TIDMLRE
RNS Number : 0160X
Lancashire Holdings Limited
16 February 2017
LANCASHIRE HOLDINGS LIMITED
GROWTH IN FULLY CONVERTED BOOK VALUE PER SHARE, ADJUSTED FOR
DIVIDS, OF 2.8% IN Q4 2016 AND 13.5% IN 2016
COMBINED RATIO OF 79.0% IN Q4 2016, 76.5% IN 2016
FINAL ORDINARY DIVID OF $0.10 PER COMMON SHARE
FULLY CONVERTED BOOK VALUE PER SHARE OF $5.98 AS AT 31 DECEMBER
2016
16 February 2017
London, UK
Lancashire Holdings Limited ("Lancashire" or "the Group") today
announces its results for the fourth quarter of 2016 and the year
ended 31 December 2016.
Financial highlights
31 December 31 December
2016 2015
-------------
Fully converted book value
per share $5.98 $6.07
Return on equity(1,2) -
Q4 2.8% 3.5%
Return on equity(1,2) -
YTD 13.5% 13.5%
Return on tangible equity
(3) - Q4 3.1% 4.0%
Return on tangible equity
(3) - YTD 15.7% 11.8%
Operating return on average
equity - Q4 3.4% 3.3%
Operating return on average
equity - YTD 11.0% 12.0%
Dividends per common share(4)
- YTD $0.90 $1.10
------------------------------- -------- --- -------- ---
(1) Return on equity is defined as growth in fully converted
book value per share, adjusted for dividends.
(2) Return on equity including warrant exercises was 3.5% for
the fourth quarter of 2015 and 10.9% for 2015. All remaining
outstanding warrants were exercised during 2015 and there is
therefore no impact of warrants on the 2016 return on equity.
(3) Return on tangible equity excludes goodwill and other
intangible assets but includes warrant exercises for the fourth
quarter of 2015 and for 2015. Without warrant exercises the return
on tangible equity would have been 4.0% and 15.4% respectively.
(4) See "Dividends" below for Record Date and Dividend Payment
Date.
Financial highlights:
Three months ended Twelve months
ended
31 December 31 December 31 December 31 December
2016 2015 2016 2015
-------------
Highlights ($m)
Gross premiums written 95.1 97.1 633.9 641.1
Net premiums written 88.1 87.3 458.7 481.7
Profit before tax 50.9 50.2 150.4 171.7
Profit after tax(1) 51.1 54.4 153.8 181.1
Comprehensive income(1) 34.6 45.0 157.9 169.8
Net operating profit(1) 45.9 45.8 144.0 173.4
Per share data
Diluted earnings
per share $0.25 $0.27 $0.76 $0.91
Diluted earnings
per share -
operating $0.23 $0.23 $0.71 $0.87
Financial ratios
Total investment
return including
internal currency
hedging (0.1%) (0.2%) 2.1% 0.7%
Total investment
return excluding
internal currency
hedging (0.3%) (0.2%) 1.8% 0.2%
Net loss ratio 32.6% 18.3% 29.2% 27.5%
Combined ratio 79.0% 67.1% 76.5% 72.1%
Accident year loss
ratio 49.6% 30.6% 46.2% 46.0%
------------------------- --------- -------- -------- --------
(1) These amounts are attributable to Lancashire and exclude
non-controlling interests.
Alex Maloney, Group Chief Executive Officer, commented:
"The 2016 year proved a turbulent one for the global political
and macroeconomic environment and the insurance market remained
very challenging. Risk capital remains abundant, and there is
continuing pressure upon pricing and terms and conditions. Against
this background I am particularly pleased with the results for both
the fourth quarter and the full year. The RoE of 2.8% for the
quarter and 13.5% for the year is an exceptional outcome in this
environment and a tribute to the dedication and hard work of
everyone across the business.
As I have stressed previously, we have maintained a tight focus
on skillful and disciplined underwriting and overall risk
management. Our principal focus has been to balance risk and return
whilst serving the needs of our clients and their brokers. These
results prove that, even in the current difficult times, we have
relevance, our model works and is resilient. At 1 January, in line
with our expectations and previous communication, we successfully
renewed our core book across the Group, including at our Lloyd's
platform.
At Lancashire we pride ourselves on fostering a culture which
supports and develops the careers of truly talented people within
the insurance sector, and we strive to afford our employees an
opportunity to develop those talents creatively within a nimble and
dynamic business culture. Over the last year the business has
focussed on rebuilding and reinvigorating our Lloyd's platform and
I am delighted to be able to welcome Jon Barnes, who joined us in
late December 2016, as the designated Lloyd's active underwriter
for Syndicate 2010, subject to regulatory approval. We have also
recently announced the appointment of Andrew McKee who will be
joining us in June 2017, as the new Chief Executive Officer for our
Lloyd's managing agency.
Whilst we expect market conditions to remain difficult for the
foreseeable future, which requires discipline and patience to
navigate, our strategy has the ability to respond across the
insurance cycle. We are well equipped to meet the needs of our
clients and to generate acceptable returns for investors, whilst
having the flexibility to capitalise quickly on new opportunities
as they arise."
Elaine Whelan, Group Chief Financial Officer, commented:
"Proving the strength of our platforms in yet another
challenging year, I am pleased to report an RoE of 2.8% for the
quarter, bringing us to an RoE of 13.5% for the year. Relative
contributions from Lancashire, Cathedral and Kinesis were 9.1%,
3.6% and 0.8%, respectively, consistent with last year's
contributions. While our investment portfolio returned a small loss
of 0.1% for the quarter, it performed in line with expectations in
a rising yield environment, with our risk assets and interest rate
hedges protecting the portfolio. Our compound annual return since
inception, excluding the impact of warrants, is 18.6%.
Our outlook for 2017 is for a continuation of current market
trends. At 1 January we have once again been able to further reduce
our exposure levels with additional reinsurance purchases, and our
risk levels are lower now than at any other point in our history.
We are therefore carrying a bit more of a capital buffer than we
typically would, which gives us the ability to take advantage of
any opportunities that may materialise this year.
We are declaring our standard final ordinary dividend of 10
cents per share. Including our interim and special dividend for
2016, we have returned 113.3% of comprehensive income for the year
and 104.2% since inception."
Renewal Price Index for major classes
The Renewal Price Index ("RPI") is an internal methodology that
management uses to track trends in premium rates on a portfolio of
insurance and reinsurance contracts. The RPI is calculated on a per
contract basis and reflects our assessment of relative changes in
price, terms, conditions and limits on like for like renewals only,
and is weighted by premium volume (see "Note Regarding RPI
Methodology" at the end of this announcement for further guidance).
The RPI does not include new business, to offer a consistent basis
for analysis. The following RPIs are expressed as an approximate
percentage of pricing achieved on similar contracts written in
2015, with our Lloyd's segment shown separately in order to aid
comparability:
RPI Lancashire (excluding Lloyd's segment)
Class YTD 2016 Q4 2016 Q3 2016 Q2 2016 Q1 2016
----------------------- ---------- --------- --------- --------- ---------
Aviation (AV52) 90% 91% 88% 90% 90%
Gulf of Mexico
energy(*) 94% - 88% 94% 86%
Energy offshore
worldwide 87% 92% 84% 86% 87%
Marine 88% 88% 91% 82% 92%
Property retrocession
and reinsurance 88% 86% 77% 90% 93%
Terrorism 88% 90% 89% 89% 86%
Lancashire (excluding
Lloyd's segment) 89% 90% 81% 90% 90%
----------------------- ---- --- ---- ---- ---- ----
* There was no renewing Gulf of Mexico energy business written
in the fourth quarter of 2016.
RPI (Lloyd's segment)
Class YTD 2016 Q4 2016 Q3 2016 Q2 2016 Q1 2016
----------------------- ---------- --------- --------- --------- ---------
Aviation 96% 97% 99% 98% 97%
Energy 89% 87% 90% 90% 86%
Marine 95% 90% 95% 98% 97%
Property retrocession
and reinsurance 94% 95% 97% 93% 94%
Terrorism 96% 89% 93% 99% 91%
Lloyd's segment 94% 93% 96% 93% 95%
----------------------- ---- --- ---- ---- ---- ----
Underwriting results
Gross premiums written
Q4 YTD
2016 2015 Change Change 2016 2015 Change Change
$m $m $m % $m $m $m %
---------- ---- ---- ------ ------ ----- ----- ------ --------
Property 29.1 27.8 1.3 4.7 219.5 197.2 22.3 11.3
Energy 23.6 15.0 8.6 57.3 126.0 112.0 14.0 12.5
Marine 4.8 9.2 (4.4) (47.8) 37.2 47.6 (10.4) (21.8)
Aviation 8.0 9.6 (1.6) (16.7) 36.2 36.6 (0.4) (1.1)
Lloyd's 29.6 35.5 (5.9) (16.6) 215.0 247.7 (32.7) (13.2)
----
Total 95.1 97.1 (2.0) (2.1) 633.9 641.1 (7.2) (1.1)
---------- ---- ---- ----- ----- ----- ----- ----- -----
Gross premiums written decreased by 2.1% in the fourth quarter
of 2016 compared to the same period in 2015. In 2016, gross
premiums written decreased by 1.1% compared to 2015. The Group's
five principal segments, and the key market factors impacting them,
are discussed below.
Property gross premiums written increased by 4.7% for the fourth
quarter of 2016 compared to the same period in 2015 and increased
by 11.3% in 2016 compared to 2015. While the dollar movement for
the quarter and within individual lines of business was small, we
continued to see good new business flow in the political risk book,
although this was more than offset by the impact of non-annual
policies written in 2015 which are not yet due to renew. Business
flow in the political risk class is generally less predictable than
other classes of business due to the lead time and specific nature
of each deal. For the year, the majority of the increase was driven
by new business in the political risk and property catastrophe
excess of loss classes, partly offset by reductions due to the
impact of non-annual policies in the political risk and terrorism
classes. Rates continued to experience pressure in the property
catastrophe excess of loss class.
Energy gross premiums written increased by 57.3% for the fourth
quarter of 2016 compared to the same period in 2015 and increased
by 12.5% in 2016 compared to 2015. The fourth quarter is not
typically a major renewal period for the energy segment. The
worldwide offshore and energy construction books were responsible
for the increase in the quarter, both benefiting from premium
adjustments on prior year contracts, due to increased exposure. The
Gulf of Mexico book was responsible for most of the increase in the
year. Some new business was added in this class, but the vast
majority of the increase is driven by the timing impact of
multi-year deals plus the cancellation and replacement of certain
contracts. For the year, the worldwide offshore book continued to
experience price and exposure reductions due to the relatively low
oil price, offset somewhat by the timing of renewal of non-annual
deals.
Marine gross premiums written decreased by 47.8% for the fourth
quarter of 2016 compared to the same period in 2015 and decreased
by 21.8% in 2016 compared to 2015. The decrease in the quarter is
mainly due to the timing of renewal of non-annual policies in the
marine hull class. The majority of the decrease across the class in
the year is also driven by the timing of non-annual renewals,
together with a reduction in prior underwriting year risk-attaching
business due to changes in the underlying exposure.
Aviation gross premiums written decreased by 16.7% for the
fourth quarter of 2016 compared to the same period in 2015 and
decreased by 1.1% in 2016 compared to 2015. The decreases are
mainly due to the timing of satellite launches on contracts written
in previous years.
In the Lloyd's segment gross premiums written decreased by 16.6%
for the fourth quarter of 2016 compared to the same period in 2015
and decreased by 13.2% in 2016 compared to 2015. There were
reductions across all lines of business, for both the quarter and
year to date, with rates continuing to come under pressure due to
over-capacity in the market. In addition, the energy and marine
cargo lines were both impacted by the low oil price. The decline in
Marine cargo premiums is due to the lower value of oil in transit.
In the energy line, less oil production and exploration has reduced
exposure.
*******
Ceded reinsurance premiums decreased by $2.8 million, or 28.6%,
for the fourth quarter compared to the same period in 2015 and
increased by $15.8 million, or 9.9%, in 2016 compared to 2015.
Favourable conditions in the reinsurance market have generally
allowed both Lancashire and Cathedral to buy more reinsurance
limit, by adding new layers and attaching at lower loss levels for
around the same outlay. The reduction in the quarter is mostly due
to less facultative cover being purchased. The increased spend for
2016 is largely due to higher cessions to various outwards
facilities and additional reinstatement premiums.
*******
Net premiums earned as a proportion of net premiums written was
145.5% in the fourth quarter of 2016 compared to 149.8% for the
same period in 2015 and 106.4% in 2016 compared to 117.7% in 2015.
The reduced earnings percentages are due to an increase in longer
tenor business written plus increased reinsurance spend.
*******
The Group's net loss ratio for the fourth quarter of 2016 was
32.6% compared to 18.3% for the same period in 2015 and 29.2% for
2016 compared to 27.5% for 2015. The accident year loss ratio for
the fourth quarter of 2016, including the impact of foreign
exchange revaluations, was 49.6% compared to 30.6% for the same
period in 2015 and 46.2% for 2016 compared to 46.0% for 2015. While
there were no major losses in either 2016 or 2015, both years
experienced a few mid-sized losses, primarily across the property
and energy classes. The fourth quarter of 2016 picked up more
volume of those relative to the fourth quarter of 2015. Attritional
losses for both years were otherwise low.
Prior year favourable development for the fourth quarter of 2016
was $23.9 million, compared to favourable development of $16.6
million for the fourth quarter of 2015. Favourable development was
$85.8 million for 2016 compared to favourable development of $107.7
million in 2015. Despite some adverse development on prior accident
year marine and energy claims in 2016, the overall favourable
development was primarily due to general IBNR releases across most
lines of business due to a lack of reported claims. Experience in
2015 was similar in terms of releases, plus there was a further
benefit of additional recoveries on the 2011 Thai flood losses.
The table below provides further detail of the prior years' loss
development by class, excluding the impact of foreign exchange
valuations.
Q4 YTD
2016 2015 2016 2015
$m $m $m $m
---------- ------------ --------- --------- -------------
Property 6.0 (4.7) 36.6 26.4
Energy (3.4) 8.5 17.3 35.2
Marine 0.6 3.1 1.9 13.8
Aviation 0.7 0.6 3.9 2.9
Lloyd's 20.0 9.1 26.1 29.4
--------
Total 23.9 16.6 85.8 107.7
---------- -------- -------- --------- -----------
Note: Positive numbers denote favourable development.
Excluding the impact of foreign exchange revaluations, previous
accident years' ultimate losses developed as follows during 2016
and 2015:
Year ended Year ended
31 December 31 December
2016 2015
$m $m
-------------------- -------------- --------------
2006 accident year 0.3 1.6
2007 accident year (0.7) 1.1
2008 accident year 1.6 (2.1)
2009 accident year (18.0) 4.1
2010 accident year 3.2 (3.5)
2011 accident year 9.9 17.1
2012 accident year 13.5 10.8
2013 accident year (1.6) 35.4
2014 accident year 19.9 43.2
2015 accident year 57.7 -
----------
Total 85.8 107.7
-------------------- ---------- ----------
Note: Positive numbers denote favourable development.
The ratio of IBNR to total net loss reserves was 34.6% at 31
December 2016 compared to 35.2% at 31 December 2015.
Investments
Net investment income, excluding realised and unrealised gains
and losses, was $6.8 million for the fourth quarter of 2016, a
decrease of 8.1% from the fourth quarter of 2015. Net investment
income was $29.8 million for 2016, consistent with 2015. Total
investment return, including net investment income, net other
investment income, net realised gains and losses, impairments and
net change in unrealised gains and losses, was a loss of $3.2
million for the fourth quarter of 2016 compared to a loss of $3.0
million for the fourth quarter of 2015, and a gain of $38.4 million
for 2016 compared to a gain of $14.4 million for 2015.
The investment portfolio generated a loss of 0.1% during the
fourth quarter of 2016. The loss was driven by the significant
increase in treasury yields, which caused negative returns in the
standard fixed maturity portfolio. These losses were mitigated
somewhat by strong returns from the Group's hedge funds, bank
loans, and equity linked notes during the quarter. During the
fourth quarter of 2015, the portfolio lost 0.2% as a result of the
Federal Reserve's decision to raise interest rates during the
quarter, and due to the widening of credit spreads amid global
growth concerns and the decline in oil prices.
For 2016, the investment portfolio has returned 2.1%. The fixed
maturity portfolios performed reasonably well in 2016, primarily
due to the narrowing of credit spreads which more than offset the
slight increase in treasury yields during the year. Investment
income was supported by strong returns from the Group's bank loans,
equities, and equity linked notes during 2016. For 2015 the
investment portfolio returned 0.7% reflecting the increase in
treasury yields and the widening of credit spreads.
The corporate bond allocation represented 32.5% of managed
invested assets at 31 December 2016 compared to 33.2% at 31
December 2015.
The managed portfolio was as follows:
As at As at
31 December 31 December
2016 2015
--------------------------- ------------- -------------
Fixed maturity securities 81.4% 81.6%
Cash and cash equivalents 10.4% 9.6%
Hedge funds 7.0% 8.0%
Equity securities 1.2% 0.8%
Total 100.0% 100.0%
--------------------------- -------- --------
Key investment portfolio statistics were:
As at As at
31 December 31 December
2016 2015
Duration 1.8 years 1.5 years
Credit quality A+ AA-
Book yield 1.8% 1.6%
Market yield 1.9% 1.9%
---------------- ------- --- ------- ---
Lancashire Third Party Capital Management
The total contribution from third party capital activities
consists of the following items:
Q4 YTD
2016 2015 2016 2015
$m $m $m $m
---------------------------------- --------- ------------ ---------- ------------
Kinesis underwriting fees 1.1 1.5 4.4 5.6
Kinesis profit commission 3.0 0.1 6.2 7.3
Lloyd's fees & profit commission 6.2 3.4 9.9 7.0
---------------------------------- --------- -------- ---------- ----------
Total other income 10.3 5.0 20.5 19.9
---------------------------------- --------- -------- ---------- ----------
Share of profit of associate 0.7 (0.2) 5.1 4.1
---------------------------------- --------- -------- ---------- ----------
Total third party capital
managed income 11.0 4.8 25.6 24.0
---------------------------------- --------- -------- ---------- ----------
The reduction in Kinesis underwriting fees year on year is due
to slightly less limit placed. The timing of Kinesis profit
commission is driven by the timing of loss experience and
collateral release and therefore varies from quarter to quarter.
The slightly lower profit commission for 2016 compared to 2015 is
due to the retention of a portion of the collateral held on the
January 2015 underwriting cycle which is awaiting the confirmation
of claims quantum. We anticipate receiving the remaining commission
in the first quarter of 2017. The share of profit of associate
reflects Lancashire's 10% equity interest in the Kinesis
vehicle.
The higher Lloyd's fees and profit commission for the fourth
quarter of 2016 compared to the same period in 2015, and for 2016
compared to 2015, are driven by the timing of profit commissions on
the 2014 year of account, together with profit commissions on
consortium business.
Other operating expenses
Other operating expenses consist of the following items:
Q4 YTD
2016 2015 2016 2015
$m $m $m $m
----------------------------- ---------- --------- ---- -------
Employee remuneration costs 14.6 20.0 61.4 64.3
Other operating expenses 8.8 10.7 37.1 42.3
Total 23.4 30.7 98.5 106.6
----------------------------- ---------- --------- ---- -----
Employee remuneration costs for the fourth quarter of 2016 and
the year were lower compared to the same periods in the prior year.
A higher compensation expense due to Cathedral staff departures was
recorded in the fourth quarter of 2015 and for that year. Otherwise
the fourth quarter of 2016, and the year, benefited from the
depreciation of Sterling in the second half of 2016.
Other operating expenses for the fourth quarter of 2016 and the
year were also lower compared to 2015, primarily due to the
depreciation in Sterling.
Equity based compensation
Equity based compensation was $0.6 million in the fourth quarter
of 2016 compared to $3.6 million in the same period last year and
$10.7 million for 2016 compared to $15.8 million in the prior year.
The decrease in the quarter and the year compared to the prior year
was primarily due to the lapsing of restricted share scheme awards
of former employees of Cathedral on their departure from the
Group.
Capital
At 31 December 2016, total capital available to Lancashire was
$1.528 billion, comprising shareholders' equity of $1.207 billion
and $320.9 million of long-term debt. Tangible capital was $1.374
billion. Leverage was 21.0% on total capital and 23.3% on total
tangible capital. Total capital and total tangible capital at 31
December 2015 were $1.542 billion and $1.388 billion,
respectively.
The Group will continue to review the appropriate level and
composition of capital for the Group with the intention of managing
capital to enhance risk-adjusted returns on equity.
Dividends
The Lancashire Board declared the following dividends during
2016:
-- A final dividend relating to 2015 of $0.10 per common share;
-- An interim dividend of $0.05 per common share; and
-- A special dividend of $0.75 per common share.
Lancashire announces that its Board of Directors has declared a
final dividend for 2016 of $0.10 per common share (approximately
(GBP0.08) per common share at the current exchange rate), which
will result in an aggregate payment of approximately $19.8 million.
The dividend will be paid in Pounds Sterling on 22 March 2017 (the
"Dividend Payment Date") to shareholders of record on 24 February
2017 (the "Record Date") using the GBP / $ spot market exchange
rate at 12 Noon London time on the Record Date.
Shareholders interested in participating in the dividend
reinvestment plan ("DRIP") or other services including
international payment, are encouraged to contact the Group
registrars, Capita Registrars for more details at:
http://www.capitaassetservices.com
Financial information
The Audited Consolidated Financial Statements for the year ended
31 December 2016 and the 2016 fourth quarter Financial Supplement
are published on Lancashire's website at
www.lancashiregroup.com
The Annual Report and Accounts are expected to be posted to
shareholders on 13 March 2017 and will also be made available on
the website.
Analyst and Investor Earnings Conference Call
There will be an analyst and investor conference call on the
results at 1:00pm GMT time / 8:00am EST on Thursday 16 February
2017. The conference call will be hosted by Lancashire
management.
Participant Access:
Dial in 5-10 minutes prior to the start time using the number /
Conference ID below.
Local - London, United Kingdom: +44(0)20 3427 1909
Local - New York, United States of America: +1646 254 3362
National free phone - United Kingdom: +0800 279 4977
National free phone - United States of America: +1877 280
2296
Confirmation Code: 5669665
The call can also be accessed via webcast, please go to our
website at:
(http://www.lancashiregroup.com/en/investors.html) to
access.
A webcast replay facility will be available for 12 months and
accessible at
http://www.lancashiregroup.com/en/investors/results-reports-and-presentations.html
For further information, please contact:
Lancashire Holdings Limited
Christopher Head +44 20 7264 4145
chris.head@lancashiregroup.com
Jonny Creagh-Coen +44 20 7264 4066
jcc@lancashiregroup.com
Haggie Partners +44 20 7562 4444
David Haggie (David Haggie mobile
+44 7768332486)
About Lancashire
Lancashire, through its UK and Bermuda-based operating
subsidiaries, is a global provider of specialty insurance and
reinsurance products. The Group companies carry the following
ratings:
Financial Financial Long Term
Strength Strength Issuer
Rating (1) Outlook(1) Rating (2)
A.M. Best A (Excellent) Stable bbb
S&P Global Ratings A- Positive BBB
Moody's A3 Stable Baa2
------------------- -------------- ------------ ------------
(1) Financial Strength Rating and Financial Strength Outlook
apply to Lancashire Insurance Company Limited and Lancashire
Insurance Company (UK) Limited.
(2) Long Term Issuer Rating applies to Lancashire Holdings
Limited.
Cathedral benefits from Lloyd's ratings: A.M. Best: A
(Excellent); S&P Global Ratings: A+ (Strong); and Fitch: AA-
(Very Strong).
Lancashire has capital in excess of $1.5 billion and its common
shares trade on the premium segment of the Main Market of the
London Stock Exchange under the ticker symbol LRE. Lancashire has
its corporate headquarters and mailing address at 29th Floor, 20
Fenchurch Street, London EC3M 3BY, United Kingdom and its
registered office at Power House, 7 Par-la-Ville Road, Hamilton HM
11, Bermuda.
For more information on Lancashire and Lancashire's subsidiary
and Lloyd's segment, Cathedral Capital Limited ("Cathedral"), visit
Lancashire's website at www.lancashiregroup.com
The UK Prudential Regulation Authority ("PRA") is the Group
Supervisor of the Lancashire Group.
Lancashire Insurance Company Limited is regulated by the Bermuda
Monetary Authority ("BMA") in Bermuda.
Lancashire Insurance Company (UK) Limited is authorised by the
PRA and regulated by the Financial Conduct Authority ("FCA") and
the PRA in the UK.
Kinesis Capital Management Limited is regulated by the BMA in
Bermuda.
Cathedral Underwriting Limited is authorised by the PRA and
regulated by the FCA and the PRA in the UK. It is also authorised
and regulated by Lloyd's.
This release contains information, which may be of a price
sensitive nature, that Lancashire is making public in a manner
consistent with the EU Market Abuse Regulation and other regulatory
obligations. The information was submitted for publication, through
the agency of the contact persons set out above, at 07.00 GMT on 16
February 2017.
NOTE REGARDING RPI METHODOLOGY
LANCASHIRE'S RENEWAL PRICE INDEX ("RPI") IS AN INTERNAL
METHODOLOGY THAT ITS MANAGEMENT USES TO TRACK TRS IN PREMIUM RATES
OF A PORTFOLIO OF INSURANCE AND REINSURANCE CONTRACTS. THE RPI
WRITTEN BY THE LANCASHIRE COMPANIES IN THE RESPECTIVE SEGMENTS IS
CALCULATED ON A PER CONTRACT BASIS AND REFLECTS LANCASHIRE'S
ASSESSMENT OF RELATIVE CHANGES IN PRICE, TERMS, CONDITIONS AND
LIMITS AND IS WEIGHTED BY PREMIUM VOLUME. THE CALCULATION INVOLVES
A DEGREE OF JUDGEMENT IN RELATION TO COMPARABILITY OF CONTRACTS AND
THE ASSESSMENT NOTED ABOVE. TO ENHANCE THE RPI METHODOLOGY,
MANAGEMENT OF LANCASHIRE MAY REVISE THE METHODOLOGY AND ASSUMPTIONS
UNDERLYING THE RPI, SO THE TRS IN PREMIUM RATES REFLECTED IN THE
RPI MAY NOT BE COMPARABLE OVER TIME. CONSIDERATION IS ONLY GIVEN TO
RENEWALS OF A COMPARABLE NATURE SO IT DOES NOT REFLECT EVERY
CONTRACT IN LANCASHIRE'S PORTFOLIO. THE FUTURE PROFITABILITY OF THE
PORTFOLIO OF CONTRACTS WITHIN THE RPI IS DEPENT UPON MANY FACTORS
BESIDES THE TRS IN PREMIUM RATES.
NOTE REGARDING FORWARD-LOOKING STATEMENTS:
CERTAIN STATEMENTS AND INDICATIVE PROJECTIONS (WHICH MAY INCLUDE
MODELED LOSS SCENARIOS) MADE IN THIS RELEASE OR OTHERWISE THAT ARE
NOT BASED ON CURRENT OR HISTORICAL FACTS ARE FORWARD-LOOKING IN
NATURE INCLUDING, WITHOUT LIMITATION, STATEMENTS CONTAINING THE
WORDS "BELIEVES", "ANTICIPATES", "PLANS", "PROJECTS", "FORECASTS",
"GUIDANCE", "INTS", "EXPECTS", "ESTIMATES", "PREDICTS", "MAY",
"CAN", "LIKELY", "WILL", "SEEKS", "SHOULD", OR, IN EACH CASE, THEIR
NEGATIVE OR COMPARABLE TERMINOLOGY. ALL SUCH STATEMENTS OTHER THAN
STATEMENTS OF HISTORICAL FACTS INCLUDING, WITHOUT LIMITATION, THE
GROUP'S FINANCIAL POSITION, LIQUIDITY, RESULTS OF OPERATIONS,
PROSPECTS, GROWTH, CAPITAL MANAGEMENT PLANS AND EFFICIENCIES,
ABILITY TO CREATE VALUE, DIVID POLICY, OPERATIONAL FLEXIBILITY,
COMPOSITION OF MANAGEMENT, BUSINESS STRATEGY, PLANS AND OBJECTIVES
OF MANAGEMENT FOR FUTURE OPERATIONS (INCLUDING DEVELOPMENT PLANS
AND OBJECTIVES RELATING TO THE GROUP'S INSURANCE BUSINESS) ARE
FORWARD LOOKING STATEMENTS. SUCH FORWARD-LOOKING STATEMENTS INVOLVE
KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER IMPORTANT FACTORS
THAT COULD CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF
THE GROUP TO BE MATERIALLY DIFFERENT FROM FUTURE RESULTS,
PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS.
THESE FACTORS INCLUDE, BUT ARE NOT LIMITED TO: THE GROUP'S
ABILITY TO INTEGRATE ITS BUSINESSES AND PERSONNEL; THE SUCCESSFUL
RETENTION AND MOTIVATION OF THE GROUP'S KEY MANAGEMENT; THE
INCREASED REGULATORY BURDEN FACING THE GROUP, THE NUMBER AND TYPE
OF INSURANCE AND REINSURANCE CONTRACTS THAT THE GROUP WRITES OR MAY
WRITE; THE GROUP'S ABILITY TO IMPLEMENT SUCCESSFULLY ITS BUSINESS
STRATEGY DURING 'SOFT' AS WELL AS 'HARD' MARKETS; THE PREMIUM RATES
WHICH MAY BE AVAILABLE AT THE TIME OF SUCH RENEWALS WITHIN THE
GROUP'S TARGETED BUSINESS LINES; THE POSSIBLE LOW FREQUENCY OF
LARGE EVENTS; POTENTIALLY UNUSUAL LOSS FREQUENCY; THE IMPACT THAT
THE GROUP'S FUTURE OPERATING RESULTS, CAPITAL POSITION AND RATING
AGENCY AND OTHER CONSIDERATIONS MAY HAVE ON THE EXECUTION OF ANY
CAPITAL MANAGEMENT INITIATIVES OR DIVIDS; THE POSSIBILITY OF
GREATER FREQUENCY OR SEVERITY OF CLAIMS AND LOSS ACTIVITY THAN THE
GROUP'S UNDERWRITING, RESERVING OR INVESTMENT PRACTICES HAVE
ANTICIPATED; THE RELIABILITY OF, AND CHANGES IN ASSUMPTIONS TO,
CATASTROPHE PRICING, ACCUMULATION AND ESTIMATED LOSS MODELS;
INCREASED COMPETITION FROM EXISTING ALTERNATIVE CAPITAL PROVIDERS,
INSURANCE LINKED FUNDS AND COLLATERALISED SPECIAL PURPOSE INSURERS
AND THE RELATED DEMAND AND SUPPLY DYNAMICS AS CONTRACTS COME UP FOR
RENEWAL; THE EFFECTIVENESS OF THE GROUP'S LOSS LIMITATION METHODS;
THE POTENTIAL LOSS OF KEY PERSONNEL; A DECLINE IN THE GROUP'S
OPERATING SUBSIDIARIES' RATING WITH A.M. BEST, STANDARD &
POOR'S, MOODY'S OR OTHER RATING AGENCIES; INCREASED COMPETITION ON
THE BASIS OF PRICING, CAPACITY, COVERAGE TERMS OR OTHER FACTORS; A
CYCLICAL DOWNTURN OF THE INDUSTRY; THE IMPACT OF A DETERIORATING
CREDIT ENVIRONMENT FOR ISSUERS OF FIXED MATURITY INVESTMENTS; THE
IMPACT OF SWINGS IN MARKET INTEREST RATES, CURRENCY EXCHANGE RATES
AND SECURITIES PRICES; CHANGES BY CENTRAL BANKS REGARDING THE LEVEL
OF INTEREST RATES; THE IMPACT OF INFLATION OR DEFLATION IN RELEVANT
ECONOMIES IN WHICH THE GROUP OPERATES; THE EFFECT, TIMING AND OTHER
UNCERTAINTIES SURROUNDING FUTURE BUSINESS COMBINATIONS WITHIN THE
INSURANCE AND REINSURANCE INDUSTRIES; THE IMPACT OF TERRORIST
ACTIVITY IN THE COUNTRIES IN WHICH THE GROUP WRITES RISKS; A RATING
DOWNGRADE OF, OR A MARKET DECLINE IN, SECURITIES IN THE GROUP'S
INVESTMENT PORTFOLIO; CHANGES IN GOVERNMENTAL REGULATIONS OR TAX
LAWS IN JURISDICTIONS WHERE THE GROUP CONDUCTS BUSINESS; ANY OF THE
GROUP'S BERMUDIAN SUBSIDIARIES BECOMING SUBJECT TO INCOME TAXES IN
THE UNITED STATES OR THE UNITED KINGDOM; THE INAPPLICABILITY TO THE
GROUP OF SUITABLE EXCLUSIONS FROM THE UK CFC REGIME; ANYCHANGE IN
UK GOVERNMENT POLICY WHICH IMPACTS THE CFC REGIME OR OTHER TAX
CHANGES; AND THE IMPACT OF THE "BREXIT" VOTE AND FUTURE
NEGOTIATIONS REGARDING THE U.K'S RELATIONSHIP WITH THE E.U. IN THE
RECENT IN-OR-OUT REFERUM ON THE GROUP'S BUSINESS, REGULATORY
RELATIONSHIPS, UNDERWRITING PLATFORMS OR THE INDUSTRY
GENERALLY.
ALL FORWARD-LOOKING STATEMENTS IN THIS RELEASE SPEAK ONLY AS AT
THE DATE OF PUBLICATION. LANCASHIRE EXPRESSLY DISCLAIMS ANY
OBLIGATION OR UNDERTAKING (SAVE AS REQUIRED TO COMPLY WITH ANY
LEGAL OR REGULATORY OBLIGATIONS INCLUDING THE RULES OF THE LONDON
STOCK EXCHANGE) TO DISSEMINATE ANY UPDATES OR REVISIONS TO ANY
FORWARD-LOOKING STATEMENT TO REFLECT ANY CHANGES IN THE GROUP'S
EXPECTATIONS OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENT IS
BASED.
Consolidated statement of comprehensive income
Q4 Q4 YTD YTD
2016 2015 2016 2015
$m $m $m $m
------------------------------- --------- --------- ------------ ------------
Gross premiums written 95.1 97.1 633.9 641.1
Outwards reinsurance
premiums (7.0) (9.8) (175.2) (159.4)
Net premiums written 88.1 87.3 458.7 481.7
------------------------------- ----- ----- -------- --------
Change in unearned premiums 73.9 72.3 25.7 79.9
Change in unearned premiums
on premiums ceded (33.8) (28.8) 3.7 5.5
Net premiums earned 128.2 130.8 488.1 567.1
------------------------------- ----- ----- -------- --------
Net investment income 6.8 7.4 29.8 29.8
Net other investment
income (losses) 3.4 (0.2) 6.9 (1.3)
Net realised gains (losses)
and impairments 3.1 (0.8) (2.4) (2.8)
Share of profit of associate 0.7 (0.2) 5.1 4.1
Other income 10.3 5.0 20.5 19.9
Net foreign exchange
gains (losses) 0.9 2.6 4.4 (2.4)
Total net revenue 153.4 144.6 552.4 614.4
------------------------------- ----- ----- -------- --------
Insurance losses and
loss adjustment expenses 33.4 24.1 212.2 177.5
Insurance losses and
loss adjustment expenses
recoverable 8.4 (0.1) (69.7) (21.8)
Net insurance acquisition
expenses 36.0 33.1 132.1 146.2
Equity based compensation 0.6 3.6 10.7 15.8
Other operating expenses 23.4 30.7 98.5 106.6
Total expenses 101.8 91.4 383.8 424.3
------------------------------- ----- ----- -------- --------
Results of operating
activities 51.6 53.2 168.6 190.1
Financing costs 0.7 3.0 18.2 18.4
Profit before tax 50.9 50.2 150.4 171.7
Tax credit 0.5 4.3 3.9 10.0
Profit after tax 51.4 54.5 154.3 181.7
--------
Non-controlling interests (0.3) (0.1) (0.5) (0.6)
Profit after tax attributable
to Lancashire 51.1 54.4 153.8 181.1
------------------------------- ----- ----- -------- --------
Net change in unrealised
gains/losses on investments (17.1) (9.7) 4.1 (11.6)
Tax provision on net
change in unrealised
gains/losses on investments 0.6 0.3 - 0.3
--------
Other comprehensive (loss)
income (16.5) (9.4) 4.1 (11.3)
------------------------------- ----- ----- -------- --------
Total comprehensive income
attributable to Lancashire 34.6 45.0 157.9 169.8
------------------------------- ----- ----- -------- --------
Net loss ratio 32.6% 18.3% 29.2% 27.5%
Net acquisition cost
ratio 28.1% 25.3% 27.1% 25.8%
Administrative expense
ratio 18.3% 23.5% 20.2% 18.8%
Combined ratio 79.0% 67.1% 76.5% 72.1%
------------------------------- ----- ----- -------- --------
Basic earnings per share $0.26 $0.27 $ 0.77 $ 0.93
Diluted earnings per
share $0.25 $0.27 $ 0.76 $ 0.91
Change in fully converted
book value per share 2.8% 3.5% 13.5% 13.5%
(*) Return on equity including warrant exercises was 3.5% for
the fourth quarter of 2015 and 10.9% for 2015, all remaining
outstanding warrants were exercised during 2015 and there is
therefore no impact of warrants on 2016 return on equity.
Consolidated balance sheet
As at As at
31 December 31 December
2016 2015
$m $m
----------------------------------------- ----------- -------------
Assets
Cash and cash equivalents 308.8 291.8
Accrued interest receivable 6.6 6.5
Investments 1,648.4 1,773.3
Inwards premiums receivable from
insureds and cedants 270.0 253.7
Reinsurance assets
- Unearned premiums on premiums ceded 33.9 30.2
- Reinsurance recoveries 136.7 83.9
- Other receivables 16.5 2.7
Other receivables 43.6 37.8
Corporation tax receivable 1.1 -
Investment in associate 49.7 47.5
Property, plant and equipment 5.3 7.2
Deferred acquisition costs 81.5 87.2
Intangible assets 153.8 153.8
Total assets 2,755.9 2,775.6
----------------------------------------- ---------- ----------
Liabilities
Insurance contracts
- Losses and loss adjustment expenses 679.8 671.0
- Unearned premiums 373.5 399.2
- Other payables 37.4 36.2
Amounts payable to reinsurers 52.7 26.6
Deferred acquisition costs ceded 0.4 0.3
Other payables 61.0 67.0
Corporation tax payable - 1.8
Deferred tax liability 18.7 25.6
Interest rate swap 3.7 4.8
Long-term debt 320.9 322.3
Total liabilities 1,548.1 1,554.8
----------------------------------------- ---------- ----------
Shareholders' equity
Share capital 100.7 100.7
Own shares (23.2) (30.4)
Other reserves 881.6 880.8
Accumulated other comprehensive loss (6.4) (10.5)
Retained earnings 254.6 279.7
Total shareholders' equity attributable
to equity
shareholders of LHL 1,207.3 1,220.3
----------------------------------------- ---------- ----------
Non-controlling interest 0.5 0.5
Total shareholders' equity 1,207.8 1,220.8
Total liabilities and shareholders'
equity 2,755.9 2,775.6
----------------------------------------- ---------- ----------
Basic book value per share $6.07 $6.16
Fully converted book value per share $5.98 $6.07
Consolidated statements of cash flows
YTD YTD
2016 2015
$m $m
--------------------------------------------- --------- ----------
Cash flows from operating activities
Profit before tax 150.4 171.7
Tax (paid) refunded (1.3) 4.4
Depreciation 2.3 1.9
Interest expense on long-term debt 15.6 15.1
Interest and dividend income (38.5) (40.9)
Net amortisation of fixed maturity
securities 5.0 8.1
Equity based compensation 10.7 15.8
Foreign exchange (gains) losses (2.3) 10.8
Share of profit of associate (5.1) (4.1)
Net other investment (income) losses (6.9) 1.3
Net realised losses (gains) and impairments 2.4 2.8
Net unrealised gains on interest
rate swaps (1.1) (0.1)
Changes in operational assets and
liabilities
- Insurance and reinsurance contracts (71.7) (71.0)
- Other assets and liabilities (10.6) (17.7)
Net cash flows from operating activities 48.9 98.1
--------------------------------------------- -------- -------
Cash flows from investing activities
Interest and dividends received 38.4 42.1
Purchase of property, plant and equipment (0.4) -
Investment in associate 2.9 9.3
Purchase of investments (1,214.0) (990.8)
Proceeds on sale of investments 1,341.8 1,173.5
Net cash flows from investing activities 168.7 234.1
--------------------------------------------- -------- -------
Cash flows used in financing activities
Interest paid (15.4) (15.2)
Dividends paid (178.9) (317.5)
Dividend paid to minority interest
holders (0.5) (0.6)
Distributions by trust (2.9) (4.7)
Net cash flows used in financing
activities (197.7) (338.0)
--------------------------------------------- -------- -------
Net increase (decrease) in cash and
cash equivalents 19.9 (5.8)
Cash and cash equivalents at the
beginning of year 291.8 303.5
Effect of exchange rate fluctuations
on cash and cash equivalents (2.9) (5.9)
Cash and cash equivalents at end
of year 308.8 291.8
--------------------------------------------- -------- -------
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR UVAWRBVAUAAR
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February 16, 2017 02:00 ET (07:00 GMT)
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