Lancashire Holdings Limited · LSE:LRE
Lancashire — Q4 2013 Earnings Presentation
38 slides from Lancashire's earnings presentation, March 2014
Slide 1: Investor Presentation Q4 2013
Investor Presentation March 2014 Q4 2013 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
Lancashire 3
Slide 4: 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 with rated, collateralised and Lloyd’s balance sheets. Lancashire focuses on short-tail, mostly direct, specialty insurance risks under four gen
Slide 5: Total shareholder return
Our goal: to provide an attractive risk-adjusted total return to shareholders over the long-term Lancashire total shareholder return vs. major index returns 500% 450% 400% 350% total shareholder return 300% 250% 200% 150% 100% 50% 0% (50%) (100%) S&P 500 FTSE 250 FTSE 350 Insurance S&P Financials S&
Slide 6: 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% (1) Peer group as defined by the Board, and used for variable compensation calculations. (2) Compound annual returns for Lancashire and sector are from 1 January 2009 through 31 December 2013. RoE ca
Slide 7: Consistency: total value creation (TVC)
Consistency: total value creation (TVC) five year standard deviation(1) in TVC 25% 20% Lancashire Ren Re Beazley five year RoE (2) 15% Axis Montpelier Hiscox Validus Endurance Amlin Catlin 10% Aspen Argo 5% 0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0% five year standard deviation of RoE • Lancash
Slide 8: Consistent performance to date - exceptional underwriting performance
Consistent performance to date - exceptional underwriting performance Positive Negative Underwriting income by line of business 2006 2007 2008 2009 2010 2011 2012 2013 Property catastrophe Property terrorism Property political risk Property all others Energy WW offshore Energy GOM Energy all others
Slide 9: Exceptional underwriting performance and conservative investment approach
Consistent performance to date - Exceptional underwriting performance and conservative investment approach Five year average split of investment & underwriting profit 2009 - 2013 100% 80% 60% 40% 20% 0% (20%) (40%) Accident year underwriting income Reserve releases Investment income 9
Slide 10: Underwriting comes first
Underwriting comes first 10
Slide 11: Underwriting comes first
Underwriting comes first 67% insurance 33% reinsurance 38% nat-cat exposed 62% other aviation 6% energy other energy 24% offshore WW energy 2% aviation AV52 17% 3% aviation satellite 3% marine hull marine 6% 3% GoM energy marine other 5% 3% property other 1% property reinsurance 13% property cat 14%
Slide 12: LICL & LUK overview
LICL & LUK overview Rebalanced Catastrophe exposures; GoM constant, Cat XL growing, Retro reducing, D&F reduced to minimal: WHY? • Lancashire D&F approach was too capital intensive in the tail, and had unacceptable parameter risk • Property Retro prime area for TPC, marginal pricing no longer attrac
Slide 13: Cathedral overview
Cathedral overview Syndicate 2010 combined ratio = 2005-2012 - 87% against Lloyd’s average of 95% Prepared for softening environment by leveraging outwards reinsurance opportunities • 1/1 renewal season saw top line marginally down on business plan BUT bottom line up • Signing protected by key relat
Slide 14: Kinesis
Kinesis Kinesis Re is a special purpose insurer established in June 2013 to write multi-class reinsurance business on a fully collateralised basis Summary • Key individuals Darren Redhead (ex D.E. Shaw) & Mathieu Marsan (ex Pentelia Capital) • Total limits deployed to date are close to $300m, and ta
Slide 15: Market position, brand & distribution - Lancashire
Market position, brand & distribution - Lancashire Lead and agreement party and market position by line of business Lead and agreement Market position Renewing New Core Opportunistic Class 2013 2012 Class business (1) business (2) business (3) business (4) Property 83% 65% Property 65% 35% 73% 27% E
Slide 16: 2013: Market position, brand & distribution - Lancashire
2013: Market position, brand & distribution - Lancashire Since inception, Lancashire has believed it is key that we are recognised as a major market and expert within our product lines 2013 broker income Number of brokers we do business with Aon Benfield 55 Marsh 50 2% 2% 8% Willis 45 3% 26% 5% JLT
Slide 17: 2013: Market position, brand & distribution - Cathedral
2013: Market position, brand & distribution - Cathedral Each line of business uses specialist niche brokers 2013 broker income Number of brokers we do business with Aon Benfield 90 Marsh 80 16% 23% Willis 70 Towers Watson 13% JLT 60 Bowood Partners 50 2% Robert Fleming 2% 40 2% Bell & Clements 17% 2
Slide 18: Balance risk and return
Balance risk and return 18
Slide 19: Risk and Return Committee (RRC)
Risk and Return Committee (RRC) • What does it do • Co-ordinates strategy and ERM activities for the Group and Subsidiaries – LUK, LICL, Cathedral & Kinesis • Underwriting risk; market and liquidity risk; reserve risk; operational risk • Challenges the assumptions behind risk profiles, appetites and
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 287 (16%) 419 (23%) California earthquake 140 (8%) 227 (13%) Pacific Northwest earthquake 48 (3%) 151 (8%) Pan-European windstorm 16
Slide 21: Financial flexibility – capital management
Financial flexibility – capital management Our capital level is driven by underwriting opportunities and our outlook • In Q3 underwriters begin projecting opportunities for the forthcoming year; we model various synthetic portfolios looking for real-world optimal risk and reward balance • In Q4 we g
Slide 22: Operate nimbly through the cycle
Operate nimbly through the cycle proven record of active capital management 2007 2008 2009 2010 2011 2012 2013 2014(4) total $m $m $m $m $m $m $m $m $m share repurchases 100.2 58.0 16.9 136.4 - - - - 311.5 special dividends (1) 239.1 - 263.0 264.0 152.0 172.6 295.9 42.0 1,428.6 ordinary dividends -
Slide 23: Consistency: dividend yield
Consistency: dividend yield (1) 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% (3) 2009 2010 2011 2012 2013 5 year average (2) Lancashire ordinary dividend Lancashire special dividend sector average (1) Dividend yield is calculated as the total calendar year cash dividends divided by the year end share pric
Slide 24: Conservative investment philosophy
Effectively balance risk and return: conservative investment philosophy • Our market outlook remains subdued: • While the U.S continues to generate mostly positive economic data, global headline risk adds volatility in the market and once again we see a risk on/risk off environment. • China’s lower
Slide 25: Effectively balance risk and return
Effectively balance risk and return Capital preservation Asset allocation Credit quality non agency structured AA (43%) products, 9% cash and short term agency securities, structured 25% products, 11% other, 3% (1) average duration AA- other 1.0 years government bonds and debt, 5% A (19%) AAA (24%)
Slide 26: Conclusion
Conclusion 26
Slide 27: Conclusion
Conclusion • Lancashire has one of the best performances and yet the lowest volatility in the London and Bermudian markets. • We have remained true to our business plan, while adapting to market changes. We have just completed an acquisition, but the Cathedral team are like-minded, disciplined under
Slide 28: Appendix
Appendix 28
Slide 29: Lancashire: Property catastrophe reinsurance
Lancashire: Property catastrophe reinsurance Mitigating impact of falling rates Ability to compete • Utilising a modified line size matrix – weighted so that larger • Multi year capacity / reinstatement capacity deployed on bigger programmes • Willing to offer more multi-layer support to the program
Slide 30: Lancashire: Energy
Lancashire: Energy Mitigating impact of falling rates Ability to compete • We write the risks with large limit requirements which are • Large lines make us relevant and dangerous to ignore as a more insulated from the lows of rating trend quoting market to other brokers • Relatively low attritional
Slide 31: Lancashire: Property terrorism and political violence
Lancashire: Property terrorism and political violence Mitigating impact of falling rates Ability to compete • TRIPRA uncertainty creating a lot more deal flow and • Large lines make us relevant and dangerous to ignore as increased demand in the US a quoting market to other brokers • Incidents global
Slide 32: Lancashire: Property political and sovereign risk
Lancashire: Property political and sovereign risk Mitigating impact of falling rates Ability to compete • Large demand for Political and Sovereign Risk products • We have the ability and willingness to lead business across territories represented by a continued strong • We provide transparency, good
Slide 33: Lancashire: Marine
Lancashire: Marine Mitigating impact of falling rates Ability to compete • We write the risks with large limit requirements which are • Large lines make us relevant and dangerous to ignore as more insulated from the lows of rating trend in respect of a quoting market to brokers Hull • We have an abi
Slide 34: Lancashire: Aviation and satellite
Lancashire: Aviation and satellite Mitigating impact of falling rates Ability to compete AV52 • Large lines on AV52 make us relevant and dangerous to • No attritional losses ever ignore as a quoting market to other brokers • Large line size therefore all opportunities made available • We have the ab
Slide 35: Cathedral: Property reinsurance
Cathedral: Property reinsurance Core Non-core / Opportunistic US Portfolio – • Florida private reinsurance market ($40m Aggregate) • US cat XL book made up entirely of Mutual Companies • Super Regional US accounts • Home owners • Retro • Farm owners • Crop • Automobile (physical damage) • Small comm
Slide 36: Cathedral: Property direct & facultative
Cathedral: Property direct & facultative Core Non-core / Opportunistic US open market - Average line size circa $2m Will expand in to any class/territory following • Small to midsized ‘soft’ occupancy focus significant losses resulting in distressed conditions • Low to mid level excess of loss and i
Slide 37: Cathedral: Cargo & Contingency
Cathedral: Cargo & Contingency Cargo Core Contingency Core Marine Cargo Contingency • Established, relationship driven, higher quality, marine • Established, market leader dealing in non –appearance cargo accounts with proven profitability and good risk mainly in the rock & pop / entertainments indu
Slide 38: Cathedral: Aviation reinsurance & satellite
Cathedral: Aviation reinsurance & satellite Core Non-core / Opportunistic Proportional - down to 3 direct clients that have a good Bigger direct clients track record in niche areas with long standing relationships • No pay back / do they need to buy? General aviation XL - Catastrophe reinsurance cov