Q4 2013 Results

GROWTH IN FULLY CONVERTED BOOK VALUE PER SHARE, ADJUSTED FOR
DIVIDENDS, OF 3.7% IN Q4 2013, 18.9% IN 2013
COMBINED RATIO OF 71.4% IN Q4 2013, 70.2% IN 2013
COMPLETION OF PURCHASE OF CATHEDRAL GROUP 7 NOVEMBER 2013
SPECIAL DIVIDEND OF $0.20 PER COMMON SHARE
FINAL ORDINARY DIVIDEND OF $0.10 PER COMMON SHARE
FULLY CONVERTED BOOK VALUE PER SHARE OF $7.50 AT 31 DECEMBER 2013

London, UK

Lancashire Holdings Limited ("Lancashire" or "the Group") today announces its results for the fourth quarter of 2013 and the year ended 31 December 2013.

Financial highlights:

* Return on equity is defined as growth in fully converted book value per share, adjusted for dividends.
** See "Dividends" below for Record Date and Dividend Payment Date.

Fincancial Highlights:

*** These amounts are attributable to Lancashire and exclude non-controlling interests.

Richard Brindle, Group Chief Executive Officer, commented:

"I am pleased to report a strong close to an exciting year in Lancashire's history.  RoE of 3.7% for the quarter and 18.9% for the full year are good results. The special dividend we have announced today reinforces our pledge that our commitment to capital management has not changed. But for Lancashire, 2013 has seen the most dramatic changes in our history. We have broadened our platforms, our core portfolio lines and our reinsurance purchasing capabilities, but without compromising our business model or our focus on underwriting.

There is a lot of gloom about the state of the market. But there is some truth in the old view that good underwriters prefer a soft market. In a hard market the benefits of superior risk selection and a focus on risk-adjusted return are cancelled out by the broad spread of strong pricing. In a soft market the strong underwriting franchises differentiate themselves. We can select the right clients and attachment points in a programme. We have a solid core portfolio but have the discipline to let go of under-priced, opportunistic business. And through the judicious use of reinsurance we can improve the risk-adjusted portfolio returns even when pricing is under pressure.

So whilst it might be an exaggeration to say that we relish the prospect of the coming year, we don't mind hard work, and we think our business model has evolved to cope very well with the softening market. And let's remember that although rates are undoubtedly coming down, they're doing so from what are historically high levels in much of our business.

There are also signs that the panic that affected some commentators who foresaw decimation of the traditional markets was overdone. Many of our clients understand the value of the superior policy features offered by traditional markets like reinstatements and multi-year capacity. They know that relationships are based on an understanding that claims are often a process of negotiation based on detailed policy understanding, which goes beyond the ability to model an output.

So for much of the portfolio there are real barriers to entry, based on product design which make rated capital a better fit for the client. But even in U.S. catastrophe reinsurance, where alternative capital has made the most inroads, it's not all one way traffic. For example, if we look at Cathedral's U.S. mutual portfolio where John Hamblin and Nick Destro's client relationships stretch back as far as twenty years, the penetration of alternative capital is close to, if not actually, zero.

Our own permanent vehicle for third party capital, Kinesis, has made a good start deploying over $252 million of limit at 1 January 2014. Darren Redhead's team has developed a bespoke product combining risk and catastrophe exposures, that offers real benefits to clients on tail risk mitigation. In addition, Lancashire Insurance Company Limited ("LICL") and Lancashire Insurance Company (UK) Limited ("LUK") continue to find new business opportunities such as energy liability, terrorism and obligors to complement the solid core portfolios in offshore energy, aviation and marine.

So we don't share the gloomy outlook. With our three platforms comprising our permanent reinsurance asset management business in Kinesis, our top-performing Lloyd's business in Cathedral and our leading specialist insurance and reinsurance businesses in Lancashire, together with our sound business model and outstanding team, we believe that we can navigate a course through this market, and indeed the next hard market when that comes."

Elaine Whelan, Group Chief Financial Officer, commented:

"Our acquisition of the Cathedral Group completed on 7 November 2013. Lancashire, as a combined group, produced a RoE of 3.7% for the quarter and 18.9% for the year. The quarter included two months of Cathedral's performance, but also our adjustments for acquisition accounting and contingent advisory fees. The one-off adjustments were largely offsetting, so the RoE for the quarter for Lancashire was approximately 3.2%, with Cathedral adding approximately 0.5%. As we highlighted in the third quarter, the Group also benefited from our equity issuance and hedging activities – these contributed approximately 6% to our RoE for the year.

Ignoring the one-off impacts, the Group had a reasonable quarter with no notable losses reported, and Cathedral's results were in line with prior year performance and expectations. Our investment portfolio produced a small positive return, driven by strong performance in our bank loan and emerging market debt portfolios.

We are continuing to re-balance our capital requirements as a combined Group and work on re-structuring our capital base is ongoing. A large part of that has already been completed, however, and we are therefore able to top up the special dividend we declared last quarter with a further special dividend, plus the related dividend equivalent payments, of approximately $43 million. With the special dividend declared in November, combined with our interim and final ordinary dividends for this financial year, we have now returned 88.4% of comprehensive income for the year and 93.3% of comprehensive income since inception. While pricing is declining in some areas of our portfolio, our overall outlook remains reasonable and we will continue to review opportunities as a combined group and refine our capital position accordingly."

Cathedral

The Cathedral acquisition completed on 7 November 2013. Results for Cathedral have been included in Lancashire's Group results, as the Lloyd's segment, from that date. For information only, our fourth quarter 2013 financial supplement includes proforma financial statements for Cathedral for the year ended 31 December 2013 by quarter and by underwriting segment.

Lancashire Renewal Price Index for major classes

Lancashire's Renewal Price Index ("RPI") is an internal methodology that management uses to track trends in premium rates on a portfolio of insurance and reinsurance contracts. The RPI is calculated on a per contract basis and reflects Lancashire's assessment of relative changes in price, terms, conditions and limits on like for like renewals only, and is weighted by premium volume (see "Note Regarding RPI Methodology" at the end of this announcement for further guidance). The RPI does not include new business and only covers business written by Lancashire, excluding the Lloyd's segment, to offer a consistent basis for analysis. The following RPIs are expressed as an approximate percentage of pricing achieved on similar contracts written in 2012:

Underwriting results

Gross premiums written

Gross premiums written increased by 36.3% in the fourth quarter of 2013 compared to the same period in 2012. In 2013 gross premiums written decreased by 6.2% compared to 2012. The Group's five principal segments and the key market factors impacting them are discussed below.

Property gross premiums written increased by 27.1% for the quarter compared to the same period in 2012 and decreased by 6.5% in 2013 compared to 2012. We continued to see increased deal flow in the political and sovereign risk book in the fourth quarter along with some new opportunities in our terrorism book. For the year, the reduction in property premiums written is primarily due to the reduction of our property retrocession book and our decision to cease writing property direct and facultative business from 1 July 2012. For the year, these reductions have been somewhat offset by the writing of new business with core clients in the political and sovereign risk class, which also offset the non-renewal of long-term deals written in these classes in the previous year. While certain opportunistic property catastrophe deals written in 2012 were not renewed in 2013, as they were no longer required, the premium was largely replaced by new business as capital was redeployed from property retrocession and property direct and facultative. With this expansion, property catastrophe premiums year on year were therefore broadly flat.

Energy gross premiums written for the quarter increased by 34.4% compared to the same period in 2012 and decreased by 12.9% in 2013 compared to 2012. Although the fourth quarter is not a major renewal period for the energy book a few new business deals were written across the class resulting in an increase in premiums compared to the fourth quarter of 2012. The decrease in premiums for the year is mostly driven by the Gulf of Mexico book, where a number of deals that were written on a multi-year basis in the second quarter of 2012 are not up for renewal yet. During 2013 we continued the expansion of a new sub class – energy liabilities – with $8.8 million of new business premiums written this year.

Marine gross premiums written decreased by 31.2% for the quarter compared to the same period in 2012 and by 22.2% in 2013 compared to 2012. The decrease in both the quarter and year premium volumes across all the marine classes is primarily due to the timing of non-annual contract renewals.

Aviation gross premiums written decreased by 12.4% for the quarter compared to the same period in 2012 and increased by 6.5% in 2013 compared to 2012. Pricing and renewal rates remain under pressure in the AV52 class resulting in a reduction in premiums in both the fourth quarter and 2013 compared to the same periods of 2012. For the year these reductions are offset by new satellite premium written following our re-entry into the class in the third quarter of 2012.

The Lloyd's segment includes premiums written by Cathedral from the date of acquisition. The fourth quarter is not a major renewal period for Cathedral. The largest contributor was the property direct and facultative line of business.

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Ceded reinsurance premiums increased by $7.2 million, or 153.2%, for the fourth quarter of 2013 and decreased by $26.1 million, or 17.6%, for the year ended 2013, in each case compared to the same periods in 2012. The fourth quarter is not a major renewal season for the Group's reinsurance programme and most of the spend in the quarter related to programme adjustments and facultative covers. The fourth quarter of 2013 also included $1.7 million of ceded premium for the new Lloyd's segment. The fourth quarter of 2012 included ceded reinstatement premium reductions relating to the Thailand flood losses.

Total cessions to the Accordion sidecar were $47.9 million in 2013 versus $64.8 million in 2012. The overall decrease in ceded reinsurance premiums for the year is therefore predominantly due to reduced cessions to the Accordion vehicles. The remainder of the decrease was driven by reduced reinstatement premiums on the Group's marine and energy cover plus reduced use of alternative covers given declining underlying exposures. Rate changes and a restructuring of our marine and energy cover in 2013 largely offset each other in premium terms, and while we did not renew our property programme the reduced spend on that was almost entirely offset by an increase in facultative covers purchased.

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Net premiums earned as a proportion of net premiums written were 135.3% in the fourth quarter of 2013 compared to 146.1% in the same period in 2012 and 101.9% in 2013, compared to 101.1% in 2012. The fourth quarter of 2013 includes a higher proportion of multi-year deals written in the political and sovereign risk and terrorism books than in the same period of 2012. Both years benefited from the lag in earnings from long-term contracts written in preceding years.

*******

The Group's net loss ratio for the fourth quarter of 2013 was 29.5% compared to 41.3% for the same period in 2012 and 33.1% for 2013 compared to 29.9% for 2012. The fourth quarter of 2013 includes the Lloyd's segment incurred losses from the date of acquisition. The fourth quarter 2013 net loss ratio was driven by a low level of reported losses somewhat offset by some adverse development in the energy line of business. This compared with the $44.5 million Sandy loss and $19.4 million adverse development on the Thailand flood loss, after reinsurance and reinstatement premiums, in the same period of 2012. Net losses attributable to the Lloyd's segment totalled $19.0 million of attritional losses. The Lloyd's segment's loss ratio for the period since the acquisition date was 47.7%.

The twelve months to 31 December 2013 were impacted by a number of energy losses and developments, the European hail and flood events, and adverse development on the Costa Concordia marine loss. The net loss to the Group from the European hail and floods, after reinsurance and reinstatement premiums, was $20.7 million. The net adverse development on the Costa Concordia marine loss in 2013 was $37.9 million, after reinsurance and reinstatement premium. In the twelve months to 31 December 2012 we recorded a total estimated net loss of $103.7 million, after reinsurance and reinstatement premium, in respect of the Costa Concordia and Sandy losses. At year end 2013, our total estimated net loss, after reinsurance and reinstatement premiums, for the Costa Concordia loss was $97.1 million and for the Sandy loss was $30.7 million.

Prior year favourable development for the fourth quarter was $8.2 million, compared to $15.1 million of adverse development for the fourth quarter of 2012. The fourth quarter of 2012 included adverse development of $19.4 million for the Thailand flood losses. Favourable development was $15.9 million for 2013, compared to $27.4 million for 2012, with 2013 impacted significantly by the adverse development on the Costa Concordia marine loss in the second quarter. Both years otherwise experienced releases due to lower than expected reported losses, with 2012 having exceptionally low reported losses.

The following tables show the impact of prior year development and large losses on the Group's loss ratio:

Note: Adjusted loss ratio excludes large losses and prior year development. The table does not sum to a total due to the impact of reinstatement premiums.

Note: Adjusted loss ratio excludes large losses and prior year development. The table does not sum to a total due to the impact of reinstatement premiums.

The table below provides further detail of the prior year's loss development by class, excluding the impact of foreign exchange revaluations.

Note: Positive numbers denote favourable development.

The accident year loss ratio for the fourth quarter of 2013 was 34.6% compared to 30.9% for the same period in 2012. The accident year loss ratio was 36.1% for 2013 compared to 34.6% for 2012. 2013 included 3.7% for the European hail and flood losses while the 2012 accident year loss ratio included 8.5% for the Costa Concordia loss and 7.8% for Sandy. Otherwise both years experienced relatively low levels of reported losses.

Excluding the impact of foreign exchange revaluations, previous accident years' ultimate losses developed as follows during 2013 and 2012:

Note: Positive numbers denote favourable development.

The ratio of IBNR to total net loss reserves was 31.8% at 31 December 2013 compared to 28.1% at 31 December 2012.

Investments

Net investment income, was $6.7 million for the fourth quarter of 2013, a decrease of 16.3% from the fourth quarter of 2012. Net investment income was $25.4 million for 2013, a decrease of 21.8% compared to 2012. Average book yields over the quarter and year were lower than the same periods in 2012. Total investment return, including net investment income, net other investment income, net realised gains and losses, impairments and net change in unrealised gains and losses, was $6.6 million for the fourth quarter of 2013 compared to $7.1 million for the fourth quarter of 2012, and was $6.9 million for 2013 compared to $62.8 million for 2012. Treasury yields and credit spreads increased in the first half of 2013, which had a significantly detrimental impact on our portfolio, and in particular on our emerging market debt portfolio. However, the tail risk hedge implemented in the first half of the year softened the impact somewhat. In the second half of the year, strong returns in our bank loan and emerging market debt portfolios combined with significant credit spread narrowing in the rest of our fixed income portfolio, particularly in the fourth quarter, offset the losses of the first half of the year. Our portfolio therefore produced a marginally positive return for the year. In the corresponding periods of 2012 our portfolio benefited from significant credit spread tightening, particularly in the emerging market debt portfolio.

Currently 2.2% of the portfolio is allocated to the emerging market debt portfolio with an overall average credit quality of BBB. The corporate bond allocation represented 29.7% of managed invested assets at 31 December 2013 compared to 32.2% at 31 December 2012. At 31 December 2013 the Group's allocation to bank loans represented 4.5% of the portfolio. The allocation to bank loans, along with our tail risk hedge, is part of our interest rate risk management strategy to protect the fixed income portfolio from a significant increase in interest rates.

The managed portfolio was as follows:

Key investment portfolio statistics are:

Lancashire Capital Management

The share of profit of associates of $0.5 million for the fourth quarter of 2013 and $9.2 million for 2013 reflects Lancashire's 20% equity interest in the Accordion vehicles and 16.9% interest in the Saltire vehicle. The share of profit of associates was $3.3 million for the fourth quarter of 2012 and $7.7 million for 2012 and related entirely to the Accordion vehicle.

Kinesis Capital Management Limited ("KCM") has now underwritten its first tranche of multi-class reinsurance agreements on behalf of Kinesis Reinsurance I Limited, incepting on or around 1 January 2014. All contracts are fully collateralised with combined aggregate limits of approximately $252 million. Lancashire contributed 10% of the capital raised by Kinesis Holdings I Limited.

Other operating expenses

Operating expenses consist of the following items:

Employee remuneration costs were $2.9 million higher in the fourth quarter of 2013 compared to the same period in the prior year as a result of the timing of variable compensation expense adjustments. The fourth quarter of 2012 included a reversal of employee national insurance accruals in relation to equity compensation exercises, given the actual timing of exercises versus expectations. The first quarter of 2012 included a one-off national insurance charge of $6.9 million, incurred as a result of the Group's tax residency move to the UK with effect from 1 January 2012. Other operating expenses for the fourth quarter of 2013 included legal and advisory fees for the Cathedral acquisition and the structuring of Kinesis.

The Lloyd's segment includes $1.2 million of employee remunerations costs and $6.1 million of other operating expenses incurred since the acquisition date.

Equity based compensation was $4.9 million in the fourth quarter of 2013 compared to $3.9 million in the same period last year. For 2013 and 2012, the charge was $16.7 million and $16.4 million respectively. The equity based compensation charge is driven by the anticipated vesting level of the active awards based on current performance expectations.

Capital

At 31 December 2013, total capital available to Lancashire was $1.792 billion, comprising shareholders' equity of $1.460 billion and $332.3 million of long-term debt. Tangible capital was $1.615 billion. Leverage was 18.5% on total capital and 20.6% on total tangible capital. Total capital and total tangible capital at 31 December 2012 was $1.646 billion.

Dividends

The Lancashire Board declared the following dividends during 2013:

• A final dividend in respect of 2012 of $0.10 per common share;
• An interim dividend of $0.05 per common share; and
• A special dividend of $0.45 per common share.

Lancashire announces that its Board has declared the following dividend payments (collectively the "Dividends"):

• (i) a final dividend for 2013 of $0.10 per common share (approximately £0.06 per common share at the current exchange rate) amounting to an aggregate payment of approximately $18.1 million; and
• (ii) an additional special dividend for 2013 of $0.20 per common share (approximately £0.12 per common share at the current exchange rate) amounting to an aggregate payment of approximately $36.2 million.

The Dividends will result in an aggregate payment of approximately $54.3 million. The Dividends will be paid as a single payment in Pounds Sterling on 16 April 2014 (the "Dividend Payment Date") to shareholders of record on 21 March 2014 (the "Record Date") using the £ / $ spot market exchange rate at 12 noon London time on the Record Date.

Shareholders interested in participating in the dividend reinvestment plan ("DRIP") or other services including international payment, are encouraged to contact the Group's registrars, Capita Registrars, for more details at: http://www.capitaregistrars.com/shareholder.aspx

In addition to the dividend payment to shareholders, a dividend equivalent payment of approximately $8.7 million in aggregate will be paid on the Dividend Payment Date to holders of share warrants issued by the Company pursuant to the terms of the warrants.

The Group will continue to review the appropriate level and composition of capital for the Group with the intention of managing capital to enhance risk-adjusted returns on equity.

Financial information

The consolidated financial statements set out below are audited. The audited Annual Report and Accounts are expected to be posted to shareholders no later than 10 March 2014 and will also be made available on the Group website.

Further details of our 2013 fourth quarter results can be obtained from our Financial Supplement. This can be accessed via our website www.lancashiregroup.com.

Analyst and Investor Earnings Conference Call

There will be an analyst and investor conference call at 1:00pm UK time / 8:00am EST on Thursday, 13 February 2014. The conference call will be hosted by Lancashire management.

The call can be accessed by dialling +44 (0) 203 139 4830 / + 1 718 873 9077 (Toll Free UK +44 (0) 808 237 0030 / Toll Free US + 1 866 928 7517) all with the confirmation code 67883608#. The call can also be accessed via webcast, please go to our website (www.lancashiregroup.com) to access.

A replay facility will be available for two weeks until Thursday, 27 February 2014. The dial in number for the replay facility is Toll +44 (0) 203 426 2807 or (Toll Free UK +44 (0) 808 237 0026 / Toll Free US +1 866 535 8030) with passcode 644986#. The replay facility will also be accessible at www.lancashiregroup.com

For further information, please contact:

Investor enquiries and questions can also be directed to [email protected] or by accessing the Group's website www.lancashiregroup.com.

About Lancashire

Lancashire, through its UK and Bermuda-based operating subsidiaries, is a global provider of specialty insurance and reinsurance products. The Group companies carry the following ratings:

(1) Financial Strength Rating and Financial Strength Outlook apply to Lancashire Insurance Company Limited and Lancashire Insurance Company (UK) Limited.
(2) Long Term Issuer Rating applies to Lancashire Holdings Limited.
NB: Cathedral benefits from Lloyd's ratings: A.M. Best: A (Excellent); Standard & Poor's: A+ (Strong); and Fitch: A+ (Strong).

Lancashire has capital in excess of $1.5 billion and its common shares trade on the premium segment of the Main Market of the London Stock Exchange under the ticker symbol LRE. Lancashire has its corporate headquarters and mailing address at Level 11, Vitro, 60 Fenchurch Street, London EC3M 4AD, United Kingdom and its registered office at Power House, 7 Par-la-Ville Road, Hamilton HM 11, Bermuda.

For more information on Lancashire, visit the Company's website at www.lancashiregroup.com 
Lancashire Insurance Company Limited is regulated by the Bermuda Monetary Authority in Bermuda.

Lancashire Insurance Company (UK) Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the UK.

Kinesis Capital Management Limited is regulated by the Bermuda Monetary Authority in Bermuda.

For more information on Lancashire's subsidiary and Lloyd's segment, Cathedral Capital Limited ("Cathedral"), visit Cathedral's website at www.cathedralcapital.com

Cathedral Underwriting Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the UK.

NOTE REGARDING RPI METHODOLOGY

LANCASHIRE’S RENEWAL PRICE INDEX (“RPI”) IS AN INTERNAL METHODOLOGY THAT ITS MANAGEMENT USES TO TRACK TRENDS IN PREMIUM RATES OF A PORTFOLIO OF INSURANCE AND REINSURANCE CONTRACTS. THE RPI DOES NOT TAKE INTO ACCOUNT ANY BUSINESS OR CONTRACTS OF THE CATHEDRAL GROUP. THE RPI IS CALCULATED ON A PER CONTRACT BASIS AND REFLECTS LANCASHIRE’S ASSESSMENT OF RELATIVE CHANGES IN PRICE, TERMS, CONDITIONS AND LIMITS AND IS WEIGHTED BY PREMIUM VOLUME. THE CALCULATION INVOLVES A DEGREE OF JUDGEMENT IN RELATION TO COMPARABILITY OF CONTRACTS AND THE ASSESSMENT NOTED ABOVE. TO ENHANCE THE RPI METHODOLOGY, MANAGEMENT OF LANCASHIRE MAY REVISE THE METHODOLOGY AND ASSUMPTIONS UNDERLYING THE RPI, SO THE TRENDS IN PREMIUM RATES REFLECTED IN THE RPI MAY NOT BE COMPARABLE OVER TIME. CONSIDERATION IS ONLY GIVEN TO RENEWALS OF A COMPARABLE NATURE SO IT DOES NOT REFLECT EVERY CONTRACT IN LANCASHIRE'S PORTFOLIO. THE FUTURE PROFITABILITY OF THE PORTFOLIO OF CONTRACTS WITHIN THE RPI IS DEPENDENT UPON MANY FACTORS BESIDES THE TRENDS IN PREMIUM RATES.

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, STATEMENTS CONTAINING THE WORDS “BELIEVES”, “ANTICIPATES”, “PLANS”, “PROJECTS”, “FORECASTS”, “GUIDANCE”, “INTENDS”, “EXPECTS”, “ESTIMATES”, “PREDICTS”, “MAY”, “CAN”, “WILL”, “SEEKS”, “SHOULD”, OR, IN EACH CASE, THEIR NEGATIVE OR COMPARABLE TERMINOLOGY. ALL SUCH STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDING, WITHOUT LIMITATION, THE GROUP’S FINANCIAL POSITION, RESULTS OF OPERATIONS, PROSPECTS, GROWTH, CAPITAL MANAGEMENT PLANS AND EFFICIENCIES, ABILITY TO CREATE VALUE, DIVIDEND POLICY, OPERATIONAL FLEXIBILITY, COMPOSITION OF MANAGEMENT, BUSINESS STRATEGY, PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS (INCLUDING DEVELOPMENT PLANS AND OBJECTIVES RELATING TO THE GROUP’S INSURANCE BUSINESS) ARE FORWARD LOOKING STATEMENTS. SUCH FORWARD-LOOKING STATEMENTS MAY INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER IMPORTANT FACTORS THAT COULD CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE GROUP TO BE MATERIALLY DIFFERENT FROM FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS.

THESE FACTORS INCLUDE, BUT ARE NOT LIMITED TO: THE GROUP’S ABILITY TO INTEGRATE ITS BUSINESSES AND PERSONNEL, THE SUCCESSFUL RETENTION AND MOTIVATION OF THE GROUP’S KEY MANAGEMENT, THE INCREASED REGULATORY BURDEN FACING THE GROUP, THE NUMBER AND TYPE OF INSURANCE AND REINSURANCE CONTRACTS THAT THE GROUP WRITES OR MAY WRITE; THE PREMIUM RATES WHICH MAY BE AVAILABLE AT THE TIME OF SUCH RENEWALS WITHIN ITS TARGETED BUSINESS LINES; THE POSSIBLE LOW FREQUENCY OF LARGE EVENTS; POTENTIALLY UNUSUAL LOSS FREQUENCY; THE IMPACT THAT THE GROUP’S FUTURE OPERATING RESULTS, CAPITAL POSITION AND RATING AGENCY AND OTHER CONSIDERATIONS MAY HAVE ON THE EXECUTION OF ANY CAPITAL MANAGEMENT INITIATIVES OR DIVIDENDS; THE POSSIBILITY OF GREATER FREQUENCY OR SEVERITY OF CLAIMS AND LOSS ACTIVITY THAN THE GROUP’S UNDERWRITING, RESERVING OR INVESTMENT PRACTICES HAVE ANTICIPATED; THE RELIABILITY OF, AND CHANGES IN ASSUMPTIONS TO, CATASTROPHE PRICING, ACCUMULATION AND ESTIMATED LOSS MODELS; THE EFFECTIVENESS OF ITS LOSS LIMITATION METHODS; THE POTENTIAL LOSS OF KEY PERSONNEL; A DECLINE IN THE GROUP’S OPERATING SUBSIDIARIES’ RATING WITH A.M. BEST, STANDARD & POOR’S, MOODY’S OR OTHER RATING AGENCIES; INCREASED COMPETITION ON THE BASIS OF PRICING, CAPACITY, COVERAGE TERMS OR OTHER FACTORS; CYCLICAL DOWNTURNS OF THE INDUSTRY; THE IMPACT OF A DETERIORATING CREDIT ENVIRONMENT FOR ISSUERS OF FIXED INCOME INVESTMENTS; THE IMPACT OF SWINGS IN MARKET INTEREST RATES AND SECURITIES PRICES; A RATING DOWNGRADE OF, OR A MARKET DECLINE IN, SECURITIES IN ITS INVESTMENT PORTFOLIO; CHANGES IN GOVERNMENTAL REGULATIONS OR TAX LAWS IN JURISDICTIONS WHERE THE GROUP CONDUCTS BUSINESS; ANY OF LANCASHIRE’S BERMUDIAN SUBSIDIARIES BECOMING SUBJECT TO INCOME TAXES IN THE UNITED STATES OR THE UNITED KINGDOM; THE INAPPLICABILITY TO THE GROUP OF SUITABLE EXCLUSIONS FROM THE NEW UK CFC REGIME; AND ANY CHANGE IN THE UK GOVERNMENT OR UK GOVERNMENT POLICY WHICH IMPACTS THE NEW CFC REGIME .

ALL FORWARD-LOOKING STATEMENTS IN THIS RELEASE SPEAK ONLY AS AT THE DATE OF PUBLICATION. LANCASHIRE EXPRESSLY DISCLAIMS ANY OBLIGATION OR UNDERTAKING (SAVE AS REQUIRED TO COMPLY WITH ANY LEGAL OR REGULATORY OBLIGATIONS INCLUDING THE RULES OF THE LONDON STOCK EXCHANGE) TO DISSEMINATE ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKING STATEMENTS TO REFLECT ANY CHANGES IN THE GROUP’S EXPECTATIONS OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENT IS BASED.