benhacker Posted July 30, 2009 Share Posted July 30, 2009 Just one data point, but interesting to see this... we keep talking about the investment portfolio but if this market turns fast... look about above! http://www.lancashiregroup.com/lre_group/investor_relations/results_presentations/presentations/2009/2009q2/2009q2.pdf Rates in general rising: projected average 20% across Lancashire portfolio during 2009 • in Lancashire areas of competitive strength rates are rising faster • Some direct competitors impeded by new regulation or economic woes On a related note, Lancashire is another one that folks here should put on their quality insurer watch list... they look pretty solid to me from what I've seen (no position though). Ben Link to comment Share on other sites More sharing options...
Smazz Posted July 30, 2009 Share Posted July 30, 2009 page #7 (on the PDF) warms my heart a little.. Link to comment Share on other sites More sharing options...
T-bone1 Posted July 30, 2009 Share Posted July 30, 2009 Great presentation. Thanks Ben! I hope FFH (ORH) has written a lot of GOM energy cat business. Anyone care to take a guess at current FFH book value? They disclosed current (april 20th I think) book value on the Q1 call, so I assume they will be consistent and do it again (so as not to only report "current" book when it has risen). FWIW I think BV is arounf $320 at this point. Link to comment Share on other sites More sharing options...
Uccmal Posted July 30, 2009 Share Posted July 30, 2009 FFH used to re-insure Energy Cat business through NB. They got absolutely crushed and exited the business after KRW. I doubt they have re-entered it. Link to comment Share on other sites More sharing options...
WEB-CM Posted July 31, 2009 Share Posted July 31, 2009 "On a related note, Lancashire is another one that folks here should put on their quality insurer watch list... they look pretty solid to me from what I've seen (no position though)." Thank you for the hint, Ben. Indeed - very interesting company. Will continue with research about Lancashire. As far as your information status is, how would you compare Lancashire with Markel? Manfred Link to comment Share on other sites More sharing options...
benhacker Posted August 1, 2009 Author Share Posted August 1, 2009 I'd favor Lacashire at today's prices, but at P/B parity, I'd choose MKL everytime. I know Lancashire less well though, still getting a feel there... Ben Link to comment Share on other sites More sharing options...
WEB-CM Posted October 8, 2009 Share Posted October 8, 2009 Lancashire Holdings (listed on the London Stock Exchange) is indeed an interesting insurance company. They are active in Property, Energy, Marine and Aviation. Book value at June 30th, 2009 is 7,57 USD/share and at actual price of 5,35 Br.Pound the P/B is about 1,05. Total shareholders equity is at 1,418 Mio. USD. On the investment side they are very conservative and uninteresting (mostly fixed income with maturities below 2 years). Very interesting and impressive are the extremly low CR's and loss ratios. CR's are for period Property Energy Marine Aviation total 2006 24.8% 31.3% 54.7% 19.8% 44.3% 2007 25.9% 42.7% 76.7% 19.5% 46.3% 2008 49.6% 135.9% 81.5% 31.1% 86.3% 2009(Qu1) 81.2% 2009(Qu2) 35.4% How is it possible for a short tail insurance company to achieve such low loss ratios? Is it possible to have so little competition? Are losses so errativ that you can be ok for years and suddenly you get a loss that kills you (200% of premiums or more)? Please can someone of the board members enlighten me a little bit! Link to comment Share on other sites More sharing options...
WEB-CM Posted October 12, 2009 Share Posted October 12, 2009 Does really nobody can or want to share any idea? Link to comment Share on other sites More sharing options...
twacowfca Posted October 13, 2009 Share Posted October 13, 2009 Lancashire is a gem! It's more than half our total portfolio with our recent purchases. Either LRE or FFH have been our number one or two holdings since late summer of 2006. LRE was IPO'd quickly after hurricane exposed property rates shot up after the bad 2005 season. We bought it because their CEO had the best record at Lloyds of London as head underwriter of two syndicates that had avg annual returns of @26% with only @ 15% leverage. Remarkably, this was during the 80's and90's when most Lloyds syndicates lost money! Their CR is no fluke. Last year's 86% CR was during a bad year for them when Ike tore through the oil well platforms in the Gulf, where they have the most exposure. In a more typical year, like this year, they will have an underwriting profit of @ 25% of BV. Their risk profile now is that a repeat of Ike would only produce about half to two thirds of the losses that Ike did. Their maximum 100 year event loss (eg a Katrina or a Northridge sized earthquake plus an Ike sized storm in the oil patch during the same year would cause @ a 20% hit to their BV but they should recoup that loss in about three quarters assuming that rates spike afterwards. Link to comment Share on other sites More sharing options...
twacowfca Posted October 13, 2009 Share Posted October 13, 2009 What accounts for their low CR's? Good underwriting. No. That's an understatement. It's actually really, really good underwriting times 7 times 7. Their underwriters are very sharp and average 20+ years experience. Their lead underwriter was the CEO's classmate at Oxford University. Both are very sharp as are the other members of their team. They start each day in a conference call with their CEO who gives thums up or thums down on the latest underwriting. This is like the daily call that WEB has with AJ. Brokers like and respect them even though they are very picky about what risks they will take because they'll get a quick answer in 24 hours. Much of their business is short tail property direct. They like this because they can stick to the sweet spots they know rather than following the herd. They don't do casualty so there is no risk that something will blow up years later. Their officers are incentivized with lots of in the money long term warrants this creates good alignment with equity holders. Debt is only@8% of capital. They have an owner's orientation and manage capital well through the cycle, returning capital to shareholders when it builds up, particularly when the market softens. Link to comment Share on other sites More sharing options...
WEB-CM Posted October 13, 2009 Share Posted October 13, 2009 I thank you very much, twacowfca. Seems you have quite some knowledge/insight into this company. Link to comment Share on other sites More sharing options...
twacowfca Posted October 16, 2009 Share Posted October 16, 2009 Here's more about LRE's capital management. Their bogie is ROE; it's the key factor in their incentive plan. The in the money long term warrants and options vest when they exceed the bogie. This keeps them focused on the upside. Happily, they are even more cognizant of the downside because the strike price is $5.00 while the market price is now $8.30+. :) They have apowerful incentive to regard all of LRE's earnings as owner's earnings because their warrants have an unusual feature: the right to receive the same dividends as the common. When I first noticed this feature, my reaction was: " What a sweetheart deal, obviously at the expense of the shareholders." But, the more I thought about it,the more I realized I was wrong. This is a perfect plan to make sure that "earnings" really are OWNERS' earnings. There is no temptation for managers to build marble palaces for their pleasure or to make acquisitions to enlarge their kingdoms! They are hyperfocused on returning all the earnings beyond capital that earns a high rate of return to the owners! Amazing! Link to comment Share on other sites More sharing options...
Kiltacular Posted October 16, 2009 Share Posted October 16, 2009 Is "LCSHF" the correct pink sheet symbol -- do they only trade OTC in the States? TIA (interesting company) Link to comment Share on other sites More sharing options...
twacowfca Posted October 17, 2009 Share Posted October 17, 2009 Thanks WEB-CM for your kind remark. Kiltacular, Lancashire trades significant volume only on the LSE. Symbol : LRE-L. Here's more info about their outstanding underwrighting. They like categories that most insurance co's shun because they're scary. Hurricanes, earthquakes, terrorism and related risks could make a company miss its numbers for a quarter or even,heaven forbid, a whole year. Some INS co's will take a small number of these risks but only if the rate on the premium is higher in relation to the perceived risk than for other, less catastrophic risks. Therefore, such scary areas will produce abnormal profits even for mediocre cos. That have the intestinal fortitude to experience the occasional bad year. ROLL DRUM! ENTER LANCASHIRE (after a year so bad that half the competitors will never be more than a small fraction exposed as they were in 2005. This new actor on the stage is no novice. He's the best there is at finding the safe harbors in stormy seas! fraction Link to comment Share on other sites More sharing options...
Kiltacular Posted October 20, 2009 Share Posted October 20, 2009 Thx for the detail twacowfca. Link to comment Share on other sites More sharing options...
twacowfca Posted October 20, 2009 Share Posted October 20, 2009 Is there a “black swan” lurking over Lancashire’a horizon, waiting to fly over and unload on their pristine headquarters at Mintflower Place, Hamilton, Bermuda? By definition, a black swan is an “unknown, unknown” a la Donald Rumsfeld. However, Lancashire has a pretty good handle on known areas of extreme risk. The president of their Bermuda operation, Neil McConachie, was CFO for Montpelier Re. He saw at first hand how MRH’s models broke down, resulting in unexpectedly large losses after Katrina et. al. in 2005. LRE’s BLAST model is vastly improved over the models used before 2005 and should be able to withstand a similar catastrophe without great loss. LRE’s exposure to extreme risk was severely tested in 2008 with Hurricane Ike. Ike had great energy content, comparable to Katrina, although it was only a Category 2 storm when it made landfall. Ike was vast in expanse. It headed toward the heart of the offshore oil rigs where Lancashire has its greatest exposure to loss. Ike lingered in the Gulf, reenergizing itself as it churned slowly through the offshore oil fields, pounding the oil platforms and pipelines, until it finally made landfall. Offshore damage was comparable to damage from Katrina. Surprisingly, Lancashire took only about a 10% immediate hit to its book value – better than its peers that also had exposure there. Lancashire ended the year with a combined ratio of 86%, a ratio that would be admirable even in a good year for most P&C insurers. This record indicates that LRE’s modeling for extreme events is robust. Link to comment Share on other sites More sharing options...
Myth465 Posted December 22, 2009 Share Posted December 22, 2009 Thanks for the tip on Lancashire . There investor day was very interesting and I really like the Management team. They seem like the perfect complement to FFH. I will be buying as soon as I have some additional Capital. Link to comment Share on other sites More sharing options...
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