Hello and welcome to the Lancashire Holdings Limited Q1 2022 results. Throughout the call, all participants will be in a listen-only mode, and afterwards there will be a question and answer session. Please note this call is being recorded. Today, I'm pleased to present Alex Maloney, Group CEO, Natalie Kershaw, Group CFO, Paul Gregory, Group Chief Underwriting Officer. I will now hand over to Alex. Please begin.
Okay, thank you, operator. Good morning, everyone, and thanks for joining our call. As we've done before, I will give you a brief overview. Paul will then talk you through the market trends we are seeing before Natalie talks about the financials. Finally, I'll give you some thoughts on what we're seeing for the rest of 2022. If we start slide 5, please. I want to start by saying that our thoughts are with those affected by the Russia-Ukraine conflict. We sincerely hope that this tragic humanitarian crisis can be resolved and that sense will prevail. If I turn to the impact on the insurance industry, there's been much written in the trade press, but today I hope to provide you with some context as to what it means for us.
You'll see from our press release this morning that we've provided a range for the losses we may incur in Ukraine. It's important to note two things on this. First, we have followed our usual reserving approach, where we go policy by policy, line by line to reach the $20-$30 million range. As you know, given our size, we can easily get to our numbers and take into account all relevant exposures. Second, the claims we have actually paid to date are immaterial. The amount that we've announced is not just what we've paid to date, but the total amount we may be exposed to in Ukraine. When it comes to Russia, this is a complex and evolving situation with many outcomes driven by an individual insurer's exposure.
Importantly, as things stand, based on our exposures, we believe no loss event has taken place as yet. This is an evolving situation, and as we get more information, we'll provide updates through our regular reporting. It's important to say, standing here today, even on a worst-case scenario basis, we expect to deliver our growth plans for this year and beyond. We have reported a BSCR ratio of 255%, and Bermuda is Solvency II equivalent. Therefore, I feel we have plenty of financial flexibility to benefit from the further hardening of the specialty market driven by this conflict, which we expect to materialize during 2022 and beyond. Now, I want to turn to the business for the quarter. The trading conditions continue to be favorable, and we continue to see premium rates increase across our portfolio.
Our premium growth for the quarter has been strong at 35%. We entered 2022 with a pipeline of new opportunities born out of our investment in new underwriting teams. Therefore, we expect to grow our business strongly, but not to the extent we did in 2021, which was a record for our business. We expect the overall rating environment to remain positive across the majority of our portfolio throughout 2022. Specifically for specialty classes impacted by the Ukraine conflict, we expect to see material rate changes as the industry digests its exposure to certain loss scenarios. Therefore, I feel particularly well positioned to benefit from the improving underwriting opportunity. We have the talent across our business, and this is all in line with our long-term strategy to expand our footprint as the underwriting opportunity improves. With that, I'll hand over to Paul.
Thank you, Alex. If we could move to slide 7, please. I want to start by saying that we've ended the quarter more confident in the market outlook than where we started, and we expect to see further rate momentum through the year and beyond in certain classes. As previously guided, we continue to grow our premiums ahead of rate momentum with just under 35% premium growth in the quarter. We're very pleased with our progress in Q1, and it's encouraging to see that every segment of our portfolio continuing to deliver positive rate momentum. If we move to slide 8 and 9, I'd like to briefly focus on some of the quarter's highlights and market dynamics. Premium growth for the quarter is very strong, with growth coming from increased rates, the class of 2021 continuing to mature, and the new product lines for 2022 starting well.
In P&C reinsurance, growth is driven by the maturing capital reinsurance portfolio, with growth in catastrophe reinsurance lines mirroring rate increases. In P&C insurance, energy and marine, growth is aided by the new teams in construction and engineering, marine and energy liability. For the new 22 teams, we remain comfortable with our previous guidance of $50-$60 million of additional gross premium. Overall, the rating environment in Q1 was in line with expectation. Catastrophe exposed classes saw high single digit to low double-digit rate increases dependent upon the specific product class. As expected, in the specialty insurance classes such as aviation, energy, and some of the marine subclasses, we did start to see a slowdown in rate increases, albeit they remain positive.
Within the political violence classes, they were broadly stable. As I look to the rest of the year, our confidence has grown that the positive rating momentum will persist. We anticipate our initial expectations on rate will now be too conservative and likely improve with the continuing uncertainty. For some classes, the positive pricing pressure could be significant. Given the situation is currently ongoing, it's difficult at this stage to be specific determining exactly how certain classes will react. Still, it will almost certainly bring a better market, and with that will come further opportunities. In summary, we're very happy with the progress we made in Q1. Our new teams have hit the ground running, and the teams of 2021 continue to mature nicely. The rating environment has remained positive.
The volatility and uncertainty in the marketplace is expected to further improve the rating environment in lines of business we're incredibly well positioned to grow in. With that, I'll now pass over to Natalie.
Thanks, Paul. Hello, everyone. Today I'm going to talk through the loss environment, investment returns, and capital. Firstly, taking the loss environment on slide 11. The first quarter was dominated by the situation in Ukraine, and like others have reported, there is significant uncertainty here. The event is still ongoing, which makes any estimate of total ultimate losses related to the conflict exceptionally difficult. Our first quarter estimate of $20 million-$30 million of ultimate net losses relates to direct exposure within Ukraine itself. These losses include exposures in our political violence, aviation war, and marine insurance classes, as well as our aviation and specialty reinsurance classes. We may also have exposure to potential losses in Russia, which we are continuing to monitor, although they have not yet materialized.
The Ukraine-related losses are within our risk tolerances for large risk events, and our underwriting performance was profitable for the quarter. Moving on to investments on slide 13. Our negative investment return of 2.3% was largely driven by unrealized losses across the portfolio, with all asset classes suffering from negative returns. It was a difficult quarter with a significant increase in interest rates and a widening of credit spreads, negatively impacting our fixed maturity investments. The majority of the losses were driven by the increase in treasury yields. Our average duration during the quarter was just under two years. It's worth noting that we are going to be able to reinvest at higher rates relatively quickly given our short duration. Our risk assets also incurred smaller unrealized losses given market volatility following the Ukraine invasion.
On slide 14, the waterfall chart shows how our regulatory capital position has developed since the end of 2020, including the 2021 debt raise and the impact of new business. As mentioned at the year-end earnings call, the full year BSCR ratio of 255% is higher than the ratio as at Q3 2021. This is largely as a result of lower catastrophe exposures in the year year-end BSCR model due to some restructuring of our outwards reinsurance at 1/1 that gives us additional cover for tail risk. We are also starting to see benefits from our more diversified book coming through. Most importantly, this diagram shows that we still maintain a strong regulatory capital position of 214% following a 1 in 100 year Gulf of Mexico wind event of $309 million.
As mentioned on previous calls, we expect our BMA solvency ratio to be above 200% going forward, dependent on market conditions. We end the quarter with a strong balance sheet, which gives us the ability to support our planned business growth over the remainder of the year. With that, I'll now hand back to Alex to conclude.
Thanks, Natalie. To conclude, there's only one thing I really want to say. We're in a fortunate position. We're at a time of great geopolitical and macro uncertainty. We have a strong balance sheet, an abundance of talent, and plenty of opportunities on the horizon to navigate through the volatility and continue to deliver on our ambitious plans for this year. With that, we'll now go to questions, please, operator.
Thank you. Ladies and gentlemen, if you do wish to ask an audio question, please press zero one on your telephone keypad. If you wish to withdraw your question, you may do so by pressing zero two to cancel. Once again, please press zero one to register for a question. The first question comes from the line of Kamran Hossain from JP Morgan. Please go ahead.
Hi. Hi, Alex. Hi, Paul. Hi, Natalie. Just, I guess we'll go three questions. The first one is just on kind of pricing versus kind of, you know, what's going on in the market. Could you say to what extent new business prices are higher than the, I guess the, you know, what's implied in RPI at this point? Just want to kind of gauge how dislocated the market still is at the moment. The second question, I guess we probably can't get away from it, but kind of aviation leasing. There's a lot of noise out there about one very large contract. You know, it's been in the press for many, many weeks now. What can you say on this exposure in particular? You know, do you have exposures to it, et cetera?
Third question is just on the BSCR. Obviously 255% is a very strong level. Does that include 35% growth that you kind of put on year to date? Whether there are actually kind of any kind of changes that we should assume given, I guess the move up in yields year to date. Thank you.
Thanks, Kamran. I'll start on the question about that very large client and obviously the Russian exposure. I think there's a press article recently.
That list of the insurers that are on that client, which is AerCap. You know, we're not actually on those contracts. Clearly, you know, it's no surprise that the largest leasing company in the world with the largest exposure you know, is the first to present a claim, which clearly they think is credible. I think that will be interesting for us, although we're not involved, and the rest of the market to see where that goes. As we've said in the script, you know, look, the Russian conflict, the conflict in Ukraine and what may or may not happen in Russia is highly complex. You know, there's lots of different outcomes for everyone.
Each insurer is gonna have their own portfolio of business and clearly their own reinsurance protections. I think, you know, everyone is gonna have a different outcome based on the many outcomes that could happen. It's just gonna be a very complex situation which, you know, which is an ongoing event, so.
If I take the one on pricing, Kamran, I think like what we saw in Q1, new business versus renewal business, it very much depends upon what part of the portfolio. I think as I mentioned in my script, within P&C reinsurance, for example, a lot of our growth has come from our casualty reinsurance portfolio, and a lot of that is new business. You'll recall we didn't actually have our full team in place at January 1 last year, hence there's been quite a lot of growth this year. Look, we're pleased with the market conditions in casualty reinsurance, but I'd suggest the rating environment there from a pure RPI perspective, not a rate adequacy perspective is less than some of the catastrophe exposed classes.
If you look at some of the other areas of business, I think particularly in things like direct property insurance, there is some difference in new business to us in terms of the pure rate on a year-on-year rate increase, and we're getting lots of new opportunities still in that product line. Broadly, I'd say there isn't a huge disconnect between new business and renewal business in terms of RPI.
I mean, obviously, Kamran, you know, anything that's affected by this current conflict is, you know, there's material rate changes in the classes of business you would expect, you know, such as aviation war. You know, we're starting to see that and clearly, you know, that's the direction of travel. You know, we believe anything that's affected by this conflict or specifically anything that's affected by the changes that we expect in the specialty reinsurance market, particularly for 2023, is gonna drive material hardening for those classes of business, which is a good opportunity for us.
That's great. Thanks, Alex.
Hi, Kamran Hossain. I'll take the BSCR question. Yes, the current growth this year is largely included in the year-end BSCR because it's based off a Solvency II equivalent economic balance sheet. That does include all the one-one renewals. Then, yes, you're right, it would be available capital would be impacted by the current unrealized yields, but that's a completely manageable number. Just to note, it's mainly all unrealized.
Got it. No. Okay. Thanks very much.
Okay.
The next question comes from the line of James Pearse from Jefferies. Please go ahead.
Hey, guys. Thanks for taking my questions. The first question is just on your war lines of business. I understand that war policies tend to include cancellation or exclusion clauses which have a seven-day notice. Firstly, are you able to confirm if that is the case? And if so, can you just give us an idea of the percentage of your book where that has been issued, and when the majority of those exclusions, I guess, became effective? Second question is on capital. You've included a really helpful stress scenario in your slides, which would result in your ECR ratio moving down to 214%. What headroom does that give you above your AM Best BCAR capital requirement?
I guess any other color in terms of how we should think about that threshold with reference to your ECR ratio would be extremely useful. Thank you.
Hi. I'll take the first question. On war, there's obviously a number of different classes of business that provide coverage for war-like perils, ranging from the political violence class, which generally doesn't have cancellation provisions. You have the marine classes that also provide war-like peril coverage. Some of those have cancellation provisions which allow you to come off risk. Some allow you to re-rate the risk. Of course, you have aviation war policies, which in general, the majority have cancellation provisions. As you'll be aware from press articles, there are some that don't have cancellation provisions. Our strong underwriting preference is to write aviation war where cancellation provisions are provided.
For example, in Ukraine, when the escalation of the conflict started or ahead of actually the escalation of the conflict started, we were issuing notice on the Ukrainian territory to clients. You're correct, it's generally seven days. A similar situation applied in respect of contingent war policies with exposure in Russia.
Okay, James, on the capital question. Obviously all the capital models are different, and there's not really a linear relationship between them, so it is difficult to interpolate from one to the other. In particular, AM Best, which you're right, is our most constraining capital requirement, also incorporates a cat event coming off capital. We have previously said we are more than comfortable with our capital position at a BSCR ratio over 200%.
That's really helpful. Thank you.
The next question comes from the line of Ivan Bokhmat from Barclays. Please go ahead.
Hi. Afternoon, everyone. Thanks for taking my questions. All Russia-Ukraine related. So first one is just in terms of the statement that you gave around potential exposures in Russia being within risk tolerance. If you could just give us some idea of sort of what the normal risk tolerances would be for an event like this, that'd be really useful. Secondly, in terms of the lines of business that you're most concerned about in Russia, where are the potential sort of biggest claims risk, but on a line of business basis? And then thirdly, I think you said in the sort of slides that you haven't incurred any claims in Russia as yet, or you don't believe you've incurred any claims in Russia as yet.
What might need to change in the current situation in order for you to incur claims? Or is this a case of you think there are claims events that might have happened, but cancellations have already been issued, and therefore you're off risk? Or the contract terms would mean that the current scenarios aren't covered. Just if you could give us a bit of clarity around that, and that'd be really useful as well.
Sure. Okay. Look, I think I'm gonna try and sum up our whole view on Russia on a kind of broad basis. I think, you know, you're in a highly complex situation with multiple different outcomes, which is what is very difficult for anyone to put any real number on. Equally, you know, the way we think about it is very similar to when, say, a hurricane may be on its way to Miami. You know, at that point, we're gonna run certain scenarios, you know, we are fortunate in this business where we can get to our numbers very quickly, our exposures very quickly. You don't really know the outcome until the hurricane lands.
I think that's the way we're thinking about Russia, and outcomes could be zero, and some of those outcomes could be different. I think what we try to assure everyone on any basis, as we sit here today, even on the worst case scenario that we can model, think of, that's within our own risk tolerances for a specialty type event. Therefore, we are, you know, reasonably relaxed about that, and it doesn't change our view of what we wanna do in our business this year. That's why we've given a, you know, very reassuring statement. I think that what we can't do is sit here and go through lots of different scenarios that may or may not happen. There's clearly gonna be legal challenge to a lot of these things.
As an industry, you know, we are used to dealing with complex claims. This is clearly gonna be a complex situation that will take a period of time to come through. You know, if we're in a better position where we have claims and data, you know, we're very aware of our stock market obligations, and we will update the market accordingly at that point.
With regard to your question on Russia specifically, the focus for us is aviation exposure, and that's both insurance and reinsurance.
Okay. Perfect. Just if I can, on the sort of risk tolerance question, I mean, how should we be looking to say relative to PMLs for a normal cat risk? Would we be thinking, you know, 1 in 100s or lower than that, just based on classes of business?
Look, I think what we've said already is, you know, we're very comfortable with the exposure, and it's within our own risk tolerances for these types of events. I don't think you can really compare this to, you know, the cat PMLs that we publish. As I said, you know, everything that we're seeing, we're comfortable with, and it doesn't change our plans for the year.
Perfect. Thank you.
The next question comes from the line of Freya Kong, Bank of America. Please go ahead.
Hi. Three questions if I may, please. Just to follow up on capital. If I compare your full year slides and your Q1 slides, the growth, the impact of growth has more than halved between now and then. Is that purely the effect of the reinsurance program, or has something else changed? And secondly, how are you guys thinking about June, July renewals and appetite for property CAT, given what you've done so far this year and the extra reinsurance you've put on the book? And thirdly, we are seeing significant claims inflation in short tail property lines. Are you comfortable with the rate rises you're seeing? Can they more than offset the claims inflation? Thanks.
Okay. Hi, Freya. On the BSCR question, I think you get slightly different impacts when you look at the year as a whole. You know, catastrophe risk does drive the largest capital requirement in the BSCR model. As I mentioned in my script, we did restructure our reinsurance at 1/1, and that resulted in a reduction to the PMLs that are used to estimate cat risk in the BSCR model. That did dampen the impact of some of the new business came through last year, but there are also some other contributing factors to the increase in the coverage ratio. These include profits in Q4 and also other favorable movements in the economic balance sheet in Q4.
Most importantly, we're also starting now to see the benefits of the new lines of business increasing the diversification benefit in the BSCR model, and that also helps.
I'll take the last two questions, Freya. In terms of the cat renewals in June and July, as always, our appetite is gonna be driven by the market opportunity. If it's good, we have the balance sheet to take advantage and grow. If it's not there, we're prepared to hold or even decrease our position. I think what we said at the start of the year, from an inwards perspective, we would expect our appetite to remain broadly flat and that we would take, you know, rate increases but always remain flexible around that.
I think, you know, obviously June in particular is dominated by Florida and as we sit here today, it's too early to know what the outcome of Florida will be, and we'll just be as flexible as ever and trade around depending upon where the market lands. In terms of inflation, I think a few things and, you know, again, we've addressed some of these issues in the past. I think the first thing to say is, obviously, when we publish our RPIs, they are risk adjusted, so take into account, you know, value increases. We automatically include what's called a growth load within our model. There is a catchall for inflationary pressures. We, you know, look at that and adjust that as necessary.
Also, we are seeing on our inwards portfolio values increasing on a year-on-year basis, and in some instances, quite materially. If we do get accounts in and we don't feel the values have been inflated enough by the cedent or client, then what we do is make manual adjustments on top of that. I mean, obviously we're predominantly short tail. That helps. The majority of our policies renew on an annual basis, so we get the opportunity for values to adjust. They don't all renew at the same time of the year. We're very aware of inflationary pressures. It's obviously something the industry is quite rightly focused on. But we're comfortable with what we're seeing and how we're managing the potential impacts of inflation.
Great. Thank you. Just a quick follow up on the PMLs and the benefit of reinsurance. Would that apply under the AM Best model as well as the Bermuda model?
Yeah. It applies on the capital models. Yeah.
Okay, great. Thank you.
The next question comes from the line of Darrell Galle from RBC. Please go ahead.
Afternoon, everyone. Hope you're well. I have four questions, please. The first one is just on reinsurance recovery. On the $20-$30 million Ukrainian loss, what were the ceded claims or what's the overall gross claims, if you can say? And can you give any indication on the coverage limits that you have left, and how should we be thinking about cost of reinstatement premiums? Second question is just on the solvency ratio. You're at 222% at nine months, 255% at year end. The 30-point gap, could you give a sense of, you know, how much of it came from diversification and how much of it came from, say, the reinsurance program changes?
Third one is just on the solvency ratio at Q1 this year, just accounting for, you know, market movements, the war losses and kind of your underlying Cap Gen. Fourth one, any details you can say about the underlying performance in Q1. Things like the attritional loss ratio, cat losses and reserve releases, et cetera. Thank you.
Hi. If I take the one on reinsurance. As you know, we don't split out our gross to net when we announce our loss ranges. I think what's important to note though, I can give you a little bit of color and maybe the comfort that you're after in terms of reinsurance remaining available. You know, our exposure in Ukraine on that $20 million-$30 million, that is split over a number of lines of business, political violence or aviation war, specialty and aviation reinsurance. In all of those, our underlying footprint in the region is not particularly big. There are some reinsurance recoveries that are included, to get to that net number.
In terms of sideways protection we have in place, we're very comfortable with what we've got given that underlying footprint to start with on a growth basis is relatively modest.
Hi, Darrell. On the first question, as I just mentioned, yeah, the three main impact from the BSCR from Q3 to Q4, with a reduction in the catastrophe risk, the increase in the diversification benefit and the movement in the economic balance sheet in the last quarter. That's as much detail I think we're comfortable giving at the moment. Solvency ratio in Q1, as I mentioned in my script, we've had a profitable underwriting result for Q1, but that has been offset by the unrealized losses on the investment portfolio. Neither of those things will be material from a capital and solvency perspective. Then the last question, on the underlying performance.
Yeah, our underlying underwriting performance is in line with our expectations, and we're still happy with the full year guidance that we gave in the last earnings call.
Great. Thanks, guys.
The next question comes from the line of Andrew Ritchie from Autonomous Research. Please go ahead.
Oh, hi there. Just a general question. Both Alex and Paul, you talked about expecting quite a big price reaction in specialty lines because of Russia, Ukraine, and you specifically called out the aviation war. I'm just curious though, because it sounds like we're a long way from actually coming to any view on losses that may accrue to aviation war, both yourselves and the industry. Why would pricing already be going up if the industry feels it may not have a loss? Just clarify, is it because a potential scenario has been revealed by this situation, concentration scenario that wasn't contemplated before? So just what why is there already signs of pricing reaction when we don't necessarily seem to have a loss on aviation in particular?
Second question, just remind us, apologies you've told us before, but I just was needing reminding of the areas within casualty re that you're growing, that clearly had a big impact in growth in Q1, just by way of structure, of the key part of business and classes, and region would be helpful. I think my only other question was for Natalie. Do the PMLs that you disclosed in the accounts have they changed then since the year-end accounts, or were those already pro forma changes at 1/1? If they have changed, roughly what's the quantum? Thanks.
I think on your first question, Andrew, I think you kind of answered it yourself really. What's happening is, clearly as we have done, you know, people are running certain loss scenarios coming out of the Ukraine crisis and obviously aviation is probably the one that every carrier is focusing on. Based on certain scenarios that could be a large claim or it could be zero. I think it will take probably years to materialize and before any of us, you know, have a picture on that. That doesn't mean that, you know, the people's risk appetite hasn't changed already.
You know, already, I think I said this in my script, depends on, you know, depending on certain loss trends or exposures, I think clearly this has the capacity to be a very large claim and therefore people's risk appetites are changing already. I think secondly, the bit that we definitely believe will change, and you know, the big brokers will confirm it, is the way people have purchased specialty reinsurance in recent years has softened really as people's appetite for catastrophe business has changed. You know, arguably the specialty reinsurance market has softened, which has been a benefit for people like us who buy that cover.
What we believe will happen, you know, as these programs renew is we expect a decoupling of particularly, you know, any kind of war cover or aviation war cover. I think whoever writes those classes of business going forward, and again, we don't expect everyone who's currently writing those classes to continue. You know, people are gonna have to pay a lot more for their reinsurance. They're probably gonna have to buy separate towers of coverage, which will be a material change in reinsurance expenditure. Therefore, we expect the front end classes of business that are most affected to be completely rerated. I think yours, you know, well we know you're seeing that already as people are anticipating what's gonna happen in 2023. The market's already reacting. You're already seeing material changes in premiums.
Obviously for us, you know, that's a great opportunity.
The main renewal season, I guess, is October, isn't it, or second half? We're gonna be going through the aviation renewal season and with still no clarity. The industry's unlikely to have any clarity on the ultimate loss at that point.
That is. Yeah. On the ultimate loss or whatever is gonna happen on the loss scenarios, absolutely. That doesn't mean, look, it's gonna be a very difficult renewal period, and it's gonna require some strong leadership. I think, you know, everything that we believe, there's just gonna be a material rerating of particularly the aviation class, full stop.
Yep. Andrew, on your casualty question, yeah, just as a reminder, our dominant play in casualty reinsurance is via quota share products with a strong weighting toward the US. We are not particularly overweight in any particular underlying class of casualty insurance. We've targeted, you know, large cedents with a very broad spread of risk. By writing predominantly quota share, we get access to that broader market. As you know, our play has been very much around the macro timing, given the rate underlying rating environment for casualty business. It's a very broad spread of the casualty world with a focus on the US.
Okay.
Hi, Andrew. On your PML question, you can't necessarily extrapolate between the single event PMLs that get published at the year-end and the half year, and the PMLs that are used in the capital models, which tend to be kind of aggregated or peril PMLs that are further out in the tail. Depending on the structuring of your reinsurance, that can impact the different types of PMLs differently. I can say what we will do, obviously, next quarter. We'll publish up-to-date single event PMLs in the financial statements, and then we can give more detail then if required.
I guess I'm just trying to judge the direction they should have gone down or if they were very stable. There's some change of-
Yeah, exactly.
of the correlation assumption between them all or something like that. I don't know.
There isn't necessarily a correlation between the single event PMLs and how regulators slash rating agencies view it given the aggregate nature of those return periods. Unfortunately, there isn't a very simple answer.
Okay.
We can give you. What we will do as Natalie said, you know, at half year, we have an updated set of numbers, which are actually what would be our 1-in-1 numbers on a single event, and then we can talk around that then.
Okay. All right. Thanks. Thank you.
The next question comes from the line of Will Hardcastle from UBS. Please go ahead.
Hey, everyone. I'm slightly confused. It was sort of a similar question to Andrew's, but just scratching my head on the reinsurance protection. Is it a tail risk or I guess the reinsurance benefit that's come through, is it tail risk then or is it frequency? Is the difference that the rating agency or regulators, they like to look at a series of events? Is that how we should look at it? I guess the second one is much quicker. Is it fair to assume on cat losses outside of Russia-Ukraine that, you know, there was nothing of any note that you felt disclosing, just confirmation of that? Thanks.
Yeah. Hi, Will. Yeah. You're right there. We did purchase at 1:1 some more aggregate reinsurance protection compared to what we had purchased the year before, and that gives us a benefit in the regulatory and rating agency capital models, which, you're right, look more at a series of events rather than just one event. That's why you get a different benefit. Then, yes, you're right on the cat losses. Obviously, if we'd had material cat losses, we would have had to disclose them.
Okay. Just so, just to verify, we shouldn't I guess the total cost of it, you kind of, you know, alluded to it the full year. There's nothing different obviously between now and then. We discussed gross to net at full year on the full year call. Is that there's nothing else has changed between now and then?
No. No.
Thanks.
The next question comes from the line of Joshua Hole from Citi. Please go ahead.
Hi there. Can you hear me okay?
Yeah.
Perfect. Thanks for taking my questions. Just two from me, if I may. Firstly, back to aviation insurance, I guess, what really gives you the confidence that this is and will remain an earnings event? Perhaps you could highlight two or three key points of comfort that's specific to the book that you're writing. And if you could put maybe some numbers on a worst case scenario to potential exposures. And more generally, please can you confirm what your limits are within the exposed aviation lines? And can you also give an indication of the reinsurance protection that you have within these lines? Then my second question, you've posted some pretty strong growth in Q1, and a lot of that has come from the build out casualty lines that you began underwriting in 2021.
Could you put maybe a figure on top line expectations for this year within these lines, perhaps over and above the $95 million that you achieved last year? Thank you.
Okay. Look, on the Russian plane question, I think probably the thing that gives me and you know, the wider management team comfort is that one of the great things about a company like Lancashire is that you're very aware of your exposures. You know, we're not a big business. You know, we can get to our numbers quickly. You know, our aviation team are fantastic. So, you know, we've spent a lot of time and effort in Q1 running every single scenario that we can think of. That doesn't mean there's a scenario that we you know, that may change.
I think in the realms of reality, you know, as we would do on any other class of business in a similar situation, you know, we have run every scenario that we can think of, and that gives me comfort that we're in a good position. As I said in my script, even on the worst case scenario that we can think of today, you know, that's something very manageable for our business, very akin to, you know, any other kind of like specialty type claim that we can have, like a very large energy claim. That gives us the confidence to, you know, the balance sheet we have, the ambitious growth plans that we have for the rest of the year to just continue in exactly the same form as we expected.
I mean, your other questions, you know, you know, we never give out gross and exposures on any class of business in any claim scenario, so that we wouldn't change that. You know, we can say on the aviation book, we do have a lot of quota share reinsurance, so you know, we do have material amount of reinsurance. Again, that's very comforting in these situations. As I said all I can do is reassure you that it's within what we'd expect for a large specialty event. If it happens, there are multiple scenarios, and that will come through over time.
Just answering your question on new lines of business from 2021 and how they may mature. We haven't given specific guidance on that. Just to remind you, obviously it isn't just casualty reinsurance, in that there was also accident and health and specialty reinsurance, the other additional lines within 2021. As a rough guide, if you recall back in 2018, we went into an aviation niche, power, and downstream energy. If you looked at year two of them, so 2019 versus 2018, it was the book approximately doubled. I mean, just as a guide, that would be something that you could potentially look to for the 2021 classes of business.
Great. That's really useful. Thank you very much.
The next question comes from the line of Akshay Kaushal from Morgan Stanley. Please go ahead.
Thank you, and good afternoon, everyone. Just a couple of questions, if I may. First of all, if I look at the P&C insurance, the primary one, the RPI is like 104, and similarly in energy as well, it's 104. I guess you mentioned it's risk adjusted. Would it be possible to get a bit more color on what the nominal rate increases in these two lines of business? Because clearly 4%, yeah, probably it's risk adjusted, that's why it's 4%. I mean, would be great to get some color on nominal increase. Secondly, have you taken any view on litigation as well with respect to, say, aviation or any other Russia-Ukraine related conflict?
Have you taken any view on where the litigation is going to end up, which might have given you some comfort around the risk tolerance level? I know it's a complicated one, and we've been asking since the beginning of this call, but maybe just one more question. Thank you.
I think on the first one, RPIs, the blunt answer is we don't really look at RPIs, i.e., in the way that you're asking, i.e., nominal rate increases. We just look at everything on a risk-adjusted basis, whether that be changes in underlying value, whether that be changes in contract conditions, whether that be changes in excess points. And that's how we determine, you know, our risk-adjusted year-on-year rate change. Within those classes of business you particularly mentioned, there are subclasses, you know, that are very different ends of the spectrum in terms of RPI. In Q1, for example, in property and casualty insurance, you know, the higher end of the spectrum are the catastrophe exposed products such as property D&F insurance.
In Q one at the lower end were things like political violence that's broadly stable. That could clearly change going forward, given all the things we've been talking about. When we look at RPIs, it's always on a risk adjusted basis.
Okay. I think that coming back, you know, coming back to the Russia question, clearly yes, there's gonna be litigation and everyone's gonna, you know, this is gonna take a long period of time to be resolved. When we've assessed certain scenarios, as I've said, you know, clearly we've assessed numerous different scenarios. As I said, on the worst case scenario that we can foresee today, including the factors around litigation and the complexity of these claims, we're still very comfortable with our position.
That's very clear. Thanks a lot.
Once again, if you do have a question, please press zero one on your telephone keypad now or press zero two to cancel. The next question comes from Akshay Kaushal from HSBC. Please go ahead.
Hello. Hi. Good afternoon. This is Akshay Kaushal from HSBC, and I have a few questions on behalf of Faizan Lakhani. Firstly, do you have any additional insights as to what are the implications of OECD global minimum tax regime for your group? One of your peers suggested that this could be an effective tax rate of 15% or so. Is that broad base that we should be aligning for? Secondly, do you have a view on the S&P capital proposals? Does it potentially influence your strategy for June, July renewals? Thank you.
Okay. Hi. Firstly, on the tax rate, I think they recently published about 200 pages of further guidance, which we're working our way through. At the moment we're not in a position to give an update on that. Obviously it's something that we're keeping an eye on. On the new S&P model, as I think I mentioned last quarter, it's quite difficult to assess the full impact without the full model being released. We don't anticipate a change to our rating. We're expecting that the increase in risk charges will be offset by diversification benefits, and we'll also get an additional capital benefit from the allowance of deferred acquisition costs as capital.
Just as a reminder, all our debt refinancing in early 2021 was Tier 2 debt, and that's all fully allowable in the new S&P model. Going forward, we expect that AM Best will be our key constraining factor for capital. The new S&P model will not have any impact on the renewals at June or July this year.
All right. Thank you.
Once again, if you do have a question, please press zero one on your telephone keypad. There are no further questions. I'll hand the conference back to you speakers.
Okay. Thank you very much for dialing in today, and we'll talk to you next quarter.
Thank you. This now concludes our presentation. Thank you all for attending. You may now disconnect.