Lancashire's Q3 2010 Investor Presentation

[twacowfca]

http://www.investis.com/lre_group/investor_relations/results_presentations/presentations/2010/Q32010_invpres/Q32010_invpres_5.pdf

 

This investor presentation clearly shows what Lancashire is all about and how well they have done in all important respects:  Levels of Risk, Positive Accident Year Reserve Development, etc. and especially their exemplary Capital Management and Returns of Capital to Shareholders.

[StubbleJumper]

Given that the hurricane season has been so mild, they'll likely have a super low CR this year, and smoking hot returns. 

[twacowfca]

Given that the hurricane season has been so mild, they'll likely have a super low CR this year, and smoking hot returns.  

 

 

Awesome by most P&C comparisons, but only about average for them because they did take a big hit from the Chile earthquake that bumped their CR for Q1 to 99%.  Their average CR for their first 4 1/2 years in business is about 56%, I think.

 

The big change over the years is how their risk exposure has come down.  Their projected maximum loss from a 1 in 100 year windstorm was 24% to 26% of their capital in 2006 and 2007.  Now, it's only 16% of capital.  :)

[Myth465]

Thanks alot for the rec, this has proved to be a crown jewel and I think its worth paying up to book value for. When things go south (such as with Horizon), we end up getting it all back due to rate increases. I dont know what will happen should the perfect storm hit but neither does anyone else.

 

I am up 20% on LRE YTD, just wish it was a much larger position. I will definitely be adding to it right after Hurricane season.

[twacowfca]

Thanks alot for the rec, this has proved to be a crown jewel and I think its worth paying up to book value for. When things go south (such as with Horizon), we end up getting it all back due to rate increases. I dont know what will happen should the perfect storm hit but neither does anyone else.

 

I am up 20% on LRE YTD, just wish it was a much larger position. I will definitely be adding to it right after Hurricane season.

 

 

It ain't over till it's over.  But practically, the risk of experiencing a super cat in the Gulf oil patch where they have the greatest exposure is now about 95% over.  Elsewhere in Florida and the Atlantic coast region, about 90% of the super cat risk is over, with allowance for the fact that there's nothing alarming in current development.  :)

[Guest Bronco]

Do you jabronis buy the pink sheets (reminiscent of the NFL this weekend) or do you get all fancy and buy on the LSE?

 

 

[calonego]

I bought on LSE and it shows up in my TD accounts as pinks, go figure...

 

I asked Ajit Jain about these guys in May and he knew them but didn't really have anything to say... just that it's impossible to write that well for a very long period.

I rebutted with their history in Lloyds, the Philadelphia Consol story, etc... he kind of shrugged his shoulders.

[Carvel46]

Calonego, what's the Philadelphia Consol story?

[twacowfca]

I bought on LSE and it shows up in my TD accounts as pinks, go figure...

 

I asked Ajit Jain about these guys in May and he knew them but didn't really have anything to say... just that it's impossible to write that well for a very long period.

I rebutted with their history in Lloyds, the Philadelphia Consol story, etc... he kind of shrugged his shoulders.

 

Interestingly, one member of LRE's Board of Directors is from National Indemnity. 

 

 

 

 

 

 

 

 

[Myth465]

Do you jabronis buy the pink sheets (reminiscent of the NFL this weekend) or do you get all fancy and buy on the LSE?

 

I own the pinks. But I dont push alot of capital around (thats a high class problem I wouldnt mind having). Depending on the position size it may be worth moving to LRE.

 

Interestingly, one member of LRE's Board of Directors is from National Indemnity. 

 

Very interesting.

 

I love the fact that these guys arent trying to take over the insurance world. All profits go to buybacks or dividends unless rates look real good. Plus limited investment portfolio risk. I really like the model. The only real risk is limited to insurance (they have eliminated most of the capital allocation and investment portfolio risks). We will get hit one day, and then will see where things stand but so far so good.

[Guest]

I bought on LSE and it shows up in my TD accounts as pinks, go figure...

 

I asked Ajit Jain about these guys in May and he knew them but didn't really have anything to say... just that it's impossible to write that well for a very long period.

I rebutted with their history in Lloyds, the Philadelphia Consol story, etc... he kind of shrugged his shoulders.

 

do you think he's implying there is some fraudulent activity going on?

[twacowfca]

Do you jabronis buy the pink sheets (reminiscent of the NFL this weekend) or do you get all fancy and buy on the LSE?

 

I own the pinks. But I dont push alot of capital around (thats a high class problem I wouldnt mind having). Depending on the position size it may be worth moving to LRE.

 

Interestingly, one member of LRE's Board of Directors is from National Indemnity.  

 

Very interesting.

 

I love the fact that these guys arent trying to take over the insurance world. All profits go to buybacks or dividends unless rates look real good. Plus limited investment portfolio risk. I really like the model. The only real risk is limited to insurance (they have eliminated most of the capital allocation and investment portfolio risks). We will get hit one day, and then will see where things stand but so far so good.

 

 

Hurricane Ike was a good proxy on a limited scale for " the big one".  Their loss models held up very well for a big, bad storm that hit the heart of the oil patch where they have the most exposure.  They took a 10% hit to their BV, a little better than their models predicted and much better than some of their peers who were not supposed to have as much exposure there as LRE had.

 

 

Models can break down when there are extreme events like hurricanes KRW in 2005.  There is a kind of death spiral that can happen with certain types of reinsurance at various attachment points as claims spiral and snowball through multiple carriers.  Almost all cat reinsurance since Katrina has caps on maximum payouts.  Lancashire is less affected by this phenomenon than many other insurers because they write a lot of direct coverage.  Also the reinsurance they write that is cat exposed is mostly retro, top of the food chain with very high attachment points.  Their models assume that they will have to pay out the full amount of the relevant retro policies when "the big one" hits.

[sdev]

I bought on LSE and it shows up in my TD accounts as pinks, go figure...

 

I asked Ajit Jain about these guys in May and he knew them but didn't really have anything to say... just that it's impossible to write that well for a very long period.

I rebutted with their history in Lloyds, the Philadelphia Consol story, etc... he kind of shrugged his shoulders.

 

I second, what is the Philadelphia Consol story?

[Nnejad]

Philadelphia Consolidated.  A great US insurer that had an unbelievable underwriting track record.  It was a seperate public co, but it was bought out by Tokio Insurance in 2008 i believe.  You can still look up the track record though if you want through SEC filings, ticker was PHLY.

[Myth465]

It ain't over till it's over.  But practically, the risk of experiencing a super cat in the Gulf oil patch where they have the greatest exposure is now about 95% over.  Elsewhere in Florida and the Atlantic coast region, about 90% of the super cat risk is over, with allowance for the fact that there's nothing alarming in current development.  :)

 

I think you are right, and bought a bit today. We should have an ok Q3 and a very good Q4 with alot of reserve releases so long as things hold up, and may have a nice dividend depending on the buyback & share price.

[twacowfca]

It ain't over till it's over.  But practically, the risk of experiencing a super cat in the Gulf oil patch where they have the greatest exposure is now about 95% over.  Elsewhere in Florida and the Atlantic coast region, about 90% of the super cat risk is over, with allowance for the fact that there's nothing alarming in current development.  :)

 

I think you are right, and bought a bit today. We should have an ok Q3 and a very good Q4 with alot of reserve releases so long as things hold up, and may have a nice dividend depending on the buyback & share price.

 

They havn't made any buybacks in about two weeks, despite the fact that the stock is only trading a hair above estimated current FDBV/sh.  I suspect that they are saving for another huge special dividend, like the one they paid early this year, if there is not a large cat in the next few weeks.  This is merely my conjecture based on their public statements and past behavior.