29th Apr 2008 17:50
Lancashire Holdings Limited29 April 2008 LANCASHIRE HOLDINGS LIMITED Fully converted book value per share grows 5.0% in Q1 2008 Combined ratio 61.2% Hamilton, Bermuda, 29 April 2008 Lancashire Holdings Limited ("Lancashire" or "the Company") today announces itsfirst quarter results for the three month period ended 31 March 2008. In a quarter with extensive industry insurance losses, softening rates andhighly volatile investment markets, Lancashire has produced an excellent returnfor shareholders. Financial highlights for the first quarter of 2008: • Return on equity of 5.0%, measured as the growth in fully converted book value per share plus dividends. Compound annual return on equity since inception is 22.2%; • Gross written premiums of $186.7 million. Net written premiums of $141.9 million; • Loss ratio of 38.9% and a combined ratio of 61.2%; • Total annualised investment return of 5.2%, including net investment income, realised gains and losses, and unrealised gains and losses; • Net income after tax of $84.6 million, or $0.45 diluted earnings per share. The Company also announces that on 29 April 2008 its Board of Directors approveda share repurchase program which authorises the Company to repurchase its ownshares by way of market purchases, tender offers, accelerated purchase programsor privately negotiated transactions, up to an aggregate purchase price of $100million. Richard Brindle, Group Chief Executive Officer, commented: "I am extremely pleased to report a very strong performance by Lancashire. Inthe first quarter the industry suffered a number of severe property risk losses. Lancashire is a major insurer in this sector. It is therefore a greattestament to our underwriting team that Lancashire has produced a 39% loss ratioin such a challenging period. Our estimated loss from the property risk eventsin the first quarter is between $20 and $25 million, gross and net. In thecontext of losses in this sector estimated at up to six billion dollars,together with cat losses of approximately three to four billion dollars, this issolid evidence of our underwriting strength." "Losses from the credit crisis are accelerating. The investment markets arerightly cautious about the financial consequences for insurers writing D&O or E&O risks, or holding investment classes suffering material write-downs.Lancashire is not one of these companies. We do not write insurance classesexposed to credit crisis losses and we maintain a particularly unadventurousinvestment portfolio. We made the decision in late 2007 to exit all non-agencystructured product sectors. The carnage of the first quarter confirmed that wasabsolutely the right thing to do. Investors should take great comfort that ourbalance sheet is stronger than ever." Neil McConachie, Chief Financial Officer and Chief Risk Officer, commented: "Our investment strategy is conservative at the best of times, even more so inrecent months. Rule number one is 'Don't lose your money'. Happily, we achievedthat in the first quarter. The risk profile of our portfolio is unusually lowright now. Thus, our down-side risk to further sudden market shocks iswell-contained. An added bonus is that our short duration stance positions uswell for the possibility of a weakening bond market in the remainder of 2008." "Capital requirements are continually assessed. Our stated aim is to maximisereturn within agreed tolerances of risk. The trading environment changes quicklyand at this time we are reducing overall enterprise risk, not increasing it.Maintaining the flexibility to efficiently match capital to the existingenvironment is important. To enhance this flexibility, our board of directorshave authorised a $100 million share repurchase." Underwriting results Gross written premiums increased 3.3% in the first quarter of 2008 compared tothe same period in 2007. The first quarter contains the majority of theretrocession renewals, a class where rates have held up relatively well.Subsequent quarters are expected to experience premium reductions. Lancashire isbeing highly selective when binding catastrophe-exposed deals. Many suchcontracts renew before June 30 and the second quarter 2008 written premiums willbe materially lower than the second quarter of 2007. Many programs continue tooffer an acceptable return on allocated capital. Nonetheless there are also agrowing number of deals currently being placed in the market that don't meet ourrequirements. Consequently, Lancashire's gross and net exposure to U.S.windstorm risk will be materially lower heading into the 2008 hurricane seasonthan it was in 2007. Net written premiums decreased 18.7% in the first quarter of 2008 compared tothe same period in 2007. In the three months to 31 March 2008, we purchased agreater level of reinsurance protection than was purchased in the same period in2007. In 2008, there is a material increase in reinsurance cover for programsnot exposed to natural catastrophes compared to 2007, reducing potentialearnings volatility from risk losses. Lancashire's gross exposure to naturalcatastrophes in general is significantly less than a year ago, particularly withrespect to the U.S. wind and quake perils. This has lessened the need forreinsurance dedicated to natural catastrophes. In 2007, a significant amount ofenergy premium was ceded to Sirocco Re, the Lancashire sponsored sidecar whichhas not been renewed for 2008. As a result, ceded premium in the second quarterof 2008 will be lower than it was in the second quarter of 2007. Net earned premiums as a proportion of net written premiums were 119.1% in thefirst quarter of 2008 compared to 80.3% in the same period in 2007. Thisdifference is driven by a portfolio which is now mature compared to a book ofbusiness which was still in the growth phase one year earlier. The loss ratio of 38.9% for the three months to 31 March 2008 reflects a verygood underwriting performance despite a high level of industry losses in classeswritten by Lancashire. $3.2 million of prior year net reserves were releasedin the quarter. Investments Net investment income was $17.7 million for the first quarter, an increase of6.0% over the first quarter of 2007. The increase in investment income is due toan 18% increase in invested assets and cash year on year, offset by loweryields. Total investment return, incorporating net investment income, net realised gainsand losses and net unrealised gains and losses, was $22.7 million in thequarter, a decrease of 0.9% compared to the first quarter of 2007. Totalinvestment return was higher than net investment income due primarily to gainsrealised from the sale of fixed income assets. Equity markets were weak in thequarter. Lancashire's small equity portfolio declined 3.8%, performing well on arelative basis to the 9.5% fall in the S&P 500. Other operating expenses of $11.7 million in the first quarter of 2008 are $2.3million lower than that of the first quarter in 2007 primarily due to a one offcredit in the first quarter of 2008 of $2.9 million. Capital At 31 March 2008, total capital was $1.431 billion, comprising shareholders'equity of $1.296 billion and $134.9 million of long-term debt. Leverage was9.4%. Total capital at 31 March 2007 was $1.362 billion. Outlook Lancashire aims to achieve a cross-cycle return of 13% above a risk free rate.This is unchanged from previous guidance. Further detail of our 2008 first quarter results can be obtained from ourFinancial Supplement. This can be accessed via our websitewww.lancashiregroup.com. Investor Presentation and Earnings Call There will be an investor conference call on the results at 12.00 UK time / 07:00 EST on Wednesday 30 April 2008. This call will be hosted by Richard Brindle,Chief Executive Officer; Simon Burton, Deputy Chief Executive; and NeilMcConachie, Chief Financial Officer and Chief Risk Officer. The call can beaccessed by dialing 0845 146 2004/+1 866 434 1089 with the passcode 42013256. The call can also be accessed via webcast, please go to our website(www.lancashiregroup.com) to access. A replay facility will be available for two weeks until Wednesday 14 May. Thedial in number for the replay facility is 0845 146 2004/ +1 866 434 1089 and thepasscode is 42013256. A replay facility can also be accessed atwww.lancashiregroup.com . For further information, please contact: Lancashire Holdings +1 441 278 8950Denise O'Donoghue Financial Dynamics +44 20 7269 7114Robert BailhacheNick Henderson Investor enquiries and questions can also be directed [email protected] or by accessing the Company's websitewww.lancashiregroup.com. consolidated balance sheet(unaudited) march 31, 2008 december 31, 2007 $m $massetscash and cash equivalents 610.0 737.3accrued interest receivable 6.8 9.8investments - fixed income securities - available for sale 1,109.6 1,069.7 - at fair value through income 23.9 23.5 - equity securities, available for sale 75.8 71.6 - other investments 3.5 4.4reinsurance assets - unearned premium on premium ceded 43.5 19.6 - reinsurance recoveries 4.9 3.6 - other receivables - 8.2deferred acquisition costs 59.3 57.8inwards premium receivable from insureds and cedants 207.5 198.2investment in associate 3.6 22.9other assets 21.3 8.1 total assets 2,169.7 2,234.7 liabilitiesinsurance contracts - loss and loss adjustment expenses 236.0 179.6 - unearned premiums 378.6 381.9 - other payables 10.0 16.5amounts payable to reinsurers 33.3 5.7deferred acquisition costs ceded 3.8 3.0other payables 76.8 300.1long-term debt 134.9 132.3 total liabilities 873.4 1,019.1 shareholders' equityshare capital 91.1 91.1share premium 48.0 49.5contributed surplus 754.8 754.8fair value and other reserves 18.2 20.7dividends 0.1 (239.1)retained earnings 384.1 538.6total shareholders' equity attributable to equityshareholders 1,296.3 1,215.6 total liabilities and shareholders' equity 2,169.7 2,234.7 basic book value per share $7.11 $6.67fully converted book value per share $6.70 $6.38 consolidated income statement(unaudited) quarter 1 quarter 1 2008 2007 $m $m gross premiums written 186.7 180.7outwards reinsurance premiums (44.8) (6.1) net premiums written 141.9 174.6 change in unearned premiums 3.2 (27.6)change in unearned premiums on premium ceded 23.9 (6.8) net premiums earned 169.0 140.2 net investment income 17.7 16.7net realised gains and impairments 7.5 1.8share of profit (loss) of associate (0.1) 1.3net foreign exchange gains 0.3 1.4net other investment losses (1.2) (0.1) total net revenue 193.2 161.3 insurance losses and loss adjustment expenses 66.9 32.0insurance losses and loss adjustment expenses recoverable (1.2) -net insurance acquisition expenses 26.0 20.3equity based compensation (1.5) 3.7other operating expenses 11.7 14.0 total expenses 101.9 70.0 profit before tax and finance costs 91.3 91.3 finance costs 4.9 3.0 profit before tax 86.4 88.3 tax 1.8 0.4 profit after tax 84.6 87.9 net loss ratio 38.9% 22.8%net acquisition cost ratio 15.4% 14.5%administrative expense ratio 6.9% 10.0%combined ratio 61.2% 47.3% basic earnings per share $0.46 $0.45diluted earnings per share $0.45 $0.43 change in fully converted book value per share 5.0% 7.2% consolidated cash flow statement quarter 1 quarter 1(unaudited) 2008 2007 $m $mcash flows from operating activitiesprofit before tax 86.4 88.3tax paid (0.5) -depreciation 0.3 0.3interest expense 2.8 2.8interest income (16.2) (16.6)dividend income (0.2) (0.2)amortisation of fixed income securities (0.3) (0.3)employee benefit expense (1.5) 3.7foreign exchange 0.2 (1.1)share of loss (profit) of associate 0.1 (1.3)net unrealised losses on other investments 0.5 0.1net realised gains and impairments on investments (7.5) (1.8)net fair value losses on investments at fair value 0.7 -through incomeunrealised loss on interest rate swaps 1.8 0.2reinsurance assets- unearned premium on premium ceded (23.9) 6.9- reinsurance recoveries (1.3) -- other receivables 8.2 -deferred acquisition costs (1.5) (4.2)other receivables (15.0) (6.4)inwards premium receivable from insureds and cedants (6.3) (6.5)insurance contracts - losses and loss adjustment expenses 54.5 30.9 - unearned premiums (3.2) 27.6 - other payables (6.1) 1.5amounts payable to reinsurers 27.6 4.3deferred acquisition costs ceded 0.8 -other payables 23.3 26.2 net cash flows from operating activities 123.7 154.4cash flows used in investing activities interest received 19.3 14.6dividends received 0.2 0.2purchase of property, plant and equipment - (0.8)dividends received from associate 19.2 0.8purchase of fixed income securities (886.2) (526.3)purchase of equity securities (9.3) (6.7)proceeds on maturity and disposal of debt securities 853.9 316.3proceeds on disposal of equity securities 2.2 14.6net proceeds on other investments 0.1 0.6 net cash flows used in investing activities (0.6) (186.7) cash flows used in financing activitiesinterest paid (2.9) (2.8)dividends paid (238.2) -shares repurchased (10.5) - net cash flows used in financing activities (251.6) (2.8) net decrease in cash and cash equivalents (128.5) (35.1)cash and cash equivalents at beginning of period 737.3 400.1effect of exchange rate fluctuations on cash and cash 1.2 1.6equivalentscash and cash equivalents at end of period 610.0 366.6 About Lancashire Lancashire, through its UK and Bermuda-based insurance subsidiaries, is a globalprovider of specialty insurance products. Its insurance subsidiaries carry theLancashire group rating of A minus (Excellent) from A.M. Best with a stableoutlook. Lancashire has capital in excess of $1 billion and its Common Sharestrade on AIM under the ticker symbol LRE. Lancashire is headquartered atMintflower Place, 8 Par-La-Ville Road, Hamilton HM 08, Bermuda. The mailingaddress is Lancashire Holdings Limited, P.O. Box HM 2358, Hamilton HM HX,Bermuda. For more information on Lancashire, visit the company's website atwww.lancashiregroup.com NOTE REGARDING FORWARD-LOOKING STATEMENTS: CERTAIN STATEMENTS AND INDICATIVE PROJECTIONS MADE IN THIS ANNOUNCEMENT AND ONTHE CONFERENCE CALL THAT ARE NOT BASED ON CURRENT OR HISTORICAL FACTS ARE FORWARD-LOOKING IN NATURE INCLUDING WITHOUT LIMITATION, STATEMENTS CONTAININGWORDS 'BELIEVES', 'ANTICIPATES', 'PLANS', 'PROJECTS', 'FORECASTS', 'GUIDANCE','INTENDS', 'EXPECTS', 'ESTIMATES', 'PREDICTS', 'MAY', 'CAN', 'WILL', 'SEEKS','SHOULD', OR, IN EACH CASE, THEIR NEGATIVE OR COMPARABLE TERMINOLOGY. ALLSTATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDING, WITHOUTLIMITATION, THOSE REGARDING THE GROUP'S FINANCIAL POSITION, RESULTS OFOPERATIONS, LIQUIDITY, PROSPECTS, GROWTH, CAPITAL MANAGEMENT PLANS, BUSINESSSTRATEGY, PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS (INCLUDINGDEVELOPMENT PLANS AND OBJECTIVES RELATING TO THE GROUP'S INSURANCE BUSINESS) AREFORWARD-LOOKING STATEMENTS. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN ANDUNKNOWN RISKS, UNCERTAINTIES AND OTHER IMPORTANT FACTORS THAT COULD CAUSE THEACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE GROUP TO BE MATERIALLYDIFFERENT FROM FUTURE RESULTS, PERFORMANCE OR ACHIEVMENTS EXPRESSED OR IMPLIEDBY SUCH FORWARD-LOOKING STATEMENTS. THESE FACTORS INCLUDE, BUT ARE NOT LIMITEDTO: THE NUMBER AND TYPE OF INSURANCE AND REINSURANCE CONTRACTS THAT WE WRITE;THE PREMIUM RATES AVAILABLE AT THE TIME OF SUCH RENEWALS WITHIN OUR TARGETEDBUSINESS LINES; THE ABSENCE OF LARGE OR UNUSUALLY FREQUENT LOSS EVENTS; THEIMPACT THAT OUR FUTURE OPERATING RESULTS, CAPITAL POSITION AND RATING AGENCY ANDOTHER CONSIDERATIONS HAVE ON THE EXECUTION OF ANY CAPITAL MANAGEMENTINITIATIVES; THE POSSIBILITY OF GREATER FREQUENCY OR SEVERITY OF CLAIMS AND LOSSACTIVITY THAN OUR UNDERWRITING, RESERVING OR INVESTMENT PRACTICES HAVEANTICIPATED; THE RELIABILITY OF, AND CHANGES IN ASSUMPTIONS TO, CATASTROPHEPRICING, ACCUMULATION AND ESTIMATED LOSS MODELS; LOSS OF KEY PERSONNEL; ADECLINE IN OUR OPERATING SUBSIDIARIES' RATING WITH A.M. BEST COMPANY; INCREASEDCOMPETITION ON THE BASIS OF PRICING, CAPACITY, COVERAGE TERMS OR OTHER FACTORS;A CYCLICAL DOWNTURN OF THE INDUSTRY; THE IMPACT OF A DETERIORATING CREDITENVIRONMENT CREATED BY THE SUB-PRIME AND CREDIT CRISIS; A RATING DOWNGRADE OF,OR A MARKET DECLINE IN, SECURITES IN OUR INVESTMENT PORTFOLIO; CHANGES INGOVERNMENTAL REGULATIONS OR TAX LAWS IN JURISDICTIONS WHERE LANCASHIRE CONDUCTSBUSINESS; LANCASHIRE OR ITS BERMUDIAN SUBSIDIARY BECOMING SUBJECT TO INCOMETAXES IN THE UNITED STATES OR THE UNITED KINGDOM; AND THE EFFECTIVENESS OF OURLOSS LIMITATION METHODS. ANY ESTIMATES RELATING TO LOSS EVENTS INVOLVE THEEXERCISE OF CONSIDERABLE JUDGMENT AND REFLECT A COMBINATION OF GROUND-UPEVALUATIONS, INFORMATION AVAILABLE TO DATE FROM BROKERS AND INSUREDS, MARKETINTELLIGENCE, INITIAL TENTATIVE LOSS REPORTS AND OTHER SOURCES. JUDGMENTS INRELATION TO FLOOD LOSSES INVOLVE COMPLEX FACTORS POTENTIALLY CONTRIBUTING TOTHIS TYPE OF LOSS, AND WE CAUTION AS TO THE PRELIMINARY NATURE OF THEINFORMATION USED TO PREPARE ANY SUCH ESTIMATES. THESE FORWARD-LOOKING STATEMENTS SPEAK ONLY AS AT THE DATE OF PUBLICATION OFTHIS DOCUMENT. LANCASHIRE HOLDINGS LIMITED EXPRESSLY DISCLAIMS ANY OBLIGATION ORUNDERTAKING (SAVE AS REQUIRED TO COMPLY WITH ANY LEGAL OR REGULATORY OBLIGATIONS(INCLUDING THE AIM RULES)) TO DISSEMINATE ANY UPDATES OR REVISIONS TO ANYFORWARD-LOOKING STATEMENTS TO REFLECT ANY CHANGES IN THE GROUP'S EXPECTATIONS ORCIRCUMSTANCES ON WHICH ANY SUCH STATEMENT IS BASED. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Lancashire Holdings