LRE.L - Lancashire Holdings Ltd

[racemize]

does anyone have a transcript of the call available?  I missed it and would rather read it than go to the replay, if possible.

[CorpRaider]

Haha, touche'.  A few weeks back, I read something about Brindle's plans to start up a new shop, something about raising a couple billion from PE backers if memory serves.  I would be interested if he does something public again.  Heard anything?  Thanks for your earlier comments, I always enjoy reading your posts.

[colinwalt]

does anyone have a transcript of the call available?  I missed it and would rather read it than go to the replay, if possible.

 

http://seekingalpha.com/article/2918556-lancashire-holdings-limiteds-lcshf-ceo-peter-scales-on-q4-2014-results-earnings-call-transcript

[twacowfca]

Dynamics for the market's reappraisal of Lancashire appear to be enhanced. Lancashire's PE is even more attractive after the excellent Q4 earnings. Management said on the recent conference call that  they have continued to do well halfway through Q1, 2015.

 

The prospect of QE in Euroland beginning next month makes Lancashire's earnings in US Dollars and the stock quoted in GB £ attractive to funds that focus on dividends because dividend income from investments across the channel could be reduced as currencies, including the Euro, typically step on a down escalator when QE starts. 

 

Lancashire is unattractive as a short sale in view of a short seller's having to cough up a large dividend payment to the buyer in a few weeks.

 

The prospect of The Fed's raising interest rates mid year could pinch the US market, but not the UK market as the prospect for central bank increases in UK rates is unlikely this year.

[WhoIsWarren]

thanks for your comments twacowfca, good insights as usual!

[petec]

thanks for your comments twacowfca, good insights as usual!

 

+1 - huge thanks twacowcfa, it is a long term holding for me based in significant part on what I have learned from you.

 

To answer the question in your last post: Kinesis?

[giofranchi]

thanks for your comments twacowfca, good insights as usual!

 

+1

 

Cheers,

 

Gio

[twacowfca]

thanks for your comments twacowfca, good insights as usual!

 

+1 - huge thanks twacowcfa, it is a long term holding for me based in significant part on what I have learned from you.

 

To answer the question in your last post: Kinesis?

 

 

Yes, Kinesis is the big elephant outside the door that could step into the parlor quickly if there is an event that moves the financial or underwriting markets.

 

We saw this in 2008 when the financial markets crashed and  funds flowed to Lancashire's stock with its practically no risk balance sheet even after they had a big loss after hurricane Ike. There were few places for funds to hide then, and the prospect of great returns going forward after catastrophe rates had spiked was appealing. It didn't hurt that Lancashire's losses after that big hurricane were much less than the losses of their peers with similar catastrophe exposure.  That's why Lancashire's recent strategy of reinsuring half or more of the risk of very large losses should have magnified impact on their bottom line and share price after a large disruption.

 

Their funds management business is very profitable, but most of that profit doesn't show up immediately when they put outside funds to work. Look at the recent Q10 results and add up all the ways they make money on this business. That's on a base that has averaged about $300M of managed funds. Darren said on the recent conference call that they could attract a billion dollars very quickly after a market moving event.

 

It seems that Lancashire has taken a type of business in a P&C sector that is fragile with lots of tail risk and turned that Pig's ear into a silk purse that could become more valuable when something bad happens. Their bespoke products are unique and provide exceptional value for capital relief that is largely absent with cat bonds and other parameter based vehicles that have basis risk, ie. not covering all aspects of risk.

 

[giofranchi]

thanks for your comments twacowfca, good insights as usual!

 

+1 - huge thanks twacowcfa, it is a long term holding for me based in significant part on what I have learned from you.

 

To answer the question in your last post: Kinesis?

 

 

Yes, Kinesis is the big elephant outside the door that could step into the parlor quickly if there is an event that moves the financial or underwriting markets.

 

We saw this in 2008 when the financial markets crashed and  funds flowed to Lancashire's stock with its practically no risk balance sheet even after they had a big loss after hurricane Ike. There were few places for funds to hide then, and the prospect of great returns going forward after catastrophe rates had spiked was appealing. It didn't hurt that Lancashire's losses after that big hurricane were much less than the losses of their peers with similar catastrophe exposure.  That's why Lancashire's recent strategy of reinsuring half or more of the risk of very large losses should have magnified impact on their bottom line and share price after a large disruption.

 

Their funds management business is very profitable, but most of that profit doesn't show up immediately when they put outside funds to work. Look at the recent Q10 results and add up all the ways they make money on this business. That's on a base that has averaged about $300M of managed funds. Darren said on the recent conference call that they could attract a billion dollars very quickly after a market moving event.

 

It seems that Lancashire has taken a type of business in a P&C sector that is fragile with lots of tail risk and turned that Pig's ear into a silk purse that could become more valuable when something bad happens. Their bespoke products are unique and provide exceptional value for capital relief that is largely absent with cat bonds and other parameter based vehicles that have basis risk, ie. not covering all aspects of risk.

 

This is exactly what I am looking for, and now I am much more comfortable with management too. :)

 

Gio

[rjstc]

thanks for your comments twacowfca, good insights as usual!

 

+1 - huge thanks twacowcfa, it is a long term holding for me based in significant part on what I have learned from you.

 

To answer the question in your last post: Kinesis?

 

 

+1 - huge thanks twacowcfa, it is a long term holding for me based in significant part on what I have learned from you.

 

What was said here is just like my experience.. Thanks much TWACOWFCA!!! In fact I have taken the dip in prices to add maybe 50% to my position & am reinvesting all dividends.

[twacowfca]

thanks for your comments twacowfca, good insights as usual!

 

+1 - huge thanks twacowcfa, it is a long term holding for me based in significant part on what I have learned from you.

 

To answer the question in your last post: Kinesis?

 

 

Yes, Kinesis is the big elephant outside the door that could step into the parlor quickly if there is an event that moves the financial or underwriting markets.

 

We saw this in 2008 when the financial markets crashed and  funds flowed to Lancashire's stock with its practically no risk balance sheet even after they had a big loss after hurricane Ike. There were few places for funds to hide then, and the prospect of great returns going forward after catastrophe rates had spiked was appealing. It didn't hurt that Lancashire's losses after that big hurricane were much less than the losses of their peers with similar catastrophe exposure.  That's why Lancashire's recent strategy of reinsuring half or more of the risk of very large losses should have magnified impact on their bottom line and share price after a large disruption.

 

Their funds management business is very profitable, but most of that profit doesn't show up immediately when they put outside funds to work. Look at the recent Q10 results and add up all the ways they make money on this business. That's on a base that has averaged about $300M of managed funds. Darren said on the recent conference call that they could attract a billion dollars very quickly after a market moving event.

 

It seems that Lancashire has taken a type of business in a P&C sector that is fragile with lots of tail risk and turned that Pig's ear into a silk purse that could become more valuable when something bad happens. Their bespoke products are unique and provide exceptional value for capital relief that is largely absent with cat bonds and other parameter based vehicles that have basis risk, ie. not covering all aspects of risk.

 

This is exactly what I am looking for, and now I am much more comfortable with management too. :)

 

Gio

 

There is another source of funds available in the wings for the right opportunity: the smaller of the two Lloyds syndicates under Cathedral. The capacity of that syndicate has increased from £30m to £100m. Peter said on the conference call that the value of that syndicate isn't traded. However, with Cathedral's outstanding reputation managing its syndicates, the value is likely proportional to its capacity.

 

For those here who follow Buffett, the advantage is rather like his concept of "free float" being something that doesn't show up as equity on the balance sheet, but is practically as valuable as equity or more so as increases in float aren't taxed as gains in equity may eventually be taxed.

 

Capacity at Lloyd's is much more valuable than float as putting float to work is often constrained by what rating agencies will allow. this is one of the reasons Lloyds syndicates and companies enjoy high multiples.  Capacity however is what has already been approved by Lloyd's. Here's where the Lancashire connection comes into play.  Sometimes, there is a delay in putting extra capacity to work after a market moving event because of administrative delays at Lloyd's. In that event, Lancashire could step in quickly to seize a great opportunity, and Cathedral could pick up the ball soon afterwards.

 

 

 

 

[dolce far niente]

Thank you Twacowfca. +1

[gary17]

I wonder with all the buying FFH has been doing if they might think about buying LRE.L --

 

:))

[accutronman]

Lloyd’s of London insurers Lancashire Holdings Plc and Novae Group Plc may be the next in line for takeover offers after Brit Plc became the second U.K. firm within weeks to agree to be acquired.

 

Lancashire, which gained access to the world’s oldest insurance market in 2013 after buying Cathedral Capital Ltd., could be a candidate for bids, according to UBS Group AG. Novae and Beazley Plc may also be targeted, analysts at Shore Capital and Westhouse Securities said.

 

“London market consolidation rolls on,” Jonny Urwin, an analyst at UBS, wrote in a note to clients Tuesday. “Given current industry dynamics, it is most likely there is more consolidation to come. The next candidate, based upon valuation, could be Lancashire.”

 

[TwoCitiesCapital]

I wonder with all the buying FFH has been doing if they might think about buying LRE.L --

 

:))

 

I would be skeptical at this point. Why buy another specialty insurer at a high multiple when you can simply build the one that you just bought? Fairfax can invest $1 in Brit and get a good return on it or spend ~$1.50 or so and buy another high-multiple specialty insurer to get the same return...

[twacowfca]

(BN) Lancashire Seen as Target as Lloyd’s ‘Consolidation Rolls On'

 

2015-02-17 12:49:01.415 GMT

 

 

By Sarah Jones

    (Bloomberg) -- Lloyd’s of London insurers Lancashire

Holdings Plc and Novae Group Plc may be the next in line for

takeover offers after Brit Plc became the second U.K. firm

within weeks to be acquired.

    Lancashire, which gained access to the world’s oldest

insurance market in 2013 after buying Cathedral Capital Ltd.,

could be a candidate for bids, according to UBS Group AG. Novae

and Beazley Plc may also be targeted, analysts at Shore Capital

and Westhouse Securities said.

    “London market consolidation rolls on,” Jonny Urwin, an

analyst at UBS, wrote in a note to clients Tuesday. “Given

current industry dynamics, it is most likely there is more

consolidation to come. The next candidate, based upon valuation,

could be Lancashire.”

    Brit shares soared 10 percent after Prem Watsa’s Fairfax

Financial Holdings Ltd. agreed to pay $1.88 billion for the

specialty underwriter, becoming the latest firm to strengthen

its position amid increasing competition from hedge funds and

others to take on insurance risks. XL Group Plc agreed to buy

Catlin Group Ltd. in January for about 2.8 billion pounds ($4.3

billion).

    Founder Stephen Catlin, who approached XL’s Mike McGavick

more than a year ago, said last week that any insurer with a

market value of as much as $5 billion could be acquired. That

would include London’s publicly traded insurers, Lancashire,

Novae, Beazley, Amlin Plc and Hiscox Ltd.

    Officials for Beazley and Hiscox declined to comment, while

representatives from Lancashire, Novae and Amlin weren’t

immediately available.

 

                    ‘Juggernaut Continues’

 

    The merger and acquisition “juggernaut continues with just

five players left,” said Eamonn Flanagan, an analyst at Shore

Capital in Liverpool, England. “All eyes will focus on the next

potential candidate. The spotlight is likely to settle on

Beazley, Lancashire and Novae, all of which offer the much

sought after presence in Lloyd’s.”

    Lloyd’s, whose history dates back more than three

centuries, is used by companies globally to guard against large

or complicated risks such as shipping or aviation. An official

for Lloyd’s said it’s “always positive” to have strong

participants in the market regardless of size.

    Standard & Poor’s Ratings Services said in a report Monday

that the consolidation highlights the challenges insurance

executives face to defend their market positions amid falling

prices and an influx of third-party capital. Fitch Ratings said

firms looking to increase scale, cuts costs and diversify will

stimulate further deals.

    “Novae and Lancashire remain our other preferred M&A

targets as they are easy to swallow, both in terms of size of

business and size of any potential offer,” said Joanna Parsons,

head of research & insurance at Westhouse Securities in London.

“There is no reason why Amlin, Beazley and Hiscox could not be

bid for as all are high quality operations, but the exit

multiple/cost makes them harder to be acquired.”

    Consolidation got under way in North America in November,

after RenaissanceRe Holdings Ltd. struck a deal to buy Platinum

Underwriters Holdings Ltd. Axis Capital Holdings Ltd. announced

its plan to merge with PartnerRe Ltd. in January to create an

$11 billion reinsurer.

 

For Related News and Information:

Watsa’s Fairfax to Buy Brit for $1.88 Billion in London Push

XL Group to Buy Specialty Insurer Catlin for $4.2 Billion

Catlin CEO Says Insurers Valued Up to $5 Billion Target for M&A

Top insurance stories: TINS<GO>

Merger and acquisition analysis: MA <GO>

 

To contact the reporter on this story:

Sarah Jones in London at +44-20-3525-2419 or

sjones35@bloomberg.net

To contact the editors responsible for this story:

Edward Evans at +44-20-3525-3190 or

eevans3@bloomberg.net

Jon Menon, Dan Kraut

[twacowfca]

Lancashire has an area of strength that few other insurers boast.  Reserve releases are beginning to decline for many other insurers as loss experience has been good for the most part with few large cats the last two years. A P&C company that had a combined ratio that averaged 110% two years ago may now experience a two year CR of 90%.  Going forward, reserve releases as a constant proportion of reserves will be less.

 

Lancashire has had a very low CR over time, but its 68%  CR last year, while extraordinarily low compared to others, is a little  higher than in earlier years, a consequence of the Cathedral acquisition whose CR is still exceptional by conventional standards.

 

Therefore, going forward, LRE should be less affected by declining reserve releases than its peers because reserve releases as a proportion of earnings have  been less than with other insurance companies as the reserves that provide the base for potential releases are proportionally less.

[giofranchi]

http://seekingalpha.com/article/2934916-lancashire-holding-9-percent-hot-pot-dividend-yield-and-takeover-target?app=1&auth_param=7i5hb:1aeecuu:2bde997f23ecfc306efc937aca27ec7b&uprof=25

 

 

Gio

[twacowfca]

http://seekingalpha.com/article/2934916-lancashire-holding-9-percent-hot-pot-dividend-yield-and-takeover-target?app=1&auth_param=7i5hb:1aeecuu:2bde997f23ecfc306efc937aca27ec7b&uprof=25

 

 

Gio

 

 

The dividend is $0.50 + $0.10 =$0.60, not $0.90.

[saltybit]

Anyone know the cause of the sudden 10% drop today?

[racemize]

ex-div, though I was trying to figure out the div amount--I think the post above from twacowfca puts it at 0.6

[WhoIsWarren]

Yes, today's share price drop reflected the final dividend of 10c + special cash of 50c, gross of tax in both cases. That's around 41p.  The share price was down 47p.

 

[WhoIsWarren]

A topical titbit of information......

 

The Insurance Insider is reporting that Lancashire's fully-owned Lloyd's vehicle Cathedral leads the Lufthansa / Germanwings war policy.  The war market pays out in cases of pilot suicide.

 

The Airbus 320 is insured for $6.5m......which initially struck me as very low, but then I remembered that the plane was quite old, built in 1991.  The loss to Cathedral may be a lot less than the full insured value, as it may not have written the full slip and will probably have some reinsurance in place.

 

This piece of business came in via the ex-Atrium all war team that Cathedral scooped up last year.

 

[CorpRaider]

Thank you for the information.

[gfp]

Here is the whole article - seems like Cathedral's share of the war policy could be pretty small and smaller still when compared to the liability loss covered by other carriers.

----------------

 

"Lancashire's Lloyd's subsidiary Cathedral leads the Lufthansa war policy that will pay the hull claim on the Germanwings aircraft that crashed earlier this week, after it was established that pilot suicide caused the tragedy, The Insurance Insider understands.

 

The hull of the Airbus 320, which was en route from Barcelona to Dusseldorf when it crashed in the Alps on Tuesday (24 March), was insured for $6.5mn.

 

In the case of pilot suicide, the hull loss is picked up by the war insurance policy. The liability loss, which will be by far the largest portion of the claim, will remain with the all-risk underwriters.

 

Atrium led the war policy until its renewal in December, but after Bruce Carman defected to Cathedral the leadership followed.

 

As with all aviation war risks, the balance of the policy is placed on lineslips in the Lloyd's market.

 

Earlier today, Marseille prosecutor Brice Robin revealed that the co-pilot had "a deliberate desire to destroy this plane" and locked the pilot out of the cockpit.

 

The financial cost of the loss to the war market is relatively small but follows a catastrophic 2014 for the aviation war market with a loss ratio in excess of 1,000 percent, owing to multiple events, including the fighting at Tripoli Airport and the two Malaysia Airlines losses.

 

The Insurance Insider revealed shortly after Germanwings flight 9525 went down that Allianz led the all-risk policy, with Global Aerospace the London lead and a substantial share also placed with AIG.

 

Willis is the flag broker for the affected Lufthansa programme, with JLT the co-broker.

 

Leaders and major carriers tend to put up lines in the region of 10 percent on all-risk programmes.

 

With most of the 144 passengers on board likely to be Europeans, the liability loss from the event will probably be substantial.

 

Liability losses depend upon the nationality, earning potential and family status of the victims, but a rough rule-of-thumb suggests that insurers will have to pay out around $1mn per passenger for EU nationals.

 

Lufthansa is Europe's largest airline and pays a lead premium of around $90mn. Despite running a loss ratio of more than 100 percent last year it secured a risk-adjusted rate reduction when it renewed its programme in December.

 

Other major players in the all-risk market include CV Starr, Ace, Catlin, XL and Amlin.

 

Cathedral declined to comment."