Q4 2014 Results

LANCASHIRE HOLDINGS LIMITED

GROWTH IN FULLY CONVERTED BOOK VALUE PER SHARE, ADJUSTED FOR DIVIDENDS, OF 5.4% IN Q4 2014, 13.9% IN 2014
COMBINED RATIO OF 50.4% IN Q4 2014, 68.7% IN 2014
SPECIAL DIVIDEND OF $0.50 PER COMMON SHARE
FINAL ORDINARY DIVIDEND OF $0.10 PER COMMON SHARE
FULLY CONVERTED BOOK VALUE PER SHARE OF $6.96 AT 31 DECEMBER 2014

London, UK

Lancashire Holdings Limited (“Lancashire” or “the Group”) today announces its results for the fourth quarter of 2014 and the year ended 31 December 2014.

Financial highlights: 

¹Return on equity is defined as growth in fully converted book value per share, adjusted for dividends.

²  Return on equity excluding goodwill and other intangible assets.

³  See “Dividends” below for Record Date and Dividend Payment Date.

⁴ The 2013 return on tangible equity calculation is not a relevant comparator due to the impact of the Cathedral acquisition in Q4 2013. 

Financial highlights:

⁵  These amounts are attributable to Lancashire and exclude non-controlling interests.

Alex Maloney, Group Chief Executive Officer, commented:

“I’m delighted to report another good quarter and year for Lancashire, with our key performance indicators demonstrating that our business model is built to provide strong results across the market cycle.  A solid return on equity and an excellent combined ratio have been achieved in difficult trading conditions and allowed us to maintain our excellent dividend record, based on our continued commitment to focusing on our underwriting and capital management. With market-leading underwriters across all three of our business platforms we have defended our core portfolio, built out lines where we had true growth opportunities, reduced exposures where competition made returns unacceptable, and maintained our relevance to brokers and clients. We attracted quality new underwriting talent, and this helped us to grow the stamp capacity of Cathedral Syndicate 3010 from £30 million when we acquired it in November 2013 to £100 million for 2015, building out new specialist teams in energy, terrorism and aviation lines.

Lancashire has always given a realistic view of the market, and the truth is that there is too much capacity in many of the reinsurance and specialty arenas. This is driving competition on both price and terms and conditions. But our focus on employing lead underwriters with the ability to work with clients and brokers to design programmes and supply meaningful capacity protects us from the pressures on the smaller following markets who cannot fulfil these requirements. We did see some pressure on signings throughout the year, but on our core books we maintained, and even in some cases added to, our share of the risks we really like. And so we thank our business partners in broking houses large and small, and the core clients we work with year after year for their support, and pledge our continuing support to them. 

The greatest pressures are in the reinsurance, and in particular, the retrocession markets where barriers to entry are comparatively low. But as a company that spent over $164 million in 2014 on outwards reinsurance premiums we are obviously a beneficiary of this as well. We enter 2015 with historically low retained risk levels, without having had to sacrifice any meaningful share of our inwards portfolio, except property retrocession which has been replaced with better margin, less volatile catastrophe business. Of course you only get the credit for doing the right thing and reducing net exposure in a soft market if there are losses to prove it, and the last couple of years have been very quiet in terms of major insured events; but we are committed to underwriting for profit not volume, and we still have plenty of firepower in Lancashire, Cathedral and Kinesis to take advantage of any market dislocation.

Our finance, operations and investment teams have continued to make sure that underwriting has the support it needs. We are able to draw on a wide and deep talent pool with experience that goes back decades across rated companies, Lloyd’s and collateralised balance sheets and that has experienced hard and soft markets. Our Board is adding new talent with additional experience which only bolsters this. We believe that our business model keeps on demonstrating that it is capable of producing the results our shareholders want and our clients rely on across all kinds of markets. Our strategy is unchanged, and our goals are clear, and I think that puts us in a very good place for 2015.”

Elaine Whelan, Group Chief Financial Officer, commented:

“I am happy to report a strong finish to the year, with an RoE of 5.4% for the quarter bringing us to 13.9% for the year. Our combined ratio for the quarter was 50.4%. While it was a volatile quarter in the investment markets, with no notable losses in the quarter all our business segments produced excellent underwriting results. In line with expectations, Cathedral contributed 1.0% to our RoE for the quarter and 1.6% in total for the year, after acquisition adjustments.

Given our outlook for 2015, and further reductions in our exposure at 1 January 2015, which are largely due to the impact of expanded outwards reinsurance and retrocession purchases, we are topping up last quarter’s special dividend with a further 50 cents per share. Combined with dividend equivalent payments, that results in a capital return of $103.0 million. Together with the special dividend declared in November, plus the interim and final dividends for this financial year, we have returned 167.8% of comprehensive income for the year. Including all forms of capital returns, from inception we have returned 101.9% of comprehensive income.”

Lancashire Renewal Price Index for major classes

The Lancashire Companies’ 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 the Lancashire Companies’ 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 the Lancashire Companies to offer a consistent basis for analysis and therefore does not include Cathedral’s Lloyd’s business. The following RPIs are expressed as an approximate percentage of pricing achieved on similar contracts written in 2013:

* There was no renewing Gulf of Mexico energy business written in Q3 2014.

Underwriting results

Gross premiums written

Gross premiums written decreased by 8.0% for the fourth quarter of 2014 compared to the same period in 2013. In 2014, gross premiums written increased by 33.5% compared to 2013. The increase in premiums for the whole of 2014 is derived primarily from the new Lloyd’s segment following the acquisition of Cathedral in the fourth quarter of 2013. The Group’s five principal segments, and the key market factors impacting them, are discussed below.

Property gross premiums written decreased by 42.2% for the fourth quarter of 2014 compared to the same period in 2013 and decreased by 21.1% in 2014 compared to 2013. The decrease in the quarter is largely due to the timing of non-annual contract renewals in the terrorism book. For the year, the decrease is driven primarily by reductions in the property retrocession book at the 1 January 2014 renewals, offset in part by the expansion of our property catastrophe excess of loss book. As property retrocession rates, terms and conditions continued to deteriorate, we redeployed capital to property catastrophe excess of loss, adding some new business and restructuring some existing programs for core clients, including writing some business on a multi-year basis. Otherwise, we saw a reduction in both the terrorism and political and sovereign risk books due to the impact of timing from long-term contract renewals.

Energy gross premiums written decreased by 9.4% for the fourth quarter of 2014 compared to the same period in 2013 and increased by 14.1% in 2014 compared to 2013. The reduction in the fourth quarter of 2014 compared to the fourth quarter of 2013 is due to non-renewable multi-year construction lines written in the fourth quarter of 2013, somewhat offset by non-annual contract renewals in the worldwide offshore energy class. The increase for the year is driven primarily by the Gulf of Mexico book where a number of both new and renewing deals were written on a multi-year basis. Volumes across other energy lines are fairly flat for the year.

Marine gross premiums written decreased by 22.6% for the fourth quarter of 2014 compared to the same period in 2013 and increased by 7.5% in 2014 compared to 2013. The dollar value of the decrease in premiums quarter on quarter is minimal. The increase for the year is largely due to non-annual contract renewals in the marine hull subclass in the second quarter of 2014.

Aviation gross premiums written decreased by 32.1% for the fourth quarter of 2014 compared to the same period in 2013 and increased by 8.8% in 2014 compared to 2013. The decrease in the fourth quarter of 2014 compared to the same period in 2013 is due to a change in the pattern of business attaching in one large AV52 contract. AV52 premiums for the year are comparable to 2013. The overall increase in aviation for 2014 compared to 2013 is mainly due to new satellite business plus additional satellite launches on contracts written in previous years.

The fourth quarter of 2014 reflects the fourth full quarter of gross premiums written attributable to the Lloyd’s segment since the Cathedral acquisition in the fourth quarter of 2013. Two months of gross premiums written, from the date of acquisition, were included in the fourth quarter of 2013. The Lloyd’s segment gross premiums written in the fourth quarter of 2014 were $43.8 million, $9.6 million or 28.1%, higher than the corresponding quarter of 2013 and totalled $284.3 million for 2014. For both the quarter and year, while there have been decreases across the existing book of business due to declining rates, these rate declines have been offset by premiums written by the new energy, terrorism and aviation classes of business being written by Syndicate 3010.

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Ceded reinsurance premiums increased by $7.6 million, or 304.0%, for the quarter and increased by $42.7 million, or 35.0%, for 2014, in each case compared to the same periods in 2013. The increase in the fourth quarter of 2014 compared to the fourth quarter of 2013 is primarily due to the purchase of more facultative cover on our satellite and energy lines of business, plus a full quarter’s cessions in the new Lloyd’s segment. In 2013, $47.9 million of premiums were ceded to the Accordion sidecar. The Accordion quota share contract was commuted in the first quarter of 2014 and, other than standard premium adjustments, no premiums were ceded to the facility this year. This reduction was more than offset by $64.9 million of ceded premiums in relation to the Lloyd’s segment. Lancashire also took advantage of lower reinsurance rates to purchase some new non-marine retrocession aggregate cover and to restructure and increase limits for the marine, energy and terror programmes.

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Net premiums earned as a proportion of net premiums written were 158.4% in the fourth quarter of 2014 compared to 135.3% for the same period in 2013 and 96.3% in 2014, compared to 101.9% in 2013. The increase for the quarter compared to the same period in 2013 is largely due to the new Lloyd’s book where the majority of business is written in the first half of the year; earnings are therefore typically higher during the fourth quarter. The decreased percentage in premiums earned for the year compared to 2013 reflects the impact of increased multi-year premiums written in the property catastrophe and energy Gulf of Mexico classes in 2014.

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The Group’s net loss ratio for the fourth quarter of 2014 was 12.2% compared to 29.5% for the same period in 2013 and 31.7% for 2014 compared to 33.1% for 2013. There were no significant losses in the fourth quarter of 2014 and prior year losses developed favourably. 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. For the year ended 31 December 2014 there were relatively low reported losses across all lines, although there was some negative development on prior accident year mid-sized marine and energy claims. In 2013 attritional losses were exceptionally low, offset by prior year adverse development on the Costa Concordia marine loss of $37.9 million, after reinsurance and reinstatement premium. The first quarter of 2013 also included the benefit of the settlement reached for our North East Industry Loss Warranty (“ILW”).

Prior year favourable development for the fourth quarter of 2014 was $25.0 million, compared to $8.2 million for the fourth quarter of 2013, which saw some adverse development on the energy line of business. Favourable development was $34.4 million for 2014, compared to favourable development of $15.9 million for 2013, which included the adverse development on Costa Concordia noted above. Both years otherwise experienced releases due to lower than expected 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 2014, including the impact of foreign exchange revaluations, was 25.2% compared to 34.6% for the same period in 2013 and 35.9% for 2014 compared to 36.1% for 2013. The 2014 accident year loss ratio for the quarter and year ended 31 December 2014 did not include any significant large losses. The corresponding periods of 2013 also included low levels of current accident year losses.

Excluding the impact of foreign exchange revaluations, previous accident years’ ultimate losses developed as follows during 2014 and 2013:

Note: Positive numbers denote favourable development.

The ratio of IBNR to total net loss reserves was 31.6% at 31 December 2014 compared to 31.8% at 31 December 2013.

Investments

Net investment income, excluding realised and unrealised gains and losses, was $7.2 million for the fourth quarter of 2014, an increase of 7.5% from the fourth quarter of 2013. Net investment income was $28.6 million for 2014, an increase of 12.6% compared to 2013. The increase for both the quarter and year compared to the same periods of 2013 is mainly due to the increased size of the investment portfolio resulting from the acquisition of Cathedral. Total investment return, including net investment income, net realised gains and losses, impairments and net change in unrealised gains and losses, was $3.7 million for the fourth quarter of 2014 compared to $6.6 million for the fourth quarter of 2013, and was $22.0 million for 2014 compared to $6.9 million for 2013. Wider credit spreads driven by the drop in oil prices, global growth concerns and strong new issuance in the fixed income market depressed our investment portfolio returns in the fourth quarter of 2014. In the fourth quarter of 2013, significant credit spread narrowing offset a rise in treasury yields to generate positive investment returns.

For the year ended 31 December 2014 returns were generated primarily by a reduction in treasury yields, which offset the slight widening of investment grade credit spreads. This was in contrast to 2013 which saw a significant increase in treasury yields, offset somewhat by notable investment grade credit spread narrowing. In addition, in 2013, our emerging market debt (“EMD”) portfolio was detrimentally impacted by rising treasury yields and wider EMD credit spreads which led to negative performance in this asset class.

The corporate bond allocation represented 31.7% of managed invested assets at 31 December 2014 compared to 29.7% at 31 December 2013. At 31 December 2014 the Group’s allocation to bank loans represented 5.8% of the portfolio compared to 4.5% at 31 December 2013. The Group’s portfolio also included a 6.8% allocation to a diversified portfolio of low volatility hedge funds.

The managed portfolio was as follows:

Key investment portfolio statistics are:

Third Party Capital Management

The $1.6 million and $5.9 million share of profit of associates for the fourth quarter and for 2014, respectively, mostly reflects Lancashire’s 10% equity interest in Kinesis Holdings I Limited. The share of profit of associates of $0.5 million for the fourth quarter of 2013 and $9.2 million for 2013 was related to the Accordion and Saltire vehicles.

Other income recorded in the fourth quarter reflects the underwriting fee of $1.9 million that Kinesis Capital Management earned for providing underwriting services to the Kinesis vehicle, and $6.2 million of profit commission and managing agency fees relating to the Lloyd’s segment. For the year ended 31 December 2014 other income includes $6.2 million for underwriting services to the Kinesis vehicle, $10.1 million of profit commission and managing agency fees relating to the Lloyd’s segment and $3.0 million of final profit commission from the Saltire vehicle. During the first quarter of 2014 final profit commission of $6.7 million was also received from the Accordion vehicle; this was recorded in net insurance acquisition costs. 

Other operating expenses

Operating expenses consist of the following items:

* Note: Expenses incurred for the period post the date of the Cathedral acquisition on 7 November 2013.

Excluding the Lloyd’s segment, employee remuneration costs were $1.3 million lower in 2014 compared to 2013 largely due to the retirement of the Company’s previous CEO earlier in the year. The fourth quarter of 2014 and the year ended 31 December 2014 included reversals of employee national insurance accruals in relation to equity compensation exercises, driven by both the timing of exercises and fluctuations in the share price. The fourth quarter of 2013 included one-off expenses arising on the acquisition of Cathedral totalling $6.1 million.

The Lloyd’s segment in the fourth quarter includes $7.3 million of employee remuneration costs and $3.6 million of other operating expenses. The employee remuneration costs and other operating expenses for the corresponding period of 2013, being the two months post acquisition, were $1.2 million and $1.4 million, respectively. For the year ended 31 December 2014 the Lloyd’s segment includes $20.1 million of employee remuneration costs and $12.0 million of other operating expenses. For comparison, for the full year 2013, including the period pre-acquisition, the Lloyd’s segment included $17.2 million of employee remuneration cost and $14.1 million of other operating expenses. The amortisation of intangible assets arising on the acquisition is now complete and there will be no further amortisation in 2015.     

Equity based compensation was $8.9 million in the fourth quarter of 2014 compared to $4.9 million in the same period last year. For 2014 and 2013, the charge was $23.3 million and $16.7 million respectively. Included in the 2014 charge is $4.4 million for awards made to Cathedral employees. 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 2014, total capital available to Lancashire was $1.683 billion, comprising shareholders’ equity of $1.357 billion and $326 million of long-term debt. Tangible capital was $1.530 billion. Leverage was 19.4% on total capital and 21.4% on total tangible capital. Total capital and total tangible capital at 31 December 2013 was $1.792 billion and $1.615 billion respectively.

Repurchase program

During the fourth quarter of 2014, under the current Repurchase Program ratified at the Annual General Meeting (“AGM”) on 30 April 2014, the Group continued the repurchase of its own shares by way of open market purchases. $16.6 million of shares were repurchased during the fourth quarter of 2014 compared to $nil in the same period in the prior year. The total value of shares repurchased during the year ended 31 December 2014 was $25.0 million compared to $nil in the year ended 31 December 2013. The Repurchase Program is subject to renewal at the 2015 AGM in an amount up to 10% of the Company’s then issued common share capital.

Warrants

The outstanding warrants to purchase the Company’s common shares were issued on 16 December 2005 and expire on 16 December 2015. We saw a higher volume of warrant exercises during 2014, relative to the prior year, and would expect this trend to continue until expiry. Warrant exercises during the quarter were as follows: 

Dividends

The Lancashire Board declared the following dividends during 2014:

• A final dividend in respect of 2013 of $0.10 per common share;
• An interim dividend of $0.05 per common share; and
• Special dividends of $1.20 per common share.

Lancashire announces that its Board of Directors has declared the following dividend payments (collectively the “Dividends”):

(i) a final dividend for 2014 of $0.10 per common share (approximately £0.06 per common share at the current exchange rate) amounting to an aggregate payment of approximately $18.8 million.

 (ii) an additional special dividend for 2014 of $0.50 per common share (approximately £0.33 per common share at the current exchange rate) amounting to an aggregate payment of approximately $93.9 million.

The Dividends will result in an aggregate payment of approximately $112.7 million. The Dividends will be paid as a single payment in Pounds Sterling on 15 April 2015 (the “Dividend Payment Date”) to shareholders of record on 20 March 2015 (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 registrars, Capita Registrars for more details at:  http://www.capitaassetservices.com/products-and-services/corporate-clients/shareholder-and-employee-solutions/registration-services/managing-dividends.cshtml

In addition to the Dividends, a dividend equivalent payment of approximately $10.7 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.

Note: In this release the term “Cathedral” means Cathedral Capital Limited (a wholly owned subsidiary of Lancashire) and its subsidiaries and the term “Lancashire Companies” means the subsidiaries of Lancashire excluding Cathedral.

Financial information

Further details of our 2014 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, 12 February 2015. 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 75293539#. The call can also be accessed via webcast, please go to our website (www.lancashiregroup.com) to access.

A replay facility will be available until Friday, 13 March 2015. 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 653327#. 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.}

Cathedral benefits from Lloyd’s ratings: A.M. Best: A (Excellent); Standard & Poor’s: A+ (Strong); and Fitch: AA- (Very 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 29th Floor, 20 Fenchurch Street, London EC3M 3BY, United Kingdom and its registered office at Power House, 7 Par-la-Ville Road, Hamilton HM 11, Bermuda.

For more information on Lancashire and Lancashire’s subsidiary and Lloyd’s segment, Cathedral Capital Limited (“Cathedral”), 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.

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 WRITTEN BY THE LANCASHIRE COMPANIES 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, LIQUIDITY, TAX RESIDENCY, 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 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 GROUP’S ABILITY TO IMPLEMENT SUCCESSFULLY ITS BUSINESS STRATEGY DURING ‘SOFT’ AS WELL AS ‘HARD’ MARKETS; THE PREMIUM RATES WHICH MAY BE AVAILABLE AT THE TIME OF SUCH RENEWALS WITHIN THE GROUP’S 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; INCREASED COMPETITION FROM EXISTING ALTERNATIVE CAPITAL PROVIDERS, INSURANCE LINKED FUNDS AND COLLATERALISED SPECIAL PURPOSE INSURERS AND THE RELATED DEMAND AND SUPPLY DYNAMICS AS CONTRACTS COME UP FOR RENEWAL; THE EFFECTIVENESS OF THE GROUP’S 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; A CYCLICAL DOWNTURN 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 THE GROUP’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 UK CFC REGIME; AND ANY CHANGE IN THE UK GOVERNMENT OR UK GOVERNMENT POLICY WHICH IMPACTS THE 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.

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