29th Oct 2007 16:43
Lancashire Holdings Limited29 October 2007 LANCASHIRE HOLDINGS LIMITED Fully converted book value grows 7.9% in Q3, 22.0% year to date Gross written premiums grow 33.1% in Q3, 40.2% year to date Combined ratio 44.0% in Q3, 49.2% year to date $100 million share repurchase authorisation Hamilton, Bermuda, 29 October 2007 Lancashire Holdings Limited ("Lancashire" or "the Company") today announces itsresults for the third quarter of 2007 and the nine month period ended 30September 2007, and the establishment of a $100 million share repurchaseprogram. So far this year Lancashire has successfully navigated a higher than normalfrequency of medium-sized worldwide natural catastrophes, while also generatingstrong underwriting results in the majority of the portfolio which is notexposed to natural catastrophes. Together, this has produced an excellent returnfor Lancashire shareholders. Financial highlights for the third quarter of 2007: • Fully converted book value per share grew 7.9% over the quarter; • Gross written premiums of $147.3 million, an increase of 33.1% from the third quarter of 2006. Net written premiums increased 36.5%; • Loss ratio of 23.1% and a combined ratio of 44.0%; • Total annualised investment return of 7.7% for the third quarter, including net investment income, realised gains and losses, and unrealised gains and losses; • Net income after tax of $105.2 million, or $0.51 diluted earnings per share. Financial highlights for the nine months to 30 September 2007: • Fully converted book value per share grew 22.0% year to date 2007, bringing the rolling 12 month growth in fully converted book value per share to 29.5%; • Gross written premiums of $598.8 million, an increase of 40.2% from the first nine months of 2006. Net written premiums increased 48.4%; • Loss ratio of 26.8% and a combined ratio of 49.2%; • Total annualised investment return of 6.0% for the nine months to 30 September 2007, including net investment income, realised gains and losses, and unrealised gains and losses; • Net income after tax of $275.6 million for the nine months to 30 September, 2007, or $1.34 diluted earnings per share. The Company also announces that on 29 October 2007 its Board of Directorsapproved a share repurchase program (the "Repurchase Program") which authorisesthe Company to repurchase its own shares by way of market purchases, tenderoffers, accelerated purchase programs or privately negotiated transactions, upto an aggregate purchase price of $100 million. Richard Brindle, Group Chief Executive Officer, commented: "Lancashire had an excellent quarter, our best yet. Fully converted book valueper share grew 7.9% in the quarter, bringing the year to date growth to 22.0%.At the start of the year, we believed we could deliver a return on equity of 20to 25%; we are now increasing estimated 2007 return on equity to between 26 and29%. Net income in the third quarter of 2007 increased exactly 100% from thesame quarter in 2006, and net income for 2007 to date increased exactly 200%from the same period last year. "In 2007 to date, despite two land-falling category five Atlantic hurricanes,insured losses in the United States from natural catastrophes have been lowerthan average. In the rest of the world however, this year has seen a higher thannormal frequency of catastrophe losses. We have not incurred major losses fromthese events, which has helped produce a 2007 loss ratio of 26.8% to date. Alarge driver is our strategy to focus on a diversified insurance portfolio,rather than a narrow focus on natural catastrophe business. We are pleased toreport that all segments of our business have generated strong underwritingprofits in 2007. "Rates are softening, a little faster than anticipated. Market cycles areinevitable but unpredictable. Rather than second-guess the timing of events, orlack of events, our strategy is to stay nimble so we can react to a market whichis constantly changing. From an operational standpoint we do this by keeping ourinfrastructure tight and our underwriting centralised. We will react quicklywhen new opportunities arise, and move equally quickly when they diminish. Froma capacity standpoint, we do this by adopting flexible capital strategies,recognising that outside factors can quickly and materially alter capital needs.By remaining a nimble company and paying close attention to all aspects of cyclemanagement, we believe we can generate an attractive return for shareholdersover extended periods of time. "In a softening market, industry returns gradually fall until capacity reachesan appropriate level. We have been clear in our strategy. If underwritingopportunities decrease, Lancashire will reduce its capacity to an appropriatelevel. Our Board of Directors has today authorised a $100 million sharerepurchase program. We will make a further assessment on capital requirementsnearer the end of the year. Should rate softening continue, we expect our 2008portfolio will require less capital than we currently have. In addition to the$100 million share repurchase programme, we would also anticipate returning atleast 50% of the profits realised in 2007 back to shareholders via a singlesubstantial dividend. We anticipate share repurchases and significant dividendsto become recurring weapons in Lancashire's arsenal of techniques for managingcapital effectively in a softening market. We term this latter aspect of capitalmanagement 'strategic dividends'. Strategic dividends are in keeping with ourphilosophy of nimbleness, affording us flexibility in tailoring our capitalneeds while at the same time generating an attractive yield to investors. Wewill continually explore all methods of capital management as appropriate." Underwriting results Gross written premiums increased 33.1% in the third quarter of 2007 compared tothe same period in 2006. In 2007 to date, gross written premiums increased 40.2%compared to the first nine months of 2006. The main drivers of the growth in2007 premium written compared to 2006 have been due to strategic changes withinLancashire, primarily the opening of the UK operating platform, which beganunderwriting in late 2006, which itself led to a substantial increase in thebroker submission count in our second trading year. These structural benefitsmore than offset rate reductions, leading to year-on-year premium growth. Movinginto the fourth quarter of 2007 and into 2008, while rates and terms in manyclasses remain good, it is predicted that continued rate softening willultimately result in premium written declining compared to prior periods. Relatively little reinsurance is purchased in the third quarter. For the year todate, the amount of premium ceded was slightly higher than 2006, although as aratio of gross written premium, ceded premium was lower at 13.7% in 2007compared to 18.5% in 2006. Net written premiums increased 36.5% in the thirdquarter of 2007 compared to the third quarter of 2006, and increased 48.4% yearto date over the same period in 2006. Sirocco Re, the energy business sidecarsponsored by Lancashire in 2006, is not being renewed for 2008. Net earned premiums as a proportion of net written premiums were 114.2% in thethird quarter of 2007, and 87.6% in the nine months to 30 September 2007. The loss ratios of 23.1% and 26.8% for the three and nine months to 30 September2007, respectively, reflect a very good underwriting performance in allsegments. Investments Net investment income was $20.9 million for the third quarter, an increase of52.6% over the third quarter of 2006. Net investment income was $56.2 million inthe nine months to 30 September 2007, an increase of 48.3% over the same periodin 2006. The increase in investment income is primarily due to high netoperating cashflow, resulting in higher net invested assets. Total investment return, including net investment income, net realised gains andlosses and net unrealised gains and losses, was $33.0 million in the quarter and$68.5 million for the year to date. Total investment return was higher than netinvestment income due primarily to volatile but strong fixed income markets inthe third quarter, offset by a relatively weak equity market compared to earlierin the year. Lancashire's strategy to maintain a short duration and high credit qualityinvestment portfolio remains unchanged. The portfolio contains no sub-primesecurities. All securitised holdings are either government or agency securitiesor are rated AAA. Capital At 30 September 2007, total capital was $1.561 billion, comprising shareholders'equity of $1.430 billion and $131 million of long-term debt. Leverage was 8.4%. Outlook Following strong profits for the year to date, our estimated growth in fullyconverted book value per share is revised upwards from the previous guidance of20 to 25%, to a new range of 26 to 29%, assuming a normal level of losses. 2007gross premiums written are expected to be at least 20% higher than 2006. Thisis unchanged from previous guidance. Further detail of our 2007 third quarter results can be obtained from ourFinancial Supplement. This can be accessed via our websitewww.lancashiregroup.com. Investor Presentation and Earnings Call UPDATE There will be an investor conference call on the results at 11:30 UK time / 07:30 EST on Tuesday 30 October 2007. This call will be hosted by Richard Brindle,Chief Executive Officer; Neil McConachie, Chief Financial Officer; and SimonBurton, Deputy Chief Executive Officer. The call can be accessed by dialing +44(0) 207 806 1950/ +1 718 354 1385 with the passcode 1445892. A replay facility will be available for two weeks until Tuesday 13 November. Thedial in number for the replay facility is +44 (0) 20 7806 1970 / +1 718 354 1112and the passcode is 1445892#. A replay facility can also be accessed at www.lancashiregroup.com . For further information, please contact: Lancashire Holdings +1 441 278 8950Neil McConachie Financial Dynamics +44 20 7269 7114Robert BailhacheNick Henderson Kekst & Company Inc.Michael Herley +1 212 521 4897Mark Semer +1 212 521 4802 Investor enquiries and questions can also be directed [email protected] or by accessing the Company's websitewww.lancashiregroup.com. Consolidated Balance Sheet (Unaudited) 30 Sept 2007 Sept 30, 2007 December 31, 2006 $m $massetscash and cash equivalents 539.5 400.1accrued interest receivable 10.4 7.5investments - fixed income securities - available for sale 1,254.2 896.3 - at fair value through income 22.6 - - equity securities, available for sale 73.2 70.3 - other investments 7.2 11.5reinsurance assets - unearned premium on premium ceded 48.0 19.1 - reinsurance recoveries 1.5 -deferred acquisition costs 61.0 51.5inwards premium receivable from insureds and cedants 176.7 173.7investment in associate 21.7 23.2other assets 34.2 9.5total assets 2,250.2 1,662.7 liabilitiesinsurance contracts - loss and loss adjustment expenses 158.7 39.1 - unearned premiums 418.6 325.7 - other payables 7.0 3.6amounts payable to reinsurers 29.3 2.4deferred acquisition costs ceded 6.6 2.5other payables 69.4 23.2long-term debt 130.9 128.6total liabilities 820.5 525.1 shareholders' equityshare capital 98.0 97.9share premium 46.0 33.6contributed surplus 848.1 849.7fair value and other reserves 14.3 8.7retained earnings 423.3 147.7total shareholders' equity attributable to equity 1,429.7 1,137.6shareholders total liabilities and shareholders' equity 2,250.2 1,662.7 basic book value per share $7.30 $5.81fully converted book value per share $6.93 $5.68 Consolidated Income Statement (Unaudited) to 30 September 2007 Quarter 3 Quarter 3 Year to Year to 2007 2006 date date 2007 2006 $m $m $m $m gross premiums written 147.3 110.7 598.8 427.0outwards reinsurance premiums (6.8) (7.8) (82.2) (78.8 net premiums written 140.5 102.9 516.6 348.2 change in unearned premiums 35.5 (6.4) (92.9) (247.8)change in unearned premiums on premium ceded (15.5) (16.3) 28.9 44.1 net premiums earned 160.5 80.2 452.6 144.5 net investment income 20.9 13.7 56.2 37.9net realised gains (losses) and impairments 2.3 2.1 6.7 (1.3)share of profit of associate 1.1 2.0 3.9 2.0net foreign exchange gains (losses) 1.7 (0.1) 3.5 (1.2)net other investment income (losses) (2.0) - (2.5) - total net revenue 184.5 97.9 520.4 181.9 insurance losses and loss adjustment expenses 38.1 12.8 122.9 20.2insurance losses and loss adjustment expenses (1.0) - (1.5) -recoverablenet insurance acquisition expenses 21.2 11.7 62.4 19.3equity based compensation 4.4 5.5 10.8 16.1other operating expenses 12.3 11.2 39.1 24.8 total expenses 75.0 41.2 233.7 80.4 profit before tax and finance costs 109.5 56.7 286.7 101.5 finance costs 4.4 4.1 10.5 9.6 profit before tax 105.1 52.6 276.2 91.9 tax (0.1) - 0.6 - profit after tax for the period attributable to 105.2 52.6 275.6 91.9equity shareholders net loss ratio 23.1% 16.0% 26.8% 14.0%net acquisition cost ratio 13.2% 14.6% 13.8% 13.4%administrative expense ratio 7.7% 14.0% 8.6% 17.2%combined ratio 44.0% 44.6% 49.2% 44.6% basic earnings per share $0.54 $0.27 $1.41 $0.47diluted earnings per share $0.51 $0.26 $1.34 $0.46 change in fully converted book value per 7.9% 5.9% 22.0% 10.5 %share Consolidated Cash Flow Statement (Unaudited) 30 Sept 2007 nine twelve months months 2007 2006 $m $m cash flows from operating activitiesprofit before interest and tax 229.1 116.4interest income 55.6 53.6interest expense (8.5) (10.6)tax (0.6) (0.2)depreciation 1.0 0.6amortisation of debt securities (0.8) (1.2)employee benefit expense 10.8 22.5foreign exchange (2.4) 1.9share of profit of associate (3.9) (3.2)net unrealised losses (gains) on derivative financial 2.3 (1.8)instrumentsnet realised (gains) and impairments on investments (6.7) (0.8)net fair value losses on investments at fair value 0.2 -through incomeunrealised losses on swaps 0.1 0.9accrued interest receivable (2.9) (5.6)reinsurance assets- unearned premium on premium ceded (28.9) (19.1) reinsurance recoveries (1.5) -deferred acquisition costs (9.5) (51.0)other receivables (23.4) (6.0)inwards premium receivable from insureds and cedants (1.2) (171.4)deferred tax asset (1.0) (0.8)insurance contracts - losses and loss adjustment expenses 118.7 39.1 - unearned premiums 92.9 323.1 - other payables 3.4 3.6amounts payable to reinsurers 26.9 2.4deferred acquisition costs ceded 4.1 2.5other payables 45.3 18.6corporation tax payable 0.8 1.0accrued interest payable - -net cash flows from operating activities 499.9 314.5cash flows from investing activitiespurchase of property, plant and equipment (1.3) (2.6)investment in associate - (20.0)dividends received from associate 5.4 -purchase of debt securities (1,628.7) (2,086.1)purchase of equity securities (21.9) (76.1)proceeds on maturity and disposal of debt securities 1,252.4 1,185.6proceeds on disposal of equity securities 26.3 20.9net purchase of other investments 3.3 (9.7)net cash flows used in investing activities (364.5) (988.0) net increase (decrease) in cash and cash equivalents 135.4 (673.5)cash and cash equivalents at beginning of period 400.1 1,072.4effect of exchange rate fluctuations on cash and cash 4.0 1.2equivalentscash and cash equivalents at end of period 539.5 400.1 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 AREFORWARD-LOOKING IN NATURE INCLUDING WITHOUT LIMITATION, STATEMENTS CONTAININGWORDS "BELIEVES", "ANTICIPATES", "PLANS", "PROJECTS", "FORECASTS", "GUIDANCE","INTENDS", "EXPECTS", "ESTIMATES", "PREDICTS", "MAY", "WILL", "SEEKS", "SHOULD",OR, IN EACH CASE, THEIR NEGATIVE OR COMPARABLE TERMINOLOGY. ALL STATEMENTS OTHERTHAN STATEMENTS OF HISTORICAL FACTS INCLUDING, WITHOUT LIMITATION, THOSEREGARDING THE GROUP'S FINANCIAL POSITION, RESULTS OF OPERATIONS, LIQUIDITY,PROSPECTS, GROWTH, CAPITAL MANAGEMENT PLANS, BUSINESS STRATEGY, PLANS ANDOBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS (INCLUDING DEVELOPMENT PLANS ANDOBJECTIVES RELATING TO THE GROUP'S INSURANCE BUSINESS) ARE FORWARD-LOOKINGSTATEMENTS. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS,UNCERTAINTIES AND OTHER IMPORTANT FACTORS THAT COULD CAUSE THE ACTUAL RESULTS,PERFORMANCE OR ACHIEVEMENTS OF THE GROUP TO BE MATERIALLY DIFFERENT FROM FUTURERESULTS, PERFORMANCE OR ACHIEVMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKINGSTATEMENTS. THESE FACTORS INCLUDE, BUT ARE NOT LIMITED TO: THE NUMBER AND TYPEOF INSURANCE AND REINSURANCE CONTRACTS THAT WE WRITE; THE PREMIUM RATESAVAILABLE AT THE TIME OF SUCH RENEWALS WITHIN OUR TARGETED BUSINESS LINES; THEABSENCE OF LARGE OR UNUSUALLY FREQUENT LOSS EVENTS; THE IMPACT THAT OUR FUTUREOPERATING RESULTS, CAPITAL POSITION AND RATING AGENCY AND OTHER CONSIDERATIONSHAVE ON THE EXECUTION OF ANY CAPITAL MANAGEMENT INITIATIVES; THE POSSIBILITY OFGREATER FREQUENCY OR SEVERITY OF CLAIMS AND LOSS ACTIVITY THAN OUR UNDERWRITING,RESERVING OR INVESTMENT PRACTICES HAVE ANTICIPATED; THE RELIABILITY OF, ANDCHANGES IN ASSUMPTIONS TO, CATASTROPHE PRICING, ACCUMULATION AND ESTIMATED LOSSMODELS; LOSS OF KEY PERSONNEL; A DECLINE IN OUR OPERATING SUBSIDIARIES' RATINGWITH A.M. BEST COMPANY; INCREASED COMPETITION ON THE BASIS OF PRICING, CAPACITY,COVERAGE TERMS OR OTHER FACTORS; A CYCLICAL DOWNTURN OF THE INDUSTRY; 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