Lancashire Holdings Ltd
LSE:LRE
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Lancashire Holdings Ltd
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Hello, and welcome to the Lancashire Holdings Limited Q3 2022 Results Call. Throughout the call, all participants will be in a listen-only and afterwards there will be a question-and-answer session. [Operator Instructions] Please note this call is being recorded.
Today, I am pleased to present Alex Maloney, Group CEO; Natalie Kershaw, Group CFO; and Paul Gregory, Group CEO. I now hand over to Alex, please begin your meeting.
Okay. Thank you, operator. Good morning, everyone. I'll start with some key points for the quarter. I'll then hand over to Paul for a market update, and then naturally we run through financials.
I'll then summarize and then we'll go to Q&A.
So if we just go to the first slide, we continue to grow our underwriting portfolio. All product lines are growing, depending on the underwriting opportunity. We do see a lot of opportunity in every product line. Clearly, our growth is driven by rate. It's probably the fifth consecutive year of rate change across most product lines.
The impact of inflation is key. We see client demand increase pretty much possible. So good growth very much in line with our long-term strategy of growth at the right time of the cycle. And we foresee our underwriting portfolio growing for the foreseeable share. But obviously, match the take opportunity to get to product line clearly -- we will grow more than the product lines that are not traveling at the same pace. We will grow less, very agnostic where we underwrite and always be driven by the opportunity.
Our diversification strategy, which started in 2018 continues. And obviously, that balances our cat writings apple mix is all to move. It's always driven by the opportunity. So whether that's much more cabs, more attritional business, different classes, we're pretty agnostic about how we construct the portfolio as long as it's in line with our long-term goals. So our long-term goal is to provide more balance to our business, which we're achieving.
And we can provide clear evidence of lots year. Clearly, that allows us to manage years '22 better in active cat years. The balance that we have in the business allows us to balance our books better, but it also allows us to maintain a substantial capital print as margins increase. which clearly, we are seeing you've seen continued harden in Q3 and obviously, the outlook looks incredibly strong. So our premiums are generally ahead of our own expectations. Our premium to capital ratio is better than we expected at this point.
And clearly, you're seeing benefits through things like our expense ratio. So on all metrics, we're ahead of where we would be driven by the improved underwriting opportunity. And clearly, the diversification plays benefit allowing us to balance our footprint in active cat years.
We expect pricing to continue to harden. Clearly, I think catches a bit more obvious and we'll go about that later. But as the years progress, you've seen rates continue to harden -- and as we said at the last call, we expected any catastrophe exposed products to harden substantially for 2023, even absent any activity in '22. But clearly, following Hurricane Ian, we expect that to be accelerated, and we expect a material change in catastrophe pricing for '23, very much in line with lots of our market peers in the commentary that they've already made.
For the non-cat business, we do expect rate hardening different degrees were much balance on the local opportunity, but clearly, that will be attributed in the immediate account opportunity, which I think is relatively obvious. Again, inflation on client demand plus continued rate improvement just means more growth for Lancashire. So as I said earlier, I think we'll be ahead of our expectations. Just as with Hurricane Ian, very much in line with our expectations in a loss range is very much in line with our own expectations for such a loss. No surprises there Capf in Florida of the size that we've seen and the marketing around the loss ranges, as I said, completely in line with our expectations.
Just to remind everyone, how we construct our loss estimates here is pretty much policy by policy, constructed ground up, the usual method of conservatism and the same method we have useful cat losses. But obviously, considering the current environment we're in. So inflation, supply chains, the legal system in Florida are all considerations that we make when we are constructing these estimates for our losses and all those factors are computed in our numbers.
So quickly move to capital. As you know, we've held a very strong capital position throughout the year. That's always the way that we run the business at Lancashire, and that allows us to be in a very strong position to trade into a good opportunity for '23. We think that gives us lots of options and lots of ability to grow our book into '23 in multiple different product lines. So that's exactly where we want to be at this stage of the cycle when you're looking at board at the opportunity.
Our job is to maximize returns for the capital deployed. We're completely agnostic about platform, geography, products, that's not anything we really consider a Lancashire. All the executives all the senior underwriting colleagues will be in constant dialogue as the market changes, you're in quite dislocated pockets for certain product lines and everyone's compensation in the business is aligned to group ROE. So no barriers just based on the best opportunity for our shareholders.
Just quickly moving to investments. Clearly, you've seen our negative investment return on mark-to-market loss is just driven by the steep incline in interest rates. Our portfolio is very short duration. So investment returns will be materially improved in 2023, which, again, will just give us more margin at a time that more margin is coming into our underwriting portfolio. So I think, all in all, good opportunities going forward, strong underwriting opportunity, investment income coming back into our bucket.
So looking strong into '23. So I'll just pass it over to Paul to give you a market update.
Thanks, Alex. As Alex has just spoken to, the market continues to remain supportive across almost all of our classes of business. This has allowed us to continue to deploy our strategy to diversify and fortify the portfolio. We're particularly pleased with the year-to-date premium growth of 34.3%, a combination of continued rate momentum, build-out of new product lines and new businesses in existing classes that all contributed to this growth.
Year-to-date, our portfolio renewal price index stands at 107%. Q3 stand-alone was over 110%, signaling the increase in rating trajectory I had talked about on our last conference call. On the new teams of 2022, we guided to $50 million to $60 million of new premium, and it's likely we'll be at the upper end of that range by year-end given the favorable market conditions.
Moving to the next two slides. We'll just highlight the segment specific dynamics. I'll briefly cover off a few Q3 highlights but then focus on what opportunities lay ahead. So for Q3, I'd just like to highlight the following. The continuing maturity of the casualty, financial lines and specialty reinsurance is driving the growth in the P&C reinsurance segment.
Strong growth in our new property construction class, along with a robust rate environment for property insurance classes is delivering growth in the P&C reinsurance insurance sector. As you know, the year-to-date RPI for aviation is not indicative of current market conditions, given the bulk of the business is conducted in Q4.
Growth in energy is more subdued than other classes, albeit it's still ahead of rate. New business in our energy liability subclass has more than offset loss of premium from our exit from the Gulf of Mexico windstorm coverage and the impact of Russian sanction business. Strong growth in marine comes from robust market conditions in marine liability and new business within cargo.
Now moving on to outlook. Last quarter, we were increasingly confident about market conditions. Three months on, this confidence has just heightened. In the majority of specialty insurance lines that are Natcat light, we continue to see plenty of opportunities for growth. We anticipate continued rate improvement in the products that provide terrorism of political violence coverage, both insurance and reinsurance, an area where we have an established footprint and expertise to navigate.
In aviation, we're already seeing significant dislocation in products such as war, AV52, and aviation reinsurance, again, classes that we are market leaders in. Other parts of the aviation market are not yet seeing the same levels of dislocation as the reality of the change in reinsurance landscape is yet to filter down to all in the market. However, we anticipate further hardening in the aviation reinsurance market in 2023, which will create further opportunities into next year.
In lines where we had seen some flat rate increases such as downstream energy, recent frequency of loss activity should help strengthen the backbone of the market. It's also worth remembering, and as Alex has alluded to, a lot of the specialty insurance lines have already seen five to six years of rate improvement. So rating adequacy is strong and will only improve further.
Now moving on to those lines of natural catastrophe exposure, where the outlook is also very optimistic. We've seen quarter-on-quarter hardening in the catastrophe reinsurance classes through 2022. Pre-win season, our view was that this would continue even without any significant loss activity given the shift in demand supply dynamic with inflation really pushing client demand for more limit in a market where suppliers appears to be retracting.
Hurricane Ian has tipped the balance from a hardening market to a hard market, and we anticipate severe dislocation for 2023 renewals. As you all know, we expanded our catastrophe footprint in 2021 and have further optimized that portfolio this year. So we are very well placed to underwrite the opportunity we have ahead of us.
I'll now pass over to Natalie.
Thanks, Paul. Before to Hurricane Ian, we were pleased with our year-to-date underwriting performance, which was consistent with that reported last quarter. However, towards the end of the third quarter, we incurred catastrophe losses in the range of GBP 160 million to GBP 190 million from Hurricane Ian. This level of catastrophe loss is well within our expectations for the type of event that occurred. As you are aware, we have historically reserved conservatively for catastrophe events, and we have maintained the same reserving process for Hurricane Ian.
This means our estimated loss is built ground up on a contract-by-contract basis and is not derived as a percentage of an industry loss number. Because of the process we follow, we don't give you an assumed industry loss number. We have not made any changes to our estimated losses within Ukraine since last quarter and continue to monitor the situation closely.
Year-to-date, away from Hurricane Ian, the claims environment has been in line with expectations. We have obviously seen weather events earlier in the year as well as single-risk losses, albeit all of these are well within our expectations and what I would call normal for our business. Our total catastrophe losses for the year-to-date, excluding Ian, are in the region of $45 million. These include the Australia and South Africa floods, U.S. direct show and French hail storms.
On investments, market volatility and rate hikes continued into the third quarter, resulting in a negative portfolio performance of 5% for the year-to-date. Our portfolio remains relatively conservative with an overall credit rating of AA. We aim to invest in largely low risk, short duration and liquid investments whilst taking more risk on the underwriting side of the business. We do not intend any material changes to our investment strategy in the medium term, and we'll keep its overall portfolio duration short. Given the short duration, we will start to benefit from the rate rises relatively quickly.
Moving on to capital. We retain a strong and robust capital position. On this slide, the waterfall chart shows how our regulatory capital position has developed since the end of 2021. As noted last quarter, the impact of changes in business written plus some fleets to our reinsurance program in the first half of 2022, benefited the PMLs used in the rating agency and regulatory capital models. The estimated position at Q3 2022 incorporates an end loss at the midpoint of the range given and an over 250% is exceptionally healthy.
As mentioned on previous calls, we expect our BMA solvency ratio to be above 200% going forward depending on market conditions. With that, I'll now hand back to Alex to conclude.
Okay. Thanks. So just to summarize our view today. I think the outlook is strong across all product lines. We see lots of opportunity driven by the investments we've made across our business.
Clearly, we have a lot more product lines than we've ever had in our history, which is driving our growth. Capital, as Natalie just described, our capital position is incredibly strong. It's exactly where we want to be at this stage of the cycle that gives us more optionality as we look into 2023. We're better leverage than we have been before. So the benefit of the investment returns coming through is definitely going to help our overall return.
So look, we're very positive. There's a lot of uncertainty, but I think we kind of be better positioned for a very interesting market, and we'll now hand over to the operator for questions.
[Operator Instructions] The first question is coming from Freya Kong with Bank of America.
Two questions, please. Number one, acknowledging that your Bermuda ratio looks very strong. Could you please provide some color on how your capitalization is against your binding constraint, which I understand is rating agency capital. And secondly, so Lancashire rightsizes property cat footprint in 2021 and maintain similar exposures in '22. Given that property cat markets are looking dislocated and rate increases are expected to accelerate next year. What is your appetite for property cat for 2023?
On question one, on capital. As we said, we're in a very strong capital position. And I think as we said before, you can't really do a linear interpretation between the BSCR, which is used in Venda and the rating agency capital models. But as we have said, at the capital ratio for the BSCR over 200%, we're more than comfortable with our capital position across all measures.
Thanks, Natalie. So look, on the property cat question, our appetite is already strong for property cat business. A good measure is if you look at our 1 in 100 and 250 million versus our equity base, we already hold a big position in cat. And clearly, when you're looking into '23, there's clearly a good opportunity. rates are only going one way, attachment points are only going why coverage is only being stripped back.
So yes, we're very interested in that opportunity. I think, as always, it's still early. We'll assess where we go. I think at this point, we like out the size of our CAT footprint. We have done a lot of work around diversification and balancing our portfolio.
So I'm not saying we're going back to undo that work. But I think the key point is we already have a strong appetite for property cat business. And as we always say, it will be driven by the opportunity. As I said, clearly, the opportunity is increasing materially, but we will be driven by how far that goes.
The next question is come from Kamran Hossain, JPMorgan.
First question is on retro. Could you maybe give us some thoughts about the top-down availability of retro. It's clearly kind of a very opaque market that's difficult to see what's going on there and how much that impacts the ability to add cats follow-up on retro as well, would you consider writing kind of retro or right in more retro?
And the second question is on, I guess, your approach to 2023. Do you expect to grow exposure or refine quality? I know you said on the previous question, you said it's still way early, but just interested in kind of your thoughts on weighing out those two approaches.
So I'll ask Paul to answer all those. But on your last question, Kamran, you are talking purely cat on it.
Yes, purely.
Okay. So let me take the retro question. I'm going to start, as you probably expect me to answer this, Kamran, which is it's incredibly early, and there isn't a huge line of sight as to what's exactly going to happen in the retro market at 1/1. We probably have about five different plans as we sit here today, depending on how the market plays out. Now clearly, the retro market, I can't see there being materially more supply.
I think that's reasonably obvious. And I think we're all pretty clear that pricing is only going in one way, and there will be pressure on people's retention levels, et cetera. I mean the reason I think we sit here reasonably comfortably is twofold.
First of all, we've had long-term relationships with most of our retro providers, which stands us in good said. I think we've been good partners with those reinsurance partners which will stand it won't make we will not be immune from what's happening in the retro market, but I think we sit near the top of the queue. A lot of our capacity, as you know, is predominantly with rated carriers. We had very little protection with from ILS funds, which I think again helps. But look, the job we will do over the coming weeks will be to analyze what retro capacity is available.
And then we just move between what we do on the inwards and what we buy on the outlets, it's pretty simple. But the underlying fact is whichever way that ends up, we believe we're getting quite significantly improved margins on our cat book in 2023. So we're not sitting here saying our retro is going to be the same as last year. It probably won't, but we're more than prepared for that, and we've got the levers on the Inwit book. So our focus is on net cat risk ultimately.
I think as Care, the kind of market, it looks like we're going into -- you can probably do everything, i.e., it's going to be about price is going to be attachment point is going to be about stripping out coverage. So I think our view is you're going into a sort of post-Katrina type market. Obviously, how far it goes, we don't know yet, but it does give you the opportunity. And again, if you look at other people's comments, similar peers to ourselves. I think everyone is pretty much aligned on what that's going to look like. So it's not just going to be about price, it's going to be multiple levers pulled into '23.
And sorry, you asked the question on writing retro, we do already right, a retro inward retro portfolio, it's probably less than maybe some of our larger peers, but we do already have a footprint, which to be on it, has grown since 2018 as the retro market conditions continue to harden. Just like Alex said earlier, on property cat, we will just underwrite the opportunity in front of us. So yes, we probably will continue to write some retro, but we'll balance out what we're seeing in insurance lines, what we're seeing in property cat and what we're seeing in retro and then adjust the portfolio accordingly.
The next question is coming from Will Hardcastle, UBS.
All sounds pretty bullish. I guess you say that you like the size of your CAC footprint. So just thinking about the benefit in P&L. I know you're running through a number of scenarios. Just trying to weigh it up, given what you said there on the PMLs, you've got, you're already somewhat on the upper end of appetite because you've liked it already.
Here, we should be thinking that benefits coming from top line from price, but reality, with the better terms and conditions, we're thinking of better attritionals and so the loss ratio improvement perhaps comes through, which is something that peers are not necessarily going as far as saying. Do you think that's down to the fact that you've got a shorter tail book and not having any legacy issues.
And then second one, I guess, on that slightly, just are you seeing any inflationary pressures on previous cat loss assumptions, that's ignoring Ian? I guess that might lead to diluting expected -- previously expected prior year development. So I appreciate you've CAT typically developed very favorably. But just are there any early signs that your previous cap loss assumptions are creeping.
Okay. So I think let's try and do this in small parts. So you're talking about reserving generally, we're completely happy with prior years, deserves assumptions. We don't sit and think some of those open claims are now way more expensive than we thought they would be because generally, we have a reasonable margin over what we think those numbers are. So at general conservatism when we're setting reserves probably has enough buffer to take any of the noise that's just in our world at the moment.
I think on the question about improving numbers, I think where you're going is, clearly, we don't have a historical casualty book. So you would expect improved market returns to come through to our numbers quicker and maybe some others are not expressing that because they know that there's some prior year casualty that they need to pay for. So again, we are quite keen on that. We only started within 18 months ago. So that's not really a consideration for us.
Next question come from Mr. [Burt Derenberg].
I just have two questions. One is on the expense ratio. It looks like, obviously, premiums are running ahead of expectations. Should expect some improvement to the previous guidance at some point? That was the first one.
And maybe on -- it will be great if we can get some comments on the sort of attritional loss ratio and how has that developed maybe in Q3? And what should we expect going forward? I know you previously mentioned that was running towards high end of your expectations and the range you've given. And any color on now would be appreciated.
I'll take these questions. On expenses, we're running consistently with where we're doing at H1. And as I said last quarter, we expect the total expense ratio for the year. So admin expenses and acquisition cost expenses at this were in the region of 40%. On attrition, Also, as I mentioned last quarter, we're running at the high end of guidance given, which is really due to business mix as we've been very successful supporter to mention in the build-out of the new more attritional lines of business.
We do have -- you will have seen a H1 loss reserve releases than we originally guided for. So overall, if you look at the full picture of the combined ratio, we expect to end the year with an underlying combined ratio in line with the guidance that we gave at the start of the year.
Okay. Just maybe on the expense ratio. Should we obviously, your premiums are coming in higher. Should we expect to see a bit more leverage there in terms of expenses, given the premiums that come from the new teams seem to be running higher than previously anticipated?
Yes. I think if you go back and look at H1, though, in total, including the acquisition cost expenses, which have changed a little bit due to business mix. You've got a little bit of an offset there. I think it's easier just to combine the two and look around 40% for both.
The next question is coming from Andrea van Embden at Peel Hunt.
Just two questions on your hurricane and losses. I just wondered how much of that loss comes on the reinsurance side from your nationwide sort of writings versus local Florida? And the second question is, can you split that loss between the losses in your reinsurance book and the losses that are appearing in your sort of property D&F insurance portfolio.
I'll take this. Look, as you know, we don't split out loss number in that way. Why and say is that, obviously, in a lot like this, the principal classes that are impacted would be your insurance by the portfolio, your property cat portfolio. And obviously, if you write exposure to Florida cedents, which we've been doing since we side increase in post in the last couple of years, both equity raise, albeit we did go slightly backwards as we communicated three months ago at this renewal, given some client renewal turns we weren't happy with.
And then also, as I answered on a previous question, we also have an image retook and you would get some exposure there. There are small amounts in some other areas like marine cargo, et cetera, but the de minimis in the scheme of things. So the loss is coming from the classes of business you would expect. There's no real surprises in what we're seeing given the event size. But unfortunately, we don't provide the split.
And I don't think we ever have done.
[Operator Instructions] The next question comes from Nick Johnson at Numis.
Just one question, please, which is on catastrophe. So we're learning about your cat exposure all the time, obviously, as things happen. I mean, the cat load this year, it looks like it would be significantly more than 15% sort of long-term average you've talked about in the past. Just wondering whether you'd describe 2022 as a fairly normal year. Obviously, taking into account the industries obviously look at more of $100 million again.
Just anything to say help us calibrate the right cat load going forward.
Yes. I think, Nick, I mean, we've always said there's nothing -- there is no such thing really as a normal cat year, and every cat loss is completely unique to every season. But I think we clearly, we'll see how this plus pans out. But our view is that how we think about our business and how we think about cat losses over the long term, we're still happy with that 15% number.
The next question is again coming Freya Kong Bank of America.
Could you comment on large risk losses that are not Natcats that sit outside the attritional...
It's Natalie. There's nothing material to core on this well, nothing material that we would disclose on the large risk side, except for the Ukraine loss earlier in the year.
The next question is come from Faizan Lakhani at HSBC.
The first one is sort of big picture. There's a lot going on in terms of your business mix, you're writing more specialty lines that you've grown your Natcat exposure as well. How should I be thinking about the volatility of earnings going forward? If you could just provide with a perspective on how you think about that. And the second one, I wanted to follow up on the Natcat load about 15%.
Again, there's a lot going on, but one we're having larger hurricane seasons year-on-year, another $100 billion loss being the case by plus you've grown your Natcat exposure in percentage of tangible equity. What gives you that confidence around that 15% level.
Okay. I'll take the first one. I think Natalie will take the second one. Everything that we've spoken about for probably four years is to bring diversification into our business at the right time. And I think when I think we can clearly demonstrate that we are balancing our portfolio and therefore, bringing down the volatility of earnings.
But clearly, when you have -- there's been a series of cat losses in the last years, and that's harder to see. And obviously, as well, we've also changed our product line mix. So yes, there is a lot going on. Directionally, that's exactly where we want to be. We want to be growing substantially at this point.
As I said, we are tightly agnostic about where the opportunity comes and our numbers move around. But in general, that is bringing the volatility of our earnings down. And clearly, when you look into '23, you've got a lot more margin coming in through improved underwriting, investment returns that again should help the volatility in our business, which is exactly what we've been trying to achieve since 2018.
Yes. I wanted to settle back on the 15%. So that is the long-term average. It's certainly not a budget we have given you as we have repeatedly said. And as Alex has just said, it is a long-term average as opposed to being a single year of forecast for the future or anything of that nature.
So just to make it very clear, that is not how we budget that is something that we have put forward to help you model.
And so just taking back to sort of the first one with lower volatility. So the fair way to think about it is if we weren't getting a rate you would see higher combined ratios, offset by low volatility, but given that you're seeing better rates, you're seeing both low volatility and low combined ratios. Is that correct.
It will also depend on business mix. I mean, that's the whole point of that both Alex for Manati has been saying, optimist combined ratio. That's why we don't give you guidance for Q3 would wait until later in the year because that the balance of the business will.
So again, to sort of reiterate what we've said, we are growing on -- so is the most volatile product line that we sell. So we've materially grown our non-cat business, which is going to help our balance and to help us in active cat years to balance our portfolio. And then clearly, you've got a lot of rate in. So let's just pick our cat portfolio. If we overlay this year's cat footprint into next year with material more rate and investment returns, clearly, your volatility is just coming down.
It has to. So that's the portfolio we're constructing.
The next question is come from Benjamin Cohen, Investec.
I just wanted to ask in terms of the end loss, how that would have split between the direct property and the reinsurance book. And maybe as part of that, any view that you have looking forward as to the relative attractiveness of writing catastrophe-exposed business through reinsurance versus insurance? And the second question was, if you could just give us a bit of color in terms of how the loss on earn is likely to impact the sort of the other income line and the profit on associates line just in terms of, I suppose, the LCM exposure there.
Hi Ben, I'll take the first question. And as I think I'm repeating myself from an earlier question. But we don't tend to provide where we haven't ever provided the split between property insurance and property reinsurance in terms of our number. But what I can say is, in the event of this size, yes, we will see losses coming through both the property insurance and reinsurance classes. In terms of what that means for those classes going forward, I think it's fair to say that in the insurance classes since '17, the rating environment has improved more than you've seen in the property reinsurance classes, the property cat classes.
And I would fully expect that rating momentum to continue into 2023.
And we're seeing values going up all the time, which is put in stretches on limits, et cetera, plus there's another loss that's come in. So there's plenty of momentum there still for the insurance classes. But I think it's in the property reinsurance classes that have been increasing in terms of rating, but not to the same level as I say, you've seen in insurance or even retro for that matter. So I think that's where we see the most dislocation as we sit here today. And as we have said, there's a lot of moving parts still at the moment.
But as we sit here today, that's where we expect to see some quite significant dislocation because that seems to be the area where you're getting the biggest indifference in the demand-supply dynamics. There's a lot more limit coming to market, some of which has been well publicized. And also, over the past 12 months, we've also seen a number of larger players either cut back or exit the space completely. So put that all together, as we spoke about three months ago, we were really confident about where the market was going and on top of that, that just increases our confidence even more.
Ben, I'll take question two. Yes, you're correct. There will be an impact in LCM from the Ian loss, and you will see that impact coming through the other income line and the profit from associate line in the income statement at the year-end. I think if you want to put something in your forecast, you could potentially go back to '17 and how we look at the impact that we showed in those lines in '17 would be reasonably helpful.
The next question is coming from Teik Goh at RBC.
I've got three questions, please. The first one is just going back to Hurricane Ian. Can you maybe give us a sense of the excess loading that you supply for things like inflation, tenants, et cetera. I guess I'm just trying to get a sense of the assumptions that drive the lower and the upper end of the range that you've given? The second one is just on the Russian exposure piece.
I understand there's no update today, but could you maybe share what the thinking there because we know that their legal proceedings at the moment coming year-end, will you be forced to put up a reserve by auditors? And the third one is just on special returns to understand capitalization is very healthy today. But would you still consider any special dividends or buybacks at this stage, depending on how the plan develops? Or is it fair to assume that it's completely off the table.
I'll take the first one on Hurricane Ian. And I think I'll just reiterate some points that Alex made in his NeoScript, and Natalie mentioned also, which is that we have a well-trodden process. We've used it quite a lot in recent years that we go through each contract one by one, building our own assumptions for the client, for the type of loss that we have and then any kind of prevailing conditions such as inflation, such as legal complications you can get in some territories, such as supply chain issues. And that all goes into our reserving process.
We're obviously not going to split out exactly how much we have on each because for each client, each type of products we sell, it can be different. But what I would just always remind you of is that process has served us very well over the last few years and has been very robust. And that reserving process has meant that we haven't had some of the deterioration that some others have uncertain losses. In fact, our losses have tended to go the right way. And I can just assure you that we've applied exactly the same process that we have done for all those other claims over the past few years.
Sorry, yes, on Russia, I think the simple answer is nothing has changed from when we last spoke, which is, therefore, why there's no update today. What we do at year-end will be determined by the information that we have. If there is a change in information, then we assess that change in information and we make the appropriate actions. I obviously can't foresee what's going to happen in the next three months. If there is some information change that leads us to do something that we will.
But at the moment, there's no change in information that would lead us to do something different from what we currently are.
On capital and dividends, we're going into a good market. We know that there's a lot of uncertainty, which is good for it'd be good for companies that have strong balance sheets. You want as many options as you can at the moment, it would be very difficult to raise any capital. So it wouldn't make any sense for us at all to do any special dividends at the moment. And if you think about our long-term strategy around managing capital, if we think the underwriting opportunity is going up, we want to be in the best position we can.
So we wouldn't consider that at this point.
We've got one more question coming in from [Jason McCaney] at HSBC.
A follow-up question from me. Just following on Darryl's question. In terms of Castel, clearly, the opportunity is very, very strong, and you're going to look to deploy it. So I'm just trying to understand, given the fact that some of the specialty lines are fairly capital light and given that you are probably fairly close level that you want to be on the nat cat exposure, what's the implication in terms of using up capital when you write business?
It's a really good question. And when you're sitting on with such a strong capital position, I totally understand why you're asking that question, particularly depending on the size of our cat portfolio next year, but adjusting there is so much uncertainty at the moment that you just wouldn't even consider returning capital at this point. And clearly, we're in a very uncertain world at the moment in three months' time, something else may happen. It may be completely different -- so in a world of uncertainty holding your capital, I think we'll become much more fashionable than what we've seen in the last sort of five years when capital was free.
So I think we would be very unwise at this point with the level of uncertainty we're getting into, which is good uncertainty for us to consider capital returns. But clearly, if we get to some point in the future and our view changes, we always think about capital in that way. We're very fluid. We can get to our numbers quickly, and we'll make that call later in the future if we can. But I do understand, when you look at our capital ratios, that's driving that question.
But as I said, there's so much uncertainty would be unwise to do that now.
[Operator Instructions] There are no further questions. I return to the speakers.
Okay. Thank you very much for your time and questions today, and we'll talk to you next quarter.
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