LRE.L - Lancashire Holdings Ltd

[Sullivcd]

Q3 earnings out:

 

GROWTH IN FULLY CONVERTED BOOK VALUE PER SHARE, ADJUSTED FOR DIVIDENDS, OF 3.1% IN Q3 2016 AND 10.5% YEAR TO DATE

COMBINED RATIO OF 73.8% IN Q3 2016, 75.6% YEAR TO DATE

SPECIAL DIVIDEND OF $0.75 PER COMMON SHARE

FULLY CONVERTED BOOK VALUE PER SHARE OF $6.55 AS AT 30 SEPTEMBER 2016

 

http://www.lancashiregroup.com/en/media/press-releases/2016/q3-2016-results.html

 

 

[Sunrider]

Any views from the experts here? Seems the market liked it on the day and then promptly changed its mind?

 

Q3 earnings out:

 

GROWTH IN FULLY CONVERTED BOOK VALUE PER SHARE, ADJUSTED FOR DIVIDENDS, OF 3.1% IN Q3 2016 AND 10.5% YEAR TO DATE

COMBINED RATIO OF 73.8% IN Q3 2016, 75.6% YEAR TO DATE

SPECIAL DIVIDEND OF $0.75 PER COMMON SHARE

FULLY CONVERTED BOOK VALUE PER SHARE OF $6.55 AS AT 30 SEPTEMBER 2016

 

http://www.lancashiregroup.com/en/media/press-releases/2016/q3-2016-results.html

[petec]

Any views from the experts here? Seems the market liked it on the day and then promptly changed its mind?

 

 

Standard spike from buyers chasing an unexpected dividend, followed by sales from people taking advantage.  Nothing to see here IMHO (in the price moves).  A very solid set of results from an excellent company.

[WhoIsWarren]

Agree with petec that there's nothing to see here.  Must have been a fair few shorts going into the results, which where solidly good.  The dividend can't have been much of a surprise can it???

 

Anyway, post the first day pop, a number of sell-side brokers have downgraded the stock -- Citi, JP Morgan, Canaccord ....and this morning Bernstein.  I note that on Bloomberg just 2 of 16 brokers actively following LRE now rate the stock a buy -- Shore Capital and house-broker Numis (= "kind of have to be bullish") and 5 rate it a sell (Bernstein, JPM, Canaccord, Barclays, Macquarie).  I take their stance as a positive for shareholders!  ;D

 

The usual negatives among analysts these days run along the lines of.....not the type of company to own at this stage of the cycle, pricing is horrible, top line is shrinking, already price reflects something of a bid premium.  Nothing we don't already know there and all focused too much on the near term.  I'm comfortable Lancs will emerge a winner over the course of the cycle(s).

 

The questions over management and the underwriter departures have abated, which I think is right.

 

[Sullivcd]

Has anyone had trouble receiving the special dividend? ETrade took mine back because they never received the money from the company. I emailed IR this morning but haven't heard back yet.

[fareastwarriors]

Has anyone had trouble receiving the special dividend? ETrade took mine back because they never received the money from the company. I emailed IR this morning but haven't heard back yet.

 

Did eTrade say anything? Why would eTrade post a dividend to your account if they don't have the money? It doesn't make sense for them to front the money.... Is that really how it works?

[rjstc]

Has anyone had trouble receiving the special dividend? ETrade took mine back because they never received the money from the company. I emailed IR this morning but haven't heard back yet.

 

I received mine just fine and I'm with Schwab.

[racemize]

I got mine at IB.  I've also already converted it to USD, so I don't think they'll pull it back.

[bookie71]

Got mine on Schwab

 

[Jurgis]

Can someone summarize a thesis on this? I seem to remember that a lot of people liked it. From the first glance I see dropping revenues, dropping book value, increasing # of shares, trading at ~1.26 p/book - why is this attractive?

 

Thanks

[no_free_lunch]

Jurgis,

 

The company has a ridiculous combined ratio and has done very well for investors if you include dividends.  Original management left a year or two ago which is when I dropped out.

[Jurgis]

The company has a ridiculous combined ratio and has done very well for investors if you include dividends.  Original management left a year or two ago which is when I dropped out.

 

Sorry, I did not mention divvie yield, but it shows as 1.6%. Not sure if that includes special divvie or not. 1.6% yield is nothing to talk about (FFH yields >2% now).

 

Ridiculous combined ratio should have led to book value growth or shares outstanding drop (if they repurchase) or both. Or growth via acquisitions. None of these have happened in recent years. Anyone can tell me where the heck the money from ridiculous combined ratio go?

 

Maybe it is the "original management left" issue.

 

Thanks.

[Sunrider]

they pay out all capital they don't expect to need - the dividend yield is more than 1.6%. If memory serves this last special divided was ca. 60p / $0.75 ... so on a £7.3ish price (pre the ex-div date) that was about 8.2% yield on the special.

 

The big question is how long it will take for insurance pricing to turn the corner. Their moto is 'underwriting first' so they've been reducing or re-insuring their book for years as they can't write the business they want at the prices they think is appropriate. If that cycle continues for a few more years then the company will be challenged, if we have some major catastrophes soon then pricing will likely turn and they'll be wading in writing business as fast as they can.

:o

 

The company has a ridiculous combined ratio and has done very well for investors if you include dividends.  Original management left a year or two ago which is when I dropped out.

 

Sorry, I did not mention divvie yield, but it shows as 1.6%. Not sure if that includes special divvie or not. 1.6% yield is nothing to talk about (FFH yields >2% now).

 

Ridiculous combined ratio should have led to book value growth or shares outstanding drop (if they repurchase) or both. Or growth via acquisitions. None of these have happened in recent years. Anyone can tell me where the heck the money from ridiculous combined ratio go?

 

Maybe it is the "original management left" issue.

 

Thanks.

[Jurgis]

they pay out all capital they don't expect to need - the dividend yield is more than 1.6%. If memory serves this last special divided was ca. 60p / $0.75 ... so on a £7.3ish price (pre the ex-div date) that was about 8.2% yield on the special.

 

Ah, that makes sense. It's also the British system of share prices, they show the 690 share price and .75 divvie and I think this is way low yield. Keep forgetting that 690 is really L6.9. ;)

[Ballinvarosig Investors]

The company has a ridiculous combined ratio and has done very well for investors if you include dividends.  Original management left a year or two ago which is when I dropped out.

 

Sorry, I did not mention divvie yield, but it shows as 1.6%. Not sure if that includes special divvie or not. 1.6% yield is nothing to talk about (FFH yields >2% now).

 

Ridiculous combined ratio should have led to book value growth or shares outstanding drop (if they repurchase) or both. Or growth via acquisitions. None of these have happened in recent years. Anyone can tell me where the heck the money from ridiculous combined ratio go?

 

Maybe it is the "original management left" issue.

 

Thanks.

The Lancashire Holding returns on capital (through dividend) have been exceptional, they're all listed on their investor relations page, including special dividends.

 

http://www.lancashiregroup.com/en/investors/shareholders/dividend-history.html

 

Having said that, I have looked at this company for as long as it has been profiled here and just can't get comfortable. For a respected hedge fund to make this company their number 1 short, it really makes me feel like I am missing something here.

 

http://www.valuewalk.com/wp-content/uploads/2016/12/odey-positioning.png

[fareastwarriors]

Shareholders of LRE.

[Sunrider]

I really wonder what Odey expects to happen here - sure the portfolio might suffer as rates rise but they (knock on wood) are better positioned for a major cat than any other insurer (maybe ex BRK)?

 

[Sullivcd]

Share price has taken a bit of a hit lately, presumably in response to Harvey and Irma. They seem to be well positioned for these events though.

[fareastwarriors]

Share price has taken a bit of a hit lately, presumably in response to Harvey and Irma. They seem to be well positioned for these events though.

 

Wouldn't these events be good for pricing over the longer term?

[Jurgis]

Share price has taken a bit of a hit lately, presumably in response to Harvey and Irma. They seem to be well positioned for these events though.

 

Wouldn't these events be good for pricing over the longer term?

 

There's a thread on that in general forum: http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/hurricane-losses-and-forward-looking-insurance-premiums/

 

There's also a Barron's article: http://www.barrons.com/articles/harvey-losses-wont-sink-insurers-1504319278

 

Short answer: not much good for pricing after Harvey; still unknown after Irma.

[Sunrider]

I suppose the question after last week's drop is whether it's justified at all, higher future pricing or not? I seem to recall that they've increasingly taken re-insurance over the last two years so should end up as one of the least affected insurers on this? Does anyone have more details to hand than I can find in the dusty cobwebs in my head?

 

Thank you!

[WhoIsWarren]

A delayed response, but the latest presentation from the company might help answer your question.

 

Your recollection is correct.  They've loaded up on reinsurance, though I wouldn't say they are one of the least exposed insurers.  Lancashire (ex. Cathedral) is essentially a tail risk (re)insurer, so it will be hit by these freak events - but when pricing isn't good they'll write less business and have more cover.

 

A while back the company was saying that they were ideally set up for a market that has a series of medium sized (say $20bn) hits that will hurt the industry collectively but where they'll get off pretty lightly.  So far, Harvey and Irma fit that bill.  Year to date, the industry has been hit by $70-80bn of cat events versus a 10-year average of $60bn (and that's with 70% of the US hurricane season yet to go).  So far, this is probably an "earnings story" for the industry, not a capital event if you know what I mean (though you could have a small number of individual insurers being disproportionately impacted) and so we shouldn't expect a major upward move in insurance pricing.

 

One thing that will be interesting to watch is how the alternative capital market reacts.  They could be hit with losses of c.$7bn according to Bernstein....a 10% or so hit to total capital invested.  Some funds could get wiped out.  Will this be enough to cause large swathes of the market to reconsider investing in them??  Probably not, but let's watch with interest.

 

Lancashire_presentation_Sept_2017.pdf

[Sunrider]

Thanks for the response - I had a position for ages but rarely look at it, just collecting the dividend. Will need to think about whether to add a bit.

C.

 

[fareastwarriors]

Invesco Bulks Up Significant Stake In Lancashire Holdings To Over 18%

http://www.iii.co.uk/alliance-news/1508859517906167200-3/invesco-bulks-up-significant-stake-in-lancashire-holdings-to-over-18-alliss-

 

 

 

Insurers and reinsurers count the costs of recent hurricanes, quakes

https://uk.reuters.com/article/insurance-catastrophe-outlook/factbox-insurers-and-reinsurers-count-the-costs-of-recent-hurricanes-quakes-idUKL8N1N13KM

LANCASHIRE Lancashire Holdings said it estimated that its losses from hurricanes in the Caribbean and southern United States and earthquakes in Mexico would be between $106 million and $212 million.

[twacowfca]

Lancashire’s exceptional value is hiding in plain sight.

 

The insured industry losses from the HIM trio of hurricanes exceeds any modeled loss adjusted for current property values after the hypothetical impact of any hurricane season going back to the 1880’s.

 

The projected hit to LRE is well within their modeled parameters, about 12% of BV,  leaving them in good shape to hold their current ratings and take advantage of opportunities. Rates should firm up nicely with alternative capital trapped in cat bonds awaiting a reckoning that will take months to sort out.

 

Their big almost risk free way to make money will be through their unique Kinesis vehicle. They’ve said LRE could collateralize $2 billion dollars of coverage through Kinesis when rates increase after a major loss season. Their Kinesis investors are ready to provide capital and take the risk while LRE collects fees and commissions.

 

That amount of coverage would be about seven times what LRE’s written through Kinesis in recent years. I guesstimate the equivalent of ten to eighteen percent of Kinesis premiums should flow to LRE’s bottom line on average in low to medium loss years.

 

FYI Lancashire’s Chairman increased his LRE holdings substantially using his own money to buy shares after Lancashire announced estimated cat losses for H2.