Lloyd’s Insurer Lancashire Holdings Raises US$352M to Target Hard Market Opportunities
Lancashire Holdings Ltd. has completed an equity capital raise of approximately £277 million (US$352 million) through the placement of new common shares.
The Lloyd’s insurer said it intends to use the proceeds of the placing to fund organic growth and take advantage of rate rises that the company is currently seeing across the majority of its business lines.
The insurer said its long-term strategy is to deploy more capital into hardening markets, where prices have strengthened due to market capital constraints, while lowering the amount of capital it deploys in softer markets, where pricing is weaker due to an over-supply of risk capital.
Lancashire’s capital raise follows on heels of other insurers in the Lloyd’s market, including Beazley and Hiscox, which raised money last month.
Lancashire explained that the recent COVID-19 pandemic has generated re/insurance market losses in terms of claims and the negative impact on the investment markets. As a result, there has been a retrenchment in re/insurance market risk capital and capacity, which has led recently to continued rate increases in many of the Lancashire’s core insurance segments.
For example, the company has seen, to date, rate rises of 20%-30% for June 1 renewals in the Florida property catastrophe portfolio,” said Lancashire, which expects the momentum of rising rates to continue in this and other classes of business across its portfolio during the rest of this year and throughout 2021.
“Whilst Lancashire remains strongly capitalized and has sufficient capital headroom to take some advantage of the current rate momentum, the rapid increase in rates and dislocation in reinsurance and retrocession markets that are currently being witnessed imply a return to a traditional ‘hard’ market over the next six to 12 months,” the company continued.
The share placement and resulting increase in capital “will allow Lancashire to take full advantage of this market opportunity, if it
develops in the way Lancashire considers likely.”
A total of 39.6 million new common shares were placed at a price of 700 pence per share, raising approximately £277 million. The placing price represents a discount of 3.6% to the closing share price of 726 pence on June 9. 2020. (On June 9, when it announced the capital raise, Lancashire estimated that it would raise gross proceeds of approximately £287 million, or approximately US$365 million).
Further, the placing shares amount to approximately 19.5% of the existing issued common share capital of the company prior to the placing.
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