Lancashire announces profits of $275 million to September

Lancashire Holdings has announced its results for the third quarter of 2007 and the first nine months of the year, as well as the establishment of a $100m share repurchase program.

Financial highlights for the nine months to 30 September 2007 were:

• Fully converted book value per share grew 22.0% year to date 2007, bringing the rolling

• 12 month growth in fully converted book value per share to 29.5%;

• Gross written premiums of $598.8 million, an increase of 40.2% from the first nine months of 2006.

• Net written premiums increased 48.4%;

• Loss ratio of 26.8% and a combined ratio of 49.2%;

• Total annualised investment return of 6.0% for the nine months to 30 September 2007, including net investment income, realised gains and losses, and unrealised gains and losses;

• Net income after tax of $275.6 million for the nine months to 30 September, 2007, or $1.34 diluted earnings per share.

The company also announced that on 29 October 2007 its Board of Directors approved a share repurchase program which authorises the Company to repurchase its own shares by way of market purchases, tender offers, accelerated purchase programs or privately negotiated transactions, up to an aggregate purchase price of $100 million.

Richard Brindle, group chief executive officer, said: “Lancashire had an excellent quarter, our best yet. Fully converted book value per share grew 7.9% in the quarter, bringing the year to date growth to 22.0%. At the start of the year, we believed we could deliver a return on equity of 20 to 25%; we are now increasing estimated 2007 return on equity to between 26 and 29%. Net income in the third quarter of 2007 increased exactly 100% from the same quarter in 2006, and net income for 2007 to date increased exactly 200% from the same period last year.”

“In 2007 to date, despite two land-falling category five Atlantic hurricanes, insured losses in the United States from natural catastrophes have been lower than average. In the rest of the world however, this year has seen a higher than normal frequency of catastrophe losses. We have not incurred major losses from these events, which has helped produce a 2007 loss ratio of 26.8% to date. A large driver is our strategy to focus on a diversified insurance portfolio, rather than a narrow focus on natural catastrophe business. We are pleased to report that all segments of our business have generated strong underwriting profits in 2007."

“Rates are softening, a little faster than anticipated. Market cycles are inevitable but unpredictable. Rather than second-guess the timing of events, or lack of events, our strategy is to stay nimble so we can react to a market which is constantly changing. From an operational standpoint we do this by keeping our infrastructure tight and our underwriting centralised. We will react quickly when new opportunities arise, and move equally quickly when they diminish. From a capacity standpoint, we do this by adopting flexible capital strategies, recognising that outside factors can quickly and materially alter capital needs. By remaining a nimble company and paying close attention to all aspects of cycle management, we believe we can generate an attractive return for shareholders over extended periods of time."

“In a softening market, industry returns gradually fall until capacity reaches an appropriate level. We have been clear in our strategy. If underwriting opportunities decrease, Lancashire will reduce its capacity to an appropriate level. Our Board of Directors has today authorised a $100 million share repurchase program. We will make a further assessment on capital requirements nearer the end of the year. Should rate softening continue, we expect our 2008 portfolio will require less capital than we currently have. In addition to the $100 million share repurchase program, we would also anticipate returning at least 50% of the profits realised in 2007 back to shareholders via a single substantial dividend. We anticipate share repurchases and significant dividends to become recurring weapons in Lancashire’s arsenal of techniques for managing capital effectively in a softening market. We term this latter aspect of capital management ‘strategic dividends’. Strategic dividends are in keeping with our philosophy of nimbleness, affording us flexibility in tailoring our capital needs while at the same time generating an attractive yield to investors. We will continually explore all methods of capital management as appropriate.”