The collapse of Baltimore’s Francis Scott Key Bridge was both horrific and deadly. Innocent people were killed, disruption persists and the repercussions spread far and wide.
Little more than a month after the disaster, the blame game has begun. City officials say the container ship that ploughed into the bridge outside Baltimore port was not seaworthy, and its crew were incompetent. The shipowners have invoked a law dating from before the US Civil War to try to limit their liability. The FBI has launched its own investigation and transport regulators are heavily involved as well.
It is an unholy mess, the cost of which will almost certainly run into billions. For insurer Lancashire however, an event such as this is almost business as usual. The company specialises in complex underwriting – providing cover 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 America and Australia too.
The shares are £5.86 and should increase in value, as Lancashire is highly profitable and should continue in that vein.
Horror toll: Calamities like the Baltimore bridge collapse are underwritten by leading insurers such as Lancashire
Most large-scale insurance cases involve numerous underwriters and Baltimore is no exception. The ship that crashed weighed almost 120,000 tons and was carrying 4,600 containers. Both vessel and goods will be insured, as will the bridge and surrounding infrastructure. Underwriters will have been chosen on the basis of the prices they offer and the service they provide.
Lancashire is smaller than many peers, with just 400 employees, but the group prides itself on keen pricing, smart risk management and true customer support. Chief executive Alex Maloney, 50, leads by example. Starting out in insurance at the age of 19, he has worked in the industry ever since, joining Lancashire just after it was founded in 2005 and assuming the top job ten years ago.
Large scale insurance is all conducted through brokers and knowing the right people is fundamental to success. Maloney has had plenty of time to build relationships in the places that matter and ensure his team do likewise. He has also focused on diversifying Lancashire’s business so the group has more customers in a wider range of industries and is less exposed to particular sectors.
The strategy has helped Lancashire to triple premium income over the past five years, doubling the number of products it offers and creating a larger and more resilient business.
Annual results for 2023 suggest that Maloney is on the right track. Premium income rose 17 per cent to $1.9 billion (£1.5 billion), large claims fell from $329 million to $106 million and post-tax profits soared to $322 million. The final dividend rose 50 per cent to 15 cents (12p) and a special 50 cent (40.2p) dividend was declared, the second such payout in just a few months.
Describing market conditions as the best in a decade, Maloney also announced a change in Lancashire’s future dividend policy, increasing the annual ordinary dividend by 50 per cent to 22.5 cents. That is likely to be supplemented by at least one 50 cent special this year too, with payments translated into sterling for UK shareholders, even though Lancashire’s results are in dollars, as the US currency dominates the complex insurance sector.
Disasters such as the Baltimore bridge collapse are likely to push marine premiums higher and climate change is raising awareness across the business community of the need for cover against storms, droughts and other weather-related events.
Rising interest rates have also boosted investment income and may continue to do so. As a dyed-in-the-wool insurance man, Maloney knows better than most that good times do not last forever but extending into different business areas should make Lancashire more resilient.
Once the company focused on energy, marine, property and aviation. Today, no line of business accounts for more than 20 per cent of total premium income and the group is involved in areas including private jet insurance, regional hotel chains in America, even equipment used by charities overseas.
Most employees own shares as well so they are motivated to deliver results.
Midas verdict: Lancashire’s premium income has more than doubled and profits have risen eight-fold. Yet the shares have fallen from £8.50 to £5.86, hit by fears about turmoil in the Middle East and war in Ukraine. These seem overdone, given that Lancashire is in the business of risk and has proved its mettle over many years. Decent dividends boost the stock’s appeal. Buy and hold.
Traded on: Main market Ticker: LRE Contact: lancashiregroup.com or 020 7264 4000
