LRE.L - Lancashire Holdings Ltd

[twacowfca]

Hello twacowfca,

A little off topic, and sorry if you've been asked many times before, but are there any industry websites/forums that you recommend as being particularly useful in tracking developments in the insurance industry? Or are there certain companies whose management you feel do a particularly good job in their quarterlies/annuals/CCs/publications? Just added ISO to my RSS feed based on your earlier comment!

 

Thanks!

You might get a copy of Montpelier Re's annual report.  I think their report for year 2010? and perhaps other years, had a great section on reinsurance terms for the beginner.  Insurance Insider is the best scuttlebutt publication for the London and Bermuda markets that are concerned with most worldwide insurance and reinsurance.  They are expensive and subscribers must pledge not to copy and distribute their articles.  :)

Great, thanks for the info twacowfca.

 

 

My pleasure.

 

 

Interestingly, today Ins Ins had a table comparing multiyear loss ratios of the major short tail London insurers with the loss ratios of the mid to long tail London insurers.  For a fair comparison of the two groups, they had to exclude Lancashire from the average loss ratios because the inclusion of LRE skewed the average of the short tail group quite a bit more favorably than otherwise.  :)

 

PCS won't update their recent estimate for Sandy claims for another 60 days.  Therefore, LRE's Q4 results will likely show something in the neighborhood of the $40M to $60M hit from Sandy that they estimated a few weeks ago with the value of their ILW indeterminate through their reporting date.

[giofranchi]

"UK sterling faces a long painful slide"

Please, see the article in attachment by Matthew Lynn.

 

twacowfca,

do you think this might somehow be an issue for LRE's shareholders domiciled outside the UK?

 

Thank you,

 

giofranchi

 

"As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

UKs_sterling_faces_a_long_painful_slide.pdf

[giofranchi]

"UK sterling faces a long painful slide"

Please, see the article in attachment by Matthew Lynn.

 

twacowfca,

do you think this might somehow be an issue for LRE's shareholders domiciled outside the UK?

 

Thank you,

 

giofranchi

 

 

Another not so reassuring article on British Pound weakness...

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

Anatole_Kaletsky_»_Britain’s_strength_is_its_weakness_»_Print.pdf

[twacowfca]

"UK sterling faces a long painful slide"

Please, see the article in attachment by Matthew Lynn.

 

twacowfca,

do you think this might somehow be an issue for LRE's shareholders domiciled outside the UK?

 

Thank you,

 

giofranchi

 

 

Another not so reassuring article on British Pound weakness...

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

 

 

That's a nonissue for me.  LRE's assets and their financials are in dollars.  Rationally it shouldn't matter what the £ exchange rate is.  Empirically, the price of the stock seems to adjust appropriately to fluctuations in the exchange rate.  I think LRE may actually be advantaged if the £ weakens because UK and Euro zone investors may perceive that there is safety in holding LRE.  :)

[giofranchi]

That's a nonissue for me.  LRE's assets and their financials are in dollars.  Rationally it shouldn't matter what the £ exchange rate is.  Empirically, the price of the stock seems to adjust appropriately to fluctuations in the exchange rate.  I think LRE may actually be advantaged if the £ weakens because UK and Euro zone investors may perceive that there is safety in holding LRE.  :)

 

Great! Thank you very much, twacowfca. Very useful, as usual!  :)

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

 

[twacowfca]

Lancashire has returned 3/5 of Saltire I capital to its investors.  They could have placed all the capital, but didn't think it made sense because of weakness in the retro market.  They explained that Saltire is designed for maximal capital flexibility and that they will continue to monitor rates and be prepared to launch Saltire II along with other Saltire products as opportunities present.  :)

[giofranchi]

Q4 2012 and Full Year Results

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

2013-02-21-Q42012-Results.pdf

[giofranchi]

twacowfca,

some insights to share with us about the formation of the Capital Management division?

 

Thank you!  :)

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

capital-management-210213.pdf

[twacowfca]

twacowfca,

some insights to share with us about the formation of the Capital Management division?

 

Thank you!  :)

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

 

 

This is an expanded role for Simon Fascione who has been involved in helping LRE get an edge in the tough Retro market through customization and much hard work.  LRE is moving into more management of outside capital in this area despite the return of two thirds of the capital of Saltire I after Retro rates post Sandy did not experience hardening as reinsurers did not take as big a hit as primary insurers. 

 

They apparently intend to be prepared to take advantage of opportunities quickly as rates change.  This seems to be analogous to the way Klarman operates with his investors, calling on them for capital when he sees something interesting, but not sitting on that capital, but returning it to investors when good opportunities turn out to be fleeting.

 

It looks like LRE's renewal price index has firmed up a little in all categories except retro, but since the extra capital they held over the end of the year for retro is not needed, they are returning essentially all their profits for 2012 to shareholders with another large special dividend of $1.05 (in addition to the $0.90 paid in December) plus a final dividend of $0.10.  :)

 

 

[giofranchi]

They apparently intend to be prepared to take advantage of opportunities quickly as rates change.  This seems to be analogous to the way Klarman operates with his investors, calling on them for capital when he sees something interesting, but not sitting on that capital, but returning it to investors when good opportunities turn out to be fleeting.

 

Great! Thank you very much!  :)

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

 

[twacowfca]

twacowfca,

some insights to share with us about the formation of the Capital Management division?

 

Thank you!  :)

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

 

 

This is an expanded role for Simon Fascione who has been involved in helping LRE get an edge in the tough Retro market through customization and much hard work.  LRE is moving into more management of outside capital in this area despite the return of two thirds of the capital of Saltire I after Retro rates post Sandy did not experience hardening as reinsurers did not take as big a hit as primary insurers. 

 

They apparently intend to be prepared to take advantage of opportunities quickly as rates change.  This seems to be analogous to the way Klarman operates with his investors, calling on them for capital when he sees something interesting, but not sitting on that capital, but returning it to investors when good opportunities turn out to be fleeting.

 

It looks like LRE's renewal price index has firmed up a little in all categories except retro, but since the extra capital they held over the end of the year for retro is not needed, they are returning essentially all their profits for 2012 to shareholders with another large special dividend of $1.05 (in addition to the $0.90 paid in December) plus a final dividend of $0.10.  :)

 

 

Their 17.2% increase in FDBV/SH is impressive in a year that had two big hits, Costa Concordia and Sandy and low investment returns of 3.1%.  Also impressive is how they have continued to have low PML's, most in single digits or slightly higher.  :)

[nwoodman]

Their 17.2% increase in FDBV/SH is impressive in a year that had two big hits, Costa Concordia and Sandy and low investment returns of 3.1%.  Also impressive is how they have continued to have low PML's, most in single digits or slightly higher.  :)

 

Thanks for your observations.  This company never ceases to amaze me and I hope that continues :)    I find it difficult to believe they won't shoot the lights out in a hardening market.  As you pointed out above the fact that they are willing to return capital immediately they don't have the opportunity to deploy sends such a positive message.

 

Cheers

nwoodman

[giofranchi]

Their 17.2% increase in FDBV/SH is impressive in a year that had two big hits, Costa Concordia and Sandy and low investment returns of 3.1%.  Also impressive is how they have continued to have low PML's, most in single digits or slightly higher.  :)

 

Thanks for your observations.  This company never ceases to amaze me and I hope that continues :)    I find it difficult to believe they won't shoot the lights out in a hardening market.  As you pointed out above the fact that they are willing to return capital immediately they don't have the opportunity to deploy sends such a positive message.

 

Cheers

nwoodman

 

Yes! Thank you, twacowfca, for your very useful observations! I never expect less from you!  :)

And I agree with nwoodman about those lights that Lancashire will shoot out!  ;)

Cheers!

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

[bargainman]

when oh when is this guy going to go down in price so I can start a position???  sigh.. 

[LongTerm]

when oh when is this guy going to go down in price so I can start a position???  sigh..

 

I second that. I've been waiting a couple of years for the shares to get down to 1.2x book. I just can't pull the trigger at 1.5x.

[giofranchi]

when oh when is this guy going to go down in price so I can start a position???  sigh..

 

I second that. I've been waiting a couple of years for the shares to get down to 1.2x book. I just can't pull the trigger at 1.5x.

 

Well, you might surely be right! I have already said before why I think in this environment LRE might still be a bargain at 1.6 x BV, and I think it is pointless to repeat it again.

 

Instead, what I would like to point out is the fact that 1.6 x BV is just a number… too little, really, to recognize a true bargain. Think of the deep knowledge twacowfca possesses about LRE… and, as far as I know, he hasn’t sold a single share to date!

 

Share price might certainly decrease. Any price can go down. But to recognize a true bargain you should “intimately” understand how a business creates wealth over time, and therefore have the conviction, “the rarest of business commodities”, that the price you pay is much less than the value you get. Sometimes, behind a number, let’s say 1.6 x BV, great bargains lay hiding!  ;)

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

 

[twacowfca]

when oh when is this guy going to go down in price so I can start a position???  sigh..

 

I second that. I've been waiting a couple of years for the shares to get down to 1.2x book. I just can't pull the trigger at 1.5x.

 

Well, you might surely be right! I have already said before why I think in this environment LRE might still be a bargain at 1.6 x BV, and I think it is pointless to repeat it again.

 

Instead, what I would like to point out is the fact that 1.6 x BV is just a number… too little, really, to recognize a true bargain. Think of the deep knowledge twacowfca possesses about LRE… and, as far as I know, he hasn’t sold a single share to date!

 

Share price might certainly decrease. Any price can go down. But to recognize a true bargain you should “intimately” understand how a business creates wealth over time, and therefore have the conviction, “the rarest of business commodities”, that the price you pay is much less than the value you get. Sometimes, behind a number, let’s say 1.6 x BV, great bargains lay hiding!  ;)

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

 

 

Thank you for the kind remarks.  In truth, I don't know all the details about how Lancashire conducts its business.  Instead, I attach great importance to a handful of facts:

 

The management and the CEO have  a high level of integrity.

 

They have a very large percentage of their wealth and income linked to how well LRE does long term with exposure to the downside as well as the upside.

 

This performance, like Buffett's, has been with less downside volatility than the typical company.

 

Like Buffett, the CEO has more than doubled the index rate of growth in BV/SH or it's close equivalent for more than two decades in many markets.

 

[giofranchi]

In truth, I don't know all the details about how Lancashire conducts its business. 

 

twacowfca,

I might have been a little too emphatic using words like “deep knowledge” or “intimately understand”… Anyway, just by reading all your posts about LRE, it is clear to me that you know a great deal!!  ;D  ;D

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

 

 

[twacowfca]

In truth, I don't know all the details about how Lancashire conducts its business. 

 

twacowfca,

I might have been a little too emphatic using words like “deep knowledge” or “intimately understand”… Anyway, just by reading all your posts about LRE, it is clear to me that you know a great deal!!  ;D  ;D

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

 

 

Yes.  Profound wisdom is knowing that which is important.  That is very different than knowing everything that is possible.  :)

[giofranchi]

In truth, I don't know all the details about how Lancashire conducts its business. 

 

twacowfca,

I might have been a little too emphatic using words like “deep knowledge” or “intimately understand”… Anyway, just by reading all your posts about LRE, it is clear to me that you know a great deal!!  ;D  ;D

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

 

 

Yes.  Profound wisdom is knowing that which is important.  That is very different than knowing everything that is possible.  :)

 

twacowfca,

Mr. Graham ventured the motto “Margin of Safety”. Instead, I would venture the motto “Circle of Competence”. I think that understanding what you really know, and accepting what you don’t understand, comes first. How would you calculate a margin of safety, if your knowledge of the asset you are trying to value is flawed or incomplete? “Garbage in, garbage out”, right?

My idea is simply that too much quantitative analysis can create a sort of false feeling that a business is actually inside your circle of competence, just because you have crunched so many numbers on it, that, oh well, you surely must understand what’s going on! You surely must know what that business is worth!

But that is simply not true! And might be dangerously misleading! Any business owner understands this: paraphrasing Mr. Ergen, it is the “signing of the checks” that gives you the right perspective on how a business really operates. And, if you are not in the position to sign the checks, I’d rather rely on the 4 “qualitative” reasons you have just reminded us, that make LRE such a great business. And, though it might be tough to incorporate “qualitative” reasons in the valuation process, it is also required. Otherwise, you will never get a meaningful idea of your margin of safety.

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

 

[bargainman]

man, you 2 crack me up!  Ever heard of the word 'bromance'?  :-)

 

Yeah I guess 1.6 book value isn't so bad..  For some reason I thought it was closer to 2.  What do you have for book value?  Yahoo:

 

http://finance.yahoo.com/q/ks?s=LCSHF+Key+Statistics

 

shows 8.49 vs 13.35 stock price for the pink sheet version.  That would give a 1.55x of bv.  I guess that's not so bad given his record.  I remember the days when MKL sold at 2x book...

[giofranchi]

Richard Brindle explains why dull is good.

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

annual-report-2012-inteview-with-richard-brindle.pdf

[giofranchi]

man, you 2 crack me up!  Ever heard of the word 'bromance'?  :-)

 

Yeah I guess 1.6 book value isn't so bad..  For some reason I thought it was closer to 2.  What do you have for book value?  Yahoo:

 

http://finance.yahoo.com/q/ks?s=LCSHF+Key+Statistics

 

shows 8.49 vs 13.35 stock price for the pink sheet version.  That would give a 1.55x of bv.  I guess that's not so bad given his record.  I remember the days when MKL sold at 2x book...

 

$7.83 for BV x share, $13.86 for share price today: 13.86 / 7.83 = 1.77, actually higher than 1.6…

 

No, sorry but never heard of the word ‘bromance’… is ti really that bad?!?!  ;D ;D

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

 

[mankap]

Hi

I have started reading on LRE.

I am amazed at the combined ratio being so good.They have so good underwriting profit.

Here AIG and others struggling to get underwriting profit and LRE is churning out 35% underwriting profit.

 

In my 401k I cannot buy LRE as it is listed in London.

 

Does it trade on pink sheet?

How are you guys buying LRE.

 

[wknecht]

Hi

I have started reading on LRE.

I am amazed at the combined ratio being so good.They have so good underwriting profit.

Here AIG and others struggling to get underwriting profit and LRE is churning out 35% underwriting profit.

 

In my 401k I cannot buy LRE as it is listed in London.

 

Does it trade on pink sheet?

How are you guys buying LRE.

It trades OTC under the symbol LCSHF.