Lancashire Holdings Limited · LSE:LRE
Lancashire — Q1 2018 Earnings Presentation
35 slides from Lancashire's earnings presentation, May 2018
Slide 1: Underwriting comes first
Underwriting comes first Effectively balance risk and return Operate nimbly through the cycle Investor Presentation May 2018 Q1 2018 www.lancashiregroup.com
Slide 2: Safe harbour statements
Safe harbour statements NOTE REGARDING FORWARD-LOOKING 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,
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 2017 High layers with high deductibles differentiate market position and drive low attritional loss ratios GPW $384.3m Lower number of large contracts and single exposures provide greater underwriting control Consistent strategy and tr
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 • Excellent record of combined ratio out-performance • Risk selection and portfolio cons
Slide 6: Overview of Lancashire: our 12 year history
Overview of Lancashire: our 12 year history 2005: LHL Incorporated; AM Best assigns A- rating; IPO & listing on AIM 2011 2009 • Accordion sidecar launched • Listing on LSE • AM Best upgrade to A rating • Inclusion in FTSE 250 • Significant peer(3) outperformance in 2nd index largest aggregate loss y
Slide 7: Overview of Lancashire: our 12 year history
Overview of Lancashire: our 12 year history 2013 2017 • Purchase of Cathedral Capital Limited 2015 • Hurricanes Harvey, Irma & Maria, Mexico earthquakes and • Launch of Kinesis Capital • Syndicate 3010 California wildfires Management, Kinesis Re and Kinesis capacity expanded • Total shareholder retu
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) 5 year compound annual RoE (2) 20% 15% 10% 5% 0% (1) Peer group as defined by the Board. RoE calculated as the internal rate of return of the change in FCBVS in the period plus dividends accrued. For Arch, Argo, Beazley, E
Slide 9: Underwriting comes first
Underwriting comes first
Slide 10: Underwriting comes first: Group
Underwriting comes first: Group 59% insurance 41% reinsurance 40% nat-cat exposed 60% other • In 2018 we began writing onshore energy and have expanded into the power class in May 2018 • Approximately 75% of our portfolio is now exposed to a positive rating environment. These classes are shaded in g
Slide 11: Geographic distribution
Geographic distribution 2017 geographic analysis by risk location 11% U.S. and Canada 2% 1% 30% Worldwide offshore 5% Worldwide, including U.S. and Canada (1) 7% Europe Far East Worldwide, excluding U.S. and Canada (2) 17% Middle East Rest of world 27% • U.S. remains top source of income, as appropr
Slide 12: Underwriting comes first: Lancashire
Underwriting comes first: Lancashire(1) Predominance of non-annual contracts (2) - Property cat excess - Gulf of Mexico - Property political risk of loss offshore energy - Construction energy - Terrorism - Marine builders risk - Property risk XL - Worldwide offshore energy - Onshore energy - Energy
Slide 13: Underwriting comes first: Group - Quarterly GPW v GPE
Underwriting comes first: Group Quarterly GPW v GPE since 2014 350.0 300.0 250.0 Premiums $m 200.0 150.0 100.0 50.0 0.0 Actual GPW Actual GPE • Top line volatility driven by non-annual contracts and timing of renewals, but relatively stable earnings. Reduction in earnings over time reflects market p
Slide 14: Overview of Lancashire – Our 10 year history
Overview of Lancashire – Our 10 year history 5 year 10 year 2013 2014 2015 2016 2017 Q1 2018 (1) Average Average (2)(3) (2)(3) Loss ratio 33.1% 31.7% 27.5% 29.2% 78.4% 12.0% 37.9% 35.6% Acquisition cost 22.1% 21.4% 25.8% 27.1% 27.0% 30.6% 24.3% 21.2% ratio Expense ratio 15.0% 15.6% 18.8% 20.2% 19.5%
Slide 15: Our underwriting performance has been exceptional
Our underwriting performance has been exceptional Combined ratio (1) 120% Harvey, Irma, Maria, Mexican earthquakes, Wildfires 100% Japan EQ, NZ II, US Tornadoes, Thai Floods, 80% Gryphon FPSO Costa Concordia, Chile EQ, Sandy Deepwater 60% Horizon 40% 20% 0% 2008 2009 2010 2011 2012 (2) 2013 2014 201
Slide 16: General market update
General market update Class Initial 2018 Rating Expectation Market Dynamics • Rate reductions have ceased, flat to small rises being seen on non loss-affected accounts but more material rises and in some cases restructuring on loss-affected business, as a result of 2017 loss activity Property Intern
Slide 17: General market update
General market update Class Initial 2018 Rating Expectation Market Dynamics • Global political uncertainty maintains demand for Terror product Terrorism & • European banks still require cover for project finance. Improvement in Oil Price has also Rates off 5% to flat Political Risks driven some Sove
Slide 18: Kinesis Capital Management Indicative Results
Kinesis Capital Management Indicative Results Mean loss scenarios (10% Expected Loss) No loss scenarios 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 19: Third party capital: fee income
Third party capital: fee income 35 30 25 20 15 ($m) 10 5 0 (5) (10) (15) 2011 2012 2013 2014 2015 2016 2017 2018 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 commi
Slide 20: Effectively balance risk and return
Effectively balance risk and return
Slide 21: Managing the cycle – net exposures
Managing the cycle – net exposures • Since April 2012, which was the high-tide mark of the pricing cycle, we continued to modify our exposure to key catastrophe perils as the market became more competitive, demonstrating our discipline and nimbleness across the market cycle • PMLs are not predictors
Slide 22: Exposure management – Stable RI purchases
Exposure management – Stable RI purchases First loss XL limit Outwards RI 1st loss limit 2018 Outwards RI 1st loss limit 2012 US ANP Prop Cat - AV 52 AV 52 Prop Cat - Energy Energy Marine Marine Marine Marine ex GOM ex GOM Terrorism - Terrorism - Terrorism - Terrorism - Japan Political Risk Politica
Slide 23: Reserve adequacy: prior year reserve releases
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 2017 Q1 2018 property energy marine aviation Lloyd's 2011 reserve study (1) Excludes the impact of foreign e
Slide 24: Reserve adequacy
Reserve adequacy Consistent favourable reserve development • Reserving record has demonstrated conservative reserving (1) • 2008 and prior accident years developed favourably by 34.7% so far • 2009 accident year developed favourably by 49.2% so far • 2010 accident year developed favourably by 32.8%
Slide 25: Effectively balance risk and return – investment philosophy
Effectively balance risk and return – investment philosophy Improved global growth outlook • Strong U.S. growth expected in 2018 due to the administration’s expansionary policies, and the robust global growth outlook. • We expect market volatility to rise as developed market central banks withdraw s
Slide 26: Conservative portfolio structure – Quality
Conservative portfolio structure – Quality asset allocation credit quality non agency structured cash and products, 9% short term AA (40%) agency securities, structured 18% products, 7% other hedge funds, government 8% bonds, 4% A (17%) other, duration 1% (1) 1.7 years U.S. AAA (21%) government BBB
Slide 27: 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, 2018 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Argo Everest Ren Re Arch Beazley Axis Hanover Average Lancashire Hiscox Aspen • The majority of the risk assets are held in two portfolios; a low volatility
Slide 28: Operate nimbly through the cycle
Operate nimbly through the cycle
Slide 29: Managing the cycle - Gross premiums earned
Managing the cycle - Gross premiums earned Gross premiums earned split by underwriting year 100% 0% (1) 2014 2015 2016 2017 2018 Calendar year Current UW year Prior UW year Prior UW year -1 and preceding • Top line volatility driven by non-annual contracts and timing of renewals • Graph shows consis
Slide 30: Managing the cycle – Estimated gross premiums written
Managing the cycle – Estimated gross premiums written Gross premiums written 2017 gross 2017 non-annual Prior UW periods 2017 RIPs Estimated 2018 Estimated change Estimated 2018 (1) premiums written impact renewable base in 2018 gross premiums written (1) Non-annual contracts are defined as those gr
Slide 31: Operate nimbly through the cycle: active capital management
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% 200% 17.3% 300 18.1% ($m) 250 150% 8.3% 200 8.4% 10.5% 100% 150 100 N/A 50% 50 1.6% 1.2% 0 0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Q1 2018 (1) (1) Share rep
Slide 32: Consistency: Total value creation (TVC)
Consistency: Total value creation (TVC) Ten year standard deviation(1) in TVC 19% 17% Lancashire 15% Hiscox Ten year RoE 13% Arch Beazley 11% Ren Re Everest 9% Axis 7% Argo Hanover Aspen 5% 5.0% 10.0% 15.0% Ten year standard deviation of RoE • Lancashire has one of the best performance versus peers
Slide 33: Sticking to our game plan
Sticking to our game plan
Slide 34: 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 • 2017 losses provided a real time “stress t
Slide 35: 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) 750% 700% 650% 600% 550% 500% total shareholder return 450% 400% 350% 300% 250% 200% 150% 100% 50% 0% (50%) (100%) S&P 500 FTSE 250 FTSE 35