6th Aug 2007 07:01
Lancashire Holdings Limited06 August 2007 Lancashire Holdings Limited Fully converted book value grows 5.4% in Q2, 13.0% year to date Gross written premiums grow 32.8% in Q2, 42.7% year to date Combined ratio 56.6% in Q2, 52.2% year to date Hamilton, Bermuda, 6 August 2007 Lancashire Holdings ("Lancashire" or "the Company") today announces its resultsfor the second quarter of 2007 and the six month period ended 30 June 2007. Despite a backdrop of significant industry insurance losses and challenginginvestment markets, Lancashire has continued to generate excellent growth inbook value. Financial highlights for the second quarter of 2007: • Fully converted book value per share grows 5.4% over the quarter; • Gross written premiums of $270.8 million, an increase of 32.8% from the second quarter of 2006. Net written premiums increased 51.6%; • Loss ratio of 34.4% and a combined ratio of 56.6%; • Total annualised investment return of 3.8% for the second quarter, including net investment income, realized gains and losses, and unrealized gains and losses; • Net income after tax of $82.5 million, $0.40 diluted earnings per share, or £0.20 diluted earnings per share. Financial highlights for the six months to 30 June 2007: • Fully converted book value per share grows 13.0% for the first half of 2007, bringing the rolling 12 month growth in fully converted book value per share to 27.1%; • Gross written premiums of $451.5 million, an increase of 42.7% from the first half of 2006. Net written premiums increased 53.3%; • Loss ratio of 28.9% and a combined ratio of 52.2%; • Total annualised investment return of 5.3% for the six months to 30 June 2007, including net investment income, realized gains and losses, and unrealized gains and losses; • Net income after tax of $170.4 million for the six months to 30 June, 2007, $0.83 diluted earnings per share, or £0.42 diluted earnings per share. Richard Brindle, Group Chief Executive Officer, commented: "In both relative and absolute terms, Lancashire has enjoyed an excellent firsthalf of 2007. A 13% return on equity to date is evidence that our underwritingjudgment is sound and our risk management is robust. In addition to events inAustralia and Japan, we were tested by the June U.K. flooding; a loss which, oncurrent estimates, ranks in the top 10 of non-U.S. catastrophe events in recentmemory. Despite these events, Lancashire produced combined ratios of 56.6% and52.2% for the quarter and year to date, respectively. Our investment portfolioalso stood up well, reflecting our strategy to keep duration short and creditquality high. We maintain a low risk tolerance on investments, and do notcurrently hold any sub-prime or CDO securities." "When we started this business, we chose a different path from otherpost-Katrina market entrants and indeed from many existing companies. It wasassumed we would be a mono-line property cat reinsurer. In fact, the Lancashirestrategy is entirely different. Our approach is to write a diversified book ofdirect specialty insurance. We have built an excellent team, broadened ourplatform beyond Bermuda within nine months and established a sophisticatedframework of operations thoroughly grounded in enterprise-wide risk managementprinciples. Today, we're very pleased to have completed our transition to anestablished major specialty insurer. Our start-up days are well and truly over." Underwriting results Gross written premiums increased 32.8% in the second quarter of 2007 compared tothe same period in 2006. In 2007 to date, gross written premiums increased 42.7%compared to the first six months of 2006. The main drivers were the UK operatingplatform, which began underwriting in late 2006, and a substantial increase insubmission count. All segments experienced an increase in premiums written.Direct and facultative property and worldwide energy classes in particularexperienced the largest growth. In general, rates continue to soften and this is expected to continue in theabsence of significant industry losses. However, in the majority of classesunderwritten, rates and terms remain good overall. In the quarter and for the year to date, the amount of premium ceded was similarto the prior year periods, reflecting a slightly higher retention rate in 2007than 2006. Net written premiums increased 51.6% in the second quarter of 2007compared to the second quarter of 2006, and increased 53.3% year to date overthe same period in 2006. Net earned premiums as a proportion of net written premiums were 75% in thesecond quarter of 2007, and 78% in the six months to 30 June 2007. This ratio isreflective of a growing portfolio and is expected to gradually increase as theyear progresses. The loss ratios of 34.4% and 28.9% for the three and six months to 30 June 2007,respectively, reflect a very good underwriting performance in all segments.Lancashire does not currently expect to incur losses from the June UK flooding. Investments Net investment income was $18.6 million for the second quarter, an increase of46.5% over the second quarter of 2006. Net investment income was $35.3 millionin the six months to 30 June 2007, an increase of 45.9% over the first half of2006. The increase in investment income is primarily due to high net operatingcashflow, resulting in higher net invested assets. Total investment return, including net investment income, net realized gains andlosses and net unrealized gains and losses, was $12.6 million in the quarter and$30.5 million for the year to date. Total investment return was lower than netinvestment income due primarily to weak fixed income markets in the secondquarter. This weakness was mitigated by Lancashire's strategy to maintainduration short and credit quality high. Capital At 30 June 2007, total capital was $1.440 billion, comprising shareholders'equity of $1.310 billion and $129 million of long-term debt. Leverage was 9.0%. Guidance 2007 guidance on gross premiums and return on equity remains unchanged. Based onanticipated terms and conditions, 2007 gross premiums written are expected toincrease by at least 20% over 2006. Fully converted book value per share isprojected to increase between 20 and 25% in 2007, including dividends, assuminga normal level of losses. Should Lancashire experience normal or lower than expected loss activity, andunderwriting opportunities consequently decrease, it is likely that asignificant proportion of 2007 profits will be returned to shareholders uponapproval by the Board of Directors. Further detail of our 2007 second 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 presentation on the results at 1200UK time (BST) onMonday 6 August at Financial Dynamics, Holborn Gate, 26 Southampton Buildings,London WC2A 1PB. This presentation will be hosted by Richard Brindle, ChiefExecutive Officer; Neil McConachie, Chief Financial Officer; and Simon Burton,Deputy Chief Executive Officer. Those wishing to attend are asked to contact RobBailhache or Nick Henderson at Financial Dynamics on +44 (0) 207 269 7200 /[email protected] or +44 (0) 207 269 7114 / [email protected]. The presentation will also be accessible via a conference call for those unableto attend in person. To dial-in please call 0845 245 5000 / 1 866 832 0717 (passcode: 6408031) There will also be a live webcast of the presentation at www.lancashiregroup.com. 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 June 2007 June 30, 2007 December 31, 2006 $m $massets cash and cash equivalents 367.7 400.1 accrued interest receivable 10.5 7.5 investments - fixed income securities - available for sale 1,220.1 896.3 - at fair value through income 17.5 - - equity securities, available for sale 68.7 70.3 - other investments 9.3 11.5 reinsurance assets - unearned premium on premium ceded 63.5 19.1 - reinsurance recoveries 0.5 - deferred acquisition costs 63.8 51.5 inwards premium receivable from insureds and cedants 252.1 173.7 investment in associate 21.4 23.2 other assets 16.5 9.5 total assets 2,111.6 1,662.7 liabilities insurance contracts - loss and loss adjustment expenses 121.7 39.1 - unearned premiums 454.1 325.7 - other payables 6.2 3.6 amounts payable to reinsurers 60.8 2.4 deferred acquisition costs ceded 7.1 2.5 other payables 22.2 23.2 long-term debt 129.3 128.6 total liabilities 801.4 525.1 shareholders' equity share capital 97.9 97.9 share premium 40.2 33.6 contributed surplus 849.5 849.7 fair value and other reserves 4.5 8.7 retained earnings 318.1 147.7 total shareholders' equity attributable to equity shareholders 1,310.2 1,137.6 total liabilities and shareholders' equity 2,111.6 1,662.7 basic book value per share $6.69 $5.81 fully converted book value per share $6.42 $5.68 Consolidated Income Statement (Unaudited) to 30 June 2007 Q2 2007 Q2 2006 Ytd 2007 Ytd 2006 $m $m $m $m gross premiums written 270.8 203.9 451.5 316.3 outwards reinsurance premiums (69.3) (71.0) (75.4) (71.0) net premiums written 201.5 132.9 376.1 245.3 change in unearned premiums (100.8) (147.8) (128.4) (241.4) change in unearned premiums on premium ceded 51.2 60.4 44.4 60.4 net premiums earned 151.9 45.5 292.1 64.3 net investment income 18.6 12.7 35.3 24.2 net realised gains (losses) and impairments 2.6 (3.2) 4.4 (3.4) share of profit of associate 1.5 - 2.8 - net foreign exchange gains (losses) 0.4 (0.5) 1.8 (1.1) net other investment income (losses) (0.4) - (0.5) - total net revenue 174.6 54.5 335.9 84.0 insurance losses and loss adjustment expenses 52.8 3.5 84.8 7.4 insurance losses and loss adjustment expenses recoverable (0.5) - (0.5) - net insurance acquisition expenses 20.9 5.7 41.2 7.6 equity based compensation 2.7 4.6 6.4 10.6 other operating expenses 12.8 7.7 26.8 13.6 total expenses 88.7 21.5 158.7 39.2 profit before tax and finance costs 85.9 33.0 177.2 44.8 finance costs 3.1 3.0 6.1 5.5 profit before tax 82.8 30.0 171.1 39.3 tax 0.3 - 0.7 - profit after tax for the period attributable to equity 82.5 30.0 170.4 39.3shareholders net loss ratio 34.4% 7.7% 28.9% 11.6% net acquisition cost ratio 13.8% 12.5% 14.1% 11.8% administrative expense ratio 8.4% 16.9% 9.2% 21.1% combined ratio 56.6% 37.1% 52.2% 44.5% basic earnings per share $0.42 $0.15 $0.87 $0.20 diluted earnings per share $0.40 $0.15 $0.83 $0.20 change in fully converted book value per 5.4% 3.1% 13.0% 4.3%share Consolidated Cash Flow Statement (Unaudited to 30 June 2007) Six months Twelve months 2007 2006 $m $mcash flows from operating activities profit before interest and tax 141.4 116.4 interest income 35.3 53.6 interest expense (5.6) (10.6) tax (0.7) (0.2) depreciation 0.7 0.6amortisation of debt securities (0.7) (1.2) employee benefit expense 6.4 22.5 foreign exchange (1.3) 1.9 share of profit of associate (2.8) (3.2) net unrealised losses (gains) on derivative financial 0.8 (1.8)instruments net realised (gains) losses and impairments on investments (4.4) (0.8) net fair value gains on investments at fair value through (0.3) -income unrealised (gains) losses on swaps (0.9) 0.9 accrued interest receivable (3.0) (5.6) reinsurance assets - unearned premium on premium ceded (44.4) (19.1) - reinsurance recoveries (0.5) - deferred acquisition costs (12.3) (51.0) other receivables (6.3) (6.0) inwards premium receivable from insureds and cedants (77.2) (171.4) deferred tax asset (0.4) (0.8) insurance contracts - losses and loss adjustment expenses 82.7 39.1 - unearned premiums 128.4 323.1 - other payables 2.6 3.6 amounts payable to reinsurers 57.8 2.4 deferred acquisition costs ceded 4.6 2.5 other payables (1.1) 18.6 corporation tax payable 1.2 1.0 accrued interest payable (0.1) - net cash flows from operating activities 299.9 314.5 cash flows from investing activities purchase of property, plant and equipment (1.0) (2.6) investment in associate - (20.0) dividends received from associate 4.6 - purchase of debt securities (942.5) (2,086.1) purchase of equity securities (15.1) (76.1) proceeds on maturity and disposal of debt securities 595.4 1,185.6 proceeds on disposal of equity securities 23.0 20.9 net purchase of other investments 2.1 (9.7) net cash flows used in investing activities (333.5) (988.0) net decrease in cash and cash equivalents (33.6) (673.5) cash and cash equivalents at beginning of period 400.1 1,072.4 effect of exchange rate fluctuations on cash and cash equivalents 1.2 1.2 cash and cash equivalents at end of period 367.7 400.1 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", "INTENDS","EXPECTS", "ESTIMATES", "PREDICTS", "MAY", "WILL", "SEEKS", "SHOULD", OR, INEACH CASE, THEIR NEGATIVE OR COMPARABLE TERMINOLOGY. ALL STATEMENTS OTHER THANSTATEMENTS OF HISTORICAL FACTS INCLUDING, WITHOUT LIMITATION, THOSE REGARDINGTHE GROUP'S FINANCIAL POSITION, RESULTS OF OPERATIONS, LIQUIDITY, PROSPECTS,GROWTH, BUSINESS STRATEGY, PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTUREOPERATIONS (INCLUDING DEVELOPMENT PLANS AND OBJECTIVES RELATING TO THE GROUP'SINSURANCE BUSINESS) ARE FORWARD-LOOKING STATEMENTS. SUCH FORWARD-LOOKINGSTATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER IMPORTANTFACTORS THAT COULD CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THEGROUP TO BE MATERIALLY DIFFERENT FROM FUTURE RESULTS, PERFORMANCE OR ACHIEVMENTSEXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THESE FACTORS INCLUDE,BUT ARE NOT LIMITED TO: THE NUMBER AND TYPE OF INSURANCE AND REINSURANCECONTRACTS THAT WE WRITE; THE PREMIUM RATES AVAILABLE AT THE TIME OF SUCHRENEWALS WITHIN OUR TARGETED BUSINESS LINES; THE ABSENCE OF LARGE OR UNUSUALLYFREQUENT LOSS EVENTS; THE IMPACT THAT OUR FUTURE OPERATING RESULTS, CAPITALPOSITION AND RATING AGENCY AND OTHER CONSIDERATIONS HAVE ON THE EXECUTION OF ANYCAPITAL MANAGEMENT INITIATIVES; THE POSSIBILITY OF GREATER FREQUENCY OR SEVERITYOF CLAIMS AND LOSS ACTIVITY THAN OUR UNDERWRITING, RESERVING OR INVESTMENTPRACTICES HAVE ANTICIPATED; THE RELIABILITY OF, AND CHANGES IN ASSUMPTIONS TO,CATASTROPHE PRICING, ACCUMULATION AND ESTIMATED LOSS MODELS; LOSS OF KEYPERSONNEL; A DECLINE IN OUR OPERATING SUBSIDIARIES' RATING WITH A.M. BESTCOMPANY; INCREASED COMPETITION ON THE BASIS OF PRICING, CAPACITY, COVERAGE TERMSOR OTHER FACTORS; A CYCLICAL DOWNTURN OF THE INDUSTRY; CHANGES IN GOVERNMENTALREGULATIONS OR TAX LAWS IN JURISDICTIONS WHERE LANCASHIRE CONDUCTS BUSINESS;LANCASHIRE OR ITS BERMUDIAN SUBSIDIARY BECOMING SUBJECT TO INCOME TAXES IN THEUNITED STATES OR THE UNITED KINGDOM; AND THE EFFECTIVENESS OF OUR LOSSLIMITATION METHODS. ANY ESTIMATES RELATING TO LOSS EVENTS INVOLVE THE EXERCISEOF CONSIDERABLE JUDGMENT AND REFLECT A COMBINATION OF GROUND-UP EVALUATIONS,INFORMATION AVAILABLE TO DATE FROM BROKERS AND INSUREDS, MARKET INTELLIGENCE,INITIAL TENTATIVE LOSS REPORTS AND OTHER SOURCES. JUDGMENTS IN RELATION TOFLOOD LOSSES INVOLVE COMPLEX FACTORS POTENTIALLY CONTRIBUTING TO THIS TYPE OFLOSS, AND WE CAUTION AS TO THE PRELIMINARY NATURE OF THE INFORMATION USED TOPREPARE 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