Lancashire Holdings: Credit for lower volatility may come next quarter

研报英文原文证据摘录

Lancashire Holdings: Credit for lower volatility may come next quarter

Lancashire Holdings UBS Research

Credit for lower Volatility may come next quarter

Net Insurance Revenue earnings

headwind

While there were a number of moving parts within the 1H26 result (see here), the most

simple line to extrapolate to forward earnings was a -6% miss to cons. net insurance

revenue (-5% to UBSe). This would have a similar flow through to forward earnings

given the majority of earnings is driven by insurance service result.

While the gross revenue miss was not as significant (including lower inwards retro), a

large component of the net revenue miss is being driven by greater reinsurance/retro

protection being purchased, essentially taking advantage of the availability of cheaper

protection. We discuss below how this should be reflected with a lower cost of equity.

However, this perhaps only gets proven/credited over time, whereas the initial debate

will rest on analyst EPS changes. This is clearly more of a near-term headwind, and what

is in the initial share price reaction in our view.

We lower our net insurance revenue by -4% for FY26E, and -2% for FY27E/FY28E. The

group has reiterated that it expects its premiums and revenues to be broadly stable YoY,

though noting this comment relates to gross, not net.

We show in the chart below that Lancashire has exhibited strong cycle management in

the past in this regard. When overlaying its Renewal Price Index (RPI) with Lancashire's

net retention of gross premiums, we see that there is a strong correlation. Lancashire has

reduced retentions as prices soften, and retained more risk as prices hardened. There is

clearly scope for further retention reductions going forwards as prices soften, albeit we