Lancashire’s Brindle optimistic despite profit decline

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Combined ratio still a profitable 63.7% despite catastrophes

Lancashire Holdings profits dropped by one third last year against the backdrop of mounting global catastrophe losses and volatility in the investment markets.

The Bermuda-based insurer posted a profit of $212.2m (£135m) after tax during 2011 (2010: $330.8m).

The company’s combined ratio also deteriorated to 63.7% for the year from 54.4% in 2010. The net loss ratio increased to 63.7% (2010: 54.4%).

The Thai floods accounted for $25.1m in estimated net losses during 2011, while the company recorded an increase of $42.2m to its Tohoku reserves, bringing the total net reserve to $117.3m. Estimated net losses from the Tohoku and Christchurch Lyttleton earthquakes stood at $138.5m.

Net premiums written declined to $565.1m from $649m over the same period.

Net investment income was down $10.2m at $43.2m in 2011 from $53.4m the year prior, reflecting the lower yield environment. Total investment return was halved to $40.7m (2010: $84.5m) as the company suffered a loss of $7.9m in foreign exchange losses during the third quarter due to weakening emerging market currencies in the third quarter.

Lancashire group chief executive Richard Brindle praised his company’s 13.4% return on equity amid the losses and economic challenges that have stressed many of the company’s peers.

“I am cautiously optimistic about the insurance pricing environment for 2012,” Brindle said. “The outlook is positive in many of our core areas. We saw attractive opportunities in the property retro market in the January 2012 renewal season. Property catastrophe pricing is showing improvement and, while it’s hard to predict how far it will go, we are also seeing improving pricing in our energy and marine books.”

He added that Lancashire was well-positioned to take advantage of price increases in the insurance and reinsurance markets.

The group said it has no exposure to European peripheral sovereign debt, with less than $5m in European corporate debt, consisting of Spanish and Italian non-financial corporate debt.

Total capital at 31 December 2011 stood at $1.45bn (2010: $1.42bn), including $1.33bn of shareholders’ equity and $128m of long-term debt.

Lancashire’s book value per share was $7.62 at the end of last year compared to $7.57 at the end of 2010.

The company declared a final dividend of 10 cents per share for 2011, which will be paid on 18 April to shareholders of record as of 16 March 2012. An equivalent payment will also be made to warrant holders listed on the company’s register as of the record date.