LRE.L - Lancashire Holdings Ltd

[jay21]

 

You could create a synthetic growth stock from LRE by reinvesting your dividends.  This would work very well in a non taxable account.

 

They appear positioned to grow a little this coming year after their recent debt sale. They have hinted that they could probably write a lot of potentially profitable business if rates hardened after a bad hurricane this fall.  That's what happened.  We'll see if that's what they do.  :)

 

I plan on starting a position in my ROTH IRA.  The hardest part may be deciding what to sell in order to accumulate more.  Although, Jan 1 is coming up.

 

As far as dividend reinvestments, my return on capital will be dependent on what LRE is trading at.  If they were able to retain and deploy the capital, my return would be what rates they can invest it at.  The two can be very different.  Also, do you know if I would be paying the spread if I had my brokerage account automatically reinvest for me?

[twacowfca]

 

You could create a synthetic growth stock from LRE by reinvesting your dividends.  This would work very well in a non taxable account.

 

They appear positioned to grow a little this coming year after their recent debt sale. They have hinted that they could probably write a lot of potentially profitable business if rates hardened after a bad hurricane this fall.  That's what happened.  We'll see if that's what they do.  :)

 

I plan on starting a position in my ROTH IRA.  The hardest part may be deciding what to sell in order to accumulate more.  Although, Jan 1 is coming up.

 

As far as dividend reinvestments, my return on capital will be dependent on what LRE is trading at.  If they were able to retain and deploy the capital, my return would be what rates they can invest it at.  The two can be very different.  Also, do you know if I would be paying the spread if I had my brokerage account automatically reinvest for me?

 

Probably.  LRE's dividends are paid in £'s and then have to be converted into dollars or whatever currency your account is in.

[ERICOPOLY]

 

You could create a synthetic growth stock from LRE by reinvesting your dividends.  This would work very well in a non taxable account.

 

They appear positioned to grow a little this coming year after their recent debt sale. They have hinted that they could probably write a lot of potentially profitable business if rates hardened after a bad hurricane this fall.  That's what happened.  We'll see if that's what they do.  :)

 

I plan on starting a position in my ROTH IRA.  The hardest part may be deciding what to sell in order to accumulate more.  Although, Jan 1 is coming up.

 

As far as dividend reinvestments, my return on capital will be dependent on what LRE is trading at.  If they were able to retain and deploy the capital, my return would be what rates they can invest it at.  The two can be very different.  Also, do you know if I would be paying the spread if I had my brokerage account automatically reinvest for me?

 

They'll withhold a portion of the dividend for foreign tax.  A poor location for a foreign dividend payer is the RothIRA.

[Myth465]

I think the same but mine is in my Roth for a few reasons.

 

1 by default. Its where I had capital.

2 due to double taxation from living in AUS and having to pay dividend taxes at earned income rates

3 I suspect the dividend tax will rise, right now its a wash. They withhold 15% and I would owe 15%, but not sure if that will hold up come Jan 1.

[jay21]

 

You could create a synthetic growth stock from LRE by reinvesting your dividends.  This would work very well in a non taxable account.

 

They appear positioned to grow a little this coming year after their recent debt sale. They have hinted that they could probably write a lot of potentially profitable business if rates hardened after a bad hurricane this fall.  That's what happened.  We'll see if that's what they do.  :)

 

I plan on starting a position in my ROTH IRA.  The hardest part may be deciding what to sell in order to accumulate more.  Although, Jan 1 is coming up.

 

As far as dividend reinvestments, my return on capital will be dependent on what LRE is trading at.  If they were able to retain and deploy the capital, my return would be what rates they can invest it at.  The two can be very different.  Also, do you know if I would be paying the spread if I had my brokerage account automatically reinvest for me?

 

They'll withhold a portion of the dividend for foreign tax.  A poor location for a foreign dividend payer is the RothIRA.

 

Even if I invest in the pink sheets version,  LCSHF?

[Myth465]

Yes.

[twacowfca]

 

You could create a synthetic growth stock from LRE by reinvesting your dividends.  This would work very well in a non taxable account.

 

They appear positioned to grow a little this coming year after their recent debt sale. They have hinted that they could probably write a lot of potentially profitable business if rates hardened after a bad hurricane this fall.  That's what happened.  We'll see if that's what they do.  :)

 

I plan on starting a position in my ROTH IRA.  The hardest part may be deciding what to sell in order to accumulate more.  Although, Jan 1 is coming up.

 

As far as dividend reinvestments, my return on capital will be dependent on what LRE is trading at.  If they were able to retain and deploy the capital, my return would be what rates they can invest it at.  The two can be very different.  Also, do you know if I would be paying the spread if I had my brokerage account automatically reinvest for me?

 

They'll withhold a portion of the dividend for foreign tax.  A poor location for a foreign dividend payer is the RothIRA.

 

Even if I invest in the pink sheets version,  LCSHF?

 

Our accountants and attorneys are working with The. UK tax authorities to streamline the process of returning the withholding.  We'll keep you posted as we make progress.

[Hawk4value]

Regarding liquidity, where are people buying the shares???  On the pink sheets or in the UK market??

[zippy1]

Price for LRE is down 7%, any reason why?

[jay21]

Price for LRE is down 7%, any reason why?

 

Special dividend, maybe? Also, someone bought/sold 60,000 ish shares on the pink sheets yesterday, which I was wondering about too.

[zippy1]

Price for LRE is down 7%, any reason why?

 

Special dividend, maybe? Also, someone bought/sold 60,000 ish shares on the pink sheets yesterday, which I was wondering about too.

Thanks, but the record date is Nov. 30th, this Friday.....

[giofranchi]

 

Just bought more LRE shares. It is a pleasure to average down, when I don’t have doubts about the quality of the stuff I am purchasing.  :)

 

giofranchi

[orion]

Seems the cause was not a special dividend but a downgrade :)

 

However, it was insurer Lancashire Holdings that suffered the heaviest fall on the FTSE 250. The shares tumbled 7.7pc after analysts at JPMorgan cut their target price to 860p from 920p.

http://www.telegraph.co.uk/finance/markets/9707863/US-concerns-drag-on-FTSE-100.html

[masseyrock]

JP Morgan didn't downgrade the stock from what I see.  The stock did go ex-dividend today which was ~$0.90/share.  JPM lowered their price target to reflect the divy. 

[twacowfca]

JP Morgan didn't downgrade the stock from what I see.  The stock did go ex-dividend today which was ~$0.90/share.  JPM lowered their price target to reflect the divy.

 

Yup.  They maintain their overweight rating.  Officially, it goes ex dividend Nov 30, but the brokerages and the exchange cut the ex div date by three days to ensure that all trades clear.  :)

[twacowfca]

Gasp! Lancashire Downgraded!

 

Nomura's analyst has downgraded Lancashire to market perform on the basis of valuation, while upgrading two very good London market insurers, Catlin and Beasley,  that the analyst thinks will be able to profit from increased rates in the N.E. US in the wake of Hurricane Sandy.

 

Here's a little background:  Catlin, Beasley, Hiscox, Amlin and Hardy had been  the pick of the litter of the London insurers. As members of Lloyd's, they have capacity to write more business than Lancashire because Lloyds stands behind its members if they get in trouble. For this and other benefits, Lloyd's members pay a fee.

 

This means that Lloyd's members that are good underwriters potentially can make more profit out of their increased business even with the extra fees they pay than if they were not part of Lloyd's.  But their results typically are more volatile than if they were less leveraged. 

 

Here's how those insurers performed in 2011: Hardy took a big hit, lost half of their book value in that large loss year.  Beasley had little cat exposure and did very well.  The other three had major cat losses and barely eked out a profit.  Lancashire, did extraordinarily well, considering that they insure a lot of things that could produce large losses, and wound up with about a 13+% ROE. 

 

This year, the others, except for Hardy which was acquired by CNA, have done slightly better than LRE so far, but I think that difference may narrow in LRE 's favor by the end of the year as I expect Lancashire once again to have relatively low losses to a large cat, Sandy.

 

 

[rjstc]

Thank you for the update. I wouldn't mind LRE to go down a good chunk more so I could get a better price. I've kept adding for a few years now.Thanks again twacowfca.

[giofranchi]

Thank you for the update. I wouldn't mind LRE to go down a good chunk more so I could get a better price. I've kept adding for a few years now.Thanks again twacowfca.

 

+1

 

And yes! Thanks again twacowfca, as always very useful and detailed information.

 

giofranchi

[accutronman]

The latest from Citi, still a buy, price target 9.16 GBP:

 

 Comfortable with Sandy exposure: Although there is still a lot of uncertainty over

losses from Hurricane Sandy, Lancashire seemed comfortable that this would be

roughly contained within its Q4 profits (avg $94m in Q4 since 2006). Lancashire

also indicated at Q3 that it has ILW protection above $20bn industry loss. The

biggest losses from Sandy are expected in marine cargo and property D&F (eg MTA

account).

 Seeking new opportunities: Lancashire mentioned the marine retro market as an

opportunity for growth following several major marine industry losses (Sandy, Costa

Concordia and Thailand). In our view, the importance of Lancashire’s consistent

marine and aviation earnings to the overall diversity of group earnings is often

underestimated. Lancashire highlighted a number of classes in which it is seeking

careful growth: political risks (not trade credit), marine (it has recently hired a new

u/w from Allianz), and satellite. Lancashire has also shown that it will retract from

lines of business not meeting its return targets (eg D&F book).

 At the forefront of third-party capital: Lancashire’s Saltire vehicle (offering cat

and non cat risk in one product) follows the successful renewal of its Accordion

vehicle (offering retro). These vehicles demonstrate Lancashire’s ability to: i) identify

demand for attractively priced capacity, and ii) to provide this using third-party

capital that enhances returns for its own shareholders (ie through fees/profit

commissions). These vehicles require a lot of management time, so we believe it is

sensible that Lancashire is cautiously expanding in this space. Nevertheless, there

has been considerable demand from third-party capital to get access to insurance

risks and we believe it is positive that Lancashire is at the forefront of these

developments.

 Potential for more capital management: Following a recent opportunistic $130m

debt issue at 5.7%, Lancashire has taken its leverage in line with peers (16%) and

strengthened its capital position (despite paying a $145m special dividend at Q3

2012). Lancashire therefore has ample capacity to exploit opportunities post Sandy

at 1.1 renewals, although we believe it is likely the group will consider another

special dividend in Q1/2 2013.

 Reasons to remain positive: We remain positive on Lancashire based on: i) its

outstanding underwriting track record, despite several years of major catastrophe

losses, ii) its differentiated business model (eg relatively small staff and centralized

u/w decisions on its daily call), and iii) capital management track record, having

returned >150% of its IPO proceeds to shareholders since 2005. We continue to like the Lloyd’s sector and reiterate our Buy recommendation on Lancashire.

[twacowfca]

The latest from Citi, still a buy, price target 9.16 GBP:

 

 Comfortable with Sandy exposure: Although there is still a lot of uncertainty over

losses from Hurricane Sandy, Lancashire seemed comfortable that this would be

roughly contained within its Q4 profits (avg $94m in Q4 since 2006). Lancashire

also indicated at Q3 that it has ILW protection above $20bn industry loss. The

biggest losses from Sandy are expected in marine cargo and property D&F (eg MTA

account).

 Seeking new opportunities: Lancashire mentioned the marine retro market as an

opportunity for growth following several major marine industry losses (Sandy, Costa

Concordia and Thailand). In our view, the importance of Lancashire’s consistent

marine and aviation earnings to the overall diversity of group earnings is often

underestimated. Lancashire highlighted a number of classes in which it is seeking

careful growth: political risks (not trade credit), marine (it has recently hired a new

u/w from Allianz), and satellite. Lancashire has also shown that it will retract from

lines of business not meeting its return targets (eg D&F book).

 At the forefront of third-party capital: Lancashire’s Saltire vehicle (offering cat

and non cat risk in one product) follows the successful renewal of its Accordion

vehicle (offering retro). These vehicles demonstrate Lancashire’s ability to: i) identify

demand for attractively priced capacity, and ii) to provide this using third-party

capital that enhances returns for its own shareholders (ie through fees/profit

commissions). These vehicles require a lot of management time, so we believe it is

sensible that Lancashire is cautiously expanding in this space. Nevertheless, there

has been considerable demand from third-party capital to get access to insurance

risks and we believe it is positive that Lancashire is at the forefront of these

developments.

 Potential for more capital management: Following a recent opportunistic $130m

debt issue at 5.7%, Lancashire has taken its leverage in line with peers (16%) and

strengthened its capital position (despite paying a $145m special dividend at Q3

2012). Lancashire therefore has ample capacity to exploit opportunities post Sandy

at 1.1 renewals, although we believe it is likely the group will consider another

special dividend in Q1/2 2013.

 Reasons to remain positive: We remain positive on Lancashire based on: i) its

outstanding underwriting track record, despite several years of major catastrophe

losses, ii) its differentiated business model (eg relatively small staff and centralized

u/w decisions on its daily call), and iii) capital management track record, having

returned >150% of its IPO proceeds to shareholders since 2005. We continue to like the Lloyd’s sector and reiterate our Buy recommendation on Lancashire.

 

Thank you, accutronman.

 

That's nearly a perfect summary of Lancashire and where they are going.  The only thing I might add, as expressed before, is that their long term record of producing virtually identical returns covers more than two decades if Lancashire is viewed as an extension and fulfillment of Brindle's career at Lloyd's.  :)

[giofranchi]

The latest from Citi, still a buy, price target 9.16 GBP:

 

 Comfortable with Sandy exposure: Although there is still a lot of uncertainty over

losses from Hurricane Sandy, Lancashire seemed comfortable that this would be

roughly contained within its Q4 profits (avg $94m in Q4 since 2006). Lancashire

also indicated at Q3 that it has ILW protection above $20bn industry loss. The

biggest losses from Sandy are expected in marine cargo and property D&F (eg MTA

account).

 Seeking new opportunities: Lancashire mentioned the marine retro market as an

opportunity for growth following several major marine industry losses (Sandy, Costa

Concordia and Thailand). In our view, the importance of Lancashire’s consistent

marine and aviation earnings to the overall diversity of group earnings is often

underestimated. Lancashire highlighted a number of classes in which it is seeking

careful growth: political risks (not trade credit), marine (it has recently hired a new

u/w from Allianz), and satellite. Lancashire has also shown that it will retract from

lines of business not meeting its return targets (eg D&F book).

 At the forefront of third-party capital: Lancashire’s Saltire vehicle (offering cat

and non cat risk in one product) follows the successful renewal of its Accordion

vehicle (offering retro). These vehicles demonstrate Lancashire’s ability to: i) identify

demand for attractively priced capacity, and ii) to provide this using third-party

capital that enhances returns for its own shareholders (ie through fees/profit

commissions). These vehicles require a lot of management time, so we believe it is

sensible that Lancashire is cautiously expanding in this space. Nevertheless, there

has been considerable demand from third-party capital to get access to insurance

risks and we believe it is positive that Lancashire is at the forefront of these

developments.

 Potential for more capital management: Following a recent opportunistic $130m

debt issue at 5.7%, Lancashire has taken its leverage in line with peers (16%) and

strengthened its capital position (despite paying a $145m special dividend at Q3

2012). Lancashire therefore has ample capacity to exploit opportunities post Sandy

at 1.1 renewals, although we believe it is likely the group will consider another

special dividend in Q1/2 2013.

 Reasons to remain positive: We remain positive on Lancashire based on: i) its

outstanding underwriting track record, despite several years of major catastrophe

losses, ii) its differentiated business model (eg relatively small staff and centralized

u/w decisions on its daily call), and iii) capital management track record, having

returned >150% of its IPO proceeds to shareholders since 2005. We continue to like the Lloyd’s sector and reiterate our Buy recommendation on Lancashire.

 

Thank you, accutronman.

 

That's nearly a perfect summary of Lancashire and where they are going.  The only thing I might add, as expressed before, is that their long term record of producing virtually identical returns covers more than two decades if Lancashire is viewed as an extension and fulfillment of Brindle's career at Lloyd's.  :)

 

Usually, I don’t pay attention to price targets, but I agree that the summary of Lancashire is well written: short, but very clear and useful. :)

Thank you,

 

giofranchi

[muscleman]

Gio, you bought LRE?

I notice that GLRE's severity business looks good too with very low composite ratio. IF they focused on that only, the underwriting result in the past few years would have been stunning.

But they can still blow up with one bad contract.

LRE may have the same risk. I think this business is probably as dangerous as selling call options.

[giofranchi]

Gio, you bought LRE?

I notice that GLRE's severity business looks good too with very low composite ratio. IF they focused on that only, the underwriting result in the past few years would have been stunning.

But they can still blow up with one bad contract.

LRE may have the same risk. I think this business is probably as dangerous as selling call options.

 

Well, I sell call options and so far so good!! ;D

No, really, I don’t consider selling call options to be such a dangerous business… if you know what you are doing, have a well-conceived plan, and the discipline to stick to it.

Anyway, both GLRE and LRE deal with risks. In the insurance industry they are going to make money, if they are better than others in assessing risks, otherwise they will lose money. That’s why I am much more confident in LRE’s future underwriting performance: because, if there is a person who is good (actually, the best!) at assessing risk, that person is Mr. Brindle!

GLRE, on the contrary, is not proven. But I trust Mr. Einhorn’s judgment very much. And I think they have the luxury to underwrite very conservatively, because of Mr. Einhorn’s skills as an investor.

Mr. Buffett said that, if he were to start it all over again, he would buy a small insurance company and grow from there: my firm has not enough capital yet to follow his advice, but surely I can partner with people who are doing so.  :)

 

giofranchi

 

[nwoodman]

Initial Sandy loss estimate $40m-$60m

 

http://otp.investis.com/clients/uk/lancashiregroup/rns/regulatory-story.aspx?cid=326&newsid=298843

 

Anyone have a handle on whether Sandy is likely to exceed $20bn?  I have seen figures of around $10bn

[twacowfca]

Initial Sandy loss estimate $40m-$60m

 

http://otp.investis.com/clients/uk/lancashiregroup/rns/regulatory-story.aspx?cid=326&newsid=298843

 

Anyone have a handle on whether Sandy is likely to exceed $20bn?  I have seen figures of around $10bn

 

 

Their loss range is about what I expected.  When there is a large catastrophe, loss creep continues for many months.  This type of catastrophe over a wide area and covering many classes of coverage is especially problematic.  The latest industry loss estimate by a credible organization is $20B to $30B. However, that estimate may not necessarily be the basis used for determining payment on LRE's $40M ILW.  The basis for the ILW that LRE bought is the losses reporter to Property Claims Services (PCS).  Their current reported claims is about $10B or $12B, I think.  Normally, loss creep would not at this stage take final claims reported to them above the $20B level.  However, Sandy is unusual in the breadth and scope of its impact.  Therefore, it is not out of the question that claims reported to PCS could breach the $20B level.

 

I think their most probable loss is $40M.  If their loss creeps up to $60M, the industry loss will probably be on the bubble for triggering their ILW.  In that case, I think the second most likely scenario would be $0 to $20M.  The least likely scenario should be loss creep up to $60M without triggering payment on their ILW.  Lancashire are careful about basis risk; therefore the probability of a $60M loss without triggering their ILW is low.

 

LRE's most probable loss in my opinion of $40M should be compared to their peers in London and Bermuda that write significant Cat coverage.  Once again, it appears that LRE's preliminary loss estimate is less than half of what most others who write a lot of cat coverage are experiencing.  For example, Beasley and Montpelier Re, two similar sized companies, project losses of $90M and $95M  respectively.

 

To put LRE's loss in perspective, a loss of $40M would be roughly equivalent to five or six weeks of earnings in a typical quarter that did not otherwise have a large catastrophe loss.