Lancashire Holdings Limited · LSE:LRE
Lancashire — Investor Presentation (September 2011)
27 slides from Lancashire's investor presentation, September 2011
Slide 1: Investor Presentation September 2011
Investor Presentation September 2011 Q2 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 Dubai. Lancashire focuses on short-tail, mostly direct, specialty insurance risks under four general categories: property, energy, marine and aviation. • Fully
Slide 4: H1 2011 headlines
H1 2011 headlines • Combined ratio of 69.5% • Reported loss ratio of 38.2%; accident year loss ratio of 73.0% • Combined ratio since inception of 58.0% (including G&A) • New Zealand / Australia catastrophe loss of $17.8M • Reserve of $72.9M (gross & net) for Japan quake, $72.0M after RIP; contribute
Slide 5: Performance in recent cat events
performance in recent cat events As of 9 September 2011 Source: Company reports and Aon Benfield 5
Slide 6: Our consistent and excellent track record
our consistent and excellent track record RoE* since inception 40% 30% 20% 10% 0% 2006 2007 2008 2009 2010 H1 2011 combined ratio since inception 100% 80% 60% 40% 20% 0% 2006 2007 2008 2009 2010 H1 2011 total investment return since inception 8% 6% 4% 2% 0% 2006 2007 2008 2009 2010 H1 2011 * RoE is
Slide 7: 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 8: Underwriting comes first
underwriting comes first 79% insurance 21% reinsurance 32% nat-cat exposed 68% other GoM energy 10% offshore WW energy 22% energy 35% property cat 13% onshore WW energy 1% energy construction 2% political risk aviation AV52 8% aviation 8% 5% marine hull 4% property 44% terrorism 10% marine construct
Slide 9: Underwriting comes first: technology and culture
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 10: Trading outlook: catastrophe positive
underwriting comes first trading outlook: catastrophe positive no broad market turn - yet Property Insurance RMS 11 positively impacting renewals for catastrophe driven accounts. Seeing a selection international catastrophe exposed accounts with increased rates Reinsurance International property cat
Slide 11: Trading outlook: energy modestly positive
underwriting comes first trading outlook: energy modestly positive Energy Gulf of Stable market outlook. Drilling was 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 c
Slide 12: Transitional market – Retro & property catastrophe
underwriting comes first Transitional market – Retro & property catastrophe Lancashire Competition Portfolio Marginal pricing Portfolio optimisation optimisation Marginal pricing Retain more capital Status quo Hard market retro Cocoon mentality Write diversified portfolio Withdrawal of capacity in l
Slide 13: What could drive change?
underwriting comes first What could drive change? Higher demand for cover Restricted supply of capital Capital Shortfalls Poor results RMS11 US/Europe Trading below book Loss history/PML calibrations Closed debt markets Reserve shortfalls Nervous investors Fear Trapped capital Rating agency pressure
Slide 14: Enhancing sophistication of 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 15: Effectively balance risk and return: PML by zone
effectively balance risk and return 100 year return 250 year return Zones Perils period $M period $M (% of capital)1 (% of capital) 1 Gulf of Mexico Hurricane 252 (17%) 369 (24%) California Earthquake 101 (7%) 190 (13%) Pacific Northwest Earthquake 35 (2%) 123 (8%) Pan-European Windstorm 110 (7%) 17
Slide 16: RMS and AIR model differences
effectively balance risk and return • Using the same exposure database, RMS and AIR give similar baseline results at the Industry Level • We note two major differences between these models: • Medium term rates: RMS assumes that more hurricanes are likely to develop in the short run than AIR, to acco
Slide 17: Lancashire response to RMS 11
effectively balance risk and return Lancashire response to RMS 11 US wind • Dialogue with RMS and AIR began late 2008 for offshore risks and October 2010 • Identified potential highly impacted RMS 11 accounts in Q4 2010 and modelled them to identify key drivers of capital and least efficient drivers
Slide 18: Consistent positive 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 18
Slide 19: Further favourable development in 2011 of $96.9M
effectively balance risk and return further favourable development in 2011 of $96.9M Independent Chile earthquake Political risk Non-specific reserve study release release cross-line releases $36.9m $10.0m $9.3m $40.7m • Independent reserve study performed • Faster reporting patterns • Lower initial
Slide 20: Change in loss event estimates versus peers
effectively balance risk and return % increase / (decrease) of Q4 2010 & Q1 2011 loss event estimates 50% % Increase / (decrease) from original reported estimate NZ '10 AUS '10 AUS '11 NZ '11 JPN 40% 30% 20% 10% 0% Platinum Re Montpelier Re Arch Hiscox Average Amlin Flagstone Re Catlin Beazley Valid
Slide 21: 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 cash and short structured term products, 6% securities, 20% BBB (9%) agency (increased to BB or below structured 23%)* A (26%) (3%) products, 11% equities, 4% (reduced to 3%)*
Slide 22: Accordion outlook excellent
operate nimbly through the cycle accordian outlook excellent • Rationale • Accumulation of catastrophe events • Exhaustion of programme limits • Implementation of RMS 11 US & Europe • Product offering • Worldwide product attaching around approximately $15B for international catastrophe & $35B for US
Slide 23: Change in tax residency
operate nimbly through the cycle change in tax residency Why? • 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 • Increases management flexibility, ability to make deci
Slide 24: Proven record of active capital management
operate nimbly through the cycle proven record of active capital management 2007 2008 2009 2010 H1 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 9.62 29.5 – interim1 Ordinary dividends - - -
Slide 25: Constant adjustment of capital
operate nimbly through the cycle constant adjustment of capital 1,750 1,500 1,250 retained earnings 1,000 sub-debt $M 750 500 equity 250 share repurchases 0 dividends (250) (500) 2006 2007 2008 2009 2010 H1 2011 25 25
Slide 26: 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 19.9% profitable five years Financial targets out of five Success in achieving our goals is measured special dividend 3 out of last against risk
Slide 27: www.lancashiregroup.com
www.lancashiregroup.com (1) 441 278 8950 27
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