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LRE.L - Lancashire Holdings Ltd


nwoodman

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Yeah, but if the company can keep making 20% ROE, why do you want the dividend to be paid to you and get double taxed?

Also, why do you want to pay a much higher premium to LRE?

 

First of all I don’t get double taxed… Being LRE so much tax efficient, I almost don’t get taxed at all!

 

Second: because I want something that keeps providing me continuously with new cash. As I have often said in this thread, I view LRE as a strategic investment: I don’t want to ever lack assets that replenish my “cash reserve” with consistency and predictability. I am willing to pay up for them. It simply makes doing business so much easier!

 

Therefore, the only thing I am willing to swap LRE for is another cash distributing machine, as much tax-efficient as LRE, and which is selling for a lower multiple than LRE. As I have always said, if anyone knows such a machine, please let me know! ;)

 

Gio

 

PS

I don't think I am really paying up for LRE: on a forward basis LRE is selling for just 7 times earnings...

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Hi Gio (note this may really be a question for other US based holder of LRE.L...),

 

I've recently purchased LRE...

 

You mention taxes..I am assuming as a US citizen I will pay the usual 15% (up to potentially I think 23.8% now :( ) on the dividends I receive (I plan to leave the dividends in pence in the account and wait for another low to buy more LRE or another British stock :)...though I am wondering if there is a real "return of capital" tax treatment for part that makes some of it tax exempt?

 

I realize too, that you are based, I believe in Italy? and I know nothing about Italian taxes except I am sure they are pretty different..

 

Cheers,

 

Marc

 

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Thanks.  I love their IR app, but this presentation is not up there yet. 

 

P.S.  Ren Re aficionados may be interested in pgs 6-7 of said new investor presentation.

 

 

Unrelated question:

 

The labrador didn't die did it?  I see it is now a constellation on the front of the annual report.

 

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So why is this one dropping since Jan?

Any fundamental reason?

 

No, I clearly don't think so.

Please, read the Seeking Alpha article I posted a few days ago: it does a good job at explaining why LRE is misunderstood and unloved at the moment. :)

 

Gio

 

I actually did. But things don't sink in for some reasons. Will have to re-read.  Thanks.

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Great thread. Thanks, tw, gio, everyone.

 

Near 1.5 P/B, thought I'd initiate a LCSHF starter position today in my Vanguard Roth IRA brokerage account:

 

This trade will include a $50 processing fee for foreign securities in addition to the [$7] commission cost. If the trade executes over multiple days, an additional commission will be charged for each day on which an execution occurs.

 

I'll spend more on drinks tonight, but still: ouch.

 

(Edit: Wasn't charged such a fee for FRFHF?)

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I realize too, that you are based, I believe in Italy? and I know nothing about Italian taxes except I am sure they are pretty different..

 

Hi Marc,

Yes, I am in Milan, Italy. Anyway, I would be shocked if in the US you had to pay higher taxes on LRE’s special dividends than we pay in Italy! :o

Better ask twacowfca… He surely knows the tax regimen for US based holders of LRE stock very well! ;)

 

Gio

 

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biaggio I am thinking of doing so. Was going to buy AIG, but may have missed the boat on that one. I am thinking of selling this with 3-4 other holdings to raise a big cash pile.

 

twacowfca at what BV point would you be a seller. I am up 50% and have 1-2 years worth of dividends. Holding insurers too high above book proved disastrous with AIG and FFH.

 

That's a good question. If you think their returns are too good to last, you might want to sell.  But, if you are correct in thinking that Brindle and team can equal or exceed Brindle's long term average return, you'll have a great compounding machine if you stay with a winner who has the best short tail underwriting record in recent decades.  :)

 

Their normalized dividend paying ability is still about 13%/annum at the current price of the stock, based on LRE's six year history and Brindle's much longer record at Lloyds in the 80's and 90's.  If Brindle has, in fact, gotten better in recent years, their renormalized returns are probably higher than the historical average, especially with cat rates now at record highs.

 

They don't hoard extra capital or use it to chase mediocre business; they pay earnings out in dividends or share repurchases unless rates are very attractive.  This lets them focus on the most profitable underwriting opportunities as they pop up with very high premiums after major cats.  Their underwriters are switch hitters, able to drop an entire class of coverage if rates are inadequate and move to a more profitable class.  They don't build corporate castles; they run a lean, mean underwriting machine.

 

Their dividends are now qualified for the 15% tax rate in the US beginning January 1, 2012 when their move to UK tax domicile became effective.  They pay zero corporate income tax on profits.

 

The market is now hardening like concrete in the diversified cat exposed areas where their underwriting strength lies. They picked up coverage that other insurers had dropped in NZ last year at rates that were 600% higher than the year before the NZ earthquakes.  Some rates for Asian coverage are reported to be 2 1/2 times higher now than before the disasters there last year.

 

Their reputation is so good that they are able to offload much of the risk of exploiting peak rates in certain cat exposed lines by using investors' money in sidecars,  getting an override plus a potential profit commission with the outside investors bearing most of the risk of the joint ventures.

 

In the middle of the last decade, before Katrina, the financial crisis, and the worst cat loss year ever in 2011, most Bermuda Re's traded for about 1.5 times BV, and the better Lloyds insurers traded for about 2 times BV.  I don't think 1.6 times BV is high for the best of class company.  Objectively, their peers are trading at a big discount to the normalized P/B for cat exposed Bermuda and Lloyds property insurers. 

 

I would expect that whole group of insurers to see gains in share prices if 2012 is a normal or low loss year.  However, if 2012 is a bad year for losses and LRE performs as well as it did in 2011, a 13.4% increase in fully converted BV/SH is something most companies would be delighted to have in a good year.  :)

 

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Holding LRE in a registered account in Canada, I pay no taxes as well as no withholding taxes - so the dividend just flows right through to me tax free. Maybe look into the consequences of holding LRE in a registered account in the US...

 

Just the same for me in Italy. Let’s hope things don’t change! ;)

 

Gio

 

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Holding LRE in a registered account in Canada, I pay no taxes as well as no withholding taxes - so the dividend just flows right through to me tax free. Maybe look into the consequences of holding LRE in a registered account in the US...

 

Which broker allow you to buy LRE in RRSP? What is the symbol? I got some from IB, but IB does not support RRSP account.

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Their dividends are now qualified for the 15% tax rate in the US beginning January 1, 2012 when their move to UK tax domicile became effective.  They pay zero corporate income tax on profits.

 

does this mean the company and head office are in uk? so they're british, not bermudan dividends? i emailed the IR about this too, would love to buy some if i don't have to lose almost half of the dividends.

 

 

update: their IR took all of 15 minutes to answer me comprehensively! gotta love this company. i will not paste the answer here as he said they do not give out tax advice, but he still lined out some things for me, how they go for uk and foreign investors. in contrast, Platform Acquisition IR still hasn't answered the e-mail i sent them 2 months ago. conclusion: i'm finally buying this. it's cheap at 1.5 x book, and avoiding taxes at the corporate level is a great bonus.

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Holding LRE in a registered account in Canada, I pay no taxes as well as no withholding taxes - so the dividend just flows right through to me tax free. Maybe look into the consequences of holding LRE in a registered account in the US...

 

Which broker allow you to buy LRE in RRSP? What is the symbol? I got some from IB, but IB does not support RRSP account.

 

BMO Investorline allows such purchases but they route it through a Nesbitt Burns broker. Its not cheap, but I can buy LRE trading on London and other small/mid/large cap stocks trading on other major foreign exchanges.

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Their dividends are now qualified for the 15% tax rate in the US beginning January 1, 2012 when their move to UK tax domicile became effective.  They pay zero corporate income tax on profits.

 

does this mean the company and head office are in uk? so they're british, not bermudan dividends? i emailed the IR about this too, would love to buy some if i don't have to lose almost half of the dividends.

 

 

update: their IR took all of 15 minutes to answer me comprehensively! gotta love this company. i will not paste the answer here as he said they do not give out tax advice, but he still lined out some things for me, how they go for uk and foreign investors. in contrast, Platform Acquisition IR still hasn't answered the e-mail i sent them 2 months ago. conclusion: i'm finally buying this. it's cheap at 1.5 x book, and avoiding taxes at the corporate level is a great bonus.

 

British dividends is my understanding as they moved headquarters for tax purposes back to Britain sometime in the last year or so...wait for one other board member's confirmation.

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update: their IR took all of 15 minutes to answer me comprehensively! gotta love this company. i will not paste the answer here as he said they do not give out tax advice, but he still lined out some things for me, how they go for uk and foreign investors. in contrast, Platform Acquisition IR still hasn't answered the e-mail i sent them 2 months ago. conclusion: i'm finally buying this. it's cheap at 1.5 x book, and avoiding taxes at the corporate level is a great bonus.

 

Thanks for sharing! :)

 

Gio

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Is the LCSHF not the ADR for Lancashire?

 

This is correct. I'm currently looking into this ADR because my discount brokerage has absurd costs per trade for foreign holdings.

Based on current exchange, the trading value mirrors the current GBP share price currently. The dividends are paid out the same as with LRE.

 

Is the only downside of the ADR the dramatically lower liquidity based on low volume? Is there any other reason any Canadian or US board members aren't purchasing the ADR?

 

TIA

 

That's what I found with my purchases to be the only downside. I had a limit order in that I renewed every day for a week and still had to fill at a 1.5% premium doing that. The liquidity really makes it difficult to get in and get out without shaving off 2-3% on each side of the transaction....

 

That makes sense. I guess it depends on the size of purchase which is the better route. Zach have you received a dividend yet? Was it significantly delayed or smooth? Is there any GBP/USD conversion concerns with the divi?

 

I haven't yet. Still a new position for me. Looking to build my understanding of the company and scale up from there. Just haven't had the time.

 

As far as divi's being delayed for ADRs, it seems like it depends on the company. I own Fairfax ADRs and dividend seems to come through pretty quickly. Some of my other ADRs seem to take forever to post after its been paid. There's no conversion necessary - whoever custodies/facilitates ADR conversion takes care of ccy conversion for dividends.

 

Assuming LCSHF was an ADR, I questioned why VG intended to charge me a foreign transaction fee. The response:

 

You are correct in stating that the foreign transaction fee is not applicable to American Depositary Receipts (ADRs). However, the Lancashire Holdings Limited (LCSHF) you are indicating is not an ADR. This type of security is known as a non-Bulletin Board Over the Counter Pink Sheet. These securities, depending upon the settlement of their transactions, maybe beholden to the $50 foreign transaction fee.

 

Additionally, if the foreign transaction fee applies, the security is not eligible for dividend reinvestment.

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I've had 10% withholding on Lancashire divvies on shares held in both IRA and taxable accounts (U.S.). Is this consistent with other US members' experiences with Lancashire? Thanks.

 

Yes same here, 10 or 15 percent. In IRA.

 

I thought the UK did not withhold taxes on dividend income paid to US investors?

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"Assuming LCSHF was an ADR, I questioned why VG intended to charge me a foreign transaction fee. The response:

 

You are correct in stating that the foreign transaction fee is not applicable to American Depositary Receipts (ADRs). However, the Lancashire Holdings Limited (LCSHF) you are indicating is not an ADR. This type of security is known as a non-Bulletin Board Over the Counter Pink Sheet. These securities, depending upon the settlement of their transactions, maybe beholden to the $50 foreign transaction fee.

 

Additionally, if the foreign transaction fee applies, the security is not eligible for dividend reinvestment."

 

 

Yeah, and the transaction w/r/t to the pinkys is conducted in the us and settled in US Dollars, so how is their an applicable foreign transaction fee.  You might need to fire Vanguard for that kind of stuff.

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Assuming LCSHF was an ADR, I questioned why VG intended to charge me a foreign transaction fee. The response:

 

You are correct in stating that the foreign transaction fee is not applicable to American Depositary Receipts (ADRs). However, the Lancashire Holdings Limited (LCSHF) you are indicating is not an ADR. This type of security is known as a non-Bulletin Board Over the Counter Pink Sheet. These securities, depending upon the settlement of their transactions, maybe beholden to the $50 foreign transaction fee.

 

Additionally, if the foreign transaction fee applies, the security is not eligible for dividend reinvestment.

 

In the U.S., five digit tickets ending in Y are ADRs (MURGY, OGZPY, LUKOY, etc). Five digit tickers ending in F are the actual foreign shares changing hand over pink sheets (LCSHF, FRFHF,  etc).

 

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Why would the UK not withhold tax on dividends for Italy and Canada, and withhold for the US?...maybe the rules are different for registered accounts?... or maybe something else... I looked into this at one point in detail but now forget all the subtleties.

 

I hold LRE.L shares in an Interactive Brokers IRA account and I have had no taxes withheld on the dividends. FWIW...

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