Lancashire's Annual Report is Out

[twacowfca]

 

 

 

LRE 's financials are kept in dollars (to match  their exposure to mostly dollar claims).  Dividends are declared and paid in dollars and then converted into another currency if necessary.  This is a little strange because the shares trade in pence.  :)

 

Correction:  Dividends are declared in dollars, but paid in pence.  I believe that the dollar equivalent is converted into pence on the x-div date and that is the amount that is paid to you on the payment date.  If you convert back to dollars for your dividend payments, then there will be an FX risk for the period of time between the X-Date and the Payment Date conversion.

[Myth465]

http://www.chron.com/disp/story.mpl/business/deepwaterhorizon/6978852.html

 

This may bode well for Lancashire. Hopefully they dont have exposure to this, if they then they should do well rate wise on the deepwater book.

[twacowfca]

http://www.chron.com/disp/story.mpl/business/deepwaterhorizon/6978852.html

 

This may bode well for Lancashire. Hopefully they dont have exposure to this, if they then they should do well rate wise on the deepwater book.

 

 

The deepwater platforms are one of their sweet spots because they generally ride out strong hurricanes without much damage.  If they do have exposure to this event, they'll more than make it up in the next year or two from the subsequent hardening of rates in this class.  Any exposure they have would almost certainly be a relatively small piece of property damage claims for the rig itself.  :)

[twacowfca]

I don't own this - but my retired mother does.

 

- I was looking at lines of business that have historical abnormally low loss ratios (very long histories). Someone mentioned Lancashire on here and when I looked at it, for some reason (maybe because they "get it"!) Lancashire mainly writes in these small lines that have historically run 20-50% loss ratios.

- It's a small office, few employees and underwriters - shareholder money is very close to the CEO's hands.

- Employees have proper incentives (compt'd to underwriting profit).

- Their actions (buy backs and divies) demonstrate management's understanding of their competencies and a humility of their success, probably clearer than any public company I've seen recently. It's unselfish for a CEO to dividend and buy back with the gusto these guys have. (no Kingdom building here!) Oh ya, it also bumps up the IV.

- The buy backs have only been done efficiently and at proper discounts, very wise.

- The majority of public insurance/investment Co's tend to suffer from either being poor at part 1, or part 2. Berkshire and FFH are good examples. Berkshire corrected the problem some time ago though.

- Building an insurance company to invest float is generally not a good idea. Done well it can be phenomenally successful, but it's rather rare. FFH has been a success, but the share issuances at low BV multiples were extremely painful for shareholders.

- The market will give a 2x BV to a P&C insurer that is very good at underwriting, a company like FFH can only attain a high multiple due to CEO lust/euphoria, which is much less certain and usually leads to some poor years following. I think a healthy BV multiple is warranted with FFH, but much less likely. (this isn't paramount to the thesis, but it can be interesting). Basically a company that does 20% ROEs due to underwriting will get a higher multiple than a company that gets 20% ROEs from investments  (both should be worth about 2x BV if the risk of underwriting blow ups at Co1 matches the risk of an investment blow up at Co2).

 

I'd personally rather own a great insurance/investment company, but there aren't many out there.

 

 

 

Thanks for this post.  You mentioned that you had looked at some of the lines of business that LRE writes and determined that they had very low loss ratios in general, not just in LRE's experience.  Would you be so kind to share your source for this most interesting information?

 

Thanks, in advance.  :)

[calonego]

TWA,

 

I subscribe to a trade rag on underwriting and for a little extra they send an annual industry table edition.

It had profitability by type and line, volumes, etc. I just assumed it was the same thing in other underwriting locales as LRE has many of these lines.

[twacowfca]

TWA,

 

I subscribe to a trade rag on underwriting and for a little extra they send an annual industry table edition.

It had profitability by type and line, volumes, etc. I just assumed it was the same thing in other underwriting locales as LRE has many of these lines.

 

What's the name of the publication, please?