Lancashire Holdings Stock

Hello, and welcome to the Lancashire Holdings Limited Q2 2026 Earnings Call. [Operator Instructions]

Today, I am pleased to present Alex Maloney, CEO. Please go ahead with your meeting.

Okay. Thank you, operator. Good morning, everyone, and thank you for everyone who joined our call today. As usual, I will start with the highlights of the 6 months before handing over to Paul and Natalie to provide more details behind the results.

Overall, this has been a strong 6-month period for Lancashire, with broadly stable income and an attractive annualized ROE of nearly 20%. This means Lancashire is well-positioned to manage and capitalize on the next phase of the insurance cycle. At Lancashire, underwriting comes first, and we have a focus on disciplined, profitable growth from a diversified portfolio. You can see the results of this approach in a broadly stable gross written premiums compared with a year ago, and an undiscounted combined ratio of 91%.

Importantly, we continue to invest in our franchise to diversify our underwriting opportunities. Notably, with planned expansion in U.S. product lines, including inland marine, financial lines and environmental liability. And of course, we remain open to opportunities to further build on our highly successful underwriting team. We have made this targeted investment while keeping costs firmly under control, meaning that profit after tax increased by 30% to $142 million and we delivered an annualized ROE of 19.6%.

Now thinking about the current environment, let me give you some high-level thoughts on where we are in the cycle. As we have seen, pricing across many lines started to soften 12 months ago, and in some cases, this trend has accelerated in early 2026 as the industry capacity remains abundant. It is important to stress that conditions are not the same everywhere. For example, the pricing pressure appears most acute in property insurance, but there is currently less pressure on casualty lines. This makes diversification important.

At Lancashire, we have a very experienced team who have successfully navigated cycles before. And our underwriters are incentivized to deliver appropriate returns whilst remaining relevant to clients. Although others may be tempted to push for growth at any price, it is in our DNA to manage the cycle in a disciplined way. And of course, we are active buyers of reinsurance. So in this market, we can manage our net exposures through more efficient reinsurance programs. Therefore, with the tailwind of a good 6 months financial performance, prudent reserves and a consistently strong capital position, I am confident that we enter the next phase of this cycle in robust shape, and we will be able to deliver resilient, lower volatility returns for our shareholders. With the usual caveats regarding the U.S. wind season, I'm happy to reiterate that we expect to deliver a high-teens return on equity in the current financial year.

I will now hand over to Paul to provide more details from our underwriting results.

Thanks, Alex, and good afternoon, everyone. As Alex has just mentioned, it's been a strong underwriting performance in the first 6 months of the year. The underwriting business we've successfully built over the past number of years was designed to withstand challenges whilst delivering appropriate returns for our stakeholders. Last year, we withstood the impact of the large California wildfires, and this year the challenges have been very different; a softening, more competitive marketplace, plus the outbreak of war in the Middle East. A broad and more diversified portfolio and ability to adjust quickly to market conditions allows us to deliver these robust underwriting results. We have the flexibility to adjust risk appetite within product lines as the market environment changes. This allows us to manage the cycle whilst maintaining relevance to our clients and brokers.

We've continued to strengthen our underwriting team with new underwriters and product offerings across multiple distribution channels, further strengthening our franchise value. We'll continue to attract and retain high-caliber underwriters and we'll strengthen whenever we find the right underwriting talent. With these new lines, we are prepared to be patient in their build-out. There will be no unrealistic expectations. The only expectation is that we underwrite any line of business in line with the current market conditions. And as I will explain, not all product lines are moving in the same direction or at the same pace. We have demonstrated repeatedly over the years that we adjust risk appetite and deploy capital as market conditions evolve. This discipline remains central to Lancashire's underwriting culture.

We guided to a broadly stable top line, and we remain on track to deliver this. Underlying this, however, there are a number of moving parts. There's no arguing that we're in a softening market with most product lines demonstrating varying degrees of softening. As Alex has mentioned, at the sharper end of the softening are the property lines, with casualty lines far more stable. However, importantly, adequacy does remain across the majority of classes. In certain areas, there is definitely a real need for underwriting discipline, risk selection and the willingness and confidence to walk away from business if adequacy thresholds are not met. That said, there is still plenty of good business with healthy adequacy, but there is now far more need for increased scrutiny as to what that business is.

This is the stage of the cycle that underwriters need to earn their money. We have previously signaled we have strategically reduced our inward retro footprint. A decision driven by the intention to manage earnings volatility and natural catastrophe exposure as we move through this phase of the cycle. Offsetting this has been our increased share of Syndicate 2010 following the buyout of names capacity, the continued maturity of Lancashire U.S., plus some elements of growth in certain specialty lines, both insurance and reinsurance.

A number of specialty insurance classes we have seen increased demand for cover and significantly higher pricing for war related exposures, resulting in some additional premium opportunities. More generally, while pricing is moderating, we continue to see increased demands and attractive opportunities where expected returns remain commensurate with the risk assumed. We are happy to reiterate our premium guidance of broadly stable, albeit as always with us, the usual caveat will be we are not driven by top line targets, only market conditions and underwriting profitability.

As we've previously stated, we look to manage our natural catastrophe footprint as we move through the cycle. Our PMLs for major perils and territories are trending downwards. There 2 two primary drivers of this change; the aforementioned downsizing of our inward retro portfolio and the greater use of efficient reinsurance. As market conditions evolve, we are increasingly focused on maximizing risk adjusted returns. The reduction in PMLs reflects this disciplined portfolio optimization rather than lack of underwriting opportunity. In fact, in our property catastrophe portfolio, we've been able to grow with many of our core clients, but manage this growth with some judicious reinsurance purchasing.

In conclusion, we are very happy with the first 6 months of the year. Yes, market conditions are more challenging than they've been for a number of years. And yes, there have been some challenges to navigate, such as the ongoing war in the Middle East. Yet, we have delivered strong underwriting results, stable top line, managed our risk levels and continue to build our bench of underwriting talent and product offering. Lancashire was built for changing market conditions. The first half demonstrates that we continue to generate attractive underwriting returns, actively manage risk and allocate capital where we see the best opportunities for our shareholders.

I'll now hand over to Natalie.

Thanks, Paul, and good afternoon, everyone. We've delivered a strong and resilient first half with $142 million of profit, resulting in a 19.6% annualized return on equity, a clear demonstration of the earnings power of the business, even in a relatively active loss environment. I'll highlight 3 key points from the half. First, our underwriting performance remains robust. Despite global instability and a number of risk losses, we have delivered a 91% undiscounted combined ratio, reflecting both the quality of the portfolio and our continued focus on disciplined underwriting and overall profitability. Second, our earnings profile is increasingly resilient. The scale and diversification of the business allows us to absorb volatility in a loss environment while still producing attractive returns for our shareholders. And thirdly, we remain very well positioned from a capital perspective. Our balance sheet continues to provide flexibility to support the business while maintaining our focus on return on capital and disciplined capital management.

Turning to our financial performance. Insurance revenue for the first half is flat compared to 2025. As we highlighted previously, we continue to benefit from the earning through of a significant premium growth delivered in prior years. The current year also reflects a more stable level of written premium. The allocation of reinsurance premium is $28 million higher than 2025. Outwards reinsurance spend has increased as we have taken the opportunity to expand quota share protection, supporting both capital efficiency and earnings stability.

Our undiscounted combined ratio for the period is 91%. This reflects continued strong underlying performance across the portfolio, including the impacts of current accident year losses, particularly relating to the war in the Middle East, which we have absorbed within our expected large risk budget. Prior year reserve releases are lower than the first half of 2025. This is primarily driven by some deterioration on the Baltimore Bridge loss, which has reduced the level of releases recognized in the period. We also recognize $15.2 million of other income this period, primarily relating to consortia fees. Around half of this is one-off in nature.

Our operating expense ratio is marginally higher than 2025 at 9.2% compared to 8.8%. We now take 100% of the Syndicate 2010 expenses due to the names buyout and continue to invest in the business, increasing head count and associated costs. Operating expenses are running in line with expectations, and I can confirm that the previous guidance that the quantum of operating expenses will be comparable to 2025 remains appropriate. Overall, the underlying performance of the business remains strong and consistent with our expectations for the portfolio.

The next slide has further detail on the claims environment and our reserving. The loss environment in the first half has remained active. We have seen a number of large risk losses and activity linked to the Middle East conflict impacting the current accident year. Large and cat risk losses totaled $60 million. Importantly, all losses recorded are within our risk appetite. And the diversification of the portfolio continues to allow us to absorb these events without materially impacting overall profitability.

On reserving, our confidence level of 85% is in line with recent periods. This represents a net discounted risk adjustment of $287 million or 14.6% of total net insurance contract liabilities. There have been no changes in reserving assumptions in the period. Our stated preference to maintain the confidence level between 80% and 90% underpins our ongoing ability to release loss reserves from prior years.

Prior year favorable development totaled $22 million in the first half. This reflected favorable development on older catastrophe losses and releases of 2025 IBNR, partially offset by adverse development on the Baltimore Bridge claim. We have now fully reserved the claim and have no remaining exposure beyond the established reserve. Excluding Baltimore Bridge, reserve releases would have been more consistent with our long-term experience. Bear in mind that the $109 million of reserve releases recognized in the first half of 2025 reflected an unusually high level of favorable developments on prior year catastrophe events. The net discounting benefit was $46 million in 2026 compared to $19 million in 2025. We benefited from an increase in rates in the period across all our major currencies.

And now turning to investments. Investment income of $78 million was at a similar level to 2025. Total investment returns for the first half are lower than in 2025, reflecting a less favorable market backdrop compared to the prior year, which has resulted in just under $30 million of unrealized investment losses. The portfolio continues to perform in line with its core objectives of capital preservation and liquidity, and remains conservatively positioned with a focus on high credit quality and short duration.

On capital, our capital position remains strong. We continue to maintain significant headroom above regulatory and rating agency requirements, providing resilience to potential volatility and flexibility to support future underwriting opportunities and capital management decisions. I am happy to announce our usual interim dividend of $0.075 a share, an aggregate payment of around $18 million. Overall, this is a strong first half performance. We have delivered a solid underwriting result, resilient earnings despite an active loss environment, and continued capital strength. This reinforces our confidence in the underlying performance of the business and our ability to deliver attractive returns through the cycle.

With that, I'll hand back to the operator to take questions.

[Operator Instructions] Your first question comes from Shanti Kang with Bank of America.

The first one was just on the premium top line. I think that was down 3% year-on-year, and I understand the book actions that you mentioned. Into the second half of this year, where are you expecting to pick up a bit more volume to kind of makeup that broadly stable top-line guide that you have?

And then the second question was really on casualty. You mentioned better pricing conditions in casualty. But last week, some of the large U.S. names had a pretty cautious stance on casualty and particularly on general liability reserves. In some places that was strengthened even on earlier years. I know that you booked the reserves at 100% combined ratio and you entered the market relatively recently. But how can we get comfortable with that booking at that level even given the loss cost trends arising? That would be helpful.

Shanti, it's Paul here. I'll take those questions. On the premium point, I'd just obviously remind you that ex reinstatement premiums, which were obviously quite significant in the first half last year with California wildfires, the actual underlying is minus 1%, which I would certainly categorize as broadly stable. And as I said in my script, we're happy with that guidance. Again, and I'll always do this, I'll always reiterate we're not being driven by top line here. That's our expectation, but we'll adapt to market conditions. But we're happy with the broadly stable on an underlying basis.

On casualty, again, just to slightly clarify the comments. We're not saying we're seeing improvement in casualty. What we're saying is it's the more stable when it comes to rate change year-on-year. Certainly, more so than you're seeing in some of the property lines that are seeing some more significant softening. So our comment is around rate direction. But what I would say, and again, you mentioned this quite rightly, obviously, we've reserved our casualty portfolio very prudently since we've entered that class. I can't obviously talk about other peers, but I'm pretty sure not many have been reserving at that level of loss ratio. What I can reiterate, as we've said previously, we're very comfortable with the reserve position we're taking, and we still believe over time that the underlying business that we've written, there is margin there, which we will realize over time.

Look, the casualty market is a very broad church. And there's a lot of different classes of casualty within our casualty reinsurance portfolio. And whilst our premium has remained relatively stable over the last few years, there's a lot of changes underlying that, and that's very much in line with market conditions on the underlying book. So undoubtedly, in some areas of the casualty market, there is more challenge from a pricing perspective and price and adequacy perspective. And then there's some other areas where we still feel that there's good margin, and we're just trying to adjust our book accordingly.

That makes sense. Could I just quickly follow up on the first question? I was just curious, maybe into the second half of the year, just where you think there's more volume or rate pickup, just on the premium side, maybe directionally where you're looking to deploy capital.

Look, the second half of the year, I'm definitely not saying we're going to see rate pickup in the second half of the year. We're definitely in a phase of the market where there's softening. Our view is that we can remain broadly stable from a top-line perspective in the second half of the year. The second half of the year is more kind of specialty insurance dominated. A lot of the reinsurance classes, particularly on the property side, have already been underwritten. And looking at the market as we see here now, yes, there will be rating pressure in some of those lines, but we think we can still maintain broadly stable top line.

Your next question comes from Will Hardcastle with UBS. Your line is now open.

As you mentioned, the PMLs have reduced significantly. How do we think about that in terms of capital requirement reduction? Is there a rule of thumb type calculation you can help us on about that impact? And within that, how much of the added protection has been acquired in traditional reinsurance markets versus alternative?

And a second question. It looks to me that if I take the Gulf of Mexico hurricane exposure, think about where that is as a percentage of your tangible capital relative to history. We're probably about a cross-cycle level at the moment. I guess just wanted to sort of relay that with yourselves and wonder if that aligns with your view. And therefore, if this market continues to soften in this environment, do we think there's a reasonable amount more that we can reduce this number by? Thank you.

Will, it's Natalie. Thanks for the questions. I'll take the first part of your PML question, and then Paul is going to jump in on the second part. So yes, the PMLs have significantly reduced at the 30th of June compared to the 31st of December, which were the previously published PMLs. I think one thing for you guys to note, though, is that the rating agency on the regulatory capital models that we do at the beginning of the year are based on the 1st of January PMLs, and they would include a lot of the reductions that you've seen now published at 30th of June because it includes the 1st of January reinsurance purchases and 1st of January renewals. And so it's almost that the published PMLs at 30th of June are slightly lagging what we have submitted for the rating agencies and the regulators at beginning of this year. So hopefully that makes sense.

I can pass over to PG for the second part.

Just quickly on that point. Can I just check, is that the rating agencies, but what about the BSCR, your calculation that you provided at the full year? That's already incorporated that. Is that what you mean?

Yes, that's already incorporated. A significant part of that. The models are more forward-looking. If you think about it that makes sense from a capital perspective.

Will, on the traditional versus non-traditional reinsurance, the vast majority of our reinsurance purchasing remains traditional reinsurance. We do have elements of non-traditional with partners that we've traded with for a number of years through cycle, but I can confirm that the majority is traditional. And then more about your question on direction of PMLs. We've obviously seen a reasonable jump down in the last 6 months. I think -- I mean, I'd need to go back and check in terms of where we sit historically, but I don't think you're 1 million away.

Looking forward, I think that it will depend on what happens in the market. There's a long way to go between now and the 1st of January. But as you'd expect from us, we'll continue to manage the cycle. And as we said before, the one benefit of a softening market is the availability and efficiency of reinsurance. And as you can see, we've started to use that lever. That's not saying we will necessarily see the same jump down in PMLs, but directionally, if the market continues along this path, then we will definitely be looking to manage our catastrophe exposure.

One quick caveat on that is obviously, to be fair to you, the only numbers you really see to look at our catastrophe exposure is these PMLs. But we obviously manage our business at all parts of the return period, and you don't necessarily get to see that. So these are good directionally from a number point of view, but they don't always show you the whole story.

Your next question comes from Vash Gosalia with Goldman Sachs. Your line is now open.

I have 2, please. One on your combined ratio. And I appreciate from the outside, it's a little bit difficult for us to really understand what's going on, but would love to get some color from you as to how much of the combined ratio movement in this half has been due to the reserve strengthening that you've done for the Baltimore Bridge. And how much of it is just an effect of rate softening? That's the first one.

The second one, just following some of the comments you made to the first question, and something that I noticed in your release about you using reserves to manage the business cycle. Could you just give us a little bit more color on this particular comment? As in, how should we think of reserve releases? I appreciate in the past you have said the 5-year mark, but we're getting quite close to it with the cycle softening. Could you just give us some quantitative indication on how much is there? When could we expect it?

Vash, it's Natalie. I'll take the first question on the combined ratio. I think are you comparing this to the guidance and asking why we're coming slightly higher than guidance? If that's the case, I suspect that is to do with a deterioration on the Baltimore Bridge claim, which has impacted our prior year releases for this half, and they're probably therefore slightly lower than people were expecting. The underlying performance of the business is exactly in line with what we'd expect, and there's nothing worrying going on there. So we're perfectly happy with the underlying combined ratio. That's completely in line with expectations. And then on the casualty...

Sorry, just on the -- are you able to give us a little bit of color on how much was reserved for Baltimore? Is that something you're not willing to share at this stage?

Yes. We're not sharing that information because it's not a material enough number to disclose at this point.

On the casualty reserve point, Vash, I think, yes. What we've said since we entered casualty was the earliest we would look at our casualty reserving would be 5 years. We entered the class kind of halfway through 2021. I'd obviously say even if we did it at the 5-year point, which would be the earliest point we would look at it would be for a very small part of the overall premium given we only really underwrite for half of that year. So we're not at the point yet. We're obviously getting closer. There's a little way to go yet.

Your next question comes from Kamran Hossain with JPMorgan.

So in terms of the 1 in 100 PMLs, there is -- you've clearly brought these down. On an annual basis, is there anything that we should think about in terms of the annual budget? I know you don't have a formal annual budget, but should we assume that cat losses on an annual basis having reduced to retrocession, et cetera, should be lower relative to premium?

And the second question is on the comments Alex made in the statement around kind of what you've got to help yourself out in the soft cycle. You mentioned strong capital base, I think we all understand that. But you also called out robust reserves. I guess looking forward, if the cycle -- not if, I guess as the cycle continues to soften, would you expect reserve releases to maybe pick up a little bit, particularly if the -- as a percent of revenue, particularly if the top line does decline a little bit?

Kamran, we missed the first part of your question. I'll answer the second question, and then if you can rephrase the first part of your first question.

Sure.

I think, look, if you think about where we are in the cycle, what I'm trying to say is we are huge believers in the cycle in our world, you and can see the cycle turning and all the data is there. All we're saying is that we are a bigger business today than we've ever been. One thing that hasn't changed is we've always had very conservative reserves. So we've never had a year where we haven't had positive reserve releases. You can see that in our history. And so therefore, we haven't changed our reserving practice. We believe there's margin in the casualty book. So we think over time there will be reserve releases which will help our earnings through the more skinnier years. And we just think that's a really conservative way to run our book.

And if you go back to all the questions about casualty or the comments from some of the U.S. carriers about casualty, again, that just backs up our view of why we reserve our casualty book the way we do, because we just don't want to have those years that some others have had. So we have been planning for the market to soften ever since the market hardened in '18, as crazy as that sounds. And as we go into the softer part of the cycle, which clearly we now are seeing across most classes of business, we just think conservative reserves will help our earnings through the next stage of the cycle. And everything we're trying to achieve is to have a better cross-cycle return for our shareholders, and that's one of the things we can use to achieve that.

Let me try again on the first part of the question. so in terms of -- you brought down the 1 in 100 PMLs. So clearly kind of reducing kind of the retrocession business that you're writing. On an annual basis, I know you don't have an annual cat budget that you disclose to the market. But on an annual basis, would it be right to assume that your cat loss as a percentage of revenue should be lower because of the changes you've made? So I know it's very theoretical, but that was the first question.

No, I think that's -- I'll take this, Kamran. I think if you think about -- you're going in the right direction if you think about the moving parts. So you're right, we've reduced our inwards retro portfolio. As you've seen, we've increased our use of reinsurance, and that certainly applies to the catastrophe lines of business. You can see that's manifesting itself through the PMLs, but also not just those numbers. Our footprint will be on a net basis shrinking as we move into the next part of the cycle. Obviously, our earnings are not what they were in the last 3 years. But as Alex has said, we're very much in the phase of we're actively managing the cycle. Yes, there are still some really good returns to be had. But we need to carefully manage as we move through this phase of the cycle, and those actions that we've taken are just aligned to that.

So another thing, I think that we're definitely more diversified than we've ever been. You saw that last year. So by definition, our earnings are not as volatile compared to they were in the past around cat risk. We are buying better reinsurance. And as Paul said, we are at the stage of the cycle where we're actively managing our underwriting, we're actively managing our capital. And as we've said many times, efficient reinsurance and better products is the way we do that, and we'll continue to do that if the market continues to soften.

The next question comes from [ Joseph Theuns ] with Autonomous.

The first is just kind of looking through a slide deck on the appendix, Slide 17. I suppose I'm a little surprised to see the property reinsurance premiums kind of holding stable, and sort of casualty maybe shrinking slightly. Just considering some of the comments that you've made today about sort of where rates are on pricing and things. Can you kind of give us a little bit of flavor as to where you're growing in this sort of property segment in reinsurance? And perhaps also sort of tie to that why casualty has sort of shrunk, considering it's got some of the better rates on offer in the book?

And the second question is around the loss ratio in the reinsurance book. Just given the benign net cat environment, sort of surprised the loss ratio isn't a bit better. Sorry if that's a bit cheeky. But just given that it's sort of higher than some of the previous years we've had, with also benign net cat experience, is this kind of the soft cycle effect kicking in or are there any losses that you can call out that sort of really maybe that we maybe didn't factor in or weren't aware of?

Joseph, I'll take the first question with regard to the property reinsurance and the casualty. Quickly on the casualty, to be honest, we expect our book to be pretty stable this year. It's more of a timing things and nothing really to see there. On the property side, we obviously -- a lot of our property business is effectively catastrophe business, and we look at what we want to do with our catastrophe footprint. Where we get that from, we get that from the retro portfolio, which we've already talked about, and we've been shrinking that. We get it from the property reinsurance portfolio. We also get it from the property insurance portfolio. Obviously, the conditions are well known in the property insurance portfolio. They are pretty challenging at the moment, albeit there is still some good business to be had and some good out of scheme in areas, but it's more challenging.

On the property reinsurance side, yes, the market is softening, but coming from an incredibly high base. We have not seen material impacts on things like retentions. There was a lot of progress made kind of from '23 onwards in terms of the retentions that clients were taking on the property reinsurance portfolio. We've also seen a number of property reinsurance clients buy more limits. So there's been opportunity to grow those core clients, which I mentioned in my script. So of all the catastrophe exposed areas, we've seen more opportunity in property reinsurance. And also, as you know, we've been able to buy quite comprehensive retro protection on that property reinsurance portfolio. So from a net basis, makes a lot of sense.

So hopefully that gives you some good color there.

Joe, on your second question, the loss ratio in reinsurance, there isn't anything to worry about in that class of business. Obviously, that includes the casualty reinsurance, which we're still reserving at 100%, but it also includes the significant portion of the Dali Baltimore Bridge claim as well, which is actually a reinsurance claim to us. So that's potentially the movement in there that you were missing.

The next question comes from James Shuck with Citi.

I had 3 questions, if I can. The first question, just around the, I believe at full year you mentioned that you expected stable reinsurance spend in dollar terms in 2026. Just trying to square that with what's happened on the PMLs and the fact that the reinsurance allocated premium or the insurance allocated premium at 1H was actually up 14%? That's the first question.

And secondly, thank you for the color around kind of the rating agency view of capital at the start of the year, and you've been clear that that was prospective looking as well. I just wanted to be clear that the capital management decisions at year-end did take into account the fact that you would be lowering the PMLs. So, i.e., that special dividend was prospective and resetting your excess capital based on that view.

And then finally, if I can, just the other income line, there was a bit of a jump up in that. It was profit commission on the aviation and construction lines. Is that kind of exceptional or how should we think about that line going forward? It's a fair jump, and I'm just keen to understand how sustainable that would be.

James, on the reinsurance piece, yes, we said kind of broadly stable reinsurance spend, albeit trending upwards as we moved through the cycle. And there's a couple of things here. As we're moving through the cycle, there's been some opportunities to buy reinsurance that we believe will give us a better, more stable result. And then as we've also mentioned, we have bought more quota share this year than we ever have done historically. And if we've had opportunities to underwrite attractive business on the front end more than we thought, and that has quota share attached to it, then that can move premiums, so it becomes a little bit more difficult to guide. But look, overall, and again, we said this on the last call, as we move through the cycle, you would expect our reinsurance spend to increase just as by the same token, and as we went through the harder cycle, that reinsurance spend decreased.

James, it's Natalie. I'll take the last 2 questions. On how we make capital decisions, we obviously always look at least 6 to 12 months out, and we have a team that run the capital models prospectively looking out across that time horizon. So when we are making any form of special dividend, we're always looking forward. So we would have taken into account the PMLs that you're seeing at the moment, but also any other changes that might impact capital in the future year. And so that is taken into account. I hope, does that make sense?

It does, but I'm still struggling to square that with the stable reinsurance spend that you mentioned at full year at the same time that you were making the capital management decisions because you've obviously reduced those PMLs more than was expected at full year when the special dividend was decided. So just trying to square those 2 comments.

Yes. So I suppose the outwards reinsurance that we buy to manage capital is slightly different from some of the quota share reinsurance that Paul's just been talking about. So where we are managing capital, you're talking at much higher return periods, and we would have factored all that spend in. Whereas the quota share reinsurance is more of an earnings protection. It's more like reinsurance for 2 different reasons. So the reinsurance that was more like capital protection reinsurance would all have been factored in at the year-end special dividend decision.

Okay, okay. And then just on the other income point.

Yes. On the other income, that's related to consortia fees that we're generating mainly in the London business. It's a reflection of how we're able to lead markets in London, and it's something we are looking to do more of in the future. Having said that, about half of the recognition in the first half of this year was a one-off. So for the time being, I'd be modeling about half that going forward, and we can update more when we give full year guidance for 2027.

I think you did mention that earlier, but I missed it.

Yes.

Thank you. The next question comes from Abid Hussain with Panmure Liberum.

I've got a couple of questions left. The first one is on cycle management. Are there any implications in this soften cycle versus the previous one from the fact that you now have a more diversified book of business? or do you just simply trim if pricing is inadequate? It is a simple decision. I'm really thinking here of, for example, of the casualty book, which creates some positive asset leverage. And so that must be part of the equation in how the book evolves. So just sort of any more color around your thinking of how the book evolved this cycle versus on previous cycles.

And then the second question is on growth versus capital distribution. Should we now expect a balance between the growth and distributions to tilt further from this year onwards, obviously towards distributions?

So I think on point 2, Abid, I think that we're always going to manage the cycle, and we always underwrite the opportunity in front of us. So I think it's fair to say, and you've seen it from peers as well, the level of competition has definitely increased in Q2. There's abundance of capital and confidence in the sector, and that just means it's harder to grow. Now clearly, we are growing some product lines because our premiums are flat.

I think it is fair to say if the market continues to soften, and hopefully we make good returns, and we're very confident our returns cross cycle are better because we're a better business today and diversified business, it's fair to say you will see more distribution of capital if we can't find opportunity to grow our business. And obviously things can always change, and we are in wind season and something always does change, and that's why the market's cyclical. But until that day comes, we will be disciplined. And this is the stage of the market where you have to underwrite, you have to be disciplined, you have to incentivize your underwriters to underwrite the correct way. And we believe not everyone will do that, but we will do that, and we will manage the cycle like we always do.

Just quickly on your first question around managing the cycle and how it may look different this time around. I think there's a couple of key points to make. We definitely believe in managing the cycle, as you know. So we'll definitely look to manage our risk levels so that they're appropriate for the point of the cycle that we're at. And we definitely will be looking to make sensible underwriting decisions. I think if you think of us now as a far more diversified portfolio than we've ever had. So that might mean you see a slightly different Lancashire in this softening market than last.

So clearly not all, and we've spoken about this today, not all classes of business move in the same direction or even at the same pace. So that's going to lead to probably a more stable top line than you'd have seen previously. And the options because of that diversified portfolio that we have from a reinsurance perspective, which is obviously something we can use to manage our risk levels, are greater than we had before.

The next question comes from [ Ben Cohen ] with RBC.

I had 2 questions. The first was just we sort of strip out kind of cat and the reserve release effect. It looks like the sort of the increase in the underlying combined ratio is tracking considerably slower than the rate declines that you've talked about. Could you maybe talk about how you see that going forward, given that, I guess at the moment it feels like rate increases are accelerating, i.e., whether you can sort of hold that underlying loss ratio sort of fairly stable?

And the second question was looking forward to sort of after the summer. I just wonder what kind of message you think you'll be able to take to Monte Carlo, obviously, bearing in mind that a lot will depend on the windstorm season. But as you see things now, what sort of conversations do you think that you'll be able to have both, I guess, on the inward and on the outward side looking forward to next year?

Ben, it's Natalie. I'll take the first question. Yes, underlying attrition will track a little bit slower than what you're seeing on the headline RPIs because it takes, I think we've said before, approximately 18 months for everything to earn fully through. So there will always be a little bit of a lag between the RPIs that are published and the underlying attrition. Having said that, if we're able to pick through, as PG has talked about, underwriting and target the lines that are performing better, we'd always hope to be able to perform slightly better than the RPIs would suggest. There is always a lag.

And then Monte Carlo?

Yes. Ben, look, I don't think our Monte Carlo message is anything different really. I mean, we have really deep relationships with clients where we sell multiple products and that's been enhanced ever since we started running casualty. So I think you're at the stage of the market where it's about relevance and importance with clients. I don't think that really changes for us. Most of our book really is core clients that we've had cross cycle. So I don't think there's much change. As I said, we are very much of the view that we continue to trade with the partners that we have throughout the cycle. So I don't think anything changes. Again, if there's an active wind season, we're not going to walk away from those clients. The pricing may change, but the book is going to be similar. There will always be adjustments around the edges. So we're obviously looking for new clients. But I think our message is consistent year on-year really.

The next question comes from Daniel Wilson-Omordia with Morgan Stanley.

Just 2 quick ones to round off. You've been growing in both insurance and reinsurance along energy and marine. I'm just wondering, given we've seen heavy losses in energy, marine and obviously a lot of activity around the Middle East, what the competition is like in those markets right now and what the kind of environment is? If you could talk a bit more about that, that would be great.

And then second question, in terms of the other income, again, just following on that. You mentioned obviously that you're looking to lead more business, it sounds like in the London market. Could you elaborate on how much business that you currently lead now and what's led to the decision to pursue more leading roles?

Daniel, on the kind of marine and energy market, I'll take that. I think, particularly in the marine lines, anything war related, as I mentioned in my script, you've seen a significant dislocation in pricing for obvious reasons in the last few months. Kind of out of the war impacted classes. What you're seeing in marine is more in line with what you're seeing in the general market, which is elements of softening, and that is relatively similar across most of the marine subclasses, whether it be kind of hull, cargo, et cetera. Maybe slightly different in marine liability, where it's far more stable, which is obviously similar to other kind of broader casualty lines.

In the energy space, obviously, again, this is a sector that's made up of a number of different components. You've got downstream power, energy casualty and upstream energy. Again, outside of the casualty lines, which in energy, again, are broadly stable, some small rate increases in certain areas. Outside of that, again, you're seeing generally what you're seeing in the rest of the market, which is general softening across most of those other subclasses.

Now some of those subclasses have experienced some reasonable loss activity in the last 6 months to 18 months, and that's predominantly downstream. As yet, that doesn't seem to be having an impact on rating for that class. But as we always say, kind of market moves because of people reducing their willingness to deploy capital in lines of business as opposed to losses themselves. As yet, we haven't really seen that. So outside of the war related perils, kind of softening in line with what you're seeing elsewhere. Still in a number of lines, good adequacy.

Daniel. On the consortia, I mean we've always led different lines of business, different products, and we have actually always had some consortia. We have just expanded doing that recently, and it is something that we are planning on giving more information on going forward. Now it's becoming a bit more of a significant part of the business. So we will disclose a bit more on that in the future.

The next question comes from Will Hardcastle at UBS.

I'm just trying to marry up the timing on that raised BSCR from the 240% at full year results to the 254% at Q1 with the reduced PMLs, the final special dividend announcement. Can you remind me again, sorry, what drove that uplift? And was it anything to do with that PML change or was that already fully reflected in the initial 240%? I'm just trying to understand, did you have reasonably high conviction that you'd already be over 250% when setting the final dividend?

Will, it's Natalie. I'll try and take that question. No, we don't set the dividend. I mean the first thing to note is we don't set dividends related to the BSCR. As we've mentioned before, it's the rating agency capital restraints which are the most important. So we would have fully factored in the PMLs on both the A.M. Best and S&P models when making the dividend decision. The PMLs on the BSCR didn't change. I think as I mentioned last quarter, the only things that changed really were in a refinement of the modeling of the balance sheet, where we have to represent the balance sheet on a fully economic basis for the Bermuda capital model, and that can take quite a bit of time from our actuarial department following year-end. So yes, it's nothing to do with the PMLs. And also, it's not the BSCR that's driving the dividend decision. I think that needs to be underlined as well.

We have no further questions. I will turn the call back over to Alex Maloney.

Okay. Thank you for your questions today. We're closing the call now.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.

Hello, and welcome to the Lancashire Holdings Limited First Quarter 2026 Earnings Call. [Operator Instructions] Your speakers today will be Alex Maloney, Group CEO; Natalie Kershaw, Group CFO; and Paul Gregory, Group CUO.

I will now hand the call over to Alex.

Thank you, operator. Good morning, everyone. We will follow our usual process this morning. I'll keep it brief and give you my thoughts on the quarter. I'll then hand over to Paul for underwriting summaries and then Natalie for the finance part, and then we will then take your questions.

I want to start by saying that it's been another excellent quarter for Lancashire, where we affirm our guidance for a high teens ROE for the 2026 year. Amidst elevated geopolitical tensions, our business continues to perform strongly, reflecting our prudent strategy. To remind you, we have set out to continue to grow ahead of rate and deliver more sustainable returns for our investors across the cycle. Our track record of delivery supports this with 3 consecutive years above 20% ROEs and, on average, returning 100% of earnings to shareholders. And that's exactly what we're still doing.

Firstly, adjusting for reinstatement premiums of last year, our premiums grew ahead of rate again. As we said at the last conference call, the market is getting more competitive, but is still a profitable one. In that context, our excellent underwriting team worked hard to ensure we retain the business we wanted to retain and grew where appropriate. At the same time, we pulled back where appropriate, reducing our retrocession book again as we flagged at our last conference call. The market has remained competitive, but our proven disciplined management of the underwriting cycle continues to serve us well.

Second, whilst there were no big sticker industry loss events in the quarter, the overall claims environment for the industry remains active. Our own loss experience has been benign, but this environment makes it all the more important to navigate this stage of the cycle with care.

Turning to investments. Our team navigated a tough market of their own. In light of the heightened uncertainty and volatility, our resilient investment portfolio delivered what is designed to do in the quarter. And finally, our focus remains firmly on delivering sustainable returns across the cycle, supported by active capital management, disciplined underwriting and a conservative investment portfolio and a strong balance sheet, all to support our goals. To that end, our ROE guidance for this year remains in the high teens.

I'll now hand over to Paul to take you through some of the details of our underwriting activities.

Thanks, Alex. During the quarter, our market has progressed in line with expectations. We set out these expectations 8 weeks ago. And to summarize, these were as follows: a softening but not soft market with rate reductions at a portfolio level in the high single digits; rate and adequacy remaining healthy in the majority of classes; top line to remain broadly stable; our net cat footprint to be marginally lower year-on-year; and the continued build-out of Lancashire U.S.

I'm pleased to report that our performance and expectations remain in line with all of these. As you can see, our portfolio RPI is at 93% for Q1 and excluding the impact of reinstatement premiums, our top line remained stable. Underlying this, we see a variance between the reinsurance and insurance portfolios.

Reinsurance premiums are less than Q1 last year. As Alex has mentioned, the primary driver of this was the absence of reinstatement premiums this year, given there were no major catastrophe losses in the quarter, unlike Q1 last year. The only part of the reinsurance portfolio that we've actively reduced was our previously signaled reduction of our inwards retrocession portfolio.

As we explained last quarter, this is a decision based purely on prudent cycle management, allowing us to better manage our earnings volatility and net cat footprint as we move through the cycle.

Offsetting the dynamics in reinsurance was the growth within our insurance portfolio. This growth primarily comes from 2 areas of the business: the continued and anticipated build-out of the Lancashire U.S. franchise, growth in marine and energy portfolio due to a combination of timing, new business and organic growth with existing clients.

Given Q1 performance and current market conditions, we're happy to reiterate our guidance of broadly stable top line for the year. Whilst the market has very much performed in line with our expectations, there has obviously been a large degree of political and economic volatility as a result of the war in the Middle East.

As previously explained, a number of our specialty lines of business have exposure to the region and the peril of war. Our position from an exposure point of view is very manageable, and we consider ourselves underweight in the region. Given this underweight position, it does provide the opportunity for us to underwrite new business, which is coming to the market as demand for war coverage increases.

As you would expect from us, we are doing this in a measured and thoughtful way in order to manage our exposure, but also maximize any opportunities where we feel the balance of risk and reward is appropriate. And as we look ahead to the remainder of the year, our focus remains on making sensible underwriting decisions to manage the underwriting cycle, whilst at the same time, continuing to invest in the business for the long term.

We are actively looking to hire good underwriters to strengthen the Lancashire underwriting franchise. We are proactively hiring in niche areas that will incrementally benefit the bottom line through the cycle, recently adding a new underwriter and product line to our marine team and continuing to build out our bench strength in the maturing Lancashire U.S. platform. We believe that good underwriters that understand the cycle and know when to be bold and when to be patient will add value and further develop the Lancashire franchise over the longer term.

I'll now pass over to Natalie.

Thanks, Paul. Hello, everyone. The third quarter was relatively straightforward from a financial perspective. We continue to see the benefit of business growth over the last few years in our earned premium and insurance revenue, which increased by 2.1% compared to the first quarter of 2025.

The loss environment was relatively benign with no major losses of note in the quarter. Likewise, the more attritional part of our book, which consumes little capital, performed in line with expectations.

During the quarter, we finalized our year-end regulatory returns with a final BSCR ratio of 254%, slightly ahead of our estimate at the year-end results. This reflects normal refinements made during the finalization of what is, by nature, a complex modeling process.

Now turning to investments. Market volatility, including high yield and wider credit spreads impacted portfolio valuations during the quarter. However, total investment returns were positive at 0.3% with investment income more than offsetting the unrealized losses. Our private investment funds also delivered strong returns.

Since inception, the primary objectives for our investment portfolio have been capital preservation and liquidity, and we continue to position the portfolio to limit downside risk in the event of market shocks. Those objectives remain unchanged and are particularly important in today's volatile markets.

Looking ahead, we will maintain a short, high credit quality portfolio with appropriate diversification to optimize risk-adjusted returns. The combination of earnings resilience, strong capital and a conservative investment stance leaves us well positioned for the remainder of 2026.

With that, I'll now hand back to Alex to conclude.

Thank you, Natalie. To conclude, I just want to leave you with 3 key points for Lancashire at this stage of the cycle. Disciplined growth continues despite a more competitive market. We continue to deliver a resilient performance amidst an active risk environment. Sustainable returns remain a core focus for us, supported by strong capital management, which is why we are affirming our high teens ROE guidance for this year.

With that, I'll hand over to the operator for questions.

[Operator Instructions] Your first question is from Shanti Kang from Bank of America Merrill Lynch.

You guys reiterated the high teens ROE today, which is good, and that was despite the lower top line. I was just wondering if you could help us bridge what structurally supports the ROE as pricing continues to soften. So should we look to you guys looking at the product mix using reinsurance or perhaps investments? How should we think about that into the second half of this year?

And then the second question is just on the RPI. So the RPI at 93% suggests a clear softening. I'm just curious to know where you're seeing a bit more pressure today in specific lines within insurance and any sublines in reinsurance as well.

So I think -- Shanti, I think that we're a quarter into the year. From our view, we're very much in line with our expectations. We're very much in line with the guidance that we gave you. So there's no real surprises here. Obviously, when we gave you that guidance, we were trying to predict what the RPI would be this year, trying to predict what the product mix will be this year, and obviously, the benefit of reinsurance that we're now purchasing.

So I think, all in all, it is only Q1. I think we're very happy where we are. As you can see from our release, our underwriting portfolio continues to adjust to the market we're in. That's what good underwriters do. Clearly, we're going to manage the cycle. That's what we do at Lancashire. So I think -- we think we're completely in line with where we should be. There's no surprises here. And generally, we've had a good quarter.

And Shanti, I think on the second question on -- was on RPI. I think that, as we said last quarter, our view was across the overall portfolio, the RPI will be in the high single digits. Obviously, underneath that, there are some products that are seeing higher RPIs than that, as in more softening. And then there are others that, to be honest, we are still seeing small rate increases in some small pockets. Generally, casualty is broadly stable.

As I said in my script, we're not happy with the guidance that we gave last quarter and everything we've seen thus far doesn't lead us to change any of that. So I think high single digits across the overall portfolio remains valid.

The next question is from Vash Gosalia from Goldman Sachs.

I have 2 -- potentially 3. One is, again, just following up on the RPI question. So here, could you just help us understand how should we think of the 7 points reduction or whatever the reduction of high single digit in rates, how does that translate into combined ratio for potentially next year? It would be interesting to just understand what levers do you have in the middle so that it does not translate for a 1:1.

Second question was maybe a little bit of clarity on something you've mentioned in the past about your casualty reserves. So obviously, you've said you would consider releasing some after 5 years of underwriting the business. But are you able to give us a sense of how much reserves or basically the dollar amount of reserves you are holding for the casualty line so that we can get a sense of what's to be released?

And third question, potentially a bit more qualitative, how far are we from a soft cycle? I appreciate you're seeing the cycle softening. But in your view, what does the soft cycle look like?

I'll take the first question. Yes, the things you need to consider when it comes to the levers are, obviously, you see the RPI and what's happening generally to rates. The bit that's more difficult for you to see is -- and we've said this before, the one benefit of a softening market is we're obviously a buyer of reinsurance. That obviously helps manage our combined ratios because the cost of that reinsurance generally reduced it. But probably more importantly is the breadth of products that we can buy, which helps us manage our earnings volatility and ultimately, our combined ratio.

So that's the main lever that you need to consider. Obviously, as we move through the year and have a better visibility on the market in '27, we can give you some more commentary around that. But that's the main thing for you to consider.

Vash, it's Natalie. I'll take your second question on casualty reserving. Obviously, as I think you'll be aware, we don't give the dollar amount of reserves by portfolio mix. Obviously, we do give you the amount of our risk margin, which we disclosed at the year-end, which is effectively the total amount of prudence that we have in the reserves.

We did start writing casualty around 5 years ago now, but that was the first year. So we have a very small amount of excess reserves from that first year. And we're not necessarily considering releasing anything at the moment. So I think if you're thinking about what to model for us, I wouldn't be assuming any casualty releases in the near term. So hopefully, that's helpful.

Vash, your question about a soft market, we are obsessed with the underwriting cycle. We're firm believers that that's just the way this industry works. I think you can just -- I suppose an easy way to think about it is, with the guidance that we've given for the year, we very much do not think that means we're in a soft market. Clearly, the market is more competitive, but we still think there's some really good opportunities in the product lines that we write. So I definitely don't think -- I don't think anyone actually in the industry would say we're currently in a soft market. But clearly, it's a softening market.

Your next question is from Kamran Hossain from JPMorgan.

First question for me is just on the claims experience. You said kind of benign for yourself in the quarter. I think on one of the conference calls earlier this week, the CEO of a large company said that political violence claims could be a lot more than kind of the amount of premium in the market. Are you just kind of not in the market? Or is it just better risk selection? Just intrigued kind of why some of that hasn't maybe shown up for yourselves.

The second question is on the reduction in inwards retro -- property retro. What's -- is there much of a combined ratio impact from that? Because I would assume it's pretty low combined ratio, therefore, it might have an impact. But just intrigued, I understand kind of ROE is the primary metric, as it should be.

And the third question on kind of business growth or kind of how the business is going to develop over the remainder of the year. I know you've got the kind of the stable headline number for the year as guidance. Clearly, reinsurance in Q1 was impacted by the reinstatements, but you won't have that in Q2. I assume there's less impact from retro. Is there anything to suggest that insurance won't be quite as healthy in the remainder of the year as it was in Q1?

Okay. I'll start on point one, and Paul will be a bit more specific about Lancashire. So yes, look, we have seen a comment about the Middle East. We would agree with that. So we do think that the losses that we think are going to come through the system exceed the premium for the PV market. So you would expect that to come through the course of this year, and that will probably affect some of the specialty reinsurance placements. The majority of those are done at the 1st of January.

So yes, we definitely agree with that. And you would expect in any class of business where you've got claims exceeding premiums, there should be some upwards movements in that class of business. And obviously, the continued situation in the Middle East, the prolonged situation, we believe [Audio Gap] people are going to have to re-underwrite those exposures on a more sensible basis. So yes, we do agree with that comment. We think it will come through the system this year, and we do believe the claims exceed the premiums.

Paul will just give you a bit more detail on [indiscernible].

Yes, I can. I think as I said in my script, we're generally underweight in the region, and that definitely applies to the kind of political violence product line and that it's an ongoing event can change. We do have exposure. But as I said, it's definitely underweight. So maybe that explains our experience thus far. So we -- again, as I said in the opening remarks, there is currently opportunity. And I think being in a position where we're underweight allows us to selectively look at those opportunities, obviously, in a very measured way.

But there is definitely increased demand coming to the market and clearly, a very different price point to what we've seen before the war. So we will be cautiously selective, but we are open for business, and we will underwrite those risks and have underwritten more risk since the war began.

Moving on to your second question on inwards retrocession. To be honest, I think you've answered it for yourself. Our focus always is on ROE. We grew that retro portfolio when market conditions were really strong. They're not as strong as they were. And for us, it's a very capital-consumptive line of business. You're right, it does tend to run kind of depending on the [ loss year ], obviously, but would generally be at the lower end of combined ratios. But for us, that's not the focus.

The reason for reducing -- and we did reduce last year, you'll recall, and we've been quite open about the fact we would reduce again at this 1:1 is primarily around how capital-consumptive it is, but also the earnings volatility that it can bring because it's a product that's very difficult to reinsure.

So they're all the reasons. Yes, it runs at a lower combined ratio, but it's very capital-intensive. So for us, it seems, at this part of the cycle, the most sensible thing to do. You're also right that the vast majority of that premium impact is in Q1 because the majority -- the vast majority of the retro portfolio is written at the 1st of January. There is a little bit in Q2, but the vast majority of that impact has been felt.

And then I think the third question was on overall growth for the rest of the year. As I've just said there, you've seen the impact -- the vast majority of impact from retro come through the reinsurance lines. Obviously, you've seen the -- when we talk about growth, we don't really think about reinstatement premiums because we're talking about underlying growth. But yes, you've seen the impact of that in Q1.

Very pleased with kind of insurance growth in Q1. Some of that's coming from areas we flagged 8 weeks ago, which is the continued maturity of Lancashire U.S. We continue that -- we would expect that to continue through the course of the year. And then for marine and energy, it was also a very good Q1.

Some of that is timing, favorable timing with products -- sorry, policies renewing into Q1. But it's also in energy, the kind of energy liability line that, one, we are growing in Lancashire U.S., but two, is still seeing a relatively good rating environment, and we have the opportunity to increase with some core clients through Q1. Everything said, as you've heard us say, we're sticking to our kind of stable top line guidance for the balance of the year.

Your next question is from Joseph Theuns from Autonomous.

First question I had was just a follow-up actually to one of your answers previously about the cost and availability of reinsurance. Does that mean you're reducing the level of retained business that we can expect this year? And then the second question is just in terms of casualty book. As casualty -- the casualty class remains one of the areas that is still best in terms of rate adequacy, are you still looking to grow this line of business? Or are you happy with kind of the size of where the portfolio is today?

Okay. Thanks, Joe. So on your first question around reinsurance, if you look at us through the cycle, -- we -- as a proportion of like our inwards premiums in softer markets, we tend to spend a bigger percentage on reinsurance and in harder markets, that percentage comes down. We're probably at the stage now where if you look at it from that metric perspective, it's going to be broadly stable versus last year, but perhaps marginally higher because we are kind of, as Alex said, in a softening part of the cycle. So I think directionally, that's how you need to think about it.

On casualty, I think we said this before, but we're pretty happy with the size of our casualty book in terms of how it sits overall in the group's portfolio. Look, there are always opportunities for us to grow with core clients. And if they're there, we're happy to do it. There will obviously be other times when maybe deals don't make sense. But I think if you want to think about it, I wouldn't see any fundamental changes to the size of our casualty book during the course of this year.

[Operator Instructions] Your next question is from Will Hardcastle from UBS.

Will Hardcastle, UBS. First one is just thinking about that insurance segment premium growth year-on-year. Is it possible to try and sort of just get, in rough broad terms, how much of that is new teams and how much is perhaps the opportunistic war-related energy or marine? Or is it other energy marine business that's grown? I'm trying to sort of get a feel for that underlying book growth, if that ever makes sense, for Lancashire.

And then just thinking about that, it sounds like one of the cuts on the reinsurance book or reductions was on that inwards retro, clearly as capital-consumptive. And I know there's a hell of a lot of the year still to come and you're not there trying to tell us what pricing will do post the cat season. But I guess, just thinking about the incremental news flow we've had quarter-on-quarter, and that reduction in inwards retro, is it a fair point just to suggest that there's a higher chance of a higher payout ratio year-on-year in that sense, if that makes sense?

Okay. Will, I'll take the first question. I think the growth in insurance, first of all, to clarify, the growth that we've seen in marine and energy in Q1, that isn't related to any great extent to additional premiums coming from the war. We -- as I've said, we are open for business and happy to underwrite more risk. So we could potentially see the benefit of that as we move through the course of the year, absolutely.

The other areas are effectively younger teams maturing, and that's generally in our Lancashire U.S. platform where those teams are still building to maturity, and that's where we're seeing growth. That doesn't mean there's not areas of growth elsewhere. We are still seeing clients on the insurance side, bringing kind of more demand to market, but nothing specific that I would call out.

Also, as I said in my script, we're still hiring. We are looking to add new underwriters to our business. We've recently hired a new underwriter in marine in London for a niche. They won't arrive until later in the year. So the impact is not really going to be seen this year. But we are still very focused on that, and we believe, in the current M&A environment, there will be opportunities for us to add more talented underwriters to the group.

Will, it's Natalie. Thanks for the capital question. [indiscernible] question before, you've almost answered your own question. As you know, we try and remain disciplined and flexible with capital as the year develops, and we look at various capital deployment options as the year goes on. One of the things, obviously, we keep an eye on is the cat season, as you mentioned. So it would be our usual timing when considering any capital returns will be towards the end of the year, dependent on what happens during the course of the year.

Your next question is from Darius Satkauskas from KBW.

The first question is just on the BSCR. So your estimate at the time of the full year result was 240%, I believe, and I think today it's 254%. So it's 14 points difference. It's not tiny. Could you disclose what's driving this in terms of -- is it the numerator, is it denominator, because of change in growth assumptions, or just a combination of many moving parts?

And another question is just on the reinsurance. Did I understand you correctly that you are thinking of slightly increasing the total reinsurance dollar spend? So not only you're banking the reinsurance -- sort of cheaper reinsurance prices; you're buying more of it to sort of offset what's happening in your primary divisions. Is that correct?

Darius, it's Natalie. I'll take the question on the BSCR. I think it's probably helpful if I explain the process around that. So the BSCR is a year-end 2025 metric. And what happens is those regulatory solvency returns are not due to the regulator until the end of May. So while we're going through the year-end process at the beginning of the year, we're really focusing more on things like the annual report, et cetera, et cetera, and these regulatory returns tend to come after that.

It's quite a complex -- involve modeling process from an actuarial perspective. We try to give a reasonable estimate in March, but then you've obviously got another 6 weeks of work happening after that. And in this case, it's really around the technical provisions that are used in the BSCR. So what happens is you basically remove IFRS 17 loss reserves and you're replacing them with technical provisions to come up with a true economic balance sheet. Now those technical provisions can move around a little bit during the process.

So on your question about what was driving it, the technical provisions actually impact the numerator and the denominator because they impact the charges you get, the capital charges, they also impact the denominator by increasing the amount of capital that's available. So it's not really reflective of anything that's going on in the business this year. It's more reflective of the process and the modeling assumptions around that. So hopefully, that makes a little bit of sense.

On your second question, Darius, I think as I just answered on a previous question, I think dollar-wise, it's going to be broadly similar year-on-year. But at the margin, if it's gone one way, it might go slightly up. But that's completely in line with how we manage the cycle and how you would have seen us buy reinsurance through cycle in the past, but not anything material for 2026 for you to think about.

Your next question is from Abid Hussain from Panmure Liberum.

I think I've just got one question left. It's just around the link between the pricing and ROE. I'm just wondering if you're able to provide some sort of guidance on, say, a 5 percentage point move on rates and then how that feeds through to ROE. I know that's incredibly difficult thing to do, but just some sense, sort of given the various levers that you do have on whether it's retro, asset leverage, reserve releases, current year margins. There's clearly things that you are doing and can do to achieve decent ROEs. And there's clearly not a one-to-one translation between pricing and ROE. So I'm just trying to get a sense of how you think about that.

Abid, it's Natalie. Thanks for the question. I'll take that one on how we come up with the ROE guidance. Obviously, the guidance factors in a lot of different scenarios that could happen in all areas of the business, all areas of the balance sheet. And our priority when we give the guidance is to give something we're confident in delivering across a range of scenarios that would include changes in RPI, changes in investment returns, changes in cat and large losses and loss assumptions, et cetera. So we are -- as we've said, we're reaffirming guidance, and we're quite confident to reaffirm that at the moment.

Your next question is from Shanti Kang from Bank of America Merrill Lynch.

So I was just thinking, after the renewal period in the first quarter of this year, is there anything that sort of surprised you about the conditions that you've gone through to make you think differently going into midyear renewals? Is your sort of baseline -- I know you've got the RPI dropping high single digits year-on-year. Is your baseline view in that, that softening will still be orderly rather than a dislocation, for example? I don't know if you've got any thoughts on that.

I think thus far, and even if you look at the [ 1/4 ] renewals, everything is very much playing out as we anticipated. I think as we said earlier, there are some lines that are more competitive than others, definitely. But kind of, at a portfolio level, we're happy with the guidance that we've given. There's nothing thus far that has led us to change that. We are in a softening market. That is clear. But my anticipation is that as we move through the rest of the year, it will remain very similar to what we're seeing now.

So look, no surprises thus far. We were anticipating a softening market. In some lines, we were anticipating some quite -- more competitive pressure than in others, and that's happening. But as I say, no massive surprises thus far.

Yes. I think in certain product lines and the PV question was an obvious one earlier. And clearly, we believe losses exceed premium in that class. You could probably say the same about the downstream energy sector. There's been a fair bit of loss activity there. Aviation continues to be difficult. So there are -- there's underwriting needed in certain classes of business. But I think the general trend, we are in the softening phase. We don't [Audio Gap] change to that or any acceleration or deceleration into wind season. And then obviously, we'll see what the wind season brings.

Your next question is from Will Hardcastle from UBS.

Just one industry loss estimate that has been increasing appears to be the Baltimore bridge loss. If you could just give us an update, whether it be what industry loss you're assuming, I'm sure it's bottom up. But -- and if that's developed since your initial loss pick, that would be helpful.

Will, I'll take this one. Look, we -- as you know, we try not to talk about specific claims too much, but I appreciate it is a major event and in the press. I mean I think you know how we reserve, and you're right, we do it bottom up, and we try to be as prudent as we possibly can. We definitely don't, on any loss, take just the initial loss pick we may be given or presented with. We come up with our own view of where we think the ultimate loss may land.

Obviously, we review these assumptions if we get updated information, et cetera, and you've seen us do that on other losses, and that could either be positive or negative and we revise accordingly. Obviously, in the aggregate, our track record is pretty good. But I think that what you can take from today's reiteration of ROE guidance for the year is that if there would be any change here, it's not going to be material enough to impact that guidance.

Your next question is from Joseph Theuns from Autonomous.

Apologies if you sort of touched on this already, but can you just give any more sort of rationale behind the reason behind merging the 2 Lloyd's syndicates? I'm just wondering if there's any sort of capital benefits to doing this.

So look, I think we mentioned this before. We were fortunate enough to buy out the names that we had on Syndicate 2010 last year. That was a good deal for Lancashire, but it was also a good fit for the names that we had. And by merging the syndicates, we definitely get some synergies in cost. So there's lots of things we won't have to do twice. So I think that's a benefit, but that will also be good timing for us. The '27 year, again, that will help us save some expenses in '27, not materially.

And I think on the capital side, we will be more capital-efficient at Lloyd's and just running one syndicate just simplifies our business. One thing we're trying to do all the time is simplify our business, trying to be as cost-efficient as we can, which all aids us managing the cycle. So yes, we should be able to get that done in '27 and have one simple syndicate in Lloyd's.

There are no further questions at this time. I will now hand the call back over to Alex Maloney for the closing remarks.

Okay. Thank you for all your questions today. We'll close the call there.

Thank you. This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.

Hello, and welcome to the Lancashire Holdings Limited Full Year 2025 Results Conference Call. [Operator Instructions] On the call today, we have Alex Maloney, Group CEO; Natalie Kershaw, Group CFO; and Paul Gregory, Group CEO. I will now hand the call over to Alex. Please go ahead with your meeting.

Thank you, operator. Good afternoon, everyone, and thank you for joining our call today. It's our usual approach, and I will give some highlights on the progress of our business. Paul will focus on the underwriting trends. Natalie will cover the financials, and then we will go to Q&A.

Lancashire today is a stronger and more balanced franchise. Whilst our DNA remains the same, 2025 was a year that demonstrated the strength and durability of our model, one that blends disciplined underwriting, active cycle management and efficient capital management. Against the year that started with the California wildfires, one of the largest catastrophe losses the business has ever faced, we delivered another set of resilient results. We delivered an undiscounted combined ratio of 93.1%, an investment return of 7% and most importantly, an ROE of nearly 21%, whilst continuing to improve the quality and durability of our earnings. Our underwriting portfolio today is more balanced, more diversified and more capable of generating attractive returns throughout the cycle. This is the third consecutive year of above 20% returns and marks yet another proof point of our strategy. It's a testament to our strategy in action over the last 3 years that we have on average paid out 100% of our earnings whilst growing our business at about 8% on average.

Looking at the market backdrop more broadly, we have always believed the market is cyclical. And whilst we are seeing a more competitive market, the portfolio we secured at the 1st of January renewals is still one of the best we have ever had in terms of rate adequacy. The Group RPI is still well ahead of pre-2023 levels, and this is reflective of a market where after a few profitable years, the supply of capital has increased as existing players deploy more retained earnings and this tends to be more disciplined capital. Demand meanwhile, has not kept pace with the increased supply of capital. But I do want to emphasize that margins remain favorable, particularly at the net level, taking into account reinsurance costs. This gives us confidence when looking at our profitability for 2026 and beyond.

So looking ahead, this type of market creates new opportunities for Lancashire. The cornerstone for us will be the continued expansion of our U.S. operation. And also, as we have seen in the past, market consolidation typically occurs at this point in the cycle, and this may well give us opportunities to hire talented individuals to join our fantastic underwriting team.

The other critical element of our strategy is our active capital management from a position of strength. Since inception, we have returned $3.7 billion to our shareholders. And today, our strong 2025 results have enabled us to declare a special dividend of $0.50 per share, which is an additional $121 million alongside our regular dividends. As you will see from our capital disclosures, we've been able to do this whilst retaining an extremely strong capital position and retaining capacity to continue to support the future development of our franchise.

All this means that, as Paul and Natalie will outline, we anticipate delivering an ROE in the high teens for 2026. We will lead with underwriting, construct the best portfolio for this stage in the cycle. We will actively manage our capital and risk exposure to deliver attractive returns throughout the cycle, and we do that with fantastic people seeking to attract and retain the best talent that fits our culture. As I've said before, the quality of the business we have built and the talent we have within our organization together mean we will continue to execute a strategy of delivering more sustainable returns for our shareholders. I'm extremely pleased at this stage of the cycle that we have a healthy balance sheet to allow us plenty of flexibility for the future.

And with that, I will now hand over to Paul to talk you through the underwriting trends.

Thanks, Alex. As Alex has just described, we enter 2026 in a position of strength, helped by another strong year of underwriting performance. We have a very strong capital base that will support the continued maturity of the Lancashire underwriting franchise. Our diversified and balanced portfolio provides earnings resilience and multiple options to successfully navigate the underwriting cycle.

Looking at 2025, it was a year of strong underwriting performance. A combined ratio of 93.1% is a robust performance in light of loss activity and continued reserve prudence. This delivers an insurance service result of $381 million, which is marginally more than last year despite increased catastrophe and large losses and a high combined ratio. This is the benefit of a more diverse and capital-efficient portfolio where significant dollars of underwriting profit are helping to deliver an ROE of nearly 21%. That is now over $1.14 billion of insurance service result produced over the past 3 years, helping to deliver an ROE above 20% in each of those years. In terms of growth, 2025 was our eighth consecutive year of premium growth in excess of rate with 5.1% growth year-on-year, continuing to develop our franchise in what was still a healthy and supportive rate environment.

Moving to our portfolio makeup and underwriting conditions for '25. We remain equally split between insurance and reinsurance and grew both during '25. Whilst the rating environment softened for the first time since 2017, we remain close to peak rating and the vast majority of products had healthy rate adequacy, and we were happy to grow in a disciplined way. Our expectation and guidance for last year was for low single-digit growth, and we delivered in line with this. Looking ahead to 2026, we are clearly in a more competitive market that is softening, but importantly, not soft. What I mean by this is that rates for most classes are under pressure, but the majority of product lines have good margin that will continue to deliver healthy underwriting returns. We're at the stage of the market where you can continue to produce these healthy underwriting returns if you make sensible underwriting decisions to navigate the cycle, and we have proven that we can navigate market cycles. At this time, given the work over the past 8 years to diversify and build increased resilience, we have far more options available to us than before.

To summarize the recent 1/1 renewal season, we're very pleased with our performance where we managed the more competitive environment well and secured an outcome in line with our expectations. This sets us up very well to execute on our plans for the remainder of the year. As always, we appreciated the ongoing support we received from our clients and brokers and look forward to building on these valued relationships. Alongside this, we were very pleased with the outcomes of our own reinsurance renewals at the 1st of January. As we've said, the one benefit of the softening market is the products we buy to protect our earnings and balance sheet are also more efficient. We can manage our reinsurance spend, which helps mitigate some of the margin pressure on the inwards book. As importantly, we have better tailored the structure of our reinsurance to box in our exposures, which better manages our earnings volatility. As an example, the aggregate catastrophe products that we described last year renewed at 1/1 with a lower attachment point and more limit. This provides more certainty of underwriting result in an active catastrophe loss year.

Looking at anticipated market conditions for the remainder of the year and what this means for our '26 portfolio, we would expect to see the following. At a portfolio level, we'd expect to see rate reduction in the high single digits. As always, there will be a variance between product lines and a benefit of a diversified portfolio is that not everything moves at the same pace. The casualty classes will be relatively stable with property and specialty insurance and reinsurance classes generally seeing rate reductions of varying degrees.

To reemphasize and repeat what Alex and I have both said, rates remain in a good place for the majority of classes. With this in mind and our proven track record of cycle management, we would anticipate our top line to remain broadly stable during 2026. Our net cat footprint will likely be marginally lower than last year. Whilst we have assumed more cat risk with an increased share of Syndicate 2010, we have continued to shrink our inward retro portfolio in light of market conditions as well as seeing the benefit of a more efficient reinsurance program. Our U.S. operation will continue to mature with existing and new product lines further developing the Lancashire franchise and portfolio diversification. The strategic investment to purchase the names allocation of Syndicate 2010 helps mitigate top line pressure by retaining more profitable business.

So in summary, we enter 2026 in a very strong position. We have a strong capital base, a fantastic underwriting portfolio across a number of platforms, supported by a talented and committed team of underwriters. From this, we are well positioned to continue to deliver robust underwriting returns.

I'll now pass over to Natalie.

Thanks, Paul. The investment we have made in the business since 2018 is now delivering sustained high-quality returns, underscoring the strength and durability of our diversified model. Even after absorbing the largest single loss event in the calendar year in our history, the resilience of our model allowed us to deliver another excellent year of underwriting and investment performance.

We remain focused on return on capital and disciplined shareholder returns. Diluted book value per share increased by 20.9%, marking our third consecutive year of delivering over 20% return. Our strong balance sheet and consistent capital generation enabled us to return nearly $300 million to shareholders, reinforcing our commitment to disciplined value-accretive capital management. We are announcing a further $0.50 special dividend today in addition to our regular $0.15 final dividend. In my remarks, I will cover our overall financial performance, the claims environment and how the resilience we have built into our balance sheet positions us for the next phase of the cycle.

A summary of our results for the year is laid out on Slide 12. Our profit after tax of $293.4 million is slightly lower than our 2024 profit after tax of $321.3 million. With a consistent insurance service result and stronger investment returns, the decrease is due to higher operating expenses and the impact of discounting. Insurance revenue grew by 5.4% ahead of underlying written premium growth, excluding RIPs of 3.3% as we continue to earn through the substantial premium expansion of recent years. The allocation of reinsurance premium at $423.5 million is marginally lower in dollar terms than 2024 and falling to 22.8% of insurance revenue from 24.9% last year. The increased scale and diversification of our portfolio has enabled continuous improvement in the efficiency of our reinsurance purchasing. Our undiscounted combined ratio was 93.1% or 83.7% on a discounted basis. Despite a nearly 4-point increase in the discounted ratio, we delivered an insurance service result comparable to 2024, reflecting our disciplined focus on overall profitability and return on capital. Our underlying undiscounted loss ratio, excluding catastrophe and large losses and reserve releases was broadly in line with last year.

Turning to our investments. The portfolio generated an excellent 7% return, driven by disciplined positioning. The return largely comprised investment income from high yields plus valuation gains from falling treasury rates and modest tightening in credit spreads. Private credit funds and other risk assets also contributed positively and the weakening U.S. dollar added around 50 basis points of return related to our non-U.S. dollar portfolios. Our overall operating expenses increased by $44 million, adding around 3% to the combined ratio. This reflects targeted investment in talent and infrastructure to support future growth. We also incurred approximately $13 million of one-off charges relating to impairments and consultancy fees. The net discounting benefit was $33 million in 2025 compared to $66 million in 2024. We benefited from an increase in net initial discount due to the growth in the group's reserves, offset by an adverse impact from the reduction in discount rates through 2025. On tax, as a reminder, unlike most of our peers in the industry, we are not required to pay the 15% corporate income tax until 2030 due to our limited geographical spread. This provides a clear competitive advantage, allowing a greater proportion of operating profit to flow directly to the bottom line.

And now moving on to the claims environment on Slide 13. Overall, loss activity in 2025 remained elevated but within our modeled expectations. After a very active first half, loss activity in the second half of the year was quieter but not benign. Total undiscounted net catastrophe weather and large loss claims were $277 million compared to $215 million in 2024. This included $163 million from the California wildfires and $92 million from large risk losses across several lines of business, nonindividually material. Prior year development was again very favorable at $123 million, reflecting our consistent prudence in reserving and the high quality of our underlying book. In addition to IBNR releases, 2025 benefited from the positive development of prior year catastrophe events, notably Hurricanes Milton and Helene from 2024 and a number of other older events. During the last quarter of 2025, we took the prudent decision to refine our assumptions on ultimate net losses related to the Ukraine conflict to cater for any future geopolitical uncertainty and extended legal proceedings. This increased the net reserves related to the Ukraine conflict by $33 million, maintaining a robust and conservative reserve position.

On to the balance sheet. A key theme of 2025 was the continued strength and resilience of our balance sheet. This supports our ability to navigate the next phase of the underwriting cycle while continuing to deliver sustainable returns to shareholders.

Starting with capital on Slide 15. Our capital management strategy remains unchanged. We deploy capital to maximize underwriting opportunities through the cycle and return excess capital efficiently to shareholders. Our solvency ratio of 240% underscores the exceptional strength of our capital base, which gives us significant flexibility to deploy capital into attractive opportunities whilst continuing to return excess capital to shareholders.

During the year, we returned significant capital through special dividends and also used some of our headroom to buy out the remaining names on Syndicate 2010 and continue to build out Lancashire U.S. Total capital returned through ordinary and special dividends in 2025 was $1.23 per share or $296.5 million, with a further $0.50 special dividend announced today. The table on Slide 15 shows the impact of a modeled 1 in 100 Gulf Wind event of $337 million on our solvency ratio. This is one of our key model tail scenarios and demonstrates the resilience and depth of our capital base even under a severe stress.

And now moving on to reserves on Slide 16. We have always had a prudent approach to reserving and set catastrophe loss reserves on a ground-up client-by-client basis. We have never had a year of overall adverse reserve development since our inception. Our confidence level of 85% is in line with recent periods. This represents a net discounted risk adjustment of $285 million. Effectively, this is the amount of additional margin that we are holding over the actuarial best estimate liabilities. As previously noted, we expect the disclosed reserving confidence level to remain within the 80th to 90th percentile band unless there is a change in our reserving risk appetite. We expect the disclosed percentile to move around within this range from period to period, depending on portfolio mix and uncertainty.

And now if we turn to investments on Slide 17. Our investment philosophy remains focused on capital preservation and liquidity. Our investment stance remains deliberately conservative, positioning us to deliver consistent high-quality returns whilst preserving capital and liquidity in what we expect to be another volatile year. We will maintain a short duration, high-quality portfolio with selective diversification to balance risk-adjusted returns. Growth in our underwriting business, particularly casualty, has increased the size of our invested asset base, resulting in higher returns in dollar terms from our portfolio. Even if yields soften from current levels, the larger asset base will continue to provide a solid, consistent earnings stream over the coming years.

And I'll now hand back to Alex to conclude.

Thanks, Natalie. To summarize, the past 3 years have been a clear demonstration of our strategy in action. We have paid out 100% of our earnings whilst growing our business by 8% on average. And today, Lancashire is a stronger and more balanced franchise. We also generate more dollars of profit per dollar of capital than we ever have done in our history. And the portfolio we secured at the 1st of January is still one of the best we've ever had in terms of rate adequacy, and we expect to deliver a higher teens ROE during 2026. We are perfectly positioned for the next phase of the cycle.

With that, operator, we will now go to Q&A, please.

Your first question is from Kamran Hossain from JPMorgan.

Two questions from me. The first one is on, I guess, this week, kind of war has been the top headline really. Just really wanted to get a feeling of kind of what you're feeling relaxed about. So we've heard lots in the press, and I think even Trump was talking about insurance exclusions. So what you're feeling relaxed about and whether there's anything out there that you think could become an area of risk?

And the second question is just how should we interpret kind of the capital return this year? Obviously, kind of it was well above expectations, which I think is a very good sign, strong balance sheet, excellent year again despite the tough start. Should we assume that in this stage of the cycle, you do pay out a little bit more than kind of what you're making? Just wondering how we should think about that going forward.

Kam, let me just sort of set the scene on the Middle East, and then Paul can give you a bit more details about our portfolio. I think when these events happen, I think particularly from my point of view, I'd just like to say that in a business such as Lancashire, we do have a clear line of sight on these events. And due to the way that we underwrite and the business we have, we can get to our numbers very quickly. And when we think about underwriting and when you think about how we manage our business, these events are just a clear observation of we don't write lots of delegated facilities. We don't write lots of blind follow broker facilities. And when you have these events, that allows you to get to your underwriting exposures quickly. And that also means if there are opportunities, underwriting opportunities that come out of some of these events, we can assess where we want to position our portfolio. So I just want to sort of basically thank our underwriters for the way they've constructed their portfolios in the region, and that allows us to be pretty nimble in these kind of situations.

Yes. So look, just to follow on with what Alex has said there, Kamran, I think the comment to make is obviously, as it stands today, we're -- and you can tell from Alex's comments, we're very comfortable with any potential exposure we may have in the region. As you would also expect me to say, obviously, it's a very fluid situation and things sort of changing on an almost hourly basis. I suppose just to give a bit of color, if it's helpful, the specialty insurer and reinsurer, as we said, we obviously do have potential exposure in the region, albeit very comfortable. And to think of the lines of business that just on a more macro basis that you need to be thinking about is any of those products that have more like peril coverage. So that would be your marine classes, aviation, energy and obviously, the political violence type classes. But as Alex said, we know what our numbers are. We're very comfortable with our numbers. And yes, we're perfectly comfortable.

Kam, it's Natalie. I'll take -- thanks for the capital question. As you know, we had a consistent capital management approach since our inception, where we're continually looking at the underwriting requirements on capital and then we make decisions on what returns should be, which we tend to make fairly quickly and efficiently. As PG said, we've got slightly lower cat exposure going into this year than we had in previous years. So you can draw your own conclusions from that. But yes, overall strategy has not changed on capital.

Your next question is from Joseph Theuns from Autonomous.

I have 2 questions. The first is on your risk adjustment actually. Whilst it sort of increased on an absolute basis, the level decreased on a relative basis compared to your best estimate liabilities. Pairing that with the decline in the risk confidence interval, is there anything that we should take away from that?

The second question I had was actually on the sort of reserve releases. It's -- again, it's just looking at the trend in reserve releases has been sort of trending down the last couple of years. Is that something that we can expect to continue? And just sort of, kind of to go inside of this, kind of what level of reserves that you have are related to casualty because as we know, that is sort of only expected to start running off in sort of the next couple of years' time.

Joe, I think I'll take both your questions and Denise might be able to jump in on the investment return. Was your -- your first question more specifically about the risk adjustment on the reserves and the confidence level. I think the confidence level, the change between 86% last year and 85% this year is really not meaningful from an actuarial perspective. And as long as we're between 80% and 90%, which is our stated range, then we're happy with that. And then Denise can comment on the investment returns.

Sorry, I didn't fully grasp your question, Joseph. Can you repeat the first question related to investments?

Sorry, it wasn't on the investment. It was on the risk adjustment, so your reserve levels. So just commenting that the absolute sort of number has increased, but the relative number sort of the reserves -- risk adjustment relative to the sort of best estimate liability, the BEL, has decreased now 2 years in a row alongside the risk adjustment confidence level. Is that something that we can expect to continue going forward? It's nothing to do with the investment return.

Yes. No, sorry. Joe, I wouldn't expect that necessarily to continue going forward. As I said, as long as we're between 80% and 90%, but then we're happy with that. It's not a trend or anything you should be concerned about. I think it's a similar question on your reserve releases. Obviously, our reserve releases this year are higher than they were last year. As we've said, quite a lot through our history because we have a lot of large claims, it can move around from year-to-year. And you don't really get a stable reserve release like you may do in a more retail-focused business. So our reserve releases can change year-on-year and tend to be a little bit volatile, but there's no underlying trend that you should be worried about.

And just sorry, a very short follow-up. Can you sort of give an indication of sort of what level of reserves are tied to the casualty book, just going back to the first question.

Yes. Sorry, we don't split out that information.

Your next question is from Abid Hussain from Panmure Liberum.

I've got 2 questions. The first one is on the balance sheet. I'm just trying to get a sense of in this part of the cycle, so softening part of the cycle, not soft, as you said, how much capital would you typically want to hold through this part and then into sort of the later part of the cycle? Just trying to get a sense of the sort of the 240% where that might go to because clearly, you don't need all of that capital.

And then the second question is on the outlook. I'm just trying to get a sense of how you see the ROE evolving over '26 and perhaps into '27. And I think you've said high teens for this year for 2026. And I guess the building blocks for that would be the investment return. You've got some decent investment leverage and you can probably bank. I would imagine sort of half of the ROE is coming from the investment return and you can sort of bank that at the beginning of the year. You've got some PYD. And then I guess, the current year margins, that's where if there's any sort of additional color on that, and that's the bit that I suppose is getting squeezed, that's what you're alluding to. And I just want to get a sense of those current year margins that seem to be quite decent. But what sort of pace at which those get squeezed because I don't think there's a cliff edge in terms of pricing and margins getting squeezed in the current year. So any sort of color around that would be very helpful.

So why don't we start on the guidance? So look, we don't give multiyear guidance. But I think if you look at the guidance that we've just given you, it's still a really good ROE for '26, and it's not dissimilar to what we guided you to in '25. I think the thing that we can be quite confident about is when we look at our future years business plans, and obviously, these things are always difficult predicting markets on a multiyear. But what gives us great comfort is the business we've built in the last 6, 7, 8 years just demonstrates to us that our returns will be more sustainable going through the cycle.

As you know, we've always been obsessed with the cycle. We always believe the cycle will be here. We don't believe there'll be anything [indiscernible] anything different and if you remember, everything we've done pretty much since '18 was to build a better business for when the market becomes more competitive, which where we are today. So look, we're very happy with the business we have. We definitely think there's still opportunities, as we mentioned earlier, some of those may come out of M&A and things that are happening in the market. And historically, that's been good for us. But all the numbers that we look at and our business plans tell us that we have a more sustainable...

Abid, on the first question on capital and similar to how I answered the original question from Kam, there's no change to our capital management strategy. We do match capital to the underwriting opportunities. I think as we've explained in the past, we also keep headroom. So when the market does change and it will change again positively, we need to be sure that we've got sufficient capital then to quickly take advantage of opportunities that present themselves. So just because the market is softening, it doesn't mean we're going to run capital headroom down significantly because we want to have capital available for opportunities when they come up, which they always do.

Your next question is from Ben Cohen from RBC Capital Markets.

I had 2 questions, please. Firstly, could you maybe just unpack a little bit the high single digit. I think it was rate decline that you're looking that you expect this year, maybe by line where you sort of see the greatest opportunities, where there are the greatest headwinds? And my second question was just on the amount of reinsurance or the cost of reinsurance that you expect to incur this year. You referenced kind of cheaper reinsurance. Should we read that to mean that you're actually going to be seeing a lower kind of dollar impact in terms of that? Or are you kind of buying more? Are you looking to sort of reduce any of the risk limits further?

Ben, it's PG. I'll take both of those. I will start with your second question. It's a very good question. Yes, we would expect our RI spend in dollar terms to be broadly stable compared to 2025. So you're right, we're definitely seeing the benefit of a softening reinsurance market, and that comes through in less premium spend. And as I mentioned in my script, there was also the opportunity to tailor better structured reinsurance products to help manage our earnings volatility. So we've taken some of that saving and used it there to construct a more all-encompassing reinsurance protection for the business to help us maintain sustainable earnings cycle. So very simply, very similar spend year-on-year.

If you look at the color across the lines of business, as you rightly said, I think broadly over the portfolio, we'd expect to see the RPI kind of off high single digits. Underlying that, there are obviously different movements in rate across the classes. As I said in my script, if you look at, say, the casualty classes, they're broadly stable, with that be kind of casualty reinsurance or some of the casualty lines associated with the kind of marine and energy products that we also underwrite and then you're seeing varying degrees of competition across the other product lines. I think it's -- there's been a lot of commentary around competitive pressure in areas like property insurance. I think that's fair and property reinsurance as well as some of the specialty insurance and reinsurance lines. So we are seeing some competitive pressure. But as Alex said, and I said in my script, we're still at a reasonably good point from a rating point of view. So you've got healthy underwriting returns still being delivered from them. We're still definitely closer to the peak than we are at the trough, which is the reason that we're able to give the kind of ROE guidance we're giving today.

Your next question is from Shanti Kang from Bank of America.

The first one was just on the Ukraine load. I was slightly late to the call, so I'm not sure if you talked about this. But in the past, you talked a little bit about loading, I think, $66 million from direct and indirect losses in relation to the Russia-Ukraine high court case. And then I think that unquantified unit load that you guys added in Q1 for this year was also eligible for that. So I'm just trying to maybe quantify how the top-up today or if today is a top-up really fits against the kind of tail risk and how you're feeling about that now?

And then the second question was just on the large loss experience in the second half of this year. That took us a bit by surprise. I think it's quite hard for us to model sometimes. And I was just wondering what those large losses might have been. I think you said they were immaterial by single risk item, but obviously, on an aggregate basis, that had an impact. Is there something or somewhere that you're a bit more overweight where we should be thinking about? If you have any color on that, that would be great.

Shanti, on Russia, Ukraine, it's very simple, to be honest. Look, we've taken the opportunity to revise our assumptions on this event basically to add resilience to our overall reserve position. At the end of every year, we take the opportunity to review all our major losses, whether they be risk or cat. And in this year, you've still seen favorable reserve releases of $123 million as well as further strengthening of our overall net reserve margin. And to be honest, you only have to look at our 20-year track record of reserving to understand our prudent approach and how this has benefited our shareholders over the longer term. So simply, we're just following the same process we always follow, which -- and you've seen there's a relatively small change in that number.

Shanti, it's Natalie. Just to add, you mentioned ENIDs. They've really got absolutely nothing to do with Ukraine. It's a completely separate process. So the ENIDs would be part of the actuarial process. We're looking at Ukraine reserves, it will be part of our year-end reserving review where we go through all our old and current large and cat claims and make sure we're happy with the reserving on those. And then on your large loss experience question, our large losses were completely within our expectations of what we would expect. We're not overweight in any area. And as I said in the script, and I think in the press release, none of these were individually material, but there have been events across marine, energy and aviation classes that you may have seen in the press. So we would be exposed to some of those in line with our expectations.

Your next question is from Joseph Theuns from Autonomous.

Just trying to get a better understanding of the outlook on your expenses. You mentioned that you have a consistent quantum. I just wanted to double check whether that's sort of an absolute basis or a relative basis. And just kind of understand sort of why that would be the case after you invested $44 million this year in employee costs. Is that sort of -- I'm just trying to understand why this would now be a consistent level from this -- at this higher level.

Joe, on expenses, we did have $13 million of one-off costs this year, which we wouldn't expect to be repeated. And then also included this year because of the good performance of the business is quite a high amount of variable employee costs in there, which you wouldn't necessarily expect to be repeated as well. And then going forward, we're also eligible for the Bermuda tax credit on employment expenses, which will actually should be a little bit higher next year than it was this year. So all those things taken together is why we're happy with the current quantum of expenses.

I mean, based on what you said, the expenses should -- are expected to come down and not stay consistent or level. So where would we expect to see a high level of expenses maybe in 2026 then?

Well, it's also taking into account, as we've said, we're continuing to build out the U.S. So we would expect to increase expenses in the U.S., which may be offset by a small decrease in expenses in the rest of the business.

Your next question is from Daniel from MS.

This is Daniel from Morgan Stanley. Two quick questions, one on capital and one on casualty. On the capital front, and I'm sorry if I'm beating a dead horse, the 170% kind of minimum threshold you have, I'm just trying to work out how to think about this and try to think about sort of comfortable threshold for you on the BSCR ratio. Is the right way to look at this to take the 170% and sort of add the sort of 1 in 100 windstorm stress scenario, so an extra 40 points from there and then look at sort of a 210% sort of percentage number as sort of a comfortable level for your BSCR ratio?

And then on the casualty side, I'm just wondering what your current thoughts are on social inflation and how you're positioned there. One of your peers added some reserves on that front. So just wondering how you're thinking about it.

Okay. Daniel, yes, on your capital question, as I've said, we do vary our capital needs actually really rapidly depending on underwriting opportunities. So there isn't actually a target, say BSCR percentage that we're working to. And that would change over the year and then over the midterm as well. You're right in thinking of the 170% really as a floor, and that would be a floor after a large cat event. So I think the way you're thinking about it is logical that we don't actually have a target that we're working towards, if that makes sense.

Yes.

Daniel, I'll take the second one on casualty. Yes, obviously, social inflation is something we look very carefully at when underwriting our casualty portfolio. But I think I'll just take you back to the starting point of our reserving approach, which I think we've been reasonably clear on since we entered that class. We've not been booking any margin since we've entered the casualty portfolio. We obviously believe there is underlying margin there that we will see over time. But obviously, starting from a position whereby we've taken that reserving approach means that we're not having to make any actions at this point. And to reiterate, we still believe the pricing of that portfolio, there is margin, and we will see that over time, but we believe it's prudent, particularly in that class of business to take the approach we have done.

Your next question is from Abid Hussain from Panmure Liberum.

It was just -- I just wanted to follow up on one of the things that you just mentioned on the pricing cycle and your experience, I guess, having worked through a few of them. And I think you said that we are closer to the top of the cycle than the bottom of the cycle. I'm just wondering in your experience, how long do the good times last past the peak? And I'm not trying to be flippant. I'm just trying to get a sense of sort of -- it feels like the ROE still should be decent for a number of years. And it just feels like the trade commentary gets overly negative quickly. Is that sort of a fair characterization?

Yes. Yes. So look, I definitely think when people now in a soft market, I mean that massively [indiscernible]. And I think you can, whether it's like demonstrate and how far you fall from peak, which is very little. So I think the evidence is there that you are close to the peak -- I think trying to predict cycles and markets is very difficult. So clearly, we are obsessed with the cycle. We'll always be obsessed for the cycle. And I think what it means is that the next few years, I think most people can look at their returns, and I think they're sensible and adequate for that their shareholders provide.

But obviously, it's all down to loss experience, isn't it? So if you go back in history, there were years in the last soft market that were very skinny, but not much happened. So the returns were fine. So people lulled into a full sense of security in some markets. So our view is the cycle will be no different this time around. Our market is still run by humans, but we have built a much better business when times were really good to and built -- to allow us to have more sustainable returns even through the more -- we are firm believers that the cycle will be the cycle and history for some people will repeat itself.

Vash Gosalia from Goldman Sachs.

I just have one or maybe two quick questions. One is on the capital and following from something that Daniel was asking. So I remember from the Capital Markets Day that you were mentioning how S&P rating model tends to be a constraint. And I believe today in today's release, you spoke about being upgraded from A- to A. Can we take that as an indication of you having surplus capital and actually continuing to sort of give back returns or give back dividends higher than the 100% payout ratio? I mean is that something we should be taking into consideration?

And maybe just a second quick one and something that Natalie already alluded to. So you've had some changes in the Bermudian tax regime in the near term. But then can you help us really understand what should be the rough sort of tax liability we should be thinking of within our models for the next 5 years?

Thanks for the questions. I'll take those. I'll start with the tax question. So as I said in my script, we're not -- we don't have any liability to the corporate income tax in Bermuda, which is 15% until 2030. So if you're modeling our results, then you don't need to think about tax until you get to 2030. And then I guess it would be sensible to be modeling 15% tax at that point, which will be consistent with the rest of the market. With the S&P upgrade, obviously, we were very pleased to get that. We think it's a really good validation of our business strategy and what we've been building over the past few years, but it really won't impact how we think about overall capital or capital returns. So I'll just refer you to my previous answers on that question.

[Operator Instructions] There are no further questions at this time. Please proceed with the closing remarks.

Okay. Thank you for all your questions today, but we'll close the call now. Thank you.

This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.

Welcome to Lancashire Q3 2025 Earnings Conference Call. The speakers today will be Alex Maloney, Natalie Kershaw and Paul Gregory. I'll now turn the call over to Alex Maloney, Group Chief Executive Officer.

Okay. Thank you, operator. Good morning, everyone. Thank you for joining our call today. We're going to take the usual approach. I will give some highlights on the progress the business has made so far this year. Paul will then focus on the underwriting trends. Natalie will cover the financials, and then we'll go to Q&A.

I'm pleased to report that Lancashire continues to demonstrate the strength and resilience of its franchise, delivering robust results in a dynamic market environment. I'd like to highlight 3 key points. Our strategy remains central to our success. We continue to deliver disciplined profitable growth. Gross premiums are up 7.4% year-on-year, reaching $1.8 billion, supported by our diversified portfolio and disciplined underwriting.

Even with the sizable industry loss of California wildfires in Q1, our business is in excellent shape with growth delivered by our new U.S. platform and selective growth in our existing lines. You can expect to see more of this throughout 2026. Looking at the market more broadly, the margins remain favorable and most lines of business fundamentally well priced.

As we've talked before, after many years of rate increases, we're now seeing a more competitive market. We have yet to see more meaningful new capital enter the market rather being existing players looking to deploy more. It's still more capital in the industry, but it tends to be more disciplined capital.

Second, we are actively managing our capital from a position of strength. In addition to our underwriting profitability, investment returns have been strong year-to-date. Our overall result has enabled us to declare a special dividend of $0.75 per share, reflecting our exceptionally strong capital position whilst retaining capacity to continue to expand the franchise.

In addition, during Q3, we completed the minority buyout of Syndicate 2010, enhancing our flexibility and future earnings potential. Active capital management -- active management of our capital and risk exposures remain central to our strategy in order to deliver attractive, less volatile returns throughout the cycle.

Finally, we look with confidence to '26 and beyond. As I've said before, the quality of the business we have built and the talent we have within the organization together mean that we can continue to deliver on our strategy of delivering more sustainable returns for our shareholders. I'm extremely pleased that at this stage in the cycle, we have a healthy balance sheet to allow us plenty of flexibility to underwrite the opportunities we see.

With that, I'll hand over to Paul to talk you through the underwriting trends.

Thanks, Alex. Earlier this year, we set out our expectations for market conditions and our growth prospects in the context of those anticipated conditions. After 7 years of positive rating momentum, we expected 2025 to be the first year of rate softening. Our expectation was that this would be measured softening and that pricing in the vast majority of business lines was to remain very healthy and attractive. With this context, we still expect it to grow our premiums, albeit at a slower rate than in previous years.

With the natural organic growth we would see from the build-out of our U.S. operations plus organic growth in established product lines with continued increased demand from clients, we believe that we would -- we could deliver low single-digit growth despite the marginal headwinds of softening rates. To date, the market has behaved in line with expectation as demonstrated with our group RPI of 96%.

And we are currently at the upper end of our growth expectations with growth in gross premiums written of 4.8% if you exclude the impact of reinstatement premiums. It has been very pleasing to continue the build-out of the Lancashire franchise in what will be the eighth year of premium and product line growth. As expected, our growth has been aided by the development of Lancashire U.S.

The foundation clauses of property D&F and energy liability have continued to mature, and we've recently added our third product line being general casualty. Outside of the U.S., we have measured growth in our reinsurance lines, in particular, specialty reinsurance, which has been a growing class of business for us in recent years. As we look forward to next year, it is likely that 2026 will also see rate softening across a number of product lines.

We are strong believers in the insurance cycle, and it is likely that the supply of capital will outstrip increased demand, and therefore, there will be competitive pressure. However, importantly, we still believe that underwriting margins across the majority of business lines will remain healthy and attractive. Much like this year, we have options available to counteract the headwind of softening rate.

Firstly, our U.S. operation will continue to mature, both via our newly established products and also, we will continue to add further product lines. Additionally, as Alex has mentioned, we have successfully completed the purchase of the minority buyer of Syndicate 2010. This is simply more of the business we already underwrite and control, but will benefit both our top and bottom line.

Lastly, we should never forget that we're a reasonably large buyer of reinsurance. And in a softening market is not always completely negative. We will benefit from a broader, more competitive reinsurance that helps protect our net margin. As a far larger and more diversified business than at the same stage of the cycle last time, we have more reinsurance options and broader, stronger relationships with reinsurers that will allow us more reinsurance flexibility to help navigate the future market cycles.

I'll now hand over to Natalie.

Thanks, Paul. Hello, everyone. Despite the Californian wildfire loss in Q1, I'm pleased to report that Lancashire's franchise continues to deliver robust performance, underpinned by disciplined underwriting and our diversified portfolio. In my remarks, I'll discuss our insurance revenue, investment returns and capital management, including the special dividend.

Following on from the premium growth Paul has outlined, I'm pleased to say that our insurance revenue for the first 9 months was $1.4 billion, up 7.8% year-on-year. More of the premium we wrote in recent years is now hitting the P&L as earned revenue, which slightly outpaces the current year's written premium growth, which also includes reinstatement premiums related to the wildfires.

I'll touch briefly on the loss environment. As Alex mentioned, the third quarter of life major losses for us, and we had no new significant catastrophe loss events in Q3. Although the environment for risk losses remained active, consistent with trends we saw earlier in the year, the relatively benign quarter is in stark contrast to the first quarter of 2025. The absence of major events in Q3 obviously helps our results and puts us in a good position as we head into year-end. Overall, our underwriting performance so far in 2025 is solid. This underscores the benefit of our diversified portfolio.

Following the Q1 losses, the rest of the year has been manageable, allowing our underlying profitability to come through. The higher interest rate environment continues to benefit our investment portfolio. We achieved a total net investment return of 5.6% for the first 9 months of 2025, equating to $170 million of investment income and gains year-to-date.

The portfolio benefited from higher coupon income as well as some valuation gains on bonds. We also saw contributions from our private investment funds and about 20 basis points of our return came from foreign exchange gains. The portfolio remains conservatively positioned with an average credit quality of A+ and duration of 2.1 years. Thanks to our performance, our capital position is exceptionally strong. The Board has declared a special dividend of $0.75 to be paid in December, which amounts to roughly $182 million in total payout.

The special dividend reflects our excellent operating performance year-to-date and our philosophy of actively managing capital and returning excess to shareholders. We are able to do this while maintaining significant headroom above regulatory and rating requirements with plenty of room to continue to build out the franchise. This commitment to maintaining a strong capital base is demonstrated by our ability to additionally deploy capital by completing the buyout of the remaining third-party capacity in our Lloyds Syndicate during Q3, while still being able to make significant returns to our shareholders.

We invested just under $70 million to take our ownership of Syndicate 2010 to 100%. This strategic move enhances our control and flexibility at Lloyds and demonstrates our ability to deploy capital opportunistically without compromising near-term earnings or our ability to pay substantial dividends. In summary, Lancashire is in an excellent position as we head into the final quarter of 2025. We have good momentum and a very balanced portfolio. Year-to-date, we've shown that even with some large losses early on, we can deliver healthy profits and grow the business.

Thank you. I'll now hand back to Alex.

Thanks, Natalie. To conclude, I want to leave you with 3 key messages. Firstly, Lancashire's franchise remains strong and resilient, delivering disciplined growth and maintaining healthy margins even as market conditions start to evolve. Secondly, our capital position is extremely robust, allowing us to reward shareholders and invest in future opportunities.

And finally, we look to 2026 and beyond with confidence, supported by our talented team, our diversified portfolio and our commitment to delivering sustainable, attractive returns for our investors. And with that, we'll now go to the operator for questions.

[Operator Instructions]

Your first question comes from the line of Will Hardcastle with UBS.

The first one, just -- you just -- you touched on the U.S. platform and the opportunity for next year. I guess, is it possible to get sort of a run rate size of where that is today? And if you just annualize that growth, any sort of touch on quantification for that? I know you touched on, it is the maturity of the businesses and the new business lines coming on, but any sort of help there would be useful.

And then just touching on the man-made losses in the quarter, it sounds like it's continued from H1. Is it possible to say which lines of business these have arisen in? There was a reinsurer that discussed GL man-made losses as a man-made one, which worried me a little bit, but just touching on that, that would be great.

Will, it's Paul here. I'll take that first question regarding the U.S. Look, I think similar to what we said at the start of this year, you've got 2 kind of aspects of growth in the U.S. It's the lines that we established 18 months ago now that will continue to mature. And if you think back to when we grew out Syndicate 3010, you usually wait at least kind of 3 to 4 years before you've got a fully mature book. So on those lines, they kind of made good progress. We've made really good progress on those this year. They're very established and will continue to grow. We very much anticipate that to be the case next year.

I think as I said in my script, we've added one more product line this year. Our intention is to add further product lines. That will obviously always be on the same basis. Our product lines, we need the right people with the right business plans, but there's numbers of conversations going on all the time on that. So we will fully expect that platform to continue to build out.

Much like it has been this year, next year will be one of the engines for growth for us. Obviously, we don't split out the U.S. specifically in terms of premiums, but we called it out this year as an area that would aid our premium growth, and that has been one of the areas that's done that.

So on your question about losses, I think there was an interesting report that Aon published, I think, this week talking about the heightened risk environment. So I think what's important is, as the market starts to soften, underwriters don't forget that we are in a heightened risk environment. I think there's been some well-publicized downstream energy losses that you've seen in the last quarter. Obviously, there's some more activity in the airline space. So losses are still happening. Events are still there. So I think that's the message that we have given to our underwriters. We still need to be disciplined, but there are losses in the quartile, but there's nothing material for us clearly, but there's definitely some activity.

Your next question comes from the line of Shanti Kang with Bank of America.

So I was just curious what your expectation is for the upcoming renewal periods. What's going to be the area of focus for you guys and what pockets you're going to deploy your capital into? And then I saw that the RPI for this quarter was flat versus H1. And I was just curious if you found that, is that surprising at all to you? Or is there any reason why that was actually flat when we're seeing continued conversation about market softening? Obviously, it's a benefit, but just curious there.

And then the last question is just on your retro protection. I think you guys are still due to renew that ahead of 2026. How are you thinking about that for the upcoming year? Will you look to increase in areas or decrease at all?

Shanti, it's Paul here. I'll take the RPI one first. I wouldn't read too much into Q3. It's not necessarily a significant quarter for premiums, but I think it's fair to say the conditions that we saw in Q3 were very similar to what we saw in Q2. But as I said, it's not a significant quarter in terms of major renewals and we're tracking on an RPI perspective exactly in line with what we said at the start of the year, which was we did expect a marginal softening. So I think 96% RPI kind of would be marginal softening.

In terms of the upcoming renewals, I think, as I said in my script, we do think there will be some softening of rates as we move into 2026. As Alex alluded to, there is more competitive pressure because there is more supply of capital. There is still increased demand coming through, though, and we expect softening to be measured, but there are still really healthy margins in the vast majority of lines of business. So there are still areas in which we feel we can grow.

I think as I just answered in the last question, one obvious area is the U.S. platform. That's an area we continue to grow the existing lines and also add additional lines kind of outside of that. And as we've seen this year, we still, on the specialty reinsurance side, that's something we started to grow out a couple of years ago. That continues to mature. I'd expect that to also be an area of focus next year where we're going to have continued opportunity to grow.

And even on some of the property reinsurance lines, there are still clients out there looking to buy more limit, and underlying rates are still healthy. If we have core clients that want more limit, we will have the opportunity to grow with them at what are still very healthy margins. That probably covers your first question.

And then your last question, I believe, is on own retro. Yes, we renewed the vast majority of our non-marine reinsurance coverage, retro coverage, at the 1st of January. We are currently in the kind of buildup to that. Just like every other part of the market, we expect there's been more competition, which if the buyer is favorable. So we will look at that and we'll look to trade with our core partners through that.

I think until we get nearer to the nuts and bolts of renewal trying to call out exactly what we're going to do now is probably a little premature, but we do expect to have kind of a broader, more competitive price reinsurance as we move into 2026.

The next question comes from the line of Vash Gosalia with Goldman Sachs.

Two questions from my side. The first one on just your top line growth. So obviously, your guidance is low single digit. But feels like you're growing closer to mid-single digits. So just trying to think around that as to what should we expect for 2026, one. But also, could you then help us understand how much of this top line growth is just FX benefit because I don't think that's been broken out. So it would be great to know that.

The second question is just on the capital side. So obviously, you are in a strong capital position. But as I understand, there are some BMA model changes, which are yet to come. So just trying to think around this aspect a bit more quantitatively as to what should we be looking at which really reflects the strength of your capital? I mean any color or guidance on this would be really helpful.

Vash, I'll take the first question, and apologies because I'm boring on this, but I always remind everyone, when we give guidance at the start of the year and what we expect. But we're never driven by a top line target. We're always driven by opportunity, and that's something we drive into our underwriters all the time. Look, it's plaguing, we are tracking currently tracking ahead of, we said, low single digit, you're correct, if you strip out reinstatement premiums, we're closer to mid-single digit, but it's not an exact science. I'm obviously very happy that there's been opportunity to grow marginally ahead of where we guided. I think FX, to be honest, is relatively immaterial. So I don't think there's anything there to be concerned about predominantly U.S. dollar premiums.

Vash, it's Natalie. I'll take the capital question. I think as you can see from the special dividend and the purchase of the Syndicate capacity in the same period, we're exceptionally well capitalized. It's something that we focus on all the time where we've always been looking at capital flexibly. Anything that we can't deploy in the short term, we're very active in returning that to our shareholders. But we do like to retain some capital just to give us flexibility for opportunities arise such as the purchase of the Syndicate.

The BMA model changes are particularly concerning to us. The BMA, the FCR model is more constraining on capital, it's actually a rating agency capital that's more constrained for us. We have been bringing in the BMA man-made risk charges in over the last couple of years, and I think there's 1 year to go in our capital disclosures at the half year. I think you could see the impact of that in the investor presentation.

And we will be giving a bit more flavor on how we think about capital in our forthcoming Investor Day in December, so you'll get a bit more detail then as well. But the main message is that we remain exceptionally well capitalized.

Got it. I'll just wait for the December 2nd.

The next question comes from the line of Kamran Hossain with JPMorgan.

A couple of questions for me. The first one is just on the capital kind of distribution special dividends. How should we think about it? Should we think about historically in the past, you've done Q3 you've done special and then on occasion, you've topped up at Q4? Or should we think of it as you've done the Q3 special dividends you've invested I think very sensibly in Syndicate 2010. So that's kind of the capital you generated this year roughly gone? Or should we expect maybe a further evaluation of this in Q4?

And the second question is just on the return on equity guidance. From all your comments, even taking into account the man-made loss environment, it sounds like Q3 was pretty good, but there's no change to the return on equity guidance. I'm probably reading way too much into that, but I just wanted to confirm that.

Kam, on the special, we looked at the special the same way that we always see. We look at what capital is generated during the year, what we can afford to pay back as well as retaining some flexibility for the year-end, what reinsurance we purchase, what business we worry out 1/1. This year won't be any different to that. We'll think about the Q4 any potential special in the same way that we've always done.

As I alluded to, I think, as you know, we've always been exceptionally well capitalized, and we've always retained a little bit of buffer in there for things such as Syndicate buyout. So I think you almost need to think of the two things kind of separately, the specials, we'll continue to think about it in the same way as usual, and the Syndicate buyout was more or less using some of our capital hedging that we've built up over the last few years.

And then, Kam, on the guidance, we gave our updated guidance at half year, obviously, when we gave you some numbers and some context of that, that we're very happy where we are. We're very comfortable with the updated guidance where we are today. We've had a decent Q3, but as we've said, there are risk losses around. So I think at this point, we're happy where we are. We can demonstrate that we can return the capital. We're very well positioned for 1/1. So we're not updating that guidance today.

Kam, sorry, it's Jelena, just to add to that. What we gave you at the half year stage is very much a framework that helps to kind of think about the ROE. So we gave you on the basis of the same loss environment, as you saw in the second half of last year what the likely outcome would be. Obviously, it's never going to be exactly the same because losses always thought slightly differently, but it's given you hopefully a good framework of how to think about the likely outcome for this year.

The next question comes from the line of Joseph Theuns with Autonomous.

Just sort of thinking about your comments there Jelena about the ROE guidance. Again, sorry to lay around about this. But I think generally, the nat cat environment in H2 so far has been more benign than it was last year. So if this continues, is it fair to expect sort of an ROE upgrade kind of closer to what we saw in 2024, which was sort of the 20% mark? That's sort of the first question.

Second question is just, have you had any concerns or change in strategy for your U.S. E&S buildout amid pricing pressure that we've seen in recent quarters from some of the sort of U.S. commercial players there?

Joe, it's Jelena. I think on the ROE point, I mean, there's still 2 months of the year to go with. So you've got to, I think, a very nice framework as we have -- as we sort of say repeatedly, everybody's bonus in the business is dependent on an ROE. We all get remunerated in exactly the same way as our shareholders. So from that perspective, we're sort of fully tied into delivering a output of return as we can. Obviously, there's still 2 months of the year left to go.

Joe, on the U.S., I think the short answer is no, there's no change in strategy. Look, when we went into the U.S. we understood that we were, obviously, going in where market conditions were exceptional. We believe in the cycle. We know there's going to be times in the future when the rate environment is not going to stay at that level. The key to that is employing the right people with the right business plans that can operate through cycle.

So we're not sitting here surprised at all in the fact that some more competition has come back. That's what happens in our market when people make good returns, more competition comes back. So no, there's no change in strategy. The strategy is to employ good underwriters with solid business plans that will fit our culture, fit our underwriting philosophy and have plans that can work through all parts of the cycle.

And the next question comes from the line of Darius Satkauskas with KBW.

A couple of questions, please. The first one, can you give us any color on the buyout of the minority capacity economics? I'm interested in any color on how much you paid, what impact on earnings you expect, et cetera? And the second question is, what would be an appropriate haircut to the IFRS earnings to better reflect capital generated in regards to your capital constrained rating agency model? If you can give us any idea, that would be helpful. And then any color in terms of your thinking in regards to your property cat exposure, given that they should see the most softening going forward?

Darius, on your question about the buyout, as I said in my script, we paid about $17 million to purchase 100%. And then you can see from -- if you look at the Syndicate 2010 accounts from last year, we're getting another kind of 20% of that premium compared to what we had last year, which is around about $70 million. So if you assume consistent with last year, and then obviously, we expect that business to be profitable.

It's almost wrong way to think about it is that almost at the easiest acquisition you can do because we're buying our own business. We don't need any extra people to run it. And it just gives us more flexibility as well going forward. It also aids with things like our own out with reinsurance purchasing, et cetera. So it's just a really obvious thing to do with our capital, and we're really pleased that we managed to get that done. Can you just repeat your second question, please?

Obviously, IFRS -- sorry, IFRS earnings are not representing the capital you generated in relation to the binding constraints. So I'm curious if the capital returns are backed by the capital generated on your rating agency model, what's the real number? How much would we haircut the IFRS figures by to get to real reflection of sort of capital generation in regards to your rating model?

So any earnings that we're generating on an IFRS 17 basis will become capital from a rating agency perspective. There's no haircut there. So it's literally just the profit that you make in the year on whatever accounting basis you happen to be on. That generates capital for the rating agency models. So there isn't a haircut.

Darius, on your last question regarding property cat, I think where I'd like to start on that is, yes, you are seeing competitive pressure in some of the property cat lines undoubtedly and as I said in my kind of script, we'd expect that to continue into '26. But again, I'd remind everyone of there were quite significant strides made in both terms of pricing and more importantly, retention levels for that product in 2023. And whilst we do anticipate some pricing pressure from those very robust margins in '26, we do anticipate retentions holding, which is, in our opinion, incredibly important.

So with that kind of context, I think Alex said on our last earnings call, even with the buyout of Syndicate 2010, we don't expect -- we don't anticipate our net cap footprint increasing going into 2026, and that remains the case here today. I think, as always, the 1st of January is a significant renewal period for that class of business, but it's also, as I answered on the previous question, the main renewal date for our own outwards protection on our catastrophe book.

And obviously, when we look at things, we look at what's happening on our inwards book, but also what we can achieve in terms of renewal protection and look at the blended net result. So I don't anticipate us growing our net cat footprint going into 2026. We do believe there's still good margin. I think we're probably better positioned to answer that question post 1/1 when we have a far more line of sight. But as I said, I wouldn't expect us to grow in that area.

And the next question comes from the line of Abid Hussain with Panmure Liberum.

I think I've still got 3 questions outstanding. The first one is pricing. I'm just trying to get a flavor of where the pricing levels in terms of adequacy sit today by the sort of key lines that you operate in, in terms of how far does pricing need to soften further before it comes sort of inadequate or reaches breakeven levels? Any color on that, please? That's the first question.

And then the second one is just on growth. So at the current pricing levels, do you think you can see sufficient organic growth across the lines that you're focused on or indeed the lines that you just talked to in terms of pivoting to, in terms of the new lines? And I'm wondering, I guess, really would you consider M&A at this point in the cycle given the strength of your balance sheet?

And then just finally, coming back to the ROE, but not for this year, but for outer year and '26 in particular, just wondering how we should think about that? So investment returns are clearly strong. You're benefiting from asset leverage, but that's countered by some further moderation in pricing and growth of the top line as well. When I tie that together, in your mind, does that land in sort of mid-to-high teens ROE also higher or lower than that? Any color on that, please?

On pricing, I think, as I said in my script, through the course of this year, the vast majority of product lines still remain very well priced, healthy and robust margins in pretty much all lines. There's a way of exception and my upstream energy underwriters don't thank me for always calling out that class of business, which currently is 25% of it in size of what it was at its high when rating was really good. So there are some areas where we believe there isn't the opportunity to grow.

But in the vast majority of lines that you've seen this year, we have been able to still grow incrementally this year, and that's a sign of us believing that in the vast majority of product lines, there's good margin. I don't think I can sit here and go through each individual line of business. Our anticipation for next year as we've already said is that, we're likely to see some more softening. It will differ by line side -- sorry, it will differ by product line.

And I think as we always do, we kind of give a bit more guidance at the year-end when we've been through 1/1. We can give you some updated guidance on growth expectations and also our expectations on market conditions just like we did at the start of this year.

So on your question about M&A, I think we've always been very clear that we're happy to look at things. Most things we look at, the answer is no, quite frankly. As Natalie said, the acquisition of the buyer, of the name of, 2010 is a small but M&A for us, but a book of business we know. So it's an interesting market. You're seeing some activity recently. Generally, our view is that M&A is an opportunity for Lancashire because it can displace people, so we're going to see what happens in the next couple of quarters.

And we've always got an open mind to everything, but we are equally incredibly disciplined about M&A and Lancashire always take its own path and just won't sort of jump on the back of the trend, if that trend all happens from here. So there may be opportunities. It's an interesting market. We're always looking for people and products, and that may mean different things, but we'll always be incredibly disciplined about it.

Abid, it's Natalie, on your 2026 ROE question, we are intending to give some formal guidance to 2026 ROE with the Q4 results. You're definitely thinking about it in exactly the right way with what you said. And there's nothing there that you're missing. So I think you're probably on the right line.

[Operator Instructions]

The next question comes from the line of Andreas van Embden with Peel Hunt.

Just 2 quick questions. One on the syndicate buyout. I think you've now combined around $800 million of stamps capacity at Lloyds, if I'm not mistaken. I just wondered whether you would expand that stamp capacity into 2026 or whether you would first consolidate the syndicates and look to grow syndicate stamp capacity in 2027?

And my second question is on the casualty book. On casualty reinsurance, just wanted to check reserve quality. There's more noise around underwriting years 2022 to 2024. We've seen some reserve additions across insurance portfolios in the U.S. recently. I just wonder whether you're still comfortable with your loss picks, given where claims inflation is and where there's still enough headroom in your reserve buffers the reinsurance side.

And on the insurance side, I don't know whether I picked this up correctly, but are you entering the general liability market in the U.S.? And if so, why now?

So Andreas, because of the way the Lloyds business planning process works, we've already submitted our 2026 business plans to Lloyds, and they are on individual basis. So we will run Syndicate 2010, Syndicate 3010 separately during '26, but obviously, all the capital is now Lancashire. What we do past that, we haven't decided yet, obviously, I mean all that capital does give us more flexibility. And obviously, when you're talking about stamp capacity, again, I can't emphasize enough that we are the company that underwrites the underwriting opportunity.

So if we think we need to increase our stamp capacity, we will look to do that. We also still have a U.K. platform as well. So if something happened that we wasn't expecting, which meant we wanted to write more income, we can always do that inside Lloyds or outside of Lloyds. And obviously, Lloyds are very flexible in the approach of if we wanted to up our capacity, I'm sure we did have that conversation. So no firm plans for '26 to change the structure of the two syndicates we have. That may change going forward, but we haven't made that decision yet.

Andreas, on your two questions on casualty. On the casualty reinsurance book, yes, we've obviously seen a lot of the kind of commentary around more recent years. As we've said before, we've come from a very prudent position in terms of reserving. That hasn't changed. We remain very comfortable with how we've reserved.

We still believe there is good margin to be had over time from the business that we have underwritten. As we said before, we will continue to take a prudent approach to reserving of that class, given its long tail nature. But in summary, we are very comfortable with the reserving position that we have.

You are right. On the general liability side, we have recently added an underwriter and some additional underwriting team to support him from our U.S. operation, which is general liability insurance. Firstly, we believe we've hired a good underwriter that thinks about underwriting in the same way we do. We also believe there is an opportunity in that market. We're still seeing strong rate momentum. I know some others are going the other way.

But if you look at a number of the lines of business we added over previous years, it's generally when other people seem to be pulling out, and that's what creates the opportunity and the right momentum. So we fundamentally believe we've got the right person with a strong business plan. We will take the same approach on that in terms of prudent reserving as we have done on our casualty reinsurance portfolio, but we do believe there's an opportunity to build up a small book of general liability insurance from the U.S. operation.

Okay. And this is all E&S casualty rather than admitted market, right?

Correct.

And the next question comes from the line of Daniel Wilson with Morgan Stanley.

Just two quick ones, hopefully, quick for you guys. On Specialty Reinsurance, I've noticed, obviously, you said that was a key proponent of your growth in the reinsurance division, but I've seen others also talking about growing in this line. So just wondering if you're seeing any competitive pressures there? Or if you can talk about any trends you're seeing in that line of business.

And then on the U.S. build out, clearly, that drove a very high growth in your insurance division this quarter in discrete Q3. I'm just wondering how you're feeling about the, I guess, sustainability of that growth or how you're feeling about the U.S. build-out growth relative to your expectations year-to-date. If you could talk a little bit about that, that would be great.

Yes, sure. On Specialty Reinsurance, you're correct. There is competitive pressure there, much like we're seeing in a number of lines of business. But again, there's still good, healthy margin in the majority of those products, and there will be opportunities for us to grow with core clients that we've developed over the last few years. So we still believe there will be opportunities to kind of develop that book in 2026.

Kind of on the discrete Q3 kind of change in premiums, I wouldn't focus on it too much in terms of the trend, to be honest. We often have things move from quarter-to-quarter. We think about it in terms of our annual growth. And when we give guidance at the start of the year, that's how we think about it. And currently, obviously, we're tracking slight marginally ahead of the low single digit. We have had some large accounts move from Q2 to Q3, which is more driving kind of the Q3 growth.

It's not necessarily related to the U.S. There's also some classes of business like political risks that are very much one-off contracts and we have a couple of those in a quarter, particularly in a low premium quarter, that can skew things. So there's no fundamental underlying trend in terms of Q3. I'd focus more on where we are tracking versus our kind of annual guidance of low single digit.

And we have no further questions at this time. I would like to turn it back to Alex Maloney for closing comments.

Okay. Thank you for your questions today. We'll close the call there.

Thank you, presenters. Ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.