Lancashire Holdings Limited · LSE:LRE
Lancashire — Bank of America Merrill Lynch Conference 2015
24 slides from Lancashire's conference presentation, September 2015
Slide 1: Bank of America Merrill Lynch Presentation
Bank of America Merrill Lynch Presentation September 2015 www.lancashiregroup.com
Slide 2: Safe harbour statements
Safe harbour statements CERTAIN STATEMENTS AND INDICATIVE PROJECTIONS (WHICH MAY INCLUDE MODELED LOSS SCENARIOS) MADE IN THIS RELEASE OR OTHERWISE THAT ARE NOT BASED ON CURRENT OR HISTORICAL FACTS ARE FORWARD-LOOKING IN NATURE INCLUDING, WITHOUT LIMITATION, STATEMENTS CONTAINING THE WORDS “BELIEVES”
Slide 3: Lancashire Group
Lancashire Group 1. Lancashire “The Agile Insurer” • Active Cycle Management • Acquisition of Cathedral • Launch of Kinesis 2. Lancashire Track Record 3. Conclusion 3
Slide 4: Sticking to the Strategy, Managing the Cycle
Lancashire Group Sticking to the Strategy, Managing the Cycle • “Lancashire's strategy since day one has always been to write the most exposure in a hard market and the least in a soft one. There are now abundant reinsurance and retrocession opportunities that allow us to maintain our core insurance
Slide 5: The Agile Insurer – 2005/2012: Active Cycle Management
Lancashire “The Agile Insurer”– 2005/2012 Active Cycle Management • Events shaped pricing and demand across LHL key lines of business • Entered lines when capacity was withdrawing • Retro, Energy GOM and D&F post Katrina, Rita, Wilma (KRW) • Property Catastrophe post 2008 financial crisis and 2011 i
Slide 6: Premium development highlights active cycle management
Premium development highlights active cycle management Lancashire Premium Split GWP - Y-o-Y Change ($m) 150 Pre 2007 LRE enters the Multi- market as US year domiciled 100 deals 2009/2010 carriers written Build-out of 2013/2015 withdraw property cat Build out capacity post commences property cat Katr
Slide 7: The Agile Insurer – 2007/2012: Active Cycle Management
Lancashire “The Agile Insurer”– 2007/2012 Active Cycle Management • Start to actively manage capital in accordance with market opportunities – one of the first markets to do so • Share buybacks when trading at low multiples • Special dividend policy to allow flexibility to react to market events • R
Slide 8: Financial flexibility - Capital management
Financial flexibility - Capital management Review of stress tests Excess capital builds Constant adjustment of capital and approval of during the year if profits business plan with exceed share capital projection at repurchases & ordinary an example over 12 months the November Board dividends meetin
Slide 9: Operate nimbly through the cycle
Operate nimbly through the cycle proven record of active capital management YTD 2007 2008 2009 2010 2011 2012 2013 2014 total 2015 $m $m $m $m $m $m $m $m $m $m share repurchases 100.2 58.0 16.9 136.4 - - - 25.0 - 336.5 special dividends (1) 239.1 - 263.0 264.0 152.0 172.6 295.9 289.5 99.2 1,775.3 o
Slide 10: The Agile Insurer – 2013 onwards
Lancashire “The Agile Insurer”– 2013 onwards Active Cycle Management • Exposures reduced to drive higher risk adjusted returns • Disciplined underwriting • Reduce in areas where margins are not sustainable • Protect ‘core’ portfolio across all line of business • Increase reinsurance protection • Pro
Slide 11: Exposure management – Increasing RI purchases
Exposure management – Increasing RI purchases Lancashire first loss XL limit 2012 vs 2015 *2015 Non-US property deductible eroded by year to date Energy loss First loss limit purchased by Lancashire on an excess of loss basis, excluding ILWs, quota shares, cessions to side cars, facultative purchase
Slide 12: Significant de-risking in a softening cycle
Significant de-risking in a softening cycle Group Net PMLs vs. ROL 2012-2015 Group Net PML ($M) US Property Cat Rate on Line (ROL) Index(1) 2,000 250 1,754 269 200 1,500 1,270 360 150 256 1,049 1,032 1,000 191 218 225 252 283 100 124 235 236 151 93 500 242 93 227 50 294 63 227 196 48 45 121 119 205
Slide 13: Launch of Kinesis
Lancashire “The Agile Insurer”– 2013 onwards Launch of Kinesis • Lancashire launches Kinesis • Lancashire has a history of successful third party capital structures • Sirocco, Accordion and Saltire • Kinesis provides a permanent vehicle for all future third party products • Darren Redhead employed t
Slide 14: Acquisition of Cathedral
Lancashire “The Agile Insurer”– 2013 onwards Acquisition of Cathedral • Lancashire enters Lloyd’s through acquisition of Cathedral - First mover in M&A! • With a continuing softening market a Lloyd’s platform provided the group with greater breadth • Quality franchise with no real overlap • Short ta
Slide 15: The Agile Insurer – 2013 onwards
Lancashire “The Agile Insurer”– 2013 onwards • Lancashire Group set up for the soft cycle • Three platforms established providing greater breadth to the group • Increases leverage with brokers and clients • Provides a platform to attract best in class talent • Core portfolio of business with market
Slide 16: Lancashire – Track Record and Total Return
Lancashire – Track Record and Total return 16
Slide 17: Consistency: exceptional underwriting performance
Lancashire the agile insurer Consistency: exceptional underwriting performance 5 year 2006 2007 2008 2009 2010 average 1 Loss ratio 16.1% 23.9% 61.8% 16.6% 27.0% 30.9% Acquisition 14.3% 12.5% 16.4% 17.8% 17.3% 15.8% cost ratio Expense ratio 13.9% 9.9% 8.1% 10.2% 10.1% 10.0% Combined 44.3% 46.3% 86.3
Slide 18: Consistency: Exceptional underwriting performance
Lancashire Track Record Consistency: Exceptional underwriting performance 5 year 2011 2012 2013 2014 YTD 2015 average(1) Loss ratio 31.7% 29.9% 33.1% 31.7% 32.0% 31.7% Acquisition cost 19.6% 20.5% 22.1% 21.4% 26.0% 21.9% ratio Expense ratio 12.4% 13.5% 15.0% 15.6% 17.1% 14.7% Combined ratio 63.7% 63
Slide 19: Cross cycle consistency - RoE
Cross cycle consistency - RoE five year standard deviation(1) in RoE • Lancashire has one of the best performances and yet the lowest volatility versus peers • Evidence of adherence to business plan and strong risk management and a proven, successful cross-cycle strategy 25% 20% Beazley Lancashire F
Slide 20: Our long-term performance is one of the most consistent in our peer group
Our long-term performance is one of the most consistent in our peer group (1) RoE ranking in peer group (1) 5 year compound annual RoE (3) 20% Company(2) 2010 2011 2012 2013 2014 5 yr avg Beazley 5 2 1 1 1 1 Lancashire(4) 1 1 2 5 3 2 15% Hiscox 7 4 7 3 2 3 Ren Re 2 10 3 4 6 4 Axis 4 7 4 8 8 5 10% Am
Slide 21: Better dividend yield relative to price
Better dividend yield relative to price Dividend yield(1) 20% 0.9x 0.9x 1.2x 1.4x 1.5x 1.5x 18% 1.1x 1.0x 1.1x 1.2x 1.4x 1.5x 16% 14% 12% 10% 8% 6% 4% 2% 0% FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 Lancashire div. yield FTSE 250 median yield Lloyd's Peers Div Yield Average P/TBV MRQ in Year(
Slide 22: Lancashire versus the FTSE 250
Lancashire versus the FTSE 250 Total shareholder return(1) Return on equity(2) 600 30% 500 +392% 25% 400 20% 300 15% 200 +111% 10% 100 5% 0 0% Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 Lancashire FTSE 250 Median FTSE 250 ROE Lancashire R
Slide 23: Conclusion
Conclusion 23
Slide 24: Conclusion
Conclusion • Lancashire has one of the best performances and yet the lowest volatility in the London and Bermudian markets • Our strategy is designed to cope with hard and soft markets, managing capital and exposures to provide superior risk-adjusted returns across the cycle • Group management is fu
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