13th Feb 2008 18:22
Lancashire Holdings Limited13 February 2008 LANCASHIRE HOLDINGS LIMITED Lancashire reports 2007 Return on Equity of 31.7% and Combined Ratio of 46.3% Hamilton, Bermuda, 13 February 2008 Lancashire Holdings Limited ("Lancashire" or "the Company") today announces itsresults for the fourth quarter of 2007 and the twelve month period ended 31December 2007. Lancashire produced an exceptional result in 2007, generating net income of$390.9 million and returning $339.3 million of capital to shareholders. Fullyconverted book value per share was $6.38 at 31 December 2007, or approximately325 pence at the close of business exchange rate on 12 February 2008. Financial highlights for the fourth quarter of 2007: • Return on equity of 7.9%, measured as the growth in fully converted book value per share plus dividends; • Gross written premiums of $154.3 million, a decrease of 22.5% from the fourth quarter of 2006. Net written premiums decreased 24.6%; • Loss ratio of 15.7% and a combined ratio of 38.1%; • Total annualised investment return of 7.4% for the fourth quarter, including net investment income, realised gains and losses, and unrealised gains and losses; • Net income after tax of $115.3 million, or $0.57 diluted earnings per share. Financial highlights for the twelve months to 31 December 2007: • Return on equity of 31.7%, measured as the growth in fully converted book value per share plus dividends; • Gross written premiums of $753.1 million, an increase of 20.3% from 2006. Net written premiums increased 21.8%; • Loss ratio of 23.9% and a combined ratio of 46.3%; • Total investment return of 6.4% for the twelve months to 31 December 2007, including net investment income, realised gains and losses, and unrealised gains and losses; • Net income after tax of $390.9 million for the twelve months to 31 December 2007, or $1.91 diluted earnings per share. Richard Brindle, Group Chief Executive Officer, commented: "In only our second year of operations, Lancashire has produced a remarkable setof results. To have achieved a return of 31.7% for our shareholders is testamentto our people, our risk management and to our disciplined and diversifiedunderwriting strategy. The success in 2007 was led by our exceptionalunderwriting result, evident in a combined ratio of 46.3%. Prior year reservereleases in 2007 were $4.4 million, benefiting the ratio by 0.7%. Our riskappetite on investments is low and that was the correct approach in hazardousmarkets. Against this background we are pleased to have achieved a totalinvestment return of 6.4%. Finally, we were delighted to return $339.3 millionback to our shareholders via share repurchases and dividends, fulfilling ourpromise to manage capital in line with the underwriting cycle. "The market is softening across the board; nonetheless there is plenty ofattractive business in the majority of the lines we write. Lancashire writesdirect specialty short-tail insurance, combined with a small amount ofreinsurance. Our approach lends itself to profitable underwriting in softeningmarkets where risk selection is paramount. As we progress through 2008, absent asudden turn in the cycle, we expect that our premiums will decline from 2007.However we are well positioned to write a profitable book of business in 2008.We have no plans to compensate by venturing into areas we do not understand; adangerous strategy indeed that is all too common in this industry. "Lancashire's investment approach will continue to be defensive. I am verypleased to say we believe we have zero insurance exposure from the creditcrisis, a debacle that appears to have very serious financial implications forthe insurance industry. Indeed, the full extent of the implications are yet tobe revealed. We made the decision to exit all non-agency structured products,which was successfully executed in an orderly manner, and as previouslydisclosed we have no exposure to sub-prime. Lancashire has positioned both itsinsurance and investment portfolios appropriately for the current environmentand we are confident we can produce a good return for our shareholders in whatmay be more challenging times ahead." Underwriting results Gross written premiums decreased 22.5% in the fourth quarter of 2007 compared tothe same period in 2006. In 2007 as a whole, gross written premiums increased20.3% compared to 2006. In the fourth quarter the decrease in premium was due toyear on year rate reductions in certain classes, particularly aviation AV52.Overall, the growth in annual premium written was due to our fully operationalplatform in our second year including our UK operating platform, which beganunderwriting in late 2006. A de minimus amount of reinsurance was purchased in the fourth quarter. During2007, a greater amount of premium was ceded than in 2006, partly reflecting thegrowth in written premium. Net written premiums decreased 24.6% in the fourthquarter of 2007 compared to the fourth quarter of 2006, but increased in 2007compared to 2006. The business of Sirocco Re, the energy sidecar sponsored byLancashire in 2006, was commuted effective 31 December. A profit commissionreceived from Sirocco of $7.8 million was recognized in acquisition costs in thefourth quarter. Net earned premiums as a proportion of net written premiums were 105.6% in thefourth quarter of 2007, and 91.7% for the year. The loss ratios of 15.7% and 23.9% for the three and twelve months to 31December 2007, respectively, represent an exceptional underwriting performancein all segments. Investments Net investment income was $22.2 million for the fourth quarter, an increase of36.2% over the fourth quarter of 2006. Net investment income was $78.4 millionin the twelve months to 31 December 2007, an increase of 44.6% over the sameperiod in 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 change in unrealised gains and losses, was $30.6 million in thequarter and $96.6 million for the year. Total investment return boosted by the8.9% gain from the equity portfolio for the year. At 31 December 2007 the fixed income portfolio plus managed cash had a durationof 1.4 years and a credit quality of AA+. The portfolio was comprised of 58.6%fixed income, 4.1% equities and 37.3% cash. Capital At 31 December 2007, total capital was $1.35 billion, comprising shareholders'equity of $1.216 billion and $132 million of long-term debt. Leverage was 10%.Shareholders' equity at the year end is net of $100.2 million of sharerepurchases during the fourth quarter and the strategic dividend of $239.1million. Further detail of our 2007 fourth quarter results can be obtained from ourFinancial Supplement. This can be accessed via our websitewww.lancashiregroup.com. Earnings Call There will be an investor and analyst conference call on the results at 12:00 UKtime / 07:00 EST on Thursday 14 February 2008. This call will be hosted byRichard Brindle, Chief Executive Officer, Simon Burton, Deputy Chief ExecutiveOfficer and Neil McConachie, Chief Financial Officer. The call can be accessed by dialing +44 (0) 207 806 1956/ +1 718 354 1388 withthe passcode 5204778. A replay facility will be available for two weeks untilWednesday 27 February 2008. The dial in number for the replay facility is +44(0) 20 7806 1970 / +1 718 354 1112 and the passcode is 5204778#. 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 Investor enquiries and questions can also be directed toinvestors@lancashiregroup.com or by accessing the Company's websitewww.lancashiregroup.com. consolidated balance sheet(unaudited) december 31, 2007 december 31, 2006 $m $massetscash and cash equivalents 737.3 400.1accrued interest receivable 9.8 7.5investments - fixed income securities - available for sale 1,069.7 896.3 - at fair value through income 23.5 - - equity securities, available for sale 71.6 70.3 - other investments 4.4 11.5reinsurance assets - unearned premium on premium ceded 19.6 19.1 - reinsurance recoveries 3.6 - - other receivables 8.2 -deferred acquisition costs 57.8 51.5inwards premium receivable from insureds and cedants 198.2 173.7investment in associate 22.9 23.2other assets 8.1 9.5total assets 2,234.7 1,662.7 liabilitiesinsurance contracts - loss and loss adjustment expenses 179.6 39.1 - unearned premiums 381.9 325.7 - other payables 16.5 5.2amounts payable to reinsurers 5.7 0.8deferred acquisition costs ceded 3.0 2.5other payables 300.1 23.2long-term debt 132.3 128.6total liabilities 1,019.1 525.1 shareholders' equityshare capital 91.1 97.9share premium 49.5 33.6contributed surplus 754.8 849.7fair value and other reserves 20.7 8.7dividends (239.1) -retained earnings 538.6 147.7total shareholders' equity attributable to equityshareholders 1,215.6 1,137.6 total liabilities and shareholders' equity 2,234.7 1,662.7 basic book value per share $6.67 $5.81fully converted book value per share $6.38 $5.68 consolidated income statement(unaudited) quarter 4 quarter 4 full year full year 2007 2006 2007 2006 $m $m $m $m gross premiums written 154.3 199.0 753.1 626.0outwards reinsurance premiums (4.1) 0.3 (86.3) (78.5) net premiums written 150.2 199.3 666.8 547.5 change in unearned premiums 36.8 (75.3) (56.1) (323.1)change in unearned premiums on premium ceded (28.4) (25.0) 0.5 19.1 net premiums earned 158.6 99.0 611.2 243.5 net investment income 22.2 16.3 78.4 54.2net realised gains (losses) and impairments 2.4 2.0 9.1 0.8share of profit of associate 2.3 1.2 6.2 3.2net foreign exchange gains (losses) (0.1) 2.3 (1.2) (1.3)net other investment income (losses) (0.4) (2.9) 1.8 1.8 total net revenue 183.9 120.2 704.3 302.2 insurance losses and loss adjustment expenses 27.1 18.8 150.0 39.1insurance losses and loss adjustment expenses (2.2) - (3.7) -recoverablenet insurance acquisition expenses 14.1 15.6 76.5 34.9equity based compensation 3.6 6.4 14.4 22.5other operating expenses 21.4 9.1 60.5 33.9 total expenses 64.0 49.9 297.7 130.4 profit before tax and finance costs 119.9 70.3 406.6 171.8 finance costs 4.2 2.7 14.7 12.3 profit before tax 115.7 67.6 391.9 159.5 tax 0.4 1.0 0.2 0.2 profit after tax 115.3 67.4 390.9 159.3 net loss ratio 15.7% 19.0% 23.9% 16.1%net acquisition cost ratio 8.9% 15.8% 12.5% 14.3%administrative expense ratio 13.5% 9.2% 9.9% 13.9%combined ratio 38.1% 44.0% 46.3% 44.3% basic earnings per share $0.61 $0.34 $2.01 $0.81diluted earnings per share $0.57 $0.33 $1.91 $0.79 change in fully converted book value per share 7.9% 6.2% 31.7% 17.4 % consolidated cash flow statement (unaudited) twelve months twelve 2007 months 2006 $m $mcash flows from operating activitiesprofit after tax 390.9 159.3depreciation 1.4 0.6amortisation of debt securities (0.7) (1.2)employee benefit expense 14.4 22.5foreign exchange (3.1) 1.8share of profit of associate (6.2) (3.2)net unrealised losses (gains) on derivative financial 3.3 (1.8)instrumentsnet realised (gains) and impairments on investments (9.1) (0.8)net fair value losses on investments at fair value (0.4) -through incomeunrealised losses on swaps 1.3 0.9accrued interest receivable (2.3) (5.6)reinsurance assets- unearned premium on premium ceded (0.5) (19.1)- reinsurance recoveries (3.5) -- other receivables (8.2) -deferred acquisition costs (6.3) (51.0)other receivables 2.4 (6.0)inwards premium receivable from insureds and cedants (23.8) (171.4)deferred tax asset (1.2) (0.8)insurance contracts - losses and loss adjustment expenses 140.0 39.1 - unearned premiums 56.2 323.1 - other payables 11.3 3.6amounts payable to reinsurers 4.9 2.4deferred acquisition costs ceded 0.5 2.5other payables 25.8 18.6corporation tax payable (0.2) 1.0net cash flows from operating activities 586.9 314.5cash flows used in investing activitiespurchase of property, plant and equipment (1.3) (2.6)investment in associate - (20.0)dividends received from associate 6.5 -purchase of debt securities (2,143.3) (2,086.1)purchase of equity securities (30.9) (76.1)proceeds on maturity and disposal of debt securities 1,960.4 1,185.6proceeds on disposal of equity securities 36.9 20.9net purchase of other investments 5.1 (9.7)net cash flows used in investing activities (166.6) (988.0) cash flows used in financing activities shares repurchased (89.3) -net cash flows used in financing activities (89.3) - net increase (decrease) in cash and cash equivalents 331.0 (673.5)cash and cash equivalents at beginning of period 400.1 1,072.4effect of exchange rate fluctuations on cash and cash 6.2 1.2equivalentscash and cash equivalents at end of period 737.3 400.1 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", "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 BYTHE SUB-PRIME AND CREDIT CRISIS; A RATING DOWNGRADE OF, ORA 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