A ‘golden handshake’ amounting to a value of more than $10 million to Lancashire Holdings founder and retiring chief executive officer Richard Brindle impacted the reinsurer’s second quarter results announced yesterday.

The report stated: “Lancashire’s founding CEO retired during the second quarter. In recognition of his contribution to the Group, and in line with his contractual entitlements, he received a retirement package approved by the board.

“This included salary and benefits of $1.8 million, included in other operating expenses, and an accelerated vesting and cash settlement of RSS awards amounting to $8.2 million.

“Dividend equivalents that had accrued on the RSS awards amounted to $1.6 million. The settlement of the RSS awards and the dividend equivalent payment are reflected in contributed surplus within shareholders’ equity. The accelerated vesting gave rise to an equity-based compensation charge of $3.5 million.”

It continued: “Employee remuneration costs were higher in the second quarter and first six months of 2014 compared to the same periods in the prior year due to the retirement of the CEO noted above and a slight increase in headcount.”

Lancashire announced a decline in after-tax profits for the three months ending June 30.

The three-month figure was $44.8 million, compared to $56.2 million in 2013. The second-quarter results also showed a net operating profit of $43.4 million compared to $54.2 million last year.

Gross premiums written for the three month period were $318.4 million compared to $209 million last year. For the six-month period they were $635.1 million, compared to $423.9 million.

New group chief executive officer Alex Maloney provided an extensive explanation of the company’s operations in a soft market.

He said: “There can be no doubt that the additional capital in our industry, not just new capital, but also the undistributed retained earnings of many of our peers, is driving competition on pricing, terms and conditions. Most of this competition is still responsible and leaves acceptable underwriting margins and volumes for those underwriters like Lancashire, Cathedral and Kinesis who have the ability, experience and track-record that clients and brokers rely on to lead and structure policies.

“However there are areas of the market where there are instances of indiscipline, and Lancashire is always prepared to let underpriced business go. There have been some industry loss developments from prior years and events, but the second quarter itself has been relatively quiet in terms of major loss events, so there is no catalyst for pricing to move upward.

“Lancashire’s strategy since day one has always been to write the most exposure in a hard market and the least in a soft one. There are now abundant reinsurance and retrocession opportunities that allow us to maintain our core insurance and reinsurance portfolios, whilst significantly reducing net exposures and enhancing risk adjusted returns.

“There is some discussion about whether pricing has reached a floor, and there have been signs of overambitiously priced programmes being rejected. But on the whole we think there is still pressure on pricing and, with business more scarce in the second half of the year, we wouldn’t be surprised to see some aggressive renewal targets.”

Elaine Whelan, group chief financial officer, broke down the results: “The Group produced an return on equity (ROE) of 2.4 percent for the quarter with a combined ratio of 74.6 percent. Richard Brindle’s retirement package and warrant exercises reduced RoE for the quarter by 1.3 percent. Excluding that impact, our ROE would have been 3.7 percent for the quarter. ROE for the Lancashire Companies was 1.8 percent with Cathedral adding 0.7 percent. Acquisition adjustments were insignificant.

“Despite some mixed news on prior accident year claims, there were no major catastrophe losses in the quarter and we produced a respectable loss ratio of 34.9 percent. Our investment portfolio delivered a reasonable return of 0.6 percent.

“With the continued pressure on the trading environment, we expect to manage our risk levels accordingly,” she said.