Investor presentation Q3 2009 by lifemate

VIEWS: 16 PAGES: 26

									Investor presentation
Q4 2009




November 2009
www.lancashiregroup.com


                          1
    Lancashire on the Front Foot




     1. How we have done



     2. Where we are now



     3. Where we are going




2
    How we have done




3
2009 Financial Results for 9 months:

•   Year to date combined ratio of 51.3%
     •   Reported loss ratio of 22.8%; accident year loss ratio of 28.2%
     •   Combined ratio since inception of 60.0% (including G&A)

•   Annualised total investment return of 4.5%
     •   Consistent positive total return in 14 out of 15 quarters

•   RoE through September 30 of 18.1%
     •   Compound annual return since inception of 19.1%

•   Strategic dividend of $1.25 per share
     •   Represents 81% of increase in capital since December 31, 2007
     •   Capital levels have risen more than risk levels




                                                                           4
    Lancashire has an excellent track record


    •      Consistently strong performance
             •     Investment return, Combined ratio and ROE all positive 14 out of 15 quarters
             •     Inception to date1 : Combined ratio = 60%, compound annual ROE = 19.1%, annualised
                   investment return = 5%

    •      “Excellent        Risk Management”

             •     Hurricane Ike was top 3 most destructive offshore energy losses ever
             •     Our loss was underweight our market share
             •     In 2008 market meltdown Lancashire had best investment performance of our peer group2 = 3.1%
                   total return

    •      Disciplined
             •     Gross premiums written shrank 15% in 2008, the largest reduction in our peer group
             •     Shown nimbleness in evolving underwriting market


    1 Through    30 September 2009
    2   comprises Amlin, Arch, Axis, Endurance, Flagstone, Hiscox, Montpelier, Partner Re, Platinum, Ren Re, and Validus.




5
    Consistency: Excellent Return On Equity

                                                    Lancashire                    Sector 1                   S&P 500

                                2006                      17.8%                      25.4%                      15.8%

                                2007                      31.4%                      22.8%                       5.5%

                                2008                        7.8%                     -0.7%                     -37.0%

                            2009 YTD                      18.1%                     26.4%4                      19.3%

                          Compound 2                      19.1%                     18.2%4                      -8.2%




         Return on Equity 3 = growth in fully diluted/converted book value per share, adjusted for dividends

1 Sector includes Amlin, Arch, Axis, Endurance, Flagstone, Hiscox, IPC Re, Montpelier, Partner Re, Platinum, Ren Re, and Validus.
2 Compound annual return from January 1, 2006 through September 30th, 2009. The S&P 500 figures include effect of reinvested dividends.
3 Source: Company reports. Based on reported growth in fully converted or fully diluted book value per share, plus dividends. Methods of

   calculation can vary between companies.
4 Sector return includes earnings release information through Nov 5th: Aspen, Arch, Axis, Endurance, Flagstone, Montpelier, Partner Re, Platinum,
                                                                                                                                                    6
  Ren Re, and Validus.
Consistency: Exceptional Underwriting Performance


                                                                                                      3 year
                                              2006               2007                2008                               2009 YTD
                                                                                                     average 1

               Loss ratio                    16.1%              23.9%               61.8%               38.3%               22.8%
       Acquisition cost ratio                14.3%              12.5%               16.4%               14.4%              18.7%
            Expense ratio                    13.9%               9.9%                8.1%                9.8%               9.8%
           Combined ratio                    44.3%              46.3%               86.3%               62.5%              51.3%
       Sector combined ratio2                70.4%              68.4%               86.9%               75.2%              74.0%3
           Lancashire out-
            performance                      26.1%              22.1%                0.6%               12.7%              22.7%


   1   Lancashire ratios weighted by annual net earned premium. Sector ratios are straight average over three years.

   2   Sector includes Amlin, Arch, Axis, Endurance, Flagstone, Hiscox, IPC Re, Montpelier, Partner Re, Platinum, Ren Re, and Validus.
       Information source company reports, SNL & Numis. Methods of calculation can vary between companies.

   3   Sector return includes earnings release information through Nov 5th: Aspen, Arch, Axis, Endurance, Flagstone, Montpelier, Partner Re
       Platinum, Ren Re, and Validus
                                                                                                                                              7
Consistency: Excellent Investment Performance



                                                                                                       3 year              2009
                                                2006               2007               2008
                                                                                                      average              YTD

                 Total Return1                  6.1%               6.2%              3.1%               5.1%               3.3%

            Sector Total Return 2               5.2%               5.8%              -2.3%              2.9%              6.9%3

               Lancashire out-
                performance                    +0.9%              +0.4%             +5.4%               +2.2%             -3.6%3



 1   Total investment return = [Net investment income + Net realised gains or losses + Impairments + Change in unrealised gains or losses]
     divided by Average Invested Assets.

 2   Sector includes Amlin, Arch, Axis, Endurance, Flagstone, Hiscox, IPC, Montpelier, Partner Re, Platinum, Ren Re, and Validus.
     Information source company reports, SNL & Numis. Methods of calculation can vary between companies.

 3   Sector return includes earnings release information through Nov 5th: Aspen, Arch, Axis, Endurance, Flagstone, Montpelier, Partner Re,
     Platinum, Ren Re, and Validus.
                                                                                                                                             8
Consistency: Only One Negative Qtr. Since Inception
                                                            ROE* since inception

             10%
              5%

              0%
             -5%
            -10%
                      Q1      Q2      Q3      Q4      Q1      Q2      Q3      Q4      Q1    Q2   Q3   Q4   Q1   Q2   Q3
                      06      06      06      06      07      07      07      07      08    08   08   08   09   09   09

                                                     Combined Ratio since inception

           200%
           150%

           100%
            50%

              0%
                      Q1      Q2      Q3      Q4      Q1      Q2      Q3      Q4      Q1    Q2   Q3   Q4   Q1   Q2   Q3
                      06      06      06      06      07      07      07      07      08    08   08   08   09   09   09

                                                       Investment Performance to date

              3%
              2%

              1%
              0%

              -1%
                      Q1       Q2      Q3      Q4      Q1      Q2      Q3      Q4      Q1   Q2   Q3   Q4   Q1   Q2   Q3
                      06       06      06      06      07      07      07      07      08   08   08   08   09   09   09
                                                                                                                          9
* ROE is defined as growth in fully converted book value per share, including dividends.
Profitability

  •   Lancashire has had consistent RoE’s since inception; this includes years with significant natural
      and man-made catastrophes




                                                          T o t a l Va l u e C r e a t e d S i n c e I n c e p t i o n
                                   ( g r o wt h i n f u l l y c o n v e r t e d b o o k v a l u e p e r sh a r e , p l u s d i v i d e n d s)
                                                                                                                                         Europe:
                                                                                                                                         Storm Klaus
                                                                                                    Hurricane Ike
                                                                           Collapse
                                             Michigan                      of Bear
           18 0                              Furnace                       Stearns
           170                               Explosion
           16 0                                                                                                                                          California
           150                                                                                                                                           wildfires
                         Brazilian
           14 0
                         Conveyor
           13 0                                                                                                                                     Australian
                         Failure
           12 0                                                            Fall of Lehman Brothers, bailout                                         Bushfires
           110                                                             of federal agencies and AIG
           10 0
            90
                  Jan-     Apr -     Jul-      Oct -     Jan-      Apr -     Jul-      Oct -     Jan-      Apr -         Jul-   Oct -     Jan-   Apr -    Jul-
                   06       06        06        06         07        07        07        07        08        08          08       08        09    09       09




                                                                                                                                                                      10
     Where we are now




11
     Operating Principles



        •   four things we care a lot about

             •   underwriting comes first
             •   maintain a strong balance sheet
             •   manage capital through the cycle
             •   stay nimble




        •   four things we don’t care a lot about

             •   ruling the insurance world
             •   consistent top line growth
             •   blowout investment performance
             •   diversification for the sake of it




12
Underwriting Management Conference Call (UMCC)
Modeling
PROPEL output per account
EQ, Flood, Named Windstorm, Tornado/Hail                             ALWAYS
PML. AAL, Loss Cost
DTC Analysis                                             CUO: Group & Operating company
                                                         CEO: Group & Operating company
 Rating Sheet                                          Senior underwriter: Operating company
 Occupancy Loss Frequency Curves            REVIEW
 Default rates by Occupancy
 Underwriter qualitative selection


Claims                                     ACCOUNT
Account History
Sector review
                                                                         OFTEN
Losses Avoided                                                        Chief Actuary
                                           INDUSTRY
                                                                    Chief Risk Officer
RPI
Price and Exposure                                                      Modelers
Loss-Affected / Non Loss-Affected            GEO-
Elemental / Non Elemental                  POLITICAL

Marketing
Client Presentation
Sector Review
                                           PORTFOLIO                OCCASIONALLY
Attachment Point Review                                    Group & Operating company CFOs &
                                                                     General Council
     Expected 2009 Portfolio Split
        75% insurance                25% reinsurance                                    36% nat-cat exposed                    64% other

            Energy 28%
                                                    offshore WW   onshore WW                                            Aviation 11%
                                                        17%           2% construction
                                                                             1%          AV52
                                                                                         11%




                                      GoM                                                         hull
                                      8%                                                          4%

                                                                                                        builders risk
                                                                                                             4%
                                                                                                                            Marine 13%
                                                                                                         other
                            property cat                                                                  5%
                                11%




                                  political risk                                                retro
                                       2%                                                       11%


                                                   terrorism
                                                      9%
                                                                          D&F
            Property 48%                                                  15%




          Based on estimates as of 21st July 2009. Estimates could change without notice in response to several factors, including trading
          conditions


14
     Nimble re-balancing #1
          Energy Gulf of Mexico Reduced


          •   RPI’s broadly in line with original expectations: year to date RPI = 214%
          •   BUT less demand than expected

               •   self insurance and limited excess layer appetite
               •   recessionary factors / depressed oil price
               •   very high insurance expense to insureds


          •   We have maintained discipline


               •   maximised deepwater opportunities – Octopus initiative
               •   declined to write shelf risks at unacceptable retentions and terms and conditions
               •   2009 vs. 2008 GoM shelf policy limit down 82%
               •   2009 vs. 2008 GoM total policy limit down 65%




                                                                                                       15
15
     Reinsurance segment
     Nimble re-balancing #2

       US Property Catastrophe increased

       •   Regional product with limited exposure to nationwide cover

       •   Preference for mutual organisations rather than layered and shared writers in the E&S market

       •   Key strategic partners with tested business models, mature distribution links and high regard for
           reinsurance purchase

       •   Prefer higher layers, not through the programme. Current market pressures:

            •   increased R/I purchasing
            •   the reduction in Temporary Increase in Coverage Limits in Florida
            •   pressure on some incumbent markets reduce capacity
            •   syndication

       •   The flexibility of the portfolio allows us to write the opportunistic deals. Strong links with key broking
           houses who fully understand our product ensures Lancashire is seen as a key market.

       •   U.S. wide premium 31st July 2009 vs. 31st July 2008 = up from $3.9m to $58m
       •   South East U.S. premium 31st July 2009 vs. 31st July 2008 = up from $2.6m to $29m
       •   North East U.S. premium 31st July 2009 vs. 31st July 2008 = up from $0.4m to $28m



                                                                                                                        16
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     Investment Rule #1: Don’t lose your money.
     Highly conservative strategy
     Asset allocation driven by common sense, not black box models
                         Sept 30   June 30   Mar 31     Dec 31   Sept 30   June 30   Mar 31   Dec 31
                          2009      2009      2009       2008     2008      2008      2008     2007

     Cash                 17%       18%      32%        21%       29%       41%      34%      39%
     Short term           9%        12%       3%         8%       8%        3%       11%        -
     Government debt      17%       10%       8%        12%       24%       22%      25%      13%
     Agency debt          6%        9%        8%         6%       2%          -        -      11%
     Agency MBS           25%       28%      32%        30%       16%       14%      11%      13%
     Non-agency
     RMBS, ABS,             -         -        -          -         -         -        -        -
     CMBS
     FDIC corporate
                          10%       10%       8%         8%         -         -        -        -
     bonds
     Corporate bonds      16%       13%       9%        15%       17%       16%      15%      20%
     Total fixed
                         100%      100%      100%       100%      96%       96%      96%      96%
     income & cash
     Equities               -         -        -          -       4%        4%        4%       4%
     Total investments   100%      100%      100%       100%     100%       100      100%     100%

        Average asset quality AA+                  Duration 2.0 years
17
     Capital Management
     Lancashire is committed to prudent but active capital management
     •         July 2009 Lancashire introduced its first interim recurring dividend of 3 pence
     •         total 2007 profits returned = $340M or 87%
               •            first $100M share repurchase completed late 2007
               •            strategic dividend of $1.10 (56 pence) per share paid early 2008
     •       further $100M share repurchase authority in place - approximately $58M repurchased to date at 88%
           of book value on average
     •         November 2009
               •    Lancashire announces special dividend of $1.25 (75 pence) = US$ 263m
               •    Lancashire Board authorises a further US$ 150m share buy back programme2
                         1,750
                                                      Capital
                                   1,500
                      $ millions




                                   1,250


                                   1,000


                                    750

                                    500


                                    250


                                      0
                                           'Dec 05   'Dec-06    'Dec-07   'Dec-08        'Mar 09        June 09   Sept 09

                                                     equity    sub-debt   retained earnings        Peak Peril¹




     Started trading on the FTSE 250 Index on June 22nd 2009
     1 Peak   zone 1 in 100 years windstorm
                                                                                                                            18
18
     2 this requires shareholder agreement at a special general meeting
     Where we are going




19
     Lancashire on the Front foot


       • Increasing marketing efforts
             •   Middle East /Asia Pacific
             •   Dedicated marketing team / plan for existing classes
             •   Dedicated marketing for U.S. & International Property Catastrophe


       •   Expanding existing portfolios

             •   International property catastrophe
             •   Mid/small market D & F product
             •   Gulf of Mexico


       •   New opportunities

             •   G Cube
             •   public obligors Political Risk not private obligors Trade Credit




20
     What’s next segment
     Reinsurance for Property Catastrophe Reinsurance



       •   Expand US portfolio

       •   Actively diversify International product targeting key strategic partners in:

            •   UK & Europe
            •   Canada
            •   Asia
            •   Australia & New Zealand
            •   Latin America
            •   South Africa




                                                                                           21
21
     What’s next segment
     Reinsurance for Energy Gulf of Mexico



       •   Multiple meetings:

            •   Brokers
            •   Existing clients
            •   Potential clients


       •   Discussing:

            •   Retentions
            •   Multi year programmes
            •   New products


       •   Re-structure market product with competitors




                                                          22
22
     Reinsurance segment
     Capital Management


           Q2 earnings call
           “If we continue to have a successful year and there's not too many large
           losses, the chances of a special dividend after this year's hurricanes
           will rise, but we need to get through the next few months first. We may
           selectively buy back a small amount of shares at the right price, given
           excess capital levels right now, but don't expect that to be too large.”1


           Q3 earnings call

           •     Special dividend US$ 1.25 per common share (US$ 263m)

           •     Board of Directors agreed to a further repurchase programme of US$150m,2
                 In addition to existing US$ 42m




 1 source   – Lancashire Q2 earnings call
 2   this requires shareholder agreement at a special general meeting



                                                                                            23
23
     Safe Harbour Statements
        CERTAIN STATEMENTS AND INDICATIVE PROJECTIONS (WHICH MAY INCLUDE MODELED LOSS SCENARIOS) MADE THAT ARE NOT
        BASED ON CURRENT OR HISTORICAL FACTS ARE FORWARD-LOOKING IN NATURE INCLUDING WITHOUT LIMITATION, STATEMENTS
        CONTAINING 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
        STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDING, WITHOUT LIMITATION, THOSE REGARDING THE GROUP'S
        FINANCIAL POSITION, RESULTS OF OPERATIONS, LIQUIDITY, PROSPECTS, GROWTH, CAPITAL MANAGEMENT PLANS, 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 ACHIEVMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS.

        THESE FACTORS INCLUDE, BUT ARE NOT LIMITED TO: THE NUMBER AND TYPE OF INSURANCE AND REINSURANCE CONTRACTS THAT
        WE WRITE; THE PREMIUM RATES AVAILABLE AT THE TIME OF SUCH RENEWALS WITHIN OUR TARGETED BUSINESS LINES; THE
        ABSENCE OF LARGE OR UNUSUALLY FREQUENT LOSS EVENTS; THE IMPACT THAT OUR FUTURE OPERATING RESULTS, CAPITAL
        POSITION AND RATING AGENCY AND OTHER CONSIDERATIONS HAVE ON THE EXECUTION OF ANY CAPITAL MANAGEMENT
        INITIATIVES; THE POSSIBILITY OF GREATER FREQUENCY OR SEVERITY OF CLAIMS AND LOSS ACTIVITY THAN OUR UNDERWRITING,
        RESERVING OR INVESTMENT PRACTICES HAVE ANTICIPATED; THE RELIABILITY OF, AND CHANGES IN ASSUMPTIONS TO,
        CATASTROPHE PRICING, ACCUMULATION AND ESTIMATED LOSS MODELS; LOSS OF KEY PERSONNEL; A DECLINE IN OUR OPERATING
        SUBSIDIARIES' RATING WITH A.M. BEST COMPANY; 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
        CREATED BY THE FINANCIAL MARKETS AND CREDIT CRISIS; A RATING DOWNGRADE OF, OR A MARKET DECLINE IN, SECURITES IN
        OUR INVESTMENT PORTFOLIO; CHANGES IN GOVERNMENTAL REGULATIONS OR TAX LAWS IN JURISDICTIONS WHERE LANCASHIRE
        CONDUCTS BUSINESS; LANCASHIRE OR ITS BERMUDIAN SUBSIDIARY BECOMING SUBJECT TO INCOME TAXES IN THE UNITED STATES
        OR THE UNITED KINGDOM; AND THE EFFECTIVENESS OF OUR LOSS LIMITATION METHODS. ANY ESTIMATES RELATING TO LOSS
        EVENTS INVOLVE THE EXERCISE OF CONSIDERABLE JUDGMENT AND REFLECT A COMBINATION OF GROUND-UP EVALUATIONS,
        INFORMATION AVAILABLE TO DATE FROM BROKERS AND INSUREDS, MARKET INTELLIGENCE, INITIAL TENTATIVE LOSS REPORTS AND
        OTHER SOURCES. JUDGMENTS IN RELATION TO FLOOD LOSSES INVOLVE COMPLEX FACTORS POTENTIALLY CONTRIBUTING TO THIS
        TYPE OF LOSS, AND WE CAUTION AS TO THE PRELIMINARY NATURE OF THE INFORMATION USED TO PREPARE ANY SUCH ESTIMATES.

        THESE FORWARD-LOOKING STATEMENTS SPEAK ONLY AS AT THE DATE OF PUBLICATION. LANCASHIRE HOLDINGS LIMITED
        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.




24
     Appendix – moderate appetite for risk

                                                                                               100 year return                            250 year return
                        Zones                                     Perils
                                                                                                period ($m)                                 period ($m)

               South East U.S.                                Hurricane                                     281                                        393
                     California                             Earthquake                                      194                                        303
                        Europe                               Windstorm                                      170                                        266
                        Japan                               Earthquake                                      147                                        249
                        Japan                                  Typhoon                                       98                                        188

       As of 31/10/09

       The company has developed the estimates of losses expected from certain natural catastrophes using commercially available catastrophe models in conjunction with its
       proprietary BLAST model. These estimates include assumptions regarding the location, size and magnitude of any event, the frequency of events, the construction type and
       damageability of property in a zone, and the cost of rebuilding property in a zone, among other assumptions. Return period refers to the frequency with which losses of a
       given amount or greater are expected to occur.

       Net loss estimates are before income tax, net of reinstatement premium, and net of retrocessional recoveries. The estimates set forth are based on assumptions that are
       inherently subject to significant uncertainties and contingencies. These uncertainties and contingencies can affect actual losses and could cause actual losses to differ
       materially from the loss estimates expressed above. In particular, modelled loss estimates do not necessarily accurately predict actual losses, and may significantly
       misestimate actual losses. Such estimates, therefore, should not be considered as an accurate representation of actual losses. Investors should not rely on the foregoing
       information when considering investing in the company. The company undertakes no duty to update or revise such information to reflect the occurrence of future events.




25
www.lancashiregroup.com
     (1) 441 278 8950




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