Press releases
2007
2007 Q2 and Half Year Results
06 Aug 2007
Fully converted book value grows 5.4% in Q2, 13.0% year to date
Gross written premiums grow 32.8% in Q2, 42.7% year to date
Combined ratio 56.6% in Q2, 52.2% year to date
Hamilton , Bermuda, 6 August 2007
Lancashire Holdings (“ Lancashire” or “the Company”) today announces its results for the second quarter of 2007 and the six month period ended 30 June 2007.
Despite a backdrop of significant industry insurance losses and challenging investment markets, Lancashire has continued to generate excellent growth in book value.
Financial highlights for the second quarter of 2007:
- Fully converted book value per share grows 5.4% over the quarter;
- Gross written premiums of $270.8 million, an increase of 32.8% from the second quarter of 2006. Net written premiums increased 51.6%;
- Loss ratio of 34.4% and a combined ratio of 56.6%;
- Total annualised investment return of 3.8% for the second quarter, including net investment income, realized gains and losses, and unrealized gains and losses;
- Net income after tax of $82.5 million, $0.40 diluted earnings per share, or £0.20 diluted earnings per share.
Financial highlights for the six months to 30 June 2007:
- Fully converted book value per share grows 13.0% for the first half of 2007, bringing the rolling 12 month growth in fully converted book value per share to 27.1%;
- Gross written premiums of $451.5 million, an increase of 42.7% from the first half of 2006. Net written premiums increased 53.3%;
- Loss ratio of 28.9% and a combined ratio of 52.2%;
- Total annualised investment return of 5.3% for the six months to 30 June 2007, including net investment income, realized gains and losses, and unrealized gains and losses;
- Net income after tax of $170.4 million for the six months to 30 June, 2007, $0.83 diluted earnings per share, or £0.42 diluted earnings per share.
Richard Brindle, Group Chief Executive Officer, commented:
“In both relative and absolute terms, Lancashire has enjoyed an excellent first half of 2007. A 13% return on equity to date is evidence that our underwriting judgment is sound and our risk management is robust. In addition to events in Australia and Japan, we were tested by the June U.K. flooding; a loss which, on current estimates, ranks in the top 10 of non-U.S. catastrophe events in recent memory. Despite these events, Lancashire produced combined ratios of 56.6% and 52.2% for the quarter and year to date, respectively. Our investment portfolio also stood up well, reflecting our strategy to keep duration short and credit quality high. We maintain a low risk tolerance on investments, and do not currently hold any sub-prime or CDO securities.”
“When we started this business, we chose a different path from other post-Katrina market entrants and indeed from many existing companies. It was assumed we would be a mono-line property cat reinsurer. In fact, the Lancashire strategy is entirely different. Our approach is to write a diversified book of direct specialty insurance. We have built an excellent team, broadened our platform beyond Bermuda within nine months and established a sophisticated framework of operations thoroughly grounded in enterprise-wide risk management principles. Today, we’re very pleased to have completed our transition to an established major specialty insurer. Our start-up days are well and truly over.”
Underwriting results
Gross written premiums increased 32.8% in the second quarter of 2007 compared to the same period in 2006. In 2007 to date, gross written premiums increased 42.7% compared to the first six months of 2006. The main drivers were the UK operating platform, which began underwriting in late 2006, and a substantial increase in submission count. All segments experienced an increase in premiums written. Direct and facultative property and worldwide energy classes in particular experienced the largest growth.
In general, rates continue to soften and this is expected to continue in the absence of significant industry losses. However, in the majority of classes underwritten, rates and terms remain good overall.
In the quarter and for the year to date, the amount of premium ceded was similar to the prior year periods, reflecting a slightly higher retention rate in 2007 than 2006. Net written premiums increased 51.6% in the second quarter of 2007 compared to the second quarter of 2006, and increased 53.3% year to date over the same period in 2006.
Net earned premiums as a proportion of net written premiums were 75% in the second quarter of 2007, and 78% in the six months to 30 June 2007. This ratio is reflective of a growing portfolio and is expected to gradually increase as the year progresses.
The loss ratios of 34.4% and 28.9% for the three and six months to 30 June 2007, respectively, reflect a very good underwriting performance in all segments. Lancashire does not currently expect to incur losses from the June UK flooding.
Investments
Net investment income was $18.6 million for the second quarter, an increase of 46.5% over the second quarter of 2006. Net investment income was $35.3 million in the six months to 30 June 2007, an increase of 45.9% over the first half of 2006. The increase in investment income is primarily due to high net operating cashflow, resulting in higher net invested assets.
Total investment return, including net investment income, net realized gains and losses and net unrealized gains and losses, was $12.6 million in the quarter and $30.5 million for the year to date. Total investment return was lower than net investment income due primarily to weak fixed income markets in the second quarter. This weakness was mitigated by Lancashire’s strategy to maintain duration short and credit quality high.
Capital
At 30 June 2007, total capital was $1.440 billion, comprising shareholders’ equity of $1.310 billion and $129 million of long-term debt. Leverage was 9.0%.
Guidance
2007 guidance on gross premiums and return on equity remains unchanged. Based on anticipated terms and conditions, 2007 gross premiums written are expected to increase by at least 20% over 2006. Fully converted book value per share is projected to increase between 20 and 25% in 2007, including dividends, assuming a normal level of losses.
Should Lancashire experience normal or lower than expected loss activity, and underwriting opportunities consequently decrease, it is likely that a significant proportion of 2007 profits will be returned to shareholders upon approval by the Board of Directors.
Further detail of our 2007 second quarter results can be obtained from our Financial Supplement. This can be accessed via our website www.lancashiregroup.com.
Investor Presentation and Earnings Call
There will be an investor presentation on the results at 1200UK time (BST) on Monday 6 August at Financial Dynamics, Holborn Gate, 26 Southampton Buildings, London WC2A 1PB. This presentation will be hosted by Richard Brindle, Chief Executive Officer; Neil McConachie, Chief Financial Officer; and Simon Burton, Deputy Chief Executive Officer. Those wishing to attend are asked to contact Rob Bailhache or Nick Henderson at Financial Dynamics on +44 (0) 207 269 7200 / robert.bailhache@fd.com or +44 (0) 207 269 7114 / nick.henderson@fd.com.
The presentation will also be accessible via a conference call for those unable to attend in person. To dial-in please call 0845 245 5000 / 1 866 832 0717 (pass code: 6408031).
There will also be a live webcast of the presentation at www.lancashiregroup.com . A replay facility can also be accessed at www.lancashiregroup.com.
For further information, please contact:
| Lancashire Holdings | +1 441 278 8950 |
| Neil McConachie | |
| Financial Dynamics | +44 20 7269 7114 |
| Rob Bailhache | |
| Nick Henderson | |
| Kekst & Company Inc. | |
| Michael Herley | (1) 212 521 4897 |
| Mark Semer | (1) 212 521 4802 |
Investor enquiries and questions can also be directed to investors@lancashiregroup.com or by accessing the Company’s website www.lancashiregroup.com.