Press Releases
Q1 2009 Results
15 May 2009
LANCASHIRE GROWS BOOK VALUE PER SHARE 3.1% IN Q1 2009 COMBINED RATIO OF 81.2%
Hamilton, Bermuda
Lancashire Holdings Limited (“Lancashire” or “the Company”) today announces its first quarter results for the three month period ended 31 March 2009.
Financial highlights for the first quarter of 2009:
- Fully converted book value per share of $7.07 at 31 March 2009, compared to $6.86 at 31 December 2008, an increase of 3.1%. Compound annual return on equity since inception of 17.4%;
- Gross written premiums of $142.8 million. Net written premiums of $99.2 million;
- Financial year loss ratio of 53.6% and a combined ratio of 81.2%. Accident year loss ratio of 28.9%;
- Annualised total investment return of 4.6%, including net investment income, realised gains and losses, impairments, and change in unrealised gains and losses;
- Net operating profit of $35.8 million, or $0.19 diluted operating earnings per share; and
- Net profit after tax of $40.7 million, or $0.22 diluted earnings per share.
Richard Brindle, Group Chief Executive Officer, commented:
“Lancashire had a reasonable quarter, growing book value per share by 3.1%. Our underwriting and investment returns were good, with an accident year loss ratio of 28.9% and an annualised total investment return of 4.6%. Our results were impacted by the previously announced reserve strengthening for Hurricane Ike, but our underlying earnings performance was strong. Since our inception, Lancashire has grown book value per share, including dividends, in twelve quarters out of thirteen, generating a compound annual return of 17.4%.
Lancashire’s key markets are experiencing a hardening in rates and terms. This has been gathering pace as the year has progressed and should continue to do so in the months to come. In certain segments, most notably in the offshore energy area, the market has been in disarray with renewals much later than expected. We have been patiently holding back capacity in several classes, waiting for the most opportune time to deploy our capital. Indeed, we wrote significantly less in the first quarter of 2009 compared to 2008. However, the market is now extremely active, with rates rising strongly year on year.”
Underwriting results
Gross written premiums decreased by 23.5% in the first quarter of 2009 compared to the same period in 2008. This was largely driven by Lancashire holding back a large amount of capacity in the direct property, retrocession and energy catastrophe classes in order to take better advantage of improving opportunities. Rate rises are gaining momentum with more significant increases expected as the year progresses.
Net written premiums decreased by 30.1% for the quarter compared to the same period in 2008. This was chiefly due to lower gross written premiums. The amount of reinsurance ceded in the first quarter remained broadly the same as a year ago.
Net earned premiums as a proportion of net written premiums were 140.3% in the first quarter of 2009 compared to 119.1% in the same period in 2008. The increase reflects the reduction in gross written premiums in the quarter as compared to the prior year.
The net loss ratio of 53.6% for the first quarter includes 28.6% from an increase of $39.8 million for Hurricane Ike from the year end reported estimate. There has been no further development since our announcement of 8 April 2009. Excluding the impact from Hurricane Ike, the Company’s net loss ratio was 25.0%, reflecting an otherwise comparatively quiet quarter for loss activity. Overall, net reserves experienced adverse prior year development of $34.4 million for the quarter compared to a favourable development of $3.2 million in 2008. Excluding Hurricane Ike specific development, the prior year development was a favourable $5.4 million. The accident year loss ratio for the quarter was 28.9% compared to 40.6% last year.
Investments
Net investment income was $13.5 million for the first quarter, a decrease of 23.7% from the first quarter of 2008. The quarterly total investment return was 1.1%, or 4.6% annualised, broadly in line with 1.2%, or 4.9% annualised, for the first quarter of 2008. The Company’s strategy of maintaining a conservative investment portfolio to minimise potential losses from market volatility continues unabated and the portfolio performed well in relative terms.
Total investment return, including net investment income, net realised gains and losses, impairments and net change in unrealised gains and losses, was a gain of $23.5 million in the quarter compared to $21.5 million for the prior year. At 31 March 2009, the fixed income portfolio plus managed cash had a duration of 1.4 years, a credit quality of AA+ and a market yield of 1.9%. The reduced market yield is a result of both lower market yields in general, and a lower asset allocation to corporate debt securities. Investment assets were comprised of 67.8% fixed income and 32.2% cash. Lancashire is not currently invested in equities, hedge funds or other alternative investments.
Other operating expenses
Other operating expenses, excluding the cost of warrants and options, increased by $0.7 million to $12.4 million in the first quarter of 2009 compared to the same period in 2008. Employee compensation costs were 52.4% of other operating expenses compared to 49.8% in 2008.
Equity based compensation was $3.0 million in the first quarter of 2009 compared to a credit of $1.5 million in the same period last year. This expense includes mark to market adjustments on certain performance warrants.
Capital
At 31 March 2009, total capital was $1.446 billion, comprising shareholders’ equity of $1.317 billion and $128.7 million of long-term debt. Leverage was 8.9%. Total capital at 31 December 2008 was $1.404 billion.
Outlook
Lancashire aims to achieve a cross-cycle return of 13% above a risk free rate. This is unchanged from previous guidance.
Further detail of our 2009 first 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 on the results at 1:00pm UK time / 8:00 am EST on Friday, 15 May 2009. The call will be hosted by Richard Brindle, Chief Executive Officer, Simon Burton, Deputy Chief Executive Officer and Neil McConachie, Chief Financial Officer.
The call can be accessed by dialing +44 (0)20 7806 1956 / +1 718 354 1389 with the passcode 1457383. 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 Friday, 29 May 2009. The dial in number for the replay facility is +44 (0)20 7806 1970 / +1 718 354 1112 and the passcode is 1457383#. The replay facility can also be accessed at www.lancashiregroup.com .
For further information, please contact:
| Lancashire Holdings | + 44 (0)20 7264 4066 |
| Jonny Creagh-Coen | |
| Financial Dynamics | +44 (0)20 7269 7114 |
| Robert Bailhache | |
| Nick Henderson |
Investor enquiries and questions can also be directed to info@lancashiregroup.com or by accessing the Company’s website www.lancashiregroup.com.
