Lancashire Holdings Limited · LSE:LRE
Lancashire — Q4 2012 Earnings Presentation
28 slides from Lancashire's earnings presentation, February 2013
Slide 1: Investor Presentation Q4 2012
Investor Presentation February 2013 Q4 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 7 years of consistent excellent 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 los
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 400% 350% 300% 250% total shareholder return 200% 150% 100% 50% 0% (50%) (100%) S&P 500 FTSE 250 FTSE 350 Insurance S&P Financials S&P Banking
Slide 6: Consistency: total value creation (TVC)
consistency: total value creation (TVC) five y year standard deviation(1) in TVC 20% Lancashire Hiscox 15% A li Amlin Beazley Ren Re five yyear RoE Validus Endurance Aspen Axis 10% p Montpelier Argo Catlin 5% 0% 5.0% 7.0% 9.0% 11.0% 13.0% 15.0% 17.0% 19.0% 21.0% standard t d d deviation d i ti off R
Slide 7: Consistency: long-term performance vs peers
consistency: long-term performance vs peers (1) 5 year compound annual RoE (2) 20% 15% 10% 5% 0% (1) Peer group as defined by the Board. (2) Compound annual returns for Lancashire and sector are from 1 January 2008 through 31 December 2012. RoE calculated as the internal rate of return of the change
Slide 8: Consistency: exceptional underwriting performance
consistency: exceptional underwriting performance 5 year 2008 2009 2010 2011 2012 average (1) Loss ratio 61.8% 16.6% 27.0% 31.7% 29.9% 33.5% Acquisition cost 16.4% 17.8% 17.3% 19.6% 20.5% 18.3% ratio Expense ratio 8.1% 10.2% 10.1% 12.4% 13.5% 10.8% Combined ratio 86.3% 44.6% 54.4% 63.7% 63.9% 62.6%
Slide 9: Consistency: exceptional underwriting performance
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% (2) (1) The co
Slide 10: Consistency: dividend yield
consistency: dividend yield (1) 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 2008 2009 2010 2011 2012 2013 (3) 5 year average (4) (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 s
Slide 11: Performance in recent cat events
performance in recent cat events Sandy loss as a % of 2012 shareholders equity (1) 12% 10% er 2012 S/E 8% % of Decembe 6% 4% 2% 0% (1) As of 20 February 2013. Shareholders equity at 30 June 2012 is used for Amlin and Hiscox as results to 31 December 2012 not available at time of report. Source: Comp
Slide 12: Underwriting comes first
underwriting comes first 67% insurance 33% reinsurance 40% nat-cat nat cat exposed 60% other GoM energy 10% property cat energy 34% 17% offshore WW energy 22% political risk 6% energy construction 2% terrorism 9% aviation AV52 property 47% 5% aviation 9% aviation satellite 4% marine hull retro 4% 15
Slide 13: Underwriting comes first
underwriting comes first appropriate pp p mix of technology gy and culture Micro – UMCC (1) Macro – RRC (2) • Fortnightly g y review with underwriters,, • Daily underwriting call – management finance, operations, risk & actuarial awareness departments • Collegiate approach – cross class/many • Risk
Slide 14: Underwriting comes first: property reinsurance and retrocession
underwriting comes first: property reinsurance and retrocession core non-core / opportunistic • Major market placements with limited exposure to non • Worldwide and attritional layers modeled perils. • Traditional retrocession (post-loss product for Lancashire) • U.S. – Regional Wind and EQ • Distre
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 • Closed access risks i.e. restricted public access • Heavy retail accounts with exposures across the U.S. • Excess of loss (average attachment $217m) • Open access risks i.e. unrestrict
Slide 17: Underwriting comes first: marine
underwriting comes first: marine core non-core / opportunistic Marine Hull Marine Hull • Larger, higher quality marine hull fleets which offer newer • Bulker fleets, container fleets, ferries, general old/low tonnage, which historically performs significantly better valued vessels than older tonnage
Slide 18: Underwriting comes first: aviation
underwriting comes first: aviation core non-core / opportunistic AV52 Aviation Hull & Liabilities • Aviation terrorism third party liability product Do not write due to pricing and excess capacity Satellite • Launch and in orbit assets outlook cumulative rate index and RPIs Aviation • Market still s
Slide 19: Underwriting comes first: lessons learned
underwriting comes first: lessons learned What did we do;; what did we learn? Sandy • We stick to the “single peril” higher layers to avoid flood, these perils are not adequately understood, 2012 modeled or rated • Confirmation not to write D&F & Binders • Confirmed marine classes such as cargo 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 250 (15%) 377 (23%) california earthquake 103 (6%) 216 (13%) pacific northwest earthquake 33 (2%) 146 (9%) pan-european p p windstor
Slide 21: Usefulness of model in underwriting
effectively balance risk and return model credibility useffulness of model in underwriting 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 7 years on: • Don’t diversify for div
Slide 22: Reserve adequacy
reserve adequacy consistent favourable reserve development e releases $m $160 $140 $120 $100 $80 prior year reserve $60 $40 $20 $0 ($20) ($40) 2007 2008 2009 2010 2011 2012 aviation marine energy property • Reserving record has demonstrated conservative reserving • 2006 accident year developed favou
Slide 23: Effectively balance risk and return: capital preservation
effectively balance risk and return capital p preservation p asset allocation credit quality non agency structured cash and products, 5% short term AA agency securities, (47%) structured 17% products, 19% other government and average duration municipal bonds, 9% AA- 1.8 years A (19%) U.S. corporates
Slide 24: Effectively balance risk and return: conservative investment philosophy
effectively balance risk and return: conservative investment p philosophy p y • Our market outlook remains subdued: • Continued concerns about Europe and its effect on global growth. • Headwinds to ggrowth remain in the U.S.,, althoughg increasing gppositive economic data and sentiment have increase
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 2013 total $m $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 - 263.0 264.0 152.0 172.6 200.9 1,291.6 ordin
Slide 26: Operate nimbly through the cycle
operate nimbly through the cycle change in tax residency from 1 January 2012 • Why have we done it? • UK government aim to increase competitiveness of UK tax regime • Change in UK Controlled Foreign Corporation rules • Reduces operating risk, no impact on corporation tax liability for Bermuda operat
Slide 27: 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 vs. major indices • We have remained true to our business plan, while adapting to market changes • We have exhibited the b
Slide 28: 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 28