Lancashire Holdings Limited · LSE:LRE
Lancashire — Q1 2017 Earnings Presentation
30 slides from Lancashire's earnings presentation, May 23, 2017
Slide 1: Underwriting comes first
Underwriting comes first Effectively balance risk and return Operate nimbly through the cycle Investor Presentation May 2017 Q1 2017 www.lancashiregroup.com
Slide 2: Safe harbour statements
Safe harbour statements THIS RELEASE CONTAINS INFORMATION, WHICH MAY BE OF A PRICE SENSITIVE NATURE, THAT LANCASHIRE IS MAKING PUBLIC IN A MANNER CONSISTENT WITH THE EU MARKET ABUSE REGULATION AND OTHER REGULATORY OBLIGATIONS. THE INFORMATION WAS SUBMITTED FOR PUBLICATION, AT 09:00 GMT ON 23rd MAY 2
Slide 3: Lancashire Group - 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 more exposure in a hard market and less in a soft one. There are now abundant reinsurance and retrocession opportunities that allow us to maintain our core insurance and re
Slide 4: Lancashire Group - The power of three platforms
Lancashire Group - The power of three platforms Lancashire 2016 High layers with high deductibles differentiate market position and drive low attritional loss ratios GPW $419m RoE 9.1% Lower number of large contracts and single exposures provide greater underwriting control Consistent strategy
Slide 5: Lancashire Group - Proven strategy for long term success
Lancashire Group - Proven strategy for long term success (1) Underwriting comes first – UMCC (Underwriting Marketing Conference Call) • Underwriting excellence is key to delivery • Unique underwriting approach • 11 year track-record of consistent combined ratio outperformance • Risk selection and
Slide 6: Overview of Lancashire: our 11 year history
Overview of Lancashire: our 11 year history 2011 2010 • Accordion sidecar launched 2005 • AM Best upgrade to A rating • S&P assign A- rating, ERM rating • LHL Incorporated adequate with strong risk controls • Significant peer(3) outperformance in 2nd • AM Best assigns A- rating • Moody’s assign A3 r
Slide 7: Overview of Lancashire: our 12 year history
Overview of Lancashire: our 12 year history 2016 2013 2015 • Hired new management team for • Purchase of Cathedral Capital Limited • Syndicate 3010 capacity Cathedral and a new underwriting team • Launch of Kinesis Capital Management, expanded to £100 for Property Catastrophe and D+F Kinesis Re and
Slide 8: 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) 2012 2013 2014 2015 2016 5 yr avg Beazley 1 1 1 1 2 1 Hiscox 8 2 2 2 1 2 15% Lancashire 3 4 4 4 5 3 Everest 2 5 3 7 4 4 Ren Re 4 3 7 5 7 5 Novae 6
Slide 9: Underwriting comes first
Underwriting comes first 9
Slide 10: Underwriting comes first: Group
Underwriting comes first: Group 61% insurance 39% reinsurance 39% nat-cat exposed 61% other property cat property 33% 14% terrorism property other 7% 4% political risk 6% retrocession property reinsurance 2% 14% energy other 2% energy 16% offshore WW energy 11% property D&F Lloyd’s 37 % 10% GoM ener
Slide 11: Geographic distribution
Geographic distribution 2016 geographic analysis by risk location 25% 18% U.S. and Canada Worldwide offshore (1) Worldwide, including U.S. and Canada Europe 8% Far East (2) 5% Worldwide, excluding U.S. and Canada 3% Middle East 2% 28% Rest of world 11% • U.S. remains top source of income, as appropr
Slide 12: Our underwriting performance has been exceptional
Our underwriting performance has been exceptional Combined ratio (1) 120% 100% Japan EQ, NZ II, US Tornadoes, Thai Floods, 80% Gryphon FPSO Chile EQ, Costa Concordia, Deepwater Sandy Horizon 60% 40% 20% 0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q1 2017 10 year average Lancashire Sector av
Slide 13: Consistent performance to date – exceptional Syndicate underwriting performance
Consistent performance to date – exceptional Syndicate underwriting performance D&P UNIVERSE: LLOYD'S SYNDICATE NET CALENDAR YEAR C. RATIOS: 2016 VS. 2015 170% 160% 2015 Combined Ratio 2016 Combined Ratio 150% 140% 130% 120% 110% 100% 90% 217% 80% 70% 60% Aspen Markel Berkshire Fairfax Travelers Lan
Slide 14: General market update
General market update Class 2017 Rating Expectation Market Dynamics • Clients using savings to buy more limit – Japan & certain U.S. clients Property • M&A reducing limit purchased for some carriers but also providing new opportunities Reinsurance & Rates off 5% – 10% • Rates holding best in U.S. wh
Slide 15: Kinesis Capital Management Indicative Results
Kinesis Capital Management Indicative Results Mean loss scenarios (10% Expected No loss scenarios Loss) Limit of Limit of Limit of Limit of Limit of Limit of $300m (1) $500m (1) $1B (1) $300m (1) $500m (1) $1B (1) Lancashire investment ($m) (2) 24.2 40.4 80.8 24.2 40.4 80.8 RoL (net) 21.0% 21.0% 21.
Slide 16: Third party capital: fee income
Third party capital: fee income 35 30 25 20 ($m) 15 10 5 0 2011 2012 2013 2014 2015 2016 Q1 2017 Associate underwriting fees Profit commissions from associates Equity pick-up on investment in associates Lloyd's profit commission Lloyd's fees Accordion overrider • Kinesis profit commissions earned in
Slide 17: Effectively balance risk and return
Effectively balance risk and return
Slide 18: Managing the cycle – reducing net exposures
Managing the cycle – reducing net exposures • Since April 2012, which was the high-tide mark of the pricing cycle, the Group has reduced PMLs across all key exposures, in spite of the addition of Cathedral • 400 PMLs are not predictors of losses but they do provide consistent measures of catastrophe
Slide 19: Exposure management – Increasing RI purchases
Exposure management – Increasing RI purchases Lancashire first loss XL limit 2012 vs 2017 Outwards RI 1st loss limit 2017 Outwards RI 1st loss limit 2012 US ANP AV 52 AV 52 Energy Energy Prop Cat - Prop Cat - ex GOM ex GOM Marine Marine Marine Marine Japan Terrorism - Terrorism - Terrorism - Terrori
Slide 20: Exposure management – Stable RI purchases
Exposure management – Stable RI purchases Cathedral first loss XL limit Outwards RI 1st loss limit 2017 Outwards RI 1st loss limit 2016 Outwards RI 1st loss limit 2015 Energy Ex GOM Energy Ex GOM WW Treaty Cat WW Treaty Cat Aviation RI Aviation RI Marine Cargo Marine Cargo Aviation Direct Aviation D
Slide 21: Reserve adequacy
Reserve adequacy Consistent favourable reserve development (1) $160 $140 $120 $100 prior year reserve releases ($m) $80 $60 $40 $20 $0 ($20) ($40) 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q1 2017 property energy marine aviation Lloyd's 2011 reserve study (1) Excludes the impact of foreign exchan
Slide 22: Effectively balance risk and return – investment philosophy
Effectively balance risk and return – investment philosophy Our market outlook remains subdued • The growth outlook for the U.S. economy for 2017 has improved due to the U.S. election result and the expectation that policies will stimulate domestic growth through increased spending, tax cuts and der
Slide 23: Conservative portfolio structure – Quality
Conservative portfolio structure – Quality asset allocation credit quality non agency cash and structured short term products, 8% securities, agency structured 10% AA (44%) other products, 7% government bonds, 5% hedge funds, 8% A (19%) other, duration 4% (1) 1.8 years U.S. government bonds and agen
Slide 24: Risk asset levels in line with peer group average
Risk asset levels in line with peer group(1) average Risk Asset Allocation(2) (3) As at March 31, 2017(4) 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% (5) 0.0% (1) Peer group as defined by the Board. Source: Company reports (2) Risk assets include: equities, hedge funds, private equities and bonds below
Slide 25: Operate nimbly through the cycle
Operate nimbly through the cycle 25
Slide 26: Operate nimbly through the cycle
Operate nimbly through the cycle Proven record of active capital management 500 300% 450 18.0% 250% 400 17.8% 350 15.2% 12.3% 17.3% 200% 18.1% 300 ($m) 250 150% 8.3% 200 8.4% 10.5% 100% 150 100 N/A 50% 50 1.2% 0 0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q1 2017 (1) (1) Share repurchases S
Slide 27: Consistency: Total value creation (TVC)
Consistency: Total value creation (TVC) Ten year standard deviation(1) in TVC 25% Lancashire 20% Hiscox 15% Beazley Ten year RoE Arch Ren Re Validus Everest Axis 10% Novae Aspen Argo Hanover 5% 0% 5.0% 7.5% 10.0% 12.5% 15.0% Ten year standard deviation of RoE • Lancashire has the best performance ve
Slide 28: Sticking to our game plan
Sticking to our game plan 28
Slide 29: Conclusion
Conclusion • Lancashire has one of the best and most consistent performances in the London and Bermuda markets • Our strategy is designed to cope with hard and soft markets, managing capital and exposures to maximise risk- adjusted returns across the cycle • Group management is fully integrated and
Slide 30: 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 (1) 650% 600% 550% 500% 450% 400% total shareholder return 350% 300% 250% 200% 150% 100% 50% 0% (50%) (100%) S&P 500 FTSE 250 FTSE 350 Insuranc