Lancashire Holdings Limited · LSE:LRE
Lancashire — Q4 2011 Earnings Presentation
29 slides from Lancashire's earnings presentation, March 2012
Slide 1: Investor Presentation Q4 2011
Investor Presentation March 2012 Q4 2011 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 aviatio
Slide 4: Growth in fully converted book value per share plus dividends
our goal: to provide an attractive risk-adjusted total return to shareholders over the long-term 195% 185% growth in fully converted book value per share plus 175% 165% 155% 145% 135% 125% 115% 105% dividends 95% 85% 75% 65% 55% 45% 35% 25% 15% 5% (5%) 4
Slide 5: Q4 2011 headlines
Q4 2011 headlines • Combined ratio of 73.1% (YTD 63.7%)1 • Reported loss ratio of 39.4% (YTD 31.7%); accident year loss ratio of 65.0% (YTD 59.3%) • Combined ratio since inception of 57.9%1 • Thai flood losses estimated to be $25.1m, net of RIP • Japanese quake reserve now $117.3m net of RIP, increa
Slide 6: Our 2011 results are the best in our peer group
our 2011 results are the best in our peer group estimated 2011 RoE excluding prior year 2011 RoE reserve development 15% 15% 10% 10% 5% 5% 0% 0% (5%) (5%) (10%) (10%) (15%) (15%) (20%) (20%) (25%) (25%) (30%) (30%) (35%) (35%) Source: Company reports. 6
Slide 7: Our consistent and excellent track record
our consistent and excellent track record RoE (1) 40% 30% 20% 10% 0% 2007 2008 2009 2010 2011 combined ratio 100% 80% 60% 40% 20% 0% 2007 2008 2009 2010 2011 total investment return 8% 6% 4% 2% 0% 2007 2008 2009 2010 2011 (1) RoE is defined as growth in fully converted book value per share, adjusted
Slide 8: Consistency: exceptional underwriting performance
consistency: exceptional underwriting performance 5 year 2007 2008 2009 2010 2011 average 1 loss ratio 23.9% 61.8% 16.6% 27.0% 31.7% 32.3% acquisition cost 12.5% 16.4% 17.8% 17.3% 19.6% 16.7% ratio expense ratio 9.9% 8.1% 10.2% 10.1% 12.4% 10.1% combined ratio 46.3% 86.3% 44.6% 54.4% 63.7% 59.1% sec
Slide 9: Consistency: exceptional underwriting performance
consistency: exceptional underwriting performance combined ratio (1) 120% 100% 80% 60% 40% 20% 0% 2007 2008 2009 2010 2011 5 year average Lancashire Sector average (2) 1 5 year average based on 2007 to 2011 reporting periods. Lancashire ratios weighted by annual net premiums earned. Annual sector ra
Slide 10: Consistency: solid investment performance
consistency: solid investment performance 5 year cumulative 2007 2008 2009 2010 2011 annualised investment return 1 total investment 6.2% 3.1% 3.9% 4.2% 1.8% 3.8% return 1 sector total 5.8% (2.6%) 6.6% 4.0% 2.3% 3.1% return 2 Lancashire out- 0.4% 5.7% (2.7%) 0.2% (0.5%) 0.7% performance 1 5 year cum
Slide 11: Consistency: excellent return on equity
consistency: excellent return on equity1 Lancashire sector 2 S&P 500 2007 31.4% 23.8% 5.5% 2008 7.8% 2.6% (37.0%) 2009 26.5% 27.3% 26.5% 2010 23.3% 17.4% 15.1% 2011 13.4% (4.0%) 2.1% compound 3 19.5% 15.3% (0.3%) 1 Return on Equity = growth in fully diluted/converted book value per share, adjusted f
Slide 12: Our consistent and excellent track record
our consistent and excellent track record dividend yield (1) 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 2007 2008 2009 2010 2011 5 year average Lancashire Sector average (1) Dividend yield is calculated as the total calendar year cash dividends divided by the year end share price. Dividends include recu
Slide 13: Strategy for long-term success
strategy for long-term success our goal To provide an attractive risk-adjusted return to shareholders over the long-term shareholder return cross-cycle return of financial targets risk free plus 13% Success in achieving our goals is measured against risk and return targets profitable 4 years out of
Slide 14: Performance in recent cat events
performance in recent cat events Q4 2010 to Q4 2011 loss events as a % of 2010 shareholders equity (1) (1) As of 3 March 2012. Source: Company reports and Aon Benfield. (2) 2010 events includes losses in the Australia and New Zealand events in late 2010. 14
Slide 15: Source: Munich Re Touch information platform
Source: Munich Re Touch information platform 15
Slide 16: Underwriting comes first
underwriting comes first 63% insurance 37% reinsurance 43% nat-cat exposed 57% other GoM energy 4% property cat 16% energy 27% offshore WW energy 21% political risk 4% onshore WW energy terrorism 1% 9% energy construction 1% aviation AV52 5% aviation 5% property 56% D&F marine hull 8% 3% marine cons
Slide 17: Underwriting comes first: trading outlook
underwriting comes first trading outlook: catastrophe positive; still no broad market turn Property Insurance • US RMS catastrophe driven accounts up 10 to 15% • International disappointing as non peak rates only reflected in loss affected territories • Realignment of property account to reflect les
Slide 18: Underwriting comes first: trading outlook
underwriting comes first trading outlook: catastrophe positive; still no broad market turn Property Reinsurance • Regional retro used to replace aggregate freed up by non renewing one major account; risk profile changed to much higher excess points. RPI’s for our product 120 to 150% (Premium $38m at
Slide 19: Underwriting comes first: trading outlook, energy
underwriting comes first trading outlook: energy modestly positive Energy Gulf of Stable market outlook. Drilling is picking up, although Mexico demand for Lancashire GOM wind product largely unaffected by drilling slowdown. Looking to lock in pricing with a limited number of selected longer term co
Slide 20: Underwriting comes first
underwriting comes first appropriate mix of technology and culture culture and techniques BLAST proprietary model • Daily underwriting call – • Remetrica platform management awareness • Collegiate approach – cross • Lancashire custom features class/many sets of eyes • RMS 11 implemented • Multiple p
Slide 21: 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 hurricane 329 (23%) 450 (31%) california earthquake 99 (7%) 231 (16%) pacific northwest earthquake 61(4%) 186 (13%) pan-european windstorm 203 (14%) 2
Slide 22: Effectively balance risk and return
effectively balance risk and return consistent positive reserve development 1 110 100 90 80 2008 AY 70 2010 AY 60 2006 AY 2007 AY 50 2009 AY 40 at end of AY after 12 months after 24 months after 36 months after 48 months after 60 months • Favourable prior year reserve development in 2011 of $155.3m,
Slide 23: Effectively balance risk and return
effectively balance risk and return contributors to 2011 positive reserve development ($m) $60 $50 $40 $30 $20 $10 $0 ($10) Q1 Q2 Q3 Q4 Independent reserve study release Chile Ike NZ General releases 23
Slide 24: Effectively balance risk and return: investments
effectively balance risk and return investments rule #1: ‘Don’t lose your money’ asset allocation credit quality non agency structured cash and products, 6% short term AA agency securities, structured (51%) 17% products, 13% other government and average duration municipal bonds, 9% AA- 1.8 years A (
Slide 25: Effectively balance risk and return: investments
effectively balance risk and return investments rule #1: ‘Don’t lose your money’ • Our market outlook remains subdued: • Continued concerns about Europe and it’s potential contagion; • Continued elevated global volatility. • Therefore, preservation of capital is paramount and we will keep a very low
Slide 26: Operate nimbly through the cycle
operate nimbly through the cycle proven record of active capital management 2007 2008 2009 2010 2011 total $m $m $m $m $m $m share repurchases 100.2 58.0 16.9 136.4 - 311.5 special dividends 1 239.1 - 263.0 264.0 152.0 918.1 ordinary dividends - - 10.5 9.4 9.5 29.4 – interim 1 ordinary dividends - -
Slide 27: Operate nimbly through the cycle
operate nimbly through the cycle capital actions ($m) $500 $400 $300 $200 $100 $0 2007 2008 2009 2010 2011 Share repurchases Special dividends Ordinary dividends - interim Ordinary dividends - final 27
Slide 28: Strategy for long-term success
strategy for long-term success our goal To provide an attractive risk-adjusted return to shareholders over the long-term compound return since inception of 19.5% profitable five years financial targets out of five Success in achieving our goals is special dividend 4 out of last measured against risk
Slide 29: www.lancashiregroup.com
www.lancashiregroup.com Bermuda - (1) 441 278 8950 London - 44 (0)20 7264 4000 29