Home Money MIDAS SHARING TIPS: Premium income doubles and profits increase eight-fold as Lancashire insurer has disaster cover

MIDAS SHARING TIPS: Premium income doubles and profits increase eight-fold as Lancashire insurer has disaster cover

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Horrific toll: Calamities like the Baltimore bridge collapse are backed by leading insurers like Lancashire

The collapse of Baltimore’s Francis Scott Key Bridge was both horrific and deadly. Innocent people were killed, the disruption persists, and the repercussions spread far and wide.

Just over a month after the disaster, the blame game has begun. City officials say the container ship that crashed into the bridge outside Baltimore Harbor was unseaworthy and its crew was incompetent. The shipowners have invoked a pre-Civil War law to try to limit their liability. The FBI has launched its own investigation and transportation regulators are also heavily involved.

It is an appalling disaster, the cost of which will almost certainly run into the billions. For insurer lancashire However, an event like this is almost normal. The company specializes in complex underwriting – providing coverage against disasters, from storms and earthquakes to oil spills and plane crashes.

Formed in the wake of Hurricane Katrina in 2005, Lancashire has become a leading player in its field, operating out of Lloyd’s of London and Bermuda, with offices in the United States and Australia as well.

The shares cost £5.86 and should increase in value as Lancashire is very profitable and should continue in that vein.

Horrific toll: Calamities like the Baltimore bridge collapse are backed by leading insurers like Lancashire

Most large-scale insurance cases involve numerous insurers, and Baltimore is no exception. The ship that crashed weighed almost 120,000 tons and was carrying 4,600 containers. Both ships and goods will be insured, as will the bridge and surrounding infrastructure. The insurers will have been chosen based on the prices they offer and the service they provide.

Lancashire is smaller than many of its peers, with just 400 employees, but the group prides itself on good prices, intelligent risk management and genuine customer service. Chief executive Alex Maloney, 50, leads by example. He started in the insurance sector at the age of 19 and has worked in the industry ever since, joining Lancashire just after it was founded in 2005 and taking on the top role ten years ago.

All large-scale insurance is done through brokers and knowing the right people is critical to success. Maloney has had plenty of time to build relationships in big places and make sure his team does the same. He has also focused on diversifying the Lancashire business so that the group has more clients across a wider range of industries and is less exposed to particular sectors.

The strategy has helped Lancashire triple premium income over the past five years, doubling the number of products it offers and creating a larger, more resilient business.

The 2023 annual results suggest Maloney is on the right track. Premium income rose 17 per cent to $1.9bn (£1.5bn), large claims fell from $329m to $106m and after-tax profits soared to $322m. The final dividend rose 50 per cent to 15 cents (12p) and a special dividend of 50 cents (40.2p) was declared – the second such payment in just a few months.

Describing market conditions as the best in a decade, Maloney also announced a change to Lancashire’s future dividend policy, increasing the annual ordinary dividend by 50 per cent to 22.5 cents. This year is also likely to be complemented by at least a 50p special offer, with payouts translated into pounds sterling for UK shareholders, even though Lancashire’s results are in dollars as the US currency dominates the complex insurance sector.

Disasters like the Baltimore bridge collapse are likely to increase marine premiums, and climate change is raising awareness throughout the business community about the need for coverage against storms, droughts and other weather-related events.

Rising interest rates have also boosted investment income and may continue to do so. As an insurance expert, Maloney knows better than most that good times don’t last forever, but branching out into different areas of business should make Lancashire more resilient.

The company once focused on energy, marine, property and aviation. Today, no one line of business accounts for more than 20 percent of total premium income and the group is involved in areas including private jet insurance, regional hotel chains in the United States and even equipment used by charities abroad. .

Most employees also own shares, so they are motivated to generate results.

Midas Verdict: Lancashire’s premium income has more than doubled and profits have increased eight-fold. However, shares have fallen from £8.50 to £5.86, hit by fears over unrest in the Middle East and war in Ukraine. They seem far-fetched given that Lancashire is in the risk business and has proven itself over many years. Decent dividends increase the attractiveness of the stock. Buy and hold.

Traded in: Main market Heart: LRE Contact: lancashiregroup.com or 020 7264 4000

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