Lancashire posts $390m post-tax profit

Lancashire Holdings today announced its results for the fourth quarter of 2007 and the full year for 2007.

Financial highlights for the twelve months to 31 December 2007 were:

• Return on equity of 31.7%, measured as the growth in fully converted book value per share plus dividends;
• Gross written premiums of $753.1 million, an increase of 20.3% from 2006. Net written premiums increased 21.8%;
• Loss ratio of 23.9% and a combined ratio of 46.3%;
• Total investment return of 6.4% for the twelve months to 31 December 2007, including net investment income, realised gains and losses, and unrealised gains and losses;
• Net income after tax of $390.9 million for the twelve months to 31 December 2007, or $1.91 diluted earnings per share.

Financial highlights for the fourth quarter of 2007 were:

• Return on equity of 7.9%, measured as the growth in fully converted book value per share plus dividends;
• Gross written premiums of $154.3 million, a decrease of 22.5% from the fourth quarter of 2006. Net written premiums decreased 24.6%;
• Loss ratio of 15.7% and a combined ratio of 38.1%;
• Total annualised investment return of 7.4% for the fourth quarter, including net investment income, realised gains and losses, and unrealised gains and losses;
• Net income after tax of $115.3 million, or $0.57 diluted earnings per share.

The company said it had no exposure to subprime losses in either its insurance products or investment portfolio.

Richard Brindle, Group Chief Executive Officer, said: “In only our second year of operations, Lancashire has produced a remarkable set of results. To have achieved a return of 31.7% for our shareholders is testament to our people, our risk management and to our disciplined and diversified underwriting strategy. The success in 2007 was led by our exceptional underwriting result, evident in a combined ratio of 46.3%. Prior year reserve releases in 2007 were $4.4 million, benefiting the ratio by 0.7%.

“Our risk appetite on investments is low and that was the correct approach in hazardous markets. Against this background we are pleased to have achieved a total investment return of 6.4%. Finally, we were delighted to return $339.3 million back to our shareholders via share repurchases and dividends, fulfilling our promise to manage capital in line with the underwriting cycle.

“The market is softening across the board; nonetheless there is plenty of attractive business in the majority of the lines we write. Lancashire writes direct specialty short-tail insurance, combined with a small amount of reinsurance. Our approach lends itself to profitable underwriting in softening markets where risk selection is paramount. As we progress through 2008, absent a sudden turn in the cycle, we expect that our premiums will decline from 2007. However we are well positioned to write a profitable book of business in 2008. We have no plans to compensate by venturing into areas we do not understand; a dangerous strategy indeed that is all too common in this industry.

“Lancashire’s investment approach will continue to be defensive. I am very pleased to say we believe we have zero insurance exposure from the credit crisis, a debacle that appears to have very serious financial implications for the insurance industry. Indeed, the full extent of the implications are yet to be revealed. We made the decision to exit all non-agency structured products, which was successfully executed in an orderly manner, and as previously disclosed we have no exposure to sub-prime. Lancashire has positioned both its insurance and investment portfolios appropriately for the current environment and we are confident we can produce a good return for our shareholders in what may be more challenging times ahead.”

Further detail of Lancashire’s 2007 fourth quarter results can be obtained from www.lancashiregroup.com.