaten its business model, future performance, solvency and liquidity;
the Emerging and Principal Risks disclosures describing these risks and how emerging risks are identified, and explaining how they are being
managed and mitigated; and
the Directors’ explanation in the viability statement of how they have assessed the prospects of the Group, over what period they have done so
and why they considered that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will
be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures
drawing attention to any necessary qualifications or assumptions.
Our work is limited to assessing these matters in the context of only the knowledge acquired during our consolidated financial statements audit. As we cannot
predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the
time they were made, the absence of anything to report on these statements is not a guarantee as to the Group’s longer-term viability.
Corporate governance disclosures
We are required to perform procedures to identify whether there is a material inconsistency between the Directors’ corporate governance disclosures
and the consolidated financial statements and our audit knowledge.
Based on those procedures, we have concluded that each of the following is materially consistent with the consolidated financial statements and our
audit knowledge:
•
•
•
the Directors’ statement that they consider that the Annual Report and Accounts taken as a whole is fair, balanced and understandable, and
provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy;
the section of the Annual Report and Accounts describing the work of the Audit Committee, including the significant issues that the Audit
Committee considered in relation to the consolidated financial statements, and how these issues were addressed; and
the section of the Annual Report and Accounts that describes the review of the effectiveness of the Group’s risk management and internal control
systems.
We are required to review the part of the Corporate Governance Statement relating to the Group’s compliance with the provisions of the UK
Corporate Governance Code specified by the Listing Rules for our review. We have nothing to report in this respect.
Lancashire Holdings Limited | Annual Report & Accounts 2023
129
Financial Statements Independent Auditor’s Report to the Members of Lancashire Holdings Limited continued
8. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 121, the directors are responsible for: the preparation of the consolidated financial
statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation
of consolidated financial statements that are free from material misstatement, whether due to fraud or error; assessing the Group’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either
intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does
not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can
arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of the consolidated financial statements.
A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities.
The Company is required to include these financial statements in an annual financial report prepared under Disclosure Guidance and Transparency
Rule 4.1.17R and 4.1.18R. This auditor’s report provides no assurance over whether the annual financial report has been prepared in accordance with
those requirements.
9. The purpose of our audit work and to whom we owe our responsibilities
This report is made solely to the Company’s members, as a body, in accordance with section 90 of the Bermuda Companies Act 1981 and the terms of
our engagement by the Company. Our audit work has been undertaken so that we might state to the Company’s members those matters we are
required to state to them in an auditor’s report, and the further matters we are required to state to them in accordance with the terms agreed with the
Company, and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the
Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.
Salim Tharani
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square, London, E14 5GL
5 March 2024
130
Lancashire Holdings Limited | Annual Report & Accounts 2023
Consolidated statement of comprehensive income
For the year ended 31 December 2023
Insurance revenue
Insurance service expenses
Insurance service result before reinsurance contracts held
Allocation of reinsurance premium
Amounts recoverable from reinsurers
Net expense from reinsurance contracts held
Insurance service result
Net investment return
Finance (expense) income from insurance contracts issued
Finance income (expense) from reinsurance contracts held
Net insurance and investment result
Share of profit (loss) of associate
Other income
Net foreign exchange losses
Other operating expenses
Equity based compensation
Financing costs
Profit (loss) before tax
Tax (charge) credit
Profit (loss) after tax
Earnings (loss) per share
Basic
Diluted
Notes
2, 13
2, 3, 6,13
2, 13
2, 3, 13
2, 4
2, 3
2, 3
15
5
2, 6
7
8
9
22002233
$$mm
1,519.9
(696.2)
823.7
(424.8)
(16.8)
(441.6)
382.1
160.5
(98.3)
31.7
476.0
12.1
2.9
(4.1)
(107.4)
(15.2)
(31.6)
332.7
(11.2)
321.5
Restated
2022
$m
1,226.5
(994.6)
231.9
(371.8)
281.5
(90.3)
141.6
(76.7)
20.1
(6.7)
78.3
(5.4)
6.5
(0.6)
(58.3)
(8.6)
(29.2)
(17.3)
1.8
(15.5)
20
20
$1.35
$1.32
($0.06)
($0.06)
Lancashire Holdings Limited | Annual Report & Accounts 2023 131
131
Lancashire Holdings Limited | Annual Report & Accounts 2023
Financial Statements
Consolidated statement of financial position
As at 31 December 2023
Assets
Cash and cash equivalents
Accrued interest receivable
Investments
Reinsurance contract assets
Other receivables
Corporation tax receivable
Investment in associate
Right-of-use assets
Property, plant and equipment
Intangible assets
Total assets
Liabilities
Insurance contract liabilities
Other payables
Corporation tax payable
Deferred tax liability
Lease liabilities
Long-term debt
Total liabilities
Shareholders’ equity
Share capital
Own shares
Other reserves
Retained earnings
Total shareholders’ equity attributable to equity shareholders of LHL
Non-controlling interests
Total shareholders’ equity
Total liabilities and shareholders’ equity
Notes
3311 DDeecceemmbbeerr 22002233
$$mm
Restated
31 December 2022
$m
Restated
1 January 2022
$m
10, 18
11, 12, 18
13
12, 15
16
17
13
14
16
18
19
19
19
756.9
16.7
2,455.5
387.8
58.4
—
16.2
19.3
9.8
181.1
3,901.7
1,823.7
80.6
2.0
16.2
24.7
446.6
2,393.8
122.0
(29.7)
1,233.2
182.4
1,507.9
—
1,507.9
3,901.7
548.8
11.3
2,204.9
474.3
30.0
1.1
59.7
20.3
1.1
172.4
3,523.9
1,673.5
44.6
—
10.3
23.3
446.1
2,197.8
122.0
(34.0)
1,221.9
16.2
1,326.1
—
1,326.1
3,523.9
517.7
7.1
2,048.1
326.5
18.8
—
120.1
13.4
0.8
157.9
3,210.4
1,302.3
37.4
1.6
11.6
17.9
445.7
1,816.5
122.0
(18.1)
1,221.6
67.9
1,393.4
0.5
1,393.9
3,210.4
The consolidated financial statements were approved by the Board of Directors on 5 March 2024 and signed on its behalf by:
PPeetteerr CCllaarrkkee
Director/Chair
NNaattaalliiee KKeerrsshhaaww
Director/CFO
132 Lancashire Holdings Limited | Annual Report & Accounts 2023
132
Lancashire Holdings Limited | Annual Report & Accounts 2023
Consolidated statement of changes
in shareholders’ equity
For the year ended 31 December 2023
Balance as at 1 January 2022, as previously reported
Initial application of IFRS 9 - Financial instruments,
net of tax
Initial application of IFRS 17 - Insurance contracts,
net of tax
Balance as at 1 January 2022 (restated)
Loss for the year (restated)
Share repurchases
Distributed by the trust
Shares donated to the trust
Dividends on common shares
Repurchase of shares from non-controlling interest
Net deferred tax
Equity based compensation
Balance as at 31 December 2022 (restated)
Profit for the year
Distributed by the trust
Dividends on common shares
Net deferred tax
Equity based compensation
Balance as at 31 December 2023
Notes
Share
capital
$m
Other
reserves
$m
122.0 (18.1) 1,221.6
Own
shares
$m
24
23
—
—
—
—
—
—
19
19
19
19
19
19
—
—
— (23.3)
8.1
—
(0.7)
—
—
—
—
—
—
—
—
—
122.0 (18.1) 1,221.6
—
—
(8.9)
0.7
—
(0.6)
0.1
9.0
122.0 (34.0) 1,221.9
—
(4.8)
—
0.4
15.7
(29.7) 1,233.2
—
—
—
—
—
122.0
—
4.3
—
—
—
Accumulated
other
comprehensive
income
$m
2.9
Shareholders’
equity
attributable
to equity
shareholders of
LHL
$m
1,412.3
Retained
earnings
$m
83.9
(2.9)
2.9
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(18.9)
(18.9)
67.9
(15.5)
—
—
—
(36.2)
—
—
—
16.2
321.5
—
(155.3)
—
—
182.4
1,393.4
(15.5)
(23.3)
(0.8)
—
(36.2)
(0.6)
0.1
9.0
1,326.1
321.5
(0.5)
(155.3)
0.4
15.7
1,507.9
Restated
Non-controlling
interests
$m
0.5
Total
shareholders’
equity
$m
1,412.8
—
—
0.5
—
—
—
—
—
(0.5)
—
—
—
—
—
—
—
—
—
—
(18.9)
1,393.9
(15.5)
(23.3)
(0.8)
—
(36.2)
(1.1)
0.1
9.0
1,326.1
321.5
(0.5)
(155.3)
0.4
15.7
1,507.9
Lancashire Holdings Limited | Annual Report & Accounts 2023 133
133
Lancashire Holdings Limited | Annual Report & Accounts 2023
Financial Statements
Consolidated statement of cash flows
For the year ended 31 December 2023
Cash flows from operating activities
Profit (loss) before tax
Adjustments for:
Tax paid
Depreciation
Amortisation on intangible assets
Impairment of intangible assets
Interest expense on long-term debt
Interest expense on lease liabilities
Interest income
Dividend income
Net unrealised (gains) losses on investments
Net realised (gains) losses on investments
Equity based compensation
Foreign exchange losses (gains)
Share of (profit) loss of associate
Changes in operational assets and liabilities
• Insurance and reinsurance contracts
• Other assets and liabilities
Net cash flows from operating activities
Cash flows used in investing activities
Interest income received
Dividend income received
Purchase of property, plant and equipment
Purchase of underwriting capacity
Internally generated intangible asset
Investment in associate
Purchase of investments
Proceeds on sale of investments
Net cash flows used in investing activities
Cash flows used in financing activities
Interest paid
Lease liabilities paid
Dividends paid
Share repurchases
Distributions by trust
Purchase of shares from non-controlling interest
Net cash flows used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of exchange rate fluctuations and other items on cash and cash equivalents
Cash and cash equivalents at end of year
134 Lancashire Holdings Limited | Annual Report & Accounts 2023
134
Lancashire Holdings Limited | Annual Report & Accounts 2023
Notes
22002233
$$mm
Restated
2022
$m
332.7
(17.3)
17
17
16
16
4
4
15
17
17
22
16
19
(1.9)
4.3
0.2
1.4
25.8
1.5
(95.4)
(11.3)
(53.4)
(3.9)
15.2
3.9
(12.1)
220.4
14.5
441.9
90.0
11.3
(9.6)
(3.3)
(7.0)
55.6
(1,057.4)
866.1
(54.3)
(25.8)
(3.8)
(155.3)
—
(0.5)
—
(185.4)
202.2
548.8
5.9
756.9
(2.1)
3.1
—
—
25.8
0.8
(46.1)
(8.1)
103.0
24.7
8.6
(7.9)
5.4
239.7
(5.8)
323.8
41.9
8.1
(0.7)
(4.2)
(10.3)
55.0
(1,130.2)
845.5
(194.9)
(25.8)
(3.6)
(36.2)
(23.3)
(0.8)
(1.1)
(90.8)
38.1
517.7
(7.0)
548.8
Consolidated statement of cash flows
For the year ended 31 December 2023
Accounting policies
For the year ended 31 December 2023
Cash flows from operating activities
Profit (loss) before tax
Adjustments for:
Tax paid
Depreciation
Amortisation on intangible assets
Impairment of intangible assets
Interest expense on long-term debt
Interest expense on lease liabilities
Interest income
Dividend income
Net unrealised (gains) losses on investments
Net realised (gains) losses on investments
Equity based compensation
Foreign exchange losses (gains)
Share of (profit) loss of associate
Changes in operational assets and liabilities
• Insurance and reinsurance contracts
• Other assets and liabilities
Net cash flows from operating activities
Cash flows used in investing activities
Interest income received
Dividend income received
Purchase of property, plant and equipment
Purchase of underwriting capacity
Internally generated intangible asset
Investment in associate
Purchase of investments
Proceeds on sale of investments
Net cash flows used in investing activities
Cash flows used in financing activities
Interest paid
Lease liabilities paid
Dividends paid
Share repurchases
Distributions by trust
Purchase of shares from non-controlling interest
Net cash flows used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of exchange rate fluctuations and other items on cash and cash equivalents
Cash and cash equivalents at end of year
Notes
22002233
$$mm
332.7
(17.3)
Restated
2022
$m
(2.1)
3.1
—
—
25.8
0.8
(46.1)
(8.1)
103.0
24.7
8.6
(7.9)
5.4
239.7
(5.8)
323.8
41.9
8.1
(0.7)
(4.2)
(10.3)
55.0
(25.8)
(3.6)
(36.2)
(23.3)
(0.8)
(1.1)
(90.8)
38.1
517.7
(7.0)
548.8
17
17
16
16
4
4
15
17
17
22
16
19
(1.9)
4.3
0.2
1.4
25.8
1.5
(95.4)
(11.3)
(53.4)
(3.9)
15.2
3.9
(12.1)
220.4
14.5
441.9
90.0
11.3
(9.6)
(3.3)
(7.0)
55.6
(25.8)
(3.8)
(155.3)
—
(0.5)
—
(185.4)
202.2
548.8
5.9
756.9
(1,057.4)
(1,130.2)
866.1
(54.3)
845.5
(194.9)
SSuummmmaarryy ooff mmaatteerriiaall aaccccoouunnttiinngg ppoolliicciieess
The basis of preparation, use of judgements, estimates and assumptions, consolidation principles, and material accounting policies adopted in the
preparation of these consolidated financial statements are set out below. Effective from 1 January 2023, the Group adopted IFRS 17, Insurance
Contracts and IFRS 9, Financial Instruments: Classification and Measurement. The related changes from adopting these standards are set out in
notes 23 and 24 respectively.
BBaassiiss ooff pprreeppaarraattiioonn
The consolidated financial statements have been prepared in accordance with IFRS (as issued by the International Accounting Standards Board), as
adopted by E.U.
Going concern basis of accounting
The consolidated financial statements have been prepared on a going concern basis. In assessing the Group’s going concern position as at 31
December 2023, the Directors have considered a number of factors. These include:
•
•
•
•
•
•
the current balance sheet and liquidity position;
the level and composition of the Group’s capital and solvency ratios;
the Group’s ability to service its long-term debt financing arrangements;
the current performance against the Group’s strategic and financial business plan;
the Group’s dividend distribution policy; and
the current market environment, including consideration for climate change.
In addition, the ORSA report is a key document informing the Group’s going concern assessment that is submitted to the Board.
The Group’s financial forecasts reflect the outcomes that the Directors consider most likely, based on the information available at the date of
signing these consolidated financial statements. To assess the Group’s going concern, the financial stability of the Group was modelled for a period
of at least 12 months and a number of sensitivity, stress and scenario tests were applied. This included a best estimate forecast, as well as various
scenarios. This incorporated different magnitudes of reserve releases and attritional, large and catastrophe loss events, plus optimistic and
pessimistic investment return scenarios.
To further stress the financial stability of the Group, additional stress testing was performed. This included modelling the breakeven capital
requirements of our regulators and rating agencies, the impact of potential management actions to reduce the Group’s exposure to climate
change-related risks, and a combination of large losses and catastrophe losses, which would result in a net loss for the Group, and finally a reverse
stress test scenario designed to render the business model unviable. The testing identified that even under the more severe but plausible stress
scenarios, the Group had more than adequate liquidity and solvency headroom.
Based on the going concern assessment performed, the Directors consider there to be no material uncertainties that may cast significant doubt
over the Group’s ability to continue to operate as a going concern. The Directors have formed a judgement that there is a reasonable expectation
that the Group has adequate resources to continue in operational existence in the foreseeable future, a period of at least 12 months from the date
of signing these consolidated financial statements.
Currency and liquidity
All amounts, excluding share data or where otherwise stated, are in millions of U.S. dollars ($m), with amounts rounded to the nearest $0.1 million
where appropriate. The consolidated statement of financial position is presented in order of decreasing liquidity.
Use of judgements, estimates and assumptions
The preparation of the Group’s consolidated financial statements requires management to make judgements, estimates and assumptions that
affect the application of the Group’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual amounts may
differ from these estimates.
Assumptions and estimates are based on information, knowledge and data available when the consolidated financial statements are prepared.
However, existing circumstances and assumptions about future developments may change, or circumstances may arise that are beyond the control
of the Group. Such changes are reflected in the assumptions when they occur, and are recognised prospectively. It is considered impracticable to
determine the effect that changes in these assumptions and estimates are expected to have on future periods.
Key assumptions concerning the future, and sources of estimation uncertainty
The Group has considered both key assumptions concerning the future, and sources of estimation uncertainty, that might be expected to have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities in a subsequent financial year.
134 Lancashire Holdings Limited | Annual Report & Accounts 2023
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Financial Statements
Accounting policies continued
Insurance contracts issued and reinsurance contracts held
The Group has determined that its most significant area of estimation uncertainty is in relation to the measurement of insurance contracts issued
and reinsurance contracts held. Changes in assumptions made may materially change the FCF that make up these balances. The FCF are the current
estimates of the future cash flows within the contract boundary of a group of insurance or reinsurance contracts that, we expect to collect
premiums from, and pay out claims, benefits and expenses in respect of, adjusted to reflect the timing and uncertainty of those amounts. Changes
in the following key assumptions may change the FCF materially:
• assumptions about the amount and timing of future cash flows;
• assumptions about claims development;
• assumptions about discount rates, including any illiquidity premiums; and
• assumptions about the risk adjustment for non-financial risk.
The estimation of the FCF is a complex actuarial process which incorporates a significant amount of judgement, in particular in relation to the
estimation of the LIC and AIC. Delays in reporting losses to the Group, together with unforeseen loss development, increase uncertainty over the
accuracy of loss reserves. A significant portion of the Group’s business is in classes with high attachment points of coverage and therefore a low
frequency but high severity of claims. This adds further complexity to the reserving process due to the limited volume of industry data available
from which to reliably predict ultimate losses following a loss event. Volatility for the majority of losses is limited on a net basis by the reinsurance
protection purchased.
Information about these key assumptions and estimates are included within our risk disclosures on pages 148 to 166.
Level (iii) investments
The Group holds a relatively straightforward investment portfolio consisting mainly of standard fixed maturity products. Level (iii) investments are
securities for which valuation techniques are not based on observable market data, and require significant management judgement to determine an
appropriate fair value. The Group determines securities classified as Level (iii) to include hedge funds, private investment funds and loans made to
the Lloyd’s central fund. The estimation of fair value, specifically for Level (iii) investments, is discussed in note 11.
Annual impairment assessments
The syndicate participation rights and goodwill are intangible assets with an indefinite life and subject to an annual impairment assessment. The
Group applies judgement when determining the input assumptions to the value in use calculation. The input assumptions and their sensitivity are
disclosed in note 17.
Management judgements, other than those involving estimations
Lancashire is an insurance group whose primary focus is on underwriting and actively balancing risk and return. In doing so it focuses on ensuring
premium revenue and investment return exceeds the cost of claims, outwards reinsurance and operating expenses. The main areas in which
judgement is applied is therefore in the measurement and recognition of insurance contracts and financial assets.
Simplified premium allocation measurement model
IFRS 17 allows for the use of a simplified measurement model. The PAA can be applied by the Group for a group of insurance contracts which it
underwrites if the coverage period of each contract within the Group is one year or less, or if the liability for remaining coverage determined under
the PAA is not expected to differ materially from that calculated under the GMM. The Group applies the PAA to simplify the measurement of all its
insurance contracts issued and reinsurance contracts held. Groups of insurance contracts issued and reinsurance contracts held which include
contracts with a coverage period of more than one year require a PAA eligibility assessment upon initial recognition, which in turn requires
management judgement to be made in respect of 1) the allocation of an individual insurance or reinsurance contract to a portfolio of insurance
contracts based on those individual contracts having similar risks and being managed together, 2) the division of the portfolios of insurance
contracts into the three IFRS 17 groups of insurance contracts (as defined within the insurance contracts issued and reinsurance contracts held
accounting policies section below), and 3) the performance of the underlying insurance contracts.
The Group considers that it is eligible to apply the PAA measurement model to its portfolios and groups of insurance contracts, on the basis that
the measurement of the LRC is not reasonably expected to differ materially from that calculated under the GMM. In the years prior to IFRS 17
adoption, and in the initial year of adoption, this assessment was made through detailed modelling of all portfolios and groups of insurance
contracts. Going forward the assessment will likely be more qualitative in nature, unless there is a significant shift in business mix, material new
lines of business are entered into, or significant changes in relevant economic factors occur.
Level of aggregation
Judgement is required to determine the level of aggregation under IFRS 17. Insurance contracts issued that are subject to similar risks and that are
managed together are classified into a portfolio of insurance contracts.
The following considerations have been given most weight in the definition of similar risks:
risk aggregations used for other business purposes such as reserving;
•
segmentations used for underwriting; and
•
• perils covered and incidence of risk over time.
136 Lancashire Holdings Limited | Annual Report & Accounts 2023
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Accounting policies continued
Insurance contracts issued and reinsurance contracts held
The Group has determined that its most significant area of estimation uncertainty is in relation to the measurement of insurance contracts issued
and reinsurance contracts held. Changes in assumptions made may materially change the FCF that make up these balances. The FCF are the current
estimates of the future cash flows within the contract boundary of a group of insurance or reinsurance contracts that, we expect to collect
premiums from, and pay out claims, benefits and expenses in respect of, adjusted to reflect the timing and uncertainty of those amounts. Changes
in the following key assumptions may change the FCF materially:
• assumptions about the amount and timing of future cash flows;
• assumptions about claims development;
• assumptions about discount rates, including any illiquidity premiums; and
• assumptions about the risk adjustment for non-financial risk.
The estimation of the FCF is a complex actuarial process which incorporates a significant amount of judgement, in particular in relation to the
estimation of the LIC and AIC. Delays in reporting losses to the Group, together with unforeseen loss development, increase uncertainty over the
accuracy of loss reserves. A significant portion of the Group’s business is in classes with high attachment points of coverage and therefore a low
frequency but high severity of claims. This adds further complexity to the reserving process due to the limited volume of industry data available
from which to reliably predict ultimate losses following a loss event. Volatility for the majority of losses is limited on a net basis by the reinsurance
Information about these key assumptions and estimates are included within our risk disclosures on pages 148 to 166.
protection purchased.
Level (iii) investments
The Group holds a relatively straightforward investment portfolio consisting mainly of standard fixed maturity products. Level (iii) investments are
securities for which valuation techniques are not based on observable market data, and require significant management judgement to determine an
appropriate fair value. The Group determines securities classified as Level (iii) to include hedge funds, private investment funds and loans made to
the Lloyd’s central fund. The estimation of fair value, specifically for Level (iii) investments, is discussed in note 11.
Annual impairment assessments
disclosed in note 17.
The syndicate participation rights and goodwill are intangible assets with an indefinite life and subject to an annual impairment assessment. The
Group applies judgement when determining the input assumptions to the value in use calculation. The input assumptions and their sensitivity are
Management judgements, other than those involving estimations
Lancashire is an insurance group whose primary focus is on underwriting and actively balancing risk and return. In doing so it focuses on ensuring
premium revenue and investment return exceeds the cost of claims, outwards reinsurance and operating expenses. The main areas in which
judgement is applied is therefore in the measurement and recognition of insurance contracts and financial assets.
Simplified premium allocation measurement model
IFRS 17 allows for the use of a simplified measurement model. The PAA can be applied by the Group for a group of insurance contracts which it
underwrites if the coverage period of each contract within the Group is one year or less, or if the liability for remaining coverage determined under
the PAA is not expected to differ materially from that calculated under the GMM. The Group applies the PAA to simplify the measurement of all its
insurance contracts issued and reinsurance contracts held. Groups of insurance contracts issued and reinsurance contracts held which include
contracts with a coverage period of more than one year require a PAA eligibility assessment upon initial recognition, which in turn requires
management judgement to be made in respect of 1) the allocation of an individual insurance or reinsurance contract to a portfolio of insurance
contracts based on those individual contracts having similar risks and being managed together, 2) the division of the portfolios of insurance
contracts into the three IFRS 17 groups of insurance contracts (as defined within the insurance contracts issued and reinsurance contracts held
accounting policies section below), and 3) the performance of the underlying insurance contracts.
The Group considers that it is eligible to apply the PAA measurement model to its portfolios and groups of insurance contracts, on the basis that
the measurement of the LRC is not reasonably expected to differ materially from that calculated under the GMM. In the years prior to IFRS 17
adoption, and in the initial year of adoption, this assessment was made through detailed modelling of all portfolios and groups of insurance
contracts. Going forward the assessment will likely be more qualitative in nature, unless there is a significant shift in business mix, material new
lines of business are entered into, or significant changes in relevant economic factors occur.
Level of aggregation
Judgement is required to determine the level of aggregation under IFRS 17. Insurance contracts issued that are subject to similar risks and that are
managed together are classified into a portfolio of insurance contracts.
The following considerations have been given most weight in the definition of similar risks:
risk aggregations used for other business purposes such as reserving;
•
•
segmentations used for underwriting; and
• perils covered and incidence of risk over time.
Each portfolio of insurance contracts is then further disaggregated into annual cohorts, and each annual cohort is classified into three IFRS 17
groups of contracts for recognition and measurement purposes based on their expected profitability.
Onerous contract assessment
Management applies judgement to assess whether facts and circumstances indicate that a group of insurance contracts is onerous at initial
recognition, or subsequently assesses whether facts and circumstances indicate any changes in the onerous group’s profitability, and whether any
loss component remeasurement is required.
Approach to transition
Judgement was applied to determine whether sufficient, reasonable and supportable information was available to apply a fully retrospective
approach when transitioning to the new IFRS 17 and IFRS 9 accounting standards (see note 23 and 24).
Classification of investment portfolio
The classification of the Group’s investment portfolio requires judgement in assessing the business model within which assets are held. The Group
has established that all investment classes are managed, and their performance evaluated, on a fair value basis and therefore they are classified at
FVTPL. This classification is discussed on page 144.
CChhaannggeess iinn aaccccoouunnttiinngg ppoolliicciieess
IFRS 17 and IFRS 9
Effective from 1 January 2023 the Group adopted IFRS 17, Insurance Contracts and IFRS 9, Financial Instruments: Classification and Measurement,
including any consequential amendments to other standards. These standards have brought significant changes to the accounting for insurance
contracts issued and reinsurance contracts held, and financial instruments. The impact of retrospectively adopting IFRS 17 and IFRS 9 is summarised
in notes 23 and 24.
The Group’s accounting policies that were impacted by the adoption of IFRS 17 and IFRS 9, are disclosed on pages 191 to 195.
OECD global minimum tax and Bermuda corporate income tax
To address concerns about uneven profit distribution and tax contributions of large multinational corporations, various agreements have been
reached at the global level, including an agreement by over 135 jurisdictions to introduce a global minimum tax rate of 15%. Legislation was also
passed in Bermuda on 27 December 2023, to implement a corporate income tax regime from 1 January 2025.
The UK has substantively enacted Pillar Two tax legislation, to implement the global minimum top-up tax on 20 June 2023. The Group could
potentially be subject to the top-up tax in relation to its operations.
The IASB has issued an amendment to IAS 12 ‘International Tax Reform – Pillar Two Model Rules’ which includes an exception from accounting for
deferred taxes which was endorsed for use in the E.U. on 2 June 2023. Prior to the endorsement, the Group had developed an accounting policy
applying the guidance in IAS 8. Under this accounting policy, the Group does not recognise the deferred tax impact of the top-up tax or remeasure
existing deferred taxes. Instead, any incremental effect of the top up tax is recognised as current tax as it is incurred.
Refer to note 14 for further information.
Other accounting changes
Effective from 1 January 2023, the IASB issued amendments to IAS 1 Presentation of Financial Statements, together with an update to IFRS Practice
Statement 2 Making Materiality Judgements. The changes primarily relate to considering accounting policies and transactions as either material or
significant, and have been determined to be immaterial to the Group’s financial statements.
There are also amendments to other existing standards and interpretations that are mandatory for the first time for financial periods beginning 1
January 2023. These are not currently relevant for the Group and do not impact the consolidated financial statements of the Group.
CCoonnssoolliiddaattiioonn pprriinncciipplleess
The Group consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at and for the year ended 31
December 2023. Subsidiaries are fully consolidated from the date of acquisition or incorporation, being the date on which the Group obtains
control, and continue to be consolidated until the date when such control ceases. Intercompany balances, profits and transactions are eliminated.
Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the subsidiary, and has the ability to
affect those returns through its power over the subsidiary.
The Group participates in two syndicates at Lloyd’s, which are managed by the Group’s Lloyd’s managing agent subsidiary. In view of the several
liability of underwriting members at Lloyd’s, the Group recognises its proportion of all the transactions undertaken by the syndicates in which it
participates within its consolidated statement of comprehensive income. Similarly, the Group’s proportion of the syndicates’ assets and liabilities
has been reflected in its consolidated statement of financial position. This proportion is calculated by reference to the Group’s participation as a
percentage of each syndicate’s total capacity for each underwriting year of account.
Subsidiaries’ accounting policies are generally consistent with the Group’s accounting policies. Where they differ, adjustments are made on
consolidation to bring the subsidiaries accounting policies in line with that of the Group.
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Financial Statements
Accounting policies continued
AAssssoocciiaatteess
Investments in which the Group has significant influence over the operational and financial policies of the investee, are recognised at cost and
thereafter accounted for using the equity method. Under this method, the Group records its proportionate share of income or loss from such
investments in its consolidated statement of comprehensive income for the period. Adjustments are made to associate accounting policies, where
necessary, in order to be consistent with the Group’s accounting policies.
FFoorreeiiggnn ccuurrrreennccyy
Functional currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in
which the entities’ operations are conducted (the ‘functional currency’). The functional currency is U.S. dollars for all of the Group’s entities, other
than the Group’s Australian entities, which have a functional currency of Australian dollars. On this basis, the Group’s consolidated financial
statements are presented in U.S. dollars (the ‘presentation currency’).
Transactions and balances
Foreign currency transactions are recorded in the functional currency for each entity using the exchange rates prevailing at the dates of the
transactions, or at the average rate for the period when this is a reasonable approximation. Monetary assets and liabilities denominated in foreign
currencies are revalued at period end exchange rates. The resulting exchange differences on revaluation are recorded in profit or loss within net
foreign exchange gains (losses) in the consolidated statement of comprehensive income. Non-monetary assets and liabilities denominated in a
foreign currency are carried at historic rates. Non-monetary assets and liabilities carried at estimated fair value and denominated in a foreign
currency are translated at the exchange rate at the date the estimated fair value was determined.
Foreign operations
The results and financial position of all the Group entities that have a functional currency different from the presentation currency are translated
into the presentation currency as follows:
• assets and liabilities are translated at the closing rate on the balance sheet date;
•
• all resulting foreign exchange differences are recognised in other comprehensive income, and as a separate component of shareholders’ equity.
income and expenses are translated at average exchange rates for the period; and
On disposal of foreign operations, cumulative exchange differences previously recognised in other comprehensive income are recognised in profit or
loss as part of the gain or loss on disposal.
IInnssuurraannccee ccoonnttrraaccttss iissssuueedd aanndd rreeiinnssuurraannccee ccoonnttrraaccttss hheelldd
Classification
Insurance contracts issued are those that transfer significant insurance risk at the inception of the contract. Insurance risk is transferred when an
insurer agrees to compensate a policyholder if a specified uncertain future event adversely affects the policyholder. Contracts that have a legal
form of insurance risk but do not transfer significant insurance risk are classified as investment contracts and follow financial instrument accounting
under IFRS 9. The Group does not issue any contracts with direct participation features.
In the normal course of business, the Group uses reinsurance to mitigate its risk exposures. A reinsurance contract held transfers significant
insurance risk if it transfers substantially all the insurance risk resulting from the insured or reinsured portion of the underlying insurance contracts,
even if it does not expose the reinsurer to the possibility of a significant loss.
All references to insurance contracts in these consolidated financial statements apply to insurance contracts issued and reinsurance contracts held,
unless specifically stated otherwise.
Level of aggregation
Insurance contracts issued
Insurance contracts that are subject to similar risks and that are managed together are classified into a portfolio of insurance contracts. Each
portfolio of insurance contracts is then further disaggregated into annual cohorts, and each annual cohort is classified into three IFRS 17 groups of
contracts for recognition and measurement purposes based on their expected profitability:
• a group of contracts that are onerous at initial recognition;
• a group of contracts that at initial recognition have no significant possibility of becoming onerous; or
• a group of the remaining contracts in the portfolio.
These three groups represent the level of aggregation at which insurance contracts issued are initially recognised and measured. The classification
of insurance contracts into such groups is not subsequently reconsidered once determined for a particular annual cohort.
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Accounting policies continued
AAssssoocciiaatteess
FFoorreeiiggnn ccuurrrreennccyy
Functional currency
Investments in which the Group has significant influence over the operational and financial policies of the investee, are recognised at cost and
thereafter accounted for using the equity method. Under this method, the Group records its proportionate share of income or loss from such
investments in its consolidated statement of comprehensive income for the period. Adjustments are made to associate accounting policies, where
necessary, in order to be consistent with the Group’s accounting policies.
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in
which the entities’ operations are conducted (the ‘functional currency’). The functional currency is U.S. dollars for all of the Group’s entities, other
than the Group’s Australian entities, which have a functional currency of Australian dollars. On this basis, the Group’s consolidated financial
statements are presented in U.S. dollars (the ‘presentation currency’).
Transactions and balances
Foreign currency transactions are recorded in the functional currency for each entity using the exchange rates prevailing at the dates of the
transactions, or at the average rate for the period when this is a reasonable approximation. Monetary assets and liabilities denominated in foreign
currencies are revalued at period end exchange rates. The resulting exchange differences on revaluation are recorded in profit or loss within net
foreign exchange gains (losses) in the consolidated statement of comprehensive income. Non-monetary assets and liabilities denominated in a
foreign currency are carried at historic rates. Non-monetary assets and liabilities carried at estimated fair value and denominated in a foreign
currency are translated at the exchange rate at the date the estimated fair value was determined.
Foreign operations
into the presentation currency as follows:
The results and financial position of all the Group entities that have a functional currency different from the presentation currency are translated
• assets and liabilities are translated at the closing rate on the balance sheet date;
•
income and expenses are translated at average exchange rates for the period; and
• all resulting foreign exchange differences are recognised in other comprehensive income, and as a separate component of shareholders’ equity.
On disposal of foreign operations, cumulative exchange differences previously recognised in other comprehensive income are recognised in profit or
loss as part of the gain or loss on disposal.
IInnssuurraannccee ccoonnttrraaccttss iissssuueedd aanndd rreeiinnssuurraannccee ccoonnttrraaccttss hheelldd
Classification
Insurance contracts issued are those that transfer significant insurance risk at the inception of the contract. Insurance risk is transferred when an
insurer agrees to compensate a policyholder if a specified uncertain future event adversely affects the policyholder. Contracts that have a legal
form of insurance risk but do not transfer significant insurance risk are classified as investment contracts and follow financial instrument accounting
under IFRS 9. The Group does not issue any contracts with direct participation features.
In the normal course of business, the Group uses reinsurance to mitigate its risk exposures. A reinsurance contract held transfers significant
insurance risk if it transfers substantially all the insurance risk resulting from the insured or reinsured portion of the underlying insurance contracts,
even if it does not expose the reinsurer to the possibility of a significant loss.
All references to insurance contracts in these consolidated financial statements apply to insurance contracts issued and reinsurance contracts held,
unless specifically stated otherwise.
Level of aggregation
Insurance contracts issued
Insurance contracts that are subject to similar risks and that are managed together are classified into a portfolio of insurance contracts. Each
portfolio of insurance contracts is then further disaggregated into annual cohorts, and each annual cohort is classified into three IFRS 17 groups of
contracts for recognition and measurement purposes based on their expected profitability:
• a group of contracts that are onerous at initial recognition;
• a group of contracts that at initial recognition have no significant possibility of becoming onerous; or
• a group of the remaining contracts in the portfolio.
These three groups represent the level of aggregation at which insurance contracts issued are initially recognised and measured. The classification
of insurance contracts into such groups is not subsequently reconsidered once determined for a particular annual cohort.
Reinsurance contracts held
Portfolios of reinsurance contracts held are assessed for aggregation separately from portfolios of insurance contracts issued. Applying the grouping
requirements to reinsurance contracts held, the Group aggregates reinsurance contracts held within annual cohorts into:
• a group of contracts for which there is a net gain at initial recognition;
• a group of contracts for which at initial recognition there is no significant possibility of a net gain arising subsequently; and
• a group of the remaining contracts in the portfolio.
For some groups of reinsurance contracts held, a group can comprise a single contract, which is considered the lowest unit of account.
Initial recognition
An insurance contract issued by the Group is recognised at the earliest of:
•
the beginning of the coverage period (i.e. the period during which the Group provides services in respect of any premiums within the boundary of the
contract);
• when the first payment from the policyholder becomes due or, if there is no contractual due date, when it is received from the policyholder; or
•
for a group of onerous contracts, when the group becomes onerous.
Groups of reinsurance contracts held are initially recognised at the earliest of:
•
•
the beginning of the coverage period of the group of reinsurance contracts held; or
the date of recognising an onerous group of underlying insurance contracts issued if the related reinsurance contract held was entered into at or before
that date.
The recognition of a group of reinsurance contracts held that provide proportional or quota share coverage is delayed until the date that any
underlying insurance contracts issued are initially recognised.
Insurance contracts issued and reinsurance contracts held that were acquired in a business combination, or a portfolio transfer, are accounted for as
if they were entered into at the date of acquisition or transfer.
Insurance contracts issued are initially added to the relevant groups of insurance contracts in the reporting period in which they meet the
recognition criteria, subject to the annual cohorts’ restriction. Composition of the groups is not reassessed in subsequent periods.
Measurement applying the PAA measurement model
PAA eligibility
The Group uses the PAA to simplify the measurement of groups of insurance contracts issued and reinsurance contracts held. The Group considers
that it is eligible to apply the PAA measurement model to its groups of contracts (within a given portfolio of insurance contracts) where the
measurement of the LRC or ARC is not reasonably expected to differ materially from that calculated under the GMM.
The Group does not apply the PAA if, at the inception of the group of contracts, it expects significant variability in the FCF that would affect the
measurement of the LRC or ARC during the period before a claim is incurred. Variability in the FCF increases with, for example, the length of the
coverage period of the group of contracts.
For the accounting periods covered by these financial statements, the Group has determined that all groups of insurance contracts underwritten in
respect of those accounting periods are eligible for the PAA.
Contract boundary
The measurement of a group of insurance contracts issued or reinsurance contracts held includes all of the cash flows within the boundary of each
contract in the group. The contract boundary is reassessed at each reporting period to include the effect of change in circumstances on the Group’s
rights and obligations, and may change over time.
Cash flows are within the boundary of an insurance contract issued if they arise from substantive rights and obligations that exist during the period,
through which the Group can compel the policyholder to pay premiums, or the Group has substantive obligations to provide the policyholder with
insurance coverage or other services. A substantive obligation to provide services ends when:
•
•
•
the Group has the practical ability to reassess the risks of the particular policyholder, and as a result can set a price or level of benefits that fully reflects
those risks; or
the Group has the practical ability to reassess the risks of the portfolio of insurance contracts that contains the contract, and as a result can set a price
or level of benefits that fully reflects the risks of the portfolio; and
the pricing of premiums up to the date when risks are reassessed does not reflect the risks related to periods beyond the reassessment date.
The reassessment of risk considers only risks transferred from policyholders to the Group, which may include both insurance and financial risk, but
excludes expense risk.
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Financial Statements
Accounting policies continued
Cash flows outside of the insurance contract boundary relate to future insurance contracts issued and are recognised only when those contracts
meet the recognition criteria.
For groups of reinsurance contracts held, cash flows are within the contract boundary if they arise from substantive rights and obligations that exist
during the reporting period in which the Group is compelled to pay amounts to the reinsurer, or has a substantive right to receive services from the
reinsurer. A substantive right to receive services from the reinsurer ceases when the reinsurer:
• has the practical ability to reassess the risks transferred to it and can set a price or level of benefits that fully reflects those reassessed risks; or
• has a substantive right to terminate the coverage.
Cash flows that are not directly attributable to a portfolio of insurance contracts are recognised in other operating expenses as incurred.
Fulfilment cash flows within the contract boundary
The FCF are the current estimates of the future cash flows within the contract boundary of a group of insurance contracts that the Group expects
to collect from premiums and pay out as claims, benefits and expenses, adjusted to reflect the timing and the uncertainty of those amounts.
The estimates of future cash flows:
• are based on an unbiased probability weighted mean of the full range of possible outcomes;
• are determined from the perspective of the Group, provided the estimates are consistent with observable market prices for market variables; and
reflect conditions existing at the measurement date, including, where appropriate, expected credit losses from policyholders and intermediaries.
•
The Group may estimate certain FCF at the portfolio level, or a higher level where appropriate, and then allocate such estimates to groups of
insurance contracts using a reasonable and consistent method.
The Group uses consistent assumptions to measure the estimates of the present value of future cash flows for a group of reinsurance contracts held
with the groups of underlying insurance contracts issued.
In the measurement of reinsurance contracts held, the probability weighted estimates of the present value of future cash flows include potential
credit losses, and potential disputes with the reinsurer to reflect the non-performance risk of the reinsurer.
The Group’s insurance contracts issued and reinsurance contracts held that generate cash flows in a foreign currency are treated as monetary items
and are revalued at period end exchange rates.
Discounting
The estimates of FCF within the LIC and AIC are adjusted using current discount rates to reflect the time value of money and the financial risks
related to those cash flows, to the extent they are not already included within the cash flows. The discount rates reflect the characteristics of the
cash flows arising from each group of insurance contracts, including the timing, currency, and liquidity of the cash flows. The initial impact of
discounting is included within the Group’s insurance service result. The effect of unwinding the impact of discounting, together with the effect of
any changes in discounting assumptions applied, are both included within the Group’s finance income or expense. The Group has not identified any
significant financing component in the LRC or the ARC, and does not adjust these balances to reflect the time value of money and the effect of
financial risk.
Risk adjustment for non-financial risk
An explicit risk adjustment for non-financial risk is estimated separately from the discounted FCF. For contracts measured under the PAA, unless
facts and circumstances indicate that a group of contracts is onerous, the explicit risk adjustment for non-financial risk is only estimated for the
measurement of the LIC. The risk adjustment for non-financial risk is applied to the present value of the estimated future cash flows. It reflects the
compensation the Group requires for bearing uncertainty about the amount and timing of the cash flows from non-financial risk as the Group fulfils
its insurance contracts issued. For reinsurance contracts held, the risk adjustment for non-financial risk represents the amount of non-financial risk
being transferred by the Group to the reinsurer. Methods and assumptions used to determine the risk adjustment for non-financial risk are
discussed both below and within the risk disclosures section.
Insurance acquisition cashflows
Insurance acquisition cash flows arise from the cost of selling, underwriting, and initiating a group of insurance contracts (either issued or expected
to be issued) that are directly attributable to the portfolio of insurance contracts to which the group belongs. The Group uses a systematic and
rational method to:
• allocate insurance acquisition cash flows that are directly attributable to a group of insurance contracts:
– to that group of insurance contracts; and
– to groups of insurance contracts that include insurance contracts issued that are expected to arise from the renewal of the insurance contracts
issued in that group.
• allocate insurance acquisition cash flows that are directly attributable to a specific portfolio of insurance contracts, but which are not directly
attributable to a specific group of insurance contracts within that portfolio, to all groups within that particular portfolio.
Where insurance acquisition cash flows have been paid or incurred before the related group of insurance contracts is recognised in the consolidated
statement of financial position, a separate asset for insurance acquisition cash flows may be recognised for each related group. The asset is then
derecognised when the insurance acquisition cash flows are included in the initial measurement of the related group of insurance contracts. The
amortisation of insurance acquisition cash flows is based on the passage of time over the relevant coverage period.
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Accounting policies continued
Cash flows outside of the insurance contract boundary relate to future insurance contracts issued and are recognised only when those contracts
meet the recognition criteria.
For groups of reinsurance contracts held, cash flows are within the contract boundary if they arise from substantive rights and obligations that exist
during the reporting period in which the Group is compelled to pay amounts to the reinsurer, or has a substantive right to receive services from the
reinsurer. A substantive right to receive services from the reinsurer ceases when the reinsurer:
• has the practical ability to reassess the risks transferred to it and can set a price or level of benefits that fully reflects those reassessed risks; or
• has a substantive right to terminate the coverage.
Cash flows that are not directly attributable to a portfolio of insurance contracts are recognised in other operating expenses as incurred.
Fulfilment cash flows within the contract boundary
The FCF are the current estimates of the future cash flows within the contract boundary of a group of insurance contracts that the Group expects
to collect from premiums and pay out as claims, benefits and expenses, adjusted to reflect the timing and the uncertainty of those amounts.
The estimates of future cash flows:
• are based on an unbiased probability weighted mean of the full range of possible outcomes;
• are determined from the perspective of the Group, provided the estimates are consistent with observable market prices for market variables; and
•
reflect conditions existing at the measurement date, including, where appropriate, expected credit losses from policyholders and intermediaries.
The Group may estimate certain FCF at the portfolio level, or a higher level where appropriate, and then allocate such estimates to groups of
insurance contracts using a reasonable and consistent method.
The Group uses consistent assumptions to measure the estimates of the present value of future cash flows for a group of reinsurance contracts held
with the groups of underlying insurance contracts issued.
In the measurement of reinsurance contracts held, the probability weighted estimates of the present value of future cash flows include potential
credit losses, and potential disputes with the reinsurer to reflect the non-performance risk of the reinsurer.
The Group’s insurance contracts issued and reinsurance contracts held that generate cash flows in a foreign currency are treated as monetary items
and are revalued at period end exchange rates.
Discounting
The estimates of FCF within the LIC and AIC are adjusted using current discount rates to reflect the time value of money and the financial risks
related to those cash flows, to the extent they are not already included within the cash flows. The discount rates reflect the characteristics of the
cash flows arising from each group of insurance contracts, including the timing, currency, and liquidity of the cash flows. The initial impact of
discounting is included within the Group’s insurance service result. The effect of unwinding the impact of discounting, together with the effect of
any changes in discounting assumptions applied, are both included within the Group’s finance income or expense. The Group has not identified any
significant financing component in the LRC or the ARC, and does not adjust these balances to reflect the time value of money and the effect of
financial risk.
Risk adjustment for non-financial risk
An explicit risk adjustment for non-financial risk is estimated separately from the discounted FCF. For contracts measured under the PAA, unless
facts and circumstances indicate that a group of contracts is onerous, the explicit risk adjustment for non-financial risk is only estimated for the
measurement of the LIC. The risk adjustment for non-financial risk is applied to the present value of the estimated future cash flows. It reflects the
compensation the Group requires for bearing uncertainty about the amount and timing of the cash flows from non-financial risk as the Group fulfils
its insurance contracts issued. For reinsurance contracts held, the risk adjustment for non-financial risk represents the amount of non-financial risk
being transferred by the Group to the reinsurer. Methods and assumptions used to determine the risk adjustment for non-financial risk are
discussed both below and within the risk disclosures section.
Insurance acquisition cashflows
rational method to:
– to that group of insurance contracts; and
issued in that group.
Insurance acquisition cash flows arise from the cost of selling, underwriting, and initiating a group of insurance contracts (either issued or expected
to be issued) that are directly attributable to the portfolio of insurance contracts to which the group belongs. The Group uses a systematic and
• allocate insurance acquisition cash flows that are directly attributable to a group of insurance contracts:
– to groups of insurance contracts that include insurance contracts issued that are expected to arise from the renewal of the insurance contracts
• allocate insurance acquisition cash flows that are directly attributable to a specific portfolio of insurance contracts, but which are not directly
attributable to a specific group of insurance contracts within that portfolio, to all groups within that particular portfolio.
Where insurance acquisition cash flows have been paid or incurred before the related group of insurance contracts is recognised in the consolidated
statement of financial position, a separate asset for insurance acquisition cash flows may be recognised for each related group. The asset is then
derecognised when the insurance acquisition cash flows are included in the initial measurement of the related group of insurance contracts. The
amortisation of insurance acquisition cash flows is based on the passage of time over the relevant coverage period.
140 Lancashire Holdings Limited | Annual Report & Accounts 2023
The Group does not generally pay or incur significant insurance acquisition cash flows before a related group of insurance contracts is recognised in
the statement of financial position. No asset for insurance acquisition cash flows has been recognised at any point during the accounting periods
covered by these financial statements.
Initial measurement of insurance contracts issued applying the PAA
For a group of insurance contracts that is not onerous at initial recognition, the carrying amount of the LRC is measured with reference to the
premiums received on initial recognition minus any insurance acquisition cash flows allocated to the Group at that date, and adjusted for any
amounts arising from the derecognition of any assets or liabilities previously recognised for cash flows related to the Group.
The Group assumes that no contracts are onerous at initial recognition, unless facts and circumstances indicate otherwise. Where this is not the
case, the Group performs additional analysis to determine if a net cash outflow is expected from the contract. On initial recognition of an onerous
group of insurance contracts, the Group recognises an insurance service expense for the net cash outflows, and an onerous loss component is
established in the LRC reflecting the losses recognised.
Subsequent measurement of insurance contracts issued applying the PAA
The carrying amount of a group of insurance contracts issued is the sum of the LRC and the LIC.
The Group measures the carrying amount of the LRC at the end of each reporting period. The LRC includes:
• any premiums received less amounts recognised as insurance revenue;
•
less insurance acquisition cash flows paid plus amortisation of any insurance acquisition cash flows recognised as insurance service expense in the
period; and
less any non-distinct investment components paid or transferred to the LIC.
•
Groups of insurance contracts that were not onerous at initial recognition can subsequently become onerous if facts and circumstances change
during the coverage period.
If a group of insurance contracts becomes onerous, or facts and circumstances indicate that the expected loss of an onerous group during the
remaining coverage period has increased, the Group increases the carrying amount of the LRC by the relevant amount, with the increase recognised
within insurance service expenses. The relevant amount is determined as the additional amount which would result in the net liability for the
relevant onerous group being equal to the expected net outwards FCF. This is equivalent to adjusting the LRC to equal the liability that would be
determined by applying the GMM valuation requirements. If the expected loss in respect of an onerous group of contracts decreases, then a
corresponding reduction to the LRC is recognised within insurance service expenses. The expected loss in respect of an onerous group is reassessed
at the end of each reporting period. The Group amortises the amount of the loss component within the LRC by decreasing insurance service
expenses. Consistent with the basis applied for insurance revenue above, the loss component is amortised based on the passage of time over the
remaining coverage period of the onerous group of contracts, until the loss component is reduced to nil. The equivalent basis is also applied to any
relevant reinsurance recovery component.
The Group measures the carrying amount of the LIC at the end of each reporting period.
The Group recognises the LIC for a group of insurance contracts as the amount of FCF relating to the incurred claims that have not yet been paid,
including claims that have been incurred but not yet reported, together with the associated expenses, including all claims handling expenses that
relate to incurred claims which have not yet been paid. The FCF are measured at the reporting date using current estimates of future cash flows,
current discount rates and current estimates of the risk adjustment for non-financial risk.
Initial measurement of reinsurance contracts held applying the PAA
The Group measures a group of reinsurance contracts held on the same basis as a group of insurance contracts issued, with adaptations to reflect
the features of reinsurance contracts held that differ from insurance contracts issued.
On initial recognition of a group of reinsurance contracts held, the Group measures the ARC at the amount of ceding premiums paid on initial
recognition, minus commission income received.
For a group of reinsurance contracts held which cover onerous underlying insurance contracts issued, the Group establishes a loss-recovery
component of the ARC. This results in a gain or loss within amounts recoverable from reinsurer to off-set the losses or gains recognised on the
underlying onerous insurance contracts issued:
• on recognition of onerous underlying insurance contracts issued, if the reinsurance contracts held covering those insurance contracts is entered into
•
before, or at the same time, as those insurance contracts issued are recognised; and
for changes in FCF of the group of reinsurance contracts held relating to future services that results from changes in FCF of the onerous underlying
insurance contracts issued.
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Financial Statements
Accounting policies continued
Subsequent measurement of reinsurance contracts held applying the PAA
The carrying amount of a group of reinsurance contracts held at the end of the reporting period is the sum of the ARC and the AIC.
The Group measures the carrying amount of the ARC and the AIC at the end of each reporting period:
•
•
the ARC includes reinsurance premiums paid, less amounts recognised as an allocation of reinsurance premium; and
the AIC includes reinsurance recovery cash flows received from reinsurers during the period, less any FCF amounts still to be recovered from reinsurers.
Where the Group has established a loss-recovery component, the Group amortises the amount of the loss recovery component within the ARC by
decreasing the allocation of recoverables from reinsurers. The loss-recovery component is amortised based on the passage of time over the
remaining coverage period of the onerous group of reinsurance contracts held, until the loss recovery component is reduced to nil.
The Group measures the carrying value of the AIC at the end of each reporting period.
The Group recognises the AIC for a group of reinsurance contracts held at the amount of the FCF relating to the claims recoverable, less any
amounts already recovered. Any expenses allocated to groups of reinsurance contracts held are presented within the AIC. The FCF are measured at
the reporting date using current estimates of future cash flows, current discount rates and current estimates of the risk adjustment for non-
financial risk.
Derecognition and modification under the PAA
The Group derecognises an insurance contract issued or a reinsurance contract held when it is extinguished (i.e. when the specified obligations in
the contract expire, or are discharged, or cancelled) or the contract is modified and certain additional criteria are met.
When an insurance contract issued or reinsurance contract held is modified as a result of an agreement with a counterparty, or due to a change in
regulations, the Group treats changes in the cash flows caused by the modification as a change in the estimate of the FCF, unless the conditions for
derecognition of the original contract are met. The Group derecognises the original contract and recognises the modified contract as a new contract
if any of the following conditions are present:
a. If, based on the modified terms, the Group would have concluded at the inception of the contract that it:
• was not within the scope of IFRS 17;
•
•
• belongs to a different group of insurance contracts issued or reinsurance contracts held.
results in different separable components that would be outside the scope of IFRS 17 if they were separate contracts;
results in a substantially different contract boundary; or
b. If the modification means that the contract no longer meets the PAA eligibility criteria.
When an insurance contract is derecognised, adjustments made to the FCF are recorded within profit or loss as follows:
•
•
•
if the insurance or reinsurance contract is extinguished, any net difference between the derecognised part of the LRC of the original contract, and any
other cash flows arising from the extinguishment is recorded within profit or loss;
if the insurance or reinsurance contract is transferred to a third party, any net difference between the derecognised part of the LRC of the original
contract and the premium charged by the third party is recorded within profit or loss; and
if the original contract is modified, resulting in its derecognition, any net difference between the derecognised part of the LRC and the premium the
Group would have charged had it entered into a contract with equivalent terms to the new contract at the date of contract modification, less any
additional premium charged for the modification is recorded within profit or loss.
Presentation within the financial statements
Portfolios of insurance contracts issued, and portfolios of reinsurance contracts held, that are assets, and those that are liabilities, are presented
separately in the consolidated statement of financial position.
The Group disaggregates amounts recognised in the consolidated statement of comprehensive income into (a) an insurance service result and
(b) insurance finance income and expense.
The Group disaggregates changes in the risk adjustment for non-financial risk between the insurance services result (which represents the change
related to non-financial risk), and insurance finance income or expenses (which represents the effect of the time value of money and changes in the
time value of money).
Income and expenses from reinsurance contracts held are presented separately from the income and expenses on insurance contracts issued.
Insurance revenue and insurance service expenses exclude any non-distinct investment components.
142 Lancashire Holdings Limited | Annual Report & Accounts 2023
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losses on onerous contracts and the reversal of such losses.
incurred claims, net of inwards reinstatement premiums, and net of the initial discount on incurred claims;
•
• adjustments to the LIC (including the risk adjustment) that do not arise from the effects of the time value of money, financial risk and changes therein;
• amortisation of insurance acquisition cash flows based on the passage of time over the relevant coverage period;
• other directly attributable insurance service expenses, including an allocation of fixed and variable overhead costs; and
•
Insurance revenue
Insurance revenue from groups of insurance contracts issued is the amount of expected premiums net of ceding commission payable. Expected
premiums exclude any investment components.
Insurance revenue is recognised based on the passage of time over the coverage period, except where the period of risk differs significantly from
the contract period. In this instance, insurance revenue is recognised on the basis of the expected timing of the related incurred insurance service
expenses. For the current periods presented, all insurance revenue has been recognised on the basis of the passage of time.
The amount of insurance revenue recognised in the period reflects the provision of insurance services and the corresponding consideration the
Group expects to be entitled to in exchange for those services.
Insurance service expenses
Insurance service expenses arising from insurance contracts issued are recognised as they are incurred. They exclude the repayment of non-distinct
investment components and comprise the following items:
Accounting policies continued
•
•
•
•
•
Subsequent measurement of reinsurance contracts held applying the PAA
The carrying amount of a group of reinsurance contracts held at the end of the reporting period is the sum of the ARC and the AIC.
The Group measures the carrying amount of the ARC and the AIC at the end of each reporting period:
the ARC includes reinsurance premiums paid, less amounts recognised as an allocation of reinsurance premium; and
the AIC includes reinsurance recovery cash flows received from reinsurers during the period, less any FCF amounts still to be recovered from reinsurers.
Where the Group has established a loss-recovery component, the Group amortises the amount of the loss recovery component within the ARC by
decreasing the allocation of recoverables from reinsurers. The loss-recovery component is amortised based on the passage of time over the
remaining coverage period of the onerous group of reinsurance contracts held, until the loss recovery component is reduced to nil.
The Group measures the carrying value of the AIC at the end of each reporting period.
The Group recognises the AIC for a group of reinsurance contracts held at the amount of the FCF relating to the claims recoverable, less any
amounts already recovered. Any expenses allocated to groups of reinsurance contracts held are presented within the AIC. The FCF are measured at
the reporting date using current estimates of future cash flows, current discount rates and current estimates of the risk adjustment for non-
financial risk.
Derecognition and modification under the PAA
The Group derecognises an insurance contract issued or a reinsurance contract held when it is extinguished (i.e. when the specified obligations in
the contract expire, or are discharged, or cancelled) or the contract is modified and certain additional criteria are met.
When an insurance contract issued or reinsurance contract held is modified as a result of an agreement with a counterparty, or due to a change in
regulations, the Group treats changes in the cash flows caused by the modification as a change in the estimate of the FCF, unless the conditions for
derecognition of the original contract are met. The Group derecognises the original contract and recognises the modified contract as a new contract
if any of the following conditions are present:
a. If, based on the modified terms, the Group would have concluded at the inception of the contract that it:
results in different separable components that would be outside the scope of IFRS 17 if they were separate contracts;
• was not within the scope of IFRS 17;
•
•
results in a substantially different contract boundary; or
• belongs to a different group of insurance contracts issued or reinsurance contracts held.
b. If the modification means that the contract no longer meets the PAA eligibility criteria.
When an insurance contract is derecognised, adjustments made to the FCF are recorded within profit or loss as follows:
if the insurance or reinsurance contract is extinguished, any net difference between the derecognised part of the LRC of the original contract, and any
other cash flows arising from the extinguishment is recorded within profit or loss;
if the insurance or reinsurance contract is transferred to a third party, any net difference between the derecognised part of the LRC of the original
contract and the premium charged by the third party is recorded within profit or loss; and
if the original contract is modified, resulting in its derecognition, any net difference between the derecognised part of the LRC and the premium the
Group would have charged had it entered into a contract with equivalent terms to the new contract at the date of contract modification, less any
additional premium charged for the modification is recorded within profit or loss.
Presentation within the financial statements
separately in the consolidated statement of financial position.
Portfolios of insurance contracts issued, and portfolios of reinsurance contracts held, that are assets, and those that are liabilities, are presented
The Group disaggregates amounts recognised in the consolidated statement of comprehensive income into (a) an insurance service result and
(b) insurance finance income and expense.
The Group disaggregates changes in the risk adjustment for non-financial risk between the insurance services result (which represents the change
related to non-financial risk), and insurance finance income or expenses (which represents the effect of the time value of money and changes in the
time value of money).
Income and expenses from reinsurance contracts held are presented separately from the income and expenses on insurance contracts issued.
Insurance revenue and insurance service expenses exclude any non-distinct investment components.
Expenses not meeting the above criteria are included in other operating expenses in the consolidated statement of comprehensive income.
Allocation of reinsurance premium and amounts recoverable from reinsurers
The Group presents separately on the face of the consolidated statement of comprehensive income the allocation of reinsurance premiums, and
amounts recoverable from reinsurers.
The allocation of reinsurance premiums under each group of reinsurance contracts held is the amount of expected reinsurance premium payments
net of commission income receivable. Expected reinsurance premium payments exclude any investment components.
The Group recognises the allocation of reinsurance premium based on the passage of time over the relevant coverage period of the reinsurance
contract.
Amounts expected to be recovered from reinsurers are recognised as they are incurred. The Group uses assumptions to measure the estimates of
the future cash flows for a group of reinsurance contracts held that are consistent with the underlying group of insurance contracts issued.
Reinsurance cash flows that are contingent on claims incurred by the underlying insurance contracts issued are therefore included as part of the
cash flows that are expected to be reimbursed under the relevant reinsurance contracts held.
The amounts expected to be recovered from reinsurers include the effect of any risk of non-performance by the issuer of the reinsurance contract.
For a group of reinsurance contracts held covering onerous underlying insurance contracts issued, the loss recovery component and the reversal of
such loss recovery components are included as amounts recoverable from the reinsurer.
Finance income or expenses from insurance contracts issued and reinsurance contracts held
Insurance finance income or expenses comprise the change in the carrying amount of the group of insurance contracts issued, or reinsurance
contracts held, arising from the effect of the time value of money, financial risk and changes therein. These include:
• unwind of the initial discount (i.e. interest accreted on the LIC); and
•
the effect of changes in interest rate assumptions.
The Group has elected to include insurance finance income and expenses within the consolidated statement of comprehensive income and does
not disaggregate these between profit and loss and OCI.
Non-distinct investment components
The Group identifies the non-distinct investment component of an insurance contract by determining the amount that the Group would be
required to repay to a policyholder in all circumstances, regardless of whether an insured event occurs. The receipt of this deposit component and
the subsequent repayment do not relate to insurance services. Non-distinct investment components are therefore excluded from insurance revenue
and insurance service expenses, and are considered as a settlement of an insurance contract liability.
142 Lancashire Holdings Limited | Annual Report & Accounts 2023
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Financial Statements
Accounting policies continued
FFiinnaanncciiaall iinnssttrruummeennttss
Financial assets
On initial recognition, a financial asset is classified as either measured at amortised cost, FVTPL or FVOCI. The classification is dependant on the
Group’s business model for managing the financial asset, and the contractual terms of the cash flows.
Financial assets are classified as measured at amortised cost if they are held to collect contractual cash flows, and where those cash flows represent
solely payments of principal and interest.
Financial assets are classified as measured at FVOCI if they are held to both collect contractual cash flows and sell, and where those cash flows
represent solely payments of principal and interest.
All financial assets not classified as measured at amortised cost or FVOCI are classified as measured at FVTPL. Financial assets in this FVTPL
category are those that are managed in a fair value business model, or that have been designated as FVTPL by management upon initial recognition.
Financial assets are not reclassified subsequent to their initial recognition, unless the Group changes its business model for managing those financial assets, in
which case the affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.
Cash and cash equivalents
Cash and cash equivalents are carried in the consolidated statement of financial position at amortised cost and include cash in hand, deposits held
on call with banks, and other short-term highly liquid investments with a maturity of three months or less at the date of purchase. Carrying
amounts approximate fair value due to the short-term nature and high liquidity of the instruments.
Interest income earned on cash and cash equivalents is recognised by applying the effective interest rate method. The carrying value of accrued
interest income approximates estimated fair value due to its short-term nature and high liquidity.
Investments
The Group’s business model emphasises the preservation of capital and the provision of sufficient liquidity for the prompt payment of claims, in
conjunction with providing a stable income stream as far as possible. Management reviews the composition, duration and asset allocation of the
investment portfolio regularly to respond to changes in interest rates, and other market conditions.
Investments are recognised when the Group becomes a party to the contractual provisions of the instrument. Regular way purchases and sales of
investments are recognised on the trade date, being the date on which the Group commits to purchase or sell the asset.
At initial recognition, the Group measures financial assets held at FVTPL at their fair value on acquisition. Transaction costs in respect of financial
assets carried at FVTPL are expensed in profit or loss as they are incurred. Financial assets held at FVTPL are subsequently measured at their fair
value.
The table below shows the classification categories of the Group’s investment portfolio.
Investments
Fixed maturity securities
Private investment funds
Hedge funds
Index linked securities
Classification
Reason
FVTPL
FVTPL
FVTPL
FVTPL
Mandatory - portfolio is managed at fair value
Mandatory - portfolio is managed at fair value
Mandatory - portfolio is managed at fair value
Mandatory - portfolio is managed at fair value
The Group’s investment portfolio includes quoted and unquoted investments. The fair values of the investments are determined based on bid prices
from recognised exchanges, broker-dealers, recognised indices or pricing vendors. Unrealised gains or losses from changes in the fair value of
investments are recognised in profit or loss within net investment return. Interest income is recognised on the effective interest rate method and
recognised in profit or loss within net investment return. The carrying value of accrued interest receivable approximates fair value due to its short-
term nature and high liquidity.
Investments are derecognised when the Group has transferred substantially all of the risks and rewards of ownership or when the rights to receive
cash flows from the asset has expired, with any realised gains or losses recognised in profit or loss within net investment return.
Derivatives
Derivatives are classified as financial assets or liabilities at FVTPL. They are initially recognised at fair value on the date a contract is entered into,
the trade date, and are subsequently carried at fair value. Derivative instruments with a positive fair value are recorded as derivative financial assets
and those with a negative fair value are recorded as derivative financial liabilities.
Derivative financial instruments include exchange-traded future and option contracts, forward foreign currency contracts, interest rate swaps,
credit default swaps, and interest rate swaptions. They derive their value from the underlying instrument and are subject to the same risks as that
underlying instrument, including liquidity risk, credit risk, and market risk. Estimated fair values are based on exchange or broker-dealer quotations,
where available, or discounted cash flow models, which incorporate the pricing of the underlying instrument, yield curves and other factors.
Changes in the estimated fair value of derivative instruments are recognised in profit or loss within net investment return. The Group does not
currently hold any derivatives classified as hedging instruments. For discounted cash flow techniques, estimated future cash flows are based on
management’s best estimates, and the discount rate used is an appropriate market rate.
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Lancashire Holdings Limited | Annual Report & Accounts 2023
Accounting policies continued
FFiinnaanncciiaall iinnssttrruummeennttss
Financial assets
On initial recognition, a financial asset is classified as either measured at amortised cost, FVTPL or FVOCI. The classification is dependant on the
Group’s business model for managing the financial asset, and the contractual terms of the cash flows.
Financial assets are classified as measured at amortised cost if they are held to collect contractual cash flows, and where those cash flows represent
solely payments of principal and interest.
represent solely payments of principal and interest.
Financial assets are classified as measured at FVOCI if they are held to both collect contractual cash flows and sell, and where those cash flows
All financial assets not classified as measured at amortised cost or FVOCI are classified as measured at FVTPL. Financial assets in this FVTPL
category are those that are managed in a fair value business model, or that have been designated as FVTPL by management upon initial recognition.
Financial assets are not reclassified subsequent to their initial recognition, unless the Group changes its business model for managing those financial assets, in
which case the affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.
Cash and cash equivalents
Cash and cash equivalents are carried in the consolidated statement of financial position at amortised cost and include cash in hand, deposits held
on call with banks, and other short-term highly liquid investments with a maturity of three months or less at the date of purchase. Carrying
amounts approximate fair value due to the short-term nature and high liquidity of the instruments.
Interest income earned on cash and cash equivalents is recognised by applying the effective interest rate method. The carrying value of accrued
interest income approximates estimated fair value due to its short-term nature and high liquidity.
Investments
The Group’s business model emphasises the preservation of capital and the provision of sufficient liquidity for the prompt payment of claims, in
conjunction with providing a stable income stream as far as possible. Management reviews the composition, duration and asset allocation of the
investment portfolio regularly to respond to changes in interest rates, and other market conditions.
Investments are recognised when the Group becomes a party to the contractual provisions of the instrument. Regular way purchases and sales of
investments are recognised on the trade date, being the date on which the Group commits to purchase or sell the asset.
At initial recognition, the Group measures financial assets held at FVTPL at their fair value on acquisition. Transaction costs in respect of financial
assets carried at FVTPL are expensed in profit or loss as they are incurred. Financial assets held at FVTPL are subsequently measured at their fair
The table below shows the classification categories of the Group’s investment portfolio.
Classification
Reason
FVTPL
FVTPL
FVTPL
FVTPL
Mandatory - portfolio is managed at fair value
Mandatory - portfolio is managed at fair value
Mandatory - portfolio is managed at fair value
Mandatory - portfolio is managed at fair value
The Group’s investment portfolio includes quoted and unquoted investments. The fair values of the investments are determined based on bid prices
from recognised exchanges, broker-dealers, recognised indices or pricing vendors. Unrealised gains or losses from changes in the fair value of
investments are recognised in profit or loss within net investment return. Interest income is recognised on the effective interest rate method and
recognised in profit or loss within net investment return. The carrying value of accrued interest receivable approximates fair value due to its short-
Investments are derecognised when the Group has transferred substantially all of the risks and rewards of ownership or when the rights to receive
cash flows from the asset has expired, with any realised gains or losses recognised in profit or loss within net investment return.
Derivatives are classified as financial assets or liabilities at FVTPL. They are initially recognised at fair value on the date a contract is entered into,
the trade date, and are subsequently carried at fair value. Derivative instruments with a positive fair value are recorded as derivative financial assets
and those with a negative fair value are recorded as derivative financial liabilities.
Derivative financial instruments include exchange-traded future and option contracts, forward foreign currency contracts, interest rate swaps,
credit default swaps, and interest rate swaptions. They derive their value from the underlying instrument and are subject to the same risks as that
underlying instrument, including liquidity risk, credit risk, and market risk. Estimated fair values are based on exchange or broker-dealer quotations,
where available, or discounted cash flow models, which incorporate the pricing of the underlying instrument, yield curves and other factors.
Changes in the estimated fair value of derivative instruments are recognised in profit or loss within net investment return. The Group does not
currently hold any derivatives classified as hedging instruments. For discounted cash flow techniques, estimated future cash flows are based on
management’s best estimates, and the discount rate used is an appropriate market rate.
144 Lancashire Holdings Limited | Annual Report & Accounts 2023
value.
Investments
Fixed maturity securities
Private investment funds
Hedge funds
Index linked securities
term nature and high liquidity.
Derivatives
Derivative financial assets and liabilities are offset and the net amount is reported in the consolidated statement of financial position only to the
extent there is a legally enforceable right of offset, and there is an intention to settle on a net basis, or to realise the assets and liabilities
simultaneously. Derivative financial assets and liabilities are derecognised when the Group has transferred substantially all of the risks and rewards
of ownership, or the liability is discharged, cancelled or expired, with any realised gains or losses recognised in profit or loss within net investment
return.
Other receivables
Other receivables includes trade receivables and contract assets. Trade receivables that do not have a significant financing component are
measured on initial recognition at their fair value, which is typically their transaction price, and are subsequently measured at amortised cost using
the effective interest method, less an expected credit loss allowance where applicable. The other receivables held by the Group are short term in
nature.
Impairment
The Group applies the simplified approach to measuring ECL, which uses a lifetime ECL for all receivables and contract assets (other than those
recognised under IFRS 17). The lifetime ECL is measured from the initial recognition of trade receivables and contract assets. The Group calculates
the lifetime ECL using three main components: a probability of default, a loss given default and the exposure at default (collectively the expected
loss rates).
To measure the lifetime ECL, receivables and contract assets have been grouped based on shared credit risk characteristics. The expected loss rates
are based on the payment profiles over a three-year period prior to 31 December 2023 and the corresponding credit losses experienced within this
period. The historical loss rates are adjusted to reflect current and forward-looking information based on macro-economic factors affecting the
ability to collect receivables.
FFiinnaanncciiaall lliiaabbiilliittiieess
Other payables
Other payables represent liabilities for goods and services provided to the Group prior to the end of the financial year which are unpaid. These
amounts are unsecured and are usually paid within 30 to 60 days of recognition. Other payables are recognised initially at their fair value and are
subsequently measured at amortised cost using the effective interest method.
Long-term debt
Long-term debt is recognised initially at fair value, net of transaction costs incurred. Thereafter it is measured at amortised cost using the effective
interest method. Derecognition occurs when the obligation has been extinguished. The difference between the carrying amount that has been
extinguished and the consideration paid, is recognised within the profit or loss.
IInnttaannggiibbllee aasssseettss
The Group’s intangible assets comprise indefinite life intangible assets, and internally generated intangible assets.
The Group’s indefinite life intangible assets comprise syndicate participation rights and goodwill. The cost of syndicate participation rights and
goodwill acquired in a business combination is their fair value as at the date of acquisition. Additional syndicate participation rights may be
purchased from time to time and are recorded at the cost on the date of the relevant syndicate capacity auction. As a result of their anticipated
ability to continue to generate cash flows for the Group on a long-term basis, goodwill and syndicate participation rights are considered to have an
indefinite useful life, and are not amortised. They are carried at cost less any accumulated impairment losses. Intangible assets with an indefinite
useful life are tested annually for impairment at the CGU level by comparing the net present value of the future cash flow stream of the CGU to the
carrying value of the net assets of the CGU, including the related intangible assets. The useful life of an indefinite life intangible asset is reviewed
annually, to determine if the assessment that it has an indefinite life continues to be supportable.
Internally generated intangible assets represent directly attributable costs incurred in the development phase of implementing a cloud based
software to support the Group’s target operating model. An internally generated intangible asset is recognised if it can be demonstrated that there
is an intent, available resources, and technical feasibility to complete the intangible asset so that it is available for use, and that it will generate
probable future economic benefits. The costs must be capable of being measured reliably. Such intangible assets are carried at cost less any
accumulated impairment losses. Intangible assets not yet available for use are tested annually for impairment at the CGU level by comparing the
net present value of the future cash flow stream of the CGU to the carrying value of the net assets of the CGU, including the related intangible
assets.
Internally generated intangible assets available for use are considered to have a finite life. Applying the cost model, intangible assets with finite lives
are amortised over their estimated useful economic life, and assessed for impairment whenever there are indicators of impairment.
The estimated useful lives and amortisation period of the internally generated intangibles is estimated to be seven years, and will be amortised
using the straight-line method. No residual value has been assumed on these intangibles. The amortisation for these internally generated
intangibles are recognised within other operating expenses.
Lancashire Holdings Limited | Annual Report & Accounts 2023 145
145
Lancashire Holdings Limited | Annual Report & Accounts 2023
Financial Statements
Accounting policies continued
OOtthheerr iinnccoommee
Other income is measured based on the consideration specified in a contract and excludes amounts collected on behalf of third parties.
Nature of services
The table below details the type of services from which the Group derives its other income.
Services
LCM underwriting fees
LCM profit commission
LSL consortium management fees
LSL consortium profit commission
LSL managing agency fees
LSL managing agency profit
commission
LSL coverholder fee income
Nature, timing of satisfaction of performance obligation and significant payment terms
The Group recognises underwriting fees over the underwriting cycle based on the underlying
exposure of the covered contracts. Underwriting fees are received on or before the collateral
funding date, which is prior to commencement of the underwriting cycle.
The Group recognises profit commission following the end of the underwriting cycle based on the
underlying performance of the covered contracts and as collateral is released. Profit commissions
may only be received once the profit commission hurdle has been met.
The Group recognises consortium fees over the risk period based on the underlying exposure of
the covered contracts. Consortium fees are received quarterly.
The Group recognises profit commission in line with the underlying performance of covered
contracts once the year of account closes, which is also when the profit commissions are received.
The Group recognises managing agency fees in line with the services provided in respect of each
underwriting year of account. Managing agency fees are received quarterly.
The Group recognises profit commission on open years of account when measurement is highly
probable. Profit commissions are received once the year of account closes.
The Group recognises coverholder fee income in line with services provided. Coverholder fee
income is received quarterly.
PPrrooppeerrttyy,, ppllaanntt aanndd eeqquuiippmmeenntt
Property, plant and equipment is carried at historical cost, less accumulated depreciation, and any impairment in value. Depreciation
is calculated to write off the cost over the estimated useful economic life on a straight-line basis as follows:
IT equipment
33% per annum
Office furniture and equipment
20% to 33% per annum
Leasehold improvements
20% per annum
Indicators of impairment, together with the assets’ residual values, useful lives, and depreciation methods are reviewed, and adjusted if appropriate,
at each reporting date.
An item of property, plant or equipment is derecognised on disposal, or when no future economic benefits are expected to arise from the continued
use of the asset.
Gains and losses on the disposal of property, plant and equipment are determined by comparing proceeds with the carrying amount of the asset,
and are included in the consolidated statement of comprehensive income. Costs for repairs and maintenance are charged to profit or loss as
incurred.
LLeeaasseess
The Group assesses whether a contract is, or contains, a lease, at the inception of the contract for all contracts that have been entered into or
modified on or after 1 January 2019. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a
period of time in exchange for consideration.
The lease liability is initially measured at the present value of the lease payments that are not paid at the lease commencement date. Lease
payments are discounted using the rate implicit in the lease, if readily determinable, or at the Group’s incremental borrowing rate. Lease payments
included in the measurement of the lease liability comprise:
fixed lease payments;
•
• variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date of the lease; or
• payments in respect of purchase options, lease termination options, or lease extension options that the Group is reasonably certain to exercise.
The lease liability is subsequently measured by increasing the lease carrying amount to reflect the interest on the lease liability using the effective
interest rate method, and by reducing the carrying amount to reflect the lease payments made.
146 Lancashire Holdings Limited | Annual Report & Accounts 2023
146
Lancashire Holdings Limited | Annual Report & Accounts 2023
Accounting policies continued
OOtthheerr iinnccoommee
Nature of services
Other income is measured based on the consideration specified in a contract and excludes amounts collected on behalf of third parties.
The table below details the type of services from which the Group derives its other income.
Services
Nature, timing of satisfaction of performance obligation and significant payment terms
LCM underwriting fees
The Group recognises underwriting fees over the underwriting cycle based on the underlying
exposure of the covered contracts. Underwriting fees are received on or before the collateral
funding date, which is prior to commencement of the underwriting cycle.
LCM profit commission
The Group recognises profit commission following the end of the underwriting cycle based on the
underlying performance of the covered contracts and as collateral is released. Profit commissions
may only be received once the profit commission hurdle has been met.
LSL consortium management fees
The Group recognises consortium fees over the risk period based on the underlying exposure of
the covered contracts. Consortium fees are received quarterly.
LSL consortium profit commission
The Group recognises profit commission in line with the underlying performance of covered
contracts once the year of account closes, which is also when the profit commissions are received.
LSL managing agency fees
The Group recognises managing agency fees in line with the services provided in respect of each
underwriting year of account. Managing agency fees are received quarterly.
LSL managing agency profit
The Group recognises profit commission on open years of account when measurement is highly
commission
probable. Profit commissions are received once the year of account closes.
LSL coverholder fee income
The Group recognises coverholder fee income in line with services provided. Coverholder fee
income is received quarterly.
PPrrooppeerrttyy,, ppllaanntt aanndd eeqquuiippmmeenntt
Property, plant and equipment is carried at historical cost, less accumulated depreciation, and any impairment in value. Depreciation
is calculated to write off the cost over the estimated useful economic life on a straight-line basis as follows:
IT equipment
33% per annum
Office furniture and equipment
20% to 33% per annum
Leasehold improvements
20% per annum
Indicators of impairment, together with the assets’ residual values, useful lives, and depreciation methods are reviewed, and adjusted if appropriate,
An item of property, plant or equipment is derecognised on disposal, or when no future economic benefits are expected to arise from the continued
Gains and losses on the disposal of property, plant and equipment are determined by comparing proceeds with the carrying amount of the asset,
and are included in the consolidated statement of comprehensive income. Costs for repairs and maintenance are charged to profit or loss as
at each reporting date.
use of the asset.
incurred.
LLeeaasseess
The Group assesses whether a contract is, or contains, a lease, at the inception of the contract for all contracts that have been entered into or
modified on or after 1 January 2019. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a
period of time in exchange for consideration.
The lease liability is initially measured at the present value of the lease payments that are not paid at the lease commencement date. Lease
payments are discounted using the rate implicit in the lease, if readily determinable, or at the Group’s incremental borrowing rate. Lease payments
included in the measurement of the lease liability comprise:
•
fixed lease payments;
• variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date of the lease; or
• payments in respect of purchase options, lease termination options, or lease extension options that the Group is reasonably certain to exercise.
The lease liability is subsequently measured by increasing the lease carrying amount to reflect the interest on the lease liability using the effective
interest rate method, and by reducing the carrying amount to reflect the lease payments made.
The Group re-measures the lease liability and the related right-of-use asset whenever:
•
•
the lease term changes as a result of the Group changing its assessment of whether it will exercise a purchase, extension, or termination option, in
which case the lease liability is re-measured by discounting the revised lease payments using a revised discount rate;
the lease payments change due to changes in an index or rate, or a change in expected payment under a guaranteed residual value, in which case the
lease liability is re-measured by discounting the revised lease payments using the initial discount rate; or
• a lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is re-measured by
discounting the revised lease payments using a revised discount rate.
The right-of-use asset is initially measured at cost, which comprises the initial measurement of the corresponding lease liability adjusted for any
lease payments made at, or before, the commencement date, plus any initial direct costs incurred, and an estimate of any costs to be incurred at
expiration of the lease agreement.
Right-of-use assets are subsequently measured at cost less accumulated depreciation and any impairment losses. Straight-line depreciation is
calculated from the commencement date of the lease to the earlier of the end date of the lease term, or the useful life of the underlying asset.
The Group applies IAS 36, Impairment of Assets to determine whether a right-of-use asset is impaired and accounts for any identified impairment
loss.
EEmmppllooyyeeee bbeenneeffiittss
Equity compensation plans
The Group currently operates an RSS under which nil-cost options have been granted. The fair value of the equity instruments granted is estimated
on the date of grant. The estimated fair value is recognised as an expense pro-rata over the vesting period of the instrument, adjusted for the
impact of any non-market vesting conditions. No adjustment to vesting assumptions is made in respect of market vesting conditions.
At each reporting date, the Group revises its estimate of the number of RSS nil-cost options that are expected to become exercisable. It recognises
the impact of the revision of original estimates, if any, as an equity-based compensation expense in the consolidated statement of comprehensive
income over the remaining vesting period, and a corresponding adjustment is made to other reserves in shareholders’ equity.
Upon exercise, the differences between the expense charged to the consolidated statement of comprehensive income and the actual cost to the
Group, if any, is transferred to other reserves in shareholders’ equity.
Pensions
The Group operates a defined contribution plan. On payment of contributions to the plan there is no further obligation for the Group.
Contributions are recognised as employee benefits in the consolidated statement of comprehensive income in the period when the employee’s
services are rendered.
TTaaxx
The tax charge or credit represents the sum of the tax currently payable and any deferred tax. The tax payable is calculated based on taxable profit
for the period using tax rates and tax laws enacted, or substantively enacted, at the year-end reporting date, and any adjustments to tax payable in
respect of prior periods. Taxable profit for the period can differ from that reported in the consolidated statement of comprehensive income due to
non-taxable income, and certain items which are not tax deductible, or which are deferred to subsequent periods.
Deferred tax is recognised on all temporary differences between the assets and liabilities in the consolidated statement of financial position and
their tax base, except when the deferred tax liability arises from the initial recognition of goodwill. Deferred tax assets or liabilities are accounted
for using the balance sheet liability method. Deferred tax assets are recognised to the extent that realising the related tax benefit through future
taxable profits is probable, and are reassessed each year for recognition.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities, and
when the deferred income taxes relate to the same fiscal authority.
At the date equity-based compensation awards are exercised, and where the current estimated fair value of an award exceeds the estimated fair
value at the date they were granted, corporation tax on this excess amount is recognised within equity. At the period end date, equity-based
compensation awards that have not been exercised, and for which the current estimated fair value of an award exceeds the estimated fair value at
the date they were granted, have deferred tax on this excess amount recognised within equity.
OOwwnn sshhaarreess
Own shares include shares repurchased under share repurchase authorisations and held as treasury shares, plus shares repurchased and held in
trust, for the purposes of employee equity-based compensation schemes. Own shares are deducted from shareholders’ equity. No gain or loss is
recognised on the purchase, sale, cancellation, or issue of own shares, and any consideration paid or received is recognised directly in equity.
146 Lancashire Holdings Limited | Annual Report & Accounts 2023
Lancashire Holdings Limited | Annual Report & Accounts 2023 147
147
Lancashire Holdings Limited | Annual Report & Accounts 2023
Financial Statements
Risk disclosures
For the year ended 31 December 2023
RRiisskk ddiisscclloossuurreess:: iinnttrroodduuccttiioonn
The Group is exposed to risks from several sources, classified into six primary risk categories. These risks are:
A. Insurance risk;
B. Market risk;
C. Liquidity risk;
D. Credit risk;
E. Operational risk; and
F. Strategic risk.
The most significant risk to the Group is considered to be insurance risk. The primary objective of the Group’s ERM framework is to ensure that the
capital resources held are matched to the risk profile of the Group, and that the balance between risk and return is considered as part of all key
business decisions. The Group has formulated, and keeps under review, a risk appetite which is set by the Board of Directors. The Group’s appetite
for risk will vary from time to time to reflect the potential risks and returns that present themselves. However, protecting the Group’s capital and
maximising risk-adjusted returns for investors over the long term remain constant elements of the Group’s strategy. The risk appetite of the Group
is central to how the business is run and permeates into the risk appetites that the individual operating entity boards of directors have adopted.
These risk appetites are expressed through detailed risk tolerances at both a Group and an operating entity level. Risk tolerances represent the
maximum amount of capital, generally on a modelled basis, that the Group and its entities are prepared to expose to certain risks.
The Board of Directors is responsible for setting and monitoring the Group’s risk appetite and tolerances, whereas the individual entity boards of
directors are responsible for setting and monitoring entity level risk tolerances. All risk tolerances are subject to at least an annual review and
consideration by the respective boards of directors. The LHL Board and individual entity boards of directors review actual risk levels versus
tolerances, emerging risks and any risk learning events at least quarterly. In addition, on a monthly basis, management assesses the modelled
potential catastrophe losses against the risk tolerances and ensures that risk levels are managed in accordance with them.
EEmmeerrggiinngg rriisskkss
Climate change
The Group is exposed to both climate change-related risks and opportunities. The two major categories of risk being transition risk and physical risk.
Transition risks are those relating to the transition to a lower carbon economy and include risks such as policy and legal risk, technology risk, market
risk and reputation risk. Physical risks are those relating to the physical impacts of climate change which can be acute (those from increased
frequency and severity of climate-related events) or chronic (due to longer-term shifts in climate patterns). As a (re)insurance company, the Group
is more significantly affected by physical risk through its potential exposure to acute and chronic climate change. The potential financial impact
from these climate-related risks is assessed through scenario testing and mitigated by the Group’s strategic and risk management decisions around
managing these risks. A risk radar has been prepared to illustrate the risks identified and the likelihood and magnitude of these risks; this diagram
can be found on page 55. The risk assessment also considers the products currently offered by the Group and how these might change over time
during the transition to a lower carbon economy. A table summarising potential opportunities, their time frame, likelihood and magnitude is
included on page 57. The Group’s current assessment of risk in relation to climate change is discussed in more detail within the TCFD report on
pages 49 to 70.
The Group’s process in identifying, assessing and managing climate risk with respect to insurance risk, investment risk (a component of market risk)
and business plan risk (a component of strategic risk) is discussed further below in our risk disclosures.
Geopolitical conflict
We continue to monitor our loss exposure with regards to the ongoing conflict in the Ukraine and Russia, which remains a complex and fluid
situation. With the increased tensions in the Middle East, focus has also been on monitoring our exposures in this area and seeking to ensure it
remains within risk tolerance and expectations. As geopolitical risks can change and evolve rapidly, these are factors that we carefully consider in
our underwriting decisions. Where appropriate, thematic reviews are performed to provide a more detailed analysis of the risk and potential impact.
Inflation risk
Both UK and worldwide inflation measures have increased significantly during the period following the COVID-19 pandemic. Whilst the Group has
already been monitoring inflation, macro-economic factors, together with the actions of central banks and the views of economists, indicate that a
period of sustained high inflation is likely. On this basis, inflation is now an increased focus for management and those charged with governance at
both the Board of Directors and the appropriate committees.
OECD global minimum tax and Bermuda corporate income tax
Management continue to closely monitor the progress of the legislative process in the jurisdictions in which it operates. Further details are outlined
in note 14.
148 Lancashire Holdings Limited | Annual Report & Accounts 2023
148
Lancashire Holdings Limited | Annual Report & Accounts 2023
RRiisskk ddiisscclloossuurreess:: iinnttrroodduuccttiioonn
The Group is exposed to risks from several sources, classified into six primary risk categories. These risks are:
Risk disclosures
For the year ended 31 December 2023
A. Insurance risk;
B. Market risk;
C. Liquidity risk;
D. Credit risk;
E. Operational risk; and
F. Strategic risk.
The most significant risk to the Group is considered to be insurance risk. The primary objective of the Group’s ERM framework is to ensure that the
capital resources held are matched to the risk profile of the Group, and that the balance between risk and return is considered as part of all key
business decisions. The Group has formulated, and keeps under review, a risk appetite which is set by the Board of Directors. The Group’s appetite
for risk will vary from time to time to reflect the potential risks and returns that present themselves. However, protecting the Group’s capital and
maximising risk-adjusted returns for investors over the long term remain constant elements of the Group’s strategy. The risk appetite of the Group
is central to how the business is run and permeates into the risk appetites that the individual operating entity boards of directors have adopted.
These risk appetites are expressed through detailed risk tolerances at both a Group and an operating entity level. Risk tolerances represent the
maximum amount of capital, generally on a modelled basis, that the Group and its entities are prepared to expose to certain risks.
The Board of Directors is responsible for setting and monitoring the Group’s risk appetite and tolerances, whereas the individual entity boards of
directors are responsible for setting and monitoring entity level risk tolerances. All risk tolerances are subject to at least an annual review and
consideration by the respective boards of directors. The LHL Board and individual entity boards of directors review actual risk levels versus
tolerances, emerging risks and any risk learning events at least quarterly. In addition, on a monthly basis, management assesses the modelled
potential catastrophe losses against the risk tolerances and ensures that risk levels are managed in accordance with them.
EEmmeerrggiinngg rriisskkss
Climate change
pages 49 to 70.
Geopolitical conflict
Inflation risk
in note 14.
The Group is exposed to both climate change-related risks and opportunities. The two major categories of risk being transition risk and physical risk.
Transition risks are those relating to the transition to a lower carbon economy and include risks such as policy and legal risk, technology risk, market
risk and reputation risk. Physical risks are those relating to the physical impacts of climate change which can be acute (those from increased
frequency and severity of climate-related events) or chronic (due to longer-term shifts in climate patterns). As a (re)insurance company, the Group
is more significantly affected by physical risk through its potential exposure to acute and chronic climate change. The potential financial impact
from these climate-related risks is assessed through scenario testing and mitigated by the Group’s strategic and risk management decisions around
managing these risks. A risk radar has been prepared to illustrate the risks identified and the likelihood and magnitude of these risks; this diagram
can be found on page 55. The risk assessment also considers the products currently offered by the Group and how these might change over time
during the transition to a lower carbon economy. A table summarising potential opportunities, their time frame, likelihood and magnitude is
included on page 57. The Group’s current assessment of risk in relation to climate change is discussed in more detail within the TCFD report on
The Group’s process in identifying, assessing and managing climate risk with respect to insurance risk, investment risk (a component of market risk)
and business plan risk (a component of strategic risk) is discussed further below in our risk disclosures.
We continue to monitor our loss exposure with regards to the ongoing conflict in the Ukraine and Russia, which remains a complex and fluid
situation. With the increased tensions in the Middle East, focus has also been on monitoring our exposures in this area and seeking to ensure it
remains within risk tolerance and expectations. As geopolitical risks can change and evolve rapidly, these are factors that we carefully consider in
our underwriting decisions. Where appropriate, thematic reviews are performed to provide a more detailed analysis of the risk and potential impact.
Both UK and worldwide inflation measures have increased significantly during the period following the COVID-19 pandemic. Whilst the Group has
already been monitoring inflation, macro-economic factors, together with the actions of central banks and the views of economists, indicate that a
period of sustained high inflation is likely. On this basis, inflation is now an increased focus for management and those charged with governance at
both the Board of Directors and the appropriate committees.
OECD global minimum tax and Bermuda corporate income tax
Management continue to closely monitor the progress of the legislative process in the jurisdictions in which it operates. Further details are outlined
Cyber risk
It is widely recognised that the current increasing geopolitical risks have also increased the risk of cyber attacks. Whilst the Group does not write
standalone cyber as a separate class of business, it does have some limited exposure within broader policy coverage of existing classes of business.
The Group’s main exposure comes from the operational risk of suffering a cyber attack on its systems, the resultant downtime of systems, the
expense in getting back up and running and the potential for missed business opportunities during the downtime.
To mitigate this risk the Group has established an information security function which works with a specialist third-party to identify, assess,
monitor and manage cyber risk. A robust cyber risk framework has been developed, this includes a range of key risk and performance indicators
which are monitored and reported against regularly. A cyber incident response plan has been developed and is tested via a tabletop exercise on an
annual basis.
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The Group maintains economic capital models at the LICL, LUK and syndicate levels. These models are primarily focused on insurance risks,
however they are also used to model other risks, including market, credit and operational risks. The syndicate models are vetted by Lloyd’s as part
of its own capital and solvency regulations.
The economic capital models produce data in the form of stochastic distributions for all classes, including non-elemental classes. The distributions
include the mean outcome and the result at various return periods, including very remote events. Projected financial outcomes for each insurance
class are calculated, as well as the overall portfolio, including diversification credit. Diversification credit arises as individual risks are generally not
strongly correlated and are unlikely to all produce profits or losses at the same time.
AA.. IInnssuurraannccee rriisskk
Insurance risk is the risk that the Group’s underwriting, reserving, claims management, or reinsurance decisions and judgements result in a
detrimental financial impact to the Group. The Group underwrites worldwide insurance and reinsurance contracts that transfer insurance risk,
including risks exposed to both natural and man-made catastrophes. The Group’s exposure in connection with insurance contracts or reinsurance
contracts underwritten is, in the event of insured losses, whether premiums will be sufficient to cover the loss payments and expenses. Insurance
and reinsurance markets are cyclical and premium rates and terms and conditions vary by line of business depending on market conditions and the
stage of the underwriting cycle. Market conditions are impacted by capacity and recent loss events, and broader economic cycle impacts, amongst
other factors. The Group’s underwriters assess likely losses using their experience and knowledge of past loss experience, industry trends, and
current circumstances. This allows them to estimate the premiums sufficient to meet likely losses and expenses and desired levels of profitability.
The Group considers insurance risk at an individual contract level, at a segment level, at a geographic level, and at an aggregate portfolio level. This
ensures that careful risk selection, limits on concentration and appropriate portfolio diversification are accomplished. The level of insurance risk
tolerance per peril is set by the Board and the boards of directors at individual entity level.
A number of controls are deployed by the Group to manage the amount of insurance exposure assumed:
• a rolling strategic plan that helps establish the business goals that the Board of Directors aims to achieve;
• a detailed three-year business plan is produced annually. The plan is approved by the Board of Directors and is monitored, reviewed and updated on an
ongoing basis;
for LSL, the syndicates’ business forecasts and business plans are subject to review and approval by Lloyd’s;
•
• economic capital models are used to model risk levels and capital requirements;
• each authorised class has a predetermined normal maximum line structure;
• each underwriter has a clearly defined limit of underwriting authority;
•
the Group and individual operating entities have predetermined tolerances on probabilistic and deterministic losses of capital for certain single events,
which are monitored on a regular basis;
• pricing and aggregation models are used to assist with the underwriting process; and
•
reinsurance is purchased to mitigate both frequency and severity of losses on a facultative, excess of loss treaty or proportional treaty basis.
Some of the Group’s business provides coverage for natural catastrophes (e.g. hurricanes, earthquakes, wildfires and floods) and is subject to
potential seasonal variation and the effects of climate change. A proportion of the Group’s business is exposed to large catastrophe losses in North
America, Europe and Japan as a result of windstorms. The level of windstorm activity, and landfall thereof, during the North American, European
and Japanese wind seasons may materially impact the Group’s loss experience. The North American and Japanese wind seasons are typically June to
November and the European wind season November to March. The Group also bears exposure to large losses arising from other non-seasonal
natural catastrophes, such as earthquakes, tsunamis, droughts, floods and tornadoes, from risk losses throughout the year and from war, terrorism
and political risk, and other events.
Climate change may expose the Group to the risk of heightened severity and frequency of weather-related losses. Climate-related risks are
identified and assessed as part of the usual risk identification and management process which includes but is not limited to: discussions with risk
owners and with subject matter experts across the Group, discussions at the Emerging Risk Forum, and the ESG Co-ordination Committee.
148 Lancashire Holdings Limited | Annual Report & Accounts 2023
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149
Lancashire Holdings Limited | Annual Report & Accounts 2023
Financial Statements
Risk disclosures continued
Climate-related risks specific to the (re)insurance portfolios are identified and assessed as part of the day-to-day underwriting process by individual
underwriters in their analysis of specific risk information, and more broadly in the context of the wider portfolio during the individual class of
Business Quarterly Review and through the fortnightly RRC meetings. These reviews include: the physical location of assets insured, weather-
related perils that have impacted the location and their historical frequency and severity, as well as expected short and long-term changes. The
insurance and reinsurance underwriting strategy days assess climate-related risks of both current and anticipated future risks, which include but are
not limited to transition risk arising from a decline in the value of assets to be insured, changing energy costs, and liability risks that could arise from
climate-related litigation. Physical, transition and liability risks are considered by business segment and geographical location, and the expected
impact from the risks identified is considered with respect to both magnitude and timescale.
The Group manages climate risk by using stochastic models from third-party vendors which have a long history of data quality governance. We
adapt these models based upon our views of climate risk, as well as our clients’ exposure data, to create aggregate loss scenarios. Underwriting
guidelines support the underwriting process and provide guidance to assist underwriters in their decision-making. Performance against guidelines is
monitored by the regular meetings, Quarterly Business Reviews and related reporting. We have clear tolerances and preferences in place to actively
manage exposures, and the Board regularly monitors our PMLs.
The Group accepts risks for periods primarily of one year, which mitigates the potential short-term impacts of climate risk. The Group has the
ability to re-evaluate the portfolio on an annual basis and therefore reprice physical risk and reset exposure levels to consider new data regarding
the frequency and severity of elemental catastrophe events.
Catastrophe Management
The Group actively monitors risk levels and manages catastrophe risk accumulations using reinsurance and PML based risk tolerances, which are
monitored as part of our climate-related risks. The Group’s exposures to certain peak zone elemental losses, as a percentage of tangible capital,
including long-term debt, are shown below. Net loss estimates are undiscounted before income tax and net of reinstatement premiums and
outwards reinsurance on a first occurrence return period basis.
110000 yyeeaarr rreettuurrnn ppeerriioodd eessttiimmaatteedd nneett lloossss11
Zones
Gulf of Mexico2
California
Non-Gulf of Mexico – U.S.
Pan-European
Japan
Japan
Pacific North West
Perils
Hurricane
Earthquake
Hurricane
Windstorm
Earthquake
Typhoon
Earthquake
1. Estimated net loss balances presented in the table are unaudited.
2. Landing hurricane from Florida to Texas.
225500 yyeeaarr rreettuurrnn ppeerriioodd eessttiimmaatteedd nneett lloossss11
Zones
Gulf of Mexico2
California
Non-Gulf of Mexico – U.S.
Pan-European
Japan
Japan
Pacific North West
Perils
Hurricane
Earthquake
Hurricane
Windstorm
Earthquake
Typhoon
Earthquake
3311 DDeecceemmbbeerr 22002233
31 December 2022
$$mm
%% ooff
ttaannggiibbllee ccaappiittaall
% of
tangible capital
(Restated)
$m
300.5
256.0
237.9
161.4
137.6
134.0
31.5
16.9
14.4
13.4
9.1
7.8
7.6
1.8
301.2
248.0
217.2
181.2
121.6
144.5
29.5
18.8
15.5
13.6
11.3
7.6
9.0
1.8
3311 DDeecceemmbbeerr 22002233
31 December 2022
$$mm
%% ooff
ttaannggiibbllee ccaappiittaall
% of
tangible capital
(Restated)
$m
364.6
311.2
448.0
201.2
244.1
181.2
123.0
20.6
17.5
25.3
11.3
13.8
10.2
6.9
348.0
291.9
362.5
218.4
172.1
180.3
137.5
21.8
18.2
22.7
13.6
10.8
11.3
8.6
1. Estimated net loss balances presented in the table are unaudited.
2. Landing hurricane from Florida to Texas.
There can be no guarantee that the modelled assumptions and techniques deployed in calculating these figures are accurate. There could also be an
unmodelled loss which exceeds these figures. In addition, any modelled loss scenario could cause a larger loss to capital than the modelled
expectation from the above return periods.
150 Lancashire Holdings Limited | Annual Report & Accounts 2023
150
Lancashire Holdings Limited | Annual Report & Accounts 2023
Risk disclosures continued
Climate-related risks specific to the (re)insurance portfolios are identified and assessed as part of the day-to-day underwriting process by individual
underwriters in their analysis of specific risk information, and more broadly in the context of the wider portfolio during the individual class of
Business Quarterly Review and through the fortnightly RRC meetings. These reviews include: the physical location of assets insured, weather-
related perils that have impacted the location and their historical frequency and severity, as well as expected short and long-term changes. The
insurance and reinsurance underwriting strategy days assess climate-related risks of both current and anticipated future risks, which include but are
not limited to transition risk arising from a decline in the value of assets to be insured, changing energy costs, and liability risks that could arise from
climate-related litigation. Physical, transition and liability risks are considered by business segment and geographical location, and the expected
impact from the risks identified is considered with respect to both magnitude and timescale.
The Group manages climate risk by using stochastic models from third-party vendors which have a long history of data quality governance. We
adapt these models based upon our views of climate risk, as well as our clients’ exposure data, to create aggregate loss scenarios. Underwriting
guidelines support the underwriting process and provide guidance to assist underwriters in their decision-making. Performance against guidelines is
monitored by the regular meetings, Quarterly Business Reviews and related reporting. We have clear tolerances and preferences in place to actively
manage exposures, and the Board regularly monitors our PMLs.
The Group accepts risks for periods primarily of one year, which mitigates the potential short-term impacts of climate risk. The Group has the
ability to re-evaluate the portfolio on an annual basis and therefore reprice physical risk and reset exposure levels to consider new data regarding
the frequency and severity of elemental catastrophe events.
Catastrophe Management
The Group actively monitors risk levels and manages catastrophe risk accumulations using reinsurance and PML based risk tolerances, which are
monitored as part of our climate-related risks. The Group’s exposures to certain peak zone elemental losses, as a percentage of tangible capital,
including long-term debt, are shown below. Net loss estimates are undiscounted before income tax and net of reinstatement premiums and
outwards reinsurance on a first occurrence return period basis.
1. Estimated net loss balances presented in the table are unaudited.
2. Landing hurricane from Florida to Texas.
110000 yyeeaarr rreettuurrnn ppeerriioodd eessttiimmaatteedd nneett lloossss11
Zones
Gulf of Mexico2
California
Non-Gulf of Mexico – U.S.
Pan-European
Japan
Japan
Pacific North West
225500 yyeeaarr rreettuurrnn ppeerriioodd eessttiimmaatteedd nneett lloossss11
Zones
Gulf of Mexico2
California
Non-Gulf of Mexico – U.S.
Pan-European
Japan
Japan
Pacific North West
Perils
Hurricane
Earthquake
Hurricane
Windstorm
Earthquake
Typhoon
Earthquake
Perils
Hurricane
Earthquake
Hurricane
Windstorm
Earthquake
Typhoon
Earthquake
3311 DDeecceemmbbeerr 22002233
31 December 2022
$$mm
ttaannggiibbllee ccaappiittaall
$m
% of
tangible capital
(Restated)
%% ooff
16.9
14.4
13.4
9.1
7.8
7.6
1.8
%% ooff
20.6
17.5
25.3
11.3
13.8
10.2
6.9
301.2
248.0
217.2
181.2
121.6
144.5
29.5
348.0
291.9
362.5
218.4
172.1
180.3
137.5
18.8
15.5
13.6
11.3
7.6
9.0
1.8
21.8
18.2
22.7
13.6
10.8
11.3
8.6
300.5
256.0
237.9
161.4
137.6
134.0
31.5
364.6
311.2
448.0
201.2
244.1
181.2
123.0
3311 DDeecceemmbbeerr 22002233
31 December 2022
$$mm
ttaannggiibbllee ccaappiittaall
$m
% of
tangible capital
(Restated)
1. Estimated net loss balances presented in the table are unaudited.
2. Landing hurricane from Florida to Texas.
There can be no guarantee that the modelled assumptions and techniques deployed in calculating these figures are accurate. There could also be an
unmodelled loss which exceeds these figures. In addition, any modelled loss scenario could cause a larger loss to capital than the modelled
expectation from the above return periods.
Insurance revenue geographical split and operating segment
The following table provides an analysis of the Group’s insurance revenue by operating segment and geographical location:
FFoorr tthhee yyeeaarr eennddeedd
U.S. and Canada
Worldwide - multi territory
Europe
Rest of world
Total insurance revenue
RReeiinnssuurraannccee
$$mm
339.6
257.4
62.1
55.8
714.9
3311 DDeecceemmbbeerr 22002233
IInnssuurraannccee
$$mm
269.4
276.5
83.2
175.9
805.0
TToottaall
$$mm
609.0
533.9
145.3
231.7
1,519.9
Reinsurance
$m
260.8
195.9
43.8
59.9
560.4
31 December 2022
Insurance
$m
206.1
240.9
75.8
143.3
666.1
Total
$m
466.9
436.8
119.6
203.2
1,226.5
I. Reinsurance segment
The Group’s reinsurance segment comprises property reinsurance, specialty reinsurance and casualty reinsurance. The property reinsurance
portfolio is predominantly written on an excess of loss basis with the ‘catastrophe’ portfolio exposed to large natural disasters and the ‘risk’
portfolio exposed to individual, man-made losses such as fire and explosion. The specialty reinsurance portfolio has a mix of exposure, with natural
disasters exposing the retrocession portfolio and large, man made risks from complex exposures, such as offshore energy platforms, exposing the
marine, energy, terror and aviation portfolios. This product is sold through both excess of loss and proportional reinsurance. Casualty reinsurance is
written through quota share reinsurance assuming a mix of general liability and professional lines exposures, predominantly from within the U.S..
II. Insurance segment
The Group’s insurance segment is usually written on a direct or facultative basis and comprises aviation insurance, casualty insurance, energy and
marine insurance, property insurance and specialty insurance. Within aviation, aviation deductible, aviation hull, aviation liability, aviation war and
AV52 are the main exposures. Casualty insurance covers accident and health policies, as well as a small number of consortia arrangements within
Lloyd’s. Energy insurance covers a variety of energy exposures from upstream and energy construction, downstream processing and storage risks,
power generation and energy liability. Marine risks include cargo and specie risks, as well as liability, hull and war. The property insurance account
contains a worldwide property exposure with a mix of Fortune 500 business and smaller accounts with exposure in an individual location. Specialty
insurance includes political risk, terror and credit exposures and is often written on a multi-year basis.
RReeiinnssuurraannccee
The Group, in the normal course of business and in accordance with its risk management practices, seeks to reduce certain types of losses that may
arise from events that could cause unfavourable underwriting results by entering into external outwards reinsurance arrangements. Reinsurance
does not relieve the Group of its obligations to policyholders. Under the Group’s reinsurance security policy, reinsurers are assessed and approved
based on their financial strength ratings, together with other factors. The RSC considers reinsurers that are not rated or do not fall within the
predefined rating categories on a case-by-case basis, and may require collateral to be provided to support the reinsurer’s obligations. There are
specific guidelines for these collateralised contracts. The RSC monitors the Group’s reinsurers on an ongoing basis, and formally reviews the Group’s
reinsurance arrangements at least quarterly. Exposure to the Group’s reinsurance counterparties, compared to the Board-approved tolerances, is
reported to the Board of Directors on a quarterly basis.
Reinsurance protection is typically purchased on an excess of loss basis, however it may also include ILW covers, or proportional treaty
arrangements. The mix of reinsurance cover is dependent on the specific loss mitigation requirements, market conditions, and available capacity.
Reinsurance may also be purchased to optimise the risk-adjusted return of the underwriting portfolio. The structure varies between types of peril
and sub-class. The Group regularly reviews its catastrophe and other exposures and may purchase reinsurance in order to reduce the Group’s net
exposure to a large natural catastrophe loss and/or to reduce net exposures to other large losses. The Group can purchase both facultative and
treaty reinsurance with varying cover and attachment points. The reinsurance coverage is not intended to be available to meet all potential loss
circumstances. The Group will retain some losses, as the cover purchased is unlikely to transfer the totality of the Group’s exposure. Any loss
amount which exceeds the Group’s reinsurance programme is retained by the Group. Some parts of the reinsurance programme have limited
reinstatements, therefore the number of claims which may be recovered from second or subsequent losses in those particular circumstances is
restricted.
RReesseerrvviinngg
Estimates of future cash flows to fulfil insurance contracts issued
The Group measures the carrying amount of the LIC and the AIC at the end of each reporting period, being the amount of the FCF. The FCF in
respect of the LIC and AIC comprises:
• unbiased probability-weighted best estimates of future cash flows within the boundary of each insurance contract;
• an adjustment to reflect the time value of money and the financial risks related to future cash flows, to the extent that the financial risks are not
included in the estimates of future cash flows (see interest rate risk section on page 157); and
• a risk adjustment for non-financial risk.
More detail on each of these is considered further in the section below.
150 Lancashire Holdings Limited | Annual Report & Accounts 2023
Lancashire Holdings Limited | Annual Report & Accounts 2023 151
151
Lancashire Holdings Limited | Annual Report & Accounts 2023
Financial Statements
Risk disclosures continued
Probability-weighted best estimate of future cash flows
In estimating future cash flows, the Group incorporates, in an unbiased way, all reasonable and supportable information that is available at the
reporting date. The Group uses internal and external information about past events, current conditions and forecasts of future conditions. The
Group’s estimate of future cash flows is the mean of a range of scenarios that reflect the full range of possible outcomes.
Cash flows within the boundary of an insurance contract relate directly to the fulfilment of the contract, including those for which the Group has
discretion over the amount and timing. These include payments to or on behalf of policyholders and other costs incurred in fulfilling contracts.
Other costs that are incurred in fulfilling contracts comprise both direct costs and an allocation of fixed and variable overheads. Where expenses
are contract specific these costs are taken directly and aggregated, as required, to groups of insurance contracts. Where expenses are not contract
specific (e.g. overheads), these are allocated to groups of insurance contracts in a systematic way.
For the Group’s insurance contracts, uncertainty in the estimation of future claims and benefit payments arise primarily from the severity and
frequency of claims and uncertainties regarding future inflation rates.
The Group estimates the ultimate costs of settling claims incurred but unpaid at the reporting date, and the value of salvage and other expected
recoveries, by reviewing individual claims reported and making allowance for claims incurred but not yet reported. The ultimate cost of settling
claims is estimated using a range of loss reserving techniques (the Bornhuetter-Ferguson, loss ratio and chain-ladder methods). Often, actuarial
techniques assume that historic claims experience is indicative of future claims development patterns and therefore ultimate claims cost. The
ultimate cost of settling attritional losses and large claims is estimated separately for each class of business.
The assumptions used, including loss ratios and future claims inflation, are derived from a combination of historical information and judgement
where past trends may not apply in the future and future trends are expected to emerge.
For each nominal fulfilment amount, the timing of future cash flows is determined by applying cash flow assumptions based, where available, on
the Group’s historical experience for the given portfolio of contracts. Where there is insufficient historical experience, reliance may be placed on
external benchmarks or portfolios which are believed to exhibit similar cash flow characteristics.
Methods used to measure the risk adjustment for non-financial risk
The risk adjustment for non-financial risk is the compensation that is required for bearing the uncertainty about the amount and timing of cash
flows that arises from non-financial risk as the insurance contract is fulfilled. The Group estimates an adjustment for non-financial risk separately
from all other estimates.
Under the PAA, the risk adjustment for non-financial risk is limited to the LIC and the AIC, with the exception of an onerous contract, where it is
implicitly considered in determining the required adjustment to the LRC and ARC. The undiscounted risk adjustment within the LIC and AIC is set
with reference to the Group’s reserve risk appetite and aligns with the management margin, which depends on the prevailing uncertainty in the FCF
of the LIC and AIC at each reporting date. The management margin is set through a combination of initial expected loss ratio uplifts for IBNR
provisions and on a case-by-case basis for individual reported events. This process is overseen by the Reserve and Audit Committees. Given this
granular approach, no further allocation of the risk adjustment to groups of insurance contracts is required. The undiscounted risk adjustment is
then discounted to allow for the time value of money alongside the wider FCF within the LIC and AIC. Changes in the risk adjustment for non-
financial risk are disaggregated into insurance services and insurance financing components in the same way as the best estimate FCF.
The Group estimates that FCF within the net of reinsurance LIC (including the risk adjustment for non-financial risks) correspond to a confidence
level of 88% (31 December 2022 – 84%) on an ultimate time horizon.
The risk adjustment for non-financial risk is subject to discounting and the confidence level is inferred for the purpose of disclosure. The inference of
the confidence level requires assumptions around the perceived volatility of each portfolio and the aggregation to the overall entity level. These
assumptions are set and agreed by Management. Volatility parameters are set with reference to historical internal and external data but may be
adjusted at each reporting date to reflect the prevailing environment and associated reserve uncertainties. Given the inference of the confidence
level, the Group generally expects this to fall within the range of the 80th-90th percentile. Movements within this range between periods are to be
expected due to, for example, specific loss events or a change in the mix of business such as an increase in longer tail casualty business written as
has been the case in the current period. The Group would expect to remain within this range, unless there is a change in reserving risk appetite. The
Group’s reserve risk appetite and methods used to determine the risk adjustment for non-financial risk and resulting confidence level were not
changed for the years ended 31 December 2023 and 2022.
Sensitivity analysis
The following table presents information on how reasonably possible changes in assumptions made by the Group impact the valuation of the net
insurance contract liabilities, profit after tax and shareholders’ equity. Under the PAA, and given the current amount of the Group’s loss component,
only the LIC component of insurance contract liabilities and the AIC component of reinsurance contract assets is sensitive to possible changes in
insurance risk and interest rate risk variables.
152 Lancashire Holdings Limited | Annual Report & Accounts 2023
152
Lancashire Holdings Limited | Annual Report & Accounts 2023
Risk disclosures continued
Probability-weighted best estimate of future cash flows
In estimating future cash flows, the Group incorporates, in an unbiased way, all reasonable and supportable information that is available at the
reporting date. The Group uses internal and external information about past events, current conditions and forecasts of future conditions. The
Group’s estimate of future cash flows is the mean of a range of scenarios that reflect the full range of possible outcomes.
Cash flows within the boundary of an insurance contract relate directly to the fulfilment of the contract, including those for which the Group has
discretion over the amount and timing. These include payments to or on behalf of policyholders and other costs incurred in fulfilling contracts.
Other costs that are incurred in fulfilling contracts comprise both direct costs and an allocation of fixed and variable overheads. Where expenses
are contract specific these costs are taken directly and aggregated, as required, to groups of insurance contracts. Where expenses are not contract
specific (e.g. overheads), these are allocated to groups of insurance contracts in a systematic way.
For the Group’s insurance contracts, uncertainty in the estimation of future claims and benefit payments arise primarily from the severity and
frequency of claims and uncertainties regarding future inflation rates.
The Group estimates the ultimate costs of settling claims incurred but unpaid at the reporting date, and the value of salvage and other expected
recoveries, by reviewing individual claims reported and making allowance for claims incurred but not yet reported. The ultimate cost of settling
claims is estimated using a range of loss reserving techniques (the Bornhuetter-Ferguson, loss ratio and chain-ladder methods). Often, actuarial
techniques assume that historic claims experience is indicative of future claims development patterns and therefore ultimate claims cost. The
ultimate cost of settling attritional losses and large claims is estimated separately for each class of business.
The assumptions used, including loss ratios and future claims inflation, are derived from a combination of historical information and judgement
where past trends may not apply in the future and future trends are expected to emerge.
For each nominal fulfilment amount, the timing of future cash flows is determined by applying cash flow assumptions based, where available, on
the Group’s historical experience for the given portfolio of contracts. Where there is insufficient historical experience, reliance may be placed on
external benchmarks or portfolios which are believed to exhibit similar cash flow characteristics.
Methods used to measure the risk adjustment for non-financial risk
The risk adjustment for non-financial risk is the compensation that is required for bearing the uncertainty about the amount and timing of cash
flows that arises from non-financial risk as the insurance contract is fulfilled. The Group estimates an adjustment for non-financial risk separately
from all other estimates.
Under the PAA, the risk adjustment for non-financial risk is limited to the LIC and the AIC, with the exception of an onerous contract, where it is
implicitly considered in determining the required adjustment to the LRC and ARC. The undiscounted risk adjustment within the LIC and AIC is set
with reference to the Group’s reserve risk appetite and aligns with the management margin, which depends on the prevailing uncertainty in the FCF
of the LIC and AIC at each reporting date. The management margin is set through a combination of initial expected loss ratio uplifts for IBNR
provisions and on a case-by-case basis for individual reported events. This process is overseen by the Reserve and Audit Committees. Given this
granular approach, no further allocation of the risk adjustment to groups of insurance contracts is required. The undiscounted risk adjustment is
then discounted to allow for the time value of money alongside the wider FCF within the LIC and AIC. Changes in the risk adjustment for non-
financial risk are disaggregated into insurance services and insurance financing components in the same way as the best estimate FCF.
The Group estimates that FCF within the net of reinsurance LIC (including the risk adjustment for non-financial risks) correspond to a confidence
level of 88% (31 December 2022 – 84%) on an ultimate time horizon.
The risk adjustment for non-financial risk is subject to discounting and the confidence level is inferred for the purpose of disclosure. The inference of
the confidence level requires assumptions around the perceived volatility of each portfolio and the aggregation to the overall entity level. These
assumptions are set and agreed by Management. Volatility parameters are set with reference to historical internal and external data but may be
adjusted at each reporting date to reflect the prevailing environment and associated reserve uncertainties. Given the inference of the confidence
level, the Group generally expects this to fall within the range of the 80th-90th percentile. Movements within this range between periods are to be
expected due to, for example, specific loss events or a change in the mix of business such as an increase in longer tail casualty business written as
has been the case in the current period. The Group would expect to remain within this range, unless there is a change in reserving risk appetite. The
Group’s reserve risk appetite and methods used to determine the risk adjustment for non-financial risk and resulting confidence level were not
changed for the years ended 31 December 2023 and 2022.
Sensitivity analysis
The following table presents information on how reasonably possible changes in assumptions made by the Group impact the valuation of the net
insurance contract liabilities, profit after tax and shareholders’ equity. Under the PAA, and given the current amount of the Group’s loss component,
only the LIC component of insurance contract liabilities and the AIC component of reinsurance contract assets is sensitive to possible changes in
insurance risk and interest rate risk variables.
Insurance contract liabilities
Reinsurance contracts assets
Net insurance contract liabilities
Unpaid claims and expense - 20% increase
Insurance contract liabilities
Reinsurance contract assets
Net insurance contract liabilities
IImmppaacctt oonn pprrooffiitt aafftteerr
ttaaxx aanndd sshhaarreehhoollddeerrss’’
eeqquuiittyy
$$mm
LLIICC aass aatt
3311 DDeecceemmbbeerr 22002233
$$mm
1,765.9
(430.3)
1,335.6
LIC as at
31 December 2022
$m
1,644.5
(516.2)
1,128.3
Impact on profit after
tax and shareholders’
equity
$m
2,119.1
(516.4)
1,602.7
(307.9)
72.0
(235.9)
1,973.4
(619.4)
1,354.0
(284.4)
88.0
(196.4)
The analysis is based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes
in some of the assumptions may be correlated.
BB.. MMaarrkkeett rriisskk
Market risk is the risk that decisions, movements, trends, or other factors in financial markets impact the Group in a way that is financially
detrimental. The main risks include:
i.
Insurance market risk;
ii. Investment risk;
iii. Debt risk; and
iv. Currency risk.
These risks, and the management thereof, are described below.
I. Insurance market risk
Insurance market risk is the risk that factors within either the global insurance market, or the relevant local insurance markets in which the Group
operates, have a detrimental financial impact on the Group. The Group is exposed to insurance market risk from several sources, including the
following:
•
the advent or continuation of a soft market, which may result in a stabilisation or decline in premium rates and/or terms and conditions for certain
lines, or across all lines;
the actions and reactions of key competitors, which may directly result in volatility in premium volumes and rates, fee levels and other input costs;
•
• market events, including unusual inflation in rates, which may result in a limit in the availability of cover, causing political intervention or national
•
remedies;
failure to maintain broker, binding authority and client relationships, leading to a limited or substandard choice of risks which are inconsistent with the
Group’s risk appetite;
• changes in regulation including capital, governance or licensing requirements; and
• changes in the geopolitical environment.
The most important method to mitigate insurance market risk is to maintain strict underwriting standards. The Group manages insurance market
risk in numerous ways, including the following:
reviews and amends underwriting plans and outlook as necessary;
reduces exposure to market sectors where conditions have reached unattractive levels;
•
•
• purchases appropriate, cost-effective reinsurance cover to mitigate loss exposures;
• closely monitors changes in premium rates and terms and conditions;
• ensures through continuous regulatory capital management that it does not allow surplus capital to unduly influence underwriting appetite;
• has a collegiate approach towards taking risk, with most authority requiring at least 4 eyes and pre-authorisation peer review;
•
•
• holds a fortnightly RRC meeting to discuss risk and reinsurance;
• holds a quarterly UURC meeting to review underwriting strategy; and
• holds regular meetings with regulators.
reviews all new and renewal business post-underwriting for LSL;
reviews outputs from the economic capital models to assess up-to-date profitability of classes and sectors;
152 Lancashire Holdings Limited | Annual Report & Accounts 2023
Lancashire Holdings Limited | Annual Report & Accounts 2023 153
153
Lancashire Holdings Limited | Annual Report & Accounts 2023
Financial Statements
Risk disclosures continued
II. Investment risk
Investment risk is the risk that movements, trends or other factors, within either public or private investment markets, have a detrimental financial
impact on the price of securities within the Group’s investment portfolio. Movements in investments resulting from changes in prices, interest
rates, inflation rates, and currency exchange rates, amongst other factors, may lead to an adverse impact on the value of the Group’s investment
portfolio.
Investment guidelines are established by the Investment Committee of the Board of Directors to manage this risk. Investment guidelines set
parameters within which the Group’s external investment managers must operate. All of the Group’s fixed income managers, private investment
managers and a portion of our hedge fund portfolio are signatories of the UNPRI, which approximates to 96.7% (31 December 2022 – 93.9%) of
the Group’s externally managed assets. Important parameters include guidelines on permissible asset classes, duration ranges, credit quality,
currency, maturity, sectors, geographical, sovereign and issuer exposures. Compliance with guidelines is monitored on a monthly basis. Any
adjustments to the investment guidelines are approved by the Investment Committee and the Board of Directors.
The Group’s fixed maturity portfolios are managed by external investment managers. The Group also has a diversified low volatility multi-strategy
portfolio of hedge funds, credit funds, principal protected products, and private investment funds. The performance of the managers is monitored
on an ongoing basis.
Within the Group’s investment guidelines are subsets of guidelines for the portion of funds required to meet near-term obligations and cash flow
needs following an extreme event. These guidelines add further requirements, including reducing permitted asset classes, higher credit quality,
shorter duration, and higher liquidity. The primary objectives for this portion of assets are capital preservation and providing liquidity to meet
insurance and other near-term obligations. In addition to cash managed internally, funds held in the investment portfolio to cover this potential
liability are designated as the core and core plus portfolios and the portfolio duration is matched to the duration of the insurance liabilities, within
an agreed range. The core and core plus portfolios are invested in fixed maturity securities, fixed maturity funds, and cash and cash equivalents. The
combined core and core plus portfolios may, at times, contain assets significantly in excess of those required to meet insurance liabilities or other
defined funding needs.
Assets in excess of those required to be held in the core and core plus portfolios are typically held in the surplus portfolio. The surplus portfolio is
invested in fixed maturity securities, principal protected products, derivative instruments, cash and cash equivalents, private investment funds, and
hedge funds. In general, the duration of the surplus portfolio is slightly longer than the core or core plus portfolios.
The Group reviews the composition, duration and asset allocation of its investment portfolio on a regular basis in order to respond to changes in
interest rates and other market conditions. If certain asset classes are anticipated to produce a higher return within management’s risk tolerance, an
adjustment in asset allocation may be made. Conversely, if the risk profile is expected to move outside of management’s risk tolerance levels, an
adjustment to the asset allocation may be made to reduce the risks in the portfolio.
The investment portfolio is currently structured to perform similarly in risk-on and risk-off environments. The Group endeavours to limit losses in
risk-on, risk-off, and interest rate hike scenarios. The Group models various periods of significant stress in order to better understand the
investment portfolio’s risks and exposures. The scenarios represent what could, and most likely will, occur (albeit not in the exact form of the
scenarios, which are based on historic periods of volatility). The Group also monitors the portfolio impact of more severe disaster scenarios
consisting of extreme shocks.
The Investment Committee oversees a strategic asset allocation study on a bi-annual basis, which assesses the Group’s overall strategy and seeks
to determine if there is an alternative asset allocation to achieve the highest risk-adjusted return within our risk tolerances. The IRRC meets
quarterly to ensure that the Group’s strategic and tactical investment actions are consistent with investment risk preferences, appetite, risk and
return objectives and tolerances. The IRRC also helps further develop the risk tolerances to be incorporated into the ERM framework.
154 Lancashire Holdings Limited | Annual Report & Accounts 2023
154
Lancashire Holdings Limited | Annual Report & Accounts 2023
Risk disclosures continued
II. Investment risk
portfolio.
Investment risk is the risk that movements, trends or other factors, within either public or private investment markets, have a detrimental financial
impact on the price of securities within the Group’s investment portfolio. Movements in investments resulting from changes in prices, interest
rates, inflation rates, and currency exchange rates, amongst other factors, may lead to an adverse impact on the value of the Group’s investment
Investment guidelines are established by the Investment Committee of the Board of Directors to manage this risk. Investment guidelines set
parameters within which the Group’s external investment managers must operate. All of the Group’s fixed income managers, private investment
managers and a portion of our hedge fund portfolio are signatories of the UNPRI, which approximates to 96.7% (31 December 2022 – 93.9%) of
the Group’s externally managed assets. Important parameters include guidelines on permissible asset classes, duration ranges, credit quality,
currency, maturity, sectors, geographical, sovereign and issuer exposures. Compliance with guidelines is monitored on a monthly basis. Any
adjustments to the investment guidelines are approved by the Investment Committee and the Board of Directors.
The Group’s fixed maturity portfolios are managed by external investment managers. The Group also has a diversified low volatility multi-strategy
portfolio of hedge funds, credit funds, principal protected products, and private investment funds. The performance of the managers is monitored
on an ongoing basis.
Within the Group’s investment guidelines are subsets of guidelines for the portion of funds required to meet near-term obligations and cash flow
needs following an extreme event. These guidelines add further requirements, including reducing permitted asset classes, higher credit quality,
shorter duration, and higher liquidity. The primary objectives for this portion of assets are capital preservation and providing liquidity to meet
insurance and other near-term obligations. In addition to cash managed internally, funds held in the investment portfolio to cover this potential
liability are designated as the core and core plus portfolios and the portfolio duration is matched to the duration of the insurance liabilities, within
an agreed range. The core and core plus portfolios are invested in fixed maturity securities, fixed maturity funds, and cash and cash equivalents. The
combined core and core plus portfolios may, at times, contain assets significantly in excess of those required to meet insurance liabilities or other
defined funding needs.
Assets in excess of those required to be held in the core and core plus portfolios are typically held in the surplus portfolio. The surplus portfolio is
invested in fixed maturity securities, principal protected products, derivative instruments, cash and cash equivalents, private investment funds, and
hedge funds. In general, the duration of the surplus portfolio is slightly longer than the core or core plus portfolios.
The Group reviews the composition, duration and asset allocation of its investment portfolio on a regular basis in order to respond to changes in
interest rates and other market conditions. If certain asset classes are anticipated to produce a higher return within management’s risk tolerance, an
adjustment in asset allocation may be made. Conversely, if the risk profile is expected to move outside of management’s risk tolerance levels, an
adjustment to the asset allocation may be made to reduce the risks in the portfolio.
The investment portfolio is currently structured to perform similarly in risk-on and risk-off environments. The Group endeavours to limit losses in
risk-on, risk-off, and interest rate hike scenarios. The Group models various periods of significant stress in order to better understand the
investment portfolio’s risks and exposures. The scenarios represent what could, and most likely will, occur (albeit not in the exact form of the
scenarios, which are based on historic periods of volatility). The Group also monitors the portfolio impact of more severe disaster scenarios
consisting of extreme shocks.
The Investment Committee oversees a strategic asset allocation study on a bi-annual basis, which assesses the Group’s overall strategy and seeks
to determine if there is an alternative asset allocation to achieve the highest risk-adjusted return within our risk tolerances. The IRRC meets
quarterly to ensure that the Group’s strategic and tactical investment actions are consistent with investment risk preferences, appetite, risk and
return objectives and tolerances. The IRRC also helps further develop the risk tolerances to be incorporated into the ERM framework.
The investment mix of the Group’s investment portfolio is as follows:
As at 31 December 2023
• Short-term investments
• Fixed maturity funds
• U.S. treasuries
• Other government bonds
• U.S. municipal bonds
• U.S. government agency debt
• Asset backed securities
• U.S. government agency mortgage backed securities
• Non-agency mortgage backed securities
• Non-agency commercial mortgage backed securities
• Bank loans
• Corporate bonds
• Other fixed maturities
Total fixed maturity securities
Private investment funds
Hedge funds
Other investments
Total investments
As at 31 December 2022
• Short-term investments
• Fixed maturity funds
• U.S. treasuries
• Other government bonds
• U.S. municipal bonds
• U.S. government agency debt
• Asset backed securities
• U.S. government agency mortgage backed securities
• Non-agency mortgage backed securities
• Non-agency commercial mortgage backed securities
• Bank loans
• Corporate bonds
• Other fixed maturities
Total fixed maturity securities
Private investment funds
Hedge funds
Index linked securities
Other investments
Total investments
CCoorree
$$mm
3.9
27.1
226.5
18.7
2.7
1.7
45.2
41.8
—
—
—
307.9
—
675.5
—
—
—
675.5
Core
$m
14.3
29.4
251.3
13.2
3.8
2.8
29.6
11.2
—
—
—
264.7
—
620.3
—
—
—
—
620.3
CCoorree pplluuss
$$mm
16.8
—
252.7
—
7.4
4.6
53.3
38.7
0.6
—
—
367.6
—
741.7
—
—
—
741.7
Core plus
$m
6.5
—
350.0
—
15.3
22.9
68.3
13.9
1.0
—
—
390.9
—
868.8
—
—
—
—
868.8
SSuurrpplluuss
$$mm
53.2
—
106.7
28.5
3.4
50.8
138.2
36.9
10.9
21.3
142.6
260.9
9.5
862.9
165.6
9.9
(0.1)
1,038.3
Surplus
$m
0.7
—
48.9
25.7
3.5
33.3
63.0
15.9
13.0
24.2
128.9
96.7
22.0
475.8
108.1
103.9
28.2
(0.2)
715.8
TToottaall
$$mm
73.9
27.1
585.9
47.2
13.5
57.1
236.7
117.4
11.5
21.3
142.6
936.4
9.5
2,280.1
165.6
9.9
(0.1)
2,455.5
Total
$m
21.5
29.4
650.2
38.9
22.6
59.0
160.9
41.0
14.0
24.2
128.9
752.3
22.0
1,964.9
108.1
103.9
28.2
(0.2)
2,204.9
154 Lancashire Holdings Limited | Annual Report & Accounts 2023
Lancashire Holdings Limited | Annual Report & Accounts 2023 155
155
Lancashire Holdings Limited | Annual Report & Accounts 2023
Financial Statements
Risk disclosures continued
The concentration risk of the Group’s fixed maturity securities by country and sector is as follow:
AAss aatt 3311 DDeecceemmbbeerr 22002233
United States
United Kingdom
Cayman Islands
Canada
Jersey
France
Japan
Netherlands
Mexico
Singapore
India
Germany
Switzerland
Bermuda
Finland
Other
Total fixed maturity securities
FFiinnaanncciiaallss
$$mm
270.6
35.9
—
26.0
—
25.2
13.4
6.7
3.4
0.3
1.8
2.7
9.3
—
8.3
23.8
427.4
1. Structured products excludes any Government structured products.
2. Other includes Lloyd’s overseas deposits and short-term investments.
As at 31 December 2022
United States
United Kingdom
Cayman Islands
Canada
Jersey
Japan
Netherlands
France
Spain
Switzerland
Sweden
Mexico
Finland
Qatar
Germany
Other
Total fixed maturity securities
Financials
$m
211.3
39.1
—
21.5
—
14.0
9.3
13.9
10.7
10.0
8.9
2.8
8.1
1.6
3.6
19.3
374.1
IInndduussttrriiaall
$$mm
523.2
17.5
1.8
16.2
0.8
2.5
10.0
2.3
6.8
10.3
4.5
7.7
—
—
—
29.5
633.1
Industrial
$m
426.9
11.8
—
14.3
—
9.8
7.7
2.5
—
0.6
—
4.2
—
—
2.8
23.6
504.2
GGoovveerrnnmmeenntt &&
GGoovveerrnnmmeenntt
AAggeenncciieess
$$mm
773.5
1.6
—
18.0
—
—
—
—
1.3
0.5
2.9
—
—
1.7
—
21.6
821.1
Government &
Government
Agencies
$m
772.6
1.5
—
10.5
—
—
—
0.6
—
—
0.6
2.0
—
5.2
—
18.7
811.7
UUttiilliittyy
$$mm
18.7
—
—
0.5
—
—
—
3.7
0.4
0.4
—
—
—
—
—
4.3
28.0
Utility
$m
18.8
—
—
0.5
—
—
3.6
—
—
—
—
0.5
—
—
—
1.5
24.9
SSttrruuccttuurreedd11
$$mm
123.9
0.3
100.7
—
32.3
2.2
—
—
—
—
—
—
—
7.0
—
3.1
269.5
Structured1
$m
118.3
0.7
47.4
—
25.8
—
—
2.1
—
—
—
—
—
—
—
4.8
199.1
OOtthheerr22
$$mm
20.3
50.0
—
0.5
—
—
—
0.4
—
—
1.3
—
—
—
—
28.5
101.0
Other2
$m
20.8
—
—
—
—
—
—
—
—
—
—
—
—
—
—
30.1
50.9
TToottaall
$$mm
1,730.2
105.3
102.5
61.2
33.1
29.9
23.4
13.1
11.9
11.5
10.5
10.4
9.3
8.7
8.3
110.8
2,280.1
Total
$m
1,568.7
53.1
47.4
46.8
25.8
23.8
20.6
19.1
10.7
10.6
9.5
9.5
8.1
6.8
6.4
98.0
1,964.9
1. Structured products excludes any Government structured products.
2. Other includes Lloyd’s overseas deposits and short-term investments.
The Group’s net asset value is directly impacted by movements in the fair value of investments held. Fair values can be impacted by movements in
interest rates, credit ratings, exchange rates, the current economic environment and outlook.
156 Lancashire Holdings Limited | Annual Report & Accounts 2023
156
Lancashire Holdings Limited | Annual Report & Accounts 2023
Risk disclosures continued
The concentration risk of the Group’s fixed maturity securities by country and sector is as follow:
FFiinnaanncciiaallss
$$mm
270.6
IInndduussttrriiaall
$$mm
523.2
UUttiilliittyy
$$mm
18.7
Total fixed maturity securities
1. Structured products excludes any Government structured products.
2. Other includes Lloyd’s overseas deposits and short-term investments.
23.8
427.4
29.5
633.1
4.3
28.0
21.6
821.1
269.5
28.5
101.0
110.8
2,280.1
AAss aatt 3311 DDeecceemmbbeerr 22002233
United States
United Kingdom
Cayman Islands
Canada
Jersey
France
Japan
Netherlands
Mexico
Singapore
India
Germany
Switzerland
Bermuda
Finland
Other
As at 31 December 2022
United States
United Kingdom
Cayman Islands
Canada
Jersey
Japan
Netherlands
France
Spain
Switzerland
Sweden
Mexico
Finland
Qatar
Germany
Other
GGoovveerrnnmmeenntt &&
GGoovveerrnnmmeenntt
AAggeenncciieess
$$mm
773.5
1.6
—
18.0
—
—
—
—
1.3
0.5
2.9
—
—
1.7
—
—
—
—
0.6
—
—
0.6
2.0
—
5.2
—
Government &
Government
Agencies
$m
772.6
1.5
—
10.5
—
—
0.5
—
—
—
3.7
0.4
0.4
—
—
—
—
—
Utility
$m
18.8
—
—
0.5
—
—
3.6
—
—
—
—
0.5
—
—
—
SSttrruuccttuurreedd11
$$mm
123.9
0.3
100.7
—
32.3
2.2
—
—
—
—
—
—
—
7.0
—
3.1
0.7
47.4
—
25.8
—
—
2.1
—
—
—
—
—
—
—
OOtthheerr22
$$mm
20.3
50.0
—
0.5
—
—
—
0.4
—
—
1.3
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
TToottaall
$$mm
1,730.2
105.3
102.5
61.2
33.1
29.9
23.4
13.1
11.9
11.5
10.5
10.4
9.3
8.7
8.3
53.1
47.4
46.8
25.8
23.8
20.6
19.1
10.7
10.6
9.5
9.5
8.1
6.8
6.4
Structured1
$m
118.3
Other2
$m
20.8
Total
$m
1,568.7
35.9
—
26.0
—
25.2
13.4
6.7
3.4
0.3
1.8
2.7
9.3
—
8.3
Financials
$m
211.3
39.1
—
21.5
—
14.0
9.3
13.9
10.7
10.0
8.9
2.8
8.1
1.6
3.6
17.5
1.8
16.2
0.8
2.5
10.0
2.3
6.8
10.3
4.5
7.7
—
—
—
Industrial
$m
426.9
11.8
—
14.3
—
9.8
7.7
2.5
—
0.6
—
4.2
—
—
2.8
Total fixed maturity securities
1. Structured products excludes any Government structured products.
2. Other includes Lloyd’s overseas deposits and short-term investments.
19.3
374.1
23.6
504.2
1.5
24.9
18.7
811.7
4.8
199.1
30.1
50.9
98.0
1,964.9
The Group’s net asset value is directly impacted by movements in the fair value of investments held. Fair values can be impacted by movements in
interest rates, credit ratings, exchange rates, the current economic environment and outlook.
Interest rate risk
(i) Investments
Interest rate risk is the risk that movements within market interest rates, which are typically correlated with the interest rates set by central banks,
have a detrimental financial impact on the value of the Group’s assets and liabilities. The Group’s investment portfolio is mainly comprised of fixed
maturity securities and cash and cash equivalents. Fixed maturity funds are overseas deposits held by the syndicates in trust for the benefit of the
policyholders in those overseas jurisdictions. They consist of high quality, short duration fixed maturity securities. The fair value of the Group’s fixed
maturity portfolio is generally inversely correlated to movements in market interest rates. If market interest rates fall, the fair value of the Group’s
fixed maturity securities would tend to rise and vice versa.
The sensitivity of the price of fixed maturity securities, and certain derivatives, to movements in interest rates is indicated by their duration. The
greater a security’s duration, the greater its price volatility to movements in interest rates. The sensitivity of the Group’s fixed maturity and
derivative investment portfolio to interest rate movements is detailed below, assuming linear movements in interest rates:
Immediate shift in yield (basis points)
100
75
50
25
(25)
(50)
(75)
(100)
AAss aatt 3311 DDeecceemmbbeerr 22002233
As at 31 December 2022
$$mm
%%
$m
%
(39.5)
(29.6)
(19.8)
(9.9)
10.0
20.0
29.9
39.9
(1.7)
(1.3)
(0.9)
(0.4)
0.4
0.9
1.3
1.8
(34.1)
(25.6)
(17.1)
(8.5)
9.4
18.8
28.2
37.6
(1.7)
(1.3)
(0.9)
(0.4)
0.5
1.0
1.4
1.9
The Group mitigates interest rate risk on the investment portfolio by establishing and monitoring duration ranges in its investment guidelines. The
Group may also manage interest rate risk through the use of interest rate futures and swaptions. The duration of the core portfolio is matched to
the modelled duration of the net insurance contract liabilities, within a permitted range. The permitted duration range for the core plus portfolio is
between zero and four years, and for the surplus portfolio is between one and five years.
The overall duration for fixed maturity securities, managed cash and cash equivalents and certain derivatives is 1.6 years (31 December 2022 – 1.6
years).
In addition to duration management, the Group monitors VaR to measure potential losses in the estimated fair values of its cash and invested
assets and to understand and monitor risk. The VaR calculation is performed using variance/covariance risk modelling to capture the cash flows and
embedded optionality of the investment portfolio. Securities are valued individually using standard market pricing models. These security
valuations serve as the input to risk analytics, including full valuation risk analyses, as well as parametric methods that rely on option-adjusted risk
sensitivities to approximate the risk and return profiles of the portfolio.
The principal VaR measure that is produced is an annual VaR at the 99th percentile confidence level. Under normal conditions, the investment
portfolio value is not expected to decrease more than the VaR metric listed in the table below 99% of the time over a one-year time horizon. The
appropriateness of this measure is considered by the Investment Committee on behalf of the Board of Directors on an annual basis.
The Group’s annual VaR calculations are as follows:
99th percentile confidence level1
1. Including the impact of internal foreign exchange hedges.
AAss aatt 3311 DDeecceemmbbeerr 22002233
As at 31 December 2022
$$mm
110.0
%% ooff sshhaarreehhoollddeerrss’’
eeqquuiittyy
7.3
$m
111.6
% of shareholders’
equity - Restated
8.4
(ii) Discounting approach on LIC and AIC
The Group’s LIC and AIC are discounted on initial recognition and re-measured to current interest rates at each quarter end date and are therefore
sensitive to changes in market interest rates.
The Group applies the bottom-up approach when deriving its discount rates for discounting the LIC and AIC. This approach requires the use of an
appropriate (liquid) risk-free yield curve plus a specific illiquidity premium above the risk-free yield curve to represent the reduced liquidity of the
insurance contract cash flows compared to the observable risk-free rates. The risk-free yields and illiquidity premium are derived using reference
data supplied by third parties with management judgement applied where appropriate, in particular in the derivation of the illiquidity premium,
which is informed by the implied illiquidity premium of a representative portfolio of corporate bonds determined using the top-down method.
156 Lancashire Holdings Limited | Annual Report & Accounts 2023
Lancashire Holdings Limited | Annual Report & Accounts 2023 157
157
Lancashire Holdings Limited | Annual Report & Accounts 2023
Financial Statements
Risk disclosures continued
The table below sets out the one, three and five year yield curves (risk-free rate plus illiquidity premium) used to discount the cash flows of
insurance contracts issued and reinsurance contracts held for the Group’s major currencies:
AAss aatt
USD
GBP
EUR
CAD
JPY
ZAR
AUD
11 yyeeaarr
5.33%
5.31%
4.03%
5.23%
0.65%
8.92%
4.77%
3311 DDeecceemmbbeerr 22002233
33 yyeeaarrss
4.40%
4.34%
3.21%
4.51%
0.96%
8.63%
4.55%
55 yyeeaarrss
4.29%
4.14%
3.21%
4.25%
1.24%
9.15%
4.76%
1 year
5.26%
4.54%
3.36%
5.05%
0.17%
7.83%
4.00%
31 December 2022
3 years
5.12%
5.07%
4.06%
4.88%
1.11%
8.72%
4.85%
5 years
5.11%
5.12%
4.29%
4.84%
1.64%
9.49%
5.38%
The following table presents information on how reasonably possible changes in the yield curve made by the Group impact the valuation of the net
insurance contract liabilities, profit after tax and shareholders’ equity. As stated above, under the PAA, and given the current amount of the Group’s
loss component, only the LIC component of insurance contract liabilities and the AIC component of reinsurance contract assets is sensitive to
possible changes in insurance risk and interest rate risk variables.
Insurance contract liabilities
Reinsurance contracts assets
Net insurance contract liabilities
Yield curves - 1% increase
Insurance contract liabilities
Reinsurance contract assets
Net insurance contract liabilities
LLIICC aass aatt
3311 DDeecceemmbbeerr 22002233
$$mm
1,765.9
(430.3)
1,335.6
IImmppaacctt oonn pprrooffiitt aafftteerr
ttaaxx aanndd sshhaarreehhoollddeerrss’’
eeqquuiittyy
$$mm
LIC as at
31 December 2022
$m
1,644.5
(516.2)
1,128.3
Impact on profit after
tax and shareholders’
equity
$m
1,733.3
(422.3)
1,311.0
28.9
(6.7)
22.2
1,616.6
(506.8)
1,109.8
24.4
(8.1)
16.3
The analysis is based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes
in some of the assumptions may be correlated.
Price risk
Price risk is the risk that the fair value of the Group’s investment portfolio will fluctuate because of changes in market prices (other than those
arising from interest rate or foreign exchange rate risk), whether those changes are caused by factors specific to the individual investment or other
market factors.
The Group’s price risk exposure relates to private investment funds, hedge funds, and index linked securities. Listed investments that are quoted in
an active market are recognised at quoted bid price, which is deemed to be the approximate exit price. If the market for the investment is not
considered to be active, then the Group establishes fair value using valuation techniques (refer to note 11). This includes comparison to comparable
orderly transactions between active market participants, reference to benchmarks or other indices to assess reasonableness, and other valuation
techniques that are commonly used by market participants.
A 10% asset price decrease at 31 December 2023 would reduce the value of our private investment funds, hedge funds, and index linked securities
by approximately $17.6 million (31 December 2022 – $24.0 million).
Derivative financial instruments
The Group’s investment guidelines permit the investment managers to utilise forward foreign currency contracts to manage foreign currency
exposure. These positions are monitored regularly. The Group may also use OTC or exchange-traded managed derivatives to mitigate interest rate
risk and foreign currency exposures. The Group principally has exposure to derivatives related to the following types of risks: interest rate risk,
foreign currency risk, and credit risk.
The Group currently invests in the following derivative financial instruments:
•
•
futures; and
forward foreign currency contracts.
158 Lancashire Holdings Limited | Annual Report & Accounts 2023
158
Lancashire Holdings Limited | Annual Report & Accounts 2023
Risk disclosures continued
AAss aatt
USD
GBP
EUR
CAD
JPY
ZAR
AUD
Insurance contract liabilities
Reinsurance contracts assets
Net insurance contract liabilities
Yield curves - 1% increase
Insurance contract liabilities
Reinsurance contract assets
Net insurance contract liabilities
Price risk
market factors.
The following table presents information on how reasonably possible changes in the yield curve made by the Group impact the valuation of the net
insurance contract liabilities, profit after tax and shareholders’ equity. As stated above, under the PAA, and given the current amount of the Group’s
loss component, only the LIC component of insurance contract liabilities and the AIC component of reinsurance contract assets is sensitive to
possible changes in insurance risk and interest rate risk variables.
3311 DDeecceemmbbeerr 22002233
31 December 2022
11 yyeeaarr
5.33%
5.31%
4.03%
5.23%
0.65%
8.92%
4.77%
33 yyeeaarrss
4.40%
4.34%
3.21%
4.51%
0.96%
8.63%
4.55%
55 yyeeaarrss
4.29%
4.14%
3.21%
4.25%
1.24%
9.15%
4.76%
1 year
5.26%
4.54%
3.36%
5.05%
0.17%
7.83%
4.00%
3 years
5.12%
5.07%
4.06%
4.88%
1.11%
8.72%
4.85%
5 years
5.11%
5.12%
4.29%
4.84%
1.64%
9.49%
5.38%
IImmppaacctt oonn pprrooffiitt aafftteerr
Impact on profit after
LLIICC aass aatt
ttaaxx aanndd sshhaarreehhoollddeerrss’’
LIC as at
tax and shareholders’
3311 DDeecceemmbbeerr 22002233
eeqquuiittyy
31 December 2022
equity
$m
$$mm
$m
1,644.5
(516.2)
1,128.3
28.9
(6.7)
22.2
1,616.6
(506.8)
1,109.8
24.4
(8.1)
16.3
$$mm
1,765.9
(430.3)
1,335.6
1,733.3
(422.3)
1,311.0
The analysis is based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes
in some of the assumptions may be correlated.
Price risk is the risk that the fair value of the Group’s investment portfolio will fluctuate because of changes in market prices (other than those
arising from interest rate or foreign exchange rate risk), whether those changes are caused by factors specific to the individual investment or other
The Group’s price risk exposure relates to private investment funds, hedge funds, and index linked securities. Listed investments that are quoted in
an active market are recognised at quoted bid price, which is deemed to be the approximate exit price. If the market for the investment is not
considered to be active, then the Group establishes fair value using valuation techniques (refer to note 11). This includes comparison to comparable
orderly transactions between active market participants, reference to benchmarks or other indices to assess reasonableness, and other valuation
techniques that are commonly used by market participants.
A 10% asset price decrease at 31 December 2023 would reduce the value of our private investment funds, hedge funds, and index linked securities
by approximately $17.6 million (31 December 2022 – $24.0 million).
Derivative financial instruments
The Group’s investment guidelines permit the investment managers to utilise forward foreign currency contracts to manage foreign currency
exposure. These positions are monitored regularly. The Group may also use OTC or exchange-traded managed derivatives to mitigate interest rate
risk and foreign currency exposures. The Group principally has exposure to derivatives related to the following types of risks: interest rate risk,
The Group currently invests in the following derivative financial instruments:
foreign currency risk, and credit risk.
futures; and
•
•
forward foreign currency contracts.
The table below sets out the one, three and five year yield curves (risk-free rate plus illiquidity premium) used to discount the cash flows of
insurance contracts issued and reinsurance contracts held for the Group’s major currencies:
The net gains (losses) on the Group’s derivative financial instruments recognised in the consolidated statement of comprehensive income are as
follows:
AAss aatt 3311 DDeecceemmbbeerr 22002233
Forward foreign currency contracts
Total
As at 31 December 2022
Interest rate futures
Forward foreign currency contracts
Interest rate swaps
Total
The estimated fair values of the Group’s derivative instruments are as follows:
As at 31 December
Forward foreign currency contracts
OOtthheerr
iinnvveessttmmeennttss
$$mm
(0.1)
22002233
OOtthheerr
rreecceeiivvaabblleess
$$mm
2.0
OOtthheerr
ppaayyaabblleess
$$mm
(0.7)
Other
investments
$m
(0.2)
NNeett rreeaalliisseedd
ggaaiinnss ((lloosssseess))
$$mm
—
—
Net realised
(losses) gains
$m
0.1
—
(2.4)
(2.3)
2022
Other
receivables
$m
2.5
NNeett ffoorreeiiggnn
eexxcchhaannggee
ggaaiinnss
$$mm
1.9
1.9
Net foreign
exchange
(losses) gains
$m
—
(3.0)
0.2
(2.8)
Other
payables
$m
(0.4)
A. Futures
Futures provide the Group with participation in market movements, determined by the underlying instrument on which the futures contract is
based, without holding the instrument itself or the individual securities. This allows efficient and less costly access to the exposure than would be
available by the exclusive use of individual fixed maturity and money market securities. Exchange-traded futures contracts may also be used as
substitutes for ownership of the physical securities.
All futures contracts are held on a non-leveraged basis. An initial margin is provided, which is a deposit of cash and/or securities in an amount equal
to a prescribed percentage of the contract value. The fair value of futures contracts is estimated daily and the margin is adjusted accordingly with
unrealised gains and/or losses settled daily in cash and/or securities. A realised gain or loss is recognised when the contract is closed.
Futures contracts expose the Group to market risk to the extent that adverse changes occur in the estimated fair values of the underlying securities.
Exchange-traded futures are, however, subject to a number of safeguards to ensure that obligations are met. These include the use of clearing
houses (thus reducing counterparty credit risk), the posting of margins and the daily settlement of unrealised gains and losses. The amount of credit
risk is therefore considered low. The investment guidelines restrict the maximum notional futures position as a percentage of the investment
portfolio’s estimated fair value.
B. Forward foreign currency contract
A forward foreign currency contract is a commitment to purchase or sell a foreign currency at a future date, at a defined rate. The Group may utilise
forward foreign currency contracts to gain exposure to a certain currency or market rate, to manage the impact of fluctuations in foreign currencies
on the value of its foreign currency denominated investments, debt, insurance-related currency exposures and/or expenses.
Forward contracts expose the Group to credit, market and liquidity risks. Credit risk arises from the potential inability of counterparties to perform
under the terms of the contract. The Group is exposed to market risk to the extent that adverse changes occur in the exchange rate of the
underlying foreign currency. Liquidity risk represents the possibility that the Group may not be able to rapidly adjust the size of its forward positions
at a reasonable price in times of high volatility and financial stress. These risks are mitigated by requiring a minimum counterparty credit quality,
restricting the maximum notional exposure as a percentage of the investment portfolio’s estimated fair value, and restricting exposures to foreign
currencies, individually and in aggregate, as a percentage of the investment portfolio’s estimated fair value. Where forward foreign currency
contracts are within externally managed investment portfolios, they are disclosed as other investments. Where they are managed directly by the
Group, they are disclosed as either other receivables, or other payables, as appropriate.
The notional amount of a derivative contract is the underlying quantity upon which payment obligations are calculated. A long position is
equivalent to buying the underlying currency whereas a short position is equivalent to having sold the underlying currency.
158 Lancashire Holdings Limited | Annual Report & Accounts 2023
Lancashire Holdings Limited | Annual Report & Accounts 2023 159
159
Lancashire Holdings Limited | Annual Report & Accounts 2023
Financial Statements
Risk disclosures continued
The Group has the following open forward foreign currency contracts:
As at 31 December
Canadian Dollar
Euro
Australian Dollar
Japanese Yen
Sterling
Danish Krone
Total
NNoottiioonnaall
lloonngg
$$mm
—
49.0
—
—
77.8
—
126.8
22002233
2022
NNoottiioonnaall
sshhoorrtt
$$mm
28.7
3.6
—
—
0.7
0.2
33.2
NNeett nnoottiioonnaall
lloonngg ((sshhoorrtt))
$$mm
(28.7)
45.4
—
—
77.1
(0.2)
93.6
Notional
long
$m
—
42.7
—
5.2
93.5
—
141.4
Notional
short
$m
22.8
3.8
13.8
—
0.8
0.2
41.4
Net notional
long (short)
$m
(22.8)
38.9
(13.8)
5.2
92.7
(0.2)
100.0
III. Debt risk
Debt risk is the risk that the Group will not be able to service either the interest payment, or the principal repayment, amounts on its external
borrowings as they fall due. In 2021, the Group issued $450.0 million (in aggregate principal amount) of 5.625% fixed-rate reset junior
subordinated notes, repayable on 18 September 2041 (see note 18). The fixed interest rate will reset on 18 September 2031 at a rate per annum
equal to the prevailing five-year treasury rate, plus a credit spread of 4.08% and a 100 basis point step up.
The Group is exposed to interest rate risk in the future if prevailing rates at the time of reset are materially different from the existing rates on the
debt issue.
IV. Currency risk
Currency risk is the risk that movements in currency exchange rates have a detrimental financial impact on the Group. The Group underwrites from
multiple locations and risks are assumed on a worldwide basis. Risks assumed are predominantly denominated in U.S. dollars.
The Group is exposed to currency risk to the extent its assets are denominated in different currencies to its liabilities. The exchange gains and losses
which arise on these assets and liabilities impact profit or loss.
The Group hedges monetary non-U.S. dollar liabilities primarily with non-U.S. dollar assets, but may also use derivatives to mitigate foreign
currency exposures. The Group’s main foreign currency exposure relates to its insurance obligations, cash holdings, investments, premiums
receivable and dividends payable. The Group uses forward foreign currency contracts for the purposes of managing currency exposures.
The Group’s assets and liabilities, categorised by currency at their translated carrying amount, are as follows:
AAsssseettss
Cash and cash equivalents
Accrued interest receivable
Investments
Reinsurance contract assets
Other receivables
Investment in associate
Right-of-use assets
Property, plant and equipment
Intangible assets
Total assets as at 31 December 2023
LLiiaabbiilliittiieess
Insurance contract liabilities
Other payables
Corporation tax payable
Deferred tax liability
Lease liabilities
Long-term debt
Total liabilities as at 31 December 2023
UU..SS..$$
$$mm
504.4
16.6
2,404.9
340.6
44.7
16.2
2.4
0.6
153.8
3,484.2
UU..SS..$$
$$mm
1,504.9
28.7
—
9.9
2.4
446.6
1,992.5
SStteerrlliinngg
$$mm
88.5
—
3.1
20.8
12.6
—
16.8
9.2
27.3
178.3
SStteerrlliinngg
$$mm
96.0
50.6
2.0
6.3
22.2
—
177.1
EEuurroo
$$mm
65.6
—
0.2
27.2
—
—
—
—
—
93.0
EEuurroo
$$mm
135.3
—
—
—
—
—
135.3
JJaappaanneessee YYeenn
$$mm
25.9
—
—
—
—
—
—
—
—
25.9
JJaappaanneessee YYeenn
$$mm
18.5
—
—
—
—
—
18.5
OOtthheerr
$$mm
72.5
0.1
47.3
(0.8)
1.1
—
0.1
—
—
120.3
OOtthheerr
$$mm
69.0
1.3
—
—
0.1
—
70.4
TToottaall
$$mm
756.9
16.7
2,455.5
387.8
58.4
16.2
19.3
9.8
181.1
3,901.7
TToottaall
$$mm
1,823.7
80.6
2.0
16.2
24.7
446.6
2,393.8
160 Lancashire Holdings Limited | Annual Report & Accounts 2023
160
Lancashire Holdings Limited | Annual Report & Accounts 2023
Risk disclosures continued
The Group has the following open forward foreign currency contracts:
As at 31 December
Canadian Dollar
Euro
Australian Dollar
Japanese Yen
Sterling
Danish Krone
Total
III. Debt risk
debt issue.
IV. Currency risk
NNoottiioonnaall
lloonngg
$$mm
—
49.0
—
—
77.8
—
126.8
22002233
NNoottiioonnaall
sshhoorrtt
$$mm
28.7
3.6
—
—
0.7
0.2
33.2
NNeett nnoottiioonnaall
lloonngg ((sshhoorrtt))
$$mm
(28.7)
45.4
—
—
77.1
(0.2)
93.6
Notional
long
$m
—
42.7
—
5.2
93.5
—
141.4
2022
Notional
short
$m
Net notional
long (short)
$m
22.8
3.8
13.8
—
0.8
0.2
41.4
(22.8)
38.9
(13.8)
5.2
92.7
(0.2)
100.0
Debt risk is the risk that the Group will not be able to service either the interest payment, or the principal repayment, amounts on its external
borrowings as they fall due. In 2021, the Group issued $450.0 million (in aggregate principal amount) of 5.625% fixed-rate reset junior
subordinated notes, repayable on 18 September 2041 (see note 18). The fixed interest rate will reset on 18 September 2031 at a rate per annum
equal to the prevailing five-year treasury rate, plus a credit spread of 4.08% and a 100 basis point step up.
The Group is exposed to interest rate risk in the future if prevailing rates at the time of reset are materially different from the existing rates on the
Currency risk is the risk that movements in currency exchange rates have a detrimental financial impact on the Group. The Group underwrites from
multiple locations and risks are assumed on a worldwide basis. Risks assumed are predominantly denominated in U.S. dollars.
The Group is exposed to currency risk to the extent its assets are denominated in different currencies to its liabilities. The exchange gains and losses
which arise on these assets and liabilities impact profit or loss.
The Group hedges monetary non-U.S. dollar liabilities primarily with non-U.S. dollar assets, but may also use derivatives to mitigate foreign
currency exposures. The Group’s main foreign currency exposure relates to its insurance obligations, cash holdings, investments, premiums
receivable and dividends payable. The Group uses forward foreign currency contracts for the purposes of managing currency exposures.
The Group’s assets and liabilities, categorised by currency at their translated carrying amount, are as follows:
AAsssseettss
Cash and cash equivalents
Accrued interest receivable
Investments
Reinsurance contract assets
Other receivables
Investment in associate
Right-of-use assets
Property, plant and equipment
Intangible assets
Total assets as at 31 December 2023
LLiiaabbiilliittiieess
Insurance contract liabilities
Other payables
Corporation tax payable
Deferred tax liability
Lease liabilities
Long-term debt
UU..SS..$$
$$mm
504.4
16.6
2,404.9
340.6
44.7
16.2
2.4
0.6
153.8
3,484.2
UU..SS..$$
$$mm
1,504.9
28.7
—
9.9
2.4
446.6
1,992.5
SStteerrlliinngg
$$mm
88.5
—
3.1
20.8
12.6
—
16.8
9.2
27.3
SStteerrlliinngg
$$mm
96.0
50.6
2.0
6.3
22.2
—
EEuurroo
$$mm
65.6
—
0.2
27.2
—
—
—
—
—
—
—
—
—
—
JJaappaanneessee YYeenn
$$mm
25.9
—
—
—
—
—
—
—
—
—
—
—
—
—
EEuurroo
$$mm
135.3
JJaappaanneessee YYeenn
$$mm
18.5
OOtthheerr
$$mm
72.5
0.1
47.3
(0.8)
1.1
—
0.1
—
—
OOtthheerr
$$mm
69.0
1.3
—
—
0.1
—
TToottaall
$$mm
756.9
16.7
2,455.5
387.8
58.4
16.2
19.3
9.8
181.1
3,901.7
TToottaall
$$mm
1,823.7
80.6
2.0
16.2
24.7
446.6
2,393.8
178.3
93.0
25.9
120.3
Total liabilities as at 31 December 2023
177.1
135.3
18.5
70.4
AAsssseettss
Cash and cash equivalents
Accrued interest receivable
Investments
Reinsurance contract assets
Other receivables
Corporation tax receivable
Investment in associate
Right-of-use assets
Property, plant and equipment
Intangible assets
Total assets as at 31 December 2022
LLiiaabbiilliittiieess
Insurance contract liabilities
Other payables
Deferred tax liability
Lease liabilities
Long-term debt
Total liabilities as at 31 December 2022
U.S.$
$m
434.6
11.2
2,160.8
431.4
11.1
0.1
59.7
0.9
0.5
153.8
3,264.1
U.S.$
$m
1,377.6
12.0
12.3
1.0
446.1
1,849.0
Sterling
$m
23.5
—
3.0
15.9
17.8
1.3
—
19.2
0.6
18.6
99.9
Sterling
$m
74.5
25.8
(2.0)
22.1
—
120.4
Euro
$m
35.6
—
(0.3)
28.4
—
—
—
—
—
—
63.7
Euro
$m
135.5
—
—
—
—
135.5
Japanese Yen
$m
10.3
—
—
(0.6)
—
—
—
—
—
—
9.7
Japanese Yen
$m
23.2
—
—
—
—
23.2
Other
$m
44.8
0.1
41.4
(0.8)
1.1
(0.3)
—
0.2
—
—
86.5
Other
$m
62.7
6.8
—
0.2
—
69.7
Restated
Total
$m
548.8
11.3
2,204.9
474.3
30.0
1.1
59.7
20.3
1.1
172.4
3,523.9
Restated
Total
$m
1,673.5
44.6
10.3
23.3
446.1
2,197.8
The impact on net income of a proportional foreign exchange movement of 10.0% up and 10.0% down for the aggregated total of all non U.S.
dollar currencies against the U.S. dollar, taken at the year-end spot rates, would be an increase or decrease of $3.1 million (31 December 2022 –
$13.1 million (restated)).
CC.. LLiiqquuiiddiittyy rriisskk
Liquidity risk is the risk that cash may not be available to pay obligations when they are due without incurring an unreasonable cost. The Group’s
main exposures to liquidity risk are with respect to its insurance, investment, and operational activities. The Group is exposed if proceeds from
financial assets are not sufficient to fund obligations arising from its insurance contracts issued. The Group can be exposed to daily calls on its
available investment assets, principally to settle insurance claims and to fund trust accounts following a large catastrophe loss.
Exposures in relation to insurance activities are as follows:
•
•
•
large catastrophic events, or multiple medium-sized events in quick succession, resulting in a requirement to pay a large value of claims within a
relatively short time frame, or to fund trust accounts;
failure of insureds or cedants to meet their contractual obligations with respect to the payment of premiums in a timely manner; and
failure of reinsurers to meet their contractual obligations with respect to the payment of claims in a timely manner.
Exposures in relation to investment activities are as follows:
• adverse market movements and/or a duration mismatch to obligations, resulting in investments being disposed of at a significant realised loss; and
• an inability to liquidate investments due to market conditions.
160 Lancashire Holdings Limited | Annual Report & Accounts 2023
Lancashire Holdings Limited | Annual Report & Accounts 2023 161
161
Lancashire Holdings Limited | Annual Report & Accounts 2023
Financial Statements
Risk disclosures continued
The maturity dates of the Group’s fixed maturity portfolio are as follows:
AAss aatt 3311 DDeecceemmbbeerr 22002233
Less than one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
Over five years
Asset backed and mortgage backed securities
Total fixed maturity securities
AAss aatt 3311 DDeecceemmbbeerr 22002222
Less than one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
Over five years
Asset backed and mortgage backed securities
Total fixed maturity securities
CCoorree
$$mm
165.8
145.8
149.4
47.8
54.0
25.7
87.0
675.5
Core
$m
159.5
175.2
113.9
73.2
21.1
36.6
40.8
620.3
CCoorree pplluuss
$$mm
211.7
149.9
135.7
42.9
85.2
23.7
92.6
741.7
Core plus
$m
212.1
245.2
155.3
80.6
28.2
64.2
83.2
868.8
SSuurrpplluuss
$$mm
116.4
123.5
106.9
73.3
105.1
130.4
207.3
862.9
Surplus
$m
20.9
25.2
69.4
50.8
48.2
145.2
116.1
475.8
TToottaall
$$mm
493.9
419.2
392.0
164.0
244.3
179.8
386.9
2,280.1
Total
$m
392.5
445.6
338.6
204.6
97.5
246.0
240.1
1,964.9
The maturity profile of the insurance contracts issued and financial liabilities of the Group is as follows:
AAss aatt 3311 DDeecceemmbbeerr 22002233
Liabilities
Insurance contract liabilities1
Other payables
Lease liabilities
Long-term debt2
Total
SSttaatteemmeenntt ooff
ffiinnaanncciiaall ppoossiittiioonn
$$mm
1,823.7
80.6
24.7
446.6
2,375.6
YYeeaarrss uunnttiill lliiaabbiilliittyy bbeeccoommeess dduuee -- uunnddiissccoouunntteedd vvaalluueess
LLeessss tthhaann oonnee
$$mm
OOnnee ttoo tthhrreeee
$$mm
TThhrreeee ttoo ffiivvee
$$mm
OOvveerr ffiivvee
$$mm
TToottaall
$$mm
795.3
80.6
4.5
25.3
905.7
705.7
—
8.7
50.6
765.0
263.5
—
7.2
50.6
321.3
166.9
—
9.5
525.9
702.3
1,931.4
80.6
29.9
652.4
2,694.3
1. Since the Group applies the PAA model for all insurance contracts issued, the maturity profile represents only the liability for incurred claims, and has been presented on a undiscounted
basis.
2. The maturity profile of long-term debt includes accrued interest.
As at 31 December 2022
Liabilities
Insurance contract liabilities1
Other payables
Lease liabilities
Long-term debt2
Total
Statement of
financial position
$m
1,673.5
44.6
23.3
446.1
2,187.5
Years until liability becomes due - undiscounted values
Less than one
$m
One to three
$m
Three to five
$m
Over five
$m
762.7
44.6
3.6
25.3
836.2
678.8
—
6.6
50.6
736.0
239.4
—
6.8
50.6
296.8
123.6
—
12.3
551.3
687.2
Restated
Total
$m
1,804.5
44.6
29.3
677.8
2,556.2
1. Since the Group applies the PAA model for all insurance contracts issued, the maturity profile represents only the liability for incurred claims, and has been presented on a undiscounted
basis.
2. The maturity profile of long-term debt includes accrued interest.
Within the tables shown above, the insurance contract liabilities balance discloses the period when the claims in respect of insurance contracts
issued by the Group are expected to be settled. All other liability balances within the table disclose the earliest period in which the relevant
counterparty could contractually require the Group to make payment. Actual maturities of the above may differ from contractual maturities
because certain counterparties have the right to call or prepay certain obligations with or without call or prepayment penalties.
162 Lancashire Holdings Limited | Annual Report & Accounts 2023
162
Lancashire Holdings Limited | Annual Report & Accounts 2023
Risk disclosures continued
AAss aatt 3311 DDeecceemmbbeerr 22002233
Less than one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
Over five years
AAss aatt 3311 DDeecceemmbbeerr 22002222
Less than one year
Between one and two years
Between two and three years
Between three and four years
Between four and five years
Over five years
Insurance contract liabilities1
AAss aatt 3311 DDeecceemmbbeerr 22002233
Liabilities
Other payables
Lease liabilities
Long-term debt2
Total
basis.
As at 31 December 2022
Liabilities
Other payables
Lease liabilities
Long-term debt2
Total
basis.
Insurance contract liabilities1
The maturity dates of the Group’s fixed maturity portfolio are as follows:
Asset backed and mortgage backed securities
Total fixed maturity securities
675.5
741.7
2,280.1
CCoorree
$$mm
165.8
145.8
149.4
47.8
54.0
25.7
87.0
Core
$m
159.5
175.2
113.9
73.2
21.1
36.6
40.8
CCoorree pplluuss
$$mm
211.7
149.9
135.7
42.9
85.2
23.7
92.6
Core plus
$m
212.1
245.2
155.3
80.6
28.2
64.2
83.2
SSuurrpplluuss
$$mm
116.4
123.5
106.9
73.3
105.1
130.4
207.3
862.9
Surplus
$m
20.9
25.2
69.4
50.8
48.2
145.2
116.1
475.8
TToottaall
$$mm
493.9
419.2
392.0
164.0
244.3
179.8
386.9
Total
$m
392.5
445.6
338.6
204.6
97.5
246.0
240.1
SSttaatteemmeenntt ooff
ffiinnaanncciiaall ppoossiittiioonn
$$mm
1,823.7
80.6
24.7
446.6
2,375.6
Statement of
financial position
$m
1,673.5
44.6
23.3
446.1
2,187.5
YYeeaarrss uunnttiill lliiaabbiilliittyy bbeeccoommeess dduuee -- uunnddiissccoouunntteedd vvaalluueess
LLeessss tthhaann oonnee
OOnnee ttoo tthhrreeee
TThhrreeee ttoo ffiivvee
$$mm
$$mm
$$mm
OOvveerr ffiivvee
$$mm
TToottaall
$$mm
795.3
80.6
4.5
25.3
905.7
705.7
263.5
166.9
1,931.4
—
8.7
50.6
765.0
—
7.2
50.6
321.3
—
9.5
525.9
702.3
80.6
29.9
652.4
2,694.3
Years until liability becomes due - undiscounted values
Less than one
One to three
Three to five
$m
$m
$m
Over five
$m
762.7
44.6
3.6
25.3
836.2
678.8
239.4
—
6.6
50.6
736.0
—
6.8
50.6
296.8
123.6
—
12.3
551.3
687.2
Restated
Total
$m
1,804.5
44.6
29.3
677.8
2,556.2
Asset backed and mortgage backed securities
Total fixed maturity securities
620.3
868.8
1,964.9
The maturity profile of the insurance contracts issued and financial liabilities of the Group is as follows:
1. Since the Group applies the PAA model for all insurance contracts issued, the maturity profile represents only the liability for incurred claims, and has been presented on a undiscounted
2. The maturity profile of long-term debt includes accrued interest.
1. Since the Group applies the PAA model for all insurance contracts issued, the maturity profile represents only the liability for incurred claims, and has been presented on a undiscounted
Within the tables shown above, the insurance contract liabilities balance discloses the period when the claims in respect of insurance contracts
issued by the Group are expected to be settled. All other liability balances within the table disclose the earliest period in which the relevant
counterparty could contractually require the Group to make payment. Actual maturities of the above may differ from contractual maturities
because certain counterparties have the right to call or prepay certain obligations with or without call or prepayment penalties.
While the estimation of future cash flows in relation to ultimate claims settlement is complex and incorporates a significant amount of judgement,
the timing of the payment of claims is also uncertain and cannot be predicted as simply as for other financial liabilities. Actuarial and statistical
techniques, past experience, and management’s judgement have been used to determine a likely settlement pattern based on the earliest period in
which the Group could be required by the relevant counterparty to make payment. There are no amounts contained within the insurance contract
liabilities or reinsurance contract assets as at 31 December 2023 (31 December 2022 – none) that are payable on demand.
As at 31 December 2023, cash and cash equivalents were $756.9 million (31 December 2022 – $548.8 million). The Group manages its liquidity
risks through its investment strategy to hold high quality, liquid securities, sufficient to meet its insurance liabilities and other near-term liquidity
requirements. The creation of the core and core plus portfolios, with their subset of guidelines, aims to ensure funds are readily available to meet
potential insurance liabilities, plus other liquidity requirements, in an extreme event. In addition, the Group has established asset allocation and
maturity parameters within the investment guidelines, such that the majority of the investments are in high-quality assets which could be
converted into cash promptly and at minimal expense. The Group monitors market changes and outlook, and reallocates assets as deemed
necessary.
As at 31 December 2023, the Group considers that it has more than adequate liquidity to pay its obligations as they fall due.
DD.. CCrreeddiitt rriisskk
Credit risk is the risk that a counterparty may fail to pay, or repay, a debt or obligation.
The Group is exposed to credit risk in respect of its fixed maturity investment portfolio, cash and cash equivalents, accrued interest receivable,
derivative financial instruments, amounts recoverable from reinsurers within reinsurance contract assets, amounts receivable from insureds and
cedants included within insurance contract liabilities, and other receivables.
Credit risk on the fixed maturity portfolio is mitigated through the Group’s policy to invest in instruments of high credit quality issuers, and to limit
the amounts of credit exposure with respect to particular ratings categories and any one issuer. Securities rated below an S&P or equivalent rating
of BBB-/Baa3 may comprise no more than 15.0% of shareholders’ equity. In addition, no one issuer, with the exception of U.S. government and
agency securities, other G10 government guaranteed securities (excluding Italy), and Australian sovereign debt, should exceed 5.0% of
shareholders’ equity. The Group is therefore not exposed to any significant credit concentration risk on either its fixed maturity investment
portfolio, or cash and cash equivalents, except for fixed maturity securities issued by the U.S. government and government agencies, and other
highly-rated governments.
Credit risk on exchange-traded derivative instruments is mitigated by the use of clearing houses to reduce counterparty credit risk, requiring the
posting of margins and the settling of unrealised gains and losses on a daily basis. Credit risk on OTC derivatives is mitigated by monitoring the
creditworthiness of the counterparties, and by requiring collateral amounts exceeding predetermined thresholds to be posted for positions which
have accrued gains.
Credit risk on insurance contract cash flows from insureds and cedants is managed by conducting business with reputable broking organisations,
with whom the Group has established relationships, and by rigorous cash collection procedures. The Group also has a broker approval process in
place. Binding authorities are subject to standard market controls, including credit control. Credit risk from reinsurance contract cash flows is
primarily managed by the review and approval of reinsurer security, as discussed on page 151.
Reinsurance contracts held in the table below represent the credit exposed components of reinsurance contract assets. These have been presented
on an undiscounted basis, and represent the maximum exposure to credit risk considering the Group’s ability to offset balances, where applicable,
under the relevant reinsurance contracts held.
The table below presents an analysis of the Group’s maximum exposures to counterparty credit risk, based on their rating.
AAss aatt 3311 DDeecceemmbbeerr 22002233
AAA
AA+, AA, AA-
A+, A, A-
BBB+, BBB, BBB-
Other1
Total
CCaasshh aanndd ccaasshh
eeqquuiivvaalleennttss
$$mm
463.2
2.9
285.7
5.1
—
756.9
FFiixxeedd mmaattuurriittyy
sseeccuurriittiieess
$$mm
246.9
931.8
587.1
372.4
141.9
2,280.1
CCrreeddiitt eexxppoosseedd
ccoommppoonneenntt ooff
rreeiinnssuurraannccee
ccoonnttrraaccttss hheelldd
$$mm
—
3.6
410.3
2.2
51.9
468.0
2. The maturity profile of long-term debt includes accrued interest.
1. Reinsurance contracts held classified as ‘other’ include $43.4 million which are fully collateralised.
162 Lancashire Holdings Limited | Annual Report & Accounts 2023
Lancashire Holdings Limited | Annual Report & Accounts 2023 163
163
Lancashire Holdings Limited | Annual Report & Accounts 2023
Financial Statements
Risk disclosures continued
As at 31 December 2022
AAA
AA+, AA, AA-
A+, A, A-
BBB+, BBB, BBB-
Other1
Total
Cash and cash
equivalents
$m
382.7
2.5
163.4
—
0.2
548.8
Fixed maturity
securities
$m
189.3
903.4
459.0
284.4
128.8
1,964.9
Restated
Credit exposed
component of
reinsurance
contracts held
$m
—
4.1
513.1
2.7
50.5
570.4
1. Reinsurance contracts held classified as ‘other’ include $42.0 million which are fully collateralised.
Reinsurance is ceded across all geographic regions in which the Group operates. The Group does not have a significant concentration of credit risk
with any single reinsurer.
The Group’s maximum exposure to credit risk arising from insurance contracts issued is $747.1 million (31 December 2022 – $622.2 million
(restated)), which relates to the elements of the insurance contract liabilities balance which are considered to be exposed to credit risk, specifically,
premium receivables and reinstatement premium receivables, net of profit commissions payable on inwards reinsurance business.
ECL have been determined to be immaterial as at 31 December 2023 and 31 December 2022.
EE.. OOppeerraattiioonnaall rriisskk
Operational risk is the risk of loss resulting from inadequate or failed internal processes, personnel, systems, or non-insurance external events. The
Group and its subsidiaries have identified and evaluated their key operational risks, and these are incorporated in the risk registers and modelled
within the subsidiaries’ capital models. The Group has also established, and monitors compliance with, internal operational risk tolerances. The RRC
reviews operational risk on at least an annual basis and operational risk is covered in the Group CRO’s quarterly ORSA report to the LHL Board of
Directors, entity level boards, and in the LSL RCC reporting.
In order to manage operational risks, the Group has implemented a robust governance framework. Policies and procedures are documented and
identify the key risks and controls within processes. Key risk indicators have been established and are monitored on a regular basis, and a formal loss
event and near-miss reporting process has been implemented. The risk management function facilitates a quarterly risk and control affirmation
process and performs detailed control testing, the outcomes of which inform the CRO’s quarterly opinion of the overall control environment. The
Group’s internal audit function provides independent feedback with regard to the accuracy and completeness of key risks and controls, and
independently verifies the effective operation of these through sample testing. All higher risk areas are subject to an annual audit, while compliance
with tax operating guidelines is reviewed quarterly. Frequency of consideration for audit for all other areas varies from quarterly at the most
frequent, to a minimum of once every four years, on a rotational basis.
The operational cyber risk that comes with employees working from home is managed through enhanced monitoring of network activity, targeted
staff training, a quarterly risk and control affirmation process, annual testing of business continuity plans and disaster recovery plans, and a cyber
security incident response plan. The risk is monitored on an ongoing basis through the use of a series of quantitative key risk indicators which are
the aggregate of key performance indicators monitored by the Group’s information security function.
FF.. SSttrraatteeggiicc rriisskk
Strategic risk is the risk that the Group does not develop and implement an appropriate long-term strategy to meet its business goals. The Group
has identified several strategic risks. These include: i) business planning risk, ii) capital management risk, iii) retention risk and iv) growth risk.
I. Business planning risk
Business planning risk is the risk that either the poor execution of the business plan or an inappropriate business plan, results in a strategy that fails
to adequately consider and reflect the current trading environment, resulting in an inability of the Group to optimise performance, increasing
reputational risk. The Group addresses the risks associated with the planning and execution of the business plan through a combination of the
following:
• an iterative annual forward-looking business planning process with cross departmental involvement;
• evaluation and approval of the annual business plan by the Board of Directors;
•
• periodic review and re-forecasting as market conditions change; and
• evaluation of climate change and the potential short, medium and long-term implications/considerations for the business.
regular monitoring of actual versus planned results;
164 Lancashire Holdings Limited | Annual Report & Accounts 2023
164
Lancashire Holdings Limited | Annual Report & Accounts 2023
Risk disclosures continued
As at 31 December 2022
AAA
AA+, AA, AA-
A+, A, A-
BBB+, BBB, BBB-
Other1
Total
Cash and cash
equivalents
Fixed maturity
securities
$m
$m
382.7
2.5
163.4
—
0.2
189.3
903.4
459.0
284.4
128.8
548.8
1,964.9
Restated
Credit exposed
component of
reinsurance
contracts held
$m
—
4.1
513.1
2.7
50.5
570.4
1. Reinsurance contracts held classified as ‘other’ include $42.0 million which are fully collateralised.
Reinsurance is ceded across all geographic regions in which the Group operates. The Group does not have a significant concentration of credit risk
with any single reinsurer.
The Group’s maximum exposure to credit risk arising from insurance contracts issued is $747.1 million (31 December 2022 – $622.2 million
(restated)), which relates to the elements of the insurance contract liabilities balance which are considered to be exposed to credit risk, specifically,
premium receivables and reinstatement premium receivables, net of profit commissions payable on inwards reinsurance business.
ECL have been determined to be immaterial as at 31 December 2023 and 31 December 2022.
EE.. OOppeerraattiioonnaall rriisskk
Operational risk is the risk of loss resulting from inadequate or failed internal processes, personnel, systems, or non-insurance external events. The
Group and its subsidiaries have identified and evaluated their key operational risks, and these are incorporated in the risk registers and modelled
within the subsidiaries’ capital models. The Group has also established, and monitors compliance with, internal operational risk tolerances. The RRC
reviews operational risk on at least an annual basis and operational risk is covered in the Group CRO’s quarterly ORSA report to the LHL Board of
Directors, entity level boards, and in the LSL RCC reporting.
In order to manage operational risks, the Group has implemented a robust governance framework. Policies and procedures are documented and
identify the key risks and controls within processes. Key risk indicators have been established and are monitored on a regular basis, and a formal loss
event and near-miss reporting process has been implemented. The risk management function facilitates a quarterly risk and control affirmation
process and performs detailed control testing, the outcomes of which inform the CRO’s quarterly opinion of the overall control environment. The
Group’s internal audit function provides independent feedback with regard to the accuracy and completeness of key risks and controls, and
independently verifies the effective operation of these through sample testing. All higher risk areas are subject to an annual audit, while compliance
with tax operating guidelines is reviewed quarterly. Frequency of consideration for audit for all other areas varies from quarterly at the most
frequent, to a minimum of once every four years, on a rotational basis.
The operational cyber risk that comes with employees working from home is managed through enhanced monitoring of network activity, targeted
staff training, a quarterly risk and control affirmation process, annual testing of business continuity plans and disaster recovery plans, and a cyber
security incident response plan. The risk is monitored on an ongoing basis through the use of a series of quantitative key risk indicators which are
the aggregate of key performance indicators monitored by the Group’s information security function.
FF.. SSttrraatteeggiicc rriisskk
I. Business planning risk
following:
Strategic risk is the risk that the Group does not develop and implement an appropriate long-term strategy to meet its business goals. The Group
has identified several strategic risks. These include: i) business planning risk, ii) capital management risk, iii) retention risk and iv) growth risk.
Business planning risk is the risk that either the poor execution of the business plan or an inappropriate business plan, results in a strategy that fails
to adequately consider and reflect the current trading environment, resulting in an inability of the Group to optimise performance, increasing
reputational risk. The Group addresses the risks associated with the planning and execution of the business plan through a combination of the
• an iterative annual forward-looking business planning process with cross departmental involvement;
• evaluation and approval of the annual business plan by the Board of Directors;
•
regular monitoring of actual versus planned results;
• periodic review and re-forecasting as market conditions change; and
• evaluation of climate change and the potential short, medium and long-term implications/considerations for the business.
The forward-looking business planning process covers a three-year period from 2024 to 2026, and applies a number of sensitivity, stress and
scenario tests. These tests include consideration of climate change risks. The sensitivity and stress testing identified that even under the more
extreme stress scenarios the Group had more than adequate liquidity and regulatory solvency capital headroom.
II. Capital management risk
Capital management risk is the risk of failing to maintain adequate capital, accessing capital at an inflated cost, or the inability to access capital.
This includes unanticipated changes in vendor, regulatory and/or rating agency models, that could result in an increase in capital requirements, or a
change in the type of capital required. The total capital of the Group is as follows:
AAss aatt 3311 DDeecceemmbbeerr
Shareholders’ equity
Long-term debt
Total capital
Less: intangible assets
Total tangible capital
22002233
$$mm
1,507.9
446.6
1,954.5
181.1
1,773.4
Restated
2022
$m
1,326.1
446.1
1,772.2
172.4
1,599.8
Risks associated with the effectiveness of the Group’s capital management are mitigated as follows:
regular monitoring of current and prospective regulatory and rating agency capital requirements;
regular discussion with the LSL management team regarding Lloyd’s capital requirements;
•
•
• oversight of capital requirements by the Board of Directors;
• ability to purchase sufficient, cost-effective reinsurance;
• maintaining contact with vendors, regulators and rating agencies in order to stay abreast of upcoming developments; and
• participation in industry groups such as the International Underwriters Association, the Association of Bermuda Insurers and Reinsurers and the Lloyd’s
Market Association.
The Group reviews the level and composition of capital on an ongoing basis with a view to:
• maintaining sufficient capital for underwriting opportunities and to meet obligations to policyholders;
• maximising the risk-adjusted return to shareholders within predetermined risk tolerances;
• maintaining adequate financial strength ratings; and
• meeting internal, rating agency and regulatory capital requirements.
Increases in the Group’s capital are held within the Group, invested, or returned to shareholders as appropriate. The retention of earnings generated
by the Group leads to an increase in capital. Capital raising can include debt or equity, and returns of capital may be made through dividends, share
repurchases, a redemption of debt, or any combination thereof. All capital actions require approval by the Board of Directors.
Internal methods have been developed to review the profitability of classes of business and their estimated capital requirements, plus the capital
requirements of the combination of a wide range of other business activities. These approaches are used by management in decision-making.
The Group’s long-term debt held as at 31 December 2023 and 31 December 2022 is approved as ‘Tier 2 Ancillary Capital’ by the BMA.
The Group’s aim is to maximise risk-adjusted returns for its shareholders across the cycle through a purposeful and sustainable business culture.
The return is measured by management in terms of the Change in DBVS in the period. This aim is a long-term goal, acknowledging that
management expects both higher and lower results in the shorter term. The cyclicality and volatility of the insurance market is expected to be the
largest driver of this pattern. Management monitors these peaks and troughs by adjusting the Group’s portfolio to make the most effective use of
available capital and seeking to maximise the risk-adjusted return.
The sources of capital used by the Group is equity shareholders’ funds and borrowings. As a holding company, LHL relies on dividends from its
operating entities to provide the cash flow required for debt service and dividends to shareholders. The operating entities’ ability to pay dividends
and make capital distributions is subject to the legal and regulatory restrictions of the jurisdictions in which they operate.
Both the Group and LICL are regulated by the BMA, and are required to monitor their enhanced capital requirement under the BMA’s regulatory
framework, which has been assessed as equivalent to the Solvency II regime. Bermuda is also recognised as a qualified and reciprocal jurisdiction by
the U.S. NAIC, and LICL is approved as a reciprocal reinsurer. The Group and LICL’s capital requirement are calculated using the BSCR standard
formula model. For the years ended 31 December 2023 and 31 December 2022, both the Group and LICL were more than adequately capitalised
under the BMA’s regulatory regime.
The Group’s UK regulated insurance companies are required to comply with the Solvency II regime and are regulated by the PRA and FCA. LSL is
also regulated by Lloyd’s. Under Solvency II, the basis for assessing regulatory capital and solvency comprises a market-consistent economic
balance sheet and a SCR, determined using either an internal model or the standard formula.
164 Lancashire Holdings Limited | Annual Report & Accounts 2023
Lancashire Holdings Limited | Annual Report & Accounts 2023 165
165
Lancashire Holdings Limited | Annual Report & Accounts 2023
Financial Statements
Risk disclosures continued
LUK calculates its SCR using the standard formula. LUK’s Solvency II own funds are primarily comprised of Tier 1 items for the years ended 31
December 2023 and 31 December 2022. Tier 1 capital is the highest-quality capital under Solvency II with the greatest loss-absorbing capacity,
comprising share capital and retained earnings. For the years ended 31 December 2023 and 31 December 2022, LUK was more than adequately
capitalised under the Solvency II regime.
The Group is closely monitoring consultations and proposals related to changes to the UK Solvency regime post the UK’s departure from the E.U.
on 31 December 2020. Whilst the areas under review are not currently expected to have a material impact on the solvency position of any of the
Group’s UK regulated entities, there will likely be a change in the reporting requirements.
The Group’s underwriting capacity in its Lloyd’s syndicates must be supported by providing a deposit in the form of cash, securities, or LOCs, which
are referred to as FAL. The capital framework at Lloyd’s requires each managing agent to calculate the capital requirement for each syndicate they
manage. Solvency II internal models are used to determine capital requirements for Syndicate 2010 and Syndicate 3010 based on the uSCR. Lloyd’s
has the discretion to take into account other factors at syndicate or member level to uplift the calculated uSCR. This may include perceived
deficiencies in the internal model result, as well as the need to maintain Lloyd’s overall security rating. Currently, as a minimum, Lloyd’s applies a
35.0% uplift to each syndicate’s uSCR to arrive at the ECA.
Lloyd’s then uses each syndicate’s ECA as a basis for determining member level capital requirements, which is backed by FAL. For the 2024 calendar
year the Group’s corporate member’s FAL requirement was set at 67.0% (2023 – 83.5%) of underwriting capacity. Further solvency adjustments
are made to allow for open year profits and losses of the syndicates on which the corporate member participates. The Group has a FAL requirement
of £461.2 million as at 31 December 2023 (31 December 2022 – £544.5 million).
For the years ended 31 December 2023 and 31 December 2022, the regulatory capital requirements of all the Group’s regulatory jurisdictions were
met.
III. Retention risk
Retention risk is the risk of inappropriate succession planning, poor staff retention in key roles, and poor management of key person risks. Risks
associated with succession planning, staff retention and key person risks are mitigated through a combination of resource planning processes and
controls, including:
the identification of key personnel, together with appropriate succession plans;
•
• documented recruitment procedures, position descriptions and employment contracts;
•
•
•
resource monitoring and the provision of appropriate compensation, including equity based compensation which vests over a defined time horizon;
the use of KRIs for voluntary staff turnovers; and
training schemes.
IV. Growth risk
Growth risk is the risk of organisational stretch as the Group grows, in terms of volume of business written and number of employees, as well as
from transformation programmes to ensure the Group has appropriate systems, infrastructure and data in place to support business activities.
Growth risk is mitigated through continuous monitoring of the Group’s current state against the Group’s business plan and goals, together with
engagement with individual management teams within the Group to validate that they have the resources they require to deliver their own
business objectives.
166 Lancashire Holdings Limited | Annual Report & Accounts 2023
166
Lancashire Holdings Limited | Annual Report & Accounts 2023
Risk disclosures continued
Notes to the accounts
For the year ended 31 December 2023
LUK calculates its SCR using the standard formula. LUK’s Solvency II own funds are primarily comprised of Tier 1 items for the years ended 31
December 2023 and 31 December 2022. Tier 1 capital is the highest-quality capital under Solvency II with the greatest loss-absorbing capacity,
comprising share capital and retained earnings. For the years ended 31 December 2023 and 31 December 2022, LUK was more than adequately
capitalised under the Solvency II regime.
The Group is closely monitoring consultations and proposals related to changes to the UK Solvency regime post the UK’s departure from the E.U.
on 31 December 2020. Whilst the areas under review are not currently expected to have a material impact on the solvency position of any of the
Group’s UK regulated entities, there will likely be a change in the reporting requirements.
The Group’s underwriting capacity in its Lloyd’s syndicates must be supported by providing a deposit in the form of cash, securities, or LOCs, which
are referred to as FAL. The capital framework at Lloyd’s requires each managing agent to calculate the capital requirement for each syndicate they
manage. Solvency II internal models are used to determine capital requirements for Syndicate 2010 and Syndicate 3010 based on the uSCR. Lloyd’s
has the discretion to take into account other factors at syndicate or member level to uplift the calculated uSCR. This may include perceived
deficiencies in the internal model result, as well as the need to maintain Lloyd’s overall security rating. Currently, as a minimum, Lloyd’s applies a
35.0% uplift to each syndicate’s uSCR to arrive at the ECA.
Lloyd’s then uses each syndicate’s ECA as a basis for determining member level capital requirements, which is backed by FAL. For the 2024 calendar
year the Group’s corporate member’s FAL requirement was set at 67.0% (2023 – 83.5%) of underwriting capacity. Further solvency adjustments
are made to allow for open year profits and losses of the syndicates on which the corporate member participates. The Group has a FAL requirement
of £461.2 million as at 31 December 2023 (31 December 2022 – £544.5 million).
For the years ended 31 December 2023 and 31 December 2022, the regulatory capital requirements of all the Group’s regulatory jurisdictions were
met.
III. Retention risk
controls, including:
•
•
•
•
training schemes.
IV. Growth risk
business objectives.
Retention risk is the risk of inappropriate succession planning, poor staff retention in key roles, and poor management of key person risks. Risks
associated with succession planning, staff retention and key person risks are mitigated through a combination of resource planning processes and
the identification of key personnel, together with appropriate succession plans;
• documented recruitment procedures, position descriptions and employment contracts;
resource monitoring and the provision of appropriate compensation, including equity based compensation which vests over a defined time horizon;
the use of KRIs for voluntary staff turnovers; and
Growth risk is the risk of organisational stretch as the Group grows, in terms of volume of business written and number of employees, as well as
from transformation programmes to ensure the Group has appropriate systems, infrastructure and data in place to support business activities.
Growth risk is mitigated through continuous monitoring of the Group’s current state against the Group’s business plan and goals, together with
engagement with individual management teams within the Group to validate that they have the resources they require to deliver their own
11.. GGeenneerraall iinnffoorrmmaattiioonn
The Group is a provider of global specialty insurance and reinsurance products with operations in London, Bermuda, the U.S. and Australia. LHL was
incorporated under the laws of Bermuda on 12 October 2005. On 16 March 2009, LHL (registered number 37415) was added to the Official List and
its common shares were admitted to trading on the main market of the LSE; previously LHL’s shares were listed on AIM, a subsidiary market of the
LSE. Since 21 May 2007, LHL’s shares have had a secondary listing on the BSX. LHL’s head office and registered office is Power House, 7 Par-la-Ville
Road, Hamilton HM 11, Bermuda.
The consolidated financial statements for the year ended 31 December 2023 include LHL’s subsidiary companies, the Group’s investment in
associate, and the Group’s share of the syndicates’ assets and liabilities, and income and expenses. A full listing of the Group’s related parties can be
found in note 22.
22.. SSeeggmmeennttaall rreeppoorrttiinngg
Management and the Board of Directors review the Group’s business primarily by its two principal segments: reinsurance and insurance. These
segments are therefore deemed to be the Group’s operating segments for the purposes of segmental reporting. Lines of business are underwritten
within each operating segment. These lines of business written primarily, but not exclusively, on a reinsurance or insurance basis are reported under
the Head of Reinsurance and the Head of Insurance based on the products that they manage.
Operating segment performance is measured by the insurance service result and net insurance ratio. The performance of the overall Group is
measured by the combined ratio on both an undiscounted and discounted basis.
All amounts reported are transactions with external parties and the Group’s associate (see note 15). There are no significant inter-segmental
transactions, and there are no significant insurance or reinsurance contracts that insure or reinsure risks in Bermuda, the Group’s country of
domicile.
Revenue and expense by operating segment
FFoorr tthhee yyeeaarr eennddeedd 3311 DDeecceemmbbeerr 22002233
Insurance revenue
Insurance service expenses
Insurance service result before reinsurance contracts held
Allocation of reinsurance premium
Amounts recoverable from reinsurers
Net expense from reinsurance contracts held
Insurance service result
Finance (expense) from insurance contracts issued
Finance income from reinsurance contracts held
Net insurance financing result
Net investment return
Other operating expenses
Net other unallocated income and (expenses)
Profit before tax
Net insurance ratio
Net operating expense ratio
Combined ratio (discounted)
Discounting impact on combined ratio
Combined ratio (undiscounted)
RReeiinnssuurraannccee
$$mm
714.9
(254.2)
460.7
(174.6)
(78.2)
(252.8)
IInnssuurraannccee
$$mm
805.0
(442.0)
363.0
(250.2)
61.4
(188.8)
TToottaall
$$mm
1,519.9
(696.2)
823.7
(424.8)
(16.8)
(441.6)
207.9
174.2
382.1
(56.6)
16.8
(39.8)
(41.7)
14.9
(26.8)
61.5%
68.6%
(98.3)
31.7
(66.6)
160.5
(107.4)
(35.9)
332.7
65.1%
9.8%
74.9%
7.7%
82.6%
166 Lancashire Holdings Limited | Annual Report & Accounts 2023
Lancashire Holdings Limited | Annual Report & Accounts 2023 167
167
Lancashire Holdings Limited | Annual Report & Accounts 2023
Financial Statements
Notes to the accounts continued
22.. SSeeggmmeennttaall rreeppoorrttiinngg ccoonnttiinnuueedd
For the year ended 31 December 2022 - Restated
Insurance revenue
Insurance service expenses
Insurance service result before reinsurance contracts held
Allocation of reinsurance premium
Amounts recoverable from reinsurers
Net expenses from reinsurance contracts held
Insurance service result
Finance income from insurance contracts issued
Finance (expense) from reinsurance contracts held
Net insurance financing result
Net investment return
Other operating expenses
Net other unallocated income and (expenses)
Loss before tax
Net insurance ratio
Net operating expense ratio
Combined ratio (discounted)
Discounting impact on combined ratio
Combined ratio (undiscounted)
Reinsurance
$m
560.4
(528.3)
32.1
(152.7)
140.0
(12.7)
Insurance
$m
666.1
(466.3)
199.8
(219.1)
141.5
(77.6)
Total
$m
1,226.5
(994.6)
231.9
(371.8)
281.5
(90.3)
19.4
122.2
141.6
16.6
(5.2)
11.4
3.5
(1.5)
2.0
95.2%
72.7%
20.1
(6.7)
13.4
(76.7)
(58.3)
(37.3)
(17.3)
83.4%
6.8%
90.2%
8.5%
98.7%
33.. NNeett iinnssuurraannccee ffiinnaanncciinngg rreessuulltt
IFRS 17 requires insurance contracts issued and reinsurance contracts held to be accounted for on a discounted basis. The table below shows the
total impact of discounting recognised in the consolidated statement of comprehensive income for the years ended 31 December 2023 and 31
December 2022.
FFoorr tthhee yyeeaarr eennddeedd 3311 DDeecceemmbbeerr 22002233
Initial discount included in insurance service result
Unwind of discount
Impact of change in assumptions
Finance (expense) income
Total net discounting income
FFoorr tthhee yyeeaarr eennddeedd 3311 DDeecceemmbbeerr 22002222
Initial discount included in insurance service result
Unwind of discount
Impact of change in assumptions
Finance income (expense)
Total net discounting income (expense)
IInnssuurraannccee
ccoonnttrraaccttss iissssuueedd
$$mm
101.9
(84.2)
(14.1)
(98.3)
3.6
RReeiinnssuurraannccee
ccoonnttrraaccttss hheelldd
$$mm
(17.2)
28.4
3.3
31.7
14.5
Insurance
contracts issued
$m
109.1
Reinsurance
contracts held
$m
(36.6)
(39.7)
59.8
20.1
129.2
13.7
(20.4)
(6.7)
(43.3)
TToottaall
$$mm
84.7
(55.8)
(10.8)
(66.6)
18.1
Total
$m
72.5
(26.0)
39.4
13.4
85.9
The discounting approach and the yield curves used to discount the cash flows of insurance contracts issued and reinsurance contracts held for our
major currencies are provided within the risk disclosures on pages 157 to 158.
168 Lancashire Holdings Limited | Annual Report & Accounts 2023
168
Lancashire Holdings Limited | Annual Report & Accounts 2023
Notes to the accounts continued
22.. SSeeggmmeennttaall rreeppoorrttiinngg ccoonnttiinnuueedd
For the year ended 31 December 2022 - Restated
Insurance revenue
Insurance service expenses
Insurance service result before reinsurance contracts held
Allocation of reinsurance premium
Amounts recoverable from reinsurers
Net expenses from reinsurance contracts held
Insurance service result
Finance income from insurance contracts issued
Finance (expense) from reinsurance contracts held
Net other unallocated income and (expenses)
Net insurance financing result
Net investment return
Other operating expenses
Loss before tax
Net insurance ratio
Net operating expense ratio
Combined ratio (discounted)
Discounting impact on combined ratio
Combined ratio (undiscounted)
33.. NNeett iinnssuurraannccee ffiinnaanncciinngg rreessuulltt
December 2022.
FFoorr tthhee yyeeaarr eennddeedd 3311 DDeecceemmbbeerr 22002233
Initial discount included in insurance service result
Unwind of discount
Impact of change in assumptions
Finance (expense) income
Total net discounting income
FFoorr tthhee yyeeaarr eennddeedd 3311 DDeecceemmbbeerr 22002222
Initial discount included in insurance service result
Unwind of discount
Impact of change in assumptions
Finance income (expense)
Total net discounting income (expense)
Reinsurance
$m
560.4
(528.3)
32.1
Insurance
$m
666.1
(466.3)
199.8
Total
$m
1,226.5
(994.6)
231.9
(152.7)
(219.1)
(371.8)
140.0
(12.7)
141.5
(77.6)
281.5
(90.3)
19.4
122.2
141.6
16.6
(5.2)
11.4
3.5
(1.5)
2.0
95.2%
72.7%
IInnssuurraannccee
ccoonnttrraaccttss iissssuueedd
RReeiinnssuurraannccee
ccoonnttrraaccttss hheelldd
$$mm
101.9
(84.2)
(14.1)
(98.3)
3.6
$m
109.1
(39.7)
59.8
20.1
129.2
$$mm
(17.2)
28.4
3.3
31.7
14.5
$m
(36.6)
13.7
(20.4)
(6.7)
(43.3)
Insurance
contracts issued
Reinsurance
contracts held
20.1
(6.7)
13.4
(76.7)
(58.3)
(37.3)
(17.3)
83.4%
6.8%
90.2%
8.5%
98.7%
TToottaall
$$mm
84.7
(55.8)
(10.8)
(66.6)
18.1
Total
$m
72.5
(26.0)
39.4
13.4
85.9
An analysis of the Group’s net investment return is disclosed within note 4. The relationship between the Group’s total finance income and expense
from insurance contracts issued, and reinsurance contracts held, is not typically expected to correlate directly with the Group’s net investment
return since:
•
•
•
the Group’s investment portfolio is of greater magnitude than its insurance contract liabilities, net of its reinsurance contract assets;
in accordance with the requirements of IFRS 17, the discount rate used in respect of the Group’s insurance contract liabilities, and reinsurance contract
assets, are set with specific reference to the Group’s insurance contracts, and not its investment portfolio; and
there are a mixture of securities within the Group’s investment portfolio, certain of which do not have their valuation directly or primarily affected by
changes in interest rates.
44.. NNeett iinnvveessttmmeenntt rreettuurrnn
The total net investment return for the Group is as follows:
FFoorr tthhee yyeeaarr eennddeedd 3311 DDeecceemmbbeerr
Interest and dividend income on financial investments
Interest on cash and cash equivalents
Net realised gains (losses)
Net unrealised gains (losses)
Investment income (loss)
Investment management fees
Total net investment return
The Group adopted IFRS 9 on 1 January 2023 (see note 24).
55.. OOtthheerr iinnccoommee
FFoorr tthhee yyeeaarr eennddeedd 3311 DDeecceemmbbeerr
Lancashire Capital Management
Underwriting fees
Profit commission
Lancashire Syndicates
Managing agency fees
Consortium fees
Consortium profit commission
Coverholder commission income
Total other income
22002233
$$mm
85.9
22.6
3.9
53.4
165.8
(5.3)
160.5
22002233
$$mm
—
—
1.0
1.3
0.3
0.3
2.9
Restated
2022
$m
51.1
4.6
(24.7)
(103.0)
(72.0)
(4.7)
(76.7)
2022
$m
3.1
0.9
1.1
1.1
0.1
0.2
6.5
In the year ended 31 December 2023, LCM did not recognise any underwriting fees as there were no new underwriting cycles entered into. As at 31
December 2023, contract assets in relation to other income amounted to $2.1 million (31 December 2022 – $1.3 million). These contract assets are
presented within other receivables in the consolidated statement of financial position.
66.. EExxppeennsseess
Expenses incurred by the Group in the reporting period are outlined in the table below.
FFoorr tthhee yyeeaarr eennddeedd 3311 DDeecceemmbbeerr
Employee remuneration costs
Operating expenses
Total
OOtthheerr ooppeerraattiinngg
eexxppeennsseess
$$mm
70.5
36.9
107.4
DDiirreeccttllyy
aattttrriibbuuttaabbllee
eexxppeennsseess
$$mm
49.4
32.8
82.2
22002233
TToottaall
eexxppeennsseess
$$mm
119.9
69.7
189.6
Other operating
expenses
$m
33.8
24.5
58.3
Directly
attributable
expenses
$m
40.2
30.2
70.4
Restated
2022
Total
expenses
$m
74.0
54.7
128.7
Directly attributable expenses comprise fixed and variable expenses incurred by the Group in the reporting period that relate directly to fulfilling
insurance contracts issued, and have been allocated to insurance service expenses within the consolidated statement of comprehensive income.
IFRS 17 requires insurance contracts issued and reinsurance contracts held to be accounted for on a discounted basis. The table below shows the
total impact of discounting recognised in the consolidated statement of comprehensive income for the years ended 31 December 2023 and 31
The discounting approach and the yield curves used to discount the cash flows of insurance contracts issued and reinsurance contracts held for our
major currencies are provided within the risk disclosures on pages 157 to 158.
168 Lancashire Holdings Limited | Annual Report & Accounts 2023
Lancashire Holdings Limited | Annual Report & Accounts 2023 169
169
Lancashire Holdings Limited | Annual Report & Accounts 2023
Financial Statements
Notes to the accounts continued
Auditor’s remuneration included within other operating expenses incurred by the Group in the reporting period is outlined in the table below.
FFoorr tthhee yyeeaarr eennddeedd 3311 DDeecceemmbbeerr
Auditor’s remuneration
Group audit fees
Other services
Total
22002233
$$mm
4.9
0.6
5.5
2022
$m
4.1
0.4
4.5
During the years ended 31 December 2023 and 31 December 2022, KPMG LLP provided non-audit services in relation to the Group’s half-year
reporting review, Solvency II reporting and Lloyd’s reporting. Fees for non-audit services provided in 2023 totalled $0.6 million (2022 – $0.4
million).
77.. EEmmppllooyyeeee bbeenneeffiittss
FFoorr tthhee yyeeaarr eennddeedd 3311 DDeecceemmbbeerr
Employee remuneration cost
Total cash compensation
RSS – performance
RSS – ordinary
RSS – bonus deferral
Total equity based compensation
Total employee benefits
OOtthheerr
ooppeerraattiinngg
eexxppeennsseess
$$mm
70.5
70.5
4.3
10.5
0.4
15.2
85.7
22002233
DDiirreeccttllyy
aattttrriibbuuttaabbllee
eexxppeennsseess
$$mm
49.4
49.4
—
—
—
—
49.4
TToottaall
eexxppeennsseess
$$mm
119.9
119.9
4.3
10.5
0.4
15.2
135.1
Other
operating
expenses
$m
33.8
33.8
0.5
7.4
0.7
8.6
42.4
2022
Directly
attributable
expenses
$m
40.2
40.2
—
—
—
—
40.2
Restated
Total
expenses
$m
74.0
74.0
0.5
7.4
0.7
8.6
82.6
Equity based compensation
The Group’s equity based compensation scheme is its RSS. All outstanding and future RSS grants have an exercise price of $nil, and an exercise
period of ten years from the grant date.
The fair value of any TSR component of the nil-cost options is estimated using a stochastic model. For all other components the Black-Scholes
model is used to estimate the fair value. The following table lists the assumptions used in the stochastic model for the RSS awards granted during
the years ended 31 December 2023 and 31 December 2022:
AAssssuummppttiioonnss
Dividend yield
Expected volatility1
Risk-free interest rate2
Expected average life of options
Share price
22002233
—
33.5%
3.3%
3.0 years
$7.48
2022
—
28.1%
1.3%
3.0 years
$6.72
1. The expected volatility of the LHL share prices are calculated based on the movement in the share prices over a period prior to the grant date, equal in length to the expected life of the
award.
2. The risk-free interest rate is consistent with three-year UK government bond yields on the date of grant.
The calculation of the equity based compensation expense assumes forfeitures due to employee turnover of 10.0% per annum prior to vesting, with
subsequent adjustments to reflect actual experience.
RSS – Performance
The performance RSS options vest after a three-year period and are dependent on certain performance criteria. A maximum of 85.0% (2022 –
85.0%) of the performance RSS options will vest only on the achievement of a change in DBVS in excess of a required amount. A maximum of
15.0% (2022 – 15.0%) of the performance RSS options will vest only on the achievement of an absolute TSR in excess of a required amount. An
amount equivalent to the dividends paid between the grant date and the exercise date accrues and is paid at the time of exercise, pro-rata
according to the number of RSS options that vest.
170 Lancashire Holdings Limited | Annual Report & Accounts 2023
170
Lancashire Holdings Limited | Annual Report & Accounts 2023
Notes to the accounts continued
FFoorr tthhee yyeeaarr eennddeedd 3311 DDeecceemmbbeerr
Auditor’s remuneration
Group audit fees
Other services
Total
million).
77.. EEmmppllooyyeeee bbeenneeffiittss
FFoorr tthhee yyeeaarr eennddeedd 3311 DDeecceemmbbeerr
Employee remuneration cost
Total cash compensation
RSS – performance
RSS – ordinary
RSS – bonus deferral
Total equity based compensation
Total employee benefits
Equity based compensation
period of ten years from the grant date.
AAssssuummppttiioonnss
Dividend yield
Expected volatility1
Risk-free interest rate2
Expected average life of options
Share price
award.
Auditor’s remuneration included within other operating expenses incurred by the Group in the reporting period is outlined in the table below.
During the years ended 31 December 2023 and 31 December 2022, KPMG LLP provided non-audit services in relation to the Group’s half-year
reporting review, Solvency II reporting and Lloyd’s reporting. Fees for non-audit services provided in 2023 totalled $0.6 million (2022 – $0.4
22002233
DDiirreeccttllyy
aattttrriibbuuttaabbllee
eexxppeennsseess
$$mm
49.4
49.4
—
—
—
—
OOtthheerr
ooppeerraattiinngg
eexxppeennsseess
$$mm
70.5
70.5
4.3
10.5
0.4
15.2
85.7
TToottaall
eexxppeennsseess
$$mm
119.9
119.9
4.3
10.5
0.4
15.2
Other
operating
expenses
$m
33.8
33.8
0.5
7.4
0.7
8.6
42.4
2022
Directly
attributable
expenses
$m
40.2
40.2
—
—
—
—
40.2
49.4
135.1
The Group’s equity based compensation scheme is its RSS. All outstanding and future RSS grants have an exercise price of $nil, and an exercise
The fair value of any TSR component of the nil-cost options is estimated using a stochastic model. For all other components the Black-Scholes
model is used to estimate the fair value. The following table lists the assumptions used in the stochastic model for the RSS awards granted during
the years ended 31 December 2023 and 31 December 2022:
1. The expected volatility of the LHL share prices are calculated based on the movement in the share prices over a period prior to the grant date, equal in length to the expected life of the
2. The risk-free interest rate is consistent with three-year UK government bond yields on the date of grant.
The calculation of the equity based compensation expense assumes forfeitures due to employee turnover of 10.0% per annum prior to vesting, with
subsequent adjustments to reflect actual experience.
RSS – Performance
The performance RSS options vest after a three-year period and are dependent on certain performance criteria. A maximum of 85.0% (2022 –
85.0%) of the performance RSS options will vest only on the achievement of a change in DBVS in excess of a required amount. A maximum of
15.0% (2022 – 15.0%) of the performance RSS options will vest only on the achievement of an absolute TSR in excess of a required amount. An
amount equivalent to the dividends paid between the grant date and the exercise date accrues and is paid at the time of exercise, pro-rata
according to the number of RSS options that vest.
22002233
$$mm
4.9
0.6
5.5
2022
$m
4.1
0.4
4.5
Restated
Total
expenses
$m
74.0
74.0
0.5
7.4
0.7
8.6
82.6
22002233
—
33.5%
3.3%
2022
—
28.1%
1.3%
3.0 years
3.0 years
$7.48
$6.72
Outstanding as at 31 December 2021
Granted
Exercised
Forfeited
Lapsed
Outstanding as at 31 December 2022
Granted
Exercised
Forfeited
Lapsed
Outstanding as at 31 December 2023
Exercisable as at 31 December 2022
Exercisable as at 31 December 2023
Weighted average remaining contractual life
Weighted average fair value at date of grant during the year
Weighted average share price at date of exercise during the year
TToottaall nnuummbbeerr ooff
rreessttrriicctteedd sshhaarreess
3,263,712
1,166,257
(387,722)
(186,988)
(457,700)
3,397,559
892,049
(102,529)
(19,846)
(665,089)
3,502,144
140,323
197,203
22002233
TToottaall
rreessttrriicctteedd sshhaarreess
7.9 years
$6.12
$7.31
2022
Total
restricted shares
8.1 years
$5.59
$6.59
RSS – Ordinary
The ordinary RSS options vest three years from the date of grant and do not have associated performance criteria. An amount equivalent to the
dividends paid between the grant date and the exercise date accrues and is paid at the time of exercise.
Outstanding as at 31 December 2021
Granted
Exercised
Forfeited
Outstanding as at 31 December 2022
Granted
Exercised
Forfeited
Outstanding as at 31 December 2023
Exercisable as at 31 December 2022
Exercisable as at 31 December 2023
Weighted average remaining contractual life
Weighted average fair value at date of grant during the year
Weighted average share price at date of exercise during the year
TToottaall nnuummbbeerr ooff
rreessttrriicctteedd sshhaarreess
2,883,971
1,994,874
(548,748)
(153,132)
4,176,965
1,989,850
(487,050)
(177,723)
5,502,042
634,373
834,085
22002233
TToottaall
rreessttrriicctteedd sshhaarreess
7.8 years
$7.48
$7.49
2022
Total
restricted shares
8.0 years
$6.69
$6.02
RSS – Bonus deferral
The vesting periods of the bonus deferral RSS options range from one to three years from the date of grant and do not have associated
performance criteria. An amount equivalent to the dividends paid between the grant date and the exercise date accrues and is paid at the time of
exercise.
170 Lancashire Holdings Limited | Annual Report & Accounts 2023
Lancashire Holdings Limited | Annual Report & Accounts 2023 171
171
Lancashire Holdings Limited | Annual Report & Accounts 2023
Financial Statements
Notes to the accounts continued
77.. EEmmppllooyyeeee bbeenneeffiittss ccoonnttiinnuueedd
Outstanding as at 31 December 2021
Granted
Exercised
Forfeited
Outstanding as at 31 December 2022
Granted
Exercised
Forfeited
Outstanding as at 31 December 2023
Exercisable as at 31 December 2022
Exercisable as at 31 December 2023
Weighted average remaining contractual life
Weighted average fair value at date of grant during the year
Weighted average share price at date of exercise during the year
TToottaall nnuummbbeerr ooff
rreessttrriicctteedd sshhaarreess
350,152
46,648
(114,196)
(14,056)
268,548
48,515
(86,391)
—
230,672
63,247
103,377
22002233
TToottaall
rreessttrriicctteedd sshhaarreess
6.7 years
$6.58
$7.31
2022
Total
restricted shares
7.2 years
$6.04
$6.45
RSS – Lancashire Syndicate Limited acquisition
The vesting periods of the LSL acquisition RSS options ranged from three to five years and were dependent on certain performance criteria. These
options vested in full on 31 December 2018. An amount equivalent to the dividends paid between the grant date and the exercise date accrues and
is paid at the time of exercise, pro-rata according to the number of RSS options that vested.
TToottaall nnuummbbeerr ooff
rreessttrriicctteedd sshhaarreess
64,742
(33,387)
31,355
(28,437)
(2,918)
—
31,355
—
22002233
TToottaall
rreessttrriicctteedd sshhaarreess
—
$13.01
$7.44
2022
Total
restricted shares
0.9 years
$13.01
$5.59
Outstanding as at 31 December 2021
Exercised
Outstanding as at 31 December 2022
Exercised
Forfeited
Outstanding as at 31 December 2023
Exercisable as at 31 December 2022
Exercisable as at 31 December 2023
Weighted average remaining contractual life
Weighted average fair value at date of grant
Weighted average share price at date of exercise during the year
172 Lancashire Holdings Limited | Annual Report & Accounts 2023
172
Lancashire Holdings Limited | Annual Report & Accounts 2023
Notes to the accounts continued
77.. EEmmppllooyyeeee bbeenneeffiittss ccoonnttiinnuueedd
Outstanding as at 31 December 2021
Granted
Exercised
Forfeited
Granted
Exercised
Forfeited
Outstanding as at 31 December 2022
Outstanding as at 31 December 2023
Exercisable as at 31 December 2022
Exercisable as at 31 December 2023
Outstanding as at 31 December 2021
Outstanding as at 31 December 2022
Exercised
Exercised
Forfeited
Outstanding as at 31 December 2023
Exercisable as at 31 December 2022
Exercisable as at 31 December 2023
Weighted average remaining contractual life
Weighted average fair value at date of grant during the year
Weighted average share price at date of exercise during the year
RSS – Lancashire Syndicate Limited acquisition
The vesting periods of the LSL acquisition RSS options ranged from three to five years and were dependent on certain performance criteria. These
options vested in full on 31 December 2018. An amount equivalent to the dividends paid between the grant date and the exercise date accrues and
is paid at the time of exercise, pro-rata according to the number of RSS options that vested.
22002233
TToottaall
2022
Total
rreessttrriicctteedd sshhaarreess
restricted shares
6.7 years
7.2 years
$6.58
$7.31
$6.04
$6.45
Weighted average remaining contractual life
Weighted average fair value at date of grant
Weighted average share price at date of exercise during the year
22002233
TToottaall
2022
Total
rreessttrriicctteedd sshhaarreess
restricted shares
—
0.9 years
$13.01
$7.44
$13.01
$5.59
TToottaall nnuummbbeerr ooff
rreessttrriicctteedd sshhaarreess
350,152
46,648
(114,196)
(14,056)
268,548
48,515
(86,391)
—
230,672
63,247
103,377
TToottaall nnuummbbeerr ooff
rreessttrriicctteedd sshhaarreess
64,742
(33,387)
31,355
(28,437)
(2,918)
—
31,355
—
88.. FFiinnaanncciinngg ccoosstt
FFoorr tthhee yyeeaarr eennddeedd 3311 DDeecceemmbbeerr
Interest expense on long-term debt
Interest expense on lease liabilities
Other financing costs
Total financing cost
Refer to note 18 for details of long-term debt and financing arrangements, and to note 16 for details of lease liabilities.
99.. TTaaxx
FFoorr tthhee yyeeaarr eennddeedd 3311 DDeecceemmbbeerr
Corporation tax charge for the period
Adjustments in respect of prior period corporation tax
Deferred tax charge (credit) for the period (see note 14)
Adjustment in respect of prior period deferred tax (see note 14)
Total tax charge (credit)
TTaaxx rreeccoonncciilliiaattiioonn11
Profit (loss) before tax
Tax calculated at the standard corporation tax rate applicable in Bermuda 0%
Non-taxable income
Effect of income taxed at a higher rate
Adjustments in respect of prior period
Differences related to equity based compensation
Other expense permanent differences
Total tax charge (credit)
1. All tax reconciling balances have been classified as recurring items.
The current tax charge (credit) as a percentage of the Group’s profit (loss) before tax is 3.4% (2022 – negative 10.4%).
United Kingdom
The UK subsidiaries of LHL are subject to normal UK corporation tax on all their taxable profits.
Refer to note 14 for details of recent OECD global minimum tax and Bermuda corporate income tax developments.
1100.. CCaasshh aanndd ccaasshh eeqquuiivvaalleennttss
AAss aatt 3311 DDeecceemmbbeerr
Cash at bank and in hand
Cash equivalents
Total cash and cash equivalents
22002233
$$mm
25.8
1.5
4.3
31.6
22002233
$$mm
5.8
(0.9)
3.8
2.5
11.2
22002233
$$mm
332.7
—
10.0
1.6
(0.7)
0.3
11.2
2022
$m
25.8
0.8
2.6
29.2
Restated
2022
$m
—
(0.6)
(2.3)
1.1
(1.8)
Restated
2022
$m
(17.3)
—
0.7
0.5
(0.4)
(2.6)
(1.8)
22002233
$$mm
324.0
432.9
756.9
2022
$m
191.6
357.2
548.8
Cash equivalents have an original maturity of three months or less. The carrying amount of these assets approximates their fair value. Refer to note
18 for the cash and cash equivalent balances on deposit as collateral. Cash and cash equivalents include managed cash of $263.8 million
(31 December 2022 – $260.8 million).
172 Lancashire Holdings Limited | Annual Report & Accounts 2023
Lancashire Holdings Limited | Annual Report & Accounts 2023 173
173
Lancashire Holdings Limited | Annual Report & Accounts 2023
Financial Statements
Notes to the accounts continued
1111.. IInnvveessttmmeennttss
AAss aatt 3311 DDeecceemmbbeerr 22002233
Fixed maturity securities1
Private investment funds
Hedge funds
Other investments
Total investments
1. The nature of our fixed maturity securities are presented in the risk disclosures on pages 154 to 156.
As at 31 December 2022
Fixed maturity securities1
Private investment funds
Hedge funds
Index linked securities
Other investments
Total investments
CCoosstt
$$mm
2,314.1
174.4
8.5
—
2,497.0
Cost
$m
2,059.8
116.0
95.0
30.0
—
2,300.8
UUnnrreeaalliisseedd
ggaaiinnss
$$mm
22.6
4.2
1.4
—
28.2
Unrealised
gains
$m
6.7
1.5
13.4
—
0.2
21.8
UUnnrreeaalliisseedd
lloosssseess
$$mm
(56.6)
(13.0)
—
(0.1)
(69.7)
Unrealised
losses
$m
(101.6)
(9.4)
(4.5)
(1.8)
(0.4)
(117.7)
FFaaiirr vvaalluuee
$$mm
2,280.1
165.6
9.9
(0.1)
2,455.5
Restated
Fair value
$m
1,964.9
108.1
103.9
28.2
(0.2)
2,204.9
1. The nature of our fixed maturity securities are presented in the risk disclosures on pages 154 to 156.
The Group determines the fair value of each individual security utilising the highest-level inputs of the fair value hierarchy, as defined below. The
fair value of fixed maturity investments is determined from quotations received from third-party nationally recognised pricing services whose
pricing processes, and the controls thereon, are subject to an annual audit on both the design and the operational effectiveness of those controls.
The fair value of private investment funds is estimated based on the most recently available NAV as advised by the external fund manager or third-
party administrator.
The pricing sources use bid prices where available, otherwise indicative prices are quoted based on observable market trade data. The prices
provided are compared to the investment managers’ own pricing.
The Group has not made any adjustments to any pricing provided by independent pricing services, or its third-party investment managers for either
the year ending 31 December 2023 or the year ending 31 December 2022.
The fair values of securities within the Group’s investment portfolio are estimated using the following valuation techniques in accordance with the
fair value hierarchy:
Level (i)
Level (i) investments are securities with quoted prices in active markets. A financial instrument is regarded as quoted in an active market if quoted
prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices
represent actual and regularly occurring market transactions, on an arm’s length basis.
Level (ii)
Level (ii) investments are securities with quoted prices in active markets for similar assets or liabilities, or securities valued using other valuation
techniques for which all significant inputs are based on observable market data. Instruments included in Level (ii) are valued via independent
external sources using directly observable inputs to models or other valuation methods. The valuation methods used are typically of an industry-
accepted standard and include broker-dealer quotes and pricing models, including present values and future cash flows, together with inputs such
as yield curves, interest rates, prepayment profiles, and default rates.
Level (iii)
Level (iii) investments are securities for which valuation techniques are not based on observable market data, and require therefore significant
management judgement to determine an appropriate fair value. The Group determines securities classified as Level (iii) to include hedge funds,
private investment funds and loans made by the Group’s Lloyd’s syndicate platforms to the Lloyd’s central fund.
The fair values of the Group’s hedge funds are determined using a combination of the most recent NAVs, provided by each fund’s independent
administrator, and the estimated performance provided by each hedge fund manager. Independent administrators provide monthly reported NAVs
with up to a one-month delay in valuation. The most recent NAV available for each hedge fund is adjusted for the estimated performance, as
provided by the fund manager, between the NAV date and the reporting date. Historically, estimated fair values incorporating these performance
estimates have not been significantly different from subsequent NAVs. Given the Group’s knowledge of the underlying investments, and the size of
the Group’s investment therein, we would not anticipate any material variance between estimated valuations and the final NAVs reported by the
administrators.
174
174
Lancashire Holdings Limited | Annual Report & Accounts 2023
Lancashire Holdings Limited | Annual Report & Accounts 2023
Notes to the accounts continued
1111.. IInnvveessttmmeennttss
AAss aatt 3311 DDeecceemmbbeerr 22002233
Fixed maturity securities1
Private investment funds
Hedge funds
Other investments
Total investments
As at 31 December 2022
Fixed maturity securities1
Private investment funds
Hedge funds
Index linked securities
Other investments
Total investments
1. The nature of our fixed maturity securities are presented in the risk disclosures on pages 154 to 156.
CCoosstt
$$mm
2,314.1
174.4
8.5
—
2,497.0
Cost
$m
2,059.8
116.0
95.0
30.0
—
2,300.8
UUnnrreeaalliisseedd
UUnnrreeaalliisseedd
ggaaiinnss
$$mm
22.6
4.2
1.4
—
28.2
gains
$m
6.7
1.5
13.4
—
0.2
21.8
lloosssseess
$$mm
(56.6)
(13.0)
—
(0.1)
(69.7)
losses
$m
(9.4)
(4.5)
(1.8)
(0.4)
FFaaiirr vvaalluuee
$$mm
2,280.1
165.6
9.9
(0.1)
2,455.5
Restated
Fair value
$m
108.1
103.9
28.2
(0.2)
(117.7)
2,204.9
Unrealised
Unrealised
(101.6)
1,964.9
1. The nature of our fixed maturity securities are presented in the risk disclosures on pages 154 to 156.
The Group determines the fair value of each individual security utilising the highest-level inputs of the fair value hierarchy, as defined below. The
fair value of fixed maturity investments is determined from quotations received from third-party nationally recognised pricing services whose
pricing processes, and the controls thereon, are subject to an annual audit on both the design and the operational effectiveness of those controls.
The fair value of private investment funds is estimated based on the most recently available NAV as advised by the external fund manager or third-
party administrator.
The pricing sources use bid prices where available, otherwise indicative prices are quoted based on observable market trade data. The prices
provided are compared to the investment managers’ own pricing.
The Group has not made any adjustments to any pricing provided by independent pricing services, or its third-party investment managers for either
the year ending 31 December 2023 or the year ending 31 December 2022.
The fair values of securities within the Group’s investment portfolio are estimated using the following valuation techniques in accordance with the
fair value hierarchy:
Level (i)
Level (ii)
Level (iii)
Level (i) investments are securities with quoted prices in active markets. A financial instrument is regarded as quoted in an active market if quoted
prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices
represent actual and regularly occurring market transactions, on an arm’s length basis.
Level (ii) investments are securities with quoted prices in active markets for similar assets or liabilities, or securities valued using other valuation
techniques for which all significant inputs are based on observable market data. Instruments included in Level (ii) are valued via independent
external sources using directly observable inputs to models or other valuation methods. The valuation methods used are typically of an industry-
accepted standard and include broker-dealer quotes and pricing models, including present values and future cash flows, together with inputs such
as yield curves, interest rates, prepayment profiles, and default rates.
Level (iii) investments are securities for which valuation techniques are not based on observable market data, and require therefore significant
management judgement to determine an appropriate fair value. The Group determines securities classified as Level (iii) to include hedge funds,
private investment funds and loans made by the Group’s Lloyd’s syndicate platforms to the Lloyd’s central fund.
The fair values of the Group’s hedge funds are determined using a combination of the most recent NAVs, provided by each fund’s independent
administrator, and the estimated performance provided by each hedge fund manager. Independent administrators provide monthly reported NAVs
with up to a one-month delay in valuation. The most recent NAV available for each hedge fund is adjusted for the estimated performance, as
provided by the fund manager, between the NAV date and the reporting date. Historically, estimated fair values incorporating these performance
estimates have not been significantly different from subsequent NAVs. Given the Group’s knowledge of the underlying investments, and the size of
the Group’s investment therein, we would not anticipate any material variance between estimated valuations and the final NAVs reported by the
administrators.
174
Lancashire Holdings Limited | Annual Report & Accounts 2023
The fair value of the Group’s private investment funds are determined using statements received from each fund’s investment managers on either a
monthly or quarterly in arrears basis. In addition, these valuations will be compared with benchmarks or other indices to assess the reasonableness
of the estimated fair value of each fund. Given the Group’s knowledge of the underlying investments and the size of the Group’s investment
therein, the Group would not anticipate any material variance between the statements and the final actual NAVs reported by the investment
managers.
The Group determines whether transfers have occurred between levels of the fair value hierarchy by re-assessing the categorisation at the end of
each reporting period. Transfers between Level (i) to Level (ii) securities amounted to $101.9 million, and transfers from Level (ii) to Level (i)
securities amounted to $188.9 million during the year ended 31 December 2023.
The fair value hierarchy of the Group’s investment holdings is as follows:
AAss aatt 3311 DDeecceemmbbeerr 22002233
• Short-term investments
• Fixed maturity funds
• U.S. treasuries
• Other government bonds
• U.S. municipal bonds
• U.S. government agency debt
• Asset backed securities
• U.S. government agency mortgage backed securities
• Non-agency mortgage backed securities
• Non-agency commercial mortgage backed securities
• Bank loans
• Corporate bonds
• Other fixed maturities
Total fixed maturity securities
Private investment funds
Hedge funds
Other investments
Total investments
LLeevveell ((ii))
$$mm
21.4
—
585.9
24.2
—
41.8
—
—
—
—
15.0
519.2
—
1,207.5
—
—
—
1,207.5
LLeevveell ((iiii))
$$mm
52.5
27.1
—
23.0
13.5
15.3
236.7
117.4
11.5
21.3
127.6
417.2
6.3
1,069.4
—
—
(0.1)
1,069.3
LLeevveell ((iiiiii))
$$mm
—
—
—
—
—
—
—
—
—
—
—
—
3.2
3.2
165.6
9.9
—
178.7
TToottaall
$$mm
73.9
27.1
585.9
47.2
13.5
57.1
236.7
117.4
11.5
21.3
142.6
936.4
9.5
2,280.1
165.6
9.9
(0.1)
2,455.5
Lancashire Holdings Limited | Annual Report & Accounts 2023 175
175
Lancashire Holdings Limited | Annual Report & Accounts 2023
Financial Statements
Notes to the accounts continued
1111.. IInnvveessttmmeennttss ccoonnttiinnuueedd
As at 31 December 2022
• Short-term investments
• Fixed maturity funds
• U.S. treasuries
• Other government bonds
• U.S. municipal bonds
• U.S. government agency debt
• Asset backed securities
• U.S. government agency mortgage backed securities
• Non-agency mortgage backed securities
• Non-agency commercial mortgage backed securities
• Bank loans
• Corporate bonds
• Other fixed maturities
Total fixed maturity securities
Private investment funds
Hedge funds
Index linked securities
Other investments
Total investments
Level (i)
$m
18.5
—
650.2
5.5
—
38.0
—
—
—
—
22.7
235.0
—
969.9
—
—
—
—
969.9
The table below analyses the movements in investments classified as Level (iii) investments:
As at 31 December 2021
Purchases
Sales
Net realised (losses) recognised in profit or loss
Net unrealised (losses) recognised in profit or loss
As at 31 December 2022
Purchases
Sales
Net realised gains recognised in profit or loss
Net unrealised (losses) gains recognised in profit or loss
As at 31 December 2023
PPrriivvaattee
iinnvveessttmmeenntt ffuunnddss
$$mm
105.7
17.6
(7.6)
—
(7.6)
108.1
63.5
(5.1)
—
(0.9)
165.6
Level (ii)
$m
3.0
29.4
—
33.4
22.6
21.0
160.9
41.0
14.0
24.2
106.2
517.3
18.9
991.9
—
—
28.2
(0.2)
1,019.9
HHeeddggee
ffuunnddss
$$mm
102.9
13.3
(10.5)
(1.1)
(0.7)
103.9
0.9
(99.6)
12.2
(7.5)
9.9
Level (iii)
$m
—
—
—
—
—
—
—
—
—
—
—
—
3.1
3.1
108.1
103.9
—
—
215.1
OOtthheerr ffiixxeedd
mmaattuurriittiieess11
$$mm
3.9
—
—
—
(0.8)
3.1
—
—
—
0.1
3.2
Total
$m
21.5
29.4
650.2
38.9
22.6
59.0
160.9
41.0
14.0
24.2
128.9
752.3
22.0
1,964.9
108.1
103.9
28.2
(0.2)
2,204.9
TToottaall
$$mm
212.5
30.9
(18.1)
(1.1)
(9.1)
215.1
64.4
(104.7)
12.2
(8.3)
178.7
1. Included within fixed maturity securities are the Lloyd’s central fund loans which are classified at Level (iii) within the fair value hierarchy.
Apart from the purchases and sales shown in the table above, there have been no other transfers into or out of the Level (iii) investments during
either the current period or the prior period.
Included within net unrealised (losses) gains recognised in profit or loss within the table above are net unrealised gains related to Level (iii)
investments still held as at 31 December 2023 of $1.3 million (31 December 2022 – $9.1 million net unrealised losses).
1122.. IInntteerreesstt iinn ssttrruuccttuurreedd eennttiittiieess
Consolidated structured entities
The Group provides capital contributions to the EBT to enable it to meet its obligations to employees under the various Group equity based
compensation plans (see note 7). The Group has a contractual agreement which may require it to provide financial support to the EBT (see note 19
and note 22).
176 Lancashire Holdings Limited | Annual Report & Accounts 2023
176
Lancashire Holdings Limited | Annual Report & Accounts 2023
Notes to the accounts continued
1111.. IInnvveessttmmeennttss ccoonnttiinnuueedd
As at 31 December 2022
• Short-term investments
• Fixed maturity funds
• U.S. treasuries
• Other government bonds
• U.S. municipal bonds
• U.S. government agency debt
• Asset backed securities
• Bank loans
• Corporate bonds
• Other fixed maturities
Total fixed maturity securities
Private investment funds
Hedge funds
Index linked securities
Other investments
Total investments
• U.S. government agency mortgage backed securities
• Non-agency mortgage backed securities
• Non-agency commercial mortgage backed securities
Net realised (losses) recognised in profit or loss
Net unrealised (losses) recognised in profit or loss
As at 31 December 2021
Purchases
Sales
As at 31 December 2022
Purchases
Sales
Net realised gains recognised in profit or loss
Net unrealised (losses) gains recognised in profit or loss
As at 31 December 2023
Level (i)
$m
18.5
—
650.2
5.5
—
38.0
22.7
235.0
—
969.9
—
—
—
—
—
—
—
—
$$mm
105.7
17.6
(7.6)
—
(7.6)
108.1
63.5
(5.1)
—
(0.9)
165.6
Level (ii)
$m
3.0
29.4
—
33.4
22.6
21.0
160.9
41.0
14.0
24.2
106.2
517.3
18.9
991.9
—
—
28.2
(0.2)
HHeeddggee
ffuunnddss
$$mm
102.9
13.3
(10.5)
(1.1)
(0.7)
103.9
0.9
(99.6)
12.2
(7.5)
9.9
Level (iii)
$m
—
—
—
—
—
—
—
—
—
—
—
—
3.1
3.1
108.1
103.9
—
—
(0.8)
$$mm
3.9
—
—
—
3.1
—
—
—
0.1
3.2
Total
$m
21.5
29.4
650.2
38.9
22.6
59.0
160.9
41.0
14.0
24.2
128.9
752.3
22.0
1,964.9
108.1
103.9
28.2
(0.2)
TToottaall
$$mm
212.5
30.9
(18.1)
(1.1)
(9.1)
215.1
64.4
(104.7)
12.2
(8.3)
178.7
Unconsolidated structured entities in which the Group has an interest
As part of its investment activities, the Group invests in unconsolidated structured entities. The Group does not sponsor any of the unconsolidated
structured entities.
A summary of the Group’s interest in unconsolidated structured entities is as follows:
AAss aatt 3311 DDeecceemmbbeerr 22002233
Fixed maturity securities
• Asset backed securities
• U.S. government agency mortgage backed securities
• Non-agency mortgage backed securities
• Non-agency commercial mortgage backed securities
Total fixed maturity securities
Investment funds
• Private investment funds
• Hedge funds
Total investment funds
Specialised investment vehicles
• KHL (note 15)
Total
As at 31 December 2022
Fixed maturity securities
• Asset backed securities
• U.S. government agency mortgage backed securities
• Non-agency mortgage backed securities
• Non-agency commercial mortgage backed securities
Total fixed maturity securities
Investment funds
• Private investment funds
• Hedge funds
Total investment funds
Specialised investment vehicles
• KHL (note 15)
Total
IInnvveessttmmeennttss
$$mm
IInntteerreesstt iinn
aassssoocciiaattee
$$mm
236.7
117.4
11.5
21.3
386.9
157.6
9.9
167.5
—
554.4
—
—
—
—
—
—
—
—
16.2
16.2
Investments
$m
Interest in
associate
$m
160.9
41.0
14.0
24.2
240.1
105.6
103.9
209.5
—
449.6
—
—
—
—
—
—
—
—
59.7
59.7
TToottaall
$$mm
236.7
117.4
11.5
21.3
386.9
157.6
9.9
167.5
16.2
570.6
Restated
Total
$m
160.9
41.0
14.0
24.2
240.1
105.6
103.9
209.5
59.7
509.3
The table below analyses the movements in investments classified as Level (iii) investments:
969.9
1,019.9
215.1
2,204.9
PPrriivvaattee
iinnvveessttmmeenntt ffuunnddss
OOtthheerr ffiixxeedd
mmaattuurriittiieess11
1. Included within fixed maturity securities are the Lloyd’s central fund loans which are classified at Level (iii) within the fair value hierarchy.
Apart from the purchases and sales shown in the table above, there have been no other transfers into or out of the Level (iii) investments during
either the current period or the prior period.
Included within net unrealised (losses) gains recognised in profit or loss within the table above are net unrealised gains related to Level (iii)
investments still held as at 31 December 2023 of $1.3 million (31 December 2022 – $9.1 million net unrealised losses).
1122.. IInntteerreesstt iinn ssttrruuccttuurreedd eennttiittiieess
Consolidated structured entities
and note 22).
The Group provides capital contributions to the EBT to enable it to meet its obligations to employees under the various Group equity based
compensation plans (see note 7). The Group has a contractual agreement which may require it to provide financial support to the EBT (see note 19
The fixed maturity structured entities are created to meet specific investment needs of borrowers and investors which cannot be met from
standardised financial instruments available in the capital markets. As such, they provide liquidity to the borrowers in these markets and provide
investors with an opportunity to diversify risk away from standard fixed maturity securities. Whilst individual securities may differ in structure, the
principles of the instruments are broadly the same, and it is considered appropriate to aggregate the investments into the categories detailed
above.
The primary risks that the Group faces in respect of its investments in structured entities are similar to the risks it faces in respect of other financial
investments held on the consolidated statement of financial position, in that the fair value is determined by market supply and demand. This is in
turn driven by investor evaluation of the credit risk of the structure, and changes in the term structure of interest rates, which change investors’
expectation of the cash flows associated with the instrument, and therefore its value in the market. The total assets of these structured entities are
not considered meaningful for the purpose of understanding the related risks, and therefore have not been presented.
The maximum potential exposure to loss in respect of these structured entities is the carrying value of the instruments that the Group holds as at
31 December 2023. Generally, default rates would have to increase substantially from their current level before the Group would suffer a loss on
maturity, and this assessment is made prior to investing, and regularly through the holding period for the security. The Group has not provided any
financial or other support in addition to that described above as at the reporting date, and there is no intention to provide support in relation to any
other unconsolidated structured entities in the foreseeable future.
176 Lancashire Holdings Limited | Annual Report & Accounts 2023
Lancashire Holdings Limited | Annual Report & Accounts 2023 177
177
Lancashire Holdings Limited | Annual Report & Accounts 2023
Financial Statements
Notes to the accounts continued
As at 31 December 2023, the Group has a commitment of $50.0 million (31 December 2022 – $50.0 million) in respect of one credit facility fund.
The Group, through the fund, provides collateral for revolving credit facilities purchased at a discount from financial institutions, and is at risk for its
portion of any defaults on those revolving credit facilities. The Group’s proportionate share of these revolving credit facilities purchased by the
funds as at 31 December 2023 is $15.9 million (31 December 2022 – $19.9 million), which currently remains unfunded. The maximum exposure to
the credit facility funds is $50.0 million, and as at 31 December 2023 there have been no defaults under these facilities.
1133.. IInnssuurraannccee ccoonnttrraaccttss iissssuueedd aanndd rreeiinnssuurraannccee ccoonnttrraaccttss hheelldd
A. Movements in the carrying amount - Insurance contract liabilities
The table below shows how the net carrying amounts of insurance contracts issued changed during the year ended 31 December 2023.
Net insurance contract liabilities (assets) as at 1 January 2023
Insurance revenue
Insurance service expenses
• Incurred claims and other insurance service expenses
• Changes in liability for incurred claims
• Amortisation of insurance acquisition cash flows
Insurance service result before reinsurance contracts held
Finance expense from insurance contracts issued
Effects of movements in exchange rates
Total changes in consolidated statements of comprehensive income
Investment components
Other1
Other changes
Premiums received net of insurance acquisition cash flows
Claims and other expenses paid
Total cash flows
Net insurance contract liabilities (assets) as at 31 December 2023
LLiiaabbiilliittyy ffoorr
rreemmaaiinniinngg
ccoovveerraaggee
IInncclluuddiinngg lloossss
ccoommppoonneenntt
$$mm
29.0
(1,519.9)
—
—
188.2
(1,331.7)
—
1.0
(1,330.7)
(47.1)
—
(47.1)
1,406.6
—
1,406.6
57.8
LLiiaabbiilliittyy ffoorr iinnccuurrrreedd ccllaaiimmss
EEssttiimmaatteess ooff tthhee
pprreesseenntt vvaalluuee ooff
ffuuttuurree ccaasshh fflloowwss
$$mm
1,307.2
—
RRiisskk
aaddjjuussttmmeenntt
$$mm
337.3
—
TToottaall
$$mm
1,673.5
(1,519.9)
624.5
(111.6)
—
512.9
77.9
18.3
609.1
47.1
5.4
52.5
—
(557.3)
(557.3)
1,411.5
93.0
(97.9)
—
(4.9)
20.4
1.6
17.1
—
—
—
—
—
—
354.4
717.5
(209.5)
188.2
(823.7)
98.3
20.9
(704.5)
—
5.4
5.4
1,406.6
(557.3)
849.3
1,823.7
1. Other movements includes the effect of the 2021 and prior underwriting years of account losses and loss adjustment expenses, and reinsurance recoveries, being reinsured to close into
the 2022 underwriting year of account, to the extent where the Group’s syndicate participation has changed between those years of account.
The liability for remaining coverage as at 31 December 2023 includes an onerous loss component of $1.0 million (31 December 2022 –$1.0 million).
178 Lancashire Holdings Limited | Annual Report & Accounts 2023
178
Lancashire Holdings Limited | Annual Report & Accounts 2023
Notes to the accounts continued
As at 31 December 2023, the Group has a commitment of $50.0 million (31 December 2022 – $50.0 million) in respect of one credit facility fund.
The Group, through the fund, provides collateral for revolving credit facilities purchased at a discount from financial institutions, and is at risk for its
portion of any defaults on those revolving credit facilities. The Group’s proportionate share of these revolving credit facilities purchased by the
funds as at 31 December 2023 is $15.9 million (31 December 2022 – $19.9 million), which currently remains unfunded. The maximum exposure to
the credit facility funds is $50.0 million, and as at 31 December 2023 there have been no defaults under these facilities.
1133.. IInnssuurraannccee ccoonnttrraaccttss iissssuueedd aanndd rreeiinnssuurraannccee ccoonnttrraaccttss hheelldd
A. Movements in the carrying amount - Insurance contract liabilities
The table below shows how the net carrying amounts of insurance contracts issued changed during the year ended 31 December 2023.
Net insurance contract liabilities (assets) as at 1 January 2023
Insurance revenue
Insurance service expenses
• Incurred claims and other insurance service expenses
• Changes in liability for incurred claims
• Amortisation of insurance acquisition cash flows
Insurance service result before reinsurance contracts held
Finance expense from insurance contracts issued
Effects of movements in exchange rates
Total changes in consolidated statements of comprehensive income
Investment components
Other1
Other changes
Premiums received net of insurance acquisition cash flows
Claims and other expenses paid
Total cash flows
LLiiaabbiilliittyy ffoorr
rreemmaaiinniinngg
ccoovveerraaggee
IInncclluuddiinngg lloossss
ccoommppoonneenntt
$$mm
29.0
(1,519.9)
188.2
(1,331.7)
—
—
—
1.0
(1,330.7)
(47.1)
—
(47.1)
1,406.6
—
1,406.6
LLiiaabbiilliittyy ffoorr iinnccuurrrreedd ccllaaiimmss
EEssttiimmaatteess ooff tthhee
pprreesseenntt vvaalluuee ooff
ffuuttuurree ccaasshh fflloowwss
1,307.2
$$mm
—
aaddjjuussttmmeenntt
RRiisskk
$$mm
337.3
TToottaall
$$mm
1,673.5
—
(1,519.9)
624.5
(111.6)
—
512.9
77.9
18.3
609.1
47.1
5.4
52.5
—
(557.3)
(557.3)
93.0
(97.9)
—
(4.9)
20.4
1.6
17.1
—
—
—
—
—
—
717.5
(209.5)
188.2
(823.7)
98.3
20.9
(704.5)
—
5.4
5.4
1,406.6
(557.3)
849.3
Net insurance contract liabilities (assets) as at 31 December 2023
57.8
1,411.5
354.4
1,823.7
1. Other movements includes the effect of the 2021 and prior underwriting years of account losses and loss adjustment expenses, and reinsurance recoveries, being reinsured to close into
the 2022 underwriting year of account, to the extent where the Group’s syndicate participation has changed between those years of account.
The liability for remaining coverage as at 31 December 2023 includes an onerous loss component of $1.0 million (31 December 2022 –$1.0 million).
1133.. IInnssuurraannccee ccoonnttrraaccttss iissssuueedd aanndd rreeiinnssuurraannccee ccoonnttrraaccttss hheelldd ccoonnttiinnuueedd
The table below shows how the net carrying amounts of insurance contracts issued changed during the year ended 31 December 2022.
Net insurance contract liabilities (assets) as at 1 January 2022
Insurance revenue
Insurance service expenses
• Incurred claims and other insurance service expenses
• Changes in liability for incurred claims
• Amortisation of insurance acquisition cash flows
Insurance service result before reinsurance contracts held
Finance income from insurance contracts issued
Effects of movements in exchange rates
Total changes in consolidated statements of comprehensive income
Investment components
Other1
Other changes
Premiums received net of insurance acquisition cash flows
Claims and other expenses paid
Total cash flows
Net insurance contract liabilities (assets) as at 31 December 2022
Liability for
remaining
coverage
Including loss
component
$m
32.9
(1,226.5)
(0.3)
—
160.2
(1,066.6)
—
(8.3)
(1,074.9)
(59.0)
4.4
(54.6)
1,125.6
—
1,125.6
Liability for incurred claims
Estimates of the
present value of
future cash flows
$m
1,050.9
Risk
adjustment
$m
218.5
Total
$m
1,302.3
—
—
(1,226.5)
807.2
(98.2)
—
709.0
(15.0)
(23.7)
670.3
59.0
(0.5)
58.5
—
(472.5)
(472.5)
228.8
(103.1)
—
125.7
(5.1)
(1.8)
118.8
—
—
—
—
—
—
1,035.7
(201.3)
160.2
(231.9)
(20.1)
(33.8)
(285.8)
—
3.9
3.9
1,125.6
(472.5)
653.1
1,673.5
29.0
1,307.2
337.3
1. Other movements includes the effect of the 2020 and prior underwriting years of account losses and loss adjustment expenses, and reinsurance recoveries, being reinsured to close into
the 2021 underwriting year of account, to the extent where the Group’s syndicate participation has changed between those years of account.
The liability for remaining coverage as at 31 December 2022 includes an onerous loss component of $1.0 million (31 December 2021 – $1.3 million).
178 Lancashire Holdings Limited | Annual Report & Accounts 2023
Lancashire Holdings Limited | Annual Report & Accounts 2023 179
179
Lancashire Holdings Limited | Annual Report & Accounts 2023
Financial Statements
Notes to the accounts continued
B. Movements in the carrying amount - Reinsurance contracts held
The table below shows how the net carrying amounts of reinsurance contracts held changed during the year ended 31 December 2023.
Net reinsurance contract (assets) liabilities as at 1 January 2023
Allocation of reinsurance premium paid
Amounts recoverable from reinsurers
• Recoveries of incurred claims and other insurance service expenses
• Change in assets for incurred claims in relation to past service
• Reinsurance expenses
• Recoveries and reversals of recoveries of losses on onerous underlying contracts
• Effect of changes in non-performing risk of reinsurers
Net expenses from reinsurance contracts held
Finance income from reinsurance contracts held
Effects of movements in exchange rates
Total changes in consolidated statements of comprehensive income
Other1
Other changes
Reinsurance premiums paid net of ceding commissions and other directly
attributable expenses
Recoveries from reinsurance
Total cash flows
Net reinsurance contract (assets) liabilities as at 31 December 2023
AAsssseett ffoorr
rreemmaaiinniinngg
ccoovveerraaggee
IInncclluuddiinngg lloossss
ccoommppoonneenntt
$$mm
41.9
424.8
(0.2)
—
(16.3)
0.2
—
408.5
—
(4.9)
403.6
—
—
(403.0)
—
(403.0)
42.5
AAsssseett ffoorr iinnccuurrrreedd ccllaaiimmss
EEssttiimmaatteess ooff tthhee
pprreesseenntt vvaalluuee ooff
ffuuttuurree ccaasshh fflloowwss
$$mm
(373.5)
—
RRiisskk
aaddjjuussttmmeenntt
$$mm
(142.7)
—
(62.3)
63.6
—
—
(2.9)
(1.6)
(24.4)
(2.5)
(28.5)
(2.6)
(2.6)
—
89.6
89.6
(315.0)
(4.9)
39.6
—
—
—
34.7
(7.3)
—
27.4
—
—
—
—
—
(115.3)
TToottaall
$$mm
(474.3)
424.8
(67.4)
103.2
(16.3)
0.2
(2.9)
441.6
(31.7)
(7.4)
402.5
(2.6)
(2.6)
(403.0)
89.6
(313.4)
(387.8)
1. Other movements includes the effect of the 2021 and prior underwriting years of account losses and loss adjustment expenses, and reinsurance recoveries, being reinsured to close into
the 2022 underwriting year of account, to the extent where the Group’s syndicate participation has changed between those years of account.
The asset for remaining coverage as at 31 December 2023 includes an onerous loss recovery component of $0.1 million (31 December 2022 – $0.1
million).
180 Lancashire Holdings Limited | Annual Report & Accounts 2023
180
Lancashire Holdings Limited | Annual Report & Accounts 2023
Notes to the accounts continued
B. Movements in the carrying amount - Reinsurance contracts held
The table below shows how the net carrying amounts of reinsurance contracts held changed during the year ended 31 December 2023.
Net reinsurance contract (assets) liabilities as at 1 January 2023
Allocation of reinsurance premium paid
Amounts recoverable from reinsurers
• Recoveries of incurred claims and other insurance service expenses
• Change in assets for incurred claims in relation to past service
• Reinsurance expenses
• Recoveries and reversals of recoveries of losses on onerous underlying contracts
• Effect of changes in non-performing risk of reinsurers
Net expenses from reinsurance contracts held
Finance income from reinsurance contracts held
Effects of movements in exchange rates
Reinsurance premiums paid net of ceding commissions and other directly
Other1
Other changes
attributable expenses
Recoveries from reinsurance
Total cash flows
Total changes in consolidated statements of comprehensive income
403.6
(28.5)
AAsssseett ffoorr
rreemmaaiinniinngg
ccoovveerraaggee
IInncclluuddiinngg lloossss
ccoommppoonneenntt
$$mm
41.9
424.8
(0.2)
—
(16.3)
0.2
—
408.5
—
(4.9)
—
—
(403.0)
—
(403.0)
42.5
AAsssseett ffoorr iinnccuurrrreedd ccllaaiimmss
EEssttiimmaatteess ooff tthhee
pprreesseenntt vvaalluuee ooff
ffuuttuurree ccaasshh fflloowwss
(373.5)
$$mm
—
aaddjjuussttmmeenntt
RRiisskk
$$mm
(142.7)
—
(62.3)
63.6
—
—
(2.9)
(1.6)
(24.4)
(2.5)
(2.6)
(2.6)
—
89.6
89.6
(4.9)
39.6
—
—
—
34.7
(7.3)
—
27.4
—
—
—
—
—
TToottaall
$$mm
(474.3)
424.8
(67.4)
103.2
(16.3)
0.2
(2.9)
441.6
(31.7)
(7.4)
402.5
(2.6)
(2.6)
(403.0)
89.6
(313.4)
(387.8)
Net reinsurance contract (assets) liabilities as at 31 December 2023
(315.0)
(115.3)
1. Other movements includes the effect of the 2021 and prior underwriting years of account losses and loss adjustment expenses, and reinsurance recoveries, being reinsured to close into
the 2022 underwriting year of account, to the extent where the Group’s syndicate participation has changed between those years of account.
The asset for remaining coverage as at 31 December 2023 includes an onerous loss recovery component of $0.1 million (31 December 2022 – $0.1
million).
The table below shows how the net carrying amounts of reinsurance contracts held changed during the year ended 31 December 2022.
Net reinsurance contract (assets) liabilities as at 1 January 2022
Allocation of reinsurance premium paid
Amounts recoverable from reinsurers
• Recoveries of incurred claims and other insurance service expenses
• Change in assets for incurred claims in relation to past service
• Reinsurance expenses
• Recoveries and reversals of recoveries of losses on onerous underlying
contracts
• Effect of changes in non-performing risk of reinsurers
Net expenses from reinsurance contracts held
Finance expense from reinsurance contracts held
Effects of movements in exchange rates
Total changes in consolidated statements of comprehensive income
Other1
Other changes
Reinsurance premiums paid net of ceding commissions and other directly
attributable expenses
Recoveries from reinsurance
Total cash flows
Net reinsurance contract (assets) liabilities as at 31 December 2022
Asset for
remaining
coverage
Including loss
component
$m
41.8
371.8
(0.1)
—
(18.3)
—
—
353.4
—
6.9
360.3
—
—
(360.2)
—
(360.2)
Asset for incurred claims
Estimates of the
present value of
future cash flows
$m
(272.0)
—
(224.4)
7.4
—
—
2.5
(214.5)
4.5
5.0
(205.0)
(2.1)
(2.1)
—
105.6
105.6
Risk
adjustment
$m
(96.3)
—
(100.2)
51.6
—
—
—
(48.6)
2.2
—
(46.4)
—
—
—
—
—
41.9
(373.5)
(142.7)
Total
$m
(326.5)
371.8
(324.7)
59.0
(18.3)
—
2.5
90.3
6.7
11.9
108.9
(2.1)
(2.1)
(360.2)
105.6
(254.6)
(474.3)
1. Other movements includes the effect of the 2020 and prior underwriting years of account losses and loss adjustment expenses, and reinsurance recoveries, being reinsured to close into
the 2021 underwriting year of account, to the extent where the Group’s syndicate participation has changed between those years of account.
The asset for remaining coverage as at 31 December 2022 includes an onerous loss recovery component of $0.1 million (31 December 2021 – $nil).
180 Lancashire Holdings Limited | Annual Report & Accounts 2023
Lancashire Holdings Limited | Annual Report & Accounts 2023 181
181
Lancashire Holdings Limited | Annual Report & Accounts 2023
Financial Statements
Notes to the accounts continued
1133.. IInnssuurraannccee ccoonnttrraaccttss iissssuueedd aanndd rreeiinnssuurraannccee ccoonnttrraaccttss hheelldd ccoonnttiinnuueedd
C. Claims development
The development of claims in respect of insurance contracts issued is indicative of the Group’s ability to accurately estimate the ultimate value of
its liability for incurred claims. Actual claim payments are compared with previous estimates within the claims development disclosures below for
both the undiscounted liability for incurred claims, and the undiscounted asset for incurred claims, as at 31 December 2023. The Group considers
that there is no significant uncertainty with regards to claims that were incurred prior to the 2018 accident year. The Group has therefore elected to
use a permitted practical expedient, and has presented only six accident years of claims development prior to the adoption date of IFRS 17. The
total undiscounted liability for incurred claims for all years prior to the 2018 accident year represents less than 10% of the total undiscounted
liability for incurred claims. The Group considers the claims development information presented to show the period (being the 2018 accident year)
when the earliest material claims arose, and for which there is still uncertainty in respect of the amount and timing of the claims payments as at
31 December 2023.
AAcccciiddeenntt yyeeaarr
Liability for incurred claims - undiscounted
Estimate of ultimate liability1
At end of accident year
One year later
Two years later
Three years later
Four years later
Five years later
Cumulative claims and other directly attributable expense paid
Liability for incurred claims - undiscounted
Liability for incurred claims - undiscounted - prior years
Effect of discounting
Non-distinct investment components
Liability for incurred claims
22001188
$$mm
22001199
$$mm
22002200
$$mm
22002211
$$mm
22002222
$$mm
22002233
$$mm
TToottaall
$$mm
456.2
479.0
445.7
429.3
403.0
394.5
(358.8)
35.7
1,137.4
1,046.0
815.0
828.4
759.5
727.7
475.5
435.6
388.0
387.6
357.9
353.5
320.8
308.1
312.3
(253.9)
58.4
(276.7)
110.9
(466.8)
260.9
(374.9)
671.1
(170.8)
644.2 1,781.2
91.0
(165.5)
59.2
1,765.9
1. Adjusted for the revaluation of foreign currencies as at the 31 December 2023 exchange rates.
AAcccciiddeenntt yyeeaarr
Asset for incurred claims - undiscounted
Estimate of ultimate asset1
At end of accident year
One year later
Two years later
Three years later
Four years later
Five years later
Cumulative claims and other directly attributable expenses paid
Asset for incurred claims - undiscounted
Asset for incurred claims - undiscounted - prior years
Effect of discounting
Asset for incurred claims
22001188
$$mm
22001199
$$mm
22002200
$$mm
22002211
$$mm
22002222
$$mm
22002233
$$mm
TToottaall
$$mm
123.7
164.3
157.6
149.0
140.1
136.4
(121.3)
15.1
349.8
285.3
69.2
102.9
104.2
92.0
94.4
98.3
185.8
165.4
151.0
83.4
79.4
72.1
72.6
(59.6)
38.7
(38.2)
34.4
(39.0)
112.0
(57.3)
228.0
(40.0)
29.2
457.4
11.6
(38.7)
430.3
1. Adjusted for the revaluation of foreign currencies as at the 31 December 2023 exchange rates.
182 Lancashire Holdings Limited | Annual Report & Accounts 2023
182
Lancashire Holdings Limited | Annual Report & Accounts 2023
Notes to the accounts continued
1133.. IInnssuurraannccee ccoonnttrraaccttss iissssuueedd aanndd rreeiinnssuurraannccee ccoonnttrraaccttss hheelldd ccoonnttiinnuueedd
C. Claims development
The development of claims in respect of insurance contracts issued is indicative of the Group’s ability to accurately estimate the ultimate value of
its liability for incurred claims. Actual claim payments are compared with previous estimates within the claims development disclosures below for
both the undiscounted liability for incurred claims, and the undiscounted asset for incurred claims, as at 31 December 2023. The Group considers
that there is no significant uncertainty with regards to claims that were incurred prior to the 2018 accident year. The Group has therefore elected to
use a permitted practical expedient, and has presented only six accident years of claims development prior to the adoption date of IFRS 17. The
total undiscounted liability for incurred claims for all years prior to the 2018 accident year represents less than 10% of the total undiscounted
liability for incurred claims. The Group considers the claims development information presented to show the period (being the 2018 accident year)
when the earliest material claims arose, and for which there is still uncertainty in respect of the amount and timing of the claims payments as at
31 December 2023.
AAcccciiddeenntt yyeeaarr
Liability for incurred claims - undiscounted
Estimate of ultimate liability1
At end of accident year
One year later
Two years later
Three years later
Four years later
Five years later
22001188
$$mm
22001199
$$mm
22002200
$$mm
22002211
$$mm
22002222
$$mm
22002233
$$mm
TToottaall
$$mm
828.4
1,137.4
815.0
759.5
1,046.0
727.7
475.5
435.6
388.0
387.6
357.9
353.5
320.8
308.1
312.3
456.2
479.0
445.7
429.3
403.0
394.5
Cumulative claims and other directly attributable expense paid
(358.8)
(253.9)
(276.7)
(466.8)
(374.9)
(170.8)
Liability for incurred claims - undiscounted
35.7
58.4
110.9
260.9
671.1
644.2 1,781.2
Liability for incurred claims - undiscounted - prior years
Effect of discounting
Non-distinct investment components
Liability for incurred claims
1. Adjusted for the revaluation of foreign currencies as at the 31 December 2023 exchange rates.
AAcccciiddeenntt yyeeaarr
Asset for incurred claims - undiscounted
Estimate of ultimate asset1
At end of accident year
One year later
Two years later
Three years later
Four years later
Five years later
22001188
$$mm
22001199
$$mm
22002200
$$mm
22002211
$$mm
22002222
$$mm
22002233
$$mm
TToottaall
$$mm
102.9
104.2
92.0
94.4
98.3
123.7
164.3
157.6
149.0
140.1
136.4
349.8
285.3
69.2
185.8
165.4
151.0
83.4
79.4
72.1
72.6
Cumulative claims and other directly attributable expenses paid
(121.3)
(59.6)
(38.2)
(39.0)
(57.3)
(40.0)
Asset for incurred claims - undiscounted
15.1
38.7
34.4
112.0
228.0
29.2
Asset for incurred claims - undiscounted - prior years
Effect of discounting
Asset for incurred claims
1. Adjusted for the revaluation of foreign currencies as at the 31 December 2023 exchange rates.
91.0
(165.5)
59.2
1,765.9
457.4
11.6
(38.7)
430.3
182 Lancashire Holdings Limited | Annual Report & Accounts 2023
1133.. IInnssuurraannccee ccoonnttrraaccttss iissssuueedd aanndd rreeiinnssuurraannccee ccoonnttrraaccttss hheelldd ccoonnttiinnuueedd
During 2023, the Group experienced net losses (undiscounted, including reinstatement premiums) from catastrophe, weather and large loss events
totalling $106.1 million. None of these events were individually material for the Group.
In comparison, during 2022, the Group experienced net losses (undiscounted, including reinstatement premiums) from catastrophe, weather and
large loss events of $329.4 million. Within this, catastrophe and weather related losses for the year ended 31 December 2022, were $232.4 million.
This included $181.0 million from hurricane Ian. Large losses for the year amounted to $97.0 million and included $70.5 million related to the
conflict in Ukraine.
The estimation of the ultimate loss and loss adjustment expense liability is a complex process which incorporates a significant amount of
judgement. It is reasonably possible that uncertainties inherent in the reserving process, delays in insureds or ceding companies reporting losses to
the Group, together with the potential for unforeseen adverse developments, could lead to a material change in estimated losses and loss
adjustment expenses.
There were no other individually significant net loss events for the years ended 31 December 2023 and 31 December 2022.
1144.. PPrroovviissiioonn ffoorr ddeeffeerrrreedd ttaaxx
AAss aatt 3311 DDeecceemmbbeerr
Equity based compensation
Syndicate underwriting profits
Syndicate participation rights
Other temporary differences
Tax losses carried forward
Net deferred tax liability
22002233
$$mm
(8.1)
3.5
18.8
2.0
—
16.2
Restated
2022
$m
(5.0)
(0.3)
18.8
(2.9)
(0.3)
10.3
Deferred tax assets are recognised to the extent that realising the related tax benefit through future taxable profits is probable. It is anticipated that
sufficient taxable profits will be available within the Group in 2023 and subsequent years to utilise the deferred tax assets recognised when the
underlying temporary differences reverse, and the tax losses carried forward.
For the years ended 31 December 2023 and 2022, the Group had no uncertain tax positions (see note 9). The table below reconciles the
movements within the net deferred tax liability.
AAss aatt 3311 DDeecceemmbbeerr
Opening liability
Deferred tax charge (credit) for the period
Adjustment in respect of prior period deferred tax
Deferred tax in equity
Closing liability
All deferred tax assets and liabilities are classified as non-current.
22002233
$$mm
10.3
3.8
2.5
(0.4)
16.2
Restated
2022
$m
11.6
(2.3)
1.1
(0.1)
10.3
OECD global minimum tax and Bermuda corporate income tax
To address concerns about uneven profit distribution and tax contributions of large multinational corporations, various agreements have been
reached at the global level, including an agreement by over 135 jurisdictions to introduce a global minimum tax rate of 15%. In December 2021 the
OECD released a draft legislative framework, followed by detailed guidance in March 2022, that is expected to be used by individual jurisdictions
that signed the agreement to amend their local tax laws.
Subsidiary companies in the UK, Canada and Australia will be subject to a global minimum tax of 15% from 1 January 2024 as they are
implementing an income inclusion rule or a qualifying domestic minimum top-up tax.
Legislation was also passed in Bermuda on 27 December 2023 to implement a corporate income tax regime from 1 January 2025. The Bermuda
corporate income tax regime will supercede the previously granted tax assurances which provided an exemption from corporate income taxes until
31 March 2035 for LHL and its Bermuda domiciled subsidiaries. To the extent the Bermuda corporate income tax results in an effective tax rate of
less than 15%, the shortfall in tax will be collected applying the Pillar Two under taxed payments rule which will be implemented on 1 January 2025.
Any shortfall in tax will be collected in a jurisdiction that has implemented the under taxed payments rule and in which the Group has operating
subsidiaries. For Lancashire this is likely to be the UK however based on its limited international presence, Lancashire expects to meet the relevant
conditions to benefit from exclusion for a period of five years, from 2025 to 2029, from the under taxed payments rule.
The Group will continue during 2024 to assess the potential impact of the Economic Transition Adjustment introduced by the recent Bermuda
Corporate Tax legislation. In light of emerging guidance and uncertainty as to the potential impact for the Group, no decision has yet been taken as
to whether to take advantage of available tax deductions arising from the Economic Transition Adjustment or to use the opt out available.
Lancashire Holdings Limited | Annual Report & Accounts 2023 183
183
Lancashire Holdings Limited | Annual Report & Accounts 2023
Financial Statements
Notes to the accounts continued
The Group does not anticipate that it will become subject to the Bermuda corporate income tax until 1 January 2030, as it expects to fall within the
exclusion within the Bermuda corporate income tax rules that means groups with a limited international presence are excluded from scope for a
period of up to five years. In the event the Group makes a future decision to make use of the Economic Transition Adjustment it expects to have
potential deferred tax assets relating to the transition rules and elections available in the Bermuda corporate income tax legislation but does not
consider that taxable profits for 2030 and subsequent years can currently be considered to be sufficiently probable to allow for recognition of any
potential deferred tax assets in the short term.
1155.. IInnvveessttmmeenntt iinn aassssoocciiaattee
The Group holds an interest in the preference shares of each segregated account of KHL. KHL is a company incorporated in Bermuda and its
operating subsidiary, KRL, is authorised by the BMA as a Special Purpose Insurer. KRL commenced writing insurance business on 1 January 2014. As
at 31 December 2023, the carrying value of the Group’s investment in KHL was $16.2 million (31 December 2022 – $59.7 million (restated)). The
Group’s share of profit for KHL for the period was $12.1 million (2022 – $5.4 million loss (restated)).
Key financial information for KHL is as follows:
Assets
Liabilities
Shareholders’ equity
Insurance revenue
Comprehensive income (loss)
22002233
$$mm
315.7
220.2
95.5
(0.1)
62.4
Restated
2022
$m
532.7
287.1
245.6
40.3
(29.4)
The Group has the power to participate in the operational and financial policy decisions of KHL and KRL, and has therefore classified its investment
in KHL as an investment in associate.
Refer to note 22 for details of transactions between the Group and its associate.
1166.. LLeeaasseess
The Group leases five properties and various items of office equipment.
Right-of-use assets
The Group had the following right-of-use assets in relation to the leases it has entered into:
Net book value as at 31 December 2021
Additions
Modifications
Depreciation charge
Net book value as at 31 December 2022
Additions
Modifications
Depreciation charge
Net book value as at 31 December 2023
PPrrooppeerrttyy
$$mm
13.2
6.3
3.2
(2.6)
20.1
0.2
2.2
(3.3)
19.2
EEqquuiippmmeenntt
$$mm
0.2
0.1
—
(0.1)
0.2
—
—
(0.1)
0.1
TToottaall
$$mm
13.4
6.4
3.2
(2.7)
20.3
0.2
2.2
(3.4)
19.3
184 Lancashire Holdings Limited | Annual Report & Accounts 2023
184
Lancashire Holdings Limited | Annual Report & Accounts 2023
Notes to the accounts continued
The Group does not anticipate that it will become subject to the Bermuda corporate income tax until 1 January 2030, as it expects to fall within the
exclusion within the Bermuda corporate income tax rules that means groups with a limited international presence are excluded from scope for a
period of up to five years. In the event the Group makes a future decision to make use of the Economic Transition Adjustment it expects to have
potential deferred tax assets relating to the transition rules and elections available in the Bermuda corporate income tax legislation but does not
consider that taxable profits for 2030 and subsequent years can currently be considered to be sufficiently probable to allow for recognition of any
potential deferred tax assets in the short term.
1155.. IInnvveessttmmeenntt iinn aassssoocciiaattee
The Group holds an interest in the preference shares of each segregated account of KHL. KHL is a company incorporated in Bermuda and its
operating subsidiary, KRL, is authorised by the BMA as a Special Purpose Insurer. KRL commenced writing insurance business on 1 January 2014. As
at 31 December 2023, the carrying value of the Group’s investment in KHL was $16.2 million (31 December 2022 – $59.7 million (restated)). The
Group’s share of profit for KHL for the period was $12.1 million (2022 – $5.4 million loss (restated)).
Key financial information for KHL is as follows:
in KHL as an investment in associate.
Refer to note 22 for details of transactions between the Group and its associate.
The Group leases five properties and various items of office equipment.
The Group had the following right-of-use assets in relation to the leases it has entered into:
Assets
Liabilities
Shareholders’ equity
Insurance revenue
Comprehensive income (loss)
Net book value as at 31 December 2021
1166.. LLeeaasseess
Right-of-use assets
Additions
Modifications
Depreciation charge
Additions
Modifications
Depreciation charge
Net book value as at 31 December 2022
Net book value as at 31 December 2023
22002233
$$mm
315.7
220.2
95.5
(0.1)
62.4
Restated
2022
$m
532.7
287.1
245.6
40.3
(29.4)
PPrrooppeerrttyy
$$mm
13.2
6.3
3.2
(2.6)
20.1
0.2
2.2
(3.3)
19.2
EEqquuiippmmeenntt
$$mm
0.2
0.1
—
0.2
—
—
(0.1)
(0.1)
0.1
TToottaall
$$mm
13.4
6.4
3.2
(2.7)
20.3
0.2
2.2
(3.4)
19.3
Lease liabilities
AAss aatt 3311 DDeecceemmbbeerr
Due in less than one year
Due between one and five years
Due in more than five years
Total undiscounted lease liabilities
Total discounted lease liabilities as per the consolidated statement of financial position
Current
Non-current
The Group does not face a significant liquidity risk with regards to its lease liabilities.
Amounts recognised in profit or loss
FFoorr tthhee yyeeaarr eennddeedd 3311 DDeecceemmbbeerr
Depreciation of right-of-use assets
Interest expense on lease liabilities
Expenses relating to short-term leases and variable leases
Total
22002233
$$mm
4.5
15.9
9.5
29.9
24.7
3.2
21.5
22002233
$$mm
3.4
1.5
1.2
6.1
The Group has the power to participate in the operational and financial policy decisions of KHL and KRL, and has therefore classified its investment
1177.. IInnttaannggiibbllee aasssseettss
Total lease payments amounted to $3.8 million for the year ended 31 December 2023 (31 December 2022 – $3.6 million).
Net book value as at 31 December 2021
Additions
Net book value as at 31 December 2022
Additions
Amortisation
Impairment
Net book value as at 31 December 2023
SSyynnddiiccaattee
ppaarrttiicciippaattiioonn
rriigghhttss
$$mm
83.5
4.2
87.7
3.3
—
—
91.0
IInntteerrnnaallllyy
ggeenneerraatteedd
iinnttaannggiibbllee aasssseettss
$$mm
3.2
10.3
13.5
7.0
(0.2)
(1.4)
18.9
GGooooddwwiillll
$$mm
71.2
—
71.2
—
—
—
71.2
2022
$m
3.6
13.4
12.3
29.3
23.3
2.2
21.1
2022
$m
2.7
0.8
0.9
4.4
TToottaall
$$mm
157.9
14.5
172.4
10.3
(0.2)
(1.4)
181.1
Syndicate participation rights and goodwill
During the year ended 31 December 2023, the Group’s corporate member acquired additional participation rights in Syndicate 2010, which took
the Group’s share on the 2024 year of account to 72.1% (2023 year of account – 69.3%).
Indefinite life intangible assets are tested annually for impairment. For the purpose of impairment testing, the syndicate participation rights and
goodwill have been allocated to the LSL CGU.
The recoverable amount of the LSL CGU is determined based on its value in use. Value in use is calculated using the projected cash flows of the LSL
CGU. These are approved by management and cover a three-year period. The most significant assumptions used to derive the projected cash flows
include an assessment of business prospects, business plans approved by Lloyd’s, expected future market conditions, premium growth rates,
outwards reinsurance expenditure, projected loss ratios, investment returns and climate change. To mitigate the impact of climate risk, the Group
accepts insurance risk for periods primarily of one year. This provides the Group with the ability to re-evaluate its insurance portfolio on an annual
basis and, therefore, reprice the relevant elements of risk, and also reset exposure levels to consider new data regarding the frequency and severity
of elemental catastrophe events, as appropriate.
A pre-tax discount rate of 8.9% (2022 – 9.9%) has been used to discount the projected cash flows. This discount rate reflects the current market
assessment of the time value of money and the risks specific to the asset for which the projected cash flow estimates have not been adjusted. The
discount rate is determined with reference to a combination of factors, including the Group’s expected weighted average cost of equity and cost of
borrowing. This has been calculated using independent measurements of the risk-free rate of return and is indicative of the Group’s risk profile
relative to the market. The lower pre-tax discount rate compared to 2022 is primarily due to an overall decrease in the cost of equity included in
the Group’s weighted average cost of capital calculation. This was driven by an increase in the risk-free rate and a decrease in the beta value input
assumptions. The growth rate used to extrapolate the cash flows is 2.5% (2022 – 2.5%) and is based on historical growth rates, as well as
management’s best estimate of future growth rates, taking into account current economic market conditions.
184 Lancashire Holdings Limited | Annual Report & Accounts 2023
Lancashire Holdings Limited | Annual Report & Accounts 2023 185
185
Lancashire Holdings Limited | Annual Report & Accounts 2023
Financial Statements
Notes to the accounts continued
Sensitivity testing has been performed to model the impact of reasonably possible changes in input assumptions to the base case impairment
analysis and headroom. The discount rate has been flexed to 100 basis points above the central assumption (resulting in a 15% reduction in
headroom), the growth rate has been flexed to 100 basis points below the central assumption (resulting in a 13% reduction in headroom), and the
pre-tax projected cash flows have been flexed to 500 basis points below the central assumption (resulting in a 5% reduction in headroom). Within
these ranges, the recoverable amount remains supportable.
No impairment loss has been recognised for the years ended 31 December 2023 and 31 December 2022.
Internally generated intangible assets
Internally generated intangible assets represent directly attributable costs incurred in the development phase of implementing cloud-based
software to support the Group’s target operating model. As at 31 December 2023, certain of the internally generated intangible assets are available
for use and have commenced amortisation. During the year ended 31 December 2023, management considered the relevant indicators of
impairment at an individual intangible asset level and performed an impairment review where it was determined appropriate. Following the
performance of this impairment review, $1.4 million of impairment losses were recognised in other operating expenses (2022 – $nil).
1188.. LLoonngg--tteerrmm ddeebbtt aanndd ffiinnaanncciinngg aarrrraannggeemmeennttss
Long-term debt
During the year ended 31 December 2021, LHL issued $450.0 million (being the aggregate principal amount) of 5.625% fixed-rate reset junior
subordinated notes, repayable on 18 September 2041. The long-term debt was issued in two tranches forming part of the same series of notes, with
$400.0 million issued on 18 March 2021, and $50.0 million issued on 31 March 2021. Interest is payable semi-annually in arrears on 18 March and
18 September of each year, from 18 September 2021. The fixed interest rate will reset on 18 September 2031 and each reset date thereafter, at a
rate per annum equal to the prevailing five-year treasury rate, plus a credit spread of 4.08% and a 100 basis point step-up.
The carrying value of the Company’s issued $450.0 million junior subordinated notes are shown below:
AAss aatt 3311 DDeecceemmbbeerr
Junior subordinated notes
$450.0 million 5.625% fixed-rate reset notes issued March 2021, due September 2041
Carrying value
22002233
$$mm
446.6
446.6
2022
$m
446.1
446.1
The fair value of the long-term debt is $388.3 million (31 December 2022 – $352.0 million). The fair value measurement is classified within Level
(ii) of the fair value hierarchy and is based on observable data.
The interest accrued on the long-term debt as at 31 December 2023 was $7.2 million (31 December 2022 – $7.2 million) and is included within
other payables. Refer to note 8 for details of the interest expense for the year included within financing costs.
LHL has the option to redeem some or all of the junior subordinated notes, in whole or in part, prior to the maturity date. There are no negative or
financial covenants attached to the issued junior subordinated notes.
Letters of credit
As both LICL and LUK are non-admitted insurers or reinsurers throughout the U.S., the terms of certain contracts require them to provide LOCs to
policyholders as collateral.
The following LOCs have been issued by the Group:
AAss aatt 3311 DDeecceemmbbeerr
Issued to third parties
These LOCs are required to be fully collateralised.
22002233
$$mm
5.6
2022
$m
27.3
LHL and LICL have a $250.0 million syndicated collateralised credit facility that has been in place since 20 March 2020, and will expire on 20 March
2025. There was no outstanding debt under this facility as at 31 December 2023 and 2022.
The facility is available for the issue of LOCs to ceding companies. The facility is also available for LICL to issue LOCs to LUK to collateralise certain
insurance obligations.
The terms of the $250.0 million syndicated collateralised credit facility include standard default and cross-default provisions, which require certain
covenants to be adhered to. These include the following:
i. an A.M. Best financial strength rating of at least B++;
ii. a maximum debt to capital ratio of 30.0%, where the junior subordinated notes are excluded as debt from this calculation;
iii. a maximum subordinated unsecured indebtedness of $350.0 million; and
iv. a maximum aggregated indebtedness (a) under any syndicate arrangement entered into by Lancashire Syndicates in connection with the
underwriting business carried on by all such members of the syndicates, and (b) incurred by CCL 1998, LHL or LICL in the ordinary course of
business in connection with coming into line requirements, of $200.0 million.
186 Lancashire Holdings Limited | Annual Report & Accounts 2023
186
Lancashire Holdings Limited | Annual Report & Accounts 2023
Notes to the accounts continued
Sensitivity testing has been performed to model the impact of reasonably possible changes in input assumptions to the base case impairment
analysis and headroom. The discount rate has been flexed to 100 basis points above the central assumption (resulting in a 15% reduction in
headroom), the growth rate has been flexed to 100 basis points below the central assumption (resulting in a 13% reduction in headroom), and the
pre-tax projected cash flows have been flexed to 500 basis points below the central assumption (resulting in a 5% reduction in headroom). Within
these ranges, the recoverable amount remains supportable.
No impairment loss has been recognised for the years ended 31 December 2023 and 31 December 2022.
Internally generated intangible assets
Internally generated intangible assets represent directly attributable costs incurred in the development phase of implementing cloud-based
software to support the Group’s target operating model. As at 31 December 2023, certain of the internally generated intangible assets are available
for use and have commenced amortisation. During the year ended 31 December 2023, management considered the relevant indicators of
impairment at an individual intangible asset level and performed an impairment review where it was determined appropriate. Following the
performance of this impairment review, $1.4 million of impairment losses were recognised in other operating expenses (2022 – $nil).
1188.. LLoonngg--tteerrmm ddeebbtt aanndd ffiinnaanncciinngg aarrrraannggeemmeennttss
Long-term debt
During the year ended 31 December 2021, LHL issued $450.0 million (being the aggregate principal amount) of 5.625% fixed-rate reset junior
subordinated notes, repayable on 18 September 2041. The long-term debt was issued in two tranches forming part of the same series of notes, with
$400.0 million issued on 18 March 2021, and $50.0 million issued on 31 March 2021. Interest is payable semi-annually in arrears on 18 March and
18 September of each year, from 18 September 2021. The fixed interest rate will reset on 18 September 2031 and each reset date thereafter, at a
rate per annum equal to the prevailing five-year treasury rate, plus a credit spread of 4.08% and a 100 basis point step-up.
AAss aatt 3311 DDeecceemmbbeerr
Junior subordinated notes
Carrying value
$450.0 million 5.625% fixed-rate reset notes issued March 2021, due September 2041
22002233
$$mm
446.6
446.6
2022
$m
446.1
446.1
The fair value of the long-term debt is $388.3 million (31 December 2022 – $352.0 million). The fair value measurement is classified within Level
(ii) of the fair value hierarchy and is based on observable data.
The interest accrued on the long-term debt as at 31 December 2023 was $7.2 million (31 December 2022 – $7.2 million) and is included within
other payables. Refer to note 8 for details of the interest expense for the year included within financing costs.
LHL has the option to redeem some or all of the junior subordinated notes, in whole or in part, prior to the maturity date. There are no negative or
financial covenants attached to the issued junior subordinated notes.
As both LICL and LUK are non-admitted insurers or reinsurers throughout the U.S., the terms of certain contracts require them to provide LOCs to
Letters of credit
policyholders as collateral.
AAss aatt 3311 DDeecceemmbbeerr
Issued to third parties
The following LOCs have been issued by the Group:
These LOCs are required to be fully collateralised.
22002233
$$mm
5.6
2022
$m
27.3
LHL and LICL have a $250.0 million syndicated collateralised credit facility that has been in place since 20 March 2020, and will expire on 20 March
2025. There was no outstanding debt under this facility as at 31 December 2023 and 2022.
The facility is available for the issue of LOCs to ceding companies. The facility is also available for LICL to issue LOCs to LUK to collateralise certain
The terms of the $250.0 million syndicated collateralised credit facility include standard default and cross-default provisions, which require certain
insurance obligations.
covenants to be adhered to. These include the following:
i. an A.M. Best financial strength rating of at least B++;
ii. a maximum debt to capital ratio of 30.0%, where the junior subordinated notes are excluded as debt from this calculation;
iii. a maximum subordinated unsecured indebtedness of $350.0 million; and
iv. a maximum aggregated indebtedness (a) under any syndicate arrangement entered into by Lancashire Syndicates in connection with the
underwriting business carried on by all such members of the syndicates, and (b) incurred by CCL 1998, LHL or LICL in the ordinary course of
business in connection with coming into line requirements, of $200.0 million.
186 Lancashire Holdings Limited | Annual Report & Accounts 2023
On 3 March 2021 and 20 October 2022, LHL and LICL obtained waivers from their lenders in relation to the limits on debt incurrence under the
$250.0 million syndicated collateralised credit facility, which allowed (a) LHL to issue its $450.0 million 5.625% fixed-rate reset junior
subordinated notes due in 2041, and (b) the Group to increase the aggregate amount of indebtedness incurred under the facilities referenced in part
(iv.) above up to a maximum of $400.0 million.
A $215.5 million syndicated uncollateralised LOC facility and a $70.0 million collateral pledge facility have been in place since 25 October 2023 and
5 December 2023, respectively, and are available for utilisation by LICL and guaranteed by LHL for FAL purposes. As at 31 December 2023, a $215.5
million LOC was issued under the syndicated uncollateralised LOC facility, due to expire on 31 December 2027, and $70.0 million of agreed
collateral had been deposited, due to expire on 31 December 2024.
The terms of these facilities include standard default and cross-default provisions, which require certain covenants to be adhered to. These include
the following:
i. an A.M. Best financial strength rating of at least B++;
ii. a maximum debt to capital ratio of 30.0%, where the junior subordinated notes are excluded as debt from this calculation; and
iii. maintenance of a minimum net worth requirement.
As at all reporting dates, the Group was in compliance with all covenants and waivers under these facilities.
Syndicate bank facilities
As at 31 December 2023 and 31 December 2022, Syndicate 2010 had in place a $60.0 million LOC catastrophe facility. The facility is available to
assist in paying claims and the gross funding of catastrophes for Syndicate 2010. A separate uncommitted overdraft facility of $20.0 million is also
available to Syndicate 2010.
The carrying value of the Company’s issued $450.0 million junior subordinated notes are shown below:
There are no balances outstanding under the Syndicate bank facilities as at 31 December 2023 and 31 December 2022.
Trust and restricted balances
The Group has several trust arrangements in place in favour of policyholders and ceding insurers, in order to comply with the security requirements
of certain reinsurance contracts and/or the regulatory requirements of certain jurisdictions.
In 2012, LICL established an MBRT to collateralise certain reinsurance liabilities associated with U.S. domiciled clients. LICL continues to maintain its
accredited or trusteed reinsurer status in those U.S. states where there are outstanding liabilities collateralised through the MBRT. However,
following LICL’s approval as a reciprocal reinsurer in 2022 and 2023 in the majority of U.S. states, the MBRT is no longer expected to be required for
new business written with policyholders domiciled in the 52 U.S. states and territories where LICL has received reciprocal reinsurer approval.
The MBRT is subject to the relevant U.S. state rules and regulations, and the respective deeds of trust. These rules and regulations include minimum
capital funding requirements, investment guidelines, capital distribution restrictions, and regulatory reporting requirements.
The Group is required to hold a portion of its assets as FAL to support the underwriting capacity of both Syndicate 2010 and Syndicate 3010. FAL
are restricted in their use and are only drawn down to pay cash calls to syndicates supported by the Group. FAL requirements are formally assessed
twice a year and any funds surplus to requirements may be released at that time. See page 166 for more information regarding FAL requirements.
In addition to the FAL, certain cash and investments held by Syndicate 2010 and Syndicate 3010 are only available for paying the syndicates’ claims
and expenses. See page 166 within the risk disclosures for more information regarding the capital requirements for Syndicate 2010 and Syndicate
3010.
As at and for the years ended 31 December 2023 and 31 December 2022, the Group was in compliance with all covenants under its trust facilities.
The following cash and cash equivalent, and investment balances are held in trust collateral accounts in favour of third parties, or are otherwise
restricted:
AAss aatt 3311 DDeecceemmbbeerr
FAL
MBRT accounts
Syndicate accounts
In trust accounts for policyholders
In favour of LOCs
Loan to Lloyd’s Central Fund
Total
CCaasshh aanndd ccaasshh
eeqquuiivvaalleennttss
$$mm
7.0
0.2
61.9
112.2
2.4
—
183.7
22002233
FFiixxeedd mmaattuurriittyy
sseeccuurriittiieess
$$mm
245.3
266.0
127.9
47.0
17.3
3.2
706.7
Cash and cash
equivalents
$m
2.5
3.1
127.4
69.1
2.3
—
204.4
2022
Fixed maturity
securities
$m
398.4
251.9
240.2
24.3
30.8
3.1
948.7
TToottaall
$$mm
252.3
266.2
189.8
159.2
19.7
3.2
890.4
Total
$m
400.9
255.0
367.6
93.4
33.1
3.1
1,153.1
Lancashire Holdings Limited | Annual Report & Accounts 2023 187
187
Lancashire Holdings Limited | Annual Report & Accounts 2023
Financial Statements
Notes to the accounts continued
1199.. SShhaarree ccaappiittaall aanndd ootthheerr rreesseerrvveess
AAuutthhoorriisseedd ccoommmmoonn sshhaarreess ooff $$00..5500 eeaacchh
As at 31 December 2023 and 2022
AAllllooccaatteedd,, ccaalllleedd uupp aanndd ffuullllyy ppaaiidd ccoommmmoonn sshhaarreess ooff $$00..5500 eeaacchh
As at 31 December 2023 and 2022
OOwwnn sshhaarreess
As at 31 December 2021
Shares distributed
Shares repurchased
Shares donated to trust
As at 31 December 2022
Shares distributed
As at 31 December 2023
NNuummbbeerr
3,000,000,000
$$mm
1,500.0
NNuummbbeerr
244,010,007
$$mm
122.0
NNuummbbeerr hheelldd
iinn ttrreeaassuurryy
—
—
4,589,592
(4,589,592)
—
—
—
$$mm
—
—
23.3
(23.3)
—
—
—
NNuummbbeerr hheelldd
iinn ttrruusstt
2,170,898
(1,084,053)
—
4,589,592
5,676,437
(704,407)
4,972,030
$$mm
18.1
(8.1)
—
24.0
34.0
(4.3)
29.7
TToottaall nnuummbbeerr
ooff oowwnn sshhaarreess
2,170,898
(1,084,053)
4,589,592
—
5,676,437
(704,407)
4,972,030
$$mm
18.1
(8.1)
23.3
0.7
34.0
(4.3)
29.7
The number of common shares in issue with voting rights (allocated share capital, less shares held in trust/treasury) as at 31 December 2023 was
244,010,007 (31 December 2022 – 244,010,007).
Share repurchases
At the AGM held on 26 April 2023, LHL’s shareholders approved a renewal of the Company’s Repurchase Programme authorising the repurchase of
a maximum of 24,401,000 common shares, with such authority to expire on the conclusion of the 2024 AGM or, if earlier, 15 months from the
date the resolution approving the Repurchase Programme was passed.
During the year ended 31 December 2023, no shares were repurchased by the Company under the Repurchase Programme. During the year ended
31 December 2022, 4,589,592 common shares were repurchased by the Company under its Repurchase Programme, at a weighted average share
price of £4.23.
Under the Repurchase Programme, the Board authorised management to repurchase 24,401,000 common shares within certain parameters for a
maximum consideration not exceeding $50.0 million, commencing on 22 November 2023 and ending on 29 February 2024. No shares were
repurchased by the Company during this period.
Dividends
The Board of Directors have authorised the following dividends:
TTyyppee
Final
Interim
Final
Interim
Special
PPeerr sshhaarree aammoouunntt
$0.10
$0.05
$0.10
$0.05
$0.50
RReeccoorrdd ddaattee
13 May 2022
5 Aug 2022
5 May 2023
18 Aug 2023
17 Nov 2023
PPaayymmeenntt ddaattee
10 June 2022
2 Sep 2022
2 June 2023
15 Sep 2023
15 Dec 2023
$$mm
24.3
11.9
23.9
11.9
119.5
Other reserves
The Group’s other reserves of $1,233.2 million (31 December 2022 – $1,221.9 million) comprises contributed surplus and an equity based
compensation reserve. The equity based compensation reserve comprises $23.9 million (31 December 2022 – $33.3 million) of this balance and
relates to the Group’s equity compensation plans (see note 7).
188 Lancashire Holdings Limited | Annual Report & Accounts 2023
188
Lancashire Holdings Limited | Annual Report & Accounts 2023
Notes to the accounts continued
1199.. SShhaarree ccaappiittaall aanndd ootthheerr rreesseerrvveess
AAuutthhoorriisseedd ccoommmmoonn sshhaarreess ooff $$00..5500 eeaacchh
As at 31 December 2023 and 2022
AAllllooccaatteedd,, ccaalllleedd uupp aanndd ffuullllyy ppaaiidd ccoommmmoonn sshhaarreess ooff $$00..5500 eeaacchh
As at 31 December 2023 and 2022
OOwwnn sshhaarreess
As at 31 December 2021
Shares distributed
Shares repurchased
Shares donated to trust
As at 31 December 2022
Shares distributed
As at 31 December 2023
NNuummbbeerr
$$mm
3,000,000,000
1,500.0
NNuummbbeerr
244,010,007
$$mm
122.0
4,589,592
—
(4,589,592)
(23.3)
4,589,592
NNuummbbeerr hheelldd
iinn ttrreeaassuurryy
—
—
—
—
—
(1,084,053)
(8.1)
(1,084,053)
NNuummbbeerr hheelldd
iinn ttrruusstt
2,170,898
$$mm
—
—
23.3
—
—
—
5,676,437
(704,407)
4,972,030
$$mm
18.1
—
24.0
34.0
(4.3)
29.7
TToottaall nnuummbbeerr
ooff oowwnn sshhaarreess
2,170,898
4,589,592
—
5,676,437
(704,407)
4,972,030
$$mm
18.1
(8.1)
23.3
0.7
34.0
(4.3)
29.7
244,010,007 (31 December 2022 – 244,010,007).
Share repurchases
At the AGM held on 26 April 2023, LHL’s shareholders approved a renewal of the Company’s Repurchase Programme authorising the repurchase of
a maximum of 24,401,000 common shares, with such authority to expire on the conclusion of the 2024 AGM or, if earlier, 15 months from the
date the resolution approving the Repurchase Programme was passed.
During the year ended 31 December 2023, no shares were repurchased by the Company under the Repurchase Programme. During the year ended
31 December 2022, 4,589,592 common shares were repurchased by the Company under its Repurchase Programme, at a weighted average share
Under the Repurchase Programme, the Board authorised management to repurchase 24,401,000 common shares within certain parameters for a
maximum consideration not exceeding $50.0 million, commencing on 22 November 2023 and ending on 29 February 2024. No shares were
repurchased by the Company during this period.
The Board of Directors have authorised the following dividends:
price of £4.23.
Dividends
TTyyppee
Final
Interim
Final
Interim
Special
Other reserves
2200.. EEaarrnniinnggss ppeerr sshhaarree
The following reflects the profit and share data used in the basic and diluted earnings per share computations:
FFoorr tthhee yyeeaarr eennddeedd 3311 DDeecceemmbbeerr
Profit (loss) after tax
Basic weighted average number of shares
Dilutive effect of RSS
Diluted weighted average number of shares
EEaarrnniinnggss ((lloossss)) ppeerr sshhaarree
Basic
Diluted1
22002233
$$mm
321.5
Restated
2022
$m
(15.5)
22002233
NNuummbbeerr
ooff sshhaarreess
238,811,761
5,192,761
2022
Number
of shares
240,328,201
3,017,193
244,004,522
243,345,394
22002233
$1.35
$1.32
Restated
2022
($0.06)
($0.06)
The number of common shares in issue with voting rights (allocated share capital, less shares held in trust/treasury) as at 31 December 2023 was
1. Diluted EPS excludes dilutive effect of RSS when in a loss making position.
Equity based compensation awards are only treated as dilutive when their conversion to common shares would decrease the earnings per share, or
increase loss per share, from continuing operations. Unvested restricted shares without performance criteria are therefore included in the number
of potentially dilutive shares. Incremental shares from ordinary restricted share options, where relevant performance criteria have not been met, are
not included in the calculation of dilutive shares.
2211.. CCoommmmiittmmeennttss aanndd ccoonnttiinnggeenncciieess
Credit facility fund
As at 31 December 2023, the Group has a commitment of $50.0 million (31 December 2022 – $50.0 million) relating to one credit facility fund
(refer to note 12).
Private investment funds
The table below shows the dates on which the Group committed to invest in four different private investment funds and the amount of the total
commitment that remains undrawn as at 31 December 2023.
PPeerr sshhaarree aammoouunntt
RReeccoorrdd ddaattee
PPaayymmeenntt ddaattee
$0.10
$0.05
$0.10
$0.05
$0.50
13 May 2022
10 June 2022
5 Aug 2022
5 May 2023
18 Aug 2023
17 Nov 2023
2 Sep 2022
2 June 2023
15 Sep 2023
15 Dec 2023
$$mm
24.3
11.9
23.9
11.9
119.5
DDaattee ooff ccoommmmiittmmeenntt ttoo iinnvveesstt iinn pprriivvaattee iinnvveessttmmeenntt ffuunndd
18 October 2022
28 July 2021
9 December 2020
5 November 2019
Total
TToottaall
ccoommmmiittmmeenntt
$$mm
10.0
34.0
25.0
25.0
94.0
UUnnddrraawwnn
ccoommmmiittmmeenntt
$$mm
3.5
15.3
0.5
1.0
20.3
The Group’s other reserves of $1,233.2 million (31 December 2022 – $1,221.9 million) comprises contributed surplus and an equity based
compensation reserve. The equity based compensation reserve comprises $23.9 million (31 December 2022 – $33.3 million) of this balance and
relates to the Group’s equity compensation plans (see note 7).
Legal proceedings and regulations
The Group operates in the insurance industry and is, therefore, from time to time, subject to legal proceedings in the normal course of business.
While it is not practicable to estimate or determine the final results of all pending or threatened legal proceedings, management does not believe
that such proceedings (including litigation) will have a material effect on the Group’s results and financial position.
188 Lancashire Holdings Limited | Annual Report & Accounts 2023
Lancashire Holdings Limited | Annual Report & Accounts 2023 189
189
Lancashire Holdings Limited | Annual Report & Accounts 2023
Financial Statements
Notes to the accounts continued
2222.. RReellaatteedd ppaarrttyy ddiisscclloossuurreess
The Group’s consolidated financial statements include LHL and the entities listed below:
NNaammee
Subsidiaries1
CCHL
CCL
CCL 19982
CCL 1999
CUL
LAPL
LICLIHL
LCM
LCMMSL
LICL
LUS3
LIHL
LHUS3
LIMSL
LISL
LHAPL
LMSCL
LSL
LUAPL
LUK
Associate
KHL4 (and its subsidiary KRL)
Other controlled entities
PPrriinncciippaall BBuussiinneessss
DDoommiicciillee
Holding company
Holding company
Lloyd’s corporate member
Non trading
Non trading
Non trading
Holding company
Insurance agent services
Support services
General insurance business
Surplus line broker
Holding company
Holding company
Insurance mediation activities
Support services
Holding company
Support services
Lloyd’s managing agent
Lloyd’s service company
General insurance business
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Australia
Bermuda
Bermuda
United Kingdom
Bermuda
United States of America
United Kingdom
United States of America
United Kingdom
United Kingdom
Australia
Canada
United Kingdom
Australia
United Kingdom
Holding company / General insurance business
Bermuda
EBT
Trust
Jersey
1. Unless otherwise stated, the Group owns 100% of the ordinary share capital and voting rights in its subsidiaries listed.
2. 69.3% participation on the 2023 year of account, and 72.1% participation on the 2024 year of account, for Syndicate 2010.
3. Entities incorporated in May 2023.
4. The Group has a 15.0% holding through its interest in the preference shares of each segregated account of KHL.
The EBT was established to assist in the administration of the Group’s employee equity based compensation schemes. While the Group does not
have legal ownership of the EBT, and the ability of the Group to influence the actions of the EBT is limited by the trust deed in place, the EBT was
set up by the Group with the sole purpose of assisting in the administration of these schemes and it is in essence, therefore, controlled by the
Group, and is, consequently, consolidated within the Group.
The Group has a Loan Facility Agreement (the ‘Facility’) with JTC PLC, the trustee of the EBT. The Facility is an interest free revolving credit facility
under which the trustee can request advances on demand, within the terms of the Facility, up to a maximum aggregate amount of $80.0 million.
The Facility may only be used by the trustee for the purpose of achieving the objectives of the EBT. During the year ended 31 December 2023, the
Group had made advances of $nil (31 December 2022 – $0.5 million) to the EBT under the terms of the Facility.
During the year ended 31 December 2023, no common shares were donated by the Company to the EBT. During the year ended 31 December
2022, the Company donated 4,589,592 common shares (repurchased under its Repurchase Programmes) to the EBT for a total market value of
$23.3 million at the prevailing rate. LHL did not issue any common shares to the EBT during the year ended 31 December 2023 or 31 December
2022.
LICL holds $215.5 million (31 December 2022 – $203.8 million) of cash and cash equivalents, fixed maturity securities, and accrued interest in trust
for the benefit of LUK relating to intra-group reinsurance agreements. In addition, LICL is required to provide 100% of the required FAL for the
Group to support the underwriting activities of Syndicate 2010 and Syndicate 3010. LICL holds $252.3 million (31 December 2022 – $400.9
million) of cash and cash equivalents and fixed maturity securities in FAL with the remaining FAL requirement covered by a LOC and a collateral
pledge facility (refer to note 18).
Mr Maloney and his spouse acquired 100.0% of the shares in Nameco on 7 November 2016. Nameco provides capacity to a number of Lloyd’s
syndicates, including Syndicate 2010 which is managed by LSL. Nameco has provided $0.2 million of capacity to Syndicate 2010 for the 2024 year
of account (2023 year of account – $0.2 million). Mr Maloney receives a proportionate share of the underwriting results of Syndicate 2010 to which
he is contractually entitled through his participation. These transactions occurred on an arm’s length basis.
190 Lancashire Holdings Limited | Annual Report & Accounts 2023
190
Lancashire Holdings Limited | Annual Report & Accounts 2023
Notes to the accounts continued
NNaammee
Subsidiaries1
CCHL
CCL
CCL 19982
CCL 1999
CUL
LAPL
LICLIHL
LCM
LCMMSL
LICL
LUS3
LIHL
LHUS3
LIMSL
LISL
LHAPL
LMSCL
LSL
LUAPL
LUK
Associate
Holding company
Holding company
Lloyd’s corporate member
Non trading
Non trading
Non trading
Holding company
Insurance agent services
Support services
General insurance business
Surplus line broker
Holding company
Holding company
Support services
Holding company
Support services
Insurance mediation activities
Lloyd’s managing agent
Lloyd’s service company
General insurance business
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Australia
Bermuda
Bermuda
United Kingdom
Bermuda
United States of America
United Kingdom
United States of America
United Kingdom
United Kingdom
Australia
Canada
United Kingdom
Australia
United Kingdom
KHL4 (and its subsidiary KRL)
Holding company / General insurance business
Bermuda
Other controlled entities
EBT
Trust
Jersey
1. Unless otherwise stated, the Group owns 100% of the ordinary share capital and voting rights in its subsidiaries listed.
2. 69.3% participation on the 2023 year of account, and 72.1% participation on the 2024 year of account, for Syndicate 2010.
3. Entities incorporated in May 2023.
4. The Group has a 15.0% holding through its interest in the preference shares of each segregated account of KHL.
The EBT was established to assist in the administration of the Group’s employee equity based compensation schemes. While the Group does not
have legal ownership of the EBT, and the ability of the Group to influence the actions of the EBT is limited by the trust deed in place, the EBT was
set up by the Group with the sole purpose of assisting in the administration of these schemes and it is in essence, therefore, controlled by the
Group, and is, consequently, consolidated within the Group.
The Group has a Loan Facility Agreement (the ‘Facility’) with JTC PLC, the trustee of the EBT. The Facility is an interest free revolving credit facility
under which the trustee can request advances on demand, within the terms of the Facility, up to a maximum aggregate amount of $80.0 million.
The Facility may only be used by the trustee for the purpose of achieving the objectives of the EBT. During the year ended 31 December 2023, the
Group had made advances of $nil (31 December 2022 – $0.5 million) to the EBT under the terms of the Facility.
During the year ended 31 December 2023, no common shares were donated by the Company to the EBT. During the year ended 31 December
2022, the Company donated 4,589,592 common shares (repurchased under its Repurchase Programmes) to the EBT for a total market value of
$23.3 million at the prevailing rate. LHL did not issue any common shares to the EBT during the year ended 31 December 2023 or 31 December
2022.
LICL holds $215.5 million (31 December 2022 – $203.8 million) of cash and cash equivalents, fixed maturity securities, and accrued interest in trust
for the benefit of LUK relating to intra-group reinsurance agreements. In addition, LICL is required to provide 100% of the required FAL for the
Group to support the underwriting activities of Syndicate 2010 and Syndicate 3010. LICL holds $252.3 million (31 December 2022 – $400.9
million) of cash and cash equivalents and fixed maturity securities in FAL with the remaining FAL requirement covered by a LOC and a collateral
pledge facility (refer to note 18).
Mr Maloney and his spouse acquired 100.0% of the shares in Nameco on 7 November 2016. Nameco provides capacity to a number of Lloyd’s
syndicates, including Syndicate 2010 which is managed by LSL. Nameco has provided $0.2 million of capacity to Syndicate 2010 for the 2024 year
of account (2023 year of account – $0.2 million). Mr Maloney receives a proportionate share of the underwriting results of Syndicate 2010 to which
he is contractually entitled through his participation. These transactions occurred on an arm’s length basis.
190 Lancashire Holdings Limited | Annual Report & Accounts 2023
2222.. RReellaatteedd ppaarrttyy ddiisscclloossuurreess
The Group’s consolidated financial statements include LHL and the entities listed below:
PPrriinncciippaall BBuussiinneessss
DDoommiicciillee
Key management compensation
Remuneration for key management, the Group’s Executive and Non-Executive Directors, was as follows:
FFoorr tthhee yyeeaarr eennddeedd 3311 DDeecceemmbbeerr
Short-term compensation
Equity based compensation
Directors’ fees and expenses
Total
22002233
$$mm
4.9
2.5
2.5
9.9
2022
$m
2.7
0.8
2.3
5.8
Non-Executive Directors do not receive any benefits in addition to their agreed fees and expenses, and do not participate in any of the Group’s
incentive, performance or pension plans.
Transactions with the Group’s associate and the associate’s subsidiary
In 2013, LCM entered into an underwriting services agreement with KRL and KHL to provide various services relating to underwriting, actuarial,
premium payments and relevant deductions, acquisition expenses, and receipt of claims. For the year ended 31 December 2023, the Group
recognised $nil (2022 – $4.0 million) of service fees and profit commissions in other income (refer to note 5) in relation to this agreement.
During 2023, the Group committed an additional $nil (31 December 2022 – $nil) of capital to KHL. During 2023, KHL returned $55.6 million (31
December 2022 – $55.0 million) of capital to the Group.
Refer to note 15 for further details on the Group’s investment in associate.
During 2021, the Group entered into reinsurance agreements with KRL. The following balances are included in the Group’s consolidated financial
statements:
CCoonnssoolliiddaatteedd ssttaatteemmeenntt ooff ffiinnaanncciiaall ppoossiittiioonn
Reinsurance contract asset
CCoonnssoolliiddaatteedd ssttaatteemmeenntt ooff ccoommpprreehheennssiivvee iinnccoommee
Allocation of reinsurance premium
Amounts recoverable from reinsurers
22002233
$$mm
19.1
22002233
$$mm
—
—
Restated
2022
$m
19.1
Restated
2022
$m
(3.1)
(4.1)
2233.. IImmppaacctt ooff aaddooppttiioonn -- IIFFRRSS 1177 IInnssuurraannccee CCoonnttrraaccttss
Recognition, measurement and presentation
IFRS 17 establishes new principles for the recognition, measurement, presentation and disclosure of insurance contracts issued and reinsurance
contracts held.
The standard includes a number of significant changes to existing practice regarding the measurement and disclosure of insurance contracts issued
and reinsurance contracts held both in terms of liability measurement and profit recognition.
IFRS 17 is a principles-based accounting standard and the valuation of insurance contract liabilities continues to be the largest area of estimation
uncertainty. This includes consideration of the cash flows within the contract boundary, discounting and the risk adjustment for non-financial risk
calculation. There are a number of accounting policy choices that are allowed under the standard and this requires the application of judgement
and an increased use of estimation techniques. Management has applied judgement in interpreting the standard in areas such as determining the
applicable measurement model, the approach to discounting and the level of aggregation (see accounting policies).
The Group has determined that at the date of transition it is eligible to apply the PAA to its portfolios and groups of insurance contracts issued, and
reinsurance contracts held, on the basis that the measurement of the LRC and the ARC is not expected to differ materially from that calculated
under the GMM. The PAA simplifies the measurement of the LRC, replacing the FCF plus contractual service margin approach of the GMM with a
measurement based on net of acquisition cost premiums received less those recognised through revenue. For reinsurance contracts held, the Group
applied the PAA adapted to reflect the features of reinsurance contracts held that differ from insurance contracts issued.
Effect of initial application
The Group has adopted IFRS 17 retrospectively from its effective date of 1 January 2023. The transition approach was determined at a group of
insurance contracts level. Under the PAA, the Group concluded that only current and prospective information was required to reflect circumstances
at the transition date, which made the fully retrospective approach practicable.
Accordingly, as at 1 January 2022, the Group identified, recognised and measured each group of insurance contracts issued and reinsurance
contracts held as if IFRS 17 had always applied, derecognised any existing balances that would not have existed had IFRS 17 always applied, and
recognised any resulting differences in shareholders’ equity.
Lancashire Holdings Limited | Annual Report & Accounts 2023 191
191
Lancashire Holdings Limited | Annual Report & Accounts 2023
Financial Statements
Notes to the accounts continued
The Group has applied the transition provisions in IFRS 17, and has not disclosed the impact of the adoption of IFRS 17 on each financial statement
line item and EPS.
The consequential amendments to IFRS 3 Business Combinations, introduced by IFRS 17, require the Group to assess and classify any insurance
contracts acquired as part of a business combination effective at a date on or after the implementation date of IFRS 17, being 1 January 2023, on
the basis of the contractual terms of the insurance contracts, and other relevant factors, as at the date of acquisition. This requirement is not
applicable to business combinations before 1 January 2023, for which the Group was required to assess and classify all insurance contracts acquired
as part of a business combination as insurance contracts on the basis of the conditions at the inception of the individual insurance contracts.
Therefore this requirement of IFRS 17 has not been applied retrospectively.
The initial application of IFRS 17 resulted in a $18.9 million net reduction to total shareholders’ equity reported within the consolidated statement
of shareholders’ equity.
The two largest valuation adjustments, representing $15.7 million of the net reduction in total shareholders’ equity on the initial application of IFRS
17, included:
• a $38.4 million net reduction in shareholders’ equity from establishing a directly attributable expense reserve and releasing the ULAE provision
previously established under IFRS 4. This is due to the IFRS 17 requirement that all future cash flows related to the fulfilment of insurance contracts
issued be captured within portfolios and applied to groups of insurance contracts. This replaced, at an increased amount, the existing ULAE provision;
and
• a $22.7 million net increase in shareholders’ equity from discounting the LIC and the AIC. Since not all cash flows are expected to be paid or received in
one year or less from the date claims are incurred, the Group is required to discount the estimate of future cash flows included in both the LIC and the
AIC. As current discount rates are applied, this is subject to a degree of volatility (see note 3). Under IFRS 4, insurance contract liabilities were not
discounted by the Group.
Other smaller valuation adjustments, representing $3.2 million of the net reduction in total shareholders’ equity on initial application of IFRS 17,
arose from:
•
•
•
•
the requirement to revalue all component parts of insurance contract liabilities and reinsurance contract assets at current foreign exchange rates.
Under IFRS 4, the previously established unearned premium and deferred acquisition cost balances were considered non-monetary assets and were
translated at historic exchange rates;
including expected premiums within the estimates of future cash flows that are used to determine insurance revenue. Under IFRS 4, for the majority of
the Group’s excess of loss contracts, premiums written were recorded based on the minimum, deposit, or flat premiums, as defined in the contract.
Subsequent adjustments to the minimum, deposit or flat premiums were recognised in the period in which they were determined;
the requirement to recognise immediately an onerous loss component and, if applicable, the corresponding reinsurance coverage in place (a loss
recovery component), on the initial recognition of an onerous group of insurance contracts (see note 13); and
the requirement to include an element of non-performance risk in the cash flow assumptions when measuring the reinsurance contract asset balance
under IFRS 17. Under IFRS 4, the Group had not previously recognised a bad debt provision on losses recoverable from reinsurers.
The Group reported a total comprehensive loss of $92.6 million in the annual audited consolidated financial statements for the year ended 31
December 2022. Following the adoption of IFRS 17, the restated total comprehensive loss for the year ended 31 December 2022 is $15.5 million.
This $77.1 million increase in the consolidated statement of comprehensive income, alongside the $18.9 million decrease in total shareholders’
equity, recorded at the date of initial application, results in a $58.2 million cumulative increase to total shareholders’ equity from adopting IFRS 17
as at 31 December 2022.
Under IFRS 17, a risk adjustment for non-financial risk is required to be determined, to reflect the compensation that the Group requires for bearing
non-financial risk, and its degree of risk aversion to such non-financial risks. The Group’s risk adjustment for non-financial risk under IFRS 17 does
not differ materially from the Group’s reserve margin under IFRS 4, as the fundamentals of our reserving methodology remain unchanged following
the implementation of IFRS 17 (see insurance risk disclosure).
IFRS 17 has also resulted in a number of presentation differences compared to the previous IFRS 4 consolidated financial statements, specifically:
•
•
•
the insurance service result comprises insurance revenue, insurance service expenses, and the net expenses from reinsurance contracts held;
reinsurance contracts held are required to be presented separately from insurance contracts issued;
the reporting of gross premiums written is no longer applicable under IFRS 17 and insurance revenue equates more closely to gross earned premium.
Reinstatement premiums are recognised net against insurance service expenses, while commissions paid to cedants are recognised as a net deduction
to insurance revenue. Non-distinct investment components, which are defined as amounts that are repayable in all circumstances, are required to be
excluded from insurance revenue and insurance service expenses;
• a portion of operating expenses are included in insurance service expenses (see note 6); and
• on the face of the consolidation statement of financial position all insurance-related balances will be presented in either insurance contract liabilities,
or reinsurance contract assets, as appropriate.
The accounting policies for insurance contracts issued and reinsurance contracts held under IFRS 17 are set out on pages 138 to 143.
192 Lancashire Holdings Limited | Annual Report & Accounts 2023
192
Lancashire Holdings Limited | Annual Report & Accounts 2023
Notes to the accounts continued
The Group has applied the transition provisions in IFRS 17, and has not disclosed the impact of the adoption of IFRS 17 on each financial statement
line item and EPS.
The consequential amendments to IFRS 3 Business Combinations, introduced by IFRS 17, require the Group to assess and classify any insurance
contracts acquired as part of a business combination effective at a date on or after the implementation date of IFRS 17, being 1 January 2023, on
the basis of the contractual terms of the insurance contracts, and other relevant factors, as at the date of acquisition. This requirement is not
applicable to business combinations before 1 January 2023, for which the Group was required to assess and classify all insurance contracts acquired
as part of a business combination as insurance contracts on the basis of the conditions at the inception of the individual insurance contracts.
Therefore this requirement of IFRS 17 has not been applied retrospectively.
The initial application of IFRS 17 resulted in a $18.9 million net reduction to total shareholders’ equity reported within the consolidated statement
The two largest valuation adjustments, representing $15.7 million of the net reduction in total shareholders’ equity on the initial application of IFRS
• a $38.4 million net reduction in shareholders’ equity from establishing a directly attributable expense reserve and releasing the ULAE provision
previously established under IFRS 4. This is due to the IFRS 17 requirement that all future cash flows related to the fulfilment of insurance contracts
issued be captured within portfolios and applied to groups of insurance contracts. This replaced, at an increased amount, the existing ULAE provision;
• a $22.7 million net increase in shareholders’ equity from discounting the LIC and the AIC. Since not all cash flows are expected to be paid or received in
one year or less from the date claims are incurred, the Group is required to discount the estimate of future cash flows included in both the LIC and the
AIC. As current discount rates are applied, this is subject to a degree of volatility (see note 3). Under IFRS 4, insurance contract liabilities were not
of shareholders’ equity.
17, included:
and
discounted by the Group.
arose from:
Other smaller valuation adjustments, representing $3.2 million of the net reduction in total shareholders’ equity on initial application of IFRS 17,
•
•
•
•
•
•
•
the requirement to revalue all component parts of insurance contract liabilities and reinsurance contract assets at current foreign exchange rates.
Under IFRS 4, the previously established unearned premium and deferred acquisition cost balances were considered non-monetary assets and were
translated at historic exchange rates;
including expected premiums within the estimates of future cash flows that are used to determine insurance revenue. Under IFRS 4, for the majority of
the Group’s excess of loss contracts, premiums written were recorded based on the minimum, deposit, or flat premiums, as defined in the contract.
Subsequent adjustments to the minimum, deposit or flat premiums were recognised in the period in which they were determined;
the requirement to recognise immediately an onerous loss component and, if applicable, the corresponding reinsurance coverage in place (a loss
recovery component), on the initial recognition of an onerous group of insurance contracts (see note 13); and
the requirement to include an element of non-performance risk in the cash flow assumptions when measuring the reinsurance contract asset balance
under IFRS 17. Under IFRS 4, the Group had not previously recognised a bad debt provision on losses recoverable from reinsurers.
The Group reported a total comprehensive loss of $92.6 million in the annual audited consolidated financial statements for the year ended 31
December 2022. Following the adoption of IFRS 17, the restated total comprehensive loss for the year ended 31 December 2022 is $15.5 million.
This $77.1 million increase in the consolidated statement of comprehensive income, alongside the $18.9 million decrease in total shareholders’
equity, recorded at the date of initial application, results in a $58.2 million cumulative increase to total shareholders’ equity from adopting IFRS 17
as at 31 December 2022.
Under IFRS 17, a risk adjustment for non-financial risk is required to be determined, to reflect the compensation that the Group requires for bearing
non-financial risk, and its degree of risk aversion to such non-financial risks. The Group’s risk adjustment for non-financial risk under IFRS 17 does
not differ materially from the Group’s reserve margin under IFRS 4, as the fundamentals of our reserving methodology remain unchanged following
the implementation of IFRS 17 (see insurance risk disclosure).
IFRS 17 has also resulted in a number of presentation differences compared to the previous IFRS 4 consolidated financial statements, specifically:
the insurance service result comprises insurance revenue, insurance service expenses, and the net expenses from reinsurance contracts held;
reinsurance contracts held are required to be presented separately from insurance contracts issued;
the reporting of gross premiums written is no longer applicable under IFRS 17 and insurance revenue equates more closely to gross earned premium.
Reinstatement premiums are recognised net against insurance service expenses, while commissions paid to cedants are recognised as a net deduction
to insurance revenue. Non-distinct investment components, which are defined as amounts that are repayable in all circumstances, are required to be
excluded from insurance revenue and insurance service expenses;
• a portion of operating expenses are included in insurance service expenses (see note 6); and
• on the face of the consolidation statement of financial position all insurance-related balances will be presented in either insurance contract liabilities,
or reinsurance contract assets, as appropriate.
The accounting policies for insurance contracts issued and reinsurance contracts held under IFRS 17 are set out on pages 138 to 143.
2244.. IImmppaacctt ooff aaddooppttiioonn -- IIFFRRSS 99 FFiinnaanncciiaall IInnssttrruummeennttss:: CCllaassssiiffiiccaattiioonn aanndd MMeeaassuurreemmeenntt
The Group adopted IFRS 9 on 1 January 2023 (the same effective date as IFRS 17), as permitted under the June 2020 amendments to IFRS 4 -
Insurance Contracts. IFRS 9 replaces the provisions of IAS 39 that relate to the recognition, classification, and measurement of financial assets and
financial liabilities, derecognition of financial instruments, impairment of financial assets, and hedge accounting. In summary:
•
the classification and measurement categories of financial assets under IFRS 9 are assessed based on the Group’s business model for managing those
financial assets;
• under IFRS 9, the three classification categories for financial assets are: FVTPL (mandatory or designated), FVOCI and amortised cost. IFRS 9, therefore,
eliminates the previous IAS 39 measurement categories of FVTPL (held for trading or designated), AFS, held-to-maturity, and loans and receivables;
• an ECL impairment model replaces the IAS 39 incurred loss model. The expected credit loss approach requires an allowance to be established at initial
recognition of an asset classified as FVOCI or amortised cost, reflecting the level of losses anticipated having regard to, amongst other things, expected
future economic factors. Subsequently, the amount of the allowance is affected by changes in the expectations of loss driven by changes in the
associated credit risk. As at the date of transition, it was determined that the impact of ECLs were not material;
• new hedge accounting requirements have been introduced. The Group does not apply hedge accounting and has, therefore, not considered in detail
the changes in this area as a result of adopting IFRS 9;
the requirements for derecognition under IFRS 9 are broadly unchanged from IAS 39; and
the classification and measurement for financial liabilities under IFRS 9 are broadly unchanged from IAS 39.
•
•
Effect of initial application
The Group has adopted IFRS 9 retrospectively effective from the date of initial application of IFRS 17 on 1 January 2023. The Group also elected to
apply the classification overlay to restate its comparative information, as permitted by an amendment to IFRS 17 (amendments of the initial
application of IFRS 17 and IFRS 9 - Comparative Information, issued in December 2021). The classification overlay has been applied to all financial
assets derecognised in the comparative period. A change of classification as at 1 January 2022 has been applied using the business model
classification on 1 January 2023.
The Group has established that all investment classes are managed, and their performance evaluated, on a fair value basis, and, therefore, they have
been classified as FVTPL. For cash and cash equivalents, and other receivables, the objective is to collect the contractual cash flows only, and,
therefore, they have been classified as amortised cost. The Group’s classification of financial liabilities has remained unchanged.
The Group’s accounting policies for financial instruments under IFRS 9 are set out on pages 144 to 145. The application of these policies resulted in
the reclassifications set out below:
As at 1 January 2022
Financial assets
Cash and cash equivalents
Fixed maturity securities - AFS
Fixed maturity securities - FVTPL
Private investment funds - FVTPL
Hedge funds - FVTPL
Index linked securities - FVTPL
Other investments
Other receivables
Total financial assets
Financial liabilities
Other payables
Long-term debt
Total financial liabilities
Original classification under IAS 39
New classification under IFRS 9
Loans and receivables
AFS
FVTPL (designated)
FVTPL (designated)
FVTPL (designated)
FVTPL (designated)
FVTPL
Loans and receivables
Amortised cost
FVTPL (mandatory)
FVTPL (mandatory)
FVTPL (mandatory)
FVTPL (mandatory)
FVTPL (mandatory)
FVTPL (mandatory)
Amortised cost
Amortised cost
Amortised cost
Amortised cost
Amortised cost
Original carrying
amount
under IAS 39
$m
Carrying amount
under IFRS 9
$m
517.7
1,780.2
28.9
105.7
102.9
30.5
(0.1)
18.8
2,584.6
517.7
1,780.2
28.9
105.7
102.9
30.5
(0.1)
18.8
2,584.6
37.4
445.7
483.1
37.4
445.7
483.1
The adoption of IFRS 9 has resulted in a $2.9 million, net of tax reclassification adjustment between opening accumulated other comprehensive
income and opening retained earnings, as at 1 January 2022 (see consolidated statement of shareholders’ equity). This reclassification adjustment
does not impact opening shareholders’ equity as at 1 January 2022. The tables below outline the reclassification of financial statement line items, as
well as the earnings per share impacts of adopting IFRS 9.
192 Lancashire Holdings Limited | Annual Report & Accounts 2023
Lancashire Holdings Limited | Annual Report & Accounts 2023 193
193
Lancashire Holdings Limited | Annual Report & Accounts 2023
Financial Statements
Notes to the accounts continued
Consolidated statement of financial position
Investments
• Fixed maturity securities - AFS
• Fixed maturity securities - FVTPL
Total financial assets1
Total financial liabilities1
Accumulated other comprehensive income
Retained earnings
Total shareholders’ equity1
As at 31 December
2021 - IAS 39
$m
Reclassification
of investments
$m
Reclassification
of tax
$m
Restated as at
1 January 2022
$m
1,780.2
28.9
2,584.6
(1,780.2)
1,780.2
—
483.1
—
2.9
83.9
86.8
(3.3)
3.3
—
—
—
—
—
0.4
(0.4)
—
—
1,809.1
2,584.6
483.1
—
86.8
86.8
1. Line items that were not impacted by changes have not been included. As a result, the subtotals and totals disclosed cannot be recalculated from the numbers provided.
Consolidated statement of financial position
Investments
• Fixed maturity securities - AFS
• Fixed maturity securities - FVTPL
Total financial assets1
Total financial liabilities1
Accumulated other comprehensive loss
Retained earnings
Total shareholders’ equity1
As at 31 December
2022 - IAS 39
$m
Reclassification
of investments
$m
Reclassification
of tax
$m
Restated as at
31 December 2022
$m
1,942.9
22.0
2,783.8
490.2
(86.4)
44.4
(42.0)
(1,942.9)
1,942.9
—
—
89.9
(89.9)
—
—
—
—
—
(3.5)
3.5
—
—
1,964.9
2,783.8
490.2
—
(42.0)
(42.0)
1. Line items that were not impacted by changes have not been included. As a result, the subtotals and totals disclosed cannot be recalculated from the numbers provided.
The following table shows the adjustments to the consolidated statement of comprehensive income for the year ended 31 December 2022 for each
individual line item impacted by the adoption of IFRS 9.
Consolidated statement of comprehensive income
Net investment income (IAS 39) / return (IFRS 9)
Net other investment income (IAS 39 only)
Net realised (losses) gains and impairment (IAS 39 only)
Loss before tax1
Tax (charge) credit
Loss after tax1
Net change in unrealised losses on investments
Tax credit on net change in unrealised losses on investments
Other comprehensive loss1
Total comprehensive loss for the year1,2
Loss per share
Basic
Diluted
For the year ended 31
December 2022 - IAS
39
$m
43.7
(4.5)
(22.7)
(2.8)
(0.5)
(3.3)
(93.2)
3.9
(89.3)
(92.6)
Restated for the
year ended 31
December 2022 -
IFRS 9
$m
(76.7)
—
—
(96.0)
3.4
(92.6)
—
—
—
(92.6)
IFRS 9 impact
$m
(120.4)
4.5
22.7
(93.2)
3.9
(89.3)
93.2
(3.9)
89.3
—
($0.01)
($0.01)
($0.38)
($0.38)
($0.39)
($0.39)
1. Line items that were not impacted by changes have not been included. As a result, the subtotals and totals disclosed cannot be recalculated from the numbers provided.
2. See note 23 for the impact to the consolidated statement of comprehensive income of adopting IFRS 17.
194 Lancashire Holdings Limited | Annual Report & Accounts 2023
194
Lancashire Holdings Limited | Annual Report & Accounts 2023
Notes to the accounts continued
Consolidated statement of financial position
Investments
• Fixed maturity securities - AFS
• Fixed maturity securities - FVTPL
Total financial assets1
Total financial liabilities1
Accumulated other comprehensive income
Retained earnings
Total shareholders’ equity1
Consolidated statement of financial position
Investments
• Fixed maturity securities - AFS
• Fixed maturity securities - FVTPL
Total financial assets1
Total financial liabilities1
Accumulated other comprehensive loss
Retained earnings
Total shareholders’ equity1
Consolidated statement of comprehensive income
Net investment income (IAS 39) / return (IFRS 9)
Net other investment income (IAS 39 only)
Net realised (losses) gains and impairment (IAS 39 only)
Loss before tax1
Tax (charge) credit
Loss after tax1
Net change in unrealised losses on investments
Tax credit on net change in unrealised losses on investments
Other comprehensive loss1
Total comprehensive loss for the year1,2
Loss per share
Basic
Diluted
194 Lancashire Holdings Limited | Annual Report & Accounts 2023
As at 31 December
2022 - IAS 39
Reclassification
of investments
Reclassification
Restated as at
of tax
31 December 2022
$m
$m
1,942.9
(1,942.9)
22.0
1,942.9
2,783.8
2,584.6
483.1
2.9
83.9
86.8
490.2
(86.4)
44.4
(42.0)
—
—
—
—
0.4
(0.4)
—
$m
—
—
—
—
(3.5)
3.5
—
IFRS 9 impact
$m
(120.4)
4.5
22.7
(93.2)
3.9
(89.3)
93.2
(3.9)
89.3
—
—
—
(3.3)
3.3
—
—
—
89.9
(89.9)
—
39
$m
43.7
(4.5)
(22.7)
(2.8)
(0.5)
(3.3)
(93.2)
3.9
(89.3)
(92.6)
$m
—
1,809.1
2,584.6
483.1
—
86.8
86.8
$m
—
1,964.9
2,783.8
490.2
—
(42.0)
(42.0)
IFRS 9
$m
(76.7)
—
—
(96.0)
3.4
(92.6)
—
—
—
(92.6)
($0.01)
($0.01)
($0.38)
($0.38)
($0.39)
($0.39)
1. Line items that were not impacted by changes have not been included. As a result, the subtotals and totals disclosed cannot be recalculated from the numbers provided.
The following table shows the adjustments to the consolidated statement of comprehensive income for the year ended 31 December 2022 for each
individual line item impacted by the adoption of IFRS 9.
For the year ended 31
December 2022 - IAS
Restated for the
year ended 31
December 2022 -
1. Line items that were not impacted by changes have not been included. As a result, the subtotals and totals disclosed cannot be recalculated from the numbers provided.
2. See note 23 for the impact to the consolidated statement of comprehensive income of adopting IFRS 17.
1. Line items that were not impacted by changes have not been included. As a result, the subtotals and totals disclosed cannot be recalculated from the numbers provided.
As at 31 December
2021 - IAS 39
Reclassification
of investments
$m
$m
Reclassification
of tax
$m
Restated as at
1 January 2022
The table below illustrates the impact that changes in the classification of our investment portfolio, following the adoption of IFRS 9, had on the
Group’s earnings per share data for the year ended 31 December 2023.
1,780.2
(1,780.2)
28.9
1,780.2
EEaarrnniinnggss ppeerr sshhaarree
Basic
Diluted
RReeppoorrtteedd eeaarrnniinnggss
ppeerr sshhaarree
((sseeee nnoottee 2200))
$1.35
$1.32
EEaarrnniinnggss ppeerr sshhaarree
hhaadd tthhee GGrroouupp nnoott
aaddoopptteedd IIFFRRSS 99
$1.10
$1.07
IIFFRRSS 99 iimmppaacctt
($0.25)
($0.25)
2255.. AAddooppttiioonn ooff IIFFRRSS 1177 aanndd IIFFRRSS 99 -- CCoommppaarraattiivvee iinnffoorrmmaattiioonn
Comparative figures have been restated to reflect the new accounting standards and the accounting policies described on pages 135 to 147.
2266.. SSuubbsseeqquueenntt eevveennttss
Dividend
On 5 March 2024, the Board of Directors declared the payment of a special dividend of $0.50 per common share, which will result in an aggregate
payment of approximately $119.0 million. The dividend will be paid on 12 April 2024 to shareholders of record on 15 March 2024. An amount
equivalent to the dividend accrues on all RSS awards and is paid at the time of exercise, pro-rata according to the number of RSS options that vest.
On 5 March 2024, the Board of Directors also declared the payment of an ordinary dividend of $0.15 per common share, subject to a shareholder
vote of approval at the AGM on 1 May 2024, which will result in an aggregate payment of approximately $36.0 million. On the basis that the final
dividend is so approved by the shareholders at the AGM, the dividend will be paid on 7 June 2024 to shareholders of record on 10 May 2024. An
amount equivalent to the dividend accrues on all RSS awards and is paid at the time of exercise, pro-rata according to the number of RSS options
that vest.
Commitment
On 11 January 2024, the Group entered into an agreement to invest in a private investment fund, with an initial commitment of $44.4 million. The
capital commitment is expected to be partially drawn down quarterly throughout 2024.
Lancashire Holdings Limited | Annual Report & Accounts 2023 195
Lancashire Holdings Limited | Annual Report & Accounts 2023
195
Financial Statements
Shareholder Information
Annual General Meeting
The Company’s AGM is scheduled for 1 May 2024 and is to be held at
the Company’s registered and head office at Power House, 7 Par-la-Ville
Road, Hamilton HM 11, Bermuda. Notice of this year’s AGM and forms
of proxy and direction shall be delivered to shareholders by electronic
means. If you have any queries regarding the notice or AGM voting
requirements please contact Chris Head, Company Secretary, using
Tel: +44 (0) 20 7264 4000 and email: chris.head@lancashiregroup.com.
Further information
Lancashire Holdings Limited is registered in Bermuda under company
number EC 37415 and has its registered office at Power House, 7
Par-la-Ville Road, Hamilton HM 11, Bermuda. Further information
about the Group including this Annual Report and Accounts, press
releases and the Company’s share price is available on our website
at www.lancashiregroup.com. Please address any enquiries to
info@lancashiregroup.com.
Note regarding forward-looking statements
Some of the statements in this document include forward-looking
statements which reflect the Directors’ current views with respect to
financial performance, business strategy, plans and objectives of
management for future operations (including development plans relating
to the Group’s products and services). These statements include forward-
looking statements both with respect to the Group and the sectors and
industries in which the Group operates. Statements containing the words
‘believes’, ‘anticipates’, ‘aims’, ‘plans’, ‘projects’, ‘forecasts’, ‘guidance’,
‘policy’, ‘intends’, ‘expects’, ‘estimates’, ‘predicts’, ‘may’, ‘can’, ‘likely’,
‘will’, ‘seeks’, ‘should’ or, in each case, their negative or comparable
terminology and similar statements are of a future or forward-looking
nature. All forward-looking statements address matters that involve
known and unknown risks and uncertainties. Accordingly, there are
or will be important factors that could cause the actual results,
performance or achievements of the Group to be materially different
from future results, performance or achievements expressed or implied
by such forward-looking statements.
These factors include, but are not limited to: the impact of the ongoing
conflict in Ukraine, including any escalation or expansion thereof, on the
Group’s clients, reserves, the continued uncertainty of the situation in
Russia, including issues relating to coverage and the impact of sanctions,
the securities in our investment portfolio and on global financial markets
generally, as well as any governmental or regulatory change arising
therefrom; and a continuation in financial market volatility and other
adverse market conditions generally; the impact of hostilities in the
Middle East, including any escalation thereof and its impact on the
stability of the region, global supply routes and insurance and financial
markets, the actual development of losses and expenses impacting
estimates for claims which arise as a result of hurricane Ian, which
occurred in the third quarter of 2022, the COVID-19 pandemic, the
Kentucky tornadoes, hurricane Ida and the European storms which
occurred in the second half of 2021, winter storm Uri which occurred
during the first quarter of 2021, hurricanes Laura and Sally, the Midwest
196
Lancashire Holdings Limited | Annual Report & Accounts 2023
Derecho storm and the wildfires in California which occurred in 2020,
the 2020 and 2021 large loss events across the Group’s specialty
business lines, typhoon Hagibis in the fourth quarter of 2019, hurricane
Dorian and typhoon Faxai in the third quarter of 2019, the Californian
wildfires and hurricane Michael which occurred in the fourth quarter of
2018, hurricane Florence, the typhoons and marine losses that occurred
in the third quarter of 2018, hurricanes Harvey, Irma and Maria and the
earthquakes in Mexico, that occurred in the third quarter of 2017 and the
wildfires which impacted parts of California during 2017; the impact of
complex and unique causation and coverage issues associated with
attribution of losses to wind or flood damage or other perils such as fire
or business interruption relating to such events; potential uncertainties
relating to reinsurance recoveries, reinstatement premiums and other
factors inherent in loss estimations; the Group’s ability to integrate its
business and personnel; the successful retention and motivation of the
Group’s key management; the increased regulatory burden facing the
Group; the number and type of insurance and reinsurance contracts that
the Group writes or may write; the Group’s ability to successfully
implement its business strategy during ‘soft’ as well as ‘hard’ markets;
the premium rates which may be available at the time of such renewals
within its targeted business lines; potentially unusual loss frequency; the
impact that the Group’s future operating results, capital position and
rating agency and other considerations may have on the execution of
any capital management initiatives or dividends; the possibility of greater
frequency or severity of claims and loss activity than the Group’s
underwriting, reserving or investment practices have anticipated; the
reliability of, and changes in assumptions to, catastrophe pricing,
accumulation and estimated loss models; increased competition from
existing alternative capital providers and insurance-linked funds and
collateralised special purpose insurers, and the related demand and
supply dynamics as contracts come up for renewal; the effectiveness of
its loss limitation methods; the potential loss of key personnel; a decline
in the Group’s operating subsidiaries’ ratings with A.M. Best, S&P Global
Ratings, Moody’s or other rating agencies; increased competition on
the basis of pricing, capacity, coverage terms or other factors; cyclical
downturns of the industry; the impact of a deteriorating credit
environment for issuers of fixed maturity investments; the impact of
swings in market interest rates, currency exchange rates and securities
prices; changes by central banks regarding the level of interest rates; the
impact of inflation or deflation in relevant economies in which the Group
operates; the effect, timing and other uncertainties surrounding future
business combinations within the insurance and reinsurance industries;
the impact of terrorist activity in the countries in which the Group writes
risks; a rating downgrade of, or a market decline in, securities in its
investment portfolio; changes in governmental regulations or tax laws
in jurisdictions where the Group conducts business; Lancashire or its
Bermudian subsidiaries becoming subject to income taxes in the United
States or in the United Kingdom; the impact of the change in tax
residence on stakeholders of the Group; the availability to the Group
of the exclusion that removes companies with a limited international
presence from the scope of Bermuda corporate income tax for a period
of up to five years from 1 January 2025 and the impact of the expiration
of the transition period on 31 December 2020 following the United
Kingdom’s withdrawal from the European Union on the Group’s
business, regulatory relationships, underwriting platforms or the industry
generally, the focus and scrutiny on ESG-related matters regarding the
insurance industry from key stakeholders of the Group, and any adverse
asset, credit, financing or debt or capital market conditions generally
which may affect the ability of the Group to manage its liquidity.
Any estimates relating to loss events involve the exercise of considerable
judgement and reflect a combination of ground-up evaluations,
information available to date from brokers and insureds, market
intelligence, initial and/or tentative loss reports and other sources.
Judgements in relation to loss arising from natural catastrophe and
man-made events are influenced by complex factors. The Group cautions
as to the preliminary nature of the information used to prepare such
estimates as subsequently available information may contribute to an
increase in these types of losses.
These forward-looking statements speak only as at the date of this
document. The Company expressly disclaims any obligation or
undertaking (save as required to comply with any legal or regulatory
obligations including the rules of the LSE) to disseminate any updates
or revisions to any forward-looking statement to reflect any changes in
the Group’s expectations or circumstances on which any such statement
is based. All subsequent written and oral forward-looking statements
attributable to the Group or individuals acting on behalf of the Group
are expressly qualified in their entirety by this paragraph. Prospective
investors should specifically consider the factors identified in this
document which could cause actual results to differ before making
an investment decision.
Lancashire Holdings Limited | Annual Report & Accounts 2023
197
Additional information Glossary
Active Underwriter
The individual at a Lloyd’s syndicate with principal authority to accept
insurance and reinsurance risk on behalf of the syndicate
Additional case reserves
Additional reserves deemed necessary by management
Aggregate
Accumulations of insurance loss exposures which result from
underwriting multiple risks that are exposed to common causes of loss
AGM
Annual General Meeting
AIC
Asset for incurred claims
AIM
A sub-market of the LSE
A.M. Best Company (A.M. Best)
A.M. Best is a full-service credit rating organisation dedicated to serving
the financial services industry, focusing on the insurance sector
APMs
Alternative performance measures
ARC
Asset for remaining coverage
BCP
Business Continuity Plan
BMA
Bermuda Monetary Authority
Board of Directors; Board
Unless otherwise stated refers to the LHL Board of Directors
BREEAM
Building Research Establishment Environmental Assessment Method
BSCR
Bermuda Solvency Capital Requirement
BSX
Bermuda Stock Exchange
CCHL
Cathedral Capital Holdings Limited
198
Lancashire Holdings Limited | Annual Report & Accounts 2023
CCL
Cathedral Capital Limited
CCL 1998
Cathedral Capital (1998) Limited
CCL 1999
Cathedral Capital (1999) Limited
CCWG
Climate Change Working Group
CDP
Carbon Disclosure Project
Ceded
To transfer insurance risk from a direct insurer to a reinsurer and/or from
a reinsurer to a retrocessionaire
CEO
Chief Executive Officer
CFO
Chief Financial Officer
CGU
Cash generating unit
Change in DBVS
The IRR of the change in DBVS in the period plus accrued dividends
CIO
Chief Investment Officer
CIT
Corporate income tax
The Code
UK Corporate Governance Code published by the UK FRC
(www.frc.org.uk)
Combined ratio (discounted)
Ratio, in per cent, of the sum net insurance expenses plus other operating
expenses to net insurance revenue
Combined ratio (undiscounted)
Ratio, in per cent, of the sum net insurance expense plus other operating
expenses to net insurance revenue. This ratio excludes the impact of the
initial discount recognised within net insurance expenses
Consolidated financial statements
Includes the independent auditor’s report, consolidated primary
statements, accounting policies, risk disclosures and related notes
Consolidated primary statements
Includes the consolidated statement of comprehensive income,
the consolidated statement of financial position, the consolidated
statement of changes in shareholders’ equity and the consolidated
statement of cash flows
COO
Chief Operating Officer
CRO
Chief Risk Officer
CUL
Cathedral Underwriting Limited
CUO
Chief Underwriting Officer
DAE
Directly attributable expenses
D&F
Direct and facultative (re)insurance
DE&I
Diversity, equity and inclusion
Delegated authorities
Arrangements under which a managing agent or (re)insurer delegates its
authority to another to enter into contracts of insurance on its behalf
Diluted book value per share (DBVS)
Calculated based on the value of the total shareholders’ equity
attributable to the Group and dilutive restricted stock units as calculated
under the treasury method, divided by the sum of all shares and dilutive
restricted stock units, assuming all are exercised
Diluted earnings per share
Calculated by dividing the net profit for the year attributable to
shareholders by the weighted average number of common shares
outstanding during the year plus the weighted average number of
common shares that would be issued on the conversion of all potentially
dilutive equity-based compensation awards into common shares under
the treasury stock method
Directors’ fees and expenses
Unless otherwise stated includes fees and expenses of all Directors
across the Group
DEC
Disasters Emergency Committee
Dividend yield
Calculated by dividing the annual dividends per share by the share price
on the last day of the given year
Duration
Duration is the weighted average maturity of a security’s cash flows,
where the present values of the cash flows serve as the weights. The
effect of the convexity, or sensitivity, of the portfolio’s response
to changes in interest rates is also factored into the calculation
EAP
Employee Assistance Programme
Earnings per share (EPS)
Calculated by dividing net profit for the year attributable to shareholders
by the weighted average number of common shares outstanding during
the year, excluding treasury shares and shares held by the EBT
EBT
Lancashire Holdings Employee Benefit Trust
ECA
Economic Capital Assessment
ECL
Expected credit losses
ERM
Enterprise Risk Management
ESG
Environmental, Social and Governance
E.U.
European Union
Excess of loss
Reinsurance or insurance that indemnifies the reinsured or insured
against all or a specified portion of losses on an underlying insurance
policy in excess of a specified amount
Facultative reinsurance
A reinsurance risk that is placed by means of a separately negotiated
contract as opposed to one that is ceded under a reinsurance treaty
FAL
Funds at Lloyd’s
Lancashire Holdings Limited | Annual Report & Accounts 2023
199
Additional information Glossary continued
FCA
Financial Conduct Authority
FCF
Fulfilment cash flows
FRC
Financial Reporting Council
FSMA
The Financial Services and Markets Act 2000 (as amended from
time to time)
FTE
Full-Time Employee
FVTPL
Fair value through profit or loss
FVOCI
Fair value through other comprehensive income
G10
Belgium, Canada, Germany, France, Italy, Japan, the Netherlands,
Sweden, the United Kingdom, and the United States
GDPR
General Data Protection Regulation
GHG
Greenhouse gas emissions, covers carbon dioxide (CO2), methane (CH4),
nitrous oxide (N2O), hydrofluorocarbons (HFC), perfluorocarbons (PFC),
nitrogen trifluoride (NF3) and sulphur hexafluoride (SF6)
The Group or the Lancashire Group
LHL and its subsidiaries
GAAP
Generally accepted accounting principles
GMM
General Measurement Model
GWP
Gross premiums written. Amounts payable by the insured, excluding any
taxes or duties levied on the premium, including any brokerage and
commission deducted by intermediaries
IFRS
International Financial Reporting Standard(s)
200
Lancashire Holdings Limited | Annual Report & Accounts 2023
IFRS 9
International Financial Reporting Standard on Financial Instruments:
Classification and Measurement
IFRS 17
International Financial Reporting Standard on Insurance Contracts
ILS
Insurance Linked Securities
Incurred but not reported (IBNR)
These are anticipated or likely losses that may result from insured events
which have taken place, but for which no losses have yet been reported.
IBNR also includes a reserve for possible adverse development of
previously reported losses
Industry loss warranty (ILW)
A type of reinsurance or derivative contract through which one party will
purchase protection based on the total loss arising from an event to the
entire insurance industry rather than their own losses
Internal Audit Charter
A formal written document that sets out the mission, scope,
responsibilities, authority, professional standards and the relationship
with the external auditors and regulatory bodies of the internal audit
function with the Company and its subsidiaries
International Accounting Standard(s)(IAS)
Standards, created by the IASB, for the preparation and presentation of
financial statements
International Accounting Standards Board
(IASB)
An international panel of accounting experts responsible for developing
IAS and IFRS
IRR
Internal rate of return
IRRC
Investment Risk and Return Committee
ISA
International Standards on Auditing (UK)
KHL
Kinesis Holdings I Limited
Kinesis
The Group’s third-party capital management division encompassing
LCM, LCMMSL and the management of KHL and KRL
KPMG LLP
KPMG LLP, a UK limited liability partnership
LISL
Lancashire Insurance Services Limited
KPI
Key performance indicator
KRI
Key risk indicator
KRL (Kinesis Re)
Kinesis Reinsurance I Limited
Lancashire Foundation or Foundation
The Lancashire Foundation is a charity registered in England and Wales
Lancashire Insurance Companies
LICL and LUK
LAPL
Lancashire Australia Pty Ltd
LCM
Lancashire Capital Management Limited
LCMMSL
LCM Marketing Services Limited. Formerly KCM Marketing Services
Limited
LHAPL
Lancashire Holdings Australia Pty Limited
LHL (The Company)
Lancashire Holdings Limited
LIC
Liability for incurred claims
LICL
Lancashire Insurance Company Limited
Listing Rules
The listing rules made by the FCA under part VI of FSMA (as amended
from time to time)
Lloyd’s
The Society of Lloyd’s
LMSCL
Lancashire Management Services (Canada) Limited
LOC
Letter of credit
Losses
Demand by an insured for indemnity under an insurance contract
LSE
London Stock Exchange
LSL or Lancashire Syndicates
Lancashire Syndicates Limited. The managing agent of the syndicates
LRC
Liability for remaining coverage
LUAPL
Lancashire Underwriting Australia Pty Ltd
LUK or Lancashire UK
Lancashire Insurance Company (UK) Limited
LUS or Lancashire Insurance U.S.
Lancashire U.S.
LHUS
Lancashire Insurance Holdings (U.S.) LLC
LICLIHL
LICL Investment Holdings Limited, previously known as Lancashire
Blocker (Cayman) Limited
Managed cash
Managed cash includes both cash managed by external investment
managers and non-operating cash managed internally
LIHL
Lancashire Insurance Holdings (UK) Limited
LIMSL
Lancashire Insurance Marketing Services Limited
MGA
Managing General Agent
MBRT
Multi-beneficiary reinsurance trust
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201
Additional information Glossary continued
Moody’s Investors Service (Moody’s)
Moody’s Corporation is the parent company of Moody’s Investors
Service, which provides credit ratings and research covering debt
instruments and securities, and Moody’s Analytics, which offers software,
advisory services and research for credit and economic analysis and
financial risk management
MSCI
A provider of tools and services for the global investment community
Nameco
Nameco (No. 801) Ltd
NAV
Net asset value
NDIC
Non-distinct investment component
Net insurance expenses
Net insurance expenses represent claims related insurance service
expenses less amounts recoverables from reinsurers
Net insurance ratio
Ratio, in per cent, of net insurance expenses to net insurance revenue
Net insurance revenue
Net insurance revenue represents insurance revenue less allocation
of reinsurance premiums
Net loss ratio
Ratio, in per cent, of net insurance losses to net premiums earned
Net premiums earned
Net premiums earned is equal to net premiums written less the
change in unearned premiums and change in unearned premiums
on premiums ceded
Net premiums written
Net premiums written is equal to gross premiums written less outwards
reinsurance premiums written
Official List
The official list of the UK Listing Authority
Onerous contract
A contract in which the unavoidable costs of meeting the obligations
under the contract exceed the economic benefits expected to be
received under it
ORSA
Own Risk and Solvency Assessment
Operating expense ratio
Ratio, in per cent, of other operating expenses, excluding restricted stock
expenses, to net insurance revenue
OTC
Over the counter
PAA
Premium Allocation Approach
PIPA
Personal Information Protection Act
PMI
Private Mortgage Insurance
PML
Probable maximum loss. The Group’s exposure to certain peak zone
elemental losses
PRA
Prudential Regulation Authority
Pro-rata/proportional
Reinsurance or insurance where the reinsurer or insurer shares a
proportional part of the original premiums and losses of the reinsured
or insured
RCCC
Risk Capital and Compliance Committee
OECD
Organisation for Economic Co-operation and Development
RDS
Realistic Disaster Scenarios
OCI
Other comprehensive income
202
Lancashire Holdings Limited | Annual Report & Accounts 2023
Renewal Price Index (RPI)
The RPI is an internal methodology that management uses to track
trends in premium rates of a portfolio of insurance and reinsurance
contracts. The RPI written in the respective segments is calculated on
a per-contract basis and reflects management’s assessment of relative
changes in price, terms, conditions and limits and is weighted by
premium volume. The RPI does not include new business, to offer a
consistent basis for analysis. The calculation involves a degree of
judgement in relation to comparability of contracts and assessment
noted above. To enhance the RPI methodology, management may revise
the methodology assumptions underlying the RPI, so that the trends in
premium rates reflected in the RPI may not be comparable over time.
Consideration is only given to renewals of a comparable nature so it
does not reflect every contract in the portfolio of contracts. The future
profitability of the portfolio of contracts within the RPI is dependent
upon many factors besides the trends in premium rates. RPIs are
expressed as an approximate percentage of pricing achieved on
similar contracts written in the corresponding year
Retrocession
The insurance of a reinsurance account
ROE
Return on Equity
Risk Free Rate of Return (RFRoR)
Being the 13-week U.S. Treasury bill rate, unless otherwise stated
RMF
Risk Management Framework
RMS
Risk Management Solutions
RRC
Risk and Return Committee
RSC
Reinsurance Security Committee
RSS
Restricted share scheme
SCR
Solvency Capital Requirement
SECR
Streamlined Energy and Carbon Reporting
SGT
St Giles Trust
SPPI
Solely payments of principal and interest
Syndicate 2010
Lloyd’s Syndicate 2010, managed by LSL
Syndicate 3010
Lloyd’s Syndicate 3010, managed by LSL
TCFD
Task Force on Climate-related Financial Disclosures
TNFD
Task Force on Nature-related Financial Disclosures
The syndicates
Syndicates 2010 and 3010
TOBA
Terms of business agreement
Total Investment Return
Total investment return measures investment income and net realised
and unrealised gains and losses produced by the Group’s managed
investment portfolio
Total Shareholder Return (TSR)
The increase/(decrease) in share price in the period, measured on a total
return basis, which assumes the reinvestment of dividends
Treaty reinsurance
A reinsurance contract under which the reinsurer agrees to offer and to
accept all risks of a certain size within a defined class
S&P Global Ratings (S&P)
S&P Global Ratings is a worldwide insurance rating and information
agency whose ratings are recognised as a benchmark for assessing the
financial strength of insurance-related organisations
UK
United Kingdom
UMCC
Underwriting Marketing Conference Call
Lancashire Holdings Limited | Annual Report & Accounts 2023
203
Additional information Glossary continued
UNEP FI
The United Nations Environment Programme Finance Initiative
UNL
Ultimate net loss
UNPRI
UN-supported Principles for Responsible Investment
uSCR
Ultimate solvency capital requirement
U.S.
United States of America
U.S. GAAP
Accounting principles generally accepted in the United States
U.S.T
U.S. Treasury Bills
UTPR
Undertaxed Profits Rule
UURC
The Underwriting and Underwriting Risk Committee, a committee of
the Board
Value at Risk (VaR)
A measure of the risk of loss of a specific portfolio of financial assets
204
Lancashire Holdings Limited | Annual Report & Accounts 2023
Alternative Performance Measures (APMs)
Alternative Performance Measures (APMs)
As is customary in the insurance industry, the Group also utilises certain
non-GAAP measures in order to evaluate, monitor and manage the
business, and to aid users’ understanding of the Group. Management
believes that the APMs included in the Financial Statements are
important for understanding the Group’s overall results of operations
and may be helpful to investors and other interested parties who may
benefit from having a consistent basis for comparison with other
companies within the industry. However, these measures may not be
comparable to similarly labelled measures used by companies inside or
outside the insurance industry. In addition, the information contained
herein should not be viewed as superior to, or a substitute for, the
measures determined in accordance with the accounting principles used
by the Group for its consolidated financial statements or in accordance
with GAAP.
In compliance with the Guidelines on APMs of the European Securities
and Markets Authority and as suggested by the Financial Reporting
Council, as applied by the Financial Conduct Authority, information on
APMs which the Group uses is described below. This information has not
been audited.
Effective from 1 January 2023, the Group adopted IFRS 9: Financial
Instruments: Classification and Measurement and IFRS 17: Insurance
Contracts. These new accounting standards resulted in a change to some
of the Group’s longstanding APMs. Comparatives have been restated to
reflect the consistent application of IFRS 9 and IFRS 17, and to align with
the current definition of the APMs.
All amounts, excluding share data, ratios, percentage or where otherwise
stated, are in millions of U.S. dollars.
Net insurance ratio:
Ratio, in per cent, of net insurance expenses to net insurance revenue.
Net insurance expenses represent the insurance service expenses less
amounts recoverable from reinsurers. Net insurance revenue represents
insurance revenue less allocation of reinsurance premium. This ratio gives
an indication of the underlying profitability per $1.00 of net insurance
revenue in the financial year.
For the year ended 31 December
Insurance service expense
Amounts recoverable from
reinsurers
Net insurance expense
Insurance revenue
Allocation of reinsurance premium
Net insurance revenue
Net insurance ratio
2023
696.2
16.8
713.0
1,519.9
(424.8)
1,095.1
65.1%
Restated
2022
994.6
(281.5)
713.1
1,226.5
(371.8)
854.7
83.4%
Operating expense ratio:
Ratio, in per cent, of other operating expenses, excluding restricted stock
expenses, to net insurance revenue. This ratio gives an indication of the
amount of operating expenses expected to be paid out per $1.00 of net
insurance revenue in the financial year.
For the year ended 31 December
Other operating expenses
Net insurance revenue
Operating expense ratio
2023
107.4
1,095.1
9.8%
Restated
2022
58.3
854.7
6.8%
Combined ratio (discounted):
Ratio, in per cent, of the sum of net insurance expenses plus other
operating expenses to net insurance revenue.
For the year ended 31 December
Net insurance ratio
Net operating expense ratio
Combined ratio (discounted)
2023
65.1%
9.8%
74.9%
Restated
2022
83.4%
6.8%
90.2%
Combined ratio (undiscounted) (KPI):
Ratio, in per cent, of the sum of net insurance expense plus other
operating expenses to net insurance revenue. This ratio excludes the
impact of the discounting recognised within net insurance expenses.
The Group aims to price its business, to ensure that the combined ratio
(undiscounted) across the cycle is less than 100%.
For the year ended 31 December
Combined ratio
Discount included in net insurance
expense
Net insurance revenue
Discounting impact on combined
ratio
Combined ratio (undiscounted)
2023
74.9%
84.7
1,095.1
7.7%
82.6%
Restated
2022
90.2%
72.5
854.7
8.5%
98.7%
Diluted book value per share (‘DBVS’) attributable to
the Group:
Calculated based on the value of the total shareholders’ equity
attributable to the Group and dilutive restricted stock units as calculated
under the treasury method, divided by the sum of all shares and dilutive
restricted stock units, assuming all are exercised. This shows the Group
net asset value on a diluted per share basis for comparison to the market
value per share.
As at
Shareholders’ equity attributable
to the Group
Common voting shares
outstanding*
Shares relating to dilutive
restricted stock
Fully converted book value
denominator
Diluted book value per share
31 December 2023
Restated
31 December 2022
1,507,869,627 1,326,124,728
239,037,977
238,333,570
5,355,909
3,700,547
244,393,886
$6.17
242,034,117
$5.48
* Common voting shares outstanding comprise issued share capital less amounts held
in trust.
Lancashire Holdings Limited | Annual Report & Accounts 2023
205
Additional information Alternative Performance Measures (APMs) continued
Change in DBVS (KPI):
The internal rate of return of the change in DBVS in the period plus
accrued dividends. Sometimes referred to as RoE. The Group’s aim is to
maximise risk-adjusted returns for shareholders across the cycle through
a purposeful and sustainable business culture.
As at
Opening DBVS
Q1 dividend per share
Q2 dividend per share
Q3 dividend per share
Q4 dividend per share
Closing DBVS
Change in DBVS*
31 December 2023
$5.48
–
$0.10
$0.05
$0.50
$6.17
24.7%
Restated
31 December 2022
$5.70
–
$0.10
$0.05
–
$5.48
(1.2%)
* Calculated using the internal rate of return
Total investment return (KPI):
Total investment return in percentage terms is calculated by dividing the
total investment return by the investment portfolio net asset value,
including managed cash on a daily basis. These daily returns are then
annualised through geometric linking of daily returns. The return can be
approximated by dividing the total investment return excluding foreign
exchange by the average portfolio net asset value, including managed
cash. The Group’s primary investment objectives are to preserve capital
and provide adequate liquidity to support the Group’s payment of claims
and other obligations. Within this framework we aim for a degree of
investment portfolio return.
For the year ended 31 December
Total investment return
Average invested assets*
Approximate total investment return
Reported total investment return
2023
160.5
2,592.5
6.2%
5.7%
2022
(76.7)
2,387.0
(3.2%)
(3.5%)
* Calculated as the average between the opening and closing investments and our
externally managed cash.
Total shareholder return (KPI):
The increase/(decrease) in share price in the period, measured on a total
return basis, which assumes the reinvestment of dividends. The Group’s
aim is to maximise the Change in DBVS over the longer term, and we
would expect that to be reflected in our share price and multiple. This
is a long-term goal, recognising that the cyclicality and volatility of both
the insurance market and the financial markets in general will impact
management’s ability to maximise the Change in DBVS in the immediate
term. The total return measurement basis used will generally
approximate the simple method of calculating the increase/(decrease)
in share price adjusted for dividends as recalculated below.
As at
Opening share price
Q1 dividend per share
Q2 dividend per share
Q3 dividend per share
Q4 dividend per share +
closing share price
Total shareholder return
31 December 2023
$7.86
–
$0.10
$0.05
31 December 2022
$7.17
–
$0.10
$0.05
$8.46
9.5%
$7.86
11.7%
Gross premiums written:
The Group adopted IFRS 17 on 1 January 2023. Under IFRS 4, the
previous insurance accounting standard, the Group reported gross
premiums written on the consolidated income statement as amounts
payable by the insured, excluding any taxes or duties levied on
the premium, including brokerage and commission deducted by
intermediaries and any inwards reinstatement premiums. The Group
continues to report gross premiums written as a growth metric and
non-GAAP APM.
The table below reconciles gross premiums written on an IFRS 4 basis to
insurance revenue on an IFRS 17 basis.
For the year ended 31 December
Gross premiums written*
Change in unearned premiums*
Gross earned premium*
Less reinstatement premium and
expected premium
Less commission and non-distinct
investment components
Total insurance revenue
2023
1,931.7
(207.7)
1,724.0
2022
1,652.3
(223.2)
1,429.1
(7.1)
(45.3)
(197.0)
1,519.9
(157.3)
1,226.5
* Numbers presented in the table above for the comparative period are as previously
reported in the annual report.
Gross premiums written under management (KPI):
The gross premiums written under management equals the total of the
Group’s consolidated gross premiums written, plus the external names
portion of the gross premiums written in Syndicate 2010, plus the gross
premiums written in Lancashire Capital Management Limited on behalf
of Kinesis Reinsurance Limited. The Group aims to operate nimbly
through the cycle. We will grow in existing and new classes where
favourable and improving market conditions exist, whilst monitoring and
managing our risk exposures and not seek top-line growth for the sake of
it in markets where we do not believe the right opportunities exist.
For the year ended 31 December
Gross premiums written by the Group
LSL Syndicate 2010 – external
Names portion of gross premiums
written (unconsolidated)
LCM gross premiums written
(unconsolidated)
Total gross premiums written under
management
2023
1,931.7
2022
1,652.3
140.5
160.0
–
38.4
2,072.2
1,850.7
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Lancashire Holdings Limited | Annual Report & Accounts 2023
Contact information
Registered and Head office
Lancashire Holdings Limited
Power House
7 Par-la-Ville Road
Hamilton HM 11
Bermuda
Phone: + 1 441 278 8950
Bermuda office
Lancashire Insurance Company Limited
Power House
7 Par-la-Ville Road
Hamilton HM 11
Bermuda
Phone: + 1 441 278 8950
UK office
Lancashire Insurance Company (UK) Limited
20 Fenchurch Street
London
EC3M 3BY
United Kingdom
Phone: + 44 (0) 20 7264 4000
Lancashire Syndicates Limited
Lancashire Syndicates Limited
20 Fenchurch Street
London
EC3M 3BY
United Kingdom
Phone: + 44 (0) 20 7170 9000
Lancashire Capital Management
Lancashire Capital Management Limited
Power House
7 Par-la-Ville Road
Hamilton HM 11
Bermuda
Phone: + 1 441 278 8950
Lancashire Underwriting Australia Pty Ltd
Registered Office – Level 20, 56 Pitt Street,
Sydney, NSW 2000,
Australia
Trading Address – Suite 5.03, Level 5
56, Pitt Street, Sydney,
NSW 2000, Australia
Lancashire Insurance (US) LLC
12 Havemeyer Place
Greenwich, CT 06830
United States
Legal counsel to the Company
As to English and U.S. law:
Willkie Farr & Gallagher (UK) LLP
City Point
1 Ropemaker Street
London
EC2Y 9AW
United Kingdom
Auditors
KPMG LLP
15 Canada Square
London
E14 5GL
United Kingdom
Registrar
Link Market Services (Jersey) Limited
P.O. Box 532
St Helier
Jersey
JE4 5UW
Channel Islands
Depositary
Link Market Services Trustees Limited
10th floor
Central Square
29 Wellington Street
Leeds
LS1 4DL
United Kingdom
Lancashire Holdings Limited | Annual Report & Accounts 2023
207
Additional information
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Holdings Limited
www.lancashiregroup.com
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