Hello and welcome to the Lancashire Holdings Limited Q3 2022 results call. Throughout the call, all participants will be in listen only mode, and afterwards there will be a question-and-answer session. Please note this call is being recorded. Today, I am pleased to present Alex Maloney, Group CEO, Natalie Kershaw, Group CFO, and Paul Gregory, Group CUO. I now hand over to Alex. Please begin your meeting.
Okay. Thank you, operator. Good morning, everyone. I'll just start with some key points for the quarter. I'll then hand over to Paul for a market update, and then Natalie will run through financials. I'll then summarize, and then we'll go to Q&A. If we just go to the first slide, you know, we continue to grow our underwriting portfolio. All product lines are growing, dependent on the underwriting opportunity. We do see lots of opportunity in every product line. Clearly our growth is driven by rate, you know, it's probably the fifth consecutive year of rate change across most product lines. The impact of inflation is key. We see client demand increase pretty much across the board.
Good growth, very much in line with our long-term strategy of growth at the right time of the cycle. We foresee our underwriting portfolio growing for the foreseeable future, obviously matched with local opportunity in each product line. Clearly product lines that are better, we will grow more than product lines that are not traveling the same pace, we will grow less. Very agnostic, where we underwrite and always be driven by the opportunity. Our diversification strategy, which started in 2018 continues, and obviously that balances our cat writings. Our portfolio mix is always gonna move. It's always driven by the opportunity.
whether that's writing more cat business, more traditional business, you know, different classes, you know, we're pretty agnostic about how we construct the portfolio, as long as it's in line with our long-term goals. Our long-term goals is to provide more balance to our business, which we're achieving, and we can provide clear evidence of that portfolio this year. Clearly that allows us to manage years such as 2022 better. In active cat years, the balance we have in the business allows us to balance our books better, but it also allows us to maintain a substantial cat footprint, as margins increase, which clearly we are seeing. You've seen continued hardening in Q3, and obviously the outlook looks incredibly strong. Our premiums are generally ahead of our own expectations.
Our premium to capital ratio is better than we expected at this point. Clearly, we're seeing benefits through things like our expense ratio. On all metrics, we're ahead of where we would be driven by the improved underwriting opportunity and clearly our diversification play is benefiting and allowing us to balance that footprint in active cat years. We expect pricing to continue to harden. Clearly, I think cat is a bit more obvious and we'll talk about that later. As the years progress, you've seen rates continue to harden into Q3. As we said at the last call, we expected any catastrophe exposed products to harden substantially for 2023, even absent any activity in 2022. Clearly following Hurricane Ian, you know, we expect that to be accelerated.
We expect, you know, a material change in catastrophe pricing for 2023, very much in line with lots of our market peers and the commentary that have already been made. For non-cat business, we do expect rate hardening to different degrees, very much balanced on the local opportunity, but clearly that will be much muted than the immediate cat opportunity, which I think is relatively obvious. Again, inflation driven client demand plus continued rate improvement just means more growth for Lancashire. As I said earlier, I think we'll be ahead of our own expectations. As just with Hurricane Ian, very much in line with our expectations. Our loss range is very much in line with our own expectations for such a loss. No surprises there.
You know, Cat 4 into Florida, of the size that we've seen and the market around the loss ranges, as I said, completely in line with our expectations. Just to remind everyone, you know, how we construct our loss estimates here is pretty much policy by policy, constructed ground up, the usual method of conservatism, and the same method we have used for all cat losses, but obviously considering the current environment we're in. You know, inflation, supply chains, the legal system in Florida are all considerations that we make when we are, you know, constructing these estimates for our losses. All those factors are considered in our numbers. Let's quickly move to capital. As you know, we've held a very strong capital position throughout the year.
That's always the way that we run the business at Lancashire, and that allows us to be in a very strong position to trade into a good opportunity for 2023. You know, we think that gives us lots of options and lots of ability to grow our book into 2023 in multiple different product lines. That's exactly where we want to be at this stage of the cycle when you're looking forward at the opportunity. You know, our job is to maximize return for the capital deployed. We're completely agnostic about platform, geography, product, that's not anything we really consider at Lancashire. You know, all the executives, all the senior underwriting colleagues will be in constant dialogue as the market changes.
You know, you're in quite dislocated pockets for certain product lines and everyone's compensation in the business is aligned to group ROE. No barriers, just based on the best opportunity for our shareholders. Just quickly moving to investments. Clearly you've seen our a negative investment return. Our mark-to-market loss is just driven by the steep incline in interest rates. Our portfolio is very short duration. You know, investment returns will be materially improved in 2023, which again, will just give us more margin at a time of more margin is coming into our underwriting portfolio. I think all in all, you know, good opportunities going forward. Strong underwriting opportunity, investment income coming back into our bucket. You know, looking strong into 2023. I'll just pass over to Paul to give you a market update.
Thanks, Alex. As Alex has just spoken to, the market continues to remain supportive across almost all our classes of business. This has allowed us to continue to deploy our strategy to diversify and fortify the portfolio. We're particularly pleased with the year -to -date premium growth of 34.3%. A combination of continued rate momentum, build out of new product lines and new businesses in existing classes have all contributed to this growth. Year -to -date, our portfolio renewal price index stands at 107%. Q3 standalone was over 110%, signaling the increase in rating trajectory I had talked about at our last conference call.
On the new things for 2022, we guided to $50 million-$60 million of new premium, and it's likely we'll be at the upper end of that range by year-end, given the favorable market conditions. Moving to the next two slides, we'll just highlight the segment-specific dynamics. I'll briefly cover off a few Q3 highlights but then focus on what opportunities lie ahead. For Q3, I'd just like to highlight the following. The continuing maturity of the casualty financial lines and specialty reinsurance is driving the growth in the P&C reinsurance segment. Strong growth in our new property construction class, along with a robust rating environment for property insurance classes, is delivering growth in the P&C insurance sector.
As you know, the year -to -date RPI for aviation is not indicative of current market conditions, given the bulk of the business is conducted in Q4. Growth in energy is more subdued than other classes, albeit it's still ahead of rate. New business in our energy liability subclass has more than offset loss of premium from our exit from the Gulf of Mexico windstorm coverage and the impact of Russian sanctions business. Strong growth in marine comes from robust market conditions in marine liability and new business within cargo. Now moving on to outlook. Last quarter, we were increasingly confident about market conditions. Three months on, this confidence has just heightened. In the majority of specialty insurance lines that are nat- cat light, we continue to see plenty of opportunities for growth.
We anticipate continued rate improvement in the products that provide terrorism and political violence coverage, both insurance and reinsurance, an area where we have an established footprint and expertise to navigate. In aviation, we're already seeing significant dislocation in products such as war, AV52 and aviation reinsurance. Again, classes that we are market leaders in. Other parts of the aviation market are not yet seeing the same levels of dislocation, as the reality of the changing reinsurance landscape has yet to filter down to all in the market. However, we anticipate further hardening in the aviation reinsurance market in 2023, which will create further opportunities into next year. In lines where we had seen some plateauing of rate increases, such as downstream energy, recent frequency of loss activity should help strengthen the backbone of the market.
It's also worth re-remembering, and as Alex has alluded to, a lot of these specialty insurance lines have already seen the five to six years of rate improvement. Rating adequacy is strong and will only improve further. Now moving on to those lines of natural catastrophe exposure, where the outlook is also very optimistic. We've seen quarter-on-quarter hardening in the catastrophe reinsurance classes through 2022. Pre-wind season, our view was that this would continue even without any significant loss activity, given the shift in demand supply dynamic. With inflation really pushing client demand for more limit in a market where supply appears to be retracting. Hurricane Ian has tipped the balance from a hardening market to a hard market, and we anticipate severe dislocation for 2023 renewals.
As you all know, we expanded our catastrophe footprint in 2021 and have further optimized that portfolio this year, so we are very well placed to underwrite the opportunity we have ahead of us. I'll now pass over to Natalie.
Thanks, Paul. Prior to Hurricane Ian, we were pleased with our year -to -date underwriting performance, which was consistent with that reported last quarter. However, towards the end of the third quarter, we incurred catastrophe losses in the range of $160 million-$190 million from Hurricane Ian. This level of catastrophe loss is well within our expectations for the type of event that occurred.
As you are aware, we have historically reserved conservatively for catastrophe events, and we have maintained the same reserving process for Hurricane Ian. This means that our estimated loss is built ground up on a contract by contract basis and is not derived as a percentage of an industry loss number. Because of the process we follow, we don't give you an assumed industry loss number. We have not made any changes to our estimated losses within Ukraine since last quarter and continue to monitor the situation closely. Year -to- date, away from Hurricane Ian, the claims environment has been in line with expectations. We have obviously seen weather events earlier in the year as well as single risk losses, albeit all of these are well within our expectations and what I would call normal for our business.
Our total catastrophe losses for the year -to -date, excluding Ian, are in the region of $45 million. These include the Australia and South Africa floods, U.S. derecho, and French hailstorms. On investments, market volatility and rate hikes continued into the third quarter, resulting in a negative portfolio performance of 5% for the year -to -date. Our portfolio remains relatively conservative with an overall credit rating of AA-. We aim to invest in largely low risk, short duration and liquid investments while taking more risk on the underwriting side of the business. We do not intend any material changes to our investment strategy in the medium term, and we'll keep the overall portfolio duration short. Given this short duration, we will start to benefit from the rate rises relatively quickly. Moving on to capital, we retain a strong and robust capital position.
On this slide, the waterfall chart shows how our regulatory capital position has developed since the end of 2021. As noted last quarter, the impacts of changes in business written, plus some tweaks to our reinsurance program in the first half of 2022, benefited the PMLs used in the rating agency and regulatory capital models. The estimated position at Q3 2022 incorporates a Hurricane Ian loss at the midpoint of the range given and after 250% is exceptionally healthy. As mentioned on previous calls, we expect our BMA solvency ratio to be above 200% going forward, dependent on market conditions. With that, I'll now hand back to Alex to conclude.
Okay, thanks, Natalie. You know, just to summarize, you know, our views today. I think the outlook is strong across all product lines. You know, we see lots of opportunity driven by the investments we've made across our business. Clearly, we have a lot more product lines than we've ever had in our history, which is driving our growth. You know, capital, as Natalie's just described, you know, our capital position is incredibly strong. It's exactly where we wanna be at this stage of the cycle. That gives us more optionality as we look into 2023. We're better leveraged than we have been before. You know, the benefit of the investment returns coming through is definitely gonna help our overall returns. Look, we're very positive.
There's a lot of uncertainty, but I think, you know, we couldn't be better positioned for a very interesting market. We'll now hand over to the operator for questions.
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. There will be a brief pause while questions are being registered. The first question will come from Freya Kong at the Bank of America. Your line is now open.
Hi. Good afternoon. Thanks for the presentation. Two questions, please. Number one, acknowledging that your Bermuda ratio looks very strong, could you please provide some color on how your capitalization is against your binding constraint, which I understand is rating agency capital? Secondly, Lancashire's right -sized its property cat footprint in 2021 and maintained similar exposures in 2022. Given that property cat markets are looking dislocated and rate increases are expected to accelerate next year, what is your appetite for property cat for 2023? Thanks.
Hi, Freya. On question one on capital, as we said, we're in a very strong capital position. I think as we said before, you can't really do linear interpolation between the BSCR, which is used in Bermuda and the rating agency, capital models. As we have said, at a capital ratio for the BSCR over 200%, we're more than comfortable with our capital position across all measures.
Thanks for that. On the property cat question, our appetite is already strong for property cat business. You know, a good measure is if you look at our one in 100 and our one in 250 versus our equity base, you know, we already hold a big position in cat. Clearly, you know, when you're looking into 2023, there's clearly a good opportunity. Rates are only going one way. Attachment points are only going one way. Coverages are only being stripped back. Yes, we're very interested in that opportunity. I think as always, it's still early. You know, we'll assess where we go. I think at this point, you know, we like the size of our cat footprint.
We have done a lot of work around diversification and balancing our portfolio. I'm not saying we're going back to, you know, to undo that work. I think the key point is we already have a strong appetite for property cat business. As we always say, we'll be driven by the opportunity. As I said, clearly the opportunity is increasing materially, but we will be driven by how far that goes.
Okay, thanks.
The next question has come from Kamran Hossain at JP Morgan.
Hi. Afternoon. First question is on retro. Could you maybe give us some thoughts about the top down availability of retro? It's clearly kind of a very opaque market that's difficult to see what's going on there, and how much that impacts the ability to add cats. Follow up on retro as well. Would you consider writing kind of retro or writing more retro? The second question is on, I guess, your approach to 2023. Do you expect to grow exposure or refine quality? I know in the previous question you said it's still very early, but just interested in kind of your thoughts on weighing up those two approaches. Thank you.
Sorry. I'll ask Paul to answer all those, but on your last question, Kamran, you are talking purely cat, aren't you?
Yeah, purely cat. Purely cat.
Okay.
Okay. Let me take the retro question. I'm gonna start, as you probably expect me to answer this, Kamran, which is, it's incredibly early, and there isn't a huge line of sight as to what's exactly going to happen in the retro market at 1/1. We probably have about five different plans as we sit here today-
Yeah
Depending on how the market plays out. Now, clearly, the retro market, I can't see there being materially more supply. I think that's reasonably obvious, and I think we're all pretty clear that pricing is only going in one way and there'll be pressure on people's retention levels, et cetera. I mean, the reason I think we sit here reasonably comfortably is twofold. First of all, you know, we've had long-term relationships with most of our retro providers, which stands us in good stead. I think we've been good partners with those reinsurance partners, which will stand us in good stead. We will not be immune from what's happening in the retro market, but I think we sit, you know, near the top of the queue.
A lot of our capacity, as you know, is predominantly with rated carriers. We have very little protection from ILS funds, which I think again helps. Look, the job we will do over the coming weeks will be to analyze what retro capacity is available. We just move between what we do on the inwards and what we buy on the outwards. It's pretty simple, but the underlying fact is whichever way that ends up, we believe we're getting, you know, quite significantly improved margins on our cat book in 2023. Look, we're not sitting here saying our retro is gonna be the same as last year. It probably won't, but we're more than prepared for that, and we've got the levers on the inward book.
Our focus is on net cat risk, ultimately.
I think as well, Kamran, you know, the kind of market it looks like we're going into, you can probably do everything, i .e., you know, it's gonna be about price, it's gonna be attachment points, it's gonna be about stripping out coverage. I think, you know, our view is you're going into a sort of post-Katrina type market. Obviously, how far it goes, we don't know yet, but it does give you the opportunity. Again, if you look at other people's comments, similar peers to ourselves, I think everyone's pretty much aligned on what that's gonna look like. It's not just gonna be about price, it's gonna be multiple levers pulled into 2023.
Sorry, you asked the question on writing retro. We do already write a retro, inwards retro portfolio. It's probably, you know, less than maybe some of our larger peers, but we do already have a footprint which, to be honest, has grown since 2018 as the retro market conditions continue to harden. Just like Alex said earlier on property cat, you know, we'll just underwrite the opportunity in front of us. Yes, we probably will continue to write some retro, but we'll balance out, you know, what we're seeing in insurance lines, what we're seeing in property cat and what we're seeing in retro and then adjust the portfolio accordingly.
Got it. No, it sounds very exciting. Well, fingers crossed. Yeah, 2023 should be a great year, hopefully.
Thanks, Kamran.
The next question is coming from Will Hardcastle at UBS.
Hey. Afternoon, everyone. Hope you're well. All sounds pretty bullish. I guess you say that you like the size of your cat footprint. Just thinking about the benefit in P&L, I know you're running through a number of scenarios. Just trying to weigh it up, given what you've said there on the PMLs, you've got, you know, you're already somewhat at the upper end of appetite 'cause you've liked it already. Here, we should be thinking that benefits coming from top line from price, but reality with the better terms and conditions, we're thinking of better attritionals. And so, the loss ratio improvement perhaps comes through, which is something that peers are not necessarily going as far as saying. Do you think that's down to the fact that you've got a shorter tail book and not having any legacy issues?
Second one, I guess on that slightly, just are you seeing any inflationary pressures on previous cat loss assumptions, that's ignoring Ian, I guess that might lead to diluting expected previously expected prior developments? I appreciate your cats typically develop very favorably, but just are there any early signs that your previous cat loss assumptions are creeping? Thanks.
Okay. I think let's try and do this in small parts. On the you're talking about our reserve, and generally we're completely happy with prior year's reserves assumptions.
We don't sit here and think some of those open claims are now way more expensive than we thought they would be because generally we have a reasonable margin over what we think those numbers are. Our general conservatism when we're setting reserves probably has enough buffer to take out any of the noise that's just, you know, in our world at the moment. I think on the question about improving numbers. I think where you're going is clearly we don't have a historical casualty book, so you would expect improved market returns to come through to our numbers quicker, and maybe some others are not expressing that because they know that there's some prior year casualty that they need to pay for. Again, we're quite clean on that.
You know, we only started writing casualty 18 months ago. That's not really a consideration for us. I think that's it. That's great.
Yeah, that's great. Thank you.
The next question come from Mr. [Trygve Thorenberg]. Your line is now open.
Good afternoon. I just have two questions. One is on the admin expense ratio. It looks like obviously premiums are running ahead of expectations. Should expect some improvement to the previous guidance at some point? That was the first one. Maybe it would be great if we can get some comments on the sort of attritional loss ratio and how has that developed maybe in Q3 and what should expect going forward. I know you previously mentioned that was sort of running towards higher end of your expectations and the range given, but any color on that would be appreciated. Thank you.
Hi, I'll take those questions. On expenses, we're running consistently with where we were running at H1, and as I said last quarter, we expect the total expense ratio for the year, so admin expenses and acquisition cost expenses, to be somewhere in the region of 40%. On attrition, also as I mentioned last quarter, we're running at the high end of guidance given, which is really due to business mix, as we've been very successful supporter to mentioned, in the build out of the new more attritional lines of business. We do have, you will have seen at H1, higher loss reserve releases than we originally guided for.
Overall, if you look at the full picture of the combined ratio, we expect to end the year with an underlying combined ratio in line with the guidance that we gave at the start of the year.
Okay. Just maybe on the expense ratio, should we? Obviously, your premiums are coming in higher. Should we expect to see a bit more leverage there in terms of expenses, given the premiums that come from the new teams seem to be running higher than previously anticipated?
Yeah. I think if you go back and look at H1, though, in total, including the acquisition cost expenses which have changed a little bit due to business mix, you've got a little bit of an offset there. I think it's easier just to combine the two and look around 40% for both.
Okay. That's very helpful. Thank you.
The next question is coming from Andreas van Embden at Peel Hunt. Your line is now open.
Hello. Good afternoon. Just two questions on your Hurricane Ian losses. I just wondered how much of that loss comes on the reinsurance side from your nationwide sort of writings versus local Florida? The second question is, can you split that loss between the losses in your reinsurance book and the losses that are appearing in your sort of property D&F insurance portfolio? Thanks.
Hi, Andreas. I'll take this. As you know, we don't split out loss number in that way. What I can say is that obviously in a loss like this, the principal classes that are impacted would be, you know, our property insurance via D&F portfolio, our property cat portfolio, and obviously if we write, you know, exposure to Florida cedents, which we've been doing, you know, since we started increasing position in the last couple of years, post equity raise, albeit we did go slightly backwards as we communicated three months ago at this renewal, given some client renewal terms we weren't happy with.
As I answered on a previous question, we also have an inwards retro book and you would get some exposure there. There are small amounts in some other areas like marine cargo, et cetera, but it's de minimis in the scheme of things. Look, the losses coming from the classes of business you would expect. There's no real surprises in what we're seeing given the event size. Unfortunately, we don't provide the splits. I don't think we ever have done.
Okay. Thank you very much.
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 Nick Johnson at Numis.
Hi. Thank you. Good afternoon, everyone. Just one question please, which is on catastrophe. We're learning about your cat exposure all the time, obviously, as things happen. The cat load this year looks like it will be significantly more than 15%, so long-term average you've talked about in the past. Just wondering whether you'd describe 2022 as a fairly normal year, obviously taking into account that industry losses look like they'll be more than $100 billion again. Just sort of anything you can say just to help us calibrate the right cat load going forward. Thank you.
Yeah, I think, Nick, look, I mean, we've always said there's no such thing really as a normal cat year, and every cat loss is completely unique to every season. I think that we clearly will see how this loss pans out. You know, our view is that how we think about our business and how we think about cat losses over the long term, we're still happy with that 15% number.
Okay, that's great. That's what I said. Thank you.
The next question is again coming from Freya Kong at Bank of America.
Hi. Thanks for the follow-up. Could you comment on large risk losses that are not nat -cats that sit outside the attritional? Thank you.
Hi, Freya, it's Natalie. Well, nothing material that we would disclose on the large risk side, except for the Ukraine loss earlier in the year.
Okay, great. Thank you.
The next question is coming from Faizan Lakhani at HSBC.
Hi there. Thank you for taking my questions. The first one's sort of big picture. There's a lot going on in terms of your business mix. You're writing more specialty lines, but you've grown your nat -cat exposure as well. How should I be thinking about the volatility of earnings going forward? If you could just provide sort of a perspective on how you think about that. The second one, I wanted to follow up on the nat -cat load of about 15%. Again, there's a lot going on, but one, we're having larger hurricane seasons year-over-year. Another $100 billion loss every five years. Plus you've grown your nat -cat exposure as a percentage of tangible equity. What gives you that confidence around that 15% level? Thank you.
Okay. Look, I'll take the first one. I think Natalie Kershaw will take the second one. You know, everything that we've spoken about for probably four years is to bring diversification into our business at the right time. I think we can clearly demonstrate that we are balancing our portfolio and therefore, you know, bringing down the volatility of earnings. Clearly, when you have, you know, a series of cat losses in the last years and that's harder to see. Obviously as well, we've also changed our product line mix. Yes, there is a lot going on. Directionally, that's exactly where we want to be. We wanna be growing substantially at this point.
As I said, we are totally agnostic about where the opportunity comes and our numbers move around. In general, that is bringing the volatility of our earnings down. Clearly, when you look into 2023, you've got a lot more margin coming in through improved underwriting investment returns, that again should help the volatility in our business. Which is exactly what we've been trying to achieve since 2018.
Yeah, I wanted to circle back on those 15%. That is the long-term average. It's certainly not a budget we have given you, as we have repeatedly said. As Alex has just said, it is a long-term average, as opposed to being a single year, a forecast for the future, or anything of that nature. Just to make it very clear, that is not how we budget. That is just something that we have put forward to help you model.
Just circling back to sort of first one with lower volatility. The fair way to think about it is if we weren't getting rate, you would see higher combined ratios offset by low volatility. Given the fact you're seeing better rates, you're seeing both low volatility and low combined ratios. Is that correct?
It will ultimately depend on business mix.
Yeah.
I mean, that's the whole point of that both Alex, Paul, and Natalie have been saying. Ultimately, the combined ratio, that's why we don't give you guidance at Q3. We wait until later in the year because that's, you know, the balance of the business will ultimately.
Again, to sort of reiterate what we've said, you know, we are growing non-cat. You know, cat is the most volatile product line that we sell. We've materially grown our non-cat business, which is gonna help our balance and to help us in active cat years to balance our portfolio. Clearly you're getting a lot of rating. Let's just look at our cat portfolio. If we overlay this year's cat footprint into next year with material more rate and investment returns, clearly your volatility is just coming down. It has to. That's the portfolio we're constructing.
Interesting. Thank you very much.
The next question is coming from Ben Cohen at Investec.
Oh, hi there. Good afternoon. Thanks very much for taking my questions. I just wanted to ask in terms of the Ian loss, how that would have split between the direct property and the reinsurance book. Maybe as part of that, any view that you have looking forward as to the relative attractiveness of writing catastrophe exposed business through reinsurance versus insurance. The second question was if you could just give us a bit of color in terms of how the loss on Ian is likely to impact the sort of the other income line and the profit on associates line, just in terms of, I suppose it's the LCM exposure there. Thank you.
Hi, Ben. I'll take the first question. As I think, I'm sorry, I'm repeating myself. From an earlier question, but we don't tend to provide, well, we haven't ever provided the split between property insurance and property reinsurance in terms of our number, but what I can say is, you know, an event of this size, yes, we will see losses coming through both the property insurance and reinsurance classes.
In terms of what that means for those classes going forward, I think it's fair to say that in the insurance classes since 2017, the rating environment has improved more than you've seen in the property reinsurance classes, the property cat classes. I would fully expect that rating momentum to continue into 2023. You know, we're seeing values going up all the time, which is putting, you know, stretches on limits, et cetera. Plus, you know, there's another loss that's come in.
There's plenty of momentum there still for the insurance classes. I think it's in the property reinsurance classes that have been increasing in terms of rating, but not to the same level as, say, what you're seeing in insurance or even retro for that matter. I think that's where we see the most dislocation as we sit here today. As we have said, there's a lot of moving parts still at the moment. As we sit here today, that's where we expect to see some quite significant dislocation, because that seems to be the area where you're getting the biggest difference in the demand supply dynamic. There's a lot more limit coming to market, some of which has been well publicized. Also over the past 12 months, we've also seen a number of larger players either cut back or exit the space completely.
Put that all together. You know, as we spoke about three months ago, we were really confident about where the market was going. Throw Ian on top of that just increases our confidence even more.
Okay, thanks.
Hi, Ben. I'll take question two. Yes, you're correct. There will be an impact in LCM from the Ian loss, and you will see that impact coming through the other income line and the profit from associate line in the income statement at the year end. I think if you know, if you want to put something in your forecast, you could potentially go back to 2017 and have a look at the impact that we showed in those lines in 2017 would be reasonably helpful.
Okay. Thank you very much. The next question is coming from Derald Goh at RBC.
Hi, everyone. Good afternoon. I've got three questions, please. The first one is just going back to Hurricane Ian. Can you maybe give a sense of the excess loading that you've applied for things like social inflation, demand surge, et cetera? I guess I'm just trying to get a sense of, you know, the assumptions that drive the lower and the upper end of the range that you've given. The second one is just on the Russian exposure piece. I understand there's no update today, but could you maybe share, you know, what the thinking there, because we know that there are legal proceedings at the moment. At coming year end, will you be forced to put up a reserve by your auditors? The third one is just on special returns.
I understand, you know, capitalization is very healthy today, but would you still consider any special dividends or buybacks at this stage, depending on how the plan develops? Or is it fair to assume that, you know, it's completely off the table now? Thank you.
Hi. Yeah, I'll take the first one on Hurricane Ian. I think I'll just reiterate, you know, some points that Alex made in his opening script and Natalie mentioned also, which is that we have a well-trodden process. We've used it quite a lot in recent years. We go through each contract one by one, build in our own assumptions for the client, for the type of loss that we have, and then any kind of prevailing conditions such as inflation, such as legal complications you can get in some territories, such as supply chain issues, and that all goes into our reserving process. We're obviously not gonna split out exactly how much we have on each, because for each client, each type of product we sell, it can be different.
What I would just always remind you of is, you know, that process has served us very well over the last few years and has been very robust. You know, like, that reserving process has meant that we haven't had some of the deterioration that some others have on certain losses. In fact, our, you know, our losses have tended to go the right way. I can just assure you that we've applied exactly the same process that we have done for all those other claims over the past few years. Yes, on Russia, I think the simple answer is nothing has changed from when we last spoke, which is therefore why there's, you know, no update today.
You know, what we do at year end will be determined by the information that we have. If there is a change in information, then we assess that change in information, and we make the appropriate actions. I obviously can't foresee what's gonna happen in the next three months. If there is some information change that leads us to do something, then we will. At the moment, there's no change in information that would lead us to do something different from what we currently are.
On capital and dividends, look, you know, we're going into a good market. We know that. There's a lot of uncertainty, which is good for companies that have strong balance sheets. You know, you want as many options as you can at the moment. It would be very difficult to raise any capital. It wouldn't make any sense for us at all to do any special dividends at the moment. If you think about our long-term strategy around managing capital, if we think the underwriting opportunity is going up, you know, we wanna be in the best position we can. We wouldn't consider that at this point.
Okay. Thank you all.
We've got one more question coming in from Faizan Lakhani at HSBC.
Hi. Yeah. A follow-up question from me. Just following on Derald's question. In terms of capital, clearly the opportunity is very, very strong and you're gonna look to deploy it. But I'm just trying to understand, given the fact that some of the specialty lines are fairly capital light, and given that you are probably fairly close to the level you want to be on the net cat exposure, what's the implication in terms of using up capital when you write business? Thank you.
Look, it's a really good question. When you're sitting in with such a strong capital position, I totally understand why you're asking that question, particularly dependent on the size of our cat portfolio next year. I just think there is so much uncertainty at the moment that you just wouldn't even consider, you know, returning capital at this point. Clearly, we're in a very uncertain world at the moment. In three months time, something else may happen. It may be completely different. In a world of uncertainty, holding your capital, you know, I think will become much more fashionable than what we've seen in the last sort of five years when capital was free.
I think we would be very unwise at this point with the level of uncertainty we're going into, which is good uncertainty for us to consider capital returns. Clearly, if we get to some point in the future and our view changes, you know, we always think about capital in that way. We're very fluid. We can get to our numbers quickly, and we'll make that call later in the future if we can. I do understand when you look at our capital ratios, that's driving that question. As I said, you know, there's so much uncertainty it would be unwise to do that now.
Great. Thank you very much.
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Okay. Thank you very much for your time and questions today, and we'll talk to you next quarter.
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