22nd Nov 2006 07:02
Lancashire Holdings Limited22 November 2006 22 November 2006 LANCASHIRE ANTICIPATES HEALTHY TRADING CONDITIONS IN 2007 Lancashire Holdings Limited ("Lancashire" or "the Company") today released astatement on trading conditions, operations and results to date. Lancashire is a specialty insurance company which underwrites a diverseworldwide portfolio of short-tail property risks through its licensedsubsidiaries. The Company focuses on property, energy, marine and aviationclasses. Risks are written primarily on a direct basis, constitutingapproximately two thirds of bound premium. The portfolio is diversified betweenrisks exposed to natural catastrophes and a range of classes uncorrelated tosuch events. Non-correlating risks represent approximately half of projectedpremiums in 2006. In the majority of classes of risks written by Lancashire, with the exception ofmarine, the favourable pricing and terms of 2006 are anticipated to remainhealthy through 2007, particularly in catastrophe-exposed zones. Outside thesezones, there may be some modest weakening but pricing is expected but to remainbroadly acceptable in most classes. Overall, the outlook for 2007 tradingconditions for Lancashire is attractive. Richard Brindle, Chief Executive Officer and Chief Underwriting Officercommented: "Lancashire has enjoyed a very successful year so far. We are extremely pleasedto have developed relationships with a high quality base of insurance clientsacross all segments; relationships we aim to develop further in years to come.As 2006 has progressed we have made large strides in broadening our underwritingteam, creating a sophisticated risk management toolkit and in building supportfunctions to efficiently service the workflow. We now have 54 staff betweenLondon and Bermuda, including 11 underwriters, which provides Lancashire withthe resources to meet our business needs. This operational readiness, includingour recently launched UK underwriting operation, will enable us to take fulladvantage of what we believe will be an attractive trading environment forLancashire in 2007." "We have been very pleased with the property and energy segments, where we haveexperienced robust pricing and favourable loss experience. In the marine sector,while we have enjoyed a low level of claims, we have consistently beendisappointed with pricing. As such, we have declined to write a large proportionof what has been presented and premiums are less than expected as a result.Trading conditions in the AV52 aviation sector have been acceptable albeit notat the level of property or energy." "We are positioning Lancashire to efficiently trade through all market cycles.We aim to achieve this through active sector selection, by nurturing clientrelationships, and by maintaining a nimble capital structure. Throughout, wewill maintain the underwriting discipline that is embedded in our culture.Toward these ends, we are continually exploring new opportunities to enhance ourcore business strategy. We are confident these will further develop theLancashire franchise." Market commentary by line of business: In the property line, which currently represents approximately 40% ofLancashire's total 2006 premium, trading conditions are expected to remainstrong. Year on year prices are expected to hold firm or modestly increase incertain areas for the direct property and retrocession classes which form themajority of the segment. The terrorism class, which is a smaller component ofthe sector, is broadly priced at acceptable levels but, absent loss events, isexpected to slowly decline in 2007. This trend may be reversed if the U.S.Terrorism Risk Insurance Extension Act ("TRIEA"), with its "make available" andother requirements, is not renewed at the end of 2007. The energy line also currently contributes approximately 40% of total premium.Excellent trading conditions in the segment have been driven by theunprecedented risk adjusted pricing for Gulf of Mexico direct insurance, wherewe believe Lancashire is one of the leading industry markets. Despite the lackof hurricanes in 2006, initial expectations are that pricing and terms for Gulfof Mexico risks will weaken by a relatively small level in 2007, remaining veryattractive. Outside the Gulf of Mexico, trading conditions are generallyreasonable and this is largely expected to continue. The marine and aviation lines each currently represent approximately ten percentof the Lancashire portfolio. As noted in the half year trading statement, marinehas been the most disappointing sector in 2006. At present there appears to beno impetus for this to change and Lancashire's approach will remain one ofcareful risk selection. In terms of the aviation sector, Lancashire focuses onthird party liability resulting from aviation terrorist events ("AV52"). Unlikethe general aviation sector, trading conditions in the niche AV52 class are atacceptable levels. In the continued absence of a large industry event, AV52pricing may decline as 2007 progresses but is expected to remain acceptable. Neil McConachie, Chief Financial Officer commented: "Lancashire has always employed a robust and transparent approach to riskmanagement. As of September 30, our modeled exposure to a single 1 in 100 yearoccurrence was less than 25% of capital. This does not take into account profitsmade during the rest of the year. Following the January renewal season, we willbe in a better position to determine our capital needs. No decisions on theappropriate amount and structure of capital for 2007 have been made at thistime. At all times we will aim to maximize the risk-adjusted return for ourshareholders and our mantra remains unchanged: We will match capital to theunderwriting opportunities, not the other way around." For the third quarter of 2006, the growth in fully converted book value pershare was 5.7% or 25.0% on an annualised basis. In the absence of major losses,the growth in fully converted book value per share for 2006 is expected to be inthe range of 16% to 20%. GAAP gross written premium for 2006 is expected to be in the range of $615million to $625 million depending on market conditions through the end of theyear. This is based on projected bound premium of $675 million to $700 million.The marine segment has remained largely unattractive and we have declined ahigher than expected number of deals in the second half of the year. AV52aviation, where a large number of deals are written in the fourth quarter, hasalso seen somewhat weaker pricing than we anticipated earlier in the year. GAAPnet written premium is expected to be in the range of $530 million to $540million. The ratio of net earned premium to net written premium in 2006 isexpected to be approximately 50%. As 2007 progresses, the ratio of net earnedpremium to net written premium will rise significantly from that experienced inour first full year of operations. At September 30, investments and cash stood at $1.28 billion. Fixed income andcash comprised 93% of the balance, and equities comprised 7%. The yield on thefixed income portfolio was 5.3%, the average credit quality was AA+ and durationwas 2.3 years. Lancashire expects to issue a trading statement in the first quarter of 2007. Lancashire will be hosting an analyst and investor conference call at 15:30 UKtime / 10:30 EST today to discuss the trading update. The conference call willbe hosted by Richard Brindle, Chief Executive and Chief Underwriting Officer,Simon Burton, Deputy Chief Underwriting Officer and Neil McConachie, ChiefFinancial Officer. The call can be accessed by dialing +44 (0)20 7365 1843 / +1 718 354 1152. Areplay facility will be available for two weeks until 6 December 2006. The dialin number for the replay facility is +44 (0)20 7806 1970 / +1 718 354 1112 andthe passcode is 1143104#. For further information, please contact: Lancashire Holdings +1 441 278 8950Neil McConachie Financial Dynamics +44 20 7269 7114Robert BailhacheNick Henderson 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 dollars and its CommonShares trade 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.lancashire.bm. NOTE REGARDING FORWARD-LOOKING STATEMENTS CERTAIN STATEMENTS MADE IN THIS ANNOUNCEMENT AND ON THE CONFERENCE CALL THAT ARENOT BASED ON CURRENT OR HISTORICAL FACTS ARE FORWARD-LOOKING IN NATUREINCLUDING, WITHOUT LIMITATION, STATEMENTS CONTAINING WORDS "BELIEVES", "ANTICIPATES", "PLANS", "PROJECTS", "INTENDS", "EXPECTS", "ESTIMATES", "PREDICTS", "MAY","WILL", "SEEKS", "SHOULD" OR, IN EACH CASE, THEIR NEGATIVE OR COMPARABLETERMINOLOGY. ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTSINCLUDING, WITHOUT LIMITATION, THOSE REGARDING THE GROUP'S FINANCIAL POSITION,RESULTS OF OPERATIONS, LIQUIDITY, PROSPECTS, GROWTH, BUSINESS STRATEGY, PLANSAND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS (INCLUDING DEVELOPMENT PLANSAND OBJECTIVES 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 ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCHFORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS SPEAK ONLY AS ATTHE DATE OF THIS ANNOUNCEMENT OR OTHER INFORMATION CONCERNED. LANCASHIREHOLDINGS LIMITED EXPRESSLY DISCLAIMS ANY OBLIGATION OR UNDERTAKING (SAVE ASREQUIRED TO COMPLY WITH ANY LEGAL OR REGULATORY OBLIGATIONS (INCLUDING THE AIMRULES)) TO DISSEMINATE ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKINGSTATEMENTS CONTAINED HEREIN TO REFLECT ANY CHANGES IN THE GROUP'S EXPECTATIONSWITH REGARD THERETO OR ANY CHANGE IN EVENTS, CONDITIONS OR CIRCUMSTANCES ONWHICH ANY SUCH STATEMENT IS BASED. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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