Lancashire Holdings Limited · LSE:LRE
Lancashire — Q1 2011 Earnings Presentation
27 slides from Lancashire's earnings presentation, May 2011
Slide 1: Investor Presentation Q1 2011
Investor Presentation May 2011 Q1 2011 www.lancashiregroup.com
Slide 2: Safe harbour statements
safe harbour statements CERTAIN STATEMENTS AND INDICATIVE PROJECTIONS (WHICH MAY INCLUDE MODELED LOSS SCENARIOS) MADE THAT ARE NOT BASED ON CURRENT OR HISTORICAL FACTS ARE FORWARD-LOOKING IN NATURE INCLUDING WITHOUT LIMITATION, STATEMENTS CONTAINING THE WORDS 'BELIEVES', 'ANTICIPATES', 'PLANS', 'PRO
Slide 3: An established and successful market leader
an established and successful market leader Lancashire is a global provider of specialty insurance products operating in Bermuda, London and Dubai1. Lancashire focuses on short-tail, mostly on a direct basis, specialty insurance risks under four general categories: property, energy, marine and aviat
Slide 4: Q1 2011 headlines
q1 2011 headlines • Combined ratio of 97.4% • Reported loss ratio of 67.0%; accident year loss ratio of 102.6% • Combined ratio since inception of 58.9% (including G&A) • New Zealand / Australia catastrophe loss of $14.1M • Reserve of $77.0M (gross) for Japan quake, $75.0M after RIP; 52.8% contribut
Slide 5: Consistency: exceptional underwriting performance
consistency: exceptional underwriting performance 5 year 2006 2007 2008 2009 2010 average 1 Loss ratio 16.1% 23.9% 61.8% 16.6% 27.0% 30.9% Acquisition 14.3% 12.5% 16.4% 17.8% 17.3% 15.8% cost ratio Expense ratio 13.9% 9.9% 8.1% 10.2% 10.1% 10.0% Combined 44.3% 46.3% 86.3% 44.6% 54.4% 56.7% ratio Sec
Slide 6: Consistency: excellent investment performance
consistency: excellent investment performance 5 year cumulative 2006 2007 2008 2009 2010 annualised return Total return1 6.1% 6.2% 3.1% 3.9% 4.2% 4.7% Sector total 4.7% 5.7% (2.8%) 6.4% 3.9% 3.5% return 2 Lancashire out- 1.4% 0.5% 5.9% (2.5%) 0.3% 1.2% performance 1 Total investment return = [Net in
Slide 7: Consistency: excellent return on equity
consistency: excellent return on equity1 Lancashire Sector 2 S&P 500 2006 17.8% 27.4% 15.8% 2007 31.4% 23.3% 5.5% 2008 7.8% 2.9% (37.0%) 2009 26.5% 26.1% 26.5% 2010 23.3% 17.0% 15.1% Compound 3 20.3% 19.2% 12.0% 1 Return on Equity = growth in fully diluted/converted book value per share, adjusted fo
Slide 8: Our goal: to provide an attractive risk-adjusted total return to shareholders
our goal: to provide an attractive risk-adjusted total return to shareholders over the long-term growth in fully converted book value per share plus accumulated dividends since inception 180% 160% 140% 120% 100% 80% 60% 40% 20% 0% -20% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 0
Slide 9: Our consistent and excellent track record
our consistent and excellent track record RoE* since inception 40% 20% 0% 2006 2007 2008 2009 2010 Q1 2011 combined ratio since inception 120% 100% 80% 60% 40% 20% 0% 2006 2007 2008 2009 2010 Q1 2011 total investment return since inception 8% 6% 4% 2% 0% 2006 2007 2008 2009 2010 Q1 2011 * RoE is def
Slide 10: Performance in recent cat events
performance in recent cat events Q4 2010 & Q1 2011 Loss Events as a % of 2010 Shareholders Equity 45% 40% NZ '10 AUS '10 AUS '11 NZ '11 JPN 35% 30% % of December 2010 S/E 25% 20% 15% 10% 5% 0% As of May 6 2011, Q1 2011 results have been reported by Arch, Aspen, AXIS, Beazley, Endurance, Flagstone, M
Slide 11: 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 Financial targets cross-cycle return of risk free plus 13% Success in achieving our goals is measured against risk and return targets profitable 4 years out of
Slide 12: Underwriting comes first
underwriting comes first appropriate mix of technology and culture Culture and techniques BLAST proprietary model • Daily underwriting call • Remetrica platform • Collegiate approach • Lancashire custom features • Multiple pricing assessments • Blends multiple types of risk • No premium targets • Op
Slide 13: Effectively balance risk and return
effectively balance risk and return major losses offset by strong underlying profits return on equity 45% Deepwater Horizon UK floods 40% Chilean , NZ & US winter earthquakes, 35% ‘Klaus’ storm Australia tsunami, NZ earthquake and 30% tornado storms Hurricane Ike and Japan earthquake and US 25% fina
Slide 14: Effectively balance risk and return
effectively balance risk and return 100 year return 250 year return period Zones Perils period $M $M (% of capital) (% of capital) Gulf of Mexico Hurricane 226 (16%) 329 (23%) California Earthquake 107 (8%) 196 (14%) Pacific Northwest Earthquake 39 (3%) 140 (10%) Pan-European Windstorm 109 (8%) 174
Slide 15: Effectively balance risk and return: portfolio efficiency
effectively balance risk and return enhancing sophistication of portfolio efficiency Optimisation process Example scenarios 1. Establish RoC per class Portfolio Optimisation: Profit vs Capital 2. Run optimisation scenarios in Portfolio Changes (-100% to +100%) BLAST: establish theoretically Efficien
Slide 16: Effectively balance risk and return: reserve development
effectively balance risk and return consistent positive reserve development (net reserves at end of accident year = index of 100) 110 100 90 2008 AY 80 2006 AY 70 2009 AY 60 2007 AY 50 40 30 at end of AY after 12 months after 24 months after 36 months after 48 months Towers Watson’s reserve study fo
Slide 17: Investments rule #1: Don't lose your money
effectively balance risk and return investments rule #1: ‘Don’t lose your money’ asset allocation credit quality non agency agency structured equities, 2% structured products, 3% BBB (10%) products, cash and BB or 11% short term A (24%) below investments, (3%) 25% duration average 1.8 years AA (9%)
Slide 18: Operate nimbly through the cycle
operate nimbly through the cycle active portfolio rebalancing as opportunities evolve swift reallocation of capital; minimal tactical inertia decisions made ahead of the competition 100% 80% 60% property energy 40% marine aviation 20% 0% 2006 2007 2008 2009 2010 18
Slide 19: Operate nimbly through the cycle
operate nimbly through the cycle 80% insurance 20% reinsurance 30% nat-cat exposed 70% other GoM energy1 offshore WW energy 8% 20% energy 31% property cat112% onshore WW energy 1% energy construction 2% aviation AV52 political risk 9% aviation 9% 8% marine hull 5% property 48% marine construction te
Slide 20: Operate nimbly through the cycle: renewal price index
operate nimbly through the cycle Lancashire renewal price index vs. 2006 2011 Q1 Class 2006 2007 2008 2009 2010 est.1 Property 100 97 96 127 121 115 Reinsurance Property Direct & 100 92 83 90 84 71 Facultative Energy Gulf of 100 80 64 137 139 139 Mexico Energy Worldwide 100 80 68 84 88 92 Offshore M
Slide 21: Operate nimbly through the cycle: trading outlook
operate nimbly through the cycle trading outlook: good general hardening of rates across portfolio Property Insurance RMS 11 positively impacting renewals for catastrophe driven accounts. Seeing in flow of international catastrophe exposed accounts with substantial increased rates Reinsurance Intern
Slide 22: Operate nimbly through the cycle: RMS version 11
operate nimbly through the cycle RMS version 11 Coastal wind still drives results Non coastal Commercial wind risk up increases more substantially than residential RMS v11 Wind and waves Some coastal modelled for wind risk down offshore Storm surge risk increases Changes will vary greatly for indivi
Slide 23: Proven record of active capital management
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 dividends1 239.1 - 263.0 264.0 - 766.1 Ordinary dividends - - 10.5 9.4 - 19.9 – interim1 Ordinary dividends - - - 20.8
Slide 24: Constant adjustment of capital
operate nimbly through the cycle constant adjustment of capital proven record since inception 1,750 1,500 1,250 retained earnings 1,000 750 sub-debt $M 500 equity 250 share repurchases 0 dividends -250 -500 2006 2007 2008 2009 2010 Q1 2011 24 24
Slide 25: Constant adjustment of capital: 12-month example
operate nimbly through the cycle Excess capital builds constant adjustment of capital during the year if profits exceed share Our target capital an example over 12 months headroom increases repurchases & ordinary dividends in hurricane season 'excess' capital target headroom internal min capital reg
Slide 26: Strategy, success, sustainability
strategy success sustainability 26
Slide 27: www.lancashiregroup.com
www.lancashiregroup.com (1) 441 278 8950 27