Lancashire Holdings Limited · LSE:LRE
Lancashire — Q3 2012 Earnings Presentation
27 slides from Lancashire's earnings presentation, November 2012
Slide 1: Investor Presentation Q3 2012
Investor Presentation November 2012 Q3 2012 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: An established and successful market leader
an established and successful market leader Lancashire is a provider of global specialty insurance and reinsurance products operating in Bermuda and London. Lancashire focuses on short-tail, mostly direct, specialty insurance risks under four general categories: property, energy, marine and aviation
Slide 4: Key messages
key messages • Now over 6 years of consistent performance • We have remained true to our business plan, while adapting to market changes • London and Bermuda remain our underwriting centres • Demonstrated excellent risk management through significant number of worldwide catastrophe and risk losses •
Slide 5: Our goal: attractive risk-adjusted total return to shareholders
our goal: to provide an attractive risk-adjusted total return to shareholders over the long-term Lancashire total shareholder return vs. major index returns 350% 300% 250% ttotal shareholder rreturn 200% 150% 100% 50% 0% (50%) (100%) S&P 500 FTSE 250 FTSE 350 Insurance S&P Financials S&P Banking Lan
Slide 6: Consistency: total value creation (TVC)
consistency: total value creation (TVC) five y year standard deviation(1) in TVC 25% Hiscox Amlin 20% Lancashire Beazley 15% Endurance Aspen Ren Re Validus Axis RoE (2) five year R 10% Montpelier Catlin 5% (0%) Flagstone (5%) 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% 22.0% 24.0% standard deviation of
Slide 7: Consistency: long-term performance vs peers
consistency: long-term performance vs peers (1) 5 year compound annual RoE (2) 25% 20% 15% 10% 5% 0% (5%) (1) Peer P group as defined d fi d bby th the B Board. d (2) Compound annual returns for Lancashire and sector are from 1 January 2007 through 31 December 2011. Source: Company reports. 7
Slide 8: Consistency: exceptional underwriting performance
consistency: exceptional underwriting performance 5 year YTD 2007 2008 2009 2010 2011 average (1) 2012 (3) loss ratio 23.9% 61.8% 16.6% 27.0% 31.7% 32.3% 26.0% acquisition 12.5% 16.4% 17.8% 17.3% 19.6% 16.7% 20.7% cost ratio expense ratio 9.9% 8.1% 10.2% 10.1% 12.4% 10.1% 14.4% combined 46.3% 86.3%
Slide 9: Consistency: exceptional underwriting performance by segment
consistency: exceptional underwriting performance combined ratio by y operating p g segment g (1) 160% 160% property energy 140% 140% 120% 120% 100% 100% 80% 80% 60% 60% 40% 40% 20% 20% 0% 0% 160% 160% marine aviation 140% 140% 120% 120% 100% 100% 80% 80% 60% 60% 40% 40% 20% 20% 0% 0% (1) The combin
Slide 10: Consistency: dividend yield
consistency: dividend yield (1) 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 2007 2008 2009 2010 2011 5 year average (3) YTD 2012 Lancashire Sector average (1) Dividend yield is calculated as the total calendar year cash dividends divided by the year end share price. Dividends include recurring dividends,
Slide 11: Underwriting comes first
underwriting comes first 66% insurance 34% reinsurance 41% nat-cat exposed p 59% other GoM energy 10% energy 35% offshore WW energy property cat 22% 14% political risk onshore WW energy 5% 1% energy construction 2% terrorism aviation AV52 9% 6% aviation 6% property 49% marine hull D&F (1) 4% 3% mari
Slide 12: Underwriting comes first: the daily call
underwriting comes first: the daily call appropriate pp p mix of technology gy and culture Micro – UMCC (1) Macro – URRC (2) • Daily underwriting call – management • Fortnightly review with underwriters underwriters, finance, risk & actuarial departments awareness • Collegiate approach – cross class
Slide 13: Underwriting comes first: direct and facultative
underwriting comes first: direct and facultative why exit? • Unmodeled losses such as SRCC(1), tsunami, hail, brush fire not being priced for elevated risk • Weak data on tornado and flood models • RMS 11 – impact of capital increase not being priced in • Reinsurance costs significantly increased du
Slide 14: Underwriting comes first: property reinsurance and retro
underwriting comes first: property reinsurance and retro core non-core / opportunistic • Major market placements with limited exposure to non • Worldwide, lower layer and any aggregate programmes modeled perils • Retro (post-loss product for Lancashire) • U.S. – Regional Wind and EQ • Distressed mar
Slide 15: Underwriting comes first: energy
underwriting comes first: energy core non-core / opportunistic Offshore operating risks Onshore operating risks • Focus on internationally recognised operators and • Will entertain in a cyclical broad market hardening contractors Offshore construction risks • Deepwater Gulf of Mexico wind product •
Slide 16: Underwriting comes first: property terrorism and political risk
underwriting comes first: property terrorism and political risk core non-core / opportunistic Terrorism Terrorism • Construction risks • Heavy retail accounts with exposures across the U.S. • Closed access risks e.g. restricted public access • Open access risks e.g. unrestricted public access Politi
Slide 17: Underwriting comes first: marine and aviation
underwriting comes first: marine and aviation core non-core / opportunistic Marine Hull Marine Hull • Larger, higher quality marine hull fleets which offer • Bulker fleets, container fleets, ferries, general old/low newer tonnage, which historically performs significantly valued vessels better than
Slide 18: Underwriting comes first: market position, brand and distribution
underwriting comes first: market position, brand and distribution Opportunistic Class Renewing business (1) New business (2) Core business (3) business (4) Property 73% 27% 69% 31% Energy gy 67% 33% 88% 12% Marine 81% 19% 87% 13% Aviation 97% 3% 100% 0% Overall 73% 27% 80% 20% • “Brokers are our cli
Slide 19: Underwriting comes first: lessons learned
underwriting comes first: lessons learned What did we do;; what did we learn? Australia, • Confirmed our view not to diversify because the model dictates it; pricing is key; we stick to the New Zealand and “single peril” higher layers to avoid flood, brushfire and hail losses; these perils are not a
Slide 20: Effectively balance risk and return
effectively balance risk and return 100 year return 250 year return period $m period $m zones perils (% of capital) (1) (% of capital) (1) gulf of mexico (2) hurricane 326 (20%) 465 (28%) california earthquake 113 (7%) 268 (16%) pacific northwest earthquake 40 (2%) 199 (12%) pan-european p p windsto
Slide 21: Effectively balance risk and return: model credibility
effectively balance risk and return model credibility ness of model in underwriting usefuln US Wind Europe Wind US Quake Japan Quake ROW Quake Natural catastrophe models are relied on more where: • Frequency of loss helps to validate them • Data quality is higher 6 years on: • Don’t diversify for di
Slide 22: Reserve adequacy
reserve adequacy consistent favourable reserve development $150 prior year reservve releases $m $130 $110 $ $90 $70 $50 $30 $10 $ ($10) 2007 2008 2009 2010 2011 YTD 2012 aviation marine energy property • Reserving record has demonstrated conservative reserving • 2006 accident year developed favourab
Slide 23: Effectively balance risk and return: capital preservation
effectively balance risk and return capital preservation asset allocation credit quality non agency structured cash and AA products, 5% short term 52% securities, agency 20% structured other products, 21% government and municipal bonds, 8% average duration AA 1.6 years A 17% AAA corporates, 20% U.S.
Slide 24: Conservative investment philosophy
effectively balance risk and return: conservative investment philosophy • Our market outlook remains subdued: • Continued concerns about Europe and it’s potential contagion • Continued elevated global volatility, lower growth environment • C ti Continued d concerns about b tU U.S. S b budgetary d t
Slide 25: Operate nimbly through the cycle
operate nimbly through the cycle proven record of active capital p p management g 2007 2008 2009 2010 2011 2012 total $m $m $m $m $m $m $m share repurchases 100 2 100.2 58 0 58.0 16 9 16.9 136 4 136.4 - - 311 5 311.5 special dividends (1) 239.1 - 263.0 264.0 152.0 172.7 1,090.8 ordinary dividends -
Slide 26: Conclusion
conclusion • Lancashire has one of the best performances and yet the lowest volatility in the London and Bermuda markets • We have provided shareholders with superior returns vs. major indices • We have remained true to our business plan, plan while adapting to market changes • We have exhibited the
Slide 27: www.lancashiregroup.com
www.lancashiregroup.com Bermuda - (1) 441 278 8950 London - 44 (0)20 7264 4000 j @l jcc@lancashiregroup.com hi charles.mathias@lancashiregroup.com 27