Hello, and welcome to the Lancashire Holdings Limited Q3 2026 earnings call. Throughout the call, all participants will be in a listen-only mode, and afterwards, there will be a question-and-answer session. Today, I am pleased to present Alex Maloney, Group CEO, Paul Gregory, Group CUO, and Natalie Kershaw, Group CFO. Please go ahead with your meeting.
Thank you, operator. Good morning, everyone, and thank you for everyone who has joined us today. I am pleased to report that Lancashire's momentum continued in the third quarter, resulting in a strong underwriting and financial performance for the year to date. Paul and Natalie will provide more detail, but first, I would like to emphasize the key points from today's statement. Given the strong performance year to date, we expect to meet the guidance we have given and deliver a high teens ROE for the current financial year. Due to our strong operational performance so far in 2026 and our robust balance sheet, we have announced a special dividend of $182 million, equivalent to $0.75 per share. This will be paid to shareholders in early December and continues our long-standing approach of returning surplus capital to shareholders as quickly and as efficiently as possible.
As we guided at the start of 2026, gross premiums remain stable on an underlying basis, and the benefit of business written in prior underwriting years has delivered a modest 1% year-on-year increase in insurance revenue. The loss environment in the quarter was mixed, with active man-made losses, including the impact of the ongoing conflict in the Middle East, but a relatively benign catastrophe experience. As usual, we will provide guidance for 2027 when we report the current year's financial results in March. As you know, we are firm believers in the cycle, and we will always actively manage our capital to match the underwriting opportunities available. This has been our guiding principle whatever stage of the market cycle we are in.
Of course, you should expect to see us maintain a relentless focus on deploying capacity only where risk-adjusted returns meet our expectations, whilst remaining committed and relevant to our core clients. Although this means we may limit exposures in some parts of our portfolio, we have a number of levers to help us manage this cycle that were not available, or not to the same extent, in previous periods. For example, our diversified business has many more product lines, each presenting different opportunities and risk and return profiles, so we can be agile and quickly allocate capital where it makes most sense. As a larger and more diversified group, we can use reinsurance effectively to manage our net exposures whilst maintaining appropriate gross lines. A benefit of a softening market is that this tool can be used to make us more efficient.
Our balance sheet is well capitalized, with prudent loss reserves and a conservative position investment portfolio that can make meaningful contributions to Lancashire's financial performance. This ability to be agile and to remain disciplined as we manage the cycle underpins our ability to deliver attractive returns to shareholders across the whole cycle. Over the past few years, we've made it a priority to attract and retain the best talent in the market. Lancashire has a high-performing, experienced workforce that is deeply invested in the company's long-term success and understands how to navigate market cycles with discipline and confidence. We will continue to add skills, capabilities, and product lines to ensure we not only manage this stage of the cycle appropriately, but we are set up for higher levels of growth when the market turns.
As demonstrated by today's trading statement, I believe we are very well positioned as we approach 2027 and the challenges and opportunities it will undoubtedly bring. With that, I will now hand over to PG.
Thank you, Alex, and good morning, everyone. Turning to slide three. Our year-to-date performance reflects the strength and resilience of the Lancashire underwriting franchise. Gross premiums written of $1.8 billion are stable on an underlying basis, in line with guidance at the start of the year. Market conditions have also been as anticipated, with a portfolio RPI of 93%. Within that, we continue to see differing dynamics across the portfolio, with the majority of product lines remaining rate adequate.
Insurance premiums have increased by 5%, benefiting from growth in energy and marine lines related to both additional premiums associated with marine war and the continued development of Lancashire US. We've continued to add new product lines to Lancashire US, with property facultative reinsurance the most recent addition, following environmental liability, financial lines, and inland marine earlier this year. We'll enter 2027 with a suite of seven product offerings.
In London, we've added two product niches to our marine offering following the hiring of two new underwriters, which will also be fully up and running in 2027. All of these new product lines will naturally mature in the next few years, and we will be patient and build them out in line with market conditions. Reinsurance premiums reduced by 6%, primarily reflecting less reinstatement premiums and our deliberate actions to reduce property retrocession exposure. As we focus on cycle management and continue to manage catastrophe risk and earnings volatility through the cycle. None of this is accidental. We've consistently said we will hire new underwriters that can add value to our overall underwriting proposition whilst continuing to adjust net risk appetite, portfolio composition, and capital deployment as market conditions evolve.
The benefit of a larger, more diversified portfolio and product offering is it gives us greater flexibility to manage the cycle. Not all products move at the same pace and are at varying levels of adequacy. Therefore, we have more options to reallocate between products, classes, and geographies, bringing lower volatility to both top and bottom line. We also have broader reinsurance options available, allowing us to manage the cycle appropriately, maintain relevance with clients through the cycle.
This flexibility and willingness to be agile and disciplined in the face of changing market conditions is one of Lancashire's key competitive advantages and allows us to continue generating attractive risk-adjusted returns even as the market transitions to softer phase of the cycle. Overall, we are very pleased with the underwriting performance year- to- date, and it demonstrates the value of our disciplined cycle management approach.
We do anticipate the market to remain competitive in 2027, and that is exactly what we have planned for. Our underwriting business is designed to manage the cyclical nature of the industry and will continue to deliver attractive through-cycle returns. I will now hand over to Natalie to discuss our financial performance in more detail.
Thanks, Paul, and good morning, everyone. Turning to slide four, I will briefly cover financial performance, investments, and capital. Starting with insurance revenue. Insurance revenue increased by 1% to $1.41 billion, reflecting the continued earning through of business written in prior periods. As Paul has described, there are a number of moving parts within the portfolio, but the business continues to perform well, and the benefit of the diversification we have built is coming through.
Turning to losses. The third quarter was benign from a natural catastrophe perspective. We did see some man-made loss activity, including from the ongoing conflict in the Middle East, but our exposure remains limited and well within our risk appetite. Overall, the loss experience has allowed the underlying profitability of the portfolio to come through in the year to date, and we remain on track to deliver our high teens return on equity for the year.
Now looking at investments. The investment portfolio generated an overall return of 0.6% for the first nine months. Investment income remained attractive, but this was offset by unrealized mark-to-market losses in the third quarter, principally as government bond yields increased. Importantly, this does not reflect any deterioration in the quality of the portfolio. Our average credit quality remains AA-, and duration is relatively short at 2.2 years. At the end of September, the portfolio had a book yield of 4.6% compared with a market yield of 5.3%. So while higher yields have created some short-term mark-to-market volatility, they also allow us to reinvest at more attractive rates and will support investment income going forward.
Finally, capital. Our capital position remains very strong. Our approach here has not changed. We retain the capital we need to support the business and take advantage of attractive underwriting opportunities.
And where we have capital surplus to those requirements, we return it to shareholders. Given our strong performance and capital position, the board has declared a special dividend of $0.75 per share. Even after that distribution, we retain significant financial flexibility to support the existing portfolio and invest in future opportunities. Overall, we are pleased with the financial performance for the first nine months. The underwriting business is performing well. Our investment portfolio remains conservatively positioned, and our strong capital position allows us both to invest in the business and return excess capital to shareholders. We remain on track to deliver a high teens return on equity for 2026. With that, I will hand back to Alex.
Thank you, Kershaw. Can we go to Q&A, please?
Thank you. If you do wish to ask a question, please press star, then the number one on your telephone keypad. If you wish to withdraw a question, you may do so by pressing star, then the number two to cancel. There will be a brief pause while we compile Q&A roster and questions are being registered. We have our first question comes from Shanti Kang of Bank of America. Please go ahead.
Hey, morning. Thanks for taking my questions. RPI today seems to be holding up a bit better than I was expecting, so that is good. How much of that do you think is maybe due to the actions that you have taken, shifting the mix or stepping away from specific lines? Then just into 1/1/27, what is your base case for the rate environment there, and are there any lines that are holding up a bit better than others? Thanks.
Hi, Shanti. I will take those questions. I think on the RPI today, to be honest, I think it is performing exactly as we expected it to. At the start of this year, our guidance on our view on what rating would do through the course of the year was high single-digit rate reductions, and as you can see, that is exactly where we are tracking. Depending on the quarter, you can get slightly different changes depending on business mix. The business mix that we have had through the year is pretty much in line with our anticipation, and I think that is why the RPI is tracking exactly with what we gave guidance to at the start of the year. I think on your second question, as we move into 2027, and as I said in my script, we are definitely anticipating a continuation of softening.
We are going to be in a more competitive marketplace. As I also made reference to, the majority of product lines remain in a good position from a rate adequacy perspective. Undoubtedly, there are some parts of the market that are moving faster than others. I mean, if you look at the casualty-based lines, they are far more stable than some of, say, the property insurance lines, which I think is very well documented that there is some quite high competitive pressures in things like property, D&F, open market business. Look, our job is very much to try and balance our portfolio in the best possible way. There are parts of the market that are competitive, but that does not mean within that there are not pockets of good opportunity and accounts that have good rate adequacy.
It is just in these environments, you have to be a bit more discerning with your underwriting in terms of the accounts that you actually underwrite. Look, we expect generally for there to be more softening. As Alex said in his script, as we get to March, we will give you some more guidance as to where we think that will be across the portfolio in terms of the rating environment. 1/1 is the best kind of data point we will have, which is why we wait until after 1/1 to give you some guidance.
That makes sense. Thanks.
Next question comes from Kamran Hossain from JPMorgan.
Hi. Good morning. The first question is on the U.S. expansion. Just interested in if you'd give a bit more color on how far along you are in the U.S. expansion versus where you want to get to. Just trying to work out how much of a tailwind it will be for 2027 and beyond. The second question is just on the special dividend. Just wanted to confirm that the approach will probably be similar to last year, that you announced a similar special dividend at the third quarter, evaluated the opportunities at 1/1, and then returned a little bit more capital with the full-year results. Just wanted to make sure the thought process going into 2027 looks roughly similar to that. Thank you.
Hi, Kam. I'll take the question on the U.S. expansion and where we are. I think, look, whenever we enter a new product line, we expect it to take at least three years to get up to maturity. If you think about it, we started with two product lines. I would say they're close to maturity based upon the current market conditions we're in, obviously. We then entered general casualty. It's about a year and a half now since we started that, so that's still building out. The more recent lines that we've added through the course of this year, really, they're only going to start. Some of them have started underwriting now, but 2027 is really going to be their first full year. So you will expect that U.S. operation to continue to grow and mature.
As I often say, it will very much be aligned with the market opportunity, and we'll very much be patient in the market environment that we're in. But what it's doing is creating a very solid base for us for when the market inevitably turns in any of those product lines. So ultimately, yes, that will continue to be an area that will grow within our portfolio, but it'll be very much aligned to the market opportunity.
I think as well, Kam, when we give our guidance for 2027, we will just give you a lot more color on the U.S. operation and what we are trying to achieve. As Paul said, the reason we have not really given much detail at this point is because we are still in build-out mode.
All right. Thank you.
Hi, Kam. I will take the second question on the special dividend. Yes, essentially, you are exactly right. We look at capital at Q3 post-wind season and see what we are comfortable with returning at that point. We always want to retain some flexibility going into year-end, the renewals, and the outwards purchasing, and then we will look again at capital at the next board meeting in the first quarter of next year. Exactly right, the process is similar to previous years.
Thanks very much, Natalie.
Next question comes from Alice Palumbo from Goldman Sachs. Please go ahead.
Good morning. Thank you for taking my question. My question is on growth. You mentioned in the release that you continue to hire talent, but this appears to be a departure from your earlier philosophy of shrinking when the market pricing weakens. Could you please help us understand how should we think about growth over the coming few years and the cost associated with these hires should the market soften beyond current expectations? Thank you.
Hi, Alice. I think where we can hire great talent, which obviously is as important as retaining great talent in our business, we are just going to do that. We have had a really good year of momentum where we continue to hire great people, and actually even some of the recent M&A is an opportunity for Lancashire. It just displaces people.
So where we can find great people and great products that diversify our book, and as you know, we have grown our diversification massively in this cycle. We are going to continue to do that. I think what will not ever change at Lancashire is how we manage the cycle. We are obsessed with the cycle, and we believe we have the skills and the talent to manage this stage of the cycle. But we do fully intend to continue to add people where we can and product where we can.
You should not expect, as the market softens, Lancashire to retreat as much as we did last time. But one thing that we will 100% do, we will reduce our risk levels, mainly through reinsurance, as the market softens. So the net outcome will be the same, but we just may look different in this soft market.
Super helpful. Thank you.
Your next question comes from Joseph Theuns from Autonomous. Please go ahead.
Hi there. Thanks for taking my questions. The first one I had was, I was looking to get a bit more color on the growth in the insurance book, and was wondering if you could kind of give an indication of how much of this was attributed to the new U.S. business, compared to maybe some of the other areas that you called out. So that's the first question. On the second, I was kind of wondering if you could give an indication of the level of reserves that have been put aside for losses related to the Middle East, and also kind of an idea of how this has progressed since Q2. Thanks again.
Hi, Joseph. I'll take the first question. Look, on the insurance lines, there's really been two areas where we have seen growth in premiums year to date. One is certainly the continued maturity of the U.S. operation, which you allude to, and we called that out earlier this year when we were giving guidance around, you would likely see growth there as those new lines continue to reach maturity. The second area, again, which I alluded to in my script, is there has been additional premiums come through in relation to marine war, given the ongoing conflict. So we've seen some benefit there. Elsewhere, things are relatively stable. Obviously, there's a few moving parts here and there, but they're the two drivers of what we've seen on the insurance portfolio year- to- date.
Hi, Joe. I will take the second question on the Middle East reserves. As you have seen from the release, any losses that we do have from the Middle East are certainly not material enough to disclose. As I said, our exposure remains relatively limited. We are underweight the Middle East. So although we do have some losses, they are definitely not material, and are not having a material impact on our reserves at the moment.
Understood. Thanks. If I might just quickly follow up on the response to the first question. Is it fair to assume that the drivers have been roughly equal, sorry, in terms of the insurance book, the increased growth between the U.S. business and the marine war? Is it roughly even?
Sorry, Joseph. We do not provide that split, so unfortunately, I am not going to be able to answer your question on that one. Apologies.
Okay. Thanks again for answering the questions.
Your next question comes from Will Hardcastle from UBS. Please go ahead.
Oh, hi there. Thanks for the opportunity. The first one, just to follow up on the marine. Just trying to understand, are these sort of just taking the opportunity because the industry pricing has changed, or are they sort of temporary one-off covers, sort of very specific conflict-related that, if the conflict eases, they would go away next year? Just trying to think about the sustainability of those. The second one's a much more bigger-picture question. Look, it seems cycle trends are very much at play, and pure follow capacity providers will likely be most vulnerable at this stage of the cycle. I guess, what are some of the things that Lancashire can differentiate itself relative to these players, ensuring maybe that terms, pricing, access to risk can hold up better than the market?
Hi, Will. I'll take the first question. Alex will take the second one. So on the marine, yes, it's very much the kind of-
The increase that we've seen is very much conflict-related, given the pricing terms and conditions have spiked quite dramatically, as you would expect, because the risk has increased quite significantly as well. Obviously, we start from a position of being relatively underweight, so we're able to underwrite more of that business, particularly given how we've seen the pricing change. Obviously, if the conflict were to end, then those opportunities won't be as prevalent. I'm not going to start trying to anticipate when the conflict may or may not end, but they are very much conflict-related, those premiums that we're seeing.
Will, on your second point, I think that it's a really good question because there's been lots of changes in our industry in recent years. People have very different strategies. I think our one is, we want to be an underwriter that has the best underwriters with great relationships with clients, so we want to be in that sort of alpha camp. We don't write the follow broker facilities, and that's not really something we're interested in. Obviously, some people think that's a great opportunity. That's not really what we're trying to achieve here. Equally, I think Paul made the comment earlier, you're at the stage of the market that's now softening. That's no surprise to us. We are obsessed with the cycle, so there's no surprises here.
But I think what it does tell you is, if you are going to write some of these trackers, if you want to call it that, probably the time to write the trackers is when the market is rock hard, and then you have really got to start underwriting as the market softens. The market is obviously softening now in various classes of business, exactly as Paul said, in every class of business.
Even the most obviously flagged difficult one this year is property insurance. We just would not be comfortable writing a tracker of these kind of classes as the market gets more difficult. We just think you have got to be more active when the market is softening. You definitely want to pick your trades. You have got to pick your way through the account. I do not see how you do that on a passive basis. It is not for us.
We know what we want to do. It is why we talk about talent so much. It is why we are obsessed with trying to get and retain the best people. But yeah, other people have different strategies, but the follow tracker passive strategy is not for us.
Thank you.
Your next question comes from Abid Hussain from Panmure Liberum. Please go ahead.
Oh, hi. Morning, everyone. I've got two questions. The first one is on casualty. I know it's only a quarter of a year since we last spoke, but is there anything worth calling out on the build-out of that book? The second one is on the U.S. build-out. Are you seeing any opportunities to accelerate the build-out, for example, M&A or team lifts in the U.S.? Thank you.
You do the first one.
On casualty, nothing materially different to what we spoke about last quarter. Our portfolio this year has been relatively stable, which is very much in line with expectations. As we always say, the casualty market's a very broad church, and there are lots of moving parts underneath it. We obviously write predominantly a casualty reinsurance portfolio, and we'll obviously try and maneuver that portfolio in line with where we think the better-rated parts of the market are. One of the key objectives on the casualty reinsurance book is making sure that we try to pick the right underlying clients and those that have historically proved that they manage the cycle appropriately and they have the best mechanisms in place to manage claims. That's how we believe we will manage the casualty cycle appropriately.
But we're very comfortable with the portfolio we have built, and as I say, it's been pretty consistent this year.
I think your question about the U.S., if I just take you back to the way we think about everything at Lancashire, is when we entered the U.S., it was all about, we would travel as fast as we could, but only if we can find the right people. We don't set ourselves hard goals on premiums or products or timing. It has to be when we can get the appropriate people. But then other times, a bit like buses, three come along at once, and we added three more product lines in the last sort of three to four months. I think our growth in that market is always going to be driven by the people we can find and the talent we can hire.
Again, like all of our product lines, there's products in our U.S. operation, again, property insurance, where we haven't written as much premium as we expected, and other lines that have done better. M&A for us, in general, same applies to the U.S. I can never say it's going to be impossible and we'd never do it, but I still think it's unlikely. Again, you have to be super disciplined about any M&A. What are we actually buying? Does it accelerate? Of course, we'd like to accelerate our U.S. operation. If we could find the perfect company to purchase, we would. But most things that are presented to us don't hit the hurdles that we have internally. Again, not impossible, but probably highly unlikely.
Understood. Thank you.
Next question comes from the line of Ben Cohen from RBC Capital Markets. Please go ahead.
Oh, hi there. Thanks very much for taking my questions. I had two, please. The first was on the higher investment yield environment that we're in at the moment, or sort of the shift up in yields that you've seen. I just wonder how that's changing your view of relative attractiveness as to where to deploy capital going into next year. Any sort of view in terms of casualty hurdle rates in particular? I guess a related question, just to be clear, in terms of your sort of returnable capital, as we saw with the special dividends. Does sort of unrealized investment losses here have any impact, or is there anything else we should think about from a yield point of view when we're thinking about the sort of size of capital returns that you might do through the rest of the year? Thank you.
Hi, Ben. It's Denise O'Donoghue. Yeah, definitely a higher investment yield changes your outlook in terms of if you're getting paid to go a little bit out the curve, which I think we need to see a little bit more stability, because I think rates have already moved back down slightly from the September 30th, which we've made back some of our losses, or our mark-to-market losses. But yeah, it definitely is an opportunity, depending on there's a lot going on with inflation and Middle East, et cetera, but we definitely see an opportunity to extend duration a little bit, which ties into your question about casualty, which we try to match those cash flows.
Yeah.
It makes sense to go a little bit longer.
Just to be clear on the casualty underwriting, Ben, we underwrite casualty on the basis that we believe that there's underwriting margin in it. We don't factor into account what could potentially happen on the other side of the balance sheet. Our underwriting focus is very much on margin within underwriting.
Hi, Ben. It's Natalie. On your question on returnable capital, obviously the unrealized losses do impact our capital position because they do hit shareholders' equity. Obviously, in a sense, they're not a real loss, and we expect that to unwind over time, which then will give us more capital available to return, should the unrealized losses unwind, which we expect they will do over time. Hopefully that helps with your second question.
Yes, thank you. Could I just follow up? I guess where I was getting to with the first question was as well, was in terms of the underwriting portfolio, does that And I'm aware that you're trying obviously to underwrite for an underwriting profit everywhere, but does that shift the relative attractiveness, if you like, of different lines, and where is that in your thinking at the moment, planning into next year?
I don't think it changes our view. I think the broader question for the industry is, with really attractive investment returns going forward, does that allow the underwriting climate to get weaker over time? The real answer is no one knows. But as I said, for us, we just don't really think that way. We think very separately on underwriting and very separately on investment returns.
Great. That's clear. Thank you.
Your next question comes from Daniel Wilson-Omordia from Morgan Stanley. Please go ahead.
Hi. Morning, guys. Thank you for taking my questions. I guess first question would be on how you are thinking about the mix between pricing and T&Cs from here. I think clearly the consensus is that the environment gets incrementally weaker next year, but the question for me is, do you think that pricing or the terms and conditions are more vulnerable here? Do you think that pricing is kind of at its limit and T&Cs could be the next kind of topic of negotiation, or do you think that T&Cs will hold quite firm into next year? It would be good to get your perspective on that.
In addition, just wondering if you could remind us how flexible you are on adjusting your reinsurance or retro buying next year, if you will continue to buy more retro if the opportunity presents itself, or you are happy with your current protections.
Yeah, those two for now would be great.
I think, let me just give you a flavor on question two. I think across the board, we are going to manage our underwriting portfolio. As earnings decrease, as the market softens for everyone, we will look to buy different forms of reinsurance. As our business is more diversified and broader, that gives us more opportunity. We have actually bought more reinsurance already for 2026, particularly on our cat portfolio. Yes, you are going to see us buying probably more reinsurance if the market continues to soften, which is what we expect. Obviously, with the portfolio we have, that gives us lots of different options. Also, Lancashire is a very different business to what it was the last time the market softened. Again, the products that we buy, products that we already buy actually, are different to what we bought in the past.
In the past, we pretty much bought, particularly on the non-marine cat side, we just bought retro. Already, we buy multiple products to protect our cat portfolio. Yes, you will see us buying more reinsurance as the market softens. Our ceded spend will probably change over time, as you would expect. As I said, everything is about managing the cycle. Everything is about making sure that you know how to navigate soft markets. We just believe that at this stage of the cycle, or this stage, the cycle for everyone in the next few years, you are going to be out to work out who can manage the cycle and who can't manage the cycle. Fundamentally, as much as the market always softens, there's always an opportunity.
Even now, everything we're doing today is to get us ready for the next turn in the cycle. If you think about what we've done last time, we managed the cycle down in a very different way that we don't have to this time. Fundamentally, we came through the soft cycle. We were ready to go for the hard market, and we've more than trebled our book. Already, we're thinking about the next opportunity and what we're going to do when that arises.
Daniel, on your first question, I think, yes, you're right. This year, I think across most product lines, if there's been a focus in terms of what clients are looking for, it's certainly been more on the pricing side than it has on the terms and conditions side. As we've said, we expect more competitive pressures in a number of lines as we move into 2027, and I still think price will be a big focus for buyers. As you move through any cycle into a softening phase, there will inevitably be some focus coming onto terms and conditions, and I'm sure in some product lines, that will be the case in 2027. Linking it back to what Alex has just talked about, that also means the terms and conditions we can get on our own protections, we will also have more options.
I think I've got one other point, Daniel, looking at. Let's be very clear about our view where we are. I do not think this is a soft market. I'm not saying it won't be a soft market at some point, because there always is. If you look at the aggregate rate you've had in most product lines versus the rate reduction you've given for the last two years, we're pretty comfortable where we are. As I said, I'm never going to say it won't turn into a soft market, but I still don't think we're in the softening phase. Your question about terms and conditions and pricing, you're at the phase where the brokers are asking for everything because they're trying to find where the market's at.
It is for the underwriting community to make sure they do not give the brokers everything they want at this stage of the cycle.
Very clear. Thank you.
There are no further questions at this time. I will turn the call back over to Alex.
Okay. Thank you, everyone, for your questions today, but we will close the call now.
This now concludes our conference call. Thank you all for attending. You may now disconnect your line.