Lancashire Holdings Limited · LSE:LRE
Lancashire — Investor Day (September 2016)
37 slides from Lancashire's investor day presentation, Sep 8, 2016
Slide 1: Investor Day
Investor Day Investor Presentation 8th September 2016 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: Proposed Table of Contents
Proposed Table of Contents 1. Lancashire Group 2. Underwriting Comes First 3. Proactive Capital Management 4. Sticking to our game plan 5. Appendices 3
Slide 4: 1. Lancashire Group
1. Lancashire Group 4
Slide 5: Lancashire Group - The power of three platforms within one business
Lancashire Group - The power of three platforms within one business Lancashire 2015 High layers with high deductibles differentiate market position and drive low attritional loss ratios GPW(2)$393m RoE 9.3% Lower number of large contracts and single exposures provide greater underwriting control
Slide 6: Lancashire Group - Proven strategy for long term success
Lancashire Group - Proven strategy for long term success Underwriting comes first • Underwriting excellence is key to delivery • Unique underwriting approach • Over 10 year track-record of consistent combined ratio out performance shareholder return Effectively balance risk and return • Unique b
Slide 7: Lancashire Group - The 2013 Cathedral acquisition – a good strategic fit
Lancashire Group - The 2013 Cathedral acquisition – a good strategic fit • Did what it said on the tin • Track record of superior underwriting performance • Proven out performance in challenging times - Despite WTC Syndicate 2010 made a profit in its first year. - Katrina did not exceed the limit of
Slide 8: Cycle management strategy is proven: 10 years of outstanding CR and shareholder returns
Lancashire Group - Cycle management strategy is proven: 10 years of outstanding CR and shareholder returns 100% 35% 90% 30% 10-Year Average 80% CoR: 61.5% 70% 25% 10-Year Average ROE: 18.4% 60% 20% 50% 15% 40% 30% 10% 7-Year Average Div Yield: 14.3% 20% 5% 10% 0% 0% 2006 2007 2008 2009 2010 2011 201
Slide 9: 2. Underwriting Comes First
2. Underwriting Comes First 9
Slide 10: Underwriting Comes First
“Underwriting Comes First” Appropriate mix of technology, culture and underwriting Micro – Underwriting & Marketing Macro – Risk Return Committee Conference Call • Fortnightly review with underwriters, finance, risk & actuarial departments • Daily underwriting call – management awareness • Risk leve
Slide 11: Usefulness of model in underwriting
“Underwriting Comes First” mantra drives consistent combined ratio outperformance 1. UMCC — Daily / RRC — Fortnightly Hard Factors Soft Factors • Within risk appetite/portfolio fit • Market condition • Base rating adequacy • Client reputation • Loss record • Client relationship 2. Dynamic Strategy,
Slide 12: Business model evolution proves strategy of Active Cycle Management
“Underwriting Comes First” Business model evolution proves strategy of “Active Cycle Management” 2007 – Lancashire 2015 – Lancashire + Cathedral GWP GWP Aviation 11% Other Aviation Property 41% Other Lloyd’s Aviation & 5% AV52 3% Property D&F Lloyd’s 39% Satellite Property Cat Marine 10% 8% 4% 14% P
Slide 13: Exposure management – Increasing RI purchases
“Underwriting Comes First” Exposure management – Increasing RI purchases Lancashire first loss XL limit 2012 vs 2016 September Outwards RI 1st loss limit 2016 Outwards RI 1st loss limit 2012 Energy ex Energy ex Energy Energy Marine Marine Marine Marine Terrorism Terrorism US ANP Core Prop Core Prop
Slide 14: Managing the Cycle
“Underwriting Comes First” Managing the Cycle LRE has benefited from substantial outwards Reinsurance opportunities in a soft pricing cycle • Since April 2012, which was the high-tide mark of the pricing cycle, the Group has reduced PMLs across all key exposures, in spite of the addition of Cathedra
Slide 15: Our underwriting performance has been exceptional
“Underwriting Comes First” Our underwriting performance has been exceptional: We outperformed in the toughest markets Combined ratio (1) $Bn 120% $140 Ike, Gustav $120 100% Japan EQ, NZ II, US Tornadoes, Thai Floods, $100 Gryphon FPSO 80% Chile EQ, Costa Concordia, Deepwater Sandy $80 Horizon 60% $6
Slide 16: Consistently reflects our prudent reserving philosophy
“Underwriting Comes First” Consistently reflects our prudent reserving Philosophy (1) $160 $140 $120 prior year reserve releases ($m) $100 $80 $60 $40 $20 $0 ($20) ($40) 2008 2009 2010 2011 2012 2013 2014 2015 H1 2016 property (LHS) energy (LHS) marine (LHS) aviation (LHS) Lloyd's (LHS) 2011 reserve
Slide 17: 3. Proactive Capital Management
3. Proactive Capital Management 17
Slide 18: Proactive Capital Management - Financial flexibility
Proactive Capital Management - Financial flexibility Review of stress tests Excess capital builds Constant adjustment of capital and approval of during the year if profits business plan with exceed share capital projection at repurchases & ordinary an example over 12 months the November Board divide
Slide 19: Operate nimbly through the cycle
Proactive Capital Management – Operate nimbly through the cycle proven record of active capital management 500 300% 450 18.0% 250% 400 17.8% 350 15.2% (2) 12.3% 17.3% 200% 300 18.1% ($m) 250 150% 8.3% 200 8.4% 100% 150 100 N/A 50% 1.9% 50 0 0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 H1 2016 (1)
Slide 20: 4. Sticking to our game plan
4. Sticking to our game plan 20
Slide 21: Our goal: attractive risk-adjusted total return to shareholders
Our goal: to provide an attractive risk-adjusted total return to shareholders over the long-term Lancashire total shareholder return vs. major index returns 550% 500% 450% 400% 350% total shareholder return 300% 250% 200% 150% 100% 50% 0% (50%) (100%) S&P 500 FTSE 250 FTSE 350 Insurance S&P Financia
Slide 22: Consistency: Total value creation (TVC)
Consistency: Total value creation (TVC) Five year standard deviation(1) in TVC 20% 18% Beazley 16% 14% Lancashire Five year RoE 12% Everest Ren Re Hiscox 10% Novae Validus Axis 8% Endurance 6% Hanover Aspen Argo 4% 2% 0% 2.5% 5.0% 7.5% 10.0% Five year standard deviation of RoE • Lancashire has one o
Slide 23: Conclusion
Conclusion • Lancashire has one of the best performances and yet the lowest volatility in the London and Bermudian markets • Our strategy is designed to cope with hard and soft markets, managing capital and exposures to provide superior risk-adjusted returns across the cycle • Group management has d
Slide 24: 5. Appendices
5. Appendices 24
Slide 25: Different market access drives cross cycle resilience
Different market access drives cross cycle resilience Lancashire Cathedral Kinesis • Reinsurance portfolio focused on high • Focus on smaller lines and niche • Focus on large line sizes and lower number layers/insurance portfolio focused on risks portfolios – e.g. Property D&F average line size of m
Slide 26: Lancashire: Property catastrophe reinsurance
Lancashire: Property catastrophe reinsurance Mitigating impact of falling rates Ability to compete • The Group bought more retro cover from which LICL may • Ability to offer reinstatement cover (unlike collateralised benefit, attaching above our main Cat XoL retro program. markets which require fron
Slide 27: Lancashire: Energy
Lancashire: Energy Mitigating impact of falling rates Ability to compete • Deepwater GOM portfolio with small but loyal client base • Large lines make us a relevant and important component of who want to protect part of their premium spend with leadership panel. long-term deals. • We have the capabi
Slide 28: Lancashire: Property terrorism and political violence
Lancashire: Property terrorism and political violence Mitigating impact of falling rates Ability to compete • Instability around the world continues to highlight the • Lancashire’s line size ensures our relevance and value perils of Terrorism and Political Violence and drive as a key market to broke
Slide 29: Lancashire: Property political and sovereign risk
Lancashire: Property political and sovereign risk Mitigating impact of falling rates Ability to compete • With increasing geopolitical and economic turbulence on • We consistently deliver an efficient and effective service a global scale, combined with increased corporate and to our clients and brok
Slide 30: Lancashire: Marine
Lancashire: Marine Mitigating impact of falling rates Ability to compete • We write the risks with large limit requirements which • Large lines make us relevant as a quoting market to means our capacity is still in demand. brokers. • Core clients have helped protect our market share to a • We have a
Slide 31: Lancashire: Aviation and satellite
Lancashire: Aviation and satellite Mitigating impact of falling rates Ability to compete AV52 • Large lines on AV52 make us relevant as a quoting market to • No attritional losses ever. brokers. • Our large line size mean that all opportunities are made • We have the ability and willingness to lead
Slide 32: Lancashire: RPI and underwriting statistics
Lancashire: RPI and underwriting statistics YTD Cumulative RPI 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Property catastrophe 100 100 97 100 92 100 116 114 99 88 81 reinsurance Energy GOM 100 80 64 137 139 140 140 136 125 118 110 Energy WW offshore 100 80 68 84 88 97 100 97 91 81 70 Ter
Slide 33: Cathedral: Property reinsurance
Cathedral: Property reinsurance Core Non-core / Opportunistic U.S. Portfolio – Small to medium Mutuals • US Nationwide mega accounts • Home owners • Farm owners • Florida private reinsurance market prefers D&F • Automobile (physical damage) • Small commercial properties • Super Regional US accounts
Slide 34: Cathedral: Property direct & facultative
Cathedral: Property direct & facultative Core Non-core / Opportunistic U.S. open market - Average line size circa $2m • Aggregate and underwriting appetite remain ready • Small to midsized ‘soft’ occupancy focus for post loss opportunities. • Low to mid level excess of loss • We will withdraw from t
Slide 35: Cathedral: Aviation reinsurance & satellite
Cathedral: Aviation reinsurance & satellite Core Non-core / Opportunistic Airline XL - Core part of the account exposed to major Bigger direct clients catastrophes but aggregate focused on small to medium • No pay back / do they need to buy? size direct insurers enabling better portfolio management.
Slide 36: Cathedral: Aviation direct & war
Cathedral: Aviation direct & war Aviation Hull & Liabilities Market Support • Established market leading team in General Aviation Consortia and lower tier airlines. • Our War underwriting is conducted for us and on behalf • Team is getting good broker and client support despite of a number of leadin
Slide 37: Cathedral: Cargo
Cathedral: Cargo Core Non-core / Opportunistic Marine Cargo Marine Cargo • Established, relationship driven, profitable, marine • Cargo stock-throughput – where non catastrophe cargo accounts with good risk management. exposed. • Complementary rather than clashing exposures and • Cargo consequential