Holdings Limited

THE

LANCASHIRE

WAY

Finding the right solutions

Annual Report and Accounts 2021

Risk

26 Enterprise risk management

31 Principal risks

Sustainability

The Lancashire Way – Collaborative

40 Chairman’s introduction

42 Lancashire Foundation

44 ESG strategy

45 People and culture

50 Sustainable insurance

51 Responsible investment

52 Operating responsibly

56 TCFD report

64 Stakeholder engagement and Section

172 responsibilities

Strategic report

Overview

2 KPIs

3 Our investment case

The Lancashire Way – Leadership

6 Chairman’s statement

Strategy

8 Business model

9 Strategy

10 Group Chief Executive’s review

Performance

The Lancashire Way – Aspirational

14 Financial review

The Lancashire Way – Nimble

18 Underwriting review

21 Business review

Our purpose is to…

Deliver bespoke risk solutions that protect our

clients and support economies, businesses and

communities in the face of uncertain loss events;

Manage our risk exposures and capital resources

to generate returns for our investors; and

Support our people and work with our

stakeholders, fostering a positive, sustainable and

open business culture to the benefit of society.

Governance

The Lancashire Way – Straightforward

68 Board of Directors

72 Corporate governance report

75 Committee reports

90 Directors’ Remuneration Report

112 Directors’ report

115 Statement of Directors’ responsibilities

Financial statements

116 Independent auditor’s report

125 Consolidated primary statements

129 Accounting policies

136 Risk disclosures

156 Notes to the accounts

Additional information

181 Shareholder information

183 Glossary

188 Alternative Performance Measures

190 Contact information

The Lancashire way is our distinct way of doing

things – always shaped by our values, which are

at the centre of our culture. We take a long-term

view that delivers on our strategic objectives.

THE

LANCASHIRE

WAY

Finding the right solutions

LEADERSHIP

Exhibiting passion and

commitment in all aspects of

Lancashire life and inspiring others

to do the same, we are…

ASPIRATIONAL

aspiring to deliver a superior

service for our clients, ourselves

and our business partners, we are…

NIMBLE

in our decisions, actions and

business processes, and

considerate of our environment

and wider society, we are…

COLLABORATIVE

valuing teamwork and a diversity

of skills and experience and sharing

in our success, and we are…

STRAIGHTFORWARD

in conducting our business in an

accountable, open, honest and

sustainable way.

THE LANCASHIRE VALUES

Group performance in a challenging year

KEY PERFORMANCE INDICATORS

Change in FCBVS Combined ratio Total investment

return

-5.8%

The negative change in FCBVS is primarily due to

our underwriting result which was adversely

impacted by net insurance losses of $470.5

million. Additionally the Group incurred higher

than normal financing costs due to one-off

expenses totalling $18.7 million related to the

refinancing of the Group’s debt. Investment

returns were low at $1.3 million.

107.3%

The combined ratio reflects the heightened loss

activity during the year, with the industry’s

natural catastrophe losses alone estimated at

around $130 billion, making 2021 one of the

largest ever industry loss years on record. The

combined ratio of 107.3% demonstrates that the

portfolio is more robust than in previous years as

net premiums earned grew to $696.5 million

from $475.8 million in 2020.

0.1%

In a year of significant volatility, the investment

portfolio generated a financial market return of

0.1%. The low returns were driven primarily by the

fixed maturity portfolios, given the significant

increase in treasury yields, resulting in unrealised

investment losses of $31.6 million recognised in

other comprehensive loss. These losses were

mitigated by the majority of the risk assets which

generated strong returns, notably the bank loans,

hedge funds and the private investment funds.

Total shareholder

return

Comprehensive income

returned to shareholders

Gross premiums written

under management

-25.8%

The decline in our share price during 2021

reflected the industry catastrophe loss

environment. In addition, sentiment around

climate change and the potential for increased

frequency of weather events also weighed on our

total shareholder return.

$43.3m

The Group has made a comprehensive loss of

$92.9 million in 2021. We continued to deploy

excess capital into the business to fund growth

opportunities and paid ordinary dividends of $36.4

million and repurchased shares of $6.9 million.

$1.5b

During the course of the year, and in light of a

‘hardening’ pricing cycle, the Group was able to

grow gross premiums written to $1.2 billion.

Including the external Name’s portion of

premiums written in Syndicate 2010 plus the

premiums written in LCM on behalf of KRL we

were able to grow our gross premiums written

under management to $1.5 billion.

17 18 19 20 21

-5.9

14.1

2.4

-5.8

10.2

17 18 19 20 21

124.9

80.9

92.2

107.3

107.8

17 18 19 20 21

2.5

4.9

0.8

0.1

3.9

17 18 19 20 21

9.4

34.3

-12.7

-25.8

-1.4

100

17* 18 19 20 21*

70.2

N/A

132.9%

20.7%

284.2%

30.2

32.3

43.3

29.9

Ordinary / special dividends and shares repurchased ($)

Comprehensive income returned to shareholders

Due to 2021 and 2017 being N/A the five year %

average is not calculated.

17 18 19 20 21

777.6

934.8

842.1

1,503.4

1,067.1

KPI linked to Executive Directors’ remuneration.

For more information see pages 88 to 111.

APMs refer to page 188.

Five-year average

Key

Bold text refers to GAAP measures

Lancashire Holdings Limited

Annual Report & Accounts 2021

To generate attractive returns across the

insurance cycle

OUR INVESTMENT CASE

Energy Marine

Property and casualty reinsurance Property and casualty insurance

Aviation

2017 2018 2019 2020 2021

1,500

1,200

900

600

300

600

900

1,200

1,500

2021202020192018201720162015201420132012

GPW ($m) 1-in-100 GoM hurricane 31 December PML ($m)

GPW ($m)

Probable Maximum

Loss ($m)

100

150

200

250

300

350

Strongly capitalised Valuing diversity Sustainable operations

$1.9b

2021 refinanced debt and capital raised in 2020

deployed to fund record growth.

50%

Percentage of women in Group senior management.

15%

Target to reduce own emissions per FTE by 2030

and carbon net-zero by 2050. Calculated GHG

emissions fully offset.

Rating momentum continues Responsible business Top employer

109%

Group RPI of 109% for 2021 with strengthening

in market pricing.

$21.8m

Donated to charitable organisations since 2007

through the Lancashire Foundation.

Top 10

LICL named a ‘Top 10 Employer’ in Bermuda in

October 2021.

Building the franchise Strong ratings

Ongoing investment in new products and expertise with the addition of three

new teams of highly experienced underwriters adding to our existing talent.

In 2021 gross premium written increased by 50.5% year-on-year to a record

$1.2 billion.

Strong ratings from major rating agencies.

A.M. Best Company: A (Excellent)

Standard & Poor’s Global Ratings: A-

Moody’s Investor Service: A3

Actively managing exposure dependent on market conditions

Gross premiums written

3www.lancashiregroup.com

Overview

LEADERSHIP

THE LANCASHIRE WAY

We exhibit passion and commitment

in all aspects of Lancashire life and

inspire others to do the same

Lancashire Holdings Limited

Annual Report & Accounts 2021

“The premium growth that Lancashire

has seen during 2021 is testament to

the commitment and enthusiasm of our

employees and to a culture which

understands and delivers on the

business’s strategic priorities.”

Peter Clarke

Non-Executive Chairman

Overview

5www.lancashiregroup.com

CHAIRMAN’S STATEMENT

Q: How did the business perform in 2021 and what

effect did the heavy loss year have on the Group?

A: The catastrophe (re)insurance business which the Group

underwrites is subject to variability in losses and, in 2021, we saw

above average volatility with a number of large weather-related

loss events, as well as specialty losses, which have impacted many

across the industry. Industry-wide estimates place 2021 as one of the

costliest years for insured losses on record. For Lancashire the losses

affected our returns with a combined ratio of 107.3% and a negative

change in FCBVS of 5.8%. Naturally, any losses are disappointing,

but it is important to stress that those we saw during 2021, while

they were both diverse in their nature and unusually frequent, were

otherwise within our expectations and risk tolerances for events of

this magnitude.

The modelling, risk management and pricing for catastrophe loss

events, including those driven by climate change factors, is constantly

evolving and a central part of our business model.

While losses for the industry mean disruption and extreme hardship

for communities and individuals we should always recognise the

human impact these events have. Lancashire’s purpose is first and

foremost to deliver risk solutions that protect people, economies and

businesses from the effects of uncertain events. We are here to get

our clients back on their feet as soon as possible.

For the 2021 year the strategic imperative for our business was to

deploy the capital which we raised during 2020 into an improving (re)

insurance pricing environment. The business delivered strongly on this

priority with an increase in gross premiums written of 50.5%, in line

with our strategic ambitions. This represents our strongest year-on-

year top-line growth since the business was established in 2005. As

market pricing has improved, Lancashire has taken advantage of new

opportunities. We are continuing to build out our franchise, adding

new product lines, while always retaining our strict focus on

underwriting discipline to deploy our capital nimbly through the cycle.

Our reserving philosophy is also well established. Despite the

challenges of the last year, we remain comfortable with our capital

position and Natalie talks more about this in her Financial Review on

page 14.

So, on balance, the Board is satisfied that despite the negative impacts

of losses on our short-term profitability for 2021, the impressive

growth achieved during 2021 positions the Group strongly to deliver

attractive returns across the cycle.

Q: What were the main areas of focus for the Board

during 2021?

A: The primary focus of the Board has been continued oversight of

the Company strategy and its delivery, and operational performance.

Our Board has challenged and discussed the business’s operational

resilience during the COVID-19 pandemic, and I am pleased that

management have led a strong and nimble response during

testing times.

Lancashire’s strategy has been consistent for many years and the

Board has discussed with the management team the opportunities

that have been presented by a ‘hardening’ market and how we can

best deploy our available capital to match the underwriting

opportunities.

Responding nimbly through the cycle

“Lancashire has taken

advantage of new

opportunities. We are

continuing to build-out

our franchise, adding new

product lines, while always

retaining our strict focus on

underwriting discipline to

deploy our capital nimbly

through the cycle.”

Peter Clarke

Non-Executive Chairman

Lancashire Holdings Limited

Annual Report & Accounts 2021

These opportunities include the continued growth in the underwriting

portfolio in both existing lines and in new initiatives such as the

casualty reinsurance book and Direct and Facultative (D&F)

commercial property within the Australia and New Zealand markets.

Our careful monitoring of exposure and capital to meet the strategic

requirements of the business has allowed us the flexibility to deliver

the significant growth in premiums we have seen during 2021.

The Board has also addressed the importance of operational

effectiveness and is confident that the business has the talent

required, within both its underwriting and support functions, to

best position the company to deliver its strategy over the coming

years. This includes oversight of various business transformation

projects currently underway with a clear emphasis on strengthening

our capabilities to grow and move the organisation forward in an

efficient way.

Q: How are you addressing issues of climate and

wider societal change?

A: Sustainability and strong governance have become an increasing

focus for all businesses. Across sectors, people are increasingly alive

to the issues facing the planet and, during 2021, we have seen

considerable efforts by governments and others to gather a consensus

for a way forward. The Board has discussed issues of climate change,

sustainability and governance regularly and we will continue to

monitor developments. The Lancashire way is being straightforward,

open and honest. Many of our clients, and other stakeholders, are

working towards mitigating their impact on the environment or

assisting in tackling some of society’s broader issues of dislocation and

we will continue to give them our support. There are no easy solutions,

but we recognise the importance of constructively supporting our

clients through this period of global transition. In our TCFD report

on pages 56 to 63 we set out those steps we have taken during the

year in monitoring, measuring and controlling the impacts of climate

change within our business in particular in our core activities of

underwriting and investments.

The Board is extremely pleased to note that 2021 marked the 15th

year of charitable donations from the Lancashire Foundation. These

donations, totalling $21.8 million during this time, have been given

to long-standing charitable partners such as Médecins Sans Frontiers,

in recognition of their phenomenal work assisting those affected by

natural disasters, and other charities nominated and supported by

our employees. A comprehensive review of our sustainability and

governance activities begins on page 40.

Q: What is the company’s strategy regarding

dividends?

A: We have not changed our dividend and capital management

strategy in 2021. Our position is understood by our shareholders, and

we will continue to redeploy excess capital into the business to fund

growth opportunities where we consider this is the right thing to do.

The Group paid an interim dividend during September 2021 and,

subject to the shareholder vote at the 2022 AGM, we propose to pay

a final ordinary dividend of $0.10 per common share unchanged on

prior years. Further information can be found in the notice of the 2022

AGM on page 113. Our dividend policy is also set out on page 112.

Peter Clarke

Non-Executive Chairman

Q: What is the ‘Lancashire way’?

A: The ‘Lancashire way’ is what makes

Lancashire unique. Many businesses say

they have solid values or that they respect

and support their staff, but Lancashire does

both with distinction. The (re)insurance

industry can be challenging, but it is how

you meet and overcome those challenges

that is important. It is vital to have strong

leadership, and Alex Maloney and the

senior team have a clear vision of how

to deliver on our strategy and purpose:

to prioritise underwriting excellence in

delivering risk solutions for our clients;

effectively balancing risk and returns; and

responding nimbly through the (re)

insurance market cycle. It involves a focus

on our people and our stakeholders and

creating a sustainable business which

contributes positively for our investors and

for wider society.

The Lancashire way is how the whole

business supports that vision and how

every employee, regardless of their

seniority or function, has a role to play.

The growth that Lancashire has seen during

2021 is testament to the commitment and

enthusiasm of our employees and to a

culture which understands and delivers on

the business’s strategic priorities. We have

added a number of new underwriting

teams, and others in support functions,

during 2021 and this has been achieved

against a backdrop of above average

market losses and the operational

disruption resulting from the COVID-19

pandemic. Our new employees are

attracted to the business because of the

Lancashire way of doing things –

approaching each task with an open mind,

a willingness to collaborate, and a focus on

acting responsibly.

7www.lancashiregroup.com

Overview

Our culture

The bedrock of our business is a culture of cooperation and respect based on open challenge

A model for success

BUSINESS MODEL

OUR STRENGTHS

Customer focus

• Long-term established

relationships with clients

and brokers

• Continuous support

across the cycle

• Prompt payment of

valid claims

Expert people and

specialised products

• Experienced management

team and skilled operational

teams with proven ability

• A lean business operation

allows us to remain nimble

and make decisions efficiently

• Highly-specialised multi-class

products with market barriers

to entry in terms of data and

modelling expertise

Disciplined risk and

capital management

• Rigorous systems for risk

monitoring and management

• Strong record of capital

management

• Manage volatility by

optimising capital and the

underwriting portfolio

through the market cycles

A diverse offering

• Three established platforms:

Lancashire Insurance

companies; Lancashire

Syndicates; and Lancashire

Capital Management

• Access to multiple markets

providing clients with

versatile solutions and

ourselves with underwriting

opportunities

• A stable core book of business

and disciplined underwriting

Our people

88%

overall engagement score

Our policyholders

$312.1m

gross losses paid in 2021

Our shareholders

16.9%

Compound annual change

in FCBVS since inception

Society and the environment

$21.8m

Donations since 2007 by the

Lancashire Foundation

THE VALUE WE CREATE

Underwriting

comes first

Delivering bespoke risk solutions

in a sustainable framework

Operate nimbly

through the cycle

Maximise risk-adjusted returns

Effectively balance

risk and return

Peak-zone PML limits

of 25% of capital

OUR STRATEGY

Lancashire Holdings Limited

Annual Report & Accounts 2021

STRATEGY

Our strategy

Description

We focus on maintaining our portfolio structure

and our core clients, with the bulk of our

exposures balanced towards significant events.

We will grow in existing and new classes where

favourable and improving market conditions exist.

We use the principle of peer review throughout

the Group, usually prior to underwriting business

for LICL, LUK and LCM, the platforms that accept

larger net exposures, and post-underwriting at

LSL, with its smaller net exposures.

By bringing together all our disciplines –

underwriting, actuarial, modelling, finance,

treasury, risk and operations – at our fortnightly

RRC meetings, we are able to look at how different

parts of our operations are working together. We

tailor our reinsurance programmes to manage our

exposures and we stress test our business plans

and gauge where we can be most effective

without undue volatility. Management reports

on risk exposures and mitigation to the Board.

As capital supply fluctuates in the (re)insurance

market, the need to be nimble is more important

than ever. This means being ready to deploy

capital quickly when it is needed, and having

the discipline to return it when it is not.

Achievements

We continue to add new expertise to the Group.

In 2021, we added a construction and engineering

team, an Australian D&F property team, and

underwriting talent to our existing expertise

in our marine and energy segments.

We have increased our underwriting footprint

and optimised our portfolios in areas where rating

has improved, whilst adding new complementary

classes of business as the market conditions

are now improving.

In line with our active capital management

strategy, during 2021 the Group decided to

refinance its debt obligations to make them more

capital-efficient and allow for additional funding

of profitable growth opportunities. The Group also

distributed regular dividends during the year.

Associated strategic risk

Strong risk selection remains the key risk for

the Group. We mitigate this by maintaining

our underwriting standards, whilst growing

with the market opportunity.

The key issue for Lancashire is to continue to serve

our clients and brokers with significant capacity,

whilst ensuring that the portfolio is balanced. This

means constantly reassessing our business mix

and testing key risk assumptions.

Lancashire has developed an expectation among

its shareholders that it will produce a consistent

return and pay ordinary dividends, with

supplementary special dividends only when it

makes sense to do so. We believe our shareholders

understand that in harder markets Lancashire will

retain, and potentially even raise, capital to take

full advantage of underwriting opportunities.

Our goal

Maximising risk-adjusted

returns for shareholders

Underwriting comes first

Maintaining the right balance between

discipline and creativity is key for success,

coupled with a strong focus on profitability

and risk selection.

Operate nimbly

through the cycle

Our speed and agility in the way we manage

volatility help us underwrite our core

portfolio profitably through the challenges

of the cycle, yet seize opportunities when

they present themselves.

Effectively balance

risk and return

Exploring opportunities for top-line growth

in markets where we believe the right

long-term opportunities exist and rigorously

monitoring and managing our risk exposures.

Our strategic priorities

9www.lancashiregroup.com

Strategy

GROUP CHIEF EXECUTIVE’S REVIEW

Q: How did the loss environment in 2021 impact the

Group’s performance?

A: Financial losses are always disappointing but 2021 was only the

second full financial year that Lancashire has made an overall loss

since its inception, with a negative change in FCBVS of 5.8%.

Industry-wide estimates place insured losses from natural

catastrophes during the year between $105 billion and $130 billion

making it one of the most expensive on record and resulting in a

combined ratio for Lancashire of 107.3%.

As always, we have followed our established reserving philosophy,

which has served us well over time, and the losses were within the

risk tolerances for each of the lines.

The weather and large risk events, which were distributed across a

number of classes, offset our strong underlying profitability after

nearly four years of rate increases, as shown by improvement in

our attritional loss ratio.

In the face of 2021’s heightened loss activity, the build-out of our

franchise that we have targeted over the past few years still had a

positive impact. We went into 2021, and go into 2022, with a more

diversified portfolio of products because we believe these offer the

best underwriting opportunities for long-term profitability.

Our underwriting expertise across classes – both catastrophe and

non-catastrophe – means that we have a much more stable business.

For example, our 2021 combined ratio compares favourably with that

of 2017, which saw lower total catastrophe losses.

This transformation of the business into one which is better able

to withstand and absorb significant loss events is testament to

the groundwork that we have put in during recent years.

As a risk business, we are always going to be exposed to a variety

of events, across classes, which can impact our performance but

the growth we have seen during 2021 has been outstanding and

I believe significantly increases our resilience over the long-term.

Despite the disappointing returns of the past year, we are fully

energised by the prospects for 2022 and profitable growth remains

our main goal.

Q: In which areas has the business seen growth

during the year?

A: For the last few years, we have focussed on putting in place strong

foundations on which to build when the market cycle offered

significant opportunities for growth. Our long-held strategy is to

operate nimbly through the cycle, and I am a firm believer in the

cyclical nature of (re)insurance markets. 2021 was a year when we saw

strong momentum in the right direction for a business like Lancashire,

which has taken the time and effort to build a bench of underwriting

talent and the internal processes needed to take advantage of more

positive pricing.

I am pleased to say that we are seeing growth across most classes of

business that we underwrite. In fact, many are now in their fourth year

of positive rate changes, and we believe that will continue into 2022.

For 2021, we reported an increase in gross premiums written of 50.5%

to $1.2 billion which is an exceptional achievement. Much of this

growth was driven by the property and casualty reinsurance segment

where we have seen both new business and rate increases. We never

stand still when there are opportunities for profitable and considered

growth and I am pleased about the performance of our casualty,

accident and health, and specialty reinsurance classes. We have a

Taking advantage of the opportunities

“Our focus on the long term

means that we have the

people and expertise to

drive profitable growth.”

Alex Maloney

Group Chief Executive Officer

Lancashire Holdings Limited

Annual Report & Accounts 2021

pipeline of premiums coming through and I am confident that our

investment in new talent was the right thing to do. The premium

growth also reflects the growing diversity of our risk portfolio which

will allow us to more effectively deploy our capital and manage

volatility within our portfolio. We have great people at Lancashire

and our new teams join what I believe is already one of the strongest

companies in the sector.

Q: How has the business strategy changed in 2021?

A: When you set a strategy, you have to believe in it. It has to be

the essence of how you operate. Our strategy hasn’t changed in

its fundamentals since the business was founded – we believe that

underwriting comes first; we need to balance risk and return; and

importantly have the agility to operate through the cycle. 2021 was

undoubtedly a challenging year, due to the impact of a series of

industry loss events, which in the short term have adversely affected

our profitability and growth in book value, but we will continue to

deploy our long-term strategy at this stage of the cycle. Sometimes

you also need a little patience, and I am excited that we are now

seeing the positive market changes that we have been predicting.

Everything we do is driven by the underwriting opportunity. I believe in

the long-term and in navigating the Group with a clear focus on what

we are doing and where we are going. That means future-proofing the

business through investment in talent and ensuring operational

efficiency with a laser-sharp focus on getting the fundamentals

of the business right.

Q: What opportunities are you seeing going into 2022?

A: This is a really exciting time in the market cycle. But you can’t just

go with the flow, you have to be in a position to take advantage of the

opportunities it offers. In the last couple of years, we have raised

equity and restructured our debt which has put us in a great position

from a capital perspective to support our underwriting plans. We have

a strong capital position and it’s one that I am very comfortable with.

The challenges of 2021, where we saw a particularly active catastrophe

year, can also offer opportunities for growth as others in the market

move out of some classes. Our focus on the long-term means that we

have the people and expertise to drive profitable growth where it

makes sense for us to do so and take advantage of the rate

improvement that comes following a year of heightened loss activity.

The opportunities for 2022 are there, with expected rate increases on

our existing portfolio, our new teams delivering additional premiums,

and new business growth within existing lines of business both

catastrophe and non-catastrophe. While we aim to grow during 2022,

we will do so with a business that is better balanced through the

diversity that our specialty and casualty non-natural catastrophe

business brings. This is not diversification for diversification’s sake but

a clear delivery of our strategy to take the opportunity to write classes

of business that contribute profitably to our portfolio mix.

Alex Maloney

Group Chief Executive Officer

Q: What does the ‘Lancashire way’ mean to you?

A: It’s the way that parts of the business can come together

creatively to find the right solution, whatever the question. It is

our distinct way of doing things always shaped by our values,

which are at the centre of our culture. We regularly challenge

ourselves and ask whether we are living up to those principles.

These values are so embedded within our company DNA that

we don’t always realise how special that is.

A strong and positive corporate culture isn’t a by-product of

success but the reason for it. Despite our recent growth, we are

still a relatively small company, so we get to know each other,

and our flat hierarchy gives everyone a voice and an opportunity

to do their best.

The Lancashire way also means listening to our people and

encouraging them to challenge us, bring in new ideas, and find

new ways of doing things. One thing that has become clear

during my time as Group CEO is that you will only succeed if you

work as a team and feed off the energy that comes from

collaboration and finding the right answers together.

A practical example of this in 2021 was in the evolution of how

the business addresses ESG themes.

To better align our consideration of sustainability and governance

matters I took action to establish the Lancashire ESG Coordination

Committee (the ESG Committee) and the CCWG, both of which

include senior representatives from across the business. They

analyse a range of topics and make recommendations to senior

management and ultimately the Board.

Every employee has been on a personal journey to get here. They

bring those experiences with them and that helps to create an

incredibly vibrant and stimulating environment. We don’t cut

corners, but we do find the quickest route to a solution. At its

heart, the Lancashire way is harnessing the skill, passion and

dedication of our people. I am incredibly proud to lead this

company and I want to take this opportunity to thank every

one of our employees for their hard work and support.

11www.lancashiregroup.com

Strategy

ASPIRATIONAL

THE LANCASHIRE WAY

We aspire to deliver a superior

service for our clients, ourselves

and our business partners

Lancashire Holdings Limited

Annual Report & Accounts 2021

“We have a very strong

culture, underpinned by our

strategy and values, and I

am really proud of what we

are achieving together.”

Natalie Kershaw

Group Chief Financial Officer

Performance

13www.lancashiregroup.com

FINANCIAL REVIEW

Q: What has 2021 been like from your perspective?

A: In a year characterised by an active loss environment, we remained

resilient and importantly continued to build on our strong foundations

for the future. We have been busy developing our teams for new

underwriting opportunities, including in support functions, to provide

a strong platform for the growth that we have seen this year and

expect to continue in 2022.

Although the extent of losses in 2021 is obviously disappointing for us,

it is estimated to be among the costliest years for insured losses since

1970. Our efforts to grow the business and diversify our portfolio of

products over the past couple of years were successful in providing a

ballast to the catastrophe losses, with total catastrophe and large

losses of $306.4 million resulting in a combined ratio of 107.3%. For

comparison, Lancashire’s 2017 catastrophe and large losses totalled

$213.7 million and resulted in a combined ratio of 124.9%.

Our overall comprehensive loss of $92.9 million was also impacted by

unrealised losses on our fixed maturity investments, given increases in

treasury yields in the year, as well as one-off financing costs due to

our Tier 2 debt issuance.

So while 2021 was a frustrating year, we have made a lot of progress

including refinancing all our debt to make our capital structure more

efficient.

Q: Has Lancashire’s reserving philosophy changed

during 2021?

A: Our approach to reserving for catastrophe losses is well established.

We utilise actuarial modelling techniques, historical loss experience

analysis and professional judgement to estimate ultimate losses. For

catastrophe loss events we bring together a highly-skilled team from

across the Group, including underwriters, claims and actuarial staff, as

well as senior management to review all our potentially exposed lines

of business. This enables us to assess the likelihood of claims arising

within our underwriting portfolio.

Building for growth

“We are in a strong position,

with sufficient capital

headroom, to deliver value

from positive market pricing.”

Natalie Kershaw

Group Chief Financial Officer

Financial highlights

2021

2020

2019

2018

2017

Gross premiums written 1,225.2 814.1 706.7 638.5 591.6

Net underwriting profit (loss) 69.0 77.0 186.5 121.7 (23.1)

(Loss) profit after tax

(62.2) 4.2 117.9 37.5 (71.1)

Comprehensive (loss) income

(92.9) 24.3 145.7 24.7 (66.2)

Dividends

36.4 32.3 30.2 70.2 29.9

Diluted (loss) earnings per share ($0.26) $0.02 $0.58 $0.19 ($0.36)

Fully converted book value per share $5.77 $6.28 $5.84 $5.26 $5.48

Change in FCBVS (5.8%) 10.2% 14.1% 2.4% (5.9%)

Combined ratio 107.3% 107.8% 80.9% 92.2% 124.9%

Accident year loss ratio 81.0% 71.4% 51.3% 70.0% 94.2%

Total investment return 0.1% 3.9% 4.9% 0.8% 2.5%

1. Amounts are attributable to Lancashire and exclude non-controlling interest.

2. Dividends are included in the financial statement year in which they were recorded.

Lancashire Holdings Limited

Annual Report & Accounts 2021

Due to the types of specialty and casualty business that we write, we

are also exposed to large risk claims, which can take some time, often

years, to settle. This means that there is uncertainty in the reserving

process and we can experience substantial swings in prior years’

reserves either moving for or against us. However, I would stress

that we have had overall favourable prior year loss development

in every calendar year since the Company was founded.

Q: How would you summarise the Group’s capital

position following the 2021 industry losses?

A: 2021 was undoubtedly a challenging year for the whole industry.

Despite the significant loss events we have seen, I remain very

comfortable with our robust capital position. Our strategy is to

actively manage our exposures dependent on market conditions

and match our capital to support the underwriting environment.

This means having the available capital to support profitable growth

opportunities when they arise. We raised $340.3 million in equity

capital during 2020 and an additional $123.0 million of debt capital in

2021. This has enabled us to substantially grow our premium base. We

see opportunities to grow our premium continuing into 2022 and we

are in a strong position, with sufficient capital headroom, to deliver

value from positive market pricing. Looking forward, the planned

growth in 2022 is expected to be focused in less capital-intensive lines

of business. The small repurchase programme of one million common

shares totalling $6.9 million in the fourth quarter of 2021 funded

future exercises of awards under our RSS.

Q: How has the business approached preparations for

the IFRS 17 changes?

A: The transition to IFRS 17 is the biggest insurance accounting change

for more than a generation. We have been working hard to ensure that

our systems, data, processes and people are ready for the parallel

testing in 2022 and final implementation in 2023. This has been a

real collaborative effort with teams from accounting, actuarial and IT

working together. It has also been an opportunity to review how we

work and to make sure that we are delivering financial information to

the business in the most efficient way possible. The transition to IFRS

17 is just one of the business transformation projects that Lancashire is

currently undertaking. Going forward we aim to harness data more

effectively to position the business for future growth while reducing

operating costs and inefficiencies.

Natalie Kershaw

Group Chief Financial Officer

Q: What does the ‘Lancashire

way’ mean to you?

A: I’ve been with Lancashire for 12 years

and have held a number of different roles

in both London and Bermuda before

becoming the Group CFO in 2020. During

my time here I have come to recognise and

value the people that we have throughout

the organisation. We have a very strong

culture, underpinned by our strategy and

values, and I am really proud of what

we are achieving together. We attract

high-quality people to the business who

are not only technically skilled in their

individual areas but who also add

something more personal to the Group.

This strengthens not just what we do,

but also how we do it. As a meritocratic

business we also work hard to promote

from within when we are able to do so

(see page 46).

15www.lancashiregroup.com

Performance

NIMBLE

THE LANCASHIRE WAY

We are nimble in our decisions, actions

and business processes, and considerate

of our environment and wider society

Lancashire Holdings Limited

Annual Report & Accounts 2021

Performance

17www.lancashiregroup.com

UNDERWRITING REVIEW

We will look back at 2021 as a transformational year for the future of

Lancashire underwriting. The pieces of the puzzle that we have been

putting together over the past few years are coming together to

create a far more robust underwriting portfolio and team that will be

better placed to navigate the inevitable market cycles that await us in

future years. At the same time, 2021 has been an extremely difficult

loss year and frustratingly this masks the progress we have made.

Our strategy is to build when market conditions are favourable, and

we have been doing so since the turn of the market in 2018, and in

2021 the pace of this build accelerated. We have an opportunity to

future-proof our business and during the year we have continued to

make that happen. We have made great strides with further

investment in people and teams, both existing and new, as well as

having a record year for premium growth. This is exactly what you

would expect Lancashire to do. We manage risk levels according to the

underwriting cycle. This underwriting philosophy has never changed.

Our investment in people continued as we build out our underwriting

bench strength. By the end of 2021 our underwriting team had

increased by approximately 50% since 2017. We remain a people

business and therefore this investment is crucial to our development.

Throughout our history we have been a big believer in promoting from

within and this continues with a number of our existing underwriters

being promoted into more senior roles. This allows for career

progression at Lancashire whilst a new set of voices provides

constructive challenge. Alongside this we continue to invest in

new talent to complement the team we already have. This can be

underwriters joining us to develop new classes of business or new

talent within existing classes to bolster our expertise. Adding new

staff from outside the business brings with it fresh ideas that help

the business to improve further. As we continue to build and grow,

ensuring we add underwriting talent is critical to our future success.

In 2021, we have delivered 50.5% of year-on-year premium growth

with total premium of $1.2 billion – more than double the premium we

underwrote at the end of the soft cycle in 2017. The various capital

actions in recent years, retained earnings and a capital raise and debt

“Our strategy is to build when

market conditions are

favourable, and we have been

doing so since 2018, and in

2021 the pace of this build

accelerated. We have an

opportunity to future-proof

our business and during the

year we have continued to

make that happen.”

Paul Gregory

Group Chief Underwriting Officer

A transformational year

Q: How do the underwriting

teams at Lancashire

incorporate ESG thinking

into their decision making?

A: Sustainable underwriting is one of the

pillars of our Group ESG strategy (see

page 44). However, in a complex world

there are many challenges and we

understand that there are not always

easy solutions. The risk solutions that we

provide help protect people, companies

and economies from uncertainty and

give them confidence and stability. Our

property (re)insurance products insure

clients against the risk of major weather

and other catastrophic events and we

have long-standing expertise in this area.

In our energy portfolio we support our

clients’ transition to renewable energy

and insure a number of projects, from

wind and solar farms to biomass facilities

and others. Our product offering will

continue to evolve to meet the changing

needs of our clients in supporting the

world’s net-zero target. Within our

political risk team, we also insure

infrastructure projects which include

those designed to improve access to clean

water for communities in the developing

world. We are committed to playing our

part in making the world more sustainable

in an open and honest way. To help us with

this, during 2021, we put in place a number

of internal underwriting guidelines focused

on consideration of climate change and

other ESG factors in line with our values.

Lancashire Holdings Limited

Annual Report & Accounts 2021

issuance, positioned us for growth at a time when market conditions

across most lines of business were in their fourth year of rate

increases. A further improvement of rating and the addition of

new lines of business combined to produce the significant level of

growth we have seen. We maintain a very healthy capital position

to fund future growth should the opportunity dictate.

Whilst the investments in people and growth in the underwriting

portfolio have been very pleasing, obviously a combined ratio that

is the wrong side of 100% is far less so. We know that significant

progress has been made within our underwriting function which

should ultimately benefit the Group profitability for the long term.

The combined ratio of 107.3% does however demonstrate the

portfolio is far more robust than in previous years. There were

heightened levels of loss activity in 2021 with natural catastrophe

losses alone estimated at around $130 billion making 2021 one of

the largest ever loss years on record. Our strategy, to broaden our

underwriting footprint when the market rating has been improving,

has strengthened our portfolio to be better positioned to absorb

larger losses and build a more robust business for the future. As our

investments of recent years continue to mature we should continue

to see the benefit of this in our underwriting returns across the cycle.

Property and casualty reinsurance

2021

2020

Gross premiums written 560.0 279.8

RPI 109% 108%

This is the segment within which we have seen the majority of our

premium growth in 2021 and also the segment most challenged

by loss activity.

Premiums grew by 100.1% year-on-year. In existing product lines

growth came via rate improvements, with a segment RPI of 109%,

plus new business as our risk appetite broadened given the more

favourable rating environment. The segment also includes three

new classes of business for the Group: accident and health, casualty

reinsurance and specialty reinsurance which all contributed to

premium growth.

In line with our underwriting strategy, we grew our property

reinsurance lines, property catastrophe reinsurance and retrocession,

through 2021 as pricing improved. The capital actions of recent years

provided the platform for this growth and the continued improvement

in market conditions provided the opportunity to execute it.

In the new product lines market conditions were in line with

expectations, albeit the support we received from clients and brokers

meant that from a premium perspective we are ahead of our original

plans, which is very pleasing. These product lines will continue to

develop over the coming years as we continue to invest.

Although the development of this segment was very positive, the

catastrophe exposed products endured a difficult year from a loss

activity perspective. Throughout the entire year Mother Nature

produced numerous challenges from winter storms, flooding,

hurricanes and tornadoes. 2021 highlights the value of our products

to communities and economies impacted by these events. These

products are volatile by their nature and even with improved

pricing there can still be years where underwriting profits

cannot be generated.

Our challenge in these classes remains to understand the changing

risk landscape. This includes longer-term impacts such as climate

change or shorter-term impacts such as inflation and we must

ensure that our pricing and exposure management capabilities cater

for these. Throughout our history we have adapted our pricing and

exposure models to capture new risks or reflect lessons learned

from recent loss activity. This process is one of continual development

and improvement.

Property and casualty insurance

2021

2020

Gross premiums written 210.5 147.1

RPI 106% 108%

The segment contains a variety of product lines with very different

market dynamics. The principal classes include D&F property

insurance plus the terrorism and political risk sub-classes. Premium

grew 43.1% year on year. The segment RPI of 106% was a

combination of strong rate momentum in the D&F class offset by the

relative flat rates seen in the terrorism and political risk sub-classes.

D&F saw a continuation of improved rating conditions and we grew

our footprint in line with our underwriting strategy. We have

continued to invest in this class with a build-out of specialism across

the Group platforms which will include an Australian operation in

2022. This investment has delivered increased premiums helped by the

improved rate environment.

In the terrorism and political risk sub-classes the rating environment

was broadly stable. There were no significant changes to demand and

supply, hence the status quo. Within the terrorism and political

violence products, premiums year-on-year were overall stable, albeit

within the political and sovereign risk products, which are closely

linked to economic activity, we did see an uptick in premium

year-on-year as the world economy started to awaken post the

global COVID-19 lockdowns.

For all products in this segment there were challenges from a loss

perspective. Like our reinsurance products, D&F is exposed to natural

catastrophe events of which there were many during 2021. We assess

the changing impacts in D&F in exactly the same way as with our

reinsurance products to ensure our pricing and exposure models

are constantly evolving.

Historically our terrorism and political risk portfolio consistently

produces healthy underwriting returns. In fact, until 2021 every single

year since the Company’s formation had produced a profit. In 2021 we

had a first ever loss of significance following social unrest in South

Africa. Even with product lines that are usually profitable they all

contain risk and, with that, the potential to have years that do not

deliver returns. As the world continues to change, particularly in a post

COVID-19 economy, the risk associated with terrorism and political

risk products is changing and our job as underwriters will be to adapt

our underwriting accordingly.

19www.lancashiregroup.com

Performance

Aviation

2021

2020

Gross premiums written 176.4 151.0

RPI 108% 121%

Our aviation segment continued to blossom in 2021. We have made

significant investments in our aviation segment in previous years. This

product line highlights that investment made at the right time of the

cycle should deliver strong underwriting results in the future. We were

extremely patient during the soft cycle with a relatively small aviation

footprint which only started to expand when the rating environment

improved and we are now seeing the benefits of this.

Market conditions have helped this development. The 2021 RPI of

108% follows a number of years of positive rate improvement, making

the compounding effect of this year-on-year rate improvement

significant. 2021 saw an historic high of $176.4 million in premium

despite the challenges the segment, and the clients that we service,

have faced as a result of COVID-19. The past two years have been

incredibly difficult for the aviation industry and this has created

challenges for the insurance sector as a result. We have supported our

clients and brokers as best we can whilst simultaneously delivering

portfolio growth and underwriting profits.

Given the lack of air traffic during the COVID-19 period, the loss

environment has been relatively benign by historical standards. This

has obviously helped deliver underwriting profits although we remain

acutely aware that as the world returns to some form of normality

and air traffic increases so will loss activity. This will remain a key area

of underwriting focus in the coming years.

Energy

2021

2020

Gross premiums written 184.8 144.7

RPI 110% 113%

The various sub-classes within energy have all had different

experiences in 2021. Within the energy segment we underwrite

upstream energy, downstream energy, renewable energy and power

and utilities. All sub-classes have experienced positive rating

momentum highlighted by the segment RPI of 110%. The positive

rating environment has aided premium growth alongside the

continued build out of the product lines, such as power and

downstream, which are now well established following their formation

in 2018. Premium year-on-year increased by 27.7% to 184.8 million.

We have continued to invest in our energy offering and 2022 will see

us broaden our footprint in sub-classes such as energy liability

following the addition of new underwriters. We also continue to invest

in established energy product lines with the development of existing

talent as well as external hires. Continued investment in expertise is

vital as the energy sector continues to evolve considerably given the

energy transition that the world is undertaking. It is very important

that the products and services we offer our clients keep pace with

the risks our clients face as they transition their businesses. Insurance

remains a key risk management tool for the energy industry,

supporting the global net-zero goals, and will remain as such

as the energy industry transitions.

From a loss perspective the energy segment was relatively benign

during 2021. Energy can be a volatile class of business and we have

had years when the loss environment has been challenging, albeit

historically very profitable. 2021 has seen minimal large loss activity,

which combined with an improved rate environment has helped

generate a strong underwriting profit.

Marine

2021

2020

Gross premiums written 93.5 91.5

RPI 109% 116%

All sub-classes of marine have continued to see improved rating

throughout 2021. The segment RPI of 109% demonstrates this. Our

marine segment encompasses a number of areas, with Lancashire

providing insurance cover for both physical and liability risks ranging

from marine cargo to LNG tankers. Despite pricing improvement our

premium only increased by $2.0 million to $93.5 million. This is a

result of some multi-year contracts not due for renewal in 2021,

exposures reducing in some sub-classes as a result of reduced activity

due to COVID-19 and the decision to non-renew certain contracts

given unsatisfactory renewal terms. These factors offset the better

rating environment and new business we underwrote.

The underlying conditions for our marine business remain favourable

and we continue to invest in the class. We have hired new

underwriting talent to the Group to further enhance our marine

product offering for clients and brokers, and market conditions should

allow us to grow further.

The rate momentum of the past few years has aided the profitability

of the marine portfolio in 2021, despite a reasonable level of loss

activity. Marine is always a difficult class of business to underwrite and

will have years which experience heightened volatility. However, our

historical underwriting performance has been profitable through the

cycle and our increased breadth of product offering, aligned with the

stronger rating environment, puts our portfolio on very strong

foundations for continued profitable growth.

Conclusion

We are a risk business and exposed to a variety of risks across all of

our lines of business, from natural catastrophes to political unrest. We

have seen years with very little loss activity and, by contrast, years like

2021, when loss activity is heightened.

Our classes exposed to natural catastrophe will always be inherently

more volatile. The period from 2012 to 2016 was incredibly benign

from a natural catastrophe loss perspective yet the period from 2017

through 2021 has been the opposite. Our underwriting philosophy,

however, has always remained the same. If pricing adequacy dictates

it, we are willing to grow just as we were willing to shrink risk levels in

the soft market. In a risk business writing more business in a hard

market never guarantees an underwriting profit but makes the

chances far greater.

To counter balance our natural catastrophe-exposed products we

will continue to invest in our product lines with less volatility, and

in products that are generally far less capital intensive, which will

provide a more robust and capital efficient underwriting portfolio.

As we look ahead to 2022, we will continue to make investments

across our underwriting function. We do this to further balance out

our portfolio and make the business more resilient, with the over-

arching intention of improving the risk-adjusted returns for our

shareholders across the cycle. These investments will be in our

people and in our underwriting processes to ensure that as the

world changes our underwriting changes with it.

UNDERWRITING REVIEW CONTINUED

Lancashire Holdings Limited

Annual Report & Accounts 2021

BUSINESS REVIEW

Underwriting results

2021 2020

Property

and

casualty

reinsurance

Property

and

casualty

insurance

Aviation

Energy

Marine

Total

Property

and

casualty

reinsurance

Property

and

casualty

insurance

Aviation

Energy

Marine

Total

Gross

premiums

written 560.0 210.5 176.4 184.8 93.5 1,225.2 279.8 147.1 151.0 144.7 91.5 814.1

Net premiums

earned 297.1 122.0 83.5 122.8 71.1 696.5 152.0 99.6 70.4 91.3 62.5 475.8

Net loss ratio 91.9% 84.9% 22.3% 34.4% 46.4% 67.6% 66.2% 44.4% 45.6% 73.2% 64.2% 59.6%

Net acquisition

cost ratio 19.4% 26.1% 14.0% 24.8% 36.0% 22.5% 16.7% 26.9% 19.0% 29.4% 36.2% 24.2%

Expense ratio – – – – – 17.2% – – – – – 24.0%

Combined ratio 111.3% 111.0% 36.3% 59.2% 82.4% 107.3% 82.9% 71.3% 64.6% 102.6% 100.4% 107.8%

Premiums

Gross premiums written increased by 50.5% in 2021 compared to

2020. The Group’s five principal segments, and key market factors

impacting them, are discussed below.

Property and casualty reinsurance

Gross premiums written in this segment have doubled since 2020,

both from increases in existing lines of business and the addition of

new lines. These classes also include reinstatement premiums received

after the catastrophe losses in the year. A significant amount of the

capital raised in 2020 was used to fund expansion in the property

catastrophe and property retrocession lines where the rating

environment continued to improve in 2021.

The segment also benefited from the addition of new underwriting

teams and three new classes of business comprising accident and

health, casualty reinsurance and specialty reinsurance. In these new

product lines the support from clients and brokers enabled us to grow

the premium base ahead of our initial expectations.

Property and casualty insurance

The increase in the property and casualty insurance segment was

principally due to growth in the property direct and facultative class

as we continued to build out our book of business, again utilising

the capital raised in 2020 to support the growth. We also saw

opportunities to write new business in the property political risk

class which benefited from increasing transactions globally and

opportunities in new territories. New business flow in the political

risk class of business is generally less predictable than other classes

due to the specific one-off nature of each deal.

Aviation

Our aviation segment continued to grow as market conditions

improved, with an overall RPI of 108%. The increase in this segment

was mostly driven by new business growth in the aviation hull and

liability class of business and rate and exposure increases in the

aviation war class. More than half of the increase in gross premiums

written occurred during the fourth quarter which is the major renewal

period for the aviation segment and the majority of this premium will

be earned in 2022.

James Flude

Chief Underwriting Officer,

LUK

Jon Barnes

Active Underwriter,

Syndicate 2010

John Spence

Active Underwriter,

Syndicate 3010

James Irvine

Chief Underwriting Officer,

LICL

21www.lancashiregroup.com

Performance

Energy

Significant increases in the energy segment were achieved in the

power, energy liabilities and downstream energy classes. In the power

class, the Group expanded its offering across underwriting platforms

to take advantage of improving market conditions. There was also

strong new business growth in the energy liabilities class of business,

where the Group has added additional underwriting expertise. Rate

and exposure increases drove the growth in the downstream energy

class which is now well established after we commenced underwriting

this class in 2018.

Marine

In the Marine segment, new business growth was seen across all

products. This growth was largely offset by timing differences in

the marine liability and marine hull and total loss products where

a number of multi-year or non-annual policies were not yet up

for renewal.

Outwards reinsurance premiums

Although the proportion of outwards reinsurance premiums to gross

premiums written decreased as we retained more risk in the hardening

market, there was an overall increase in reinsurance spend of $114.4

million, or 38.8%, in 2021 compared to 2020. This increase was due to

cover purchased to protect the new classes of inwards business that

were entered into as well as reinstatement premiums, rate increases

and increased limits, particularly within our property and casualty

reinsurance segment.

Net insurance losses

The Group’s net loss ratio for 2021 was 67.6% compared to 59.6%

in 2020. The accident year loss ratio for 2021, including the impact

of foreign exchange revaluations, was 81.0% compared to 71.4%

in 2020.

During 2021, we experienced net losses from significant weather

and large loss events of $306.4 million, excluding the impact of

reinstatement premiums. Within this, catastrophe losses for the full

year, excluding the impact of reinstatement premiums, were $237.6

million, including the impacts of winter storm Uri, hurricane Ida and

European storms and floods, and Q4 weather events including the

Midwest tornadoes in the U.S., and the Australian storms.

Large risk losses for the year amounted to $68.8 million, and

were principally related to unrest in South Africa in July 2021.

These loss events reflect the nature of the insurance products offered

by the Group’s trading subsidiaries as part of their usual business and

were within the Group’s risk tolerances. The Group’s final ultimate

losses may vary, perhaps materially, from the current estimates.

Excluding the impact of foreign exchange revaluations, the table

below shows the impact of the current year loss events on the

Group’s net loss ratio for the year ended 31 December 2021:

Losses

Loss ratio

Reported at 31 December 2021 470.5 67.6%

Absent catastrophe events – noted above 232.9 33.2%

Absent large losses – noted above 401.7 57.7%

Absent catastrophe events and large loss

events 164.1 23.4%

Note: The table does not sum to a total due to the impact of reinstatement premium.

In 2020 our total net catastrophe and large losses, excluding the

impact of reinstatement premiums, were $149.5 million. These

included the impact of COVID-19 related losses, hurricanes Laura and

Sally, the Midwest Derecho storm, the wildfires in California, as well

as other large losses.

BUSINESS REVIEW CONTINUED

Lancashire Holdings Limited

Annual Report & Accounts 2021

Excluding the impact of foreign exchange revaluations, the table

below shows the impact of prior year loss events on the Group’s

net loss ratio for the year ended 31 December 2020:

Losses

Loss ratio

Reported at 31 December 2020 283.8 59.6

Absent catastrophe events 216.8 45.5

Absent COVID-19 losses 244.1 51.0

Absent catastrophe and COVID-19

losses 177.1 36.9

Note: The table does not sum to a total due to the impact of reinstatement premium.

Prior year loss development

Prior year favourable development for 2021 was $86.5 million,

compared to $52.0 million of favourable development in 2020.

The favourable development in 2021 was primarily driven by general

IBNR releases on the 2020 accident year across most lines of business

due to a lack of reported claims. 2021 also included favourable

development on the 2017 accident year, mainly from reserve releases

on natural catastrophe loss events within the property and casualty

reinsurance segment, as well as some beneficial claims settlements

from earlier accident years. The Group’s COVID-19 related losses

remained stable during 2021.

In the prior year, the Group benefited from general IBNR releases

across most lines of business due to a lack of reported claims. There

was favourable development on the 2017 catastrophe loss events

partially offset by a number of late reported losses from the 2019

accident year, reserve deterioration on a couple of marine claims in

the 2017 and 2019 accident years, and adverse development on the

2010 New Zealand earthquake.

The table below provides further detail of the prior years’

loss development by class, excluding the impact of foreign

exchange revaluations.

2021

2020

Property and casualty reinsurance 22.8 25.0

Property and casualty insurance 21.9 21.6

Aviation 12.2 3.3

Energy 24.9 17.2

Marine 4.7 (15.1)

Total 86.5 52.0

Note: Positive numbers denote favourable development.

The table below provides further detail of the prior years’ loss

development by accident year, excluding the impact of foreign

exchange revaluations.

Ultimate loss development by accident year

2021

2020

2016 accident year and prior 17.7 (0.9)

2017 accident year 18.4 20.7

2018 accident year 7.1 25.3

2019 accident year 8.8 6.9

2020 accident year 34.5 –

Total 86.5 52.0

Note: Positive numbers denote favourable development.

23www.lancashiregroup.com

Performance

Our portfolio mix illustrates our conservative philosophy, as shown in

the chart below.

Investment performance

Net investment income, excluding realised and unrealised gains and

losses, was $23.0 million for 2021, a decrease of 20.7% compared to

2020. Total investment return, including net investment income, net

other investment income, net realised gains and losses, impairments

and net change in unrealised gains and losses, was a gain of $1.3

million for 2021 compared to a gain of $69.1 million for 2020.

In a year of significant volatility, the investment portfolio generated a

return of 0.1%. The returns were driven primarily by unrealised losses

in the fixed maturity portfolios, given the significant increase in

treasury yields, particularly between the two-year and five-year

treasuries. These losses were mitigated somewhat by the majority

of the risk assets which generated strong returns, notably the bank

loans, hedge funds, and the private investment funds.

In 2020, the investment portfolio generated a strong total return of

3.9%, with positive returns generated from all asset classes. The

returns were driven primarily by the fixed maturity portfolios, given

the decline in treasury yields and the tightening of credit spreads

during the year. The tighter spreads and stronger equity markets also

drove significant returns in the hedge fund and private debt portfolios.

All other asset classes also had positive returns on a year-to-date

basis, similar to 2019.

BUSINESS REVIEW CONTINUED

AAA: 12%

AA: 39%

A: 29%

BBB: 14%

BB or below: 6%

Private investment funds: 5%

Hedge funds: 4%

Index Linked Securities: 1%

Corporates and bank loans: 35%

Agency structured products: 4%

Non-agency structured products: 7%

Managed cash and short-term securities: 13%

U.S. government bonds and agency debt: 28%

Other government bonds and debt: 3%

Conservative portfolio structure – quality

Asset allocation

Total investment portfolio

Duration: 1.8 years

A+

Average credit quality

Fixed maturities and

managed cash

Denise O’Donoghue

Group Chief Investment

Officer

Investments and liquidity

Since inception, the primary objectives for our investment portfolio

have been capital preservation and liquidity, and we position our

portfolio to limit down-side risk in the event of market shocks. Those

objectives remain unchanged, and are more important than ever in

today’s volatile and reactive markets. In this environment of very low

rates and a relatively flat yield curve anchored at the front end, it does

not pay to increase duration. With the expectation of rate increases in

the next couple of years, our focus will be on maintaining a defensive

portfolio with short duration and high credit quality, although we have

been using our risk budget to add products to our portfolio to help

diversify from interest rate volatility and inflation risk.

Investment results

Lancashire Holdings Limited

Annual Report & Accounts 2021

Other financial information

Third-party capital management

The total contribution from third party capital activities consisted of

the following items:

2021

2020

LCM underwriting fees 10.6 10.0

LCM profit commission 5.2 1.8

LSL fees & profit commission 2.4 3.5

Total other income 18.2 15.3

Share of (loss) profit of associate (3.9) 10.7

Total third-party capital management

income 14.3 26.0

The amount of Lancashire Capital Management profit commission

recognised is driven by the timing of loss experience, settlement of

claims and collateral release and therefore varies year on year. The

share of (loss) profit of associate reflects Lancashire’s equity interest

in the Lancashire Capital Management managed vehicle. The loss

of $3.9 million in 2021 is primarily driven by the active natural

catastrophe loss environment experienced during the first and

third quarters of 2021.

Other operating expenses

Other operating expenses increased by $5.2 million compared to

2020. Higher employment costs due to an increase in number of

employees from 255 in the prior year to 306 in the current year were

more than offset by a reduction in variable compensation given the

Group’s financial performance in 2021. Non-employment costs

increased due to a number of project initiatives during the year. The

strengthening of the Sterling/U.S. dollar exchange rate in the year

also contributed to an overall increase in other operating expenses.

Capital

As at 31 December 2021, total capital available to Lancashire was

approximately $1.9 billion, comprising shareholders’ equity of

$1.4 billion and $0.5 billion of long-term debt. Tangible capital

was $1.7 billion. Leverage was 24.0% on total capital and 26.2%

on total tangible capital. Total capital and total tangible capital as

at 31 December 2020 were $1.9 billion and $1.7 billion respectively.

Long-term debt

During 2021, the Group issued $450.0 million in aggregate principal

amount of 5.625% fixed-rate reset junior subordinated notes due

2041. The long-term debt was issued in two tranches forming part of

the same series of notes, with $400.0 million issued on 18 March 2021

and $50.0 million issued on 31 March 2021. The fixed-rate interest is

payable semi annually.

The majority of the net proceeds from the long-term debt issuance

was used by the Group to redeem its then-existing senior and

subordinated indebtedness, with the balance being used for general

corporate purposes. Included in financing costs of $45.8 million during

2021 were $18.7 million of one-off costs associated with the

refinancing of the long-term debt.

The new long-term debt was approved as ‘Tier 2 Ancillary Capital’

by the BMA and has further improved the Group’s coverage ratio

of available statutory capital and surplus over the BMA’s enhanced

capital requirement.

Share repurchases

Pursuant to and in accordance with the general authority granted by

shareholders at Lancashire’s Annual General Meeting held on 28 April

2021, Lancashire purchased 1,000,000 of its common shares in order

to satisfy a number of future exercises of awards under its RSS.

Dividends

Lancashire announces that its Board of Directors has declared a final

dividend for 2021 of $0.10 (approximately £0.07) per common share,

subject to a shareholder vote of approval at the AGM to be held

on 27 April 2022, which will result in an aggregate payment of

approximately $24.2 million. On the basis that the final dividend

is approved by shareholders at the AGM, the dividend will be paid

in Pounds Sterling on 10 June 2022 (the ‘Dividend Payment Date’)

to shareholders of record on 13 May 2022 (the ‘Record Date’) using

the £ / $ spot market exchange rate at 12 noon London time on the

Record Date.

Shareholders interested in participating in the dividend reinvestment

plan (DRIP), or other services including international payment, are

encouraged to contact the Group’s registrars, Link Asset Services,

for more details.

Hayley Johnston

Chief Executive Officer

Lancashire Insurance

Company Limited and

Reinsurance Manager

John Cadman

Group General Counsel and

Chief Executive Officer

Lancashire Insurance

Company (UK) Limited

Emma Woolley

Chief Executive Officer

Lancashire Syndicates

Limited

Emma Woolley

Chief Executive Officer

Lancashire Syndicates

Limited

John Cadman

Group General Counsel and

Chief Executive Officer

Lancashire Insurance

Company (UK) Limited

25www.lancashiregroup.com

Performance

ENTERPRISE RISK MANAGEMENT

Risk management in a time of growth

A key objective for 2021 was to ensure the ERM framework remained

fit for purpose, developing as required, alongside the growth in the

business. As the volume and breadth of business written increased it

was necessary to review the associated underwriting and operations

procedures and decide whether a more risk-based approach was

appropriate. In some cases it was and processes and controls were

amended accordingly. In others it was deemed inappropriate to

change. In all cases, the governance remained robust.

Culture

People are central to the success of the ERM framework and a strong

and collaborative risk culture. Following a risk culture survey in

January 2021, focused risk training was provided during the year. In

addition, a risk objective was developed and rolled out to all control

and risk owners across the Group and now forms part of their annual

performance review. With a simple structure of three platforms

(Company, Lloyd’s and capital management) operating out of two

locations (Bermuda and London) the Group has been able to maintain

its culture of openness and accountability as headcount has increased.

Lancashire’s values remain instrumental in developing and maintaining

a strong and straightforward risk culture within the business.

Leadership is a key element of this, with the accessibility to, and

visibility of, Lancashire’s senior management actively promoting, and

adhering to, the risk framework driving the collaboration throughout

the business.

Operational resilience

Our people and business have remained resilient despite another year

of predominantly remote working. Detailed analysis has been

undertaken during the year to identify ‘important business services’,

and the risk associated with a failure in one or more of these services.

As of 31 March 2022, UK-based firms are expected to have identified

their important business services and set the impact tolerances for

these within which the firm intends to operate, even when faced with

severe operational disruption. The Group is on track to meet these

requirements for its UK-based subsidiaries. In addition, the Group is

developing plans to ensure that it has sufficiently resilient processes

in place to enable it to operate within these impact tolerances by the

required UK regulatory deadline of 31 March 2025.

Climate change

Climate change, and more specifically climate-related risks and

opportunities, has been a significant focus during 2021. The risk

framework around climate-related risks has been enhanced

significantly during the year with the establishment of both a

CCWG and a management ESG Coordination Committee (the ‘ESG

Committee’). Both have membership comprising people from across

the Group and from a variety of functions, and there are common

links between the CCWG, ESG Committee and the Group Executive

Committee to ensure a clear flow of information. The Group CRO

provides quarterly updates on the work of each body to the Board.

In addition to the CCWG and ESG Committee, the risk framework

was further enhanced through the development of a specific ESG

framework and ESG strategy during the year; both of which were

presented to the Board for review and approval.

“Lancashire’s values remain

instrumental in developing

and maintaining a strong

and straightforward risk

culture within the business.”

Louise Wells

Group Chief Risk Officer

Lancashire Holdings Limited

Annual Report & Accounts 2021

Our ESG strategy sets out how we propose to meet the objectives of

the ESG framework and is focused on four key themes: people and

culture, sustainable insurance, responsible investment and operating

responsibly. Further detail on these areas can be found in the

sustainability section from page 40.

The CCWG has been instrumental in the articulation of underwriting

related risks and opportunities relating to physical, transition and

liability risks and investment-related risks and opportunities. The

Group’s risk appetite statements have been developed to include

underwriting and investment risk appetites as they pertain to

climate-related risks.

As part of the annual review of the ERM policies and procedures,

enhancements were made to incorporate climate-related information,

for example, to include how the Group identifies, measures, monitors

and reports on climate-related financial risks. In addition, the terms of

reference for the key management committees, the IRRC and the RRC

were updated to incorporate climate risk management within their

roles and responsibilities.

As a (re)insurance group Lancashire is primarily affected by physical

risk through its exposure to acute and chronic climate change.

However, consideration is also given to transition and climate-related

litigation risks. In our underwriting operations, we manage this risk

effectively by supplementing our internal expertise with external

vendor models. We have clear tolerances and preferences in place

to actively manage risk exposures (including exposures associated

with loss events which may be influenced by climate change trends),

and the Board regularly monitors our PMLs (see table on page 138).

Litigation risks are managed by monitoring publicised legal cases and

understanding the potential ramifications for the Group based on our

existing portfolio. The risk to the asset side of our balance sheet from

exposure to climate change is mitigated in part through regular

reviews of our third-party asset managers, our asset allocation, and

the underlying securities within our portfolio. Management and the

Investment Committee are working with our external portfolio

managers to monitor the carbon and ESG profile of the Group’s

investment portfolio (see pages 84 and 85 for further details).

Climate change, its related risks and opportunities and their potential

financial impact, are a key focus of the Board at its quarterly meetings.

During the year the Group participated in the BMA’s Climate Change

Exposure Assessment which involved the Group performing stress

tests for three time horizons (short, medium, and long term) for

climate change physical risk scenarios corresponding to RCP 4.5. An

RCP is a set of parameter input assumptions used in climate science

to project emissions of greenhouse gases over time to assess the

sensitivity of the climate response. RCP 4.5 is a specific ‘middle range

scenario’, featuring slowly declining emissions from around 2050, with

a likely 2.5°C increase in global mean temperatures, above that of the

Paris Agreement target. The stress test also incorporated company-

specific inflation expectations over five, ten and 20 years. The results

of the exercise were presented to and discussed at the RRC before

being submitted to the BMA. In addition, a summary of the

conclusions arising was provided to the Board in the Group CRO’s

quarterly reporting. The work performed to date has not resulted

in any material impact on business strategy or change to our

understanding of the risks’ impacts to our business. See also

pages 56 to 63: TCFD Report – Our journey. The Group monitors

and offsets its own carbon emissions (see page 53 for further details).

An internal audit of climate risk was performed in the second quarter

which provided the business with feedback on the work performed at

that time in addressing compliance with the requirements of the TCFD

and, for the relevant UK-regulated entities, the requirements of the

PRA’s Supervisory Statement 3/19: Enhancing banks’ and insurers’

approaches to managing the financial risks from climate change.

Risk strategy

Our risk strategy remains aligned to the business and capital strategy

to ensure the capital resources held are matched to the risk profile of

the Group and that the balance between risk and return is considered

as part of all key business decisions.

The Group’s financial performance is exposed to risks from several

sources. These include insurance risk, market risk, liquidity risk, credit

risk, operational risk and strategic risk, which are all discussed further

in the risk disclosures on pages 136 to 155, as well as Group risk and

regulatory and legal risk. The primary risk to the Group is insurance

risk, which can be subdivided into the core risk of underwriting and

the non-core risk of reserving and includes the Group’s risk exposures

to natural catastrophes including wind storms, wildfires and other loss

events linked to climate change trends.

The Board of Directors retains responsibility for all risk within the

Group and is responsible for setting and monitoring the Group’s risk

appetite and tolerances, whereas the individual entity boards of

directors are responsible for setting and monitoring entity-level risk

tolerances. Risk tolerances represent the maximum amount of capital,

generally on a modelled basis, that the Group and its entities are

prepared to expose to certain risks. The Group’s appetite for risk will

vary marginally from time to time to reflect the potential risks and

returns that present themselves. However, protecting the Group’s

capital and maximising risk-adjusted returns for investors over the

long term are constants. All risk tolerances are subject to at least an

annual review and consideration by the respective boards of directors.

The Board and individual entity boards of directors review actual risk

levels versus tolerances, emerging risks, loss event and near miss

reporting, key risk indicators, and an overview of the control

environment (driven by key control testing and control affirmations

and supported by internal audit findings) at least quarterly. In

addition, on at least a monthly basis, management assesses our

modelled potential losses against risk tolerances to ensure that

risk levels are managed in accordance with them.

27www.lancashiregroup.com

Risk

Key activities

• Quarterly risk and control affirmations

• Quarterly emerging risk working group

• Quarterly internal audit reports to the

Audit Committee providing an update

on work performed and analysis of root

causes of audit findings

• External audit reports to the

Audit Committee

• Audit Committee annual review of

the effectiveness of financial controls

• Monthly CCWG

• Monthly ESG Committee

• Group CRO reports to

Board and Group

Executive Committee

• Production of quarterly

ORSA report for review

and approval by the Board

• Review of risk strategy and ‘attitude

to risk’

• Review and measurement of risk

appetite and limits

• Review of Group risk tolerances

• Management, Board and subsidiary

board approval and monitoring of

risk tolerances

• Capital and liquidity

management frameworks

• Review of internal model

policies, capital and

solvency appetites

• Full/proxy capital

assessments

• Rating agency

capital assessments

• Stress and scenario testing

• Board quarterly review

of capital needs,

headroom and actions

• Review and approval of

business plan by the Board

• Stress and scenario testing

(business plan)

• Assessment of management actions

• Group CRO review of business plan

• Board business performance review

• Board consideration of

stakeholder engagement

• Review of risk

management policies

• Assessment of

risk management

framework maturity

• Integrated assurance

assessment

• Emerging risk assessment

• ESG framework and strategy

• Review of business strategy with challenge from the Board

• Annual approval of a business strategy paper by the Board

• Development of ESG strategy and framework

Strategy review

& challenge

Risk

identification

& assessment

Risk appetite &

tolerances

Business

planning

Capital

management

Risk

solvency &

assessment

Risk & business

management

Board

RRC

Board sign off and embedding

Business strategy

Risks

Capital and solvency

Stress and scenario testing

Key elements of ORSA

ERM & ORSA

ENTERPRISE RISK MANAGEMENT CONTINUED

Lancashire Holdings Limited

Annual Report & Accounts 2021

Risk management framework

The Group subscribes to a ‘three lines of defence’ model, the front-line

being risk ownership by business managers. Responsibility for the

management of individual risks has been assigned to, and forms part

of, the performance objectives of the risk and control owners within

the business. Risk owners ensure that these risks and the controls that

mitigate against them are consistent with their day-to-day processes

and the entries made in the respective risk registers, which are a direct

input into the subsidiary capital models. The second line comprises the

risk management team, which is responsible for risk oversight, the

emerging risk forum, the CCWG and the RRC. Within this, the Group

CRO provides regular reports to the business outlining the status of

the Group’s ERM activities and strategy, as well as formal reports to

the Board and the boards of the individual operating entities. The

Group CRO ultimately has the right to report directly to the Group

and entity regulators if they feel that management is not

appropriately addressing areas of concern regarding the Group as a

whole or any of the individual operating entities. LSL’s CRO provides

formal reports to the LSL Board and its RCCC. The third line of defence

is the internal audit function, whose work complements that of risk

management by independently assessing the operating effectiveness

of controls and also appraising the culture.

We continue to perform a quarterly risk and control affirmation

process whereby the operation of all key controls is affirmed by the

control operators and then reviewed and approved by the risk owners.

In addition, the risk owners are required to affirm that their risks

remain appropriately documented and scored. The risks are scored on

both a gross basis (i.e., inherent risk pre-controls) and a net basis (i.e.,

residual risk post the application of controls). The output from this

process is reported to the RRC and the Group and operating subsidiary

audit and risk committees or boards of directors as appropriate.

As at 31 December 2021, all Group entities were operating within their

Board-approved risk tolerances.

The quarterly ORSA reports prepared by the Group CRO to the

Group and subsidiary boards provide a timely analysis of current

and potential or emerging risks, compared against risk tolerances,

along with their associated capital requirements.

The 2022 annual ORSA report will be presented to the Board for

review, challenge and approval at the Q1 2022 Board meeting. The

equivalent reports for the operating subsidiaries will also be presented

to their boards for review, challenge and approval during Q1 2022. As

a Lloyd’s managing agent, LSL falls within the Society of Lloyd’s for

Solvency II reporting, preparing ORSA reports for each syndicate.

LSL has its own ERM framework to ensure adherence to Lloyd’s

minimum standards.

The diagram on the previous page illustrates how we balance our ERM

and ORSA activities. Our collaborative risk culture is driven from the

‘top down’ via the Board and executive management to the business,

with the RRC central to these processes. Risk culture is also driven

from the ‘bottom up’ through the risk and control affirmation process.

The primary role of the Group CRO is to facilitate the effective

operation of ERM and the ORSA processes throughout the Group

at all levels.

The role includes, but is not limited to, the following responsibilities:

• overall management of the risk management system;

• to drive ERM culture, ownership and execution on three levels:

Board, executive management and operational within the business;

• to facilitate the identification, assessment, evaluation and

management of existing and emerging risks by management

and the Board, including the articulation of risk preferences

and the adoption of formal risk tolerances;

• to facilitate the identification, assessment, evaluation and

management of climate-related risks and opportunities by

management and the Board and report the financial impacts

thereof;

• to ensure that these risks are given due consideration and are

embedded within management’s and the Board’s oversight and

decision-making process;

• to be consulted, and opine, on policy in areas such as, but not

limited to, underwriting, claims, investments, operations and

capital management; and

• to provide timely, accurate, reliable, factual, objective and

accessible information and analysis to guide, coach and

support decision making.

RRC

The RRC, under the chairmanship of the Group CEO, is the key

management tool for monitoring and challenging the assessment of

risk on a regular basis. It seeks to optimise risk-adjusted returns and

facilitate the appropriate use of the Group’s internal models, including

considering their effectiveness. It ensures that all key areas of risk are

discussed according to a schedule that covers fortnightly, monthly,

quarterly, semi-annual and annual reviews. The RRC meets fortnightly

and is responsible for coordinating and overseeing ERM activities

within the risk profile, appetites and tolerances set by the Group and

individual entity boards of directors. The RRC includes the Group CEO,

members from the finance, actuarial, modelling, operations, treasury

and underwriting functions and both the Group CRO and LSL CRO.

The Group CRO reports on the RRC’s activities to the Group and

individual entity boards of directors and via the LSL CRO to the RCCC

of LSL. Through the Group CRO the RRC considers recommendations

to the Board and its committees with regard to the adoption of formal

risk tolerances. Examples of specific items considered by the RRC

during 2021 include: the Group strategy and business plan, risk

appetite statements, capital and solvency appetite, ERM framework,

stress and scenario tests (including the results of the BMA Climate

Change Exposure Assessment) and the results of the quarterly

affirmation process and related controls testing.

29www.lancashiregroup.com

Risk

Capital models

We continue to challenge the assumptions used in the individual

capital models and make changes where appropriate.

Changes in risk

From an insurance risk perspective, our Board-approved tolerances

have remained static during the year but for the third year running we

have seen an increase in the gross written premium compared to the

prior year. Annual gross premiums written have increased circa 50%

from 2020 to 2021. This increase reflects an increased appetite to

underwrite business as we have seen improving rates across most of

our classes of business.

As a result of the additional business written we have seen an increase

in the PMLs for our key perils at both the 100-year and 250-year

return periods. Our peak PML (Gulf of Mexico Hurricane) sat at 18.2%

of tangible capital at the year-end which is inside our Board-approved

tolerance. Further detail on catastrophe management and our PMLs

can be found on page 138.

Our insurance risk tolerances will remain the same for 2022, as they

were for 2021, but our expectation is that we will underwrite more

business, retain more risk, and therefore have reduced headroom

between tolerance and actual exposure as we deploy our capital

according to the market conditions.

As is the case every year, our underwriters have reviewed and refined

our purchasing of reinsurance cover. This is designed to ensure our

reinsurance buying is aligned to our latest strategy and is targeted to

be as responsive as possible, thereby helping to reduce net insurance

risk exposures or enabling additional risk taking.

From an operational risk perspective, there has been a review of risks

associated with the growth within the Group to ensure any necessary

amendments to policies, processes and mitigating controls were

identified and made. The strength of the control environment remains

appropriate for the level of risk assumed.

We remain alert to the operational risk from cyber risk and have

established an independent information security function during

the year, as well as conducting a tabletop exercise to test our Cyber

Incident Response Plan.

Emerging risk

The identification and assessment of emerging risk occurs throughout

the Group from individual departments to management and executive

committees, to the boards of directors and sub-committees of the

boards. The risk function runs the emerging risk working group and

maintains an emerging risk radar, which is provided to the executive

committees, Board and entity boards of directors each quarter, and is

therefore subject to an iterative process of review and oversight.

Emerging risks, by their nature, are difficult to quantify, however,

during 2021, the risk function developed the emerging risk reporting

to introduce an emerging risk radar to clearly illustrate the risks and

expected time horizon, magnitude and likelihood. Examples of key

emerging risks monitored include operational strain (driven by

growth), operational resilience, availability of resource, global tax

reform, UK corporate governance reform and inflation, both in relation

to its potential impact on claims costs and our investment portfolio.

Inflation risk has increased, with it appearing less transitory than

previously thought. However, with our predominately short-tail book,

claims inflation is not a major concern for Lancashire. In addition, the

Group maintains a defensive short duration investment portfolio to

protect against rising interest rates in an inflationary environment.

Whilst no longer an emerging risk, climate change risk remains at

the top of many political agendas internationally and is an area of

risk monitoring and management for us at both management and

Board level.

The threat which catastrophic weather events pose to individuals,

communities and businesses illustrates the social and economic value

which our risk management products generate. This is therefore a

key area of strategic opportunity for our business and one of the key

drivers of our underwriting risk exposure management. In particular,

management and the Board set tolerances for, and monitor, the

Group’s probable maximum losses for major catastrophe events and

in particular weather-related exposures. Please see page 138 for a list

of the Group’s current PML risk exposures.

Climate change risk also informs the way we manage our investment

portfolio and associated risk. During 2021, the Group once again

participated in the CDP, which is aligned with the recommendations of

the TCFD, which are promoted by the Financial Stability Board and the

Bank of England. See also the section titled TCFD Report – Our journey

on pages 56 to 63 for more information.

ENTERPRISE RISK MANAGEMENT CONTINUED

Lancashire Holdings Limited

Annual Report & Accounts 2021

PRINCIPAL RISKS

Risk universe

We continue to classify risks in three broad classes: (a) Intrinsic risk: ‘Risk that stems from the inherent randomness and uncertainty that exists in the

universe in which we operate and that is therefore fundamental to how we manage our business’. This can be core (represents the potential to generate a

return as well as a loss) or non-core (offers no direct potential for return); (b) Operational risk: which can be independent or correlated; and (c) Other risk:

the non-financial category of risks which cannot necessarily be mitigated by holding capital since such risks may not have direct balance sheet

implications.

The Board evaluated the risks disclosed, alongside other factors, in the assessment of the Group’s viability and prospects as set out in the going concern

and viability statement in the Directors’ report at page 114.

Type Category Description

Intrinsic

Core

Underwriting

Investment

Intrinsic risks representing the potential to generate a return as well as a loss.

In these areas, the Group promotes informed risk taking that considers the risk and return equation in

all major decisions, with the intention of maximising risk-adjusted returns.

We recognise that by insuring fortuitous events we can suffer losses and that within our investment

portfolio we can see the value of investments fall. We cannot avoid these risks, so we focus on the

correlated operational risks and seek to mitigate them. For example, we know that by insuring the risk

of natural perils we are exposed to the risk that losses exceed our plan. We model our portfolio using

stochastic modelling to review actual and planned exposures to ensure they remain within tolerances.

The correlated risks are that we might fail to design or maintain effective tolerances and limits, and fail

to maintain exposures within such limits; or that we fail to keep accurate and timely records of our

exposures. We then devise systems and processes to mitigate these risks, such as PML reconciliations

and RDS sign offs, with review by the RRC and regular ORSA reports to the Board, which also considers

and approves formal risk tolerances.

Intrinsic

Non-core

Reserving

(Re)insurance

Counterparty

Liquidity

Intrinsic risks to which we are inevitably exposed as a result of conducting our day-to-day business

operations, yet offer no direct potential for return.

They are quantified insofar as practicable for the purposes of capital and risk management and avoided

or minimised insofar as is economically justifiable.

Operational

These are risks arising as a result of inadequate or failed internal processes, personnel, systems or

(non-insurance) external events.

They have the potential either to magnify the adverse impacts of intrinsic risks, for example increased

reinsurer default losses arising through the use of non-approved counterparties; or to crystallise separately

in their own right, for example losses arising through the imposition of fines as a result of a regulatory

breach, so unrelated to our core functions.

Other

Strategic

Group

Emerging

Climate

These are risks for which quantitative assessment is difficult but for which a structured approach is still

required to ensure that their potential impact is considered and mitigated insofar as is practicable. These

are included within the risk register and are assessed and mitigated through scenario and stress testing.

A strong and robust risk culture supporting our

growth strategy

Our classification of risks as Intrinsic Core and Intrinsic Non-core,

Operational and Other helps us to focus on our management and

mitigation of those risks.

Within the capital models, insurance risk accounts for over 80% of

the allocated risk capital, so this is clearly the principal area where we

stringently apply controls and reviews. For example, we place a large

number of controls around monitoring risk levels across the business.

However, we understand that even risks that do not generate a capital

charge under an economic capital model can pose serious threats to the

execution of the business plan and strategy, and therefore need to be

monitored and tested. For example, we spend a lot of time looking at the

implications of new capital entering the market and the evolution of the

market cycle. In addition, the Group continues to consider and adapt

to the risks and opportunities arising from climate change through the

analysis of the associated physical, transitional and liability risks. As part

of our overall risk mitigation strategy, we perform detailed stress and

scenario testing to stress the financial stability of the Group. This process

is aligned to our business planning, ORSA processes and strategic and

business plan time horizons. The selected tests are aligned to our key

risk areas of capital (rating agency and regulatory), underwriting and

investment-related stress tests, at a minimum.

From a capital perspective we show the losses we could absorb and

still meet our rating agency and regulatory capital requirements. Our

climate change scenario incorporates underwriting and investment

risks as we consider transition risk and physical risk. For this scenario

we stress our premium income, our catastrophe loss ratios to reflect

the assumed increased frequency and severity and inflationary impact

on associated claims, our litigation costs, and our investment return.

We also run various other tests based on discussions with the RRC

and the Group Executive Committee that identify pertinent potential

stresses and scenarios given market or social conditions prevailing at

the time.

31www.lancashiregroup.com

Risk

Underwriting:

Losses in our classes are hard to predict, in

particular as to the specifics of timing and

quantum of catastrophe loss events.

Additionally, we underwrite lines of business

that are subject to accumulations, including

accumulations of individual risk losses arising

from a single event such as several property

catastrophe excess of loss programmes being

affected by a windstorm or earthquake, and

accumulations between business lines such

as a 9/11 type event impacting both the

terrorism and AV52 portfolios. Losses can

also exceed expectations in terms of both

frequency and severity. We recognise that

through climate change trends, and other

influencing factors, weather-related

incidences or other actual catastrophe loss

events may increase losses in frequency,

severity and clustering so, although we

model losses, for example when using the

RMS and AIR stochastic models, we know

that these projections can and will be wrong

in many instances.

Link to strategy

Underwriting comes first

Risk

Trend: Impact: Appetite:

Intrinsic risk: Core

Opportunities

As market dynamics change so too do the

opportunities available to the Group. We

remain creative and nimble in being able to

provide tailored insurance and reinsurance

products and solutions to our core clients

across the three platforms of our business.

With climate change comes opportunities as

well as risks and we focused on articulating

both the risks and opportunities during 2021.

The Group achieved significant growth during

the year in our existing classes of business

and added additional classes of business to

our portfolio.

Mitigation

Modelling: We apply loads to, and

stress test, stochastic models and develop

alternative views of losses using exposure

damage ratios. We review our assumptions

periodically to ensure they remain

appropriate. We also backtest our portfolio

against historic events to assess potential

losses.

RRC: The RRC considers accumulations,

clashes and parameterisation of losses

and models.

Governance: Board and capital management:

We set our internal capital requirements

at a level that allows for buffers above

accumulations of extreme events and,

further to recommendations, the Board

approves risk tolerances at least annually

and considers capital requirements on at

least a quarterly basis.

Underwriting guidelines: Underwriting risk

appetite is incorporated into underwriters’

individual underwriting authorities,

compliance with these authority levels is

part of the daily underwriting procedures.

Reinsurance: We buy reinsurance to manage

our exposure and protect our balance sheet.

The structure of our programme is reviewed

each year to ensure it remains aligned to our

strategy and risk profile.

How the Board reviews this risk

Unsurprisingly, the Board views underwriting

as the Group’s key risk. As such, the Board

continues to focus on underwriting expertise

and discipline to effectively balance the

equation of risk and return and operate

nimbly through the cycle. The Board is

actively engaged in the development and

implementation of the Group’s underwriting

strategy, including consideration of potential

risks to the strategy such as climate-related

physical, transition and litigation risks. The

Board is also involved in the articulation of,

and adherence to, formal underwriting risk

tolerances. Quarterly risk data on this,

including all movements in the Group’s

principal modelled PMLs and RDSs, is both

received and reviewed by the Board’s UURC

to ensure that good risk selection and

disciplined underwriting remain at the core

of the Group’s underwriting strategy. The

Board customarily reviews the capital

requirements and adequacy of the business

within the context of underwriting risk

exposures on a quarterly basis. The UURC

and Board also review and approve the

structure of the Group’s outwards

reinsurance programme. During the year

the Board was involved in reviewing and

approving a range of proposals to enter

additional classes of business.

PRINCIPAL RISKS CONTINUED

Lancashire Holdings Limited

Annual Report & Accounts 2021

Investment:

We need to hold sufficient assets in readiness

to pay claims, but the markets and products

in which we invest can suffer volatility and

losses. As a predominantly short-tail insurer,

we are able to hold the majority of assets in

low-duration securities such as fixed

maturities. We model our investment

portfolios and use various stress scenarios

to manage the extent and source of losses

we could expect under a range of outcomes

associated with credit, interest rate and

liquidity risks. The Investment Committee

adopts a strategy designed to have a

low exposure to the effects of climate

change transitional risk over the various

asset classes.

Link to strategy

Effectively balance risk and return

Risk

Trend: Impact: Appetite:

Intrinsic risk: Core (continued)

Opportunities

The primary objectives for our investment

portfolio remain capital preservation and

liquidity. Our conservative approach limits

our downside risk but means we are unlikely

to equal the returns of peers taking on more

investment risk.

Mitigation

Governance: Board and investment strategy:

Our strategy is that investment income is not

expected to be the principal driver of our

returns. However, we do seek out non-

correlated investment opportunities to add

yield where appropriate and as we build our

casualty portfolio, we will look to match

casualty reserves with longer duration assets.

Our primary focus remains on underwriting

as the engine of profits. Investment strategy,

including investment risk tolerances, is

approved annually and monitored on a

quarterly basis by the Investment Committee

and Board. A detailed strategic asset

allocation study is performed biannually.

IRRC: The IRRC forms an integral part of

our risk management framework, meeting

at least quarterly and reporting to the RRC.

External advisers: Lancashire’s Board and

management recognise that the Group’s

principal expertise lies in underwriting so

we use the services of internationally

recognised investment managers who are

experts in their fields. The Group’s principal

investment managers are signatories to the

UN Principles for Responsible Investment.

How the Board reviews this risk

The Investment Committee receives and

reviews investment strategies, guidelines

and policies, risk appetite and associated risk

tolerances, and makes recommendations to

the Board in this regard. The Committee also

monitors performance of the investment

strategies within the risk framework and

compliance with investment operating

guidelines. In addition, the quarterly ORSA

report from the Group CRO includes

statements regarding performance against

investment risk tolerances. During 2021

management proposed a climate value at

risk metric be implemented to provide a

forward looking return-based valuation

assessment to measure climate-related

risks and opportunities in the investment

portfolio. The Investment Committee

approved this proposal.

Risk trend key Impact trend key Appetite trend key

Unacceptable

Reassess

AcceptableHighIncreased

ModerateStable

LowDecreased

33www.lancashiregroup.com

Risk

Reserving:

Because we do not know the amount of

losses we are going to incur at the outset of a

contract, we have to make estimates of the

reserves we need to hold to pay claims. If

these reserves are inadequate and claims

exceed them, this may have an impact on

earnings, or indeed capital. Independent

reserve reviews by external actuaries look

at the overall levels of expected losses, as

well as individual large events, including

benchmarking analyses to provide assurance

over the level of reserves booked.

COVID-19 is a unique loss event given its

ongoing nature and impact across multiple

product lines. These factors make it

exceptionally difficult to reserve for and also

mean that any ultimate losses are inherently

uncertain. In 2020 this led us to change the

trend for this risk to increased from stable.

The risk remains elevated due to the current

inflationary risk in claims.

Link to strategy

Effectively balance risk and return

Risk

Trend: Impact: Appetite:

Intrinsic risk: Non-core

Opportunities

Whilst our focus is predominantly on

short-tail lines of business, uncertainty still

exists on the eventual ultimate losses as loss

information can take some time to obtain.

As additional information emerges, the

Group’s actual ultimate loss may vary,

perhaps materially, from those initially

reported. This may result in reserve releases

or a required strengthening of reserves.

Mitigation

Short-tail business: Lancashire’s focus is

predominantly on short-tail lines of business

where losses are usually known within, or

shortly after, the policy period with a

reasonable degree of certainty. During 2021,

the Group has established a relatively small

casualty portfolio with a longer-tail loss

development profile. As with all new lines

of business, we have initially adopted a

conservative reserving approach as it

becomes established.

Experience data: We have access to a lot

of data, both our own and from the industry

as a whole, about losses and loss trends.

Actuarial and statistical data are used to set

estimates of future losses, and these are

reviewed by underwriters, claims staff and

actuaries to ensure that they reflect the

actual experience of the business.

Governance: Reserves are reviewed and

approved by the Reserve Committee whose

members include representation from

finance, actuarial and claims; there are

additional attendees from finance, actuarial,

underwriting, legal and risk. A reserve report

is presented to and reviewed by the Audit

Committee on a quarterly basis.

External review: Insurers typically facilitate

an independent review by external actuaries

of their loss reserves. Lancashire retains the

services of one of the leading industry

experts and our appetite is defined so as to

set reserves within a range of reasonable

estimates based on both internal and

external review. The Audit Committee

receives and considers quarterly reports

from management and the Group Chief

Actuary. In addition, the Audit Committee

receives and considers reports on reserve

adequacy from the external actuary on

a six monthly basis.

How the Board reviews this risk

The Board reviews this risk in detail

on a quarterly basis through the Audit

Committee, which focuses on the

appropriateness of the overall reserve levels,

informed by management’s quarterly update,

the external actuary’s independent review of

reserve adequacy performed at half-year and

year-end and the work performed by the

external auditor; and through the UURC,

which receives quarterly updates from

management on individual large losses. The

review includes detailed analysis on major

losses including climate-related natural

catastrophe losses and pandemic losses.

PRINCIPAL RISKS CONTINUED

Lancashire Holdings Limited

Annual Report & Accounts 2021

Intrinsic risk: Non-core (continued)

(Re)Insurance and

intermediary counterparty:

Almost all the insurance policies which we

underwrite are brought to us by brokers,

who act as intermediaries between us and

our clients, and handle the transaction of

payments of claims and premiums on our

behalf. This exposes us to the risk of

mishandling by, or failure of, the broker

concerned. In order to make our portfolio

as efficient as possible, we buy reinsurance

to protect against severity, frequency and

accumulation of losses. Again, this exposes

us to the risk that our counterparties may

have the inability or unwillingness to pay

us in the event of a loss.

Link to strategy

Underwriting comes first

Effectively balance risk and return

Operate nimbly through the cycle

Risk

Trend: Impact: Appetite:

Liquidity:

In order to satisfy claims payments, we need

to ensure that sufficient assets are held in a

readily realisable form. This includes holding

liquid assets for the modelled payout of

loss reserves, as well as ensuring that we

can meet claims payments in relatively

extreme events.

Link to strategy

Effectively balance risk and return

Risk

Trend: Impact: Appetite:

Opportunities

As both a purchaser and seller of reinsurance,

opportunities exist throughout the insurance

cycle. While rates were suppressed, the

quantum of reinsurance coverage purchased

increased and therefore so did counterparty

exposure. This is mitigated through

established governance processes to manage

the aggregate exposure and credit control

processes to ensure monies due are received.

As always, it is the case of balancing the

risk we are taking with the expected return;

reinsurance purchasing is one way of

balancing this. As market conditions change,

we may choose to retain more risk or

may be unable to purchase the same level

of reinsurance as in previous years resulting

in a reduction in counterparty exposure.

Opportunities

As previously noted, liquidity is a primary

objective of our investment portfolio. It is

important we balance the need for liquidity

and being able to pay our clients’ claims on a

timely basis with the opportunity for return

from our investments. We do this through

different investment portfolio categories.

Mitigation

Portfolio management: The Group

maintains liquidity in excess of the

Board-agreed tolerances. This is achieved

through the maintenance of a highly

liquid portfolio with short duration

and high creditworthiness. We monitor

this through the use of stress tests and

mitigate risks through the quality of the

investments themselves.

Mitigation

Counterparty credit limits: The Broker

Vetting Committee is responsible for the

broker vetting approval process and

monitoring credit risk in relation to brokers.

In addition, the Group conducts broker

business using non-risk transfer TOBAs. This

mitigates the risk due to non-payment by

brokers and intermediaries as monies are

held in separated client money accounts.

We use counterparty credit limits, seek to

deal with reputable reinsurers that meet our

minimum rating standards, and use collateral

agreements where appropriate. The

operating entities of the Group that contract

for reinsurance separately maintain and

report their own counterparty credit limits

at the entity level. The RSC is responsible for

approving counterparties and monitoring

first loss and aggregate limits.

How the Board reviews this risk

The quarterly ORSA report to the Board

includes the top five reinsurance

counterparty exposures versus the Board-

agreed tolerances. These tolerances are

reviewed and approved on an annual basis

by the Board and considered as part of the

annual strategy review. Amounts owed to

intermediary counterparties are included

in the underwriting information provided

to the UURC on a quarterly basis.

How the Board reviews this risk

Liquidity risk is reviewed by the Investment

Committee which regularly receives and

reviews reports detailing asset allocation

and compliance with pre-defined guidelines

and tolerances.

35www.lancashiregroup.com

Risk

These are risks arising as a result of

inadequate or failed internal processes,

personnel, systems or (non-insurance)

external events. The Group is also subject to

regulatory supervision and oversight, as well

as legislation and tax requirements across a

number of jurisdictions (see page 153 for

more information). Operational risks have

the potential either to magnify the adverse

impacts of intrinsic risks or crystallise

separately in their own right. This can

encompass IT availability, where the failure

of an IT system, such as our underwriting

system, could impact our ability to maintain

accurate and up-to-date records of our

exposures. If correlated with an insurance

loss this could cause us to breach insurance

risk tolerances. It could also encompass IT

integrity, where an unauthorised intruder

could alter data in our systems, or introduce

a bug that would corrupt the system.

Furthermore, unauthorised access to IT

systems as a result of a breach or failure

could result in data loss, including personal

data, which may have regulatory and/or

reputational risk implications. With the

continued periods of remote working during

2021, the IT security and cyber risk score

remained elevated to reflect the risk

associated with the change in working

environment.

Link to strategy

Effectively balance risk and return

Risk

Trend: Impact: Appetite:

Operational

Opportunities

A risk-based approach is followed to

determine which areas require strongly

controlled processes and procedures (i.e.,

the key risk areas) and those areas where a

more proportionate approach is appropriate

(those areas assessed as low risk).

Mitigation

Capacity: We mitigate IT availability risk by

adding redundancy to the capacity we need

and using backups of data, including off-site

storage that we test regularly. Additionally,

the Group has both disaster recovery and

BCPs in place that are tested annually and

which are designed, in particular, to help

minimise the risk posed by Bermuda

hurricane events or disruptive political or

terrorism events in London. The business

follows strict tax and regulatory operating

guidelines, which are periodically reviewed

and approved by the Board.

Testing and access: We mitigate the

integrity risk by using independent external

penetration tests, and by restricting access

to key systems to only those people who are

qualified and need to use them. We also

have a Cyber Incident Response Plan to

guide management should a third party

be discovered to have gained access to

our systems.

Personnel: We mitigate the risks associated

with staff recruitment and retention and

key-man risk through a combination of

resource planning processes and controls.

Examples include targeted retention

packages, documented position descriptions

and employment contracts, resource

monitoring and the provision of appropriate

compensation and training schemes. In

addition, the Group has core values, to which

all employees subscribe and which reflect the

strong and positive corporate culture

described in the People and culture section

on page 45. The Board regularly reviews

succession planning arrangements and

remuneration structures.

Although the Group holds limited personal

data, it has a suite of policies and processes,

including penetration testing procedures,

around data protection which facilitate

compliance with the GDPR, the UK Data

Protection Act and the Bermuda equivalent

of the GDPR, the PIPA.

How the Board reviews this risk

The Audit Committee receives quarterly

reports from the Group CRO summarising

the results from the quarterly risk and

control affirmation process and detailed

control testing along with the Group CRO’s

opinion on the overall control environment.

The Audit Committee reviews this alongside

the quarterly updates from the internal audit

team regarding their programme of work and

opinion on the effectiveness of controls. In

addition, the quarterly ORSA report from the

Group CRO to the Board includes details of a

suite of KRIs, any risk events and near misses,

changes to the risk register, and the drivers

for such change. The Board reviews the

culture aspect of operational risk through

the Audit Committee, which receives an

update in each internal audit report as well

as through internal audit’s analysis of the

root causes of the audit findings. As

previously mentioned, a risk culture survey

was conducted in January 2021, the results

of which were presented to the Board in

February 2021. Following the survey, some

focused risk training was provided to the

business and a risk related objective was

rolled out to all risk and control owners. The

Board is provided with regular updates on the

change management portfolio of work.

PRINCIPAL RISKS CONTINUED

Lancashire Holdings Limited

Annual Report & Accounts 2021

Other – climate change

These are risks for which quantitative

assessment is difficult but for which a

structured approach is still required to

ensure that their potential impact is

considered and mitigated insofar as

practicable. They include categories such

as strategic, Group, regulatory, emerging

and climate change risks.

Whilst we view climate change as a factor

relevant principally to our underwriting and

investment risks (see previous), the Board

and business continue to monitor the effects

of climate change risk and its perception as a

driver of global economic, political, legal and

regulatory change.

The regulatory requirements around

companies’ climate-related financial

disclosures are increasing and failure to

address these requirements sufficiently

may result in the risk of reputational damage,

increased regulatory oversight or an inability

to access capital when required.

Link to strategy

Effectively balance risk and return

Risk

Trend: Impact: Appetite:

Opportunities

Operational resilience and climate change

risk factors are examples of other risks the

Group considers and monitors.

Climate change and the trend of increased

frequency and severity of weather-related

loss events illustrate the value of our

insurance and reinsurance products to our

clients. As demand increases for the

products, premium rates will be driven up.

Whilst we already insure many clients in

the renewable energy sector, as the world

transitions to non-carbon forms of energy

the opportunities within this sector will grow.

Like 2020, 2021 has been another year of

demonstrating resilience, including that of

our staff, our operations, our technology,

our third-party service providers and our

facilities. All of which are required to

be operationally resilient to service our

clients effectively.

Mitigation

Qualitative approach: These risks require

a qualitative approach, engaging staff in

appropriate discussions about sources of risk,

magnitude of risk and the time horizon over

which risks might crystallise as well as

thinking about possible outcomes. The Group

Executive Committee and the RRC consider

these issues, and the quarterly ORSA reports

made by the Group CRO to the Board include

standing items on these risk areas.

ESG: An ESG Committee and CCWG were

established during 2021. The ESG Committee

was tasked with the oversight, coordination

and internal management of the Group’s ESG

strategy, with a particular focus on the actual

and potential impacts of climate-related risks

and opportunities across the business and

the identification, and recommended

reporting (both financial and otherwise), of

ESG issues as they pertain to the Company

and its subsidiaries. The CCWG was formed

under the leadership of the Group CRO to

drive the necessary work to further develop

and comply with the TCFD requirements on

an ongoing basis.

How the Board reviews this risk

Climate change has been a topic of

discussion at each Board meeting this year.

The quarterly ORSA report from the Group

CRO to the Board includes an ESG section

providing an update on related work during

the period. In addition, the stress and

scenario testing performed as part of the

annual business planning process and

regulatory reporting process includes a

climate change-related scenario. The

scenario has been developed for the 2022

annual ORSA to look at both transitional

and physical risks. During Q3 the Group

participated in the BMA’s Climate Change

Exposure Assessment exercise (see page 59).

The Board was provided with a summary of

the conclusions arising and concluded that

the results of these scenario tests did not

represent a material risk to the Group. The

Board has reviewed the TCFD report, which

can be found on pages 56 to 63.

37www.lancashiregroup.com

Risk

COLLABORATIVE

THE LANCASHIRE WAY

We value teamwork and

a diversity of skills and

experience and we are

sharing in our success

Lancashire Holdings Limited

Annual Report & Accounts 2021

“Since its foundation, Lancashire has had a

strong track-record in a number of areas which

are now considered part of the ESG agenda,

particularly our commitment to transparent

corporate governance, support for those less

fortunate in our communities, and as a caring

and attractive employer.”

Peter Clarke

Non-Executive Chairman of the Board

Sustainability

39www.lancashiregroup.com

CHAIRMAN’S INTRODUCTION TO THE SUSTAINABILITY AND GOVERNANCE SECTIONS

How has the Board addressed the increasing focus on

ESG themes?

Matters of sustainability and governance continue to be an increased

focus for businesses across a range of sectors. This reflects enhanced

awareness of issues of corporate citizenship and the impact activities

of companies have on wider society.

Since its foundation, Lancashire has had a strong track-record in a

number of areas which are now considered part of the ESG agenda,

particularly our commitment to transparent corporate governance,

support for those less fortunate in our communities, as a caring and

attractive employer and, perhaps most importantly, in the social and

economic value of the risk management products that we sell.

As Alex discusses in his review on pages 10 and 11, the business has

established an ESG Committee and a CCWG whose work is now

informing the discussion of risk and strategy within the business

and the Board.

It is important to note that, to date, (with the exception of certain

requirements under the FRC’s UK Corporate Governance Code) there

has been no universal framework for reporting on ESG themes and, in

September 2021, the World Economic Forum cited an “alphabet soup

of competing standards” that businesses are required to navigate.

Therefore, meeting ESG expectations for global (re)insurers and

others presents both challenges and opportunities.

During 2021, and following the COP26 Climate Change Summit, a

number of new initiatives have been announced regarding potential

future reporting requirements for corporations. We recognise the

importance of a global transition away from reliance on carbon-based

forms of energy and towards net-zero, and we will closely monitor

the development of a framework for action and reporting in this

area to allow us to make the appropriate preparations to meet

these expectations.

The Board is committed to transparency in our reporting of

sustainability and governance matters, whilst acknowledging

that there are no easy answers or solutions.

Creating a truly sustainable business requires an ongoing commitment

to evolve over time and during 2021 we have retained a focus on

business discipline whilst also making tangible progress in a number

of areas to further embed a sustainable business model.

This strategy has been developed within the context of the United

Nations Principles for Sustainable Insurance and the recommendations

of the TCFD which are aligned with the principles set out in the 2015

Paris Agreement. The Group’s reporting against the UN Principles can

be found on our website. Our progress in the area of climate change

management of risk and opportunity is outlined in our TCFD Report

on pages 56 to 63 of this report.

Aligned to our own activities in matters of sustainability and

governance, Lancashire is supportive of its clients’ actions to transition

their businesses to meet requirements – particularly those around

fossil fuels and impacts on climate change – and is committed to

working with them as a supportive and active partner. We welcome

the wider debate regarding the global energy transition, whilst also

being mindful of the potential short to medium-term impact on

communities where little alternative non-carbon infrastructure exists.

“Effective and responsive

governance is an essential

aspect of the Lancashire way.

We foster a culture of open,

honest and constructive

debate in our discussion of

strategy and risk, and in the

creation of a sustainable and

vibrant business model.”

Peter Clarke

Non-Executive Chairman of the Board

Lancashire Holdings Limited

Annual Report & Accounts 2021

We understand that there are no simple solutions to the challenges of

today’s complex world and value our open and honest relationships

with all our stakeholders as we make this journey together. We are

committed to playing our part in meeting sustainability,

environmental and governance expectations.

How does the Board manage the governance

arrangements for the Group and what are its

priorities for engaging with the Company’s

stakeholders?

As a premium-listed company on the LSE, Lancashire measures its

corporate governance compliance against the requirements of the UK

Corporate Governance Code published by the UK FRC. This requires

each company with a premium listing to disclose how it has complied

with Code provisions or, if the Code provisions have not been

complied with, provide an explanation for the non-compliance. The

Board’s Nomination Corporate Governance and Sustainability

Committee monitors the Group’s compliance quarterly and more

information can be found in the report on pages 81 to 83. In addition,

the Company also monitors compliance with applicable corporate

governance requirements under Bermuda law and regulations. The

Company is subject to group supervision by the BMA, which also

regulates LICL, the Group’s Bermuda-incorporated (re)insurance

entity. The Group’s UK insurance entities are regulated by the PRA and

the FCA, and Lloyd’s in the case of LSL and Syndicates 2010 and 3010.

For many years, our Board has continued to focus on proactive and

constructive stakeholder engagement aligned to the Section 172

responsibilities of boards under the UK Companies Act 2006. While

not formally subject to Section 172 as a matter of law, due to the

Company’s incorporation in Bermuda, we believe that, as a responsible

business, complying with those responsibilities is a matter of

importance and that they provide practical working tools by which

we can monitor our engagement. The Board’s statement regarding

matters covered by Section 172 can be found on page 65 which

outlines examples of how the Board and the business have factored in

the needs of our stakeholders in their discussions and decision making.

I am pleased to say that, in the judgement of the Board, the Company

has complied with the principles and provisions as set out in the Code

throughout the year ended 31 December 2021 and has appropriately

considered those duties set out in Section 172.

How has the Board engaged with employees

during 2021?

The Board primarily engages with employees through the Executive

Directors, and Non-Executive Directors also welcome opportunities,

both formal and informal, to meet and interact with employees.

These opportunities for workforce engagement during 2021 included

the Town Hall events, hosted quarterly by Alex Maloney, where the

Board has designated a Non-Executive Director to contribute to

discussions on performance and strategy and outline the work of the

Board. Importantly, employees are encouraged to ask questions and

engage with the management team and Board.

A quarterly Group CEO update is presented to the Board covering,

amongst other things, key employee matters across the Group, and

the Board also receives quarterly updates on the Company’s business

transformation projects. Through committee memberships, members

of the Board engage with employees focused on individual operational

areas, including the UURC, where class-specific presentations are

given by relevant underwriters. The Board also received feedback

from a staff engagement survey conducted during the course of 2021

(see page 45 for more details).

In their capacity as Non-Executive Directors of LUK and LSL, Samantha

Hoe-Richardson and Simon Fraser, respectively, also have the

opportunity to meet and engage with a range of staff members within

those businesses and to report any matters back to the main Board.

Due to the ongoing pandemic, some planned workforce engagement

activities for 2021 have been hindered and use has been made of

virtual interaction during the year. It is planned to continue with

Non-Executive Director attendance at the Town Hall meetings

during 2022.

The whole Board enormously values all opportunities to engage

and interact with employees and I would like to thank our Directors,

management team and all our employees for their hard work and

commitment during the year.

What developments have there been in the areas

of Board membership and succession planning?

During 2021, the Board has considered succession planning and

membership and we were delighted to welcome Irene McDermott

Brown as a Non-Executive Director with effect from 28 April 2021.

Irene brings a further diverse skillset to the Board and her extensive

corporate background, in particular her experience of HR and

remuneration, will be of great value.

The Committee also reviewed the composition of the Board at its

November 2021 meeting and it considered that the balance of skills,

knowledge, independence, experience and diversity continues to be

appropriate for the Group’s business to meet its strategic objectives.

The Committee regularly discusses in its meetings questions of

independence, diversity and longevity of service and whether any

additional skills, perspectives and experience are needed to

complement those already on the Board. In order to address future

succession requirements, including our ambition to meet the Parker

Review target for minority ethnic representation, I am currently

leading a search to identify future Non-Executive Director candidates

and I expect the Board to be able to report developments in this area

during the coming year.

Samantha Hoe-Richardson will complete nine years of service in early

2022 and accordingly will not stand for re-election at our AGM. On

behalf of the Board, I would like to thank Sam for her valuable

contribution to our business over many years.

Peter Clarke

Non-Executive Chairman of the Board

41www.lancashiregroup.com

Sustainability

At the heart of our responsible business ethos is

the Lancashire Foundation.

While corporate responsibility and ‘doing well by doing good’ are more

recent areas of focus for many businesses, we are proud that 2021

marked Lancashire’s 15th year of donations to good causes through

the Foundation.

Since the first donation in 2007, the Foundation has given more than

$21.8 million to charitable organisations across an ever-increasing

range of causes. During 2021 alone, around $700,000 was distributed

to charities. This included donations to individual charitable groups

nominated by more than 40 employees. The Lancashire Foundation

has been a UK-registered charity since September 2012.

The annual donation made to the Foundation to fund its assistance

pool is aligned to the financial performance of the business. The

Foundation receives 0.75% of Group profits with a minimum threshold

of $250,000 to a maximum of $750,000. This alignment creates a

sense of ‘ownership’ among our employees who are aware that the

financial success of the Group has an impact on the wider community.

This advocacy is further strengthened by an emphasis on supporting

charitable causes – which meet the Foundation’s criteria – where there

is a personal or community connection among employees.

The Board keeps itself informed of the activities of the Lancashire

Foundation through regular reporting and meetings with the

Foundation’s trustees. The Board also sets the policy for donations

to the Foundation. We believe that the success of the Foundation in

making a real difference to the lives of those less fortunate is due to

the enthusiasm of our people. Whether actively getting involved in

helping others through volunteering or requesting funding for causes

close to them, their support is invaluable. Requests for assistance

from the Foundation are coordinated and assessed by the Lancashire

Foundation Donations Committee, which consists of employees from

across the Group. This committee meets on a quarterly basis and

encourages members to advocate on behalf of charities and make

recommendations to the trustees for donations. The trustees have the

ultimate responsibility for directing the affairs of the Foundation and

ensuring strong governance in delivering the charitable outcomes for

which it was instigated in 2006.

The first donations were made in 2007 with an initial emphasis on

supporting communities in Bermuda. It now has strong focus on

providing support for solutions for dealing with social exclusion and

issues that affect children and young people.

Organisations receiving more than $1 million in total since 2007 from

the Foundation include:

• Tomorrow’s Voices • ICM • MSF

• The Family Centre in Bermuda • St Giles Trust

As a long-term business, Lancashire has been committed to building

lasting relationships with a number of charities. Among the first

donations in 2007 was assistance for The Family Centre in Bermuda

which the Foundation has continued to support in 2021 with a

$83,700 donation.

Since 1996, The Family Centre in Bermuda has provided support to

children suffering from emotional, social, behavioural and trauma-

based challenges. Its services are available to any Bermuda resident

that meets the criteria and has the need.

In 2008, in recognition of the fact that a significant element of

Lancashire’s business is connected to insuring against natural

catastrophes, the decision was taken to support MSF, beginning a

long-standing relationship that also continues to this day. Donations

to MSF total $5.6 million in the past 15 years. The Group donated a

total of $55,000 to MSF in 2021 to support the organisation’s work

responding to emergencies including tsunamis, earthquakes and

hurricanes in often complex settings.

Another long-standing partner is ICM and its work with the ultra-poor

in the Philippines where more than 100 million people live below the

national poverty line. The Foundation donated $55,000 in 2021

towards its work. In previous years, employees have had the

opportunity to travel to the Philippines to see the work of

the charity themselves.

International non-profit social loans organisation Kiva also received

$27,500 in 2021 to support its mission to expand access to financial

loans to underserved communities.

In the UK, the SGT supports male and female offenders and their

families. The aim is to help them realise their true potential and avoid

re-offending, contributing to a safer and more productive society. SGT,

which received $55,000 from the Foundation in 2021, works with

some of the most marginalised people in society struggling with issues

such as homelessness, unemployment, addiction and discrimination.

We also recognise that, while financial support for communities is

vital, the skills and expertise of our employees is also a powerful tool

and staff are actively encouraged to participate in charitable work. All

employees have the opportunity to attend at least one paid Charity

Day per year. Additionally, people can apply for five days paid Charity

Leave after a minimum of three years of permanent employment, and

a further five days after six successive years of employment. Charity

Leave is given in support of, or to work with, a charity supported by

the Lancashire Foundation at the time of the application. Employees

raising funds for charitable organisations can also request matching

funds from the Foundation. Due to the COVID-19 pandemic it has not

been possible for employees to support charities in this way but we

anticipate these activities resuming during 2022.

Lancashire Foundation

2007

350,000

2012

2,059,481

2018

586,126

4,036,878

2013

851,231

Typhoon in

Philippines

2011

1,892,578

839,518

Earthquake

in Japan

993,655

2008

258,368

Hurricane

in Haiti

2010

1,583,211

746,460

Earthquake

in Haiti

2,183,886

2014

313,868

Earthquake

in Indonesia

662,001

2009 2017

1,420,473

351,442

488,153

2019

54,493502,150

Earthquake

Nepal

2,280,288

2015

693,675

2020

Key Key MSF donations

Major disasters

Foundation

donations $

Total

$21,754,150

1,811,325

2016

500,123

712,421

2021

55,072

Flooding

South Sudan

Earthquake

Mexico

Tsunami

Indonesia

Cyclone

Mozambique and

Zimbabwe

Lancashire Holdings Limited

Annual Report & Accounts 2021

Emma Ranger

Bermuda underwriting team:

Supporting the BIG Foundation

During 2021, the Lancashire Foundation was

pleased to support Emma Ranger in her efforts

to examine the impact of climate change on

the North Pole and Arctic Ocean.

In April 2022, Emma will be among an all-female group skiing to

the world’s most northerly point on a wide-ranging expedition to

investigate and analyse the state of its sea ice.

The Before It’s Gone (B.I.G.) North Pole 2022 expedition is being

led by renowned polar explorer Felicity Aston MBE.

Emma received a $8,200 donation for the B.I.G. Foundation, a new

charity aiming to encourage future explorers to ensure a lasting

legacy from the expedition.

During the North Pole trip, Emma and the group will collect valuable

scientific data about Arctic Ocean sea ice as well as other

information about one of the most inaccessible parts of the world.

Scientists at a number of leading research centres will use the

findings to aid their understanding, including data on:

• The effects of black carbon, which primarily comes from the

incomplete combustion of fossil fuels and biomass, on the region;

• The scale of microplastics and heavy metals in the ocean through

taking and analysing snow, ice and water samples; and

• Behaviour, performance and health in extreme environments

through testing a beta version of a new digital support system.

Emma said: “The North Pole will genuinely not be possible to

reach across the sea ice in just a few years. I am very grateful to

the Lancashire Foundation for their support for the B.I.G

Foundation and what it aims to achieve in increasing awareness

of the importance of collecting vital information and data on how

the world is changing. Lancashire as an employer has also been

very supportive of my role as part of the expedition. While it’s

going to be tough, the skills and experience I’ll get from the trip

will undoubtedly be transferrable to my role. More broadly I

believe the insurance sector has a big role to play in supporting

and partnering with industries as they move forward and

transition away from activities which can contribute to

climate change.”

You can find out more about the expedition at

www.bignorthpole.com.

Silvia Kolu

Modelling Manager, London:

Supporting

Comunità Cenacolo

“One year ago, I lost my brother Nicola in a car crash. It has been a

sudden death, tragic and very difficult to accept. We had a very solid

and deep relationship, unfortunately not all for good reasons. My

brother struggled with life and as a family we felt extremely lonely,

we did not know how to help him and we did not know who could

help us dealing with his issues, until we found Cenacolo, a place for

hope for those dissatisfied by life. There are no psychiatrists or social

workers, it is a ‘peer-led’ community where men and women live

together, respecting each other, themselves, and the firm rules of

the community. Nicola spent three years of his adult life in

Cenacolo, he was the one who was helped for the first six months

and the one who helped others for the rest of his time there. When

he came out, he really was a new person with a lot of will to live,

many desires in his heart and a new hope for his future.

“I cannot thank Cenacolo enough for what they have done for

my brother and of course The Lancashire Foundation for accepting

my request to support this charity. I am sure Nicola feels the

same – Lancashire funds reached Cenacolo on the 11th of

October – precisely on the day that marked the first anniversary

of his death.”

Adam Beardon

Chief Risk Officer,

Lancashire Syndicates,

London: Supporting

Isabel Hospice

“Isabel Hospice is a charity that supports patients and their families

who are living with life-limiting illnesses and conditions, including

cancer, heart failure or respiratory illness, and neurological

conditions such as motor neurone disease. The charity’s vision is

of a world where communities talk openly about death and dying,

everyone lives life to the full and dies with dignity in the place of

their choice knowing their loved ones are supported.

I had first-hand experience of the extraordinary support that Isabel

Hospice provides when we managed to move my terminally ill

mother from a hospital, where she was stuck on a male cancer ward,

to the hospice. I will never forget the amazing support and dignity

that was provided to my mother. There were no visiting restrictions.

Isabel Hospice has expanded its service to support more people with

a non-cancer diagnosis, now approximately 40% of its patients. Its

‘Living Well’ programme has also allowed it to reach people much

earlier in their diagnosis, supporting them to manage the challenges

of living with serious illness and long-term conditions through a

range of interventions and holistic therapies. Demand for the

charity’s compassionate care has never been higher, with all of its

palliative care and support for patients, and their families, free of

charge to those who need them. I approached the Lancashire

Foundation with a grant application as not only was I aware of the

astonishing support and dignity the charity offers, but also that it

had seen a loss in its income of approximately £1.9 million during

the 18-month period to July 2021.”

43www.lancashiregroup.com

Sustainability

It is the role of the Board to challenge the business on matters of sustainability and governance

and to work collaboratively with the management team.

During 2021, the Board approved a Group ESG strategy to assist in concentrating our activities

thematically in four areas, which form the structure for this sustainability report.

1. People and culture

• Giving our people the

environment, tools, skills

and support they need to

thrive in an open, honest

and diverse culture

Lancashire

Foundation

ESG STRATEGY

An ongoing commitment to evolve

4. Operating responsibly

• Running our business as a

good corporate citizen, a

responsible preserver of

resources, and engaging

constructively with all our

stakeholders to the benefit

of society

• Supporting wider society

through our corporate and

charitable activities including

the Lancashire Foundation

3. Responsible investment

• Demonstrating our commitment

to ESG, including responsibility for

our environment, through the

management of our investments

2. Sustainable insurance

• Ensuring our business

considers climate change

and other ESG issues in our

underwriting decision making

Lancashire Holdings Limited

Annual Report & Accounts 2021

PEOPLE AND CULTURE

The Lancashire values underpin all the Group’s

activities and shape the way we operate not just

on what we do but, importantly, how we do it.

Lancashire’s culture fosters an environment that looks to give

significant focus on developing, retaining and enhancing a positive

working environment, ensuring that all our people are treated with

respect and given the opportunity to thrive in a stimulating and

rewarding environment.

Engaging with our people

In 2021, Lancashire continued to grow and welcomed many new

colleagues across all areas of the business, ensuring we can sustain

our ability to provide service excellence to our clients.

We saw our headcount increase from 255 at the end of 2020 to 306

at the end of 2021.

Lancashire benefits from an ‘open door’ philosophy where employees

are actively encouraged to interact with senior executives. In addition,

a more formalised communications calendar includes quarterly all

staff ‘Town Hall’ events, led by Group Chief Executive Officer Alex

Maloney. These events include attendance by a Non-Executive

Director who outlines their experience of the work of the Board. Alex

Maloney and the attending Non-Executive Director also invite

questions from staff either submitted in advance or during the

discussion. Due to the COVID-19 pandemic, a number of these events

were held virtually in 2021.

Alex Maloney also ensures that employees are kept up to date on any

significant corporate announcements and staff engagement channels

are kept under review to ensure they remain appropriate and effective.

As a responsible employer, we are committed to listening to, and

acting on, feedback from our people.

During 2021, the introduction of new agile working practices was a

direct result of feedback from employees. In addition, flexible start

times, to better support the work / life balance, were also introduced

following requests from staff.

2021 employee survey

A full survey of employees was carried out in 2021, offering

people the opportunity to give their feedback and comments

across a broad range of areas. This important mechanism

gives the Board and senior management a thorough and

deep understanding of how employees consider Lancashire

as an employer.

We were pleased that the number of employees

participating remained at the high level of 75%

recorded for the most recent previous survey in 2019.

The 2021 survey also saw the overall engagement score

increasing by 3% to 88% from 2019.

The strongest scores were recorded in the categories:

• ‘Company Alignment’

• ‘Teamwork’

• ‘Manager’

• ‘Empowerment’

We believe that the enthusiasm of employees for their

individual roles to contribute to the wider success of the

Group sets us apart from our competitors.

To support this view, when employees were asked to state

which words they consider describe Lancashire’s culture,

the most cited included:

• Collaborative

• Inclusive

• Hardworking

• Progressive

• Ambitious

• Innovative

To guarantee the anonymity and confidentiality

of responses, the survey was coordinated by an

independent company.

A summary of the results was presented to the LHL Board,

the Group’s subsidiary boards and Group Executive

Committee team to assist in identifying areas of positive

engagement and those which can be further strengthened.

In October 2021, Lancashire Insurance Company Limited was

named a ‘Top 10 Employer’ in Bermuda in the annual awards

run by the Royal Gazette newspaper. The awards process

included consideration of a survey completed by employees.

In the award citation Lancashire was praised for ‘taking good

care of its employees and instilling a caring culture’.

A positive environment

45www.lancashiregroup.com

Sustainability

Developing our people

Lancashire’s reputation as an excellent employer means that we attract and retain talented

people who share our values. Group employee turnover in 2021 was 15.3%.

One of Lancashire’s strengths has been its programme of developing internal talent and offering employees, with the appropriate skills,

the opportunity to be promoted to more senior roles.

We consider this to be a differentiator relative to our competitors which allows us to benefit from the commitment of people who have

invested meaningful periods of their careers in Lancashire and who demonstrably share our values. A significant number of current senior

executives have held previous roles with the Group meaning we continue to harness their experience and expertise.

Alex Maloney

Emma Woolley

John Cadman

Louise Wells

Ben Readdy

Natalie Kershaw

Paul Gregory

Hayley Johnston

Denise O’Donoghue

16yrs

14yrs

15yrs

14yrs

12yrs

11yrs

10yrs

8yrs

5yrs

Alex Maloney

Emma Woolley

John Cadman

Louise Wells

Ben Readdy

Natalie Kershaw

Paul Gregory

Hayley Johnston

Denise O’Donoghue

16yrs

14yrs

15yrs

14yrs

12yrs

11yrs

10yrs

8yrs

5yrs

Alex Maloney

Emma Woolley

John Cadman

Louise Wells

Ben Readdy

Natalie Kershaw

Paul Gregory

Hayley Johnston

Denise O’Donoghue

16yrs

14yrs

15yrs

14yrs

12yrs

11yrs

10yrs

8yrs

5yrs

Alex Maloney

Emma Woolley

John Cadman

Louise Wells

Ben Readdy

Natalie Kershaw

Paul Gregory

Hayley Johnston

Denise O’Donoghue

16yrs

14yrs

15yrs

14yrs

12yrs

11yrs

10yrs

8yrs

5yrs

Alex Maloney

Emma Woolley

John Cadman

Louise Wells

Ben Readdy

Natalie Kershaw

Paul Gregory

Hayley Johnston

Denise O’Donoghue

16yrs

14yrs

15yrs

14yrs

12yrs

11yrs

10yrs

8yrs

5yrs

Alex Maloney

Emma Woolley

John Cadman

Louise Wells

Ben Readdy

Natalie Kershaw

Paul Gregory

Hayley Johnston

Denise O’Donoghue

16yrs

14yrs

15yrs

14yrs

12yrs

11yrs

10yrs

8yrs

5yrs

Alex Maloney

Emma Woolley

John Cadman

Louise Wells

Ben Readdy

Natalie Kershaw

Paul Gregory

Hayley Johnston

Denise O’Donoghue

16yrs

14yrs

15yrs

14yrs

12yrs

11yrs

10yrs

8yrs

5yrs

Alex Maloney

Emma Woolley

John Cadman

Louise Wells

Ben Readdy

Natalie Kershaw

Paul Gregory

Hayley Johnston

Denise O’Donoghue

16yrs

14yrs

15yrs

14yrs

12yrs

11yrs

10yrs

8yrs

5yrs

Alex Maloney

Emma Woolley

John Cadman

Louise Wells

Ben Readdy

Natalie Kershaw

Paul Gregory

Hayley Johnston

Denise O’Donoghue

16yrs

14yrs

15yrs

14yrs

12yrs

11yrs

10yrs

8yrs

5yrs

Total years of service with the Company Selection of roles held in the organisation

Alex Maloney* CUO LUK

Group CUO

Group CUO and LUK CEO

Group CEO

Hayley Johnston* Claims and Reinsurance Assistant

Specialty Lines and Re-insurance Coordinator

Assistant Underwriter & Reinsurance Coordinator

Deputy Chief Underwriting Officer & Reinsurance Coordinator

LUK CUO and Reinsurance Manager – LUK

LICL CEO & Reinsurance Manager

Denise O’Donoghue Corporate Finance Officer

Group Head of Investments and Treasury

Group Chief Investment Officer

Paul Gregory* Deputy Energy Underwriter/Marketer

LUK CUO

Group CUO

Group CUO & LUK CEO

Group CUO (stepped down as LUK CEO in 2019)

Natalie Kershaw* Group Financial Controller

Group Financial Controller & LICL CFO

Group Chief Accounting Officer

Group CFO

Ben Readdy Actuary

Head of Capital Modelling

Deputy Chief Actuary

Group Chief Actuary

Louise Wells* Group Head of Internal Audit

CRO

Group CRO & LICL COO

John Cadman* Group General Counsel

Group General Counsel and LUK CEO

Emma Woolley* LSL Compliance Director

LSL CEO

* Member of Group Executive Committee

PEOPLE AND CULTURE CONTINUED

Lancashire Holdings Limited

Annual Report & Accounts 2021

Lancashire continuously encourages all employees to develop

their skills and experience and offers various in-house and external

training programmes, financial support for continuing professional

development and reimbursement for all professional body

memberships. Due to the COVID-19 pandemic, the majority

of training during 2021 was carried out virtually.

Training needs and requirements for employees are reviewed at least

annually in partnership with the employee and their manager as a part

of the performance review process whilst also encouraging people to

proactively request training and to ensure they embrace any

opportunities available to them through the year.

One of the longer-term consequences of the pandemic has been

a wider shift to more online training for employees. During 2021,

Lancashire began preparations for a new digital training platform

which will utilise a wide range of resources and become the central

hub for personal development. Employees will be able to record and

track their progress, ensuring they receive the maximum benefit from

the time they spend. An integrated authoring tool will also allow the

business to create specific functional and entity-wide training in areas

including Regulation, Compliance and HR.

Nurturing and developing our positive culture offers our people the

opportunity to be their best and excel in their roles. Aligned to this

high performance are our competitive compensation and reward

structures which incentivise people to contribute fully to the success

and growth of the business.

All permanent employees have an enhanced invested interest in

the success of the Company through our RSS to ultimately become

a shareholder in Lancashire Holdings Limited.

We are also an accredited living wage employer, for our business

and our supply chain.

Regulatory and other training

In order to uphold our high standards, the Group has a comprehensive

training programme for employees to ensure understanding of their

responsibilities aligned to a clear set of policies and procedures.

Compulsory training is delivered to all new permanent staff, including

employees working part time, and those on fixed-term contracts.

Topic covered include Tax/Regulatory Operating Guidelines,

Disclosure (including the requirements of the Market Abuse

Regulation 2016), Inspections, Financial Crime, ERM, Communications

Etiquette/Equality, Diversity & Inclusion, GDPR and Conduct Rules.

Other training may be held on an ad hoc, one-off or refresher basis

according to an individual’s requirements.

New employees are expected to complete this training during the

first three months of employment.

Due to the COVID-19 pandemic this training has been delivered

virtually to ensure continuity in the programme and that awareness

levels remain high.

Quarterly updates regarding attendance at these compulsory training

sessions are provided to the Board for information purposes.

Valuing diversity

We value the diversity of our workforce and understand that people

who share our ideals come from all walks of life and backgrounds.

The Lancashire Foundation has supported a number of organisations

whose aim is to reduce social exclusion in wider society and we strive

to keep that spirit within our own operations.

The Lancashire Diversity and Inclusion Group is chaired by Hayley

Johnston, CEO of LICL and Reinsurance Manager, and its members

are volunteers drawn from across the Group.

It provides a valuable platform to propose and discuss ideas to

progress our diversity and inclusion activities. Initiatives are formally

approved for implementation by the Group Executive Committee,

ensuring full support from senior management.

As a responsible business we have a number of robust policies in place

to ensure that people are not discriminated against either during the

recruitment process or during their time with us. We operate a

zero-tolerance approach to bullying and harassment.

The gender split of our employees is 63% male to 37% female.

The Group had for a number of years supported the work of the

Hampton-Alexander and Davies Reviews on gender diversity. The FTSE

Women Leaders Review, an independent, business-led framework

supported by the Government, which sets recommendations to

improve the representation of women on boards and in leadership

positions, builds on these initiatives. The Group submits data annually

to the review.

To ensure employees are aware of their responsibilities and the

importance the Group places on fairness and inclusion, training

sessions on diversity matters are included as part of the new employee

induction programme. Training was also undertaken by all employees

in Bermuda on Unconscious Bias during 2020 and is being rolled out

further across the Group.

The Chairman’s statement on our diversity policy, the representation

of women on the Board and within executive and senior management,

and in relation to ethnic diversity, is available on our website.

The Group carried out a full diversity and inclusion survey during 2020

to better understand employees’ view in this important area. A further

survey is planned for 2022 and participation from across the Group

will again be actively encouraged.

We value the diversity of our

workforce and understand that

people who share our ideals come

from all walks of life and

backgrounds. The Lancashire

Foundation has supported a number

of organisations whose aim is to

reduce social exclusion in wider

society and we strive to keep that

spirit within our own operations.

47www.lancashiregroup.com

Sustainability

Supporting our people

We strive to give our employees support across a range of areas

focused on their health and wider wellbeing, and on ensuring we have

policies and procedures in place to ensure they are not inhibited in

reaching their full potential.

A Group Staff Handbook, distributed to employees on joining

and available on our internal intranet, is supported by individual

supplements relevant to our UK and Bermuda operations.

Keeping people safe and healthy

The health and safety of employees while on Company premises is of

paramount importance.

With the reopening of the London office in September 2021 following

closure due to the COVID-19 pandemic, new guidelines to ensure the

health and wellbeing of staff were communicated and made available

on the intranet. In addition, a full COVID-19 Risk Assessment was also

made available.

As an office based business, we are less exposed to major incidents.

However, the Company consults with and updates staff regularly

on all health and safety issues and provides and maintains risk

assessments for tasks carried out by employees where potential

danger has been identified. Our full Health and Safety Policy is

communicated to employees on joining and is available on the

intranet. During 2021, we worked closely with our health and

wellbeing providers to offer advice and support services to employees.

These initiatives included information for parents home-schooling

children during the COVID-19 pandemic, online gym classes, and

sessions focused on mental wellbeing.

Additionally, in our London office, we provided a number of seminars

and workshops which focused on financial resilience and planning.

The Company runs an ‘open door’ policy where employees are

encouraged to engage with their manager or HR department

concerning any matters of concern during their career at Lancashire.

This is supported by a Dispute Resolution Policy in instances where

issues cannot be initially resolved. Employees are encouraged to use

this mechanism without fear that they will be penalised in any way.

Employees are also invited to offer constructive ideas on how we

can improve our operations, increase efficiency, eliminate waste,

and improve working conditions.

As a responsible employer, our people have the reassurance that we

comply with all relevant requirements with respect to human rights;

rights of freedom of association; collective bargaining; and working

time regulations.

Male: 41 (56%)

Female: 32 (44%)

Gender diversity

All gender composition data is shown as at 31 December 2021.

Read more about composition, diversity and succession planning

in our Nomination Corporate Governance and Sustainability

Committee report on pages 81 to 83.

Male: 5 (56%)

Female: 4 (44%)

Male: 193 (63%)

Female: 113 (37%)

Overall

Group

employees

Male: 8 (50%)

Female: 8 (50%)

Group senior

management

(excluding LHL

Non-Executive

Directors)

Direct

reports to senior

management

LHL

Board

members

PEOPLE AND CULTURE CONTINUED

We believe every employee, and prospective employee, should be

treated with dignity, respect and fairness. As an equal opportunity

employer, we do not discriminate, or tolerate discrimination, on

grounds of race, age, sex, sexual orientation, marital or civil

partnership status, gender reassignment, pregnancy or maternity,

disability, religion and/or beliefs.

All employees have a duty to treat colleagues, visitors, clients,

customers, suppliers and former staff members with dignity at

all times.

Employees who believe they may have been discriminated against

are encouraged to raise the matter through our Grievance Procedure.

Lancashire Holdings Limited

Annual Report & Accounts 2021

Likewise, any employee who believes they may have been subject to

harassment are encouraged to raise the matter through our Anti-

Harassment and Bullying Policy.

Details of all internal policies are available to employees on our

intranet site.

Protection and reassurance

Our internal policies and procedures cover a range of topics designed

to protect the business and to offer reassurance to employees that

they have the information they need to be able to act responsibly.

All businesses carry the risk of unknowingly harbouring malpractice

but we believe our culture of openness and accountability is a key

weapon in preventing such issues occurring.

Whistleblowing

Employees are encouraged to raise any concerns regarding malpractice

with the Group General Counsel or HR department in line with our

Whistleblowing Policy for which the Audit Committee of the Board

has overall responsibility.

The aim of this policy is to ensure that staff are confident that

they can raise any matters of genuine concern without fear of an

improper investigation, reprisal, not being taken seriously or breach

of confidentiality.

Each Group entity has a designated whistleblowing champion, a

Non-Executive Director, who can be contacted if employees would

prefer to raise concerns with them.

The UK Employment Rights Act 1996 as amended by the Public

Interest Disclosure Act 1998, and the Bermuda Employment Act 2000,

govern the making of disclosures concerning workplace activities and

are intended to protect employees who report malpractice from any

detriment or unfair dismissal.

Data protection and privacy

In order to operate efficiently, the Group must collect and use

information about its staff and data protection policies are in place

to ensure that information, however it is collected, recorded and used,

is handled and dealt with correctly.

To this end the Group fully endorses and adheres to the

principles of data protection as set out in the relevant UK data

protection legislation.

All employees are expected to familiarise themselves and comply

with the regulations, which are available on the Group intranet.

2021 2020 2019

Number of employees (UK, Bermuda and Australia) 306 255 218

Percentage of female employees 37.0% 38.8% 38.5%

Percentage of women on the LHL Board 44.4% 37.5% 37.5%

Percentage of women on the Group Executive Committee 50.0% 50.0% 50.0%

Percentage of women in senior management positions 50.0% 50.0% 38.1%

Percentage of the workforce composed of third-party contractors 7.1% 6.9% 8.0%

Group employee turnover (annual) 15.3% 6.8% 13.8%

Percentage of permanent employees eligible for RSS awards 100% 100% 100%

Accredited London Living Wage employer Yes Yes Yes

49www.lancashiregroup.com

Sustainability

The management of climate change risk in this way is essential to the

longer-term sustainability of our business. PML exposures to perils

(including climate-related catastrophes) data is a significant tool

for tracking the real-time potential impacts of climate risks and all

other risks.

Lancashire’s Board also determines on at least a quarterly basis the

capital requirements of our business to meet all regulatory and rating

agency requirements to place the Group in a strong capital position to

service the needs of our clients and to meet the return expectations of

our investors.

Further information on scenario analysis is outlined in the ERM and

TCFD sections on page 27 and pages 56 to 63.

More broadly, Lancashire is also committed to supporting all our

clients as the global economy adapts to a net-zero world.

Our shareholders

We value open and transparent communication with our shareholders

and certain of the leading shareholder advisory services. This is led by

our Group Head of Investor Relations, in collaboration with members

of the Board and the executive team.

Our programme of meetings, presentations and periodic consultation

initiatives (with both shareholders and industry analysts) includes

discussion of the Group’s financial performance and business strategy;

capital initiatives; ESG matters; and the executive Remuneration

Policy, among other matters.

We also seek feedback from the Group’s corporate brokers on

investor priorities, Lancashire’s performance, and perception amongst

investors. The Board meets our corporate brokers regularly as part of

these discussions.

Service excellence for policyholders

Lancashire aspires to deliver a superior service to our policyholders at

all times. In particular, our experienced teams of claims specialists,

whether operating for our Company or collateralised carriers or

Lloyd’s Syndicates, have expert knowledge of our diverse product

lines. We manage and investigate any loss our clients may sustain

to achieve a timely, straightforward and fair resolution.

Our proactive, efficient, transparent and flexible approach is designed

to enable our clients to effectively mitigate the impact of loss events

as soon as practicable. We have many long-standing relationships with

policyholders and engage with them, and with new prospective clients,

regularly.

Brokers

The Group’s engagement with brokers distributing its products is

important and we maintain strong working relationships with both

large international firms and smaller independent intermediaries.

We work hard to ensure that we continue to be viewed as a trusted

partner and provider of solutions for clients’ (re)insurance needs. We

value traditional face-to-face contact with brokers while positively

embracing virtual engagement during the COVID-19 pandemic.

SUSTAINABLE INSURANCE

Lancashire’s primary business purpose is to deliver bespoke risk

solutions that protect our clients and support economies, businesses

and communities in the face of uncertain loss events.

By its nature, this long-held objective has, for many years, deeply

embedded core elements of environmental, social and governance

matters into our insurance operations.

We believe the insurance sector plays a crucial role in empowering

people to be able to take decisions with confidence knowing that if the

unexpected happens their insurance partners will mitigate the effects

on their business and community.

Aligned to our Company values, we strive at all times to conduct our

business in an accountable, open, honest and sustainable way.

We are committed to implementing and reporting against the UNEP FI

Principles for Sustainable Insurance, a global framework for the

insurance industry to address ESG risks and opportunities. The UN

Principles aim to achieve a better understanding of environmental,

social and governance risks, with a view to promoting the prevention

and reduction of harm and enhancing opportunities for sustainable

and effective risk protection and reporting.

Further information on Lancashire’s reporting against the UNEP FI for

2021 can be found on our website.

During 2021, Lancashire has developed and implemented a number of

internal underwriting guidelines focused on assisting with wider global

efforts to tackle issues of climate change and other environmental,

social and governance factors. These have been articulated by

reference to the Lloyd’s market and are being rolled out across all

underwriting platforms. These guidelines are also linked to the Group’s

formal risk appetite statements. See the Underwriting Committee

report pages 86 and 87.

These guidelines are in addition to Lancashire’s long-standing

underwriting processes and controls. Where possible, underwriting

decisions are subject to peer review and other mechanisms to ensure

any risks written outside predetermined criteria are identified and

highlighted on a timely basis. The majority of our underwriters

participate in our daily UMCC where the vast majority of potential

business is discussed in an open forum, which includes senior

management. When appropriate, these discussions include

acknowledgement of sustainability factors.

We understand that there are no simple solutions to the challenges of

today’s complex world. We value our open and honest relationships as

we continue our journey in this area and we are committed to working

in partnership, across the sector, with a range of stakeholders.

Due to the specialist knowledge and expertise within Lancashire’s

underwriting teams, we have, for many years, been a valued risk

partner for businesses in the energy sector and the solutions we

provide to these clients assist in delivering safer operations and

resilience.

Many of these clients are already transitioning away from carbon-

based forms of energy and we fully support these efforts, while

recognising that wholesale change of this nature may take some years.

Since Lancashire’s formation in 2005, we have controlled and

monitored exposures to a range of natural catastrophe and weather-

related risks.

Honesty and accountability

Lancashire Holdings Limited

Annual Report & Accounts 2021

RESPONSIBLE INVESTMENT

Measurement and monitoring

The Group’s primary investment objectives are to preserve capital and

provide adequate liquidity to support the Group’s payment of claims

and other obligations.

Our investment guidelines, established by the Investment Committee

of the Board, set the boundaries within which the Group’s external

investment managers must operate.

Compliance with the guidelines is monitored on a monthly basis

and any adjustments are approved by the Investment Committee

and the Board.

In addition, we measure and monitor our climate change transitional

risk, with sensitivity to, and promotion of, responsible investment.

Our principal investment managers are signatories to the UN-

supported ‘Principles for Responsible Investment’ and we encourage

all of the Group’s asset managers to consider signatory status.

These principles include a commitment to incorporate the governing

six principles into the investment analysis and decision-making

processes for the Group’s portfolio.

During 2021, we also began reducing certain carbon intensive forms

of investment for the Group’s fixed maturity investments and we

articulated and adopted a Climate Change at Risk metric aligned with

the Paris Accord 1.5°C scenario (see Investment Committee report on

pages 84 and 85).

We will continue to monitor our investments with a focus on

sustainability as relevant analytics develop and evolve in the markets.

51www.lancashiregroup.com

Sustainability

The Lancashire Way guides all our activities with

an emphasis on ensuring that we show leadership

and act in a straightforward way for the benefit

and understanding of all stakeholders.

The Group operates in line with all relevant regulatory and legal

requirements, giving particular regard to the environmental, social

and governance regulations of the BMA; TCFD; PRA; FRC; FCA; Lloyd’s;

UNEP-FI; Mandatory Greenhouse Gas Emissions reporting /

Streamlined Energy & Carbon Reporting (SECR); and Home Office

(Modern Slavery Statement Registry).

We aim to run our business responsibly, as a good corporate citizen,

a responsible preserver of resources, and holding our supply chain to

the high standards we apply to ourselves.

Relations with regulators, rating agencies and lenders

We maintain constructive relationships with the relevant regulatory

bodies who provide the Group with supervision and oversight.

Our programme of active engagement includes meetings, reporting

or routine regulatory reviews and the Board and management

monitors changes in regulatory and supervisory requirements closely.

Lancashire is subject to financial strength assessments by three major

rating agencies: A.M. Best, S&P and Moody’s. These assessments

include creditworthiness and claims-paying ability of the Group’s

insurance subsidiaries, LICL and LUK. The Group’s syndicates benefit

from Lloyd’s current ratings. In addition, all Lloyd’s syndicates benefit

from Lloyd’s central resources, including the Lloyd’s brand, its network

of global licences and the Central Fund.

We engage with each of our rating agencies annually as part of our

rating review, quarterly to discuss current financial performance, and

additionally when significant events occur such as loss events. Our

strong ratings allow the Group to write business successfully in all

major global insurance markets and to comply with reinsurance

contracts under which the Group is reinsured, as well as its credit

facilities which support underwriting obligations.

Our strong relationships with lenders allow the Group the flexibility

to respond to changing business and economic conditions and to raise

capital, when required, to execute our strategy. The Group has in place

a number of long-term debt and financing arrangements with lenders

which help to support and fund its underwriting operations and to

comply with regulatory capital requirements. We routinely publish

financial information for the benefit of all our capital providers,

including our lenders.

Tax authorities

The Group maintains proactive relationships with relevant tax

authorities in order to achieve compliance with all its tax obligations.

This requires us to keep abreast of developments in tax legislation and

to work with the tax authorities to manage our tax risk.

Collaboration with third parties

To ensure our operations are as efficient as possible, the Group

employs a number of third-party suppliers and service providers

to assist in the effective running of the business.

We value these partnerships and approach them in a collaborative

manner to further develop good relations.

We seek to receive assurance that employers within the

ancillary services and limited supply chains used by the Group

pay a living wage.

Payments to service providers are made in accordance with the

individual payment terms agreed. The Group’s UK subsidiary, LUK,

complies with its statutory reporting duty for payment practices and

performance in relation to qualifying contracts on a half-yearly basis.

Lancashire has its own responsibilities to those within its limited

supply chain. Any concerns arising over the ethical practices and

human rights records of insureds and potential clients would be

considered as part of the underwriting process.

Anti-slavery and human trafficking

We are proud of the conditions of employment for all our employees

throughout the Lancashire Group. We also consider that there is

minimal risk that, either within the Lancashire Group or the very

limited supply chains which support our business activities, the

Lancashire Group is involved in, supportive of, or complicit in slavery

and human trafficking.

Our full Anti-Slavery and Human Trafficking Statement is available

on our website.

OPERATING RESPONSIBLY

Responsibility and leadership

Lancashire Holdings Limited

Annual Report & Accounts 2021

Environmental impact and offsetting

The Group is committed to managing the environmental impact of its

business. We measure our carbon footprint annually with a view to

minimising its negative impact through both mitigation strategies and

by offsetting 100% of our calculated GHG emissions, in order to

remain carbon neutral. In previous years, Lancashire has achieved its

carbon neutral status through purchasing carbon credits, solely in

carbon avoidance programmes, which assist in the creation and/or

maintenance of systems and technologies which replace the use of

carbon intensive processes. In 2021, for the first time, the Group offset

15% of its emissions via a carbon sequestration project, which aims to

actively remove carbon from the atmosphere. The remaining 85% of

the Group’s 2021 offsetting has been procured via carbon avoidance

projects. We have reported the 2021 emissions data for the Group in

the table on page 54.

The Group recognises the challenges posed by climate change and

considers its impact as part of the risk management and strategic

planning process (please refer to the Chairman’s statement on pages 6

and 7 and the section on principal risks from pages 31 to 37 for further

details). The Group CRO and the Board oversee the Company’s annual

submission to the CDP. The information which is requested as part of

the reporting process is aligned with the recommendations of the

TCFD. The business, led by the Group CRO, has further developed its

understanding and reporting in line with the requirements of the

TCFD. Please see pages 56 to 63 for more information on our

TCFD journey.

Emissions are collated from 1 January 2021 to 31 December 2021 and

are calculated by converting consumption data into tonnes of carbon

equivalent (tCO

e) using the UK’s Department for Business, Energy

and Industrial Strategy (BEIS) 2019 factors. For the second year,

Lancashire has also calculated its Scope 2 market-based emissions,

which we disclose adjacent to our previous location-based figure, in

line with the Greenhouse Gas Protocol’s guidance on dual reporting

With operations in London and Bermuda, and with clients and brokers

around the globe, the Lancashire Group has typically incurred the bulk

of its carbon footprint as a result of airline travel. Despite the impact

of the COVID-19 pandemic, there has been more opportunity for

employees to travel between our offices, and to meet clients and

brokers during 2021. This has resulted in an increase in our business

travel emissions from the 2020 level of 118.2 tCO

e to 284.6 tCO

e in

2021. However the number of flights taken is below the level of 2019

and prior pre-pandemic years.

We have procured 100% renewable electricity for our London

operations and have applied an appropriate residual grid factor for our

operations in Bermuda. Lancashire did not implement any energy

efficiency measures in the business during 2021 due to limited control

of its sites. However, our London office is already well optimised with

20 Fenchurch Street achieving a BREEAM ‘excellent’ environment

performance rating.

Using an operational control approach, Lancashire has assessed its

boundaries to identify all the activities and facilities for which it is

responsible. Subsequently, we have reported 100% of our Scope 1 and

2 footprint, along with areas of our Scope 3 footprint with high levels

of operational control, as detailed below. Calculations performed

follow the ISO 14064-1:2018 standard, giving absolute and intensity

factors for the Group’s emissions. Lancashire uses the number of FTEs

as its intensity metric. Where data was not available for 2021, values

have been extrapolated by using available data or calculated using

industry benchmarks. Lancashire does not own company vehicles; thus

business travel emissions fall entirely in Scope 3 and vehicle energy is

not included in numbers below.

Total location based emissions for 2021 have increased by 50.4%

compared to 2020. As FTEs have increased year-on-year, with a period

of significant recruitment during 2021, emissions per FTE have

increased by 27.3%. The table on page 54 sets out the Group’s carbon

footprint for the current and prior reporting period, broken down by

emission source.

Results show that location-based GHG emissions in the year were

842.1 tCO

e, comprised of direct emissions (Scope 1) amounting to

106.7 tCO

e, and indirect location-based emissions (Scope 2)

amounting to 279.7 tCO

e. The source of other indirect emissions

(Scope 3) comprised 455.6 tCO

e. Scope 1 emissions have increased

by 59.3% mostly due to our London site reopening after the UK

COVID-19 lockdowns. Scope 2 emissions have increased by 13.5%

compared with 2020, due to the reopening of our Fenchurch Street

office after the COVID-19 lockdowns, as well as the opening of our

meeting space in Fountain House for part of the year. Scope 3

emissions have also increased by 91.4% compared with 2020 due

primarily to the lifting of some travel restrictions in 2021 resulting in

an increase in business travel and hotel stays, albeit not to pre-

pandemic levels.

1 https://www.gov.uk/government/publications/greenhouse-gas-reporting-conversion-factors-2021

Streamlined Energy & Carbon Reporting disclosure – January 2021 to December 2021

Current reporting year Previous reporting year

(UK &

offshore)

Only

(UK &

offshore)

Only

Emissions from the combustion of fuel or the operation of any facility including

fugitive emissions from refrigerants use / tCO

e 106.7 106.7 67.0 67.0

Emissions resulting from the purchase of electricity, heat, steam or cooling by

the company for its own use (location based) / tCO

e 279.9 138.8 253.5 113.4

Gross Emissions (Scope 1, 2) 386.4 245.0 320.5 180.4

Energy consumption used to calculate above emissions /kWh 1,899,648.9 1,233,727.6 1,450,033.6 849,398.9

Total gross emissions (Scope 1, 2, 3)/ tCO

e 842.1 558.6

tCO

e per FTE 2.8 2.2

53www.lancashiregroup.com

Sustainability

Under the market-based methodology, the Group’s Scope 2 emissions

are 259.7 tCO

e. This results in total market-based emissions of 822.1

tCO

e. Our market-based emissions are lower than our location-based

as the Group sources electricity for its Fenchurch Street offices via a

renewable tariff, backed up by associated Renewable Energy

Guarantees of Origin (REGOs).

The Group has fully offset its calculated 2021 GHG market-based

emissions through EcoAct by purchasing verified credits in both carbon

avoidance and carbon sequestration programmes. 85% of the Group’s

2021 carbon credits have been purchased in the Gandhi India Wind

Project and the Gaolin Wind Project, both of which generate

renewable electricity in various states across India and China that have

traditionally been reliant on fossil fuel generated energy. As a result

these are described as carbon avoidance projects. The remaining 15%

of the Group’s 2021 carbon credits have been purchased in the

Cherokee Forest project in the USA. This Improved Forest

Management Project protects 8,485.58 acres of mixed hardwoods,

oak hickory, cove forest, and oak-pine in northeast Tennessee. The

park’s management plan and governance are designed to preserve the

mountain’s forest habitat while also stimulating recreation-based

tourism in an economically at-risk region. As a result this is a carbon

sequestration project. These offsetting proposals were discussed and

agreed with the Group CEO.

The Board will continue to monitor and offset the Group’s

emissions, mindful of the Group’s strategic and business

operational requirements.

In addition, we encourage the use of public transport by UK employees

travelling to work to assist in reducing the number of car journeys.

Incentives include a season ticket loan scheme and assistance in

purchasing bicycles. We have designated storage for employees’

bicycles at our London office.

Types of emissions Activity

2021

tCO

2020

tCO

Direct (Scope 1) Gas (measured in kWh) 106.7 67.0

Refrigerant (measured in kg) 0.0 0.0

Indirect Energy (Scope 2) (location-based) Electricity (measured in kWh) 279.7 253.5

Indirect Energy (Scope 2) (market-based) Electricity (measured in kWh) 259.7 228.8

Indirect Other (Scope 3) Business Travel (measured in miles and spend) 284.6 118.2

Additional Upstream Activities

(measured in kWh, litres, miles and spend) 153.5 87.4

Water (measured in m3) 6.9 19.4

Waste (measured in kg) 1.3 4.6

Paper (measured in reams) 2.8 2.4

Hotels (measured in hotel nights) 6.6 6.1

Gross emissions (tCO

e) (location-based) 842.1 558.6

Gross emissions per FTE (tCO

e/FTE) 2.8 2.2

Gross emissions (tCO

e) (market-based) 822.1 533.9

Carbon credits 823.0 534.0

Total net emissions after offset (tCO

e) 0.0 0.0

Please note: all numbers quoted have been rounded to one decimal place.

Additional Upstream Activities include Well-to-Tank and Transmission & Distribution emissions. These are emissions associated with the upstream processes of extracting,

refining and transporting raw fuel and the emissions associated with the electrical energy lost during transmission to our business.

OPERATING RESPONSIBLY CONTINUED

Lancashire Holdings Limited

Annual Report & Accounts 2021

IT security

Keeping our information safe and protecting ourselves from online

threats are crucial in today’s inter-connected world.

Cyber criminals are becoming increasingly ambitious in their attempts

to steal data and infiltrate IT systems. Our stakeholders are also taking

this activity seriously and look to us to make sure our people have the

support they need.

During 2021, we introduced a new mandatory online IT security

training course which replaced previous in-person sessions, covering a

range of topics to reinforce the importance of protecting our data.

Training for all employees, including those on fixed-term contracts,

will continue during 2022. Exercises to test employees’ abilities to

detect potentially harmful emails are also carried out.

A series of Annual Cyber Incident Response Plan (CIRP) Tabletop

Exercises were also held, attended by relevant functional

representatives, focused on increasing awareness of current cyber

threats to the Group, validating the Group’s capacity to respond

effectively to potential cyber-attacks, and stress-testing our Cyber

Incident Response Procedures.

The Board also received a report on the Group’s Information Security

protocols, testing and mitigation initiatives.

Anti-money laundering, bribery and financial crime

The Group seeks at all times to ensure that it operates effective and

appropriate procedures to prevent and/or report incidents of money

laundering, bribery and other forms of financial crime.

The Group has developed an Anti-Money Laundering, Bribery

and Financial Crime Policy and Procedure with practical measures

for the identification and control of any suspicious, dishonest or

illegal transactions.

All Group employees are required to report to their local Money

Laundering Reporting Officer any potentially suspicious transactions

whether arising from suspected money laundering activity or

knowledge of, suspicion or concern relating to suspected acts of

bribery or any other type of financial crime, dishonesty or illegality.

Conflicts of interest and share dealing

Due to the nature of insurance markets, business relationships are

often strengthened through hospitality or other forms of engagement.

The Group’s Conflicts of Interest Policy, for giving and accepting gifts

and entertainment, sets out guidelines to ensure that gifts and

entertainment are consistent with acceptable business practice.

The Group’s Share Dealing Code places relevant restrictions on the

trading of LHL’s securities by employees and the Group’s Disclosure

Policy restricts and regulates the disclosure or discussion of

confidential information.

A full suite of internal policies and procedures is available on the staff

intranet and detailed in the employee handbook.

55www.lancashiregroup.com

Sustainability

OPERATING RESPONSIBLY CONTINUED

TCFD Report – Our journey

Lancashire supports the aims of the TCFD, and we

have detailed below our progress against both the

four pillars and the 11 recommendations.

Governance

Disclose the organisation’s governance around climate-related

risks and opportunities.

Describe the Board’s oversight of climate-related risks and

opportunities.

The LHL Board retains ultimate responsibility for climate-related risks

and opportunities. It oversees the Group’s ERM activities and receives

regular updates on material risks including ESG-related risks and

opportunities. This is done through the Nomination, Corporate

Governance and Sustainability Committee, the Underwriting and

Underwriting Risk Committee, as well as the Investment Committee.

The Nomination, Corporate Governance and Sustainability Committee

monitors issues of sustainability, including developments in climate

change risk management and reporting.

The Board’s Underwriting and Underwriting Risk Committee and

the Investment Committee each have responsibility for monitoring

the impacts of climate change, transition risk, as well as the broader

ESG risks and to articulate appropriate appetites and tolerances for

the Group.

Overall responsibility for the ESG programme sits with the Group

CEO. The Board as a whole, reviews and approves the Group’s risk

framework and appetites which are ordinarily addressed within the

quarterly ORSA report.

The Board receives a quarterly ORSA report from the Group CRO.

This covers the full range of risks and controls identified through the

Group’s risk register and operated by the Group, including climate

change and ESG risks and controls. Facilitated by the Group CRO, the

Board discusses, agrees and monitors, performance against a range of

risk appetites. The Board discussions also cover consideration of

emerging risks.

Examples of Board ESG and climate change oversight in 2021 include:

• The Board’s oversight of the implementation of the ESG

Co-ordination Committee and associated working groups, the

Climate Change Working Group and the Diversity & Inclusion

Working Group

• Its review and approval of the Group’s ESG framework

• Approval of the Group’s ESG strategy

• Annual review and approval of the Group’s risk appetite statements,

including the tolerances for elemental PMLs and non-elemental

RDSs. More information on this can be found on page 138. The risk

appetite statements were enhanced during the year to include

climate-related statements for both the asset and liability side

of our business

• Oversight of the process undertaken, and scenario testing

performed, for the BMA’s Climate Change Exposure Assessment

• Review and approval of the annual ORSA report.

• Review of the quarterly ORSA reporting which contains information

on all risk categories highlighting material risk considerations

including climate-related risk where appropriate.

• Review of the output from stress tests performed as part of both

the annual business planning exercise and the annual ORSA

reporting process, including climate-related scenarios.

The actual business underwritten within the Group is monitored

against both the strategic plan and the Board-approved risk tolerances

(including those linked to climate-related catastrophe loss events) and

is reported to the Board quarterly within the Group CRO’s quarterly

ORSA report. Please see page 28 for more information. In addition, the

Group CUO and Group CRO regularly review current and emerging

(re)insurance risks.

The Investment Committee oversees the management and

performance of the Group’s investment portfolio including investment

risk parameters. During 2021, management developed some climate-

related investment guidelines to be applied across the Group’s fixed

maturity portfolio. The Investment Committee and Board reviewed

and approved the proposal to implement these guidelines. In addition,

the Investment Committee and Board reviewed and approved a

proposal to introduce a Climate VaR risk appetite statement to be

monitored as part of the regular quarterly reporting process. This

included an agreed preference for the financial impact of the Climate

VaR on the Group’s actual fixed maturity portfolio, covered by MSCI,

to have a less detrimental impact than the MSCI benchmark model

and carbon sensitivity tool. Please see the Investment Committee

report on pages 84 and 85 for more information.

Describe management’s role in assessing and managing climate-

related risks and opportunities.

The Group CEO is accountable for the development and execution of

the Group strategy, including the management of climate-related risks

and opportunities.

The Group CRO is responsible for the overall management of the risk

management framework, which includes facilitating the identification,

assessment, evaluation and management of existing and emerging

risks by management and the Board; ensuring these risks are given due

consideration and are embedded within management’s and the

Board’s oversight and decision-making process.

The ESG Committee, established by management in H1 2021, is tasked

with the oversight, co-ordination and internal management of the

Group’s ESG strategy. The ESG Committee reports to the Group

Executive Committee and is supported by both the Climate Change

and Diversity & Inclusion Working Groups. Key developments are

reported to the Nomination, Corporate Governance and Sustainability

Committee as well as the Investment and the Underwriting and

Underwriting Risk, Audit and Remuneration Committees as

appropriate, and ultimately to the Board via the Group CRO’s

quarterly reporting.

Lancashire Holdings Limited

Annual Report & Accounts 2021

The RRC evaluates and monitors the Group’s modelled underwriting

PML and RDS risk exposures against the Group’s tolerance levels on a

monthly basis. Lancashire underwrites predominantly short-tail

business, with loss exposures usually crystallising within a policy

period of 12 months. As a result, with PML levels updated monthly

and shared internally, we ensure we closely track both market pricing

and coverage conditions and the Group’s modelled climate-related

loss exposures. Please see page 138 for more information.

The IRRC is increasingly alive to the potential impacts of climate

change-related transitional risk on assets within the Group’s

investment portfolio. The Group CRO has convened a Climate Change

Working Group, which focuses on areas for enhancement in the

assessment and management of climate change risk and related

opportunity over the coming year to inform the work of the IRRC,

the Investment Committee, the Underwriting and Underwriting Risk

Committee, and the Nomination, Corporate Governance and

Sustainability Committee.

The above diagram illustrates the Group Board, Board sub-committee

and management committee governance structure as it pertains

to ESG. The role and responsibilities of each of the Board’s sub-

Committees is explained within the Governance section starting

on page 72 and in each Committee’s Terms of Reference which

can be found on the Group’s website. The Group CRO is a member

or attendee of all the fora shown above and provides a link between

each individual forum and the management RRC and Group

Executive Committee.

Group ESG governance structure

Nomination Corp

Governance &

Sustainability

Committee

Underwriting and

Underwriting Risk

Committee

Audit

Committee

Investment

Committee

Climate Change

Working Group

D&I Working

Group

Group Executive

Committee

LHL

Board

ESG Committee

Remuneration

Committee

57www.lancashiregroup.com

Sustainability

Strategy

Disclose the actual and potential impacts of climate-related

risks and opportunities on the organisation’s businesses,

strategy, and financial planning where such information

is material.

Describe the climate-related risks and opportunities the

organisation has identified over the short, medium, and

long term.

We consider the actual and potential impacts of climate-related risks

and opportunities on Lancashire’s strategy and financial planning

across the following timeframes: short term being up to five years,

medium term being five to 15 years and long term being 15 to 30 years

from now. Lancashire underwrites predominantly short-tail business,

and so the principal impact of climate-related risks and opportunities

is on short-term strategy. Such impact is mitigated by our ability to

re-evaluate the portfolio on an annual basis and therefore re-price

physical risks and reset exposure levels to take into account new data

regarding the frequency and severity of elemental catastrophe events.

We recognise that climate change does also impact the longer-term

strategy in terms of emerging risk and accordingly management works

with some of the leading external catastrophe model providers to

understand the science which underlies and informs developments in

the short and long-term climate-related assumptions in their

stochastic models. These developments are included in the Group’s

management and Board- approved annual five-year business strategy

and the three-year forward-looking business plan. More information

can be found in the going concern and viability statement on page 114

of this report.

The Board also regularly discusses cycles and trends within the

insurance sector as well as within the natural, commercial and political

environment to which the Group’s business is subject. We also

recognise the potential impacts of transitional climate change risk on

the Group’s underwriting and investment portfolios and associated

strategies. Whilst detailed strategic planning is based on short-term

horizons (over a period of three to five years) the Board’s strategic

discussions are informed by consideration of potential future trends in

the medium to longer term such as the make-up of global energy

demand (which may be influenced by climate-related factors), the

impact on travel and transportation (aviation, shipping, cruise ships) or

the potential for political instability (for example over a period of five

to 30 years).

During 2021 significant work was undertaken to identify and articulate

the financial impacts of climate-related risks, both physical and

transitional risks. For each risk identified, the loss amplification

factors, time-frame and magnitude were considered, as were metrics

by which these risks could be monitored and reported upon. Examples

of short to medium-term risks identified included increased severity of

tropical cyclones and heightened storm surge resulting from the

enhanced strength and duration of storms combined with sea level

rise; increased intensity of extratropical cyclones; increased intense

rainfall due to the warming atmosphere thus increased risk of flooding;

and increased risk of wildfire due to warming temperatures combined

with shifting precipitation patterns. A longer-term risk being

considered is the emergence of new natural catastrophe zones

due to the shifting weather patterns. The potential financial impact

from these risks is included within the metrics and targets section

on page 61.

The physical risk to our own operations is less material. As a group

operating out of two physical locations (Bermuda and London) we

don’t have significant physical assets to be impacted by physical risk;

the main impact of physical risk arises from our underwriting portfolio

in the form of losses arising from elemental catastrophic events. We

do however have robust BCP processes in place.

Examples of transitional risks that may be faced by the Group include

the probability of a declining premium environment in the traditional

oil and gas sector or transportation classes over time, or the risk of

exposure to climate change-related litigation. The potential impact

in terms of premium is thought to range from low to medium for

the relevant subsidiary, however the financial impact to the Group

of these risks ranges from very low to low at this time due to the

inherent responsiveness in the Group’s nimble underwriting

strategy. Our work in this area will be further developed and

enhanced during 2022.

OPERATING RESPONSIBLY CONTINUED

Time horizon

Magnitude

Long: 2030+

High

Medium: 2025-2030

Medium

Short: now – 2025

Low

Risk radar

Lancashire’s current internal

view of the risks the Group may

face from climate change, the

potential time horizon over

which they may be faced and

potential magnitude of impact.

The radar is updated on a

periodic basis following each

internal risk assessment.

Wildfire

Inland

Flood – EU

Capital

Declining

Energy

Premium

Declining

Transport

Premium

External

Factors

Tropical

Cyclone – U.S.

Tropical

Cyclone – JP

Emergent

Perils

Litigation

Extratropical

Cyclone – WS-EU

Lancashire Holdings Limited

Annual Report & Accounts 2021

Describe the impact of climate-related risks and opportunities

on the organisation’s businesses, strategy, and financial

planning.

Lancashire is exposed to the risk of heightened severity and frequency

of weather-related losses which may be influenced by climate change.

We manage this risk by using the stochastic models from third-party

vendors which have a long history of quality data governance. In

addition, we adapt these models based upon our views of climate risk,

as well as our clients’ exposure data, to create aggregate loss

scenarios. Further, individual risks that are likely to materially utilise

the Group’s capital are reviewed at the daily UMCC prior to binding.

The modelling data and the capital deployment are closely monitored

by executive management. Likewise, the Board monitors this on a

quarterly basis as part of strategic risk and capital management, with

the testing of the models leading to changes in risk levels, reinsurance

purchasing and structuring strategy as required. As part of the

financial planning process, the assumptions within the underwriting

portfolio are reviewed including the expected rate adequacy and

losses for each class of business. Our assumptions are driven by a

number of factors, which include climate change-related factors such

as frequency and severity of elemental events and the potential for

associated claims inflation. The level and availability of capital, as well

as capital utilisation by class of business, are also key considerations in

the financial planning process. The business mix is also reviewed and

new products and lines are considered where rates prove attractive

and accretive.

Lancashire’s exposure to physical risk in our own operations is modest.

As a business with an office in Bermuda we recognise that this is an

area of the world that is vulnerable to catastrophic windstorm events

and may be affected by any future climate change trends. Both

Lancashire offices have disaster recovery and BCP in place. Specifically,

the Bermuda management team and Board consider hurricane and

tsunami risk within the Bermuda office’s BCP. Please see page 36 for

more information.

Outside of physical risk, Lancashire has been a risk partner of

businesses operating in the aviation, marine and energy sectors across

the world for many years. The risk solutions which we provide help

deliver the wider social benefits of safer operations in a properly

regulated environment with access to capital resources to quickly

repair and remediate damage in the event of accidents or catastrophic

failure. We will continue to support our clients in the journey required

to transition away from carbon-based forms of energy to a net zero

state. Substantial investments will be required to meet both global

energy demand and reduce carbon emissions and we remain

committed to supporting our clients across the energy sector as they

navigate this transition.

We also recognise the potential impacts of climate-related risks and

opportunities upon the Group’s investment portfolio, in particular the

potential impacts of the transition away from a carbon intensive

economy. During 2021, we developed the tools used for the

identification, measurement and management of these risks and

opportunities through the work of the CCWG, the RRC and the

Investment Committee; and we have enhanced the management

information provided to each of these.

With respect to opportunities arising from climate change, immense

investment in infrastructure will be required as the world transitions

to a lower-carbon economy, such infrastructure will require insurance

which lies within the Group’s existing classes of business and appetite.

The demand for environmental insurance products is also expected

to increase.

Describe the resilience of the organisation’s strategy, taking

into consideration different climate-related scenarios, including

a 2°C or lower scenario.

Stress and scenario tests and reverse stress tests are performed as part

of the business planning process and the annual ORSA reporting

process. More information on these processes can be found on pages

27 to 29 of this report. The capital impacts from a range of scenarios,

including climate-related risks and opportunities, are presented to the

RRC and Board for review and discussion.

During 2021, the Group participated in the BMA’s climate change

exposure assessment exercise which covered both the asset and

liability sides of our balance sheet. The liability side analysis requested

by the BMA included the impact on the insurance portfolio of physical

risk under three different scenarios: short, medium and long term

(looking out five, ten and 25 years). The stress test undertaken

featured two major elements for each of the three time horizons: i)

climate change risk scenarios for selected major perils corresponding

to the 2.5° scenario linked to RCP 4.5

; and ii) Company-specific

inflation expectations. The BMA requested the work be performed on

the portfolio in-force as at 31 December 2020. The results of these

stress tests were presented to, and discussed at, the RRC before being

submitted to the BMA. As expected, the impact from these climate

events increased as the time horizon lengthened. We plan to develop

our work in this area during 2022.

One of Lancashire’s key operating principles, which supports the

Group’s strategy to produce an attractive risk-adjusted total return to

shareholders over the long term, is to ‘operate nimbly through the

cycle’. Climate change may influence the severity and frequency of

losses that impact our policyholders and Lancashire’s quick response

to such post-loss situations can therefore be seen as a competitive

advantage. A similarly ‘nimble’ approach to the management of

climate change transition risk helps inform asset allocation and

investment portfolio management. As of 31 December 2021, 93.8% of

our externally managed investment portfolio, excluding internally

managed cash, is managed by signatories to the United Nation’s

Principles for Responsible Investment. Analysis of our investment

portfolio, specifically the fixed maturity portfolio, has shown it is more

resilient to the impacts of climate change than the relevant

benchmark which we have linked to a 1.5C future pathway scenario.

During 2021 we have developed our ESG and carbon intensity

analytics in relation to the investment portfolio, and we plan to

further enhance this work and add to the stress and scenario tests run

during 2022 as part of our biennial strategic asset allocation study.

The CCWG has been a useful forum to progress our work in this area

and the Group expects to report in more detail on likely scenario

impacts in future years. Nonetheless, given the Group’s predominately

short-tail nature of, and the ability to model the geographical and

economic impacts of climate risk on, the insurance products it sells

and to price insurance premiums on the basis of a flexible and dynamic

risk analysis, the Board and management consider that there is some

resilience in both the Group’s underwriting and investment strategy

and its business model to the challenges of increased frequency and

severity of physical damage and the effects of transition risk, as a

result of climate change risk.

1 A set of parameter input assumptions used in climate science to project emissions

of greenhouse gases over time to assess the sensitivity of the climate response.

RCP 4.5 is a specific “middle range scenario”, featuring slowly declining emissions

from around 2050, with a likely 2.5C increase in global mean temperatures, above

that of the Paris agreement target.

59www.lancashiregroup.com

Sustainability

Risk management

Disclose how the organisation identifies, assesses, and manages

climate-related risks.

Describe the organisation’s processes for identifying and

assessing climate-related risks.

Climate-related risks are identified and assessed as part of the usual

risk identification and management process which includes but is not

limited to: discussions with risk owners and with subject matter

experts across the Group, discussions at the Group’s Emerging Risk

Working Group, CCWG, and ESG Co-ordination Committee. Climate-

related risks specific to the (re)insurance portfolios are identified and

assessed as part of the day-to-day underwriting process by individual

underwriters in their analysis of specific risk information, and more

broadly in the context of the wider portfolio during the daily UMCC

and the fortnightly RRC meetings. This includes, for example, the

assets to be insured; their physical location; weather-related perils

that have impacted that location; historical frequency and severity; as

well as expected short and long-term changes. The individual entity

annual underwriting strategy days and the Group annual catastrophe

underwriting strategy day also provide a good basis for discussion of

the climate-related risks of both current and anticipated future risks.

Examples of such risks include transition risks arising from a decline in

value of assets to be insured, changing energy costs and liability risks

that could arise from climate-related litigation. Physical, transition

and liability risks are considered by business segment and geographical

location, and the expected impact from the risks identified is

considered both with respect to magnitude and timescale.

Describe the organisation’s processes for managing climate-

related risks.

We recognise the potential environmental effects of carbon emissions

and in a global commercial and political environment which currently

remains reliant on carbon-based forms of energy production, we will

work with our clients through a period of global energy transition to

help manage their operational and catastrophe-exposure risks in a

controlled and responsible way.

Nonetheless, climate-related risks (and opportunities) are a

constituent part of the Group’s underwriting and investment risks. As

we have detailed in this TCFD report, such risks are managed in the

same way as other risks: they are identified, monitored, mitigated and

reported upon against tolerance as appropriate. Opportunities are

monitored and taken advantage of where it makes sense to do so.

More information can be found on pages 26 and 27 of this report.

Describe how processes for identifying, assessing, and managing

climate-related risks are integrated into the organisation’s

overall risk management.

As noted in the ERM section, the Group subscribes to a ‘three lines of

defence’ model with respect to the identification, ownership,

monitoring and mitigation of risk. The management of climate-related

risk falls within this same framework, which is fully embedded

throughout the Group. Our ERM framework has been enhanced during

2021 with the formation of a CCWG which reports into the newly

established ESG Committee. The ESG Committee reports through to

the Group Executive Committee as well as providing updates on its

work via the Group CRO to both the Nomination, Corporate

Governance and Sustainability Committee and the LHL Board. The

RRC considers all aspects of risk for the Group at a management level

and reports through the Group CRO to the Board. The Board of

Directors is responsible for setting and monitoring the Group’s risk

appetite and tolerances, whereas the individual entity boards of

directors are responsible for setting and monitoring entity level risk

tolerances. All risk tolerances are subject to at least an annual review

and consideration by the respective boards of directors.

The Board considers the capital requirements of the business on at

least a quarterly basis. The Group’s exposures to natural catastrophe

risks are one of the key drivers of the capital held by the Group to

support its underwriting activities.

The IRRC is alive to the potential impacts of climate change-related

transitional risk on the Group’s assets within the Group’s investment

portfolio and its work is reported to the Board-level Investment

Committee. During 2021, we built on our early climate sensitivity

analysis work to further develop tools for the understanding of the

impacts of climate change and transition risk on the investment

portfolio as well as potential opportunities. This work has been

embedded within both our processes and the day to day management

of the investments by our investment managers and updates,

including the exposure of the investment portfolio to climate-related

risk, are provided to the Investment Committee on a quarterly basis.

OPERATING RESPONSIBLY CONTINUED

Lancashire Holdings Limited

Annual Report & Accounts 2021

Metrics and targets

Disclose the metrics and targets used to assess and manage

relevant climate-related risks and opportunities where such

information is material.

Disclose the metrics used by the organisation to assess

climate-related risks and opportunities in line with its strategy

and risk management process.

Our underwriting strategy is based on a number of factors, including

but not limited to: market conditions and opportunities, pricing

adequacy and available capital. We define our risk appetite for

underwriting risks as a percentage of capital we are willing to lose in a

specific event, and we set a capital loss tolerance for and track the

Company’s modelled PMLs to weather-related hurricane perils.

On pages 58 and 59 we described the work undertaken in 2021 to

identify and articulate the financial impacts of climate-related risks.

The table below sets out the financial impact of physical risk.

Impact of climate-related risk

Physical: acute and

chronic Timeframe

Magnitude

of impact

Potential financial impact

Group net PML/ % of capital Mitigation

Tropical Cyclone

U.S. Windstorm –

Gulf of Mexico

Medium High $309.0 million / 18.2% • Positive feedback loop in pricing models that

reflect heightened risks from climate change

• Lancashire adjusts gross risk appetite wherever

the risk is viewed as inappropriately priced for

the exposure

• Outwards reinsurance is adapted to reflect the

changing exposures

• Robust internal controls ensuring PMLs are

monitored monthly by the RCC

• We continue to develop views on other perils.

U.S. Windstorm –

Non-Gulf of Mexico

Medium High $206.8 million / 12.2%

Japan Windstorm Medium Medium $118.3 million / 7.0%

Extratropical Cyclone

European Windstorm Medium

– Long

Medium $154.1 million / 9.1%

61www.lancashiregroup.com

Sustainability

OPERATING RESPONSIBLY CONTINUED

Our PMLs are derived using stochastic models licensed from third-

party vendors. Our actuarial team assesses the assumptions within the

licensed model and, where appropriate, applies loadings to it. Model

outputs are regularly challenged at both the macro and specific

account level. Our PMLs, and the actual in-force exposure versus

tolerance are reviewed by the RRC on a monthly basis. The loadings

applied to the model are reviewed by the RRC periodically to assess

their ongoing appropriateness. Additionally, risk learning is performed

following a large catastrophe event to compare the actual loss versus

the modelled loss to further assess the appropriateness of the

assumptions and loadings within the model and establish whether

further adjustments are required.

Similarly, with respect to our investments, we have taken steps in

2021 to advance the previous approach for assessing our portfolio’s

exposure to climate-related risks looking at the carbon intensity and

transition risk within our fixed maturity portfolio. The Climate Value

at Risk (VaR) of our fixed maturity portfolio (as covered by MSCI) at

the 1.5°C global warming goal is monitored and reported to the Board

and Investment Committee on a quarterly basis. Management’s target

preference is for the impact of climate change to be less detrimental

on our portfolio than the relevant benchmark at the same level.

Our portfolio at 31 December 2021 consisted of the following:

Fixed maturity securities 78.4%

Managed cash 11.2%

Private investment funds 4.6%

Hedge funds 4.5%

Index linked securities 1.3%

Total 100.0%

As shown in the table above, we have 89.6% allocated to managed

cash and fixed maturities. The majority of the fixed maturities consist

of government-related securities: U.S. government treasuries,

non-U.S. government sovereign debt, U.S. agency debt and U.S.

agency mortgage-backed securities. In addition, we have 28.7%

allocated to corporate bonds, of which we have a small amount of

exposure to climate-related risks. The Group itself does not hold any

equities (although we have exposure to a small number of equities in

the hedge fund portfolio).

Disclose Scope 1, Scope 2, and if appropriate Scope 3

greenhouse gas (GHG) emissions, and the related risks.

The Group is committed to managing the environmental impact of its

business. We measure our carbon footprint to minimise its negative

impact through mitigation strategies and by offsetting 100% of our

greenhouse gas (GHG) emissions, in order to remain carbon neutral.

Please see page 54 of this Annual Report and Accounts where we

report our Scope 1, 2 and 3 GHG emissions. The Group also recognises

the challenges posed by climate change and considers its impact as

part of the risk management and strategic planning processes, as

discussed above. The Group CRO and the Board oversee the

Company’s annual submission to the CDP and note that the

information which is requested as part of that reporting process is

aligned with the recommendations of the TCFD.

With operations in London and Bermuda, and with clients and brokers

around the globe, the Lancashire Group has (prior to the COVID-19

pandemic) incurred the bulk of its carbon footprint as a result of airline

travel. We utilise a number of technologies to reduce inter-office

travel, including full video and telephone conferencing facilities in all

of our offices and our meeting rooms and boardrooms. The use of such

technological solutions has remained high in 2021 as a result of the

ongoing pandemic and continuing limited travel. However, we

acknowledge the benefits of physical meetings and will expect to

return to a more normal pattern of travel when possible during 2022,

should it be safe for our employees to do so.

Gas: 3% Refrigerant: 0%

Electricity: 17% Business Travel: 66%

Waste: 0% Paper: 0%

Hotels: 1% Other: 0%

Additional Upstream Activities: 12%

Water: 1%

Average emissions by category 2015-2019

Lancashire Holdings Limited

Annual Report & Accounts 2021

Describe the targets used by the organisation to manage

climate-related risks and opportunities and performance

against targets.

During 2021 the Group undertook to articulate its path to meeting the

UK Government’s net-zero target by 2050. As part of this work a

review of our own emissions was performed and 2015 selected as our

baseline year. 2015 was selected on the basis it was our first full year

in our London office at 20 Fenchurch Street, an energy efficient

building which achieved a BREEAM Excellent rating.

In the five years from 2015 up until the pandemic hit early in 2020 the

Group’s emissions reduced by 16% per FTE; whilst 2020 and 2021 have

shown a significant decrease from the preceding years it is

acknowledged this is due to the pandemic and reduction in business

travel. As can be seen from the pie chart, business travel over that

five-year period has averaged 66% of our total emissions.

Moving forward we would like to reduce our overall emissions further

and increase the proportion of emissions which are removed from the

atmosphere rather than simply offset, thereby moving from carbon

neutrality, our current position, to carbon net-zero by 2050. This is

illustrated by the following diagram which shows our initial target of a

further reduction in emissions per FTE of 15% by 2030.

In terms of the Group’s own emissions targets, we have a travel policy

to reduce our impact on the environment whilst balancing the needs

of our staff and Directors. Our policy is to not ordinarily book a

business class airline ticket, if the duration of the flight is less than five

hours long.

The Group also commits to continue to offset 100% of Scope 1 and 2

emissions and 100% of the Scope 3 emissions which we are able to

accurately calculate at this time. These include business travel, waste

generated in operations, and fuel and energy related activities not

included in Scope 1 or Scope 2. As a small financial services company a

number of the emissions categories are either not applicable to our

operations, or we have minimal operational control over them. We are

working alongside others in the industry to understand how to

accurately calculate and track emissions within the unreported

categories where applicable.

The Group will continue to source and utilise 100% renewable

electrical energy for its 20 Fenchurch Street London offices. Other

targets for the Group’s own emissions remain under discussion but

areas under consideration (outside of those related to business travel)

include further reducing paper usage, improving the level of recycling,

and eliminating the use of single-use plastics. Please see pages 53 and

54 for more information.

In relation to the Group’s investments, we have a target of managing

the impacts of our fixed maturity portfolio by reference to a Climate

VaR appetite statement. It is our objective that the assets held (that

are covered by MSCI) should have a less detrimental climate impact

than a benchmark portfolio linked to a 1.5°C future climate scenario.

For the Group’s underwriting exposure, Lancashire limits its tangible

capital at risk by reference to a series of PML loss exposure scenarios

(which include climate-related loss scenarios). PMLs are regularly

monitored and reported to the Board on a quarterly basis and reflect

real time changes in the Group’s underwriting portfolio. The Group’s

stated tolerance is to expose not more than 25% of its tangible capital

by reference to any one of its principal PMLs. For the reported

outcomes of this process see page 138 which shows details of the

Group’s principal PMLs including those related to catastrophic weather

loss events linked to climate change risk.

Carbon emissions neutralised

emissions

2015 2020 2030

-16% CO2

per FTE

-15%

per FTE

2050

Carbon emissions removed from atmosphere

Lancashire’s path to carbon net-zero in 2050

63www.lancashiregroup.com

Sustainability

STAKEHOLDER ENGAGEMENT AND SECTION 172 RESPONSIBILITIES

Strong relations

The very foundations to our

strategy and success as a

business are the solid pillars

of engagement that we have

built with our people, our

stakeholders and society, and

the creation of a healthy and

sustainable corporate culture.

Since its foundation in 2005,

the Group has focused on

fostering relations with a

broad range of stakeholders.

Brokers

Government

and regulators

Service

providers

Lenders

Rating

agencies

Communities

Lancashire

Foundation

Our

policyholders

Our

people

Our

shareholders

Society

and the

environment

Our universe of stakeholders

Our people

We believe the talents of our people and

our distinctive culture continue to set us

apart from our competitors.

Our employees are the lifeblood of the

organisation and the Group therefore strives

to attract and retain excellent individuals

who share our drive and appetite to

outperform.

See pages 45 to 49 for further details.

Our policyholders

We place the highest value on the

relationships we have built over the years

with our existing policyholders and work

hard at creating a lasting impression with

new ones.

Policyholders are central to our business, so

understanding and serving their commercial

requirements is at the forefront of everything

we do. Through our range of underwriting

platforms, we strive to offer clear, fairly

priced and useful products.

See page 50 for further details.

Our shareholders

Lancashire values the views of all of its

shareholders and maintains open and

transparent communication channels

with them.

As a premium-listed company on the LSE,

LHL understands the importance of its

obligations to shareholders. We work hard to

foster good investor relations and pride

ourselves on having an active programme of

engagement with our diverse shareholder

community.

See page 50 for further details.

Society and the environment

The Group is committed to measuring and

offsetting carbon emissions for its own

operations (see page 53) and in creating

the governance structure, risk management

and metrics for managing the effects of

climate change on business strategy and

aligning this with the global economy as it

transitions to ‘net zero’ (see TCFD report

pages 56 to 63).

Through the Lancashire Foundation, we

utilise the talent and energy of our staff

in helping others, positively impacting

society and creating a more sustainable

environment.

Our insurance products deliver social

benefits in helping businesses and

communities manage and mitigate the risks

they face. Lancashire is strongly committed

to giving back to the communities within

which it operates and also further afield. The

business seeks to help those who are in

distress or at a disadvantage, through

continued support of local initiatives and

activities, volunteering days, mentoring

opportunities and fundraising events.

See page 42 and 43 for further details.

Board engagement

and decision making

Lancashire Holdings Limited

Annual Report & Accounts 2021

Section 172 responsibilities in focus

2021 project to restructure the Group’s debt

During the first quarter of 2021 the Board discussed and agreed a

management proposal for the reconfiguration of the Group’s debt

structure, in particular to ensure alignment with current regulatory

and rating agency expectations. As a result, the Group issued $450.0

million in aggregate principal amount of 5.625% fixed-rate reset junior

subordinated notes due 2041. The net proceeds from the debt

issuance were used by the Group principally to redeem its existing

senior and subordinated indebtedness, with the balance being used for

general corporate purposes. The new debt was approved as ‘Tier 2

Ancillary Capital’ by the BMA and, as such, has helped further improve

the Group’s coverage ratio of available statutory capital and surplus

over the BMA’s ECR.

In reaching its decision to reformulate the Group’s debt structure,

the LHL Board and the executive management team had regard to a

number of stakeholder factors, including: policyholder demand and

requirements; the growth and underwriting opportunities expected

to continue to develop from the pricing environment, which continued

to improve throughout 2021; the Group’s rating agency and regulatory

capital headroom requirements with regard to the terms of debt

within the capital structure for insurers and the need to maintain a

strong capital position to allow the business to take advantage of

attractive underwriting opportunities; and the return expectations

of the Company’s major shareholders and the objective of ensuring

effective capital deployment and delivering strong risk-adjusted

returns.

Overall, the LHL Board considered it to have been in the best interests

of the Company, all its shareholders, as well as the wider stakeholders

of the Lancashire Group, to reconfigure the Group’s debt structure.

Responsible Board decision making

The 2018 UK Corporate Governance Code requires formal disclosure around the interests of and engagement with stakeholders, and the duties

falling upon boards under Section 172 of the UK Companies Act 2006. Although the Company is incorporated in Bermuda and is therefore not

subject to the UK Companies Act requirements, the Board continues to pay close attention to developments in English law and governance best

practice.

In this 2021 Annual Report and Accounts, we give an overview of how both the Board and the business have factored in the needs of our

stakeholders in their discussions and decision making in all areas of performance review, strategy, risk and capital management. To that end, this

engagement and sustainability segment should be considered together with the rest of this report as the Company’s comprehensive account of its

Directors’ compliance with their Section 172 duties.

Section

172(1):

Duty to promote the success

of the company, with regard to: For further details, see:

a) The likely consequences of any

decision in the long term;

• The Group’s statement of purpose – inside cover

• The Group’s business model – page 8

• The Group’s strategic goal and three priorities: that underwriting comes first; to effectively balance risk and return;

and to operate nimbly through the cycle – page 9

• The Board’s assessment of the Group’s viability and prospects as set out in the going concern and viability statement

– page 114

b) The interests of the company’s

employees;

• The importance of our people, and the business’s focus on Lancashire’s values, culture, diversity & inclusion, training

& development and workforce engagement – pages 45 to 49

c) The need to foster the company’s

business relationships with

suppliers, customers and others;

• Our business depends upon the strong business relationships that we build and maintain with our core and broader

stakeholders. All Board members attend the quarterly UURC and, during 2021, gave close consideration to business

development opportunities as summarised in the Committee’s report – pages 86 and 87

d) The impact of the company’s

operations on the community and

the environment;

• Society and the environment form part of our ‘core’ set of stakeholders. 2021 saw the establishment of the ESG

Committee and CCWG (see the Group CEO review on pages 10 and 11). The Board is engaged with the impact of the

Company’s operations through its oversight of the Lancashire Foundation, the Group’s submission to the CDP, the

annual offsetting of our own operations’ GHG emissions, and more recently the commitments to report against the

UNEP FI Principles for Sustainable Insurance (see our website for details) and address the requirements of the TCFD

– pages 56 to 63

e) The desirability of the company

maintaining a reputation for high

standards of business conduct; and

• Through its compliance with the FRC’s UK Corporate Governance Code, the Company strives to operate in line with

high standards of governance expectation and business conduct. A healthy and sustainable corporate culture is

embedded throughout the business, which is assessed by the Board through various channels – pages 40 and 41,

page 64, and pages 81 to 83

• The Audit Committee oversees the Group’s implementation of whistleblowing arrangements, and other systems and

controls for the prevention of fraud, bribery and money laundering – pages 75 to 80

f) The need to act fairly as between

members of the company.

• The Board is committed to treating the Company’s shareholders fairly, and engaging with them through a broad

programme of investor relations activities, meetings (including the AGM), and targeted consultations; be that with

our substantial shareholders, the Company’s own employees, private individuals, or via shareholder advisory groups

– see in this regard ‘Section 172 responsibilities in focus’ below, as well as pages 40 to 63 and page 93

• Capital management/actions and dividend policy – in particular, the Board’s consideration of the balance between

underwriting opportunities and the payment of dividends – pages 6 to 7, page 25 and page 112

65www.lancashiregroup.com

Sustainability

STRAIGHTFORWARD

THE LANCASHIRE WAY

We are straightforward in conducting

our business in an accountable, open,

honest and sustainable way

Lancashire Holdings Limited

Annual Report & Accounts 2021

67www.lancashiregroup.com

Governance

BOARD OF DIRECTORS

Alex Maloney

Group Chief Executive Officer

Date of appointment to the Board: 5

November 2010

Board meeting attendance: 6/6

Skills, experience and qualifications:

Alex Maloney joined Lancashire in December

2005 and was appointed Group Chief

Executive Officer in April 2014. On joining,

Mr Maloney was responsible for establishing

and building the energy underwriting team

and account and, in May 2009, was

appointed Group Chief Underwriting Officer.

Since November 2010, Mr Maloney has

served as a member of the Board. Mr

Maloney has also been closely involved in the

development of the Group’s Lloyd’s strategy.

Mr Maloney has over 20 years’ underwriting

experience and has also worked in the New

York and Bermuda markets.

B B

I U

Natalie Kershaw

Group Chief Financial Officer

Date of appointment to the Board: 1 March

2020

Board meeting attendance: 6/6

Skills, experience and qualifications:

Natalie Kershaw joined Lancashire in

December 2009 as the Group Financial

Controller and has also held the positions of

Chief Financial Officer of Lancashire

Insurance Company Limited and Group Chief

Accounting Officer. She has over 20 years’

experience of the insurance/reinsurance

sector with previous roles at Swiss Re, ALAS

(Bermuda) Ltd and PwC. Ms Kershaw

graduated from Jesus College, Oxford in

1996 with a first class degree in Geography

and is a Fellow of the Institute of Chartered

Accountants in England and Wales.

A balanced Board

Peter Clarke

Non-Executive Chairman

Date of appointment to the Board: 9 June

2014

Board meeting attendance: 6/6

Skills, experience and qualifications:

Peter Clarke was Group Chief Executive of

Man Group plc between April 2007 and

February 2013. In 1993, Mr Clarke joined Man

Group plc, a leading global provider of

alternative investment products and

solutions as well as one of the world’s largest

futures brokers. He was appointed to the

board in 1997 and served in a variety of roles,

including Head of Corporate Finance and

Corporate Affairs and Group Company

Secretary, before becoming the Group

Finance Director in 2000. During this period,

he was responsible for investing in and

developing one of the leading providers of

third-party capital insurance and reinsurance

products.

In November 2005, he was given the

additional title of Group Deputy CEO. Mr

Clarke has previously served as the Chairman

of the National Teaching Awards Trust. Mr

Clarke took a first in Law at Queens’ College,

Cambridge and is a qualified solicitor, having

practised at Slaughter and May, and has

experience in the investment banking

industry, working at Morgan Grenfell

and Citibank.

External appointments/Other roles:

Mr Clarke is currently a Non-Executive

Director of RWC Partners Limited, Lombard

Odier Asset Management and Sainsbury’s

Bank plc. He is a member of the Treasury

Committee of King’s College London.

Lancashire Holdings Limited

Annual Report & Accounts 2021

Key

Board of

Directors

Investment

Committee

Audit

Committee

Nomination

Corporate Governance

and Sustainability

Committee

Remuneration

Committee

Underwriting and

Underwriting

Risk Committee

Chair

Michael Dawson

Non-Executive Director

Date of appointment to the Board: 3

November 2016

Board meeting attendance: 6/6

Skills, experience and qualifications:

Michael Dawson has more than 40 years’

experience in the insurance industry, having

started his career at Lloyd’s in 1979. He

joined Cox Insurance in 1986 where he was

the Chief Executive from 1995 to 2002.

In 1991, Mr Dawson formed and became

the underwriter of Cox’s and subsequently

Chaucer’s specialist nuclear syndicate 1176.

Between 2005 and 2008, Mr Dawson was

appointed Chief Executive of Goshawk

Insurance Holdings PLC and its subsidiary

Rosemont Re, a Bermuda reinsurer. Mr

Dawson served on the Council of Lloyd’s

from 1998 to 2001 and on the Lloyd’s

Market Board from 1998 to 2002.

External appointments/Other roles:

Mr Dawson is Deputy Chairman of the

Management Committee of Nuclear Risk

Insurers Limited. He is also a director of Knoll

Investments Limited, and Glengau Limited,

private family investment companies.

Simon Fraser

Senior Independent Non-Executive Director

Date of appointment to the Board: 5

November 2013

Board meeting attendance: 6/6

Skills, experience and qualifications:

Simon Fraser was Head of Corporate Broking

at Merrill Lynch and subsequently Bank of

America Merrill Lynch until his retirement in

2011. He began his career in the City in 1986

with BZW and joined Merrill Lynch in 1997.

He led initial public offerings, rights issues,

placings, demergers and mergers and

acquisitions transactions during his career

and advised many UK companies on stock

market and LSE issues. Mr Fraser has an MA

degree in Modern History from the

University of St Andrews.

External appointments/Other roles:

Mr Fraser is a Non-Executive Director of

Legal and General Investment Management

(Holdings) Limited and Non-Executive

Director SEGRO plc, where he sits on the

Audit and Nominations Committees as well

as Chair of the Remuneration Committee.

Mr Fraser also serves as a Non-Executive

Director of LSL.

Samantha Hoe-Richardson

Non-Executive Director

Date of appointment to the Board: 20

February 2013

Board meeting attendance: 6/6

Skills, experience and qualifications:

Since 2014, Samantha Hoe-Richardson has

been Chair of the Audit Committee. Prior to

this, she was Head of Environment &

Sustainability for Network Rail and formerly

Head of Environment for Anglo American plc,

one of the world’s leading mining and natural

resources companies. She was also a director

and founder of Anglo American Zimele Green

Fund (Pty) Ltd, which supports entrepreneurs

in South Africa. Prior to her role with Anglo

American, Ms Hoe-Richardson worked in

investment banking and audit and she holds

a master’s degree in Nuclear and Electrical

Engineering from the University of

Cambridge. She also has a Chartered

Accountancy qualification.

External appointments/Other roles:

Ms Hoe-Richardson is a Non-Executive

Director for 3i Infrastructure plc and a

Non-Executive Director of Assured Guaranty

UK Ltd and a Non-Executive Director of LUK.

In addition, she is the Advisor on Climate

Change and Sustainability to the Board of

Laing O’Rourke.

69www.lancashiregroup.com

Governance

Robert Lusardi

Non-Executive Director

Date of appointment to the Board: 8 July

2016

Board meeting attendance: 6/6*

Skills, experience and qualifications:

From 1980 until 1998, Robert Lusardi was an

investment banker, ultimately as Managing

Director of the insurance and asset

management industries. From 1998 until

2005, he was a member of the Executive

Management Board of XL Group plc, first as

Group CFO then as CEO of one of their three

operating/reporting segments; from 2005

until 2010 he was an EVP of White

Mountains (an insurance merchant bank) and

CEO of certain subsidiaries; and from 2010 to

2015 he was CEO of PremieRe Holdings LLC

(a private insurance entity). He has been a

director of a number of insurance-related

entities including Symetra Financial

Corporation, Primus Guaranty Ltd.,

OneBeacon Insurance Group Ltd., Esurance

Inc., Delos Inc., Pentelia Ltd. and FSA

International Ltd. He received his BA and

MA degrees in Engineering and Economics

from Oxford University and his MBA from

Harvard University.

External appointments/Other roles:

He is also on the boards of Symetra Financial

Holdings, Inc., a life insurer, and Oxford

University’s 501(c)3 charitable organisation.

* Robert Lusardi is resident in the U.S. and was unable

to travel outside of the U.S. for two meetings due to

restrictions necessitated by the COVID-19

pandemic. He was able to attend those proceedings

via video conference. However, pursuant to the

Group’s strict tax and regulatory operating

guidelines, he did not participate in those meetings

for quorum and voting purposes.

Sally Williams

Non-Executive Director

Date of appointment to the Board: 14

January 2019

Board meeting attendance: 5/6

Skills, experience and qualifications:

Sally Williams has more than 30 years’

experience in the financial services sector,

with extensive risk, compliance and

governance experience, having held senior

positions with Marsh, National Australia

Bank and Aviva. Ms Williams is a chartered

accountant and spent the first 15 years of her

career with PwC, where she was a director

specialising in financial services risk

management and regulatory relationships.

She also undertook a two-year secondment

from PwC to the Supervision and Surveillance

Department at the Bank of England.

External appointments/Other roles:

Ms Williams is a Non-Executive Director of

Family Assurance Friendly Society Limited

(OneFamily), where she is chair of their

Audit Committee and a member of the Risk,

Nominations, Member and Customer and

With Profits Committees. Ms Williams is

also a Non-Executive Director of Close

Brothers Group plc and Close Brothers

Limited, where she is a member of their

Audit and Risk Committees.

Irene McDermott Brown

Non-Executive Director

Date of appointment to the Board: 28 April

2021

Board meeting attendance: 2/2

Skills, experience and qualifications:

Irene McDermott Brown most recently held

the position of Chief Human Resources

Officer at M&G plc, a FTSE 100 international

savings and investments firm, retiring from

that role on 31 December 2021. Her

executive career has included international

human resources roles at Barclays, BP, and

Cable and Wireless. Ms McDermott Brown’s

UK experience includes over 12 years at

Mercury Communications, Digital Equipment

Company and the Electricity Supply Industry.

She has an MSc from the London School of

Economics in Industrial Relations and is a

Fellow of the Chartered Institute of

Personnel and Development.

BOARD OF DIRECTORS CONTINUED

Lancashire Holdings Limited

Annual Report & Accounts 2021

Christopher Head

Company Secretary

Board meeting attendance: N/A

Skills, experience and qualifications:

Christopher Head joined Lancashire in

September 2010. He was appointed

Company Secretary of LHL in 2012 and

advises on issues of corporate governance

and generally on legal affairs for the Group.

He also advises on the structuring of

Lancashire’s third-party capital underwriting

initiatives, which have included the

Accordion and Kinesis facilities. Prior to

joining Lancashire, he was in-house Counsel

with the Imagine Insurance Group, advising

specifically on the structuring of reinsurance

transactions. He transferred to Max at

Lloyd’s in 2008 as Lloyd’s and London

Counsel. Between 1998 and 2006, Mr Head

was Legal Counsel at KWELM Management

Services Limited, where he managed an

intensive programme of reinsurance

arbitration and litigation for insolvent

members of the HS Weavers underwriting

pool. Mr Head is a qualified solicitor having

worked until 1998 at Barlow Lyde & Gilbert

in the Reinsurance and International Risk

Team. Mr Head has a History MA and legal

qualification from Cambridge University.

71www.lancashiregroup.com

Governance

Board and Committee administration

The Board of Directors is responsible for the leadership, strategy and

control and the long-term success and sustainability of Lancashire’s

business. The Board has reserved a number of matters for its decision,

including responsibility for setting the Group’s values and standards,

and approval of the Group’s strategic aims and objectives. The Board

has delegated certain matters to Committees of the Board, as

described below. Copies of the Schedule of Board-Reserved Matters

and Terms of Reference of the Board Committees are available on

the Company’s website at www.lancashiregroup.com.

The Board has approved and adopted a formal division of

responsibilities between the Chairman and the Group CEO. The

Chairman is responsible for the leadership and management of

the Board and for providing appropriate support and advice to the

Group CEO. The Group CEO is responsible for the management of

the Group’s business and for the development of the Group’s strategy

and commercial objectives. The Group CEO is responsible, along with

the executive team, for implementing the Board’s decisions.

The Board and its Committees meet on at least a quarterly basis. At

the regular quarterly Board meetings, the Directors review all areas

of the Group’s business, strategy and risk management and receive

reports from management on underwriting, reserving, finance,

investments, capital management, internal audit, risk, legal and

regulatory developments, compliance, climate change risk, ESG and

sustainability and other matters affecting the Group. Management

provides the Board with the information necessary for it to fulfil its

responsibilities. In addition, presentations are made by external

advisers such as the independent actuary, the investment managers,

the external auditors, the remuneration consultants and the corporate

brokers. The Board Committees are authorised to seek independent

professional advice at the Company’s expense.

The Board also meets to discuss strategic planning matters in addition

to the customary schedule of quarterly meetings. The Board dedicated

additional time to strategic opportunity and capital planning

discussions prior to its decision to reconfigure the Group’s debt

structure, which took place in March 2021.

The Chair holds regular meetings with the Non-Executive Directors,

without the Executive Directors present, to discuss a broad range of

matters affecting the Group. The Chairman also holds regular

meetings with the Chairs of the Group’s principal operating

subsidiaries: LICL, LUK, LSL and LCM.

All Directors attended the scheduled quarterly proceedings of the

2021 Board and Committees meetings. However, due to the

restrictions necessitated by the COVID-19 pandemic, not all meetings

could be convened in Bermuda or in an alternative offshore location.

On the occasions where travel or physical attendance was not

possible, and pursuant to the Group’s strict tax and regulatory

operating guidelines, some Directors located in the U.S. did not

participate in certain of the meetings for quorum and voting purposes.

The Directors

Appointments to the Board are made on merit, against objective

criteria, and with due regard to the right balance of skills, experience,

knowledge, independence and diversity required for the Board to

operate effectively as a whole. The Board considers all the Non-

Executive Directors to be independent within the meaning of the

Code. Michael Dawson, Simon Fraser, Samantha Hoe-Richardson,

Robert Lusardi and Sally Williams are independent, as each is

independent in character and judgement and has no relationship or

circumstance likely to affect his or her independence. Peter Clarke was

independent upon his appointment as Chairman on 4 May 2016.

Irene McDermott Brown joined the Board as a Non-Executive Director

with effect from 28 April 2021. The appointment of Irene McDermott

Brown was facilitated by the specialist recruitment agency of Oliver

James which prepared an independent candidate report which was

considered at the Nomination Corporate Governance and

Sustainability Committee meeting held on 27 April 2021. The Board

also considered the question of Irene’s independence of character and

judgement and considered that she should be considered independent

on her appointment. Irene has extensive experience in human

resources within a listed company environment in a range of

industries, including financial services and recently as Chief HR

Officer at M&G plc. Irene McDermott Brown was also appointed

as a member of the Remuneration Committee and Nomination

Corporate Governance and Sustainability Committee.

At the Board meeting held on 10 February 2022, further to a

recommendation by the Nomination Corporate Governance and

Sustainability Committee, the Board affirmed its judgement that

six of the nine members of the Board are independent Non-Executive

Directors. However, it was noted that Samantha Hoe-Richardson had

been first appointed to the Board on 20 February 2013 and will have

shortly completed nine years’ service as a Director. Accordingly,

Samantha Hoe-Richardson will not submit herself for re-election

as a Non-Executive Director at the 2022 AGM. Therefore, in the

Board’s judgement, the Board’s composition complies with the Code

requirement that at least half the Board, excluding the Chairman,

should comprise Non-Executive Directors determined by the Board

to be independent.

In accordance with the provisions of the Company’s Bye-laws and the

Code, and for 2022 with the exception of Samantha Hoe-Richardson,

all the Directors are subject to re-election annually at each AGM.

Information and training

On appointment, the Directors receive written information regarding

their responsibilities as Directors and information about the Group. An

induction process is tailored for each new Director in the light of his or

her existing skill set and knowledge of the Group and includes

meetings with senior management and visiting the Group’s operations.

Information and advice regarding the Company’s official listing, legal

and regulatory obligations and on the Group’s compliance with the

requirements of the Code is also provided on a regular basis. An

analysis of the Group’s compliance with the Code is collated and

summarised in quarterly reports together with a more general

summary of corporate governance developments, which are prepared

by the Group’s legal and compliance department for consideration by

the Nomination Corporate Governance and Sustainability Committee.

The Directors have access to the Company Secretary and the Group

General Counsel who are responsible for advising the Board on all

legal and governance matters.

The Directors also have access to independent professional advice

as required. Regular sessions are held between the Board and

management as part of the Company’s quarterly Board meetings,

during which in-depth presentations covering areas of the Group’s

business are made. During these presentations the Directors have the

opportunity to consider, challenge and help shape the Group’s

CORPORATE GOVERNANCE REPORT

Board Committees

Lancashire Holdings Limited

Annual Report & Accounts 2021

commercial strategy. The Directors are also encouraged to seek

supplementary know-how training suitable to their roles offered by

the many external providers of training pertinent to governance, in

particular the roles of Non-Executive Directors, and to consider their

training needs and priorities as part of the year-end performance

evaluation for the Board and its Committees.

Board performance – 2021 externally facilitated

evaluation

A formal performance evaluation of the Board, its Committees and

individual Directors is undertaken on an annual basis and the process is

initiated by the Nomination Corporate Governance and Sustainability

Committee. The aim of this work is to assess the effectiveness of the

Board and its Committees in terms of performance and risk oversight,

strategic development, composition, skillset, supporting processes and

management of the Group. The evaluation is forward-looking in terms

of identifying the strategic priorities and actions as well as considering

performance, training and development needs for the Directors within

the context of the work of each Committee and that of the Board. The

2019 and the 2020 evaluations were conducted internally, facilitated

by the Company Secretary and the Chairman. In accordance with the

Code requirements the 2021 evaluation was facilitated externally by

Independent Audit, a London-based corporate advisory firm with no

other connection to the Group. Independent Audit had full access to

the Board papers for the 2021 year and they observed the meetings of

the Board and each of its Committees for the Q3 meetings which were

held on the 2 and 3 November 2021. They also attended some of the

subsidiary Boards’ Q3 meetings. Independent Audit also carried out a

web-based questionnaire performance appraisal for each of the

Group’s principal operating subsidiaries: LICL, LUK, LSL and LCM. The

draft reports covering the subsidiary boards and relevant committees

including recommendations were discussed with the respective

subsidiary chairs and have been discussed within the relevant

subsidiary boards. Key themes from those subsidiary evaluations

have also helped inform the process for the Lancashire Holdings

Group Board effectiveness review.

The 2021 Lancashire Holdings Board and Committee evaluation

process involved each Director as well as the Company Secretary,

the Group CRO, Group General Counsel and other Committee

members and members of senior management attending a series of

one to one meetings with Independent Audit. Further to this interview

process Independent Audit prepared a draft evaluation report for the

Board which collated feedback from the interview sessions on an

anonymised basis and identified a series of themes covering both areas

of effectiveness and for development and identifying potential actions

and areas for further discussion or development. The summary reports

were discussed in draft with the Board Chairman before being

distributed to each of the Directors. Independent Audit made a

presentation of their findings and recommendations at a discussion

session with all Directors held in February 2022.

The performance evaluation reports were formally tabled and

discussed at meetings of the Nomination Corporate Governance and

Sustainability Committee and the Board held in February 2022, and

each of the other Committees discussed the report pertinent to its

own operation and performance. The report identified a number of key

strengths of the Board and its Committees, notably, dynamics

and chairing; skills and expertise of both Non-Executive and Executive

Directors; subsidiary governance; and company secretariat support.

Priorities highlighted for 2022 included a review of the longer-term

strategic direction of the business, taking into account emerging ESG

and sustainability topics; continued focus on risk assessment and risk

management; and the ongoing consideration of organisational culture

and Board succession planning. The Board discussions on the report

were led by the Chairman.

In summary, in its consideration of the 2021 performance evaluation

reports, the Board concluded that it operates effectively and has a

good blend of insurance, financial and regulatory expertise. All

Non-Executive Directors are committed to the continued success

of the Group and to making the Board and its Committees work

effectively. Attendance at Board meetings was found to be good. The

Group CEO and the Group CFO, the Company’s Executive Directors,

were also found to be operating effectively.

The Board also concluded that appropriate infrastructure, processes

and governance mechanisms are in place to support the effective

performance of the Board and its Committees. The Board is also

considered to manage risk effectively. Furthermore, the number of

Directors on the Board is considered to be appropriate.

Further to the Board engagement with the evaluation process and

consideration of the reports, the Board concluded that Board and

Committee oversight of strategy, risk tolerances and controls had

operated effectively. Engagement between the Board and the

workforce was considered to be generally strong and beneficial to the

operation of the business albeit that, particularly in the first half of

2021, the COVID-19 pandemic had diminished the opportunities for

face-to-face meetings and necessitated the use of virtual meeting

forums during the year to facilitate such dialogue. Notwithstanding

these challenges, workforce engagement, in accordance with the

expectations of the Code, had been constructive during the year.

For further information on workforce engagement, please see Peter

Clarke’s introduction to the Sustainability and Governance sections

on pages 40 and 41 and the report from the Nomination Corporate

Governance and Sustainability Committee on pages 81 to 83.

Other strategic priorities identified by the Board for the year ahead

included ensuring the maintenance of a robust capital base for the

Group capable of supporting the strategic growth plans for the

business and to position the business as a leading provider of (re)

insurance products. The Board plans to keep under review the Group’s

capital structures. The Board is also committed to maintaining a close

focus on recruitment, skills, employee retention and training to further

strengthen and build a workforce equipped to deliver the current

underwriting growth opportunity.

The Board identified a number of areas for training and specific themes

for monitoring over the coming year, including the following:

• Preparedness for implementation of the IFRS 17 accounting

requirements; and

• Monitoring expected legislative and regulatory changes in the area

of UK financial reporting, audit and governance.

The Board will continue to review its procedures, training

requirements, effectiveness and development during 2022.

The Chair’s performance appraisal was conducted by the Senior

Independent Director, who consulted with the Non-Executive

Directors with input from the Executive Directors during July 2021.

The discussion and feedback were positive regarding the Chairman’s

performance. The Chair was considered to be effective in facilitating

73www.lancashiregroup.com

Governance

strategic decision making, whilst ensuring an appropriate level of

challenge and a culture of open, honest and constructive discussion.

Following the year end, the Chair met with the Group CEO, and the

Group CEO met with the Group CFO, to conduct a performance

appraisal in respect of 2021 and to set targets for 2022. The results

of these performance evaluations were discussed by the Chairman

and the Non-Executive Directors and are reported in the Directors’

Remuneration Report commencing on page 90.

Relations with shareholders

During 2021, the Group’s Head of Investor Relations, usually

accompanied by one or more of the Group CEO, the Group CUO, the

Group CFO, the Chair or a senior member of the underwriting team,

made presentations to major shareholders, analysts and the investor

community. Formal reports of these meetings were provided to the

Board on at least a quarterly basis.

In early 2021 both prior to and following the 2021 AGM, Simon Fraser,

the Chair of the Remuneration Committee, conducted a consultation

with the Company’s significant shareholders concerning the

Remuneration Policy implementation vote at the 2021 AGM. The

Company subsequently issued a summary of those discussions on its

website and a summary of the feedback, agreed actions and outcomes

can be found in Simon Fraser’s introduction to the Directors’

Remuneration Report on pages 90 and 91.

Conference calls with shareholders and analysts hosted by senior

management are held quarterly following the announcement of the

Company’s quarterly financial results or trading statements. The

Group CEO, Group CUO and Group CFO are generally available to

answer questions at these presentations.

Shareholders are invited to request meetings with the Chair, the

Senior Independent Director and/or the other Non-Executive Directors

by contacting the Group Head of Investor Relations. All of the

Directors are expected to be available to meet virtually with

shareholders at the Company’s 2022 AGM.

The Company commissions regular independent shareholder analysis

reports, and also receives a report on feedback from shareholders

and analysts, following the announcement of the Company’s

quarterly results.

The Company’s bye-laws are governed by Bermuda Company Law and

subject to approval of shareholders in a general meeting. The bye-laws

are available on the Company website. A copy of the Company’s

bye-laws is also available for inspection at the Company’s

registered office.

Enterprise risk management

The Board is responsible for setting the Group’s risk appetites, defining

its risk tolerances, and setting and monitoring the Company’s risk

management and internal control systems, including compliance

with risk tolerances. During 2021, the Board carried out a robust

assessment of the emerging and principal risks affecting the Group’s

business model, future performance, solvency and liquidity and the

operation of internal control systems.

Further discussion of the emerging and principal risks affecting the

Group, as well as the procedures in place to identify and manage

them, can be found in the ERM section of this report on pages 26 to 30

and in the risk disclosures section on pages 136 to 155. The Group’s

reporting of climate change risk and its management within the

business can be found in the TCFD Report on pages 56 to 63.

Each of the Committees is responsible for various elements of risk (see

the various Committee reports from pages 75 to 89 for further detail).

The Group CRO reports directly to the Group and subsidiary boards

and facilitates the identification, evaluation, quantification and control

of risks at a Group and subsidiary level. The Group CRO provides

regular reports to the Group and subsidiary boards covering, amongst

other things, actual risk levels against tolerances, emerging risks, loss

events and near misses, key risk indicators, and an overview of the

control environment (driven by key control testing and control

affirmations, and supported by internal audit findings). Areas of

particular focus during 2021 have been the risks associated with the

COVID-19 pandemic, risk exposure and capital considerations

associated with the improving (re)insurance market opportunity and

recent growth, climate change risk management and the

implementation of the TCFD recommendations and developments in

the area of ESG risk management and reporting. The Board considers

that a supportive ERM culture, established at the Board and embedded

throughout the business, is of key importance. The facilitating and

embedding of ERM and helping the Group to improve its ERM

practices are a major responsibility assigned to the Group CRO.

The Group CRO’s remuneration is subject to annual review by the

Remuneration Committee. The Board is satisfied that the Company’s

risk management and internal control systems have operated

effectively for the year under review. In this regard, please see the

Audit Committee report on pages 75 to 80.

Committees

The Board has established Audit, Investment, Nomination Corporate

Governance and Sustainability, Remuneration, and Underwriting and

Underwriting Risk Committees. Each of the Committees has written

Terms of Reference, which are reviewed regularly and are available on

the Company’s website. The Committees’ Terms of Reference were

reviewed and revised by the Board during 2021 and considered again

as part of the year-end performance evaluation process. The

Committees’ Terms of Reference are considered to be in line with

current best practice. The Committees are generally scheduled to

meet quarterly, although additional meetings and information updates

are arranged as business requirements dictate. Director attendance at

the 2021 Board meetings is set out on pages 68 to 70. A report from

each of the Committees, which covers Committee attendance, is set

out from page 75.

CORPORATE GOVERNANCE REPORT CONTINUED

Lancashire Holdings Limited

Annual Report & Accounts 2021

COMMITTEE REPORTS

Committee membership

The Audit Committee comprises four independent Non-Executive

Directors and is chaired by Samantha Hoe-Richardson, a qualified

Chartered Accountant. The Board considers that the four independent

Non-Executive Directors all have recent and relevant financial

experience, with competence in accounting and/or auditing. The Audit

Committee as a whole has competence in the specialty insurance and

reinsurance sectors. The internal and external auditors have the right

of direct access to the Audit Committee. The Audit Committee’s

detailed Terms of Reference are available on the Group’s website.

Principal responsibilities of the Committee

• Financial and narrative reporting;

• External audit oversight;

• Internal audit oversight;

• Internal controls and risk management systems; and

• Compliance, speaking up and fraud.

Specific details of the Committee’s responsibilities and activities in

these five principal areas during the year are set out in the table on the

following pages.

During 2021, the Committee focused on the adequacy of the Group’s

loss reserves, with particular regard to the large catastrophe loss

events that occurred during the year; the continued monitoring of

COVID-19 and its financial and operational impacts; the effectiveness

of the business’s control environment; the continued integrity of

external financial reporting; the oversight of corporate and risk culture

through the reporting of the internal audit and risk management

functions; the identification of a new lead audit partner; and the

progress of the Group’s implementation plans for the IFRS 9 (Financial

Instruments) and IFRS 17 (Insurance Contracts) accounting standards.

Audit Committee

“As I approach the end of my

tenure as Chair of the Audit

Committee after nearly nine

years of service, I take deep

pride in the work conducted

by the Committee over the

years, particularly in the

areas of financial controls and

reporting, including the

quality and integrity thereof,

and rigorous risk oversight. I

will be leaving the

Committee in the capable

hands of my successor to the

role, Sally Williams, and I

would like to take this

opportunity to wish the

business all the very best in

its journey.”

Samantha Hoe-Richardson

Chair of the Audit Committee

Committee members

Samantha Hoe-Richardson (Chair) 4/4

Simon Fraser 4/4

Robert Lusardi 4/4

Sally Williams 4/4

75www.lancashiregroup.com

Governance

COMMITTEE REPORTS: AUDIT COMMITTEE CONTINUED

How the Committee discharged its responsibilities

Financial and narrative reporting

Committee responsibility Committee activities

Monitors the integrity of the

Group’s consolidated financial

statements, including its annual

and half-yearly reports, annual

reporting arising under applicable

supervisory rules, interim

management statements,

preliminary announcements and

any other formal statements

relating to the Group’s financial

performance. Reviews and

reports to the Board on

significant financial reporting

issues and judgements contained

in the consolidated financial

statements.

At each quarterly meeting the Committee reviews the Group’s quarterly consolidated financial statements

for the purposes of recommending their approval by the Board. The Group’s annual regulatory reports,

prepared in accordance with the BMA’s reporting requirements, were reviewed in April 2021 at the Audit

Committee meeting prior to the recommendation of their approval by the Board. The Committee also

monitors the activities of the Group’s Disclosure Committee and reviews the Group’s quarterly financial

releases, which it recommends to the Board for approval, and accompanying earnings call investor

presentations. The Committee receives regular and ad hoc reports from management on:

• loss reserving and developments to the Group’s reserving process to take account of the new casualty class

of business and the future implementation of the IFRS 17 accounting standards (see page 130 for further

details), considered in conjunction with the comparison of the Group’s reserves to the best estimates of its

external auditors and external actuarial consultants;

• developments in accounting and financial reporting requirements, including a summary of any updates to

disclosures in the consolidated financial statements;

• the quarterly activities of the Group finance team, including any recruitment initiatives;

• any new and/or significant accounting treatments/transactions (including related party transactions) in the

quarter, with a particular focus this year on the Group’s debt refinancing project and the preparation for

and compliance with the ESEF reporting requirements;

• the assessment of the Group’s ability to continue as a going concern (see page 114 for further details)

which, for 2021, included detailed consideration of the financial and operational impacts and strategic

assumptions of the Group in the face of COVID-19;

• the progress of the Group’s IFRS 9 and IFRS 17 implementation project and the related ongoing

enhancements to the Group’s finance IT framework;

• the quarterly activities of LHL’s subsidiary companies, including consideration of any risk issues; and

• the Committee also receives quarterly reports on the consolidated financial statements from the external

auditors, including an interim review report and a year-end audit results report. These reports are discussed

with the external auditors at the Committee meetings.

The Committee attended training sessions delivered by the management team to the Board on the topics of

the Group’s IFRS 17 implementation project, ESG matters, including TCFD reporting requirements, and

enhancements to the Group’s reserving process. In addition, the Audit Committee continued its constructive

engagement with the Group CFO to ensure maintenance of high standards of financial controls and reporting.

Judgements and estimation in the consolidated financial statements

The Committee gives detailed consideration to the significant judgements and estimations applied in

preparing the consolidated financial statements. See the summary on the areas of judgement and estimation

and the related processes applied by management on page 79.

Reviews the content of the

Annual Report and Accounts and

advises the Board on whether,

taken as a whole, it is fair,

balanced and understandable and

provides the information

necessary for shareholders to

assess the Group’s performance,

business model and strategy.

The Committee reviewed the early drafts of the 2021 Annual Report and Accounts in order to keep apprised

of its key themes and messages. During this review, the Committee carefully considered the clarity of

disclosures made in respect of the material growth in Group premium income and the related developments

in the business’s underwriting portfolio; the impact of major market losses; the evolution of the Group’s ESG

strategy; the account of the Group’s carbon footprint measurement and offsetting; the Group’s TCFD report;

and the ongoing effects of COVID-19. The Committee reviewed the final draft of the 2021 Annual Report and

Accounts at the February 2022 Audit Committee meeting, together with the external auditor’s report. The

Committee advised the Board that, in its view, the 2021 Annual Report and Accounts, taken as a whole, is fair,

balanced and understandable and provides the information necessary for shareholders to assess the Group’s

performance, business model and strategy.

Lancashire Holdings Limited

Annual Report & Accounts 2021

How the Committee discharged its responsibilities (continued)

External audit oversight

Committee responsibility Committee activities

Oversees the relationship with

the Group’s external auditors,

approves their remuneration and

terms of engagement, and

assesses annually their

independence and objectivity

taking into account relevant

legal, regulatory and professional

requirements and the Group’s

relationship with the external

auditors as a whole. This includes

an annual assessment of the

qualifications, expertise and

resources, and independence of

the external auditors and the

effectiveness of the external

audit process.

The Committee approves the annual external audit plan, ensuring its consistency with the scope of the audit

engagement, and receives reports from the external auditors at each quarterly Committee meeting, including

an ongoing assessment of the effective performance of the audit compared to the plan.

KPMG LLP’s terms and scope of engagement are approved by the Committee at the start of each audit.

Following the year-end audit, the Committee performs an assessment of the effectiveness of the external

audit process. This assessment was last conducted, and designed to align with good practice guidance, at the

April 2021 Audit Committee meeting and it was concluded that the external audit process was operating

effectively, both with respect to the service provided by KPMG LLP and management’s support of the audit

process. Similarly, the Committee receives from the external auditors a management letter setting out

certain findings and recommendations in respect of the audit of the most recent set of financial statements

and receives regular updates from management on the steps taken in addressing the observations raised.

The Committee also formally reviews the independence of the external auditors, in particular at the half-year

and year-end meetings, taking into account any non-audit services provided. The Committee considers that

KPMG LLP remain independent.

The Committee Chair conducts informal meetings with the external auditors and the Group CFO prior to,

during, and after the review of the quarterly results. The Committee meets quarterly in executive session with

the external auditors to discuss any issues arising from the audit, and with management to obtain feedback

on the audit process.

The development and

implementation of a formal

policy on the provision of

non-audit services by the

external auditors, taking into

consideration any threats to the

independence and objectivity of

the external auditors.

The Committee has approved and adopted a formal non-audit services policy that is reviewed on an annual

basis. The policy was last reviewed by the Group CFO in April 2021 and subsequently approved by the

Committee at its first quarter meeting. The policy, which stipulates the approvals required for various types

of non-audit services that may be provided by the external auditors, as well as those from which the external

auditors are excluded, is on the Group’s website. During 2021, KPMG LLP provided $0.4 million of non-audit

services to the Group relating to the half-year reporting review, as well as Solvency II and Lloyd’s regulatory

returns. The Committee gave careful consideration to the nature of the non-audit services provided, the

suitability of KPMG LLP as the most suitable supplier of the non-audit services and the level of fees charged

and has determined that they do not affect the independence and objectivity of KPMG LLP as auditors.

Makes a recommendation to the

Board, to be put to shareholders

for approval at the AGM, in

relation to the appointment,

re-appointment or removal of

the Group’s external auditors.

Following a competitive external audit tender process undertaken during 2016, the appointment of KPMG LLP

as external auditors was first approved by shareholders at the 2017 AGM and has been approved at

subsequent AGMs. The 2021 financial year was the fifth financial year in which KPMG LLP acted as the

Group’s external auditors. The incumbent lead audit partner is Rees Aronson. The external audit fee

arrangements across the Group were originally agreed in 2016 as part of the audit tender process, with

amounts fixed for the 2017-2019 year-end audits. During 2020, the Audit Committee discussed and agreed

with KPMG LLP, with input from management, the fee structure for the 2020 and 2021 year-end audits.

The Committee and the Board are recommending the re-appointment of KPMG LLP as external auditors at

the 2022 AGM. Rees Aronson will have completed his fifth and final year as the Group’s lead audit partner

following the 2021 year-end audit. During the year, and in line with the guidance of the UK Ethical Standard,

the Committee, with management, developed and oversaw the arrangements for the identification of the new

lead audit partner. Salim Tharani will assume the role of Group lead audit partner for the 2022 financial year.

The Committee continues to monitor the developments, recommendations and legislative proposals arising

from the Independent Review of the FRC, led by Sir John Kingman, the final report published by the UK

Competition and Markets Authority on the statutory audit services market, and Sir Donald Brydon’s report

setting out his views on the quality and effectiveness of audit. In particular, the Committee, management and

KPMG LLP considered and discussed the UK Government’s March 2021 consultation White Paper on

‘Restoring trust in audit and corporate governance’, and the potential impacts arising with regard to the

future of corporate governance, corporate reporting and auditing.

77www.lancashiregroup.com

Governance

COMMITTEE REPORTS: AUDIT COMMITTEE CONTINUED

How the Committee discharged its responsibilities (continued)

Internal audit oversight

Committee responsibility Committee activities

Monitors and assesses the role

and effectiveness of the Group’s

internal audit function in the

overall context of the Group’s

risk management system,

ensuring it has unrestricted

scope, and the necessary

resources and access to

information to enable it to fulfil

its mandate in accordance with

appropriate professional

standards.

The Group’s internal audit function reports directly to the Committee. The Committee meets regularly in

executive session with the Group Head of Internal Audit usually on a quarterly basis. Each year, the Group

Head of Internal Audit presents an annual internal audit strategy and plan to the Committee for

consideration and approval. In general, the most significant business risks and controls are considered for

audit annually, whilst less critical risks are audited periodically as part of a flexible multi-year programme.

The internal audit plan also considers emerging risks which may impact on the business, with input in this

area from the Group risk management function. The findings of each internal audit are reported to the

Committee at the quarterly meetings and the Committee reviews the actions taken by management to

implement the recommendations of internal audit. Consideration is also given to the assessment of the

Group’s culture, including risk culture, for each audit undertaken and an overall summary of observations

identified in respect of the Group’s culture is presented to the Committee on a quarterly basis. During 2021,

this assessment factored in consideration of the potential impacts of a remote working environment for the

large part of the year, necessitated by the COVID-19 pandemic, as well as the programme of change and

growth of the business. In the face of these challenges, as regards the COVID-19 pandemic, and opportunities,

as regards business growth, the internal audit function was satisfied that there remained an effective,

responsive, resilient and engaged business culture within the Group.

During 2021, the Committee reviewed and approved the Internal Audit Charter. This can be viewed on the

Group’s website. The Committee assessed the level of internal audit resource, restructuring and recruitment

initiatives, and the appropriateness of the skills and resources of the internal audit function. The Chair of the

Committee undertook an annual review of the implementation of the internal audit programme during 2021

to ensure its continued efficiency and appropriate standing within the Group and the effectiveness of the

internal audit function and its activities in the overall context of the Group’s risk management system. The

Committee discussed the report and its findings with the Group CRO and the Group Head of Internal Audit

and concluded that the internal audit function is operating effectively in the overall context of the Group’s

risk management system, has appropriate standing within the Group and that the Group Head of Internal

Audit has the appropriate reporting lines to maintain independence.

Internal controls and risk management systems

Reviews the adequacy and

effectiveness of the Group’s

internal financial controls

systems that identify, assess,

manage and monitor financial

risks, and other internal control

and risk management systems;

and reviews and approves the

statements to be included in the

Annual Report and Accounts

concerning internal control, risk

management, including the

assessment of principal risks and

emerging risks and the viability

statement.

The Board has ultimate responsibility for ensuring the maintenance by the Group of a robust framework of

internal control and risk management systems and has delegated the monitoring and review of these systems

to the Committee. The system of internal controls is designed to manage rather than eliminate the risk of

failure to achieve business objectives and can only provide reasonable and not absolute assurance against

material misstatement or loss. The Committee received from the Group CRO periodic reports detailing

results of the quarterly risk and control affirmation review and testing work, together with an overview of the

Group’s control environment and its effective operation. The Committee also received additional reports

from the Group CRO and Group Head of Internal Audit on the ongoing effective operation of key controls

during the programme of change arising through recent growth in the business, the resultant increase in

headcount across the Group and the prolonged period of remote working for a large part of the year, and

more recently, the introduction of a mix of full-time and hybrid office working. For further detail of the

emerging and principal risks affecting the Group, including those matters that have informed the Board’s

assessment of the Group’s ability to continue as a going concern, as well as the risk mitigation procedures in

place to identify and manage them, see pages 31 to 37. The Committee received from the Group Head of

Internal Audit an annual assessment of the Group’s governance, risk and control framework, together with an

analysis of themes and trends from the internal audit work performed and their impact on the Group’s risk

profile. In 2021, the Committee and Board were satisfied that the governance, risk and control framework

continue to remain both effective and appropriate for the Group.

Lancashire Holdings Limited

Annual Report & Accounts 2021

How the Committee discharged its responsibilities (continued)

Compliance, speaking up and fraud

Committee responsibility Committee activities

Reviews for adequacy and

security the Group’s compliance,

speaking-up and fraud controls.

During 2021, the Committee conducted an annual review of the Group’s policies and procedures relevant to

financial controls to ensure their adequacy and effectiveness and recommended the adoption by the Board of

updated policies and procedures in respect of: anti-money laundering; the prevention of bribery and financial

crime (including the detection of fraud); conflicts of interest; whistleblowing arrangements; and sanctions

monitoring. The operation of the controls that are documented in these policies and procedures are reported

to the Committee on a quarterly basis in the form of confirmatory compliance statements from the Group’s

legal and compliance function, members of which include the Group Money Laundering Reporting Officer and

Group Data Protection Officer. There were no whistleblowing reports made during the year, whether arising

from suspected money laundering activity or knowledge of, suspicion or concern relating to suspected acts of

bribery or any other type of financial crime, dishonesty or impropriety. The Committee also keeps under

review the adequacy and effectiveness of the Group’s legal and compliance function and receives regular

updates on compliance training delivered to staff across the Group (see page 47 for further details).

The Group’s whistleblowing policy and procedure provide an internal mechanism for the reporting,

investigation and remediation of any workplace wrongdoing, with arrangements in place that allow for the

proportionate and independent investigation of such matters and appropriate follow-up action. A

whistleblowing champion has been appointed to each of the Group’s principal operating subsidiaries, as well

as at a parent company level, with the Chair of the Audit Committee serving in such capacity. The appointed

whistleblowing champions have responsibility for ensuring and overseeing the integrity, independence and

effectiveness of the Company’s policies and procedures on whistleblowing. This message, as well as the

arrangements that are in place, are routinely delivered to all staff.

Significant areas of judgement and estimation

An annual paper is presented by management to the Committee that

details the areas of judgement and estimation in the preparation of

the consolidated financial statements and a semi-annual going

concern assessment is also presented to the Committee.

The valuation of loss reserves and expenses

The most significant area of judgement and estimation considered by

the Committee during 2021 was the valuation of loss reserves.

As detailed on pages 132 and 133 of the consolidated financial

statements, the valuation of loss reserves is a complex actuarial

process that incorporates a significant amount of judgement. The

Committee considers the adequacy of the Group’s loss reserves at

each Audit Committee meeting, for which purpose it receives

quarterly reports from the Group’s Chief Actuary. KPMG LLP conducts

a detailed re-projection of the Group’s loss reserves as part of the

half-year review and full-year audit. The Committee also receives

independent estimates of the Group’s loss reserves from an external

actuary and compares these third-party estimates to those of the

Group at its second and fourth quarter Audit Committee meetings.

The Committee meets in executive session with the Group’s Chief

Actuary twice a year (at half year and year end) to discuss the

operation and effectiveness of the actuarial function and the reserving

process. During 2021, the Committee focused its discussions

pertaining to the Group’s loss reserves on:

• the reserving for natural catastrophe loss events and larger risk loss

events which occurred during the year;

• the difference between the Group’s estimates and the independent

review from external actuaries (these differences being viewed by

management, the external third parties and the Committee to be

within a reasonable range);

• prior year loss development, including ‘back-testing’ of the Group’s

prior year reserves;

• reserving for each insurance operating subsidiary; and

• refinements to the Group’s reserving methodology as we transition

to IFRS 17.

Having reviewed and challenged these areas, the Committee

concurred with management’s valuation of the Group’s loss reserves

and the relevant disclosures around loss reserving in the Group’s

consolidated financial statements.

79www.lancashiregroup.com

Governance

The fair value of financial instruments

Less significant estimates are made in determining the fair value of

certain financial instruments and management judgement is applied in

determining impairment charges. The investment portfolio is of a high

credit quality and highly liquid and the Audit Committee obtains

comfort from the impairment policy being applied consistently over

time. The estimation of the fair value, specifically ‘Level (iii)’

investments, is discussed on pages 131 and 133 and in note 11.

Valuation of premiums received which are estimated

A portion of the gross premiums written by the Group is based on

estimates of the ultimate premiums expected. Judgement is therefore

involved in determining the ultimate estimates to establish the

appropriate premium value. The Audit Committee obtains comfort

from quarterly reviews performed by management to validate the

judgements and compare against actual premium received.

Going concern basis of accounting

During the year, the Audit Committee reviewed and challenged the

going concern assessment prepared by management at both its July

2021 and February 2022 meetings, with particular consideration of the

current balance sheet and liquidity, the business plan, rating agency

and regulatory capital, the Group’s ability to service its long-term

financing arrangement, ultimate loss estimates, credit quality and

valuation of the investment portfolio, the current market

environment, including consideration of the ongoing COVID-19

pandemic, and climate change.

Having reviewed and challenged these areas, the Committee

concurred with management’s going concern assessment and the

relevant disclosures around going concern in the Group’s consolidated

financial statements (see page 129).

Implementation plans for IFRS 9 and IFRS 17

During 2021, the Committee monitored on a quarterly basis the

preparation by the Group for the implementation of IFRS 9 and IFRS

17 (see future accounting changes on page 130).

In particular, at the Q3 Board and Committee meetings the Audit

Committee received a detailed project update from management

covering:

• the approach adopted by the project team to ensure delivery of IFRS 17;

• the project governance framework, including planned internal and

external audit validation;

• the potential business impacts;

• the high-level plan and milestones;

• the approach to parallel run and testing in 2022; and

• the key implementation risks.

Priorities for 2022

The Committee’s key priorities for 2022 are:

• To maintain the focus on the effectiveness of the Group’s control

environment, the operation of the business’s financial reporting

systems and the integrity of external financial reporting;

• To continue to monitor the preparation by the Group for the

implementation of IFRS 9 and IFRS 17;

• To continue to monitor and embed aspects of positive business

culture in quarterly reporting, in particular regarding the Group’s

financial and risk control environment;

• To achieve an orderly and smooth transition of both (i) the Chair of

the Committee; and (ii) the Group’s lead audit partner; and

• To continue to monitor developments and recommendations with

regard to corporate governance, corporate reporting and audit

practice, including areas of potential change and reform.

COMMITTEE REPORTS: AUDIT COMMITTEE CONTINUED

Lancashire Holdings Limited

Annual Report & Accounts 2021

COMMITTEE REPORTS

The Committee’s role is increasingly focussed on

sustainability issues for the Group, which include

evolving developments in climate change and

ESG risk management, regulation, guidance and

reporting. Lancashire has long prided itself on its

vibrant and engaged culture and the creation of a

business model which is both profitable

and sustainable.

Committee membership

The majority of the Nomination Corporate Governance and

Sustainability Committee members are independent Non-Executive

Directors. The Committee Chairman is Peter Clarke, who is the Chair

of the Board. Irene McDermott Brown joined the Committee effective

from 28 April 2021.

Principal responsibilities of the Committee

• Reviews the structure, size and composition (including the skills,

knowledge, independence, experience and diversity) of the Board

and its engagement with the workforce;

• Considers succession planning for the Directors and other senior

executives;

• Nominates candidates to fill Board vacancies;

• Makes recommendations to the Board concerning Non-Executive

Director independence, membership of Committees, suitable

candidates for the role of Senior Independent Director, and the

re-election of Directors by shareholders;

• Reviews the Company’s corporate governance arrangements and

compliance with the Code;

• Monitors and makes recommendations to the Board regarding the

environmental, social and governance responsibilities of the

Company; and

• Makes recommendations to the Board concerning the charitable

and corporate social responsibility activities of the Company and

donations to the Lancashire Foundation.

Nomination Corporate Governance

and Sustainability Committee

“The Group rigorously and

systematically tracks its

compliance with the

requirements of the UK

Corporate Governance Code

in a process reviewed by the

Committee on a quarterly

basis. The Committee also

assesses the skills required

for the Board and considers

the effective operation and

oversight of the business

which resulted in the

appointment of Irene

McDermott Brown

during 2021.”

Peter Clarke

Chair of the Nomination

Corporate Governance and

Sustainability Committee

Committee members

Peter Clarke (Chair) 4/4

Michael Dawson 4/4

Samantha Hoe-Richardson 4/4

Sally Williams 4/4

Irene McDermott Brown 2/2

81www.lancashiregroup.com

Governance

COMMITTEE REPORTS: NOMINATION CORPORATE GOVERNANCE AND SUSTAINABILITY

COMMITTEE CONTINUED

How the Committee discharged its responsibilities

Corporate governance

Board composition

and effectiveness

In accordance with the provisions of the Code, all of the Directors are subject to annual (re)election by shareholders. All

of the Group’s current Directors were elected or re-elected by shareholders at the 2021 AGM.

The Committee also reviewed the composition of the Board at its November 2021 meeting and it considered that the

balance of skills, knowledge, independence, experience and diversity continues to be appropriate for the Group’s business

to meet its strategic objectives. The Committee also regularly discussed in its meetings whether any additional skills and

experience were needed to complement those already on the Board. The Committee considered questions of fitness and

independence in recommending to the Board the appointment of Irene McDermott Brown, who was appointed as a

Non-Executive Director with effect from 28 April 2021. See page 72 for further details.

The Committee oversaw the process for the year-end review of the effectiveness of the Board, the Committees and each

of the Directors. In 2021, further to a tender process, Independent Audit, a corporate services company with offices in

London and no other connection to the Group, was appointed to facilitate an effectiveness review of the LHL Board, the

Committees and each of the principal subsidiary boards within the Group. The Committee and the Board were satisfied

that the Board and each of its Committees were operating effectively. Further details of the performance evaluation

process and its outcomes can be found on page 73.

UK Code

compliance

The Committee keeps under review the Company’s corporate governance arrangements, particularly the Company’s

compliance with the FRC’s UK Corporate Governance Code (the ‘Code’). The Committee reviewed the Company

Secretariat’s checklist record of the Company’s compliance with the Code on a quarterly basis. The Code can be viewed

on the www.frc.org.uk website.

Governance

documentation

The Committee considered the Terms of Reference for all the Committees which were considered fit for purpose: no

further changes were implemented during 2021. In July 2021, the Committee reviewed and recommended to the Board

revisions to the Board’s Schedule of Reserved Matters, inter alios to reflect the Board’s responsibilities for climate

change, diversity and oversight of the Group’s ORSA process. The Committee also carried out a review and revision of the

document describing the division of responsibilities between the Group CEO and the Chairman.

Appointments and

succession planning

The Committee reviewed and recommended the approval and adoption by the Board of the Company’s succession plan

and talent management and development programme for the 2021/2022 year in April 2021. The business has the

objective of fostering a diverse workforce to meet the needs of the business. The Committee reviewed training and

development proposals for a number of key employees across the Group as part of the succession planning process.

Workforce

engagement

During 2021, the Company continued the practice of the Group CEO holding ‘town hall’ meetings with employees following

the announcement of the Company’s quarterly results. In order to further enhance arrangements for engagement between

the Non-Executive Directors and members of the workforce, the Committee arranged for these town hall meetings to be

periodically attended by the Chairman of the Board or another Non-Executive Director. Peter Clarke attended the town hall

meetings held virtually in both February and May 2021; Irene McDermott Brown attended a virtual town hall meeting in

August 2021 and Michael Dawson attended an in-person town hall meeting in November 2021 at our London offices, which

was also streamed live to our Bermuda office and to employees working from home. The Board and Committee also

received the results of a staff engagement survey which was undertaken in October 2021, and focused on questions of

workforce engagement, training and satisfaction (see page 45 for further details of the survey). The Committee considered

these and other tools for workforce engagement at its November 2021 meeting and discussed arrangements for workforce

engagement during 2022. The Committee considers that the workforce’s engagement and their feedback have an

appropriately high profile and this, in turn, informs debate within the relevant Committees, the Board and the wider Group.

The Committee and Board intend for these effective arrangements to continue in 2022.

Audit reform

The Committee has monitored developments in the area of audit market reform, regulation and practice during 2021,

including proposals for UK legislative change as a result of the Kingman Review, the Brydon Report and the

recommendations of the UK Competition and Markets Authority.

Brexit

The Committee and Board have considered the ongoing impact of Brexit on both the Company and its business. The

Board is satisfied that measures adopted within the business have to date and will continue to help mitigate certain of

the potential adverse impacts of Brexit.

Subsidiary boards

The Committee and Board monitored the composition and recommended appointments and changes to the Group’s

subsidiary boards during 2021.

Lancashire Holdings Limited

Annual Report & Accounts 2021

How the Committee discharged its responsibilities (continued)

Sustainability

Sustainability and

ESG reporting

The Committee has continued to monitor developments in the area of the Company’s environmental, social and

governance responsibilities throughout its work in 2021. The Committee has received reports from the management ESG

Committee (which was established during the course of the year), regarding the current and developing ESG regulatory

landscape as well as the Group’s progress in these areas. Upon the recommendation of the Committee, the Board agreed

the Group’s 2021 ESG strategy and the Group’s ESG framework, both of which have been embedded into the business.

Please see pages 44 to 63 for further details.

Environment

The Committee also periodically reviews developments in the areas of environmental sustainability and climate change,

and the management of related risks and opportunities. For more information on these matters, please see the Group

CRO’s report on pages 26 to 37 and the TCFD report on pages 56 to 63.

Social responsibility

Diversity

The Committee considered statistics relevant to the gender composition of the Board, Group senior management

(excluding LHL Non-Executive Directors), direct reports to Group senior management and overall Group employees.

These statistics are shown on page 48 and illustrate the progress made in relation to the attainment of the Company’s

stated goals with regard to gender diversity. The Committee also reviewed comparative pay data by gender within the

Lancashire Group in April 2021. The Committee noted that the Group had fewer than 250 UK employees at the point of

review and therefore did not come under a formal UK public reporting requirement at that time. The Committee

recommended approval by the Board of an updated diversity policy, which is posted on the Company’s website and has

committed to meeting the Parker Review target for minority ethnic representation by 2024.

The Lancashire

Foundation

The Committee is responsible for monitoring and making recommendations to the Board in relation to the Company’s

charitable giving policy and the operation of, and reporting requirements for, the Lancashire Foundation. During 2021,

the Committee received a report from the Foundation, including its objectives, governance, approach to funding for 2022

and beyond, alongside its investment strategy, donations policy and charitable activities, as well as the ways in which the

Foundation engages with employees throughout the Group. The Committee made a recommendation to the Board that

the Company make a donation to the Foundation of 0.75% of full-year Group profits (subject to a cap of $750,000 and a

$250,000 collar), conditional on the determination of financial performance for the full year. 2021 marks 15 years of the

Lancashire Foundation – for more information regarding the donations the Committee has approved, please see pages 42

and 43.

UK Modern Slavery

Act 2015

During 2021, the Committee recommended the approval by the Board of an updated anti-slavery and human trafficking

statement, a copy of which is posted on the Company’s website.

Priorities for 2022

The Committee’s key priorities for 2022 are:

• To continue to ensure that the Company is able to effectively discharge its governance responsibilities under the Code;

• To continue to develop the succession plans for Directors and senior executives, in line with the Group’s strategic objectives, and to support

management in the development of the talent pipeline;

• To review developments with regards to the Company’s sustainability and, in particular, to monitor effective management of climate change

risk and the implementation of the recommendations of the TCFD; and

• To monitor the Company’s progress on diversity and to take steps to enhance minority ethnic representation amongst the Board membership.

83www.lancashiregroup.com

Governance

COMMITTEE REPORTS

Committee membership

The Terms of Reference of the Investment Committee provide that

the Committee shall comprise at least two Non-Executive Directors

(one of whom may be the Chairman of the Board) and the Group CFO

and/or the Group CIO. Any Executive Director may also serve on the

Committee.

The Investment Committee comprises one independent Non-

Executive Director, the Chairman of the Board, one Executive Director

(the Group CFO) and the Group CIO (who is not a Director).

Principal responsibilities of the Committee

• Recommends investment strategies, guidelines and policies to the

Board and other Group entities to approve;

• Recommends and sets risk asset definitions and investment risk

tolerance levels;

• Recommends to the relevant boards the appointment of investment

managers to manage the Group’s investments;

• Monitors the performance of investment strategies within the risk

framework; and

• Establishes and monitors compliance with investment operating

guidelines.

“The Group’s investment

portfolio has again proved

resilient in the face of the

volatile capital markets, the

ongoing challenges posed by

the COVID-19 pandemic and

the threat of inflation. The

Group has maintained a

defensive short duration

profile to protect against

rising interest rates in an

inflationary environment. The

Committee’s focus for the

investment portfolio remains

to preserve capital to support

underwriting opportunities

and to provide adequate

liquidity to match the

Group’s risk exposures.”

Robert Lusardi

Chair of the Investment Committee

Committee members

Robert Lusardi (Chair) 4/4

Peter Clarke 4/4

Natalie Kershaw 4/4

Denise O’Donoghue 4/4

Investment Committee

Lancashire Holdings Limited

Annual Report & Accounts 2021

How the Committee discharged its responsibilities

The Committee focused on developments in the U.S. Federal Reserve’s

interest rate policy and the wider U.S. and global economic and

political environment and potential impacts and implications for the

investment portfolio including the ongoing consequences of the global

COVID-19 pandemic. The Committee held regular discussions with the

professional investment portfolio managers concerning the macro-

economic environment and implications for investment asset classes

and strategy.

The Committee considered regular reports on the performance of the

Group’s investment portfolios, including asset allocation and

compliance with pre-defined guidelines and tolerances; and

recommended amendments to portfolio investment guidelines to the

Board and operating boards of LICL, LUK and LSL.

The Committee continues to work to articulate and support the

Board’s investment philosophy, which continues to be conservative in

nature, and is intended to help support the Group’s underwriting

strategy to provide appropriate liquidity to match the Group’s risk

exposures and to contribute to the Group’s growth in FCBVS.

A focus for the Committee throughout the year has been the

increased risk of inflation and the potential impact this, and changes in

the interest rate environment, would have on the Company’s

investment portfolio. The Committee discussed different strategies to

mitigate the impact of rising rates on the portfolio and concluded that

a combination of increased exposure to floating rate assets and low

portfolio duration was the most cost-effective approach to hedging

inflation risk at this time.

The Committee is mindful of the Group’s duty to act as a responsible

investor. To that end we have focused throughout the year on the

development of the Company’s investment reporting and monitoring

in the context of ESG and climate change developments and

expectations within the market. The Committee received a

presentation from external investment managers on current best

practices which provided an opportunity to benchmark Lancashire’s

position and identify areas where further improvements were possible.

The Committee noted that 93.8% of the Group’s externally managed

investment portfolio are signatories to the UNPRI. The Committee

monitored the ESG profile of the Group’s fixed maturity portfolio by

reference to the MSCI ESG rating tool noting that the Lancashire

portfolio sits within the average ESG category rating and that the

proportion of the fixed maturity portfolio covered by the available

rating methodology was approximately 46.4% of the public fixed

maturity portfolio, due to the high number of U.S. treasuries and

structured products that are not covered by the available

methodology.

In this regard the Committee has noted that the MSCI index and other

available carbon intensity and ESG measurement tools are in a state of

development and intends to keep the range of potential analytical

tools under review in consultation with the Group’s external portfolio

managers. The Committee proposed a framework for the

measurement of climate sensitivity and recommended to the Board

the introduction of a Climate Value at Risk metric (Climate VaR),

which is aligned with the Paris Accord goal of limiting global

temperature increases to a maximum of 1.5

C, for the Group’s

investment risk tolerance and preference statements. The Committee

and Board agreed a preference for the financial impact of this scenario

on the Group’s actual fixed maturity portfolio, covered by MSCI, to

have a less detrimental impact than the MSCI benchmark model and

carbon sensitivity tool. The fixed maturity portfolio’s carbon intensity

score was broadly consistent with the prior year and the Committee

discussed and agreed to certain changes in asset allocation in order to

reduce the carbon intensity scoring of the portfolio.

The Committee also recommended to the Board the introduction of

ESG and carbon management investment guidelines in particular with

respect to limitations upon assets linked to thermal coal, oil sands and

Artic energy investments to be implemented by the Group’s

investment managers across the Group’s fixed maturity investment

portfolios.

Priorities for 2022

The Committee’s key priorities for 2022 are:

• To maintain a continued focus on a diversified portfolio,

continuation of its contribution to the Group’s operating income

and FCBVS, the preservation of capital, the maintenance of liquidity

and the prudent management of investment risks aligned with the

developing profile of the Group’s underwriting portfolio;

• To focus on the implications of macro-economic trends, in

particular the threat of more sustained inflationary pressures, the

U.S. domestic and international political environment and the

ongoing COVID-19 pandemic;

• To further develop the analysis and monitoring of the climate

change risk sensitivity and ESG profile of the Group’s investment

portfolio to further enhance the levels of assurance and reporting

on issues of sustainability; and

• To conduct a biennial asset allocation review and to consider the

impact of the Group’s casualty reinsurance portfolio reserves on the

desired overall target investment portfolio duration and liquidity

requirements.

85www.lancashiregroup.com

Governance

COMMITTEE REPORTS

“The Committee’s principal

focus in 2021 was on the

strategic deployment of the

risk capital which the Group

raised during 2020 and

improved pricing and market

conditions in most of the

Group’s existing lines of

business and opportunities

through the addition of new

lines of business. The Group

has delivered on its principal

underwriting strategy of

achieving the strongest

growth in top-line premium

since the Group’s foundation

in 2005.”

Alex Maloney

Group CEO and Chair of the Underwriting

and Underwriting Risk Committee

Committee members

Alex Maloney (Chair) 4/4

Jon Barnes 4/4

Michael Dawson 4/4

James Flude 4/4

Paul Gregory 4/4

James Irvine 4/4

Hayley Johnston 4/4

Ben Readdy 4/4

John Spence 4/4

Committee membership

During 2021, the Underwriting and Underwriting Risk Committee

comprised one Executive Director (the Group CEO) and one Non-

Executive Director, together with the Group CUO, the CUO of LICL,

the CUO of LUK, the Active Underwriters for Syndicates 2010 and

3010, the LICL CEO and the Group Chief Actuary (who are not Directors).

Principal responsibilities of the Committee

• Reviews Group underwriting strategy, including consideration of

new lines of business;

• Oversees the development of, and adherence to, underwriting

criteria, limits, guidelines and authorities by operating company

CUOs;

• Reviews underwriting performance;

• Reviews significant changes in underwriting rules and policies; and

• Monitors underwriting risk and its consistency with the Group’s risk

profile and risk appetite.

How the Committee discharged its responsibilities

in 2021

The principal areas of focus for the Committee during 2021 were upon

the improved pricing and market conditions in most of the Group’s

existing lines of business and the opportunities to grow and diversify

the underwriting portfolio through the addition of new lines of business.

In June 2020 Lancashire had issued new common shares by way of an

equity placing, which raised $340.3 million of new capital for the

development of the Group’s strategic underwriting plans, and the

Committee monitored the implementation of the capital deployment

throughout 2021. The Committee monitored an improving pricing

trend which facilitated strong growth as the year developed. The

Group’s RPI, which shows the trend in renewal pricing on like-for-like

contracts, was 109% for the full year across the portfolio. Gross

premiums written for the full year increased to $1.2 billion, which was

a 50.5% increase on 2020. Management implemented a revised

dashboard style of reporting during the year which enhanced

management information data and enabled the Committee to receive

more granular detail of pricing trends and premium income by

underwriting segment and by Group entity.

The Committee monitors underwriting performance on a

quarterly basis to ensure that good risk selection and disciplined

underwriting remain at the core of the Group’s underwriting strategy.

This is facilitated through regular update reports from the Active

Underwriters of Syndicates 2010 and 3010, the CUOs for LUK

and LICL and the CEO of LCM.

The Committee also discussed and monitored new business and

growth opportunities during the year including the following areas:

• Marine and energy specialty reinsurance;

• Casualty reinsurance – escalated growth against business plan;

• Syndicate 3010 Lloyd’s Australian D&F property class;

• Syndicate 3010 and LUK marine and energy liability growth

initiatives;

• Construction and engineering class;

• Power and utilities expansion opportunity;

• New property D&F opportunity;

• Lloyd’s casualty consortium participation; and

• U.S. trucking liabilities.

Underwriting Committee

Lancashire Holdings Limited

Annual Report & Accounts 2021

The Committee also received reports on a number of initiatives which

were explored but were not pursued.

The Committee continued to monitor the impacts of the COVID-19

pandemic both operationally and as a (re)insurance loss event/events.

In the face of the challenges of home working which was required

periodically during the year, the Committee noted the operational

resilience of the Group’s risk trading platforms and the stability of the

COVID-19 loss reserves first established during 2020.

The Committee also received a claims update on a quarterly basis and

monitored the claims and reserving processes for the material natural

catastrophe and risk losses as they developed during the year.

The Committee has been actively engaged during 2021 in the

development and implementation of the Group’s underwriting

strategy. It considers the articulation of, and adherence to, formal

underwriting risk tolerances, which are approved and monitored by

the Committee and the Board. In particular, the Committee received

quarterly risk data, tracking movements in the Group’s exposures to

modelled PMLs and RDSs. The Committee also reviews developments

in the formal underwriting authorities implemented across the Group.

In addition, the Committee discussed the risks and opportunities

associated with climate change and the ESG profile of clients and

received reports on the development of ESG and climate-related

underwriting guidelines which have been articulated by reference to

Lloyd’s market guidance and are being rolled out across all

underwriting platforms. These guidelines are also linked to the Group’s

formal risk appetite statements. The Committee and Board also

discussed the challenges and opportunities faced by many of our

clients in the energy sector during a period of global transition

towards less carbon intensive forms of energy.

The Committee continued to monitor exposures to a range of natural

catastrophe risks, including regional windstorm and hurricane

exposures, and the articulation of an appropriate underwriting and risk

management strategy and management preference for these and

other risk exposures linked to climate change factors. The Committee

considered loss information and developing trends in the frequency

and severity of weather-related and other loss events and was

satisfied that the Group’s underwriting strategy and reinsurance and

risk management programmes are appropriate for the management of

underwriting risk relating to these factors. For more detail, please see

the ERM report on pages 26 to 30 and the Group’s TCFD report on

pages 56 to 63.

One area of work for the Committee during 2021 was to review and

approve changes to the operation of the daily underwriting call, which

is a distinctive feature of the Group’s non-Lloyd’s operations and a key

risk management tool. The Committee approved changes to the terms

of reference for the Underwriting Marketing and Coordination

Committee (the UMCC) which will continue to retain oversight of the

principal risks underwritten by the Group, in particular those risks

which are the drivers of the Group’s major exposures and related

capital requirements. It also agreed a protocol for the oversight of the

underwriting, approval and reporting of smaller non-Lloyd’s

underwriting risks outside the full UMCC. This marks a point of

evolution in the Group’s underwriting practices appropriate to

accommodate the recent strategic growth whilst retaining the

benefits of appropriate underwriting and risk oversight.

The Group’s programme of outwards reinsurance protections is a core

underwriting risk and exposure management tool. The Committee

reviewed the structure, pricing and operation of the outwards

reinsurance programmes and regularly discussed management reports

covering outwards reinsurance developments. In particular the

Committee held a dedicated strategic discussion at its November 2021

meeting to consider options for the development and focus of the

Group’s reinsurance programmes and opportunities for greater

alignment and efficiencies across the Group.

The Committee also convened a number of other themed ‘deeper dive’

strategic sessions at its quarterly meeting involving the participation

of underwriters from across the Group. These included sessions on the

Group’s casualty reinsurance initiative, Group aviation underwriting

strategy and the Group’s inward retrocessional reinsurance portfolio.

The Committee received management reports on the progress and

approval by Lloyd’s of the business plans for Syndicates 2010 and

3010, including the Lloyd’s approval of planned growth plans for 2022.

The Committee also reviewed developments in the third-party

reinsurance capital markets and developments within the LCM

platform. At its November meeting the Committee discussed plans for

succession within the LCM management team and approved the

appointment of Paul Gregory as CEO of LCM further to the

announcement of the departure of Darren Redhead from LCM, which

will take place during 2022.

During 2021, the Committee meetings were open to attendance by all

Board members. The Committee and Board seek to match the

Company’s capital to the underwriting requirements of the business in

all parts of the underwriting cycle.

A more detailed analysis of the Group’s underwriting performance

appears in the business review on pages 21 to 25.

Priorities for 2022

The Committee’s key priorities for 2022 are:

• To continue to monitor the development and implementation of a

forward-looking and disciplined underwriting strategy with a focus

on disciplined growth appropriate to the current market

opportunities and nimble use of the Group’s underwriting

platforms, within a framework of appropriate risk tolerances;

• To work actively with management in the identification, analysis

and consideration of new underwriting opportunities, including

potential new lines of business and opportunities for the managed

‘organic’ growth in the Group’s existing business lines;

• To consider opportunities for development of the Group’s

reinsurance structures including in the area of third party

reinsurance capital; and

• To continue to foster a nimble, sustainable and responsive

underwriting culture, capable of responding to the needs of clients,

investors, employees and other stakeholders.

87www.lancashiregroup.com

Governance

COMMITTEE REPORTS

“Lancashire’s remuneration

structures are designed and

monitored to prioritise the

right behaviours aligned with

the strategic priorities of

capital management, effective

risk management and a

nimble underwriting culture.

We aim to incentivise, reward

and retain talented people

across our business to deliver

on our strategy.”

Simon Fraser

Chair of the Remuneration Committee

Committee members

Simon Fraser (Chair) 4/4

Peter Clarke 4/4

Michael Dawson 4/4

Robert Lusardi 4/4

Irene McDermott Brown 2/2

The Committee’s work helps embed the Group’s

healthy and sustainable corporate culture,

consistent with the Group’s purpose, values and

strategy. The Board’s objective is to deliver

sustainable performance across the

insurance cycle.

Committee membership

The Remuneration Committee comprises four independent Non-

Executive Directors and the Chair of the Board.

Principal responsibilities of the Committee

• Sets the Remuneration Policy for all Directors and determines the

total individual remuneration packages of the Company’s Chair, the

Executive Directors, Company Secretary and other designated

senior executives, to deliver long-term benefits to the Group;

• Agrees financial and personal objectives for each Executive Director

and the performance against these objectives for the annual bonus;

• Determines each year whether awards will be made under the

Group’s RSS and, if so, the overall amount of such awards, the

individual awards to Executive Directors and other designated

senior executives, and the performance targets to be used;

• Ensures that contractual terms on termination or retirement, and

any payments subsequently made, are fair to the individual and the

Company; and

• Oversees any major changes in employee benefit structures

throughout the Group.

How the Committee discharged its responsibilities

Throughout the year the Committee kept under review the Group’s

performance and remuneration structures, in the light of investor and

stakeholder input. In particular, the Committee discussed at length the

2021 AGM outcomes and feedback resulting from a shareholder

engagement process led by Simon Fraser. The Committee agreed a

range of future actions which are detailed in Simon Fraser’s introduction

to the Directors’ Remuneration Report on pages 90 and 91.

The Directors’ Remuneration Policy has a three-year term following its

approval by shareholders at the 2020 AGM, with a majority of 88% of

votes cast. The Committee discussed in the light of shareholder

feedback received during the year following the outcome of the 2021

AGM the operation of the Policy and has concluded that the Policy

remains fit for purpose. Whilst no Policy changes are being proposed

for the coming year the Committee intends to carry out a detailed

review of the Policy during 2022 in advance of a shareholder vote at

the 2023 AGM.

Remuneration Committee

Lancashire Holdings Limited

Annual Report & Accounts 2021

More generally during 2021, the Committee reviewed the Group’s

incentive packages to ensure that remuneration is structured

appropriately in order to promote the long-term success of the

Company. The Committee also reviewed the RSS structures for

Executive Directors to ensure that the performance metrics continue

to align the interests of the Company with its investors and executive

management. The Committee considered the salary and bonus awards

for the Executive Directors, as well as other designated senior

executives, and in this context had regard to remuneration levels and

practices across the workforce. The Committee also approved the

grant of long-term incentivisation awards under the Company’s RSS,

considering a range of factors including the Company’s share price

movement. For further discussion of the linkage between performance

and remuneration outcomes, please see Simon Fraser’s introduction to

the Directors’ Remuneration Report on pages 90 and 91.

The Committee held discussions throughout the year on areas of

developing best practice, regulation and investor expectation. The

Committee also considered developments in guidance from several of

the leading shareholder advisory groups.

During 2021, the Committee reviewed Executive Directors’

shareholdings in the context of the Company’s share ownership

guidelines for senior/key executives. Share ownership targets have

either been met, or progress made in accordance with

guideline requirements.

The Committee continued to monitor progress made during the year

on the alignment of remuneration practices across the Group and

reviewed the operation of the Group’s remuneration policy.

The Committee welcomed Irene McDermott Brown as a new Director

and Committee member during April 2021. Irene has extensive

experience in the field of remuneration practice within the financial

services sector, and it is planned that she will assume the role of

Remuneration Committee Chair following the 2022 AGM, in

succession to Simon Fraser.

The Directors’ Remuneration Policy and the Annual Report on

Remuneration, for which the Committee is responsible, can be found

on pages 90 to 111.

Priorities for 2022

The Committee’s key priorities for 2022 are:

• To review the ongoing appropriateness and relevance of the Group’s

remuneration structures, ensuring that they are in line with the

Group’s business strategy, ESG and carbon management strategy,

changes in accounting and financial reporting in particular as a

result of the introduction of IFRS 17, risk profile, objectives, risk

management practices and long-term interests;

• To conduct a formal review of the Group’s shareholder-approved

Remuneration Policy, facilitated by advice from the Group’s

independent remuneration advisers, in preparation for the planned

shareholder Remuneration Policy vote at the 2023 AGM;

• To ensure that remuneration across the wider Group meets the

skills and staffing needs and staff retention requirements of the

business; and

• To work with the Group’s independent remuneration advisers to

keep abreast of compensation levels amongst the Group’s London,

Bermudian and other international peers, and the latest

remuneration-related regulations, guidance and market practices.

89www.lancashiregroup.com

Governance

DIRECTORS’ REMUNERATION REPORT

Annual statement

Lancashire Holdings Limited

Annual Re

ort & Accounts 2021

DIRECTORS’ REMUNERATION REPORT

Annual statement

Dear Shareholder,

I am pleased to present the 2021 Directors’ Remuneration Report

to shareholders.

As we set out at the front of this report, 2021 has been a year of

exceptional challenges. We have been impacted by above average natural

catastrophe losses and a political violence loss in South Africa, whilst

navigating the continued operational impacts of the COVID-19 pandemic.

The business has faced these challenges responsibly, displaying

operational resilience and strategic foresight. Disappointingly, the

negative effect of significant (re)insurance losses on returns for the 2021

year has resulted in a combined ratio of 107.3% and a negative change in

FCBVS of 5.8%. More positively, the decision to seek equity capital from

our shareholders in June 2020 has enabled us to increase our gross

premiums written by 50.5% compared to 2020. This has placed the

Group in a strong position to maximise attractive underwriting

opportunities in an improving pricing environment which we expect to

continue throughout the course of 2022.

Against this background our total Group CEO remuneration has

decreased in comparison to 2020 by 37.4% and the Group CFO

remuneration has decreased in comparison to 2020 by 39% (see the

comparison table for single figure remuneration on page 103).

Remuneration report voting outcome 2021 and

shareholder engagement

The Board was naturally disappointed with the outcome of the resolution

to approve the Annual Report on Remuneration at the 2021 AGM, where

it was passed with slightly over 67% support. Following the vote, I

engaged with the Company’s major shareholders and other stakeholders

in the advisory sector. This process also followed a period of shareholder

consultation which we had conducted prior to the AGM.

It was clear from the consultation that the main reason for the

disappointing level of the vote against the remuneration resolution at the

2021 AGM was the impact of the Company’s June 2020 equity placing on

the 2020 annual bonus targets which were aligned to growth in FCBVS.

The Committee will take the following specific actions to ensure that any

future capital raise does not prompt similar concerns with shareholders:

• Ensure improved disclosure in our reporting of the impact of capital

actions on performance metrics in future;

• Consider deferral of a greater percentage of annual bonus into time

deferred long-term incentive awards where performance metrics have

been beneficially influenced by capital actions; and

• Commit to ongoing and active consideration of the exercise of

discretion to limit the impact of capital actions on remuneration

outcomes, where appropriate.

In our meetings, a small number of shareholders also expressed a concern

regarding the Company’s use of growth in FCBVS in both the annual

bonus for Executive Directors and the Company’s longer-term RSS

awards. The Committee has considered the potential use and relative

merits of other financial metrics in the Executive Directors annual bonus

and the longer-term RSS awards and will continue to do so in the future.

The Committee considers that growth in FCBVS is the Group’s principal

key performance indicator and that it is an appropriate and

comprehensive performance metric for both bonus and longer-term

schemes. It is relatively straightforward, understood by investors and

encompasses all aspects of the Company’s performance, prioritising the

right strategic and risk management priorities for our management team.

We also note that, in the light of the introduction of the new IFRS 17

accounting standards at the beginning of 2023, insurance industry

accounting will be in a period of radical transition in terms of financial

reporting. This will be a close area of focus for the Committee during

2022. Taking all these elements together, as we implement and monitor

these new accounting measures, we believe it is would be inappropriate

to make changes to our longstanding and effective financial performance

remuneration metrics before th e impacts of IFRS 17 are fully understood.

The Board and management continue to believe that the insurance

industry is cyclical in its fundamental characteristics. The Board’s strategic

objective is to achieve attractive returns appropriate to overall risk levels

across the (re)insurance market cycle. There is a strong link between the

Remuneration Policy and the business strategy. As an underwriting

Company our underwriting performance is the key driver of growth in

FCBVS over time and therefore our Remuneration Policy is closely aligned

to our strategy.

As always, the Committee and Board intend to keep remuneration

performance metrics under review in future to ensure appropriate focus

and alignment of our management team with the interests of our

stakeholders and will undertake a further review ahead of setting next

year’s metrics and targets.

Performance outcomes for 2021

The Executive Directors’ annual bonus performance targets for both

financial and personal performance were stretching. The financial

element which made up 75% of the annual bonus opportunity resulted in

no bonus payout for this element as the threshold for payout was not

met given the Company’s Change in FCBVS in 2021 was below the

threshold due to a very challenging loss environment.