LRE.L - Lancashire Holdings Ltd

[WhoIsWarren]

I hope these answers are helpful.  :)

 

Indeed they are! The D&F answer -- its labour intensity, its smaller ticket size -- gives me a real understanding of why they simply had to close it down.

 

Attritional losses simply mean non catastrophe losses, meaning typically one loss at a time, not widespread losses. Some times an attritional loss may be large as with Costa Concordia, but usually they are relatively small even though a loss such as a fire may be a catastrophe for the client.

 

I mustn't understand well enough attritional losses. Why would Alex Maloney say that they are averse to this type of exposure?  I mean, isn't this a large part of what they do?  I thought they liked to have a healthy mix of both elemental and non-elemental (= attritional??) lines.  ???

 

Any further insights into pricing on core lines?  As I remember it, Brindle referred to their core clients who understood LRE's need to get a certain return on equity in soft markets, which would be reciprocated by LRE in hard markets.  I thought -- gee, that's interesting.  I mean, LRE has publicly stated their return target -- it's a juicy 15-20%.  That a client is willing to pay that price for their knowledge, their experience, their integrity, their long-term focus, as well as their capital.....well that's kind of saying a lot.

[twacowfca]

I hope these answers are helpful.  :)

 

Indeed they are! The D&F answer -- its labour intensity, its smaller ticket size -- gives me a real understanding of why they simply had to close it down.

 

Attritional losses simply mean non catastrophe losses, meaning typically one loss at a time, not widespread losses. Some times an attritional loss may be large as with Costa Concordia, but usually they are relatively small even though a loss such as a fire may be a catastrophe for the client.

 

I mustn't understand well enough attritional losses. Why would Alex Maloney say that they are averse to this type of exposure?  I mean, isn't this a large part of what they do?  I thought they liked to have a healthy mix of both elemental and non-elemental (= attritional??) lines.  ???

 

Any further insights into pricing on core lines?  As I remember it, Brindle referred to their core clients who understood LRE's need to get a certain return on equity in soft markets, which would be reciprocated by LRE in hard markets.  I thought -- gee, that's interesting.  I mean, LRE has publicly stated their return target -- it's a juicy 15-20%.  That a client is willing to pay that price for their knowledge, their experience, their integrity, their long-term focus, as well as their capital.....well that's kind of saying a lot.

 

I think what Alex said or what he meant to say is that they are averse to attritional losses, meaning that they try to select core business where they hopefully will have no attritional losses on a particular policy in most years. 

 

They carefully consider the probabilities of a loss when they write a policy and prefer to write a policy that will rarely have a loss, even if that means accepting a rate on that policy that may be relatively low, compared to other policies that are more exposed to losses.  An example, that has been mentioned before is writing a terrorism policy for a manufacturer that has guarded and gated plants outside cities, even though the rate would be far less than what they would get by writing terrorism coverage on the Sears tower in Chicago. They have said that they will not write terrorism coverage within a mile of a likely prime target.

 

That manufacturer would tend to renew his policy year after year because the premium is low and he would feel no urgency to rebid the coverage.  However, the much more expensive policy on the Sears Tower might be much more subject to price competition. If there should be a terror attack on a US target, and rates for terrorism coverage went through the roof, Lancashire would likely be very moderate in any increase that might be necessary for that good client, if circumstances didn't indicate that client would become a prime target, thus cementing that relationship.

 

Lets say that the manufacturer wanted a $150M limit on his terrorism coverage.  That might be more than LRE is prepared to lose , even though they might think the risk of a loss in a given year is far less than one percent. In that case, they might accept only perhaps one third of the maximum loss as the lead underwriter and let the broker take the policy slip around to other insurers who are interested in writing that type of policy and let them WRITE their names UNDER Lancashire's (get it?) on the policy slip with the amount of exposure that they are willing to accept.  :)

 

If that same manufacturer wants coverage for a chemical spill that was't covered under his other insurance,  Lancashire likely would not write that policy if they  think there is a fairly high risk of a spill in at least one of the manufacturer's plants each year. By the way, insurance for  that type of risk might be an example of one off D&F coverage that Lancashire now declines to write.

[WhoIsWarren]

Lets say that the manufacturer wanted a $150M limit on his terrorism coverage.  That might be more than LRE is prepared to lose , even though they might think the risk of a loss in a given year is far less than one percent. In that case, they might accept only perhaps one third of the maximum loss as the lead underwriter and let the broker take the policy slip around to other insurers who are interested in writing that type of policy and let them WRITE their names UNDER Lancashire's (get it?) on the policy slip with the amount of exposure that they are willing to accept.  :)

 

Thanks -- examples always help to explain!  And I think I remember Alex saying on an earnings call a couple of quarters ago saying that they were lead on 75% of GPW (perhaps referring just to the insurance book?).  So this is a common example.

 

Does LRE have to pay the broker to place the balance of the policy slip?

 

And now I've just realised that I'm not sure how broker commission payments work.  I thought the broker industry worked on a "client pays" system, meaning the client hires and pays the broker to help design the required policy, find the right insurer / reinsurer.  So what does LRE pay such hefty broker fees for?

 

Also, the P&L details "Insurance acquisition expenses ceded", a $10.9m (positive) in 2012.  How does this arise?

 

WRITE their names UNDER

 

Aha! Yes, I get it (picture of lightbulb going on  ;D )

 

Cheers

[Mikenhe]

The lead underwriter will dictate the terms of the premium. it can be a fixed amount or a percentage of the policyholders business, or even a minimum amount with the final total calculated on the business insured.  the broker will take a certain % of the premium.

 

The broker is being paid because thye know who to place the business with (or who not). they'll often recommend who the lead should be. Its common that the lead will have the highest % of the business. The lead doesn't pay the broker to pay the rest.

 

Lancashire broker fees have nothing to do with that - it'll be the placing of their reinsurance of this and other business that generates the broker fees.

 

If it is so unusual (IE its LRE's only terrorism coverage) then the Reinsurance broker might just be placing part of that business. For example LRE take 33.333% of the 150m mentioned. They don't want to retain all of that liability so they will reinsurer it out on a one off basis - probably a facultative cover that will spell out how much they retain. They may obtain an 80% facultative cover with a company that accepts terrorism cover. that means that 40m of Lancashires share is insured back out leaving them with a net amount of $10m net. The broker will take a % of that premium.

 

IF LRE are taking in a lot of terrorism coverage them they will probably set up a more widespread coverage that will accept more of LRE's liability so that not every risk needs to be analyzed separately.

 

A smart insurer will have several different coverages in place in order to lay off the liability. A very smart insurer  will also make sure that the reinsurers have deep pockets and will be around to pay when the claims arrive (see Fairfax runoff for examples of that not quite working out).

 

If that's not clear let me know and I'll expand upon it. I've done this for so long that I'm liable to skip some bits that are obvious to me - and not others and I apologize for that in advance!

[twacowfca]

The lead underwriter will dictate the terms of the premium. it can be a fixed amount or a percentage of the policyholders business, or even a minimum amount with the final total calculated on the business insured.  the broker will take a certain % of the premium.

 

The broker is being paid because thye know who to place the business with (or who not). they'll often recommend who the lead should be. Its common that the lead will have the highest % of the business. The lead doesn't pay the broker to pay the rest.

 

Lancashire broker fees have nothing to do with that - it'll be the placing of their reinsurance of this and other business that generates the broker fees.

 

If it is so unusual (IE its LRE's only terrorism coverage) then the Reinsurance broker might just be placing part of that business. For example LRE take 33.333% of the 150m mentioned. They don't want to retain all of that liability so they will reinsurer it out on a one off basis - probably a facultative cover that will spell out how much they retain. They may obtain an 80% facultative cover with a company that accepts terrorism cover. that means that 40m of Lancashires share is insured back out leaving them with a net amount of $10m net. The broker will take a % of that premium.

 

IF LRE are taking in a lot of terrorism coverage them they will probably set up a more widespread coverage that will accept more of LRE's liability so that not every risk needs to be analyzed separately.

 

A smart insurer will have several different coverages in place in order to lay off the liability. A very smart insurer  will also make sure that the reinsurers have deep pockets and will be around to pay when the claims arrive (see Fairfax runoff for examples of that not quite working out).

 

If that's not clear let me know and I'll expand upon it. I've done this for so long that I'm liable to skip some bits that are obvious to me - and not others and I apologize for that in advance!

 

Thank you Mikenhe for an explanation from the horse's mouth about the mechanics of these transactions. I'm just a self educated amateur.  :)

 

Re: Mikene's answer to WhoIsWarren's question about what is the $10.9M insurance acquisition expenses ceded in 2012.  That expense would then have been picked up by another reinsurer Lancashire used to lay off some of their own risk.  :)

[Mikenhe]

 

Thank you Mikenhe for an explanation from the horse's mouth about the mechanics of these transactions. I'm just a self educated amateur.  :)

 

you are welcome - I just read what I put again and I can tell it was a late night effort.. you are lucky I hadn't had a few glasses of wine or I might still be writing.

 

apologies for a few typo's but I think I covered the gist of it. 

 

I can write far more but its not the line of work that makes for sparkling dinner conversation.....

[WhoIsWarren]

Gotcha Mikenhe -- that's very clear (and appreciated).

 

Please feel free to crack open that bottle of wine and waffle on some more....  ;D

[Mikenhe]

Gotcha Mikenhe -- that's very clear (and appreciated).

 

Please feel free to crack open that bottle of wine and waffle on some more....  ;D

 

 

Not for the moment.. otherwise I'll start on about top and drops - or worst still the inefficiencies of the method of reserving of a mid level windstorm aggregate in three currencies in DOL order when its fully blown and only partially paid. something I used to calculate manually and the nightmares are still with me... 

[twacowfca]

Gotcha Mikenhe -- that's very clear (and appreciated).

 

Please feel free to crack open that bottle of wine and waffle on some more....  ;D

 

 

Not for the moment.. otherwise I'll start on about top and drops - or worst still the inefficiencies of the method of reserving of a mid level windstorm aggregate in three currencies in DOL order when its fully blown and only partially paid. something I used to calculate manually and the nightmares are still with me...

 

Wow! That makes the three body problem look like a piece of cake.  Did you ever encounter any LMX spiral type issues?

[Mikenhe]

yes - not too much but some. crazy situation. the only way out of it was commutation of the contracts - for those that would get their head out of the sand! Mostly I spend time on dealing with the reinsurance of american companies but I kicked off with London business for a few years.

[nwoodman]

Interesting development, at first glance seems a pretty full price

 

http://otp.investis.com/clients/uk/lancashiregroup/rns/regulatory-story.aspx?cid=326&newsid=357428

 

The Acquisition is expected to be accretive to earnings and book value in the first year, with a pro forma book value of U.S.$1,455m as at 30 June 2013. The pro forma tangible book value of the Lancashire Group as at 30 June 2013 is U.S.$1,298m. The Enlarged Group's gearing following the Acquisition is maintained within management's appetite at 19.7%. The Board believes that there is potential further upside arising from more efficient capital management of the Cathedral business and Lancashire will work together with the Cathedral management team to explore these options further. Lancashire remains committed to its current dividend and capital management strategy and expects the Acquisition will deliver enhanced dividend capacity in the future.

[twacowfca]

Interesting development, at first glance seems a pretty full price

 

http://otp.investis.com/clients/uk/lancashiregroup/rns/regulatory-story.aspx?cid=326&newsid=357428

 

The Acquisition is expected to be accretive to earnings and book value in the first year, with a pro forma book value of U.S.$1,455m as at 30 June 2013. The pro forma tangible book value of the Lancashire Group as at 30 June 2013 is U.S.$1,298m. The Enlarged Group's gearing following the Acquisition is maintained within management's appetite at 19.7%. The Board believes that there is potential further upside arising from more efficient capital management of the Cathedral business and Lancashire will work together with the Cathedral management team to explore these options further. Lancashire remains committed to its current dividend and capital management strategy and expects the Acquisition will deliver enhanced dividend capacity in the future.

 

 

At first glance, the idea of buying into Lloyds would seem to be a wash or a small negative for most outside insurers, like a babe going into the woods.  But for Lancashire it appears to be an opportunity to leverage Lancashire's (and Brindle's) nonpareil reputation.

 

Think of Brindle as being the best Poker player in the world who is a net winner in four out of five of the poker tournaments he enters.  Up till now he has refused to enter the biggest tournaments because he doesn't want to pay the usual rake off fees the house takes on the action. 

 

A funny thing happened in the meantime, Brindle has developed quite a following, people who want to pay him to be allowed to bet alongside him, people with lots of money who need more action that can only be provided by the biggest casino in the world, with all sorts of interesting side games that are very profitable for a good player.

 

Cathedral is very good at attracting capital from names.  They have a great underwriting record, better than almost all except Lancashire. Their manager has a record that goes back 20+ years when Brindle was also establishing his reputation among the players and names at Lloyd's.  Cathedral's outstanding underwriting record is not quite so good as LRE's, but their ROE is higher at 26% compounded because of the somewhat non recourse leverage available through the Lloyd's platform.

 

It will be interesting to see how this works out in the future .

[giofranchi]

Interesting development, at first glance seems a pretty full price

 

http://otp.investis.com/clients/uk/lancashiregroup/rns/regulatory-story.aspx?cid=326&newsid=357428

 

The Acquisition is expected to be accretive to earnings and book value in the first year, with a pro forma book value of U.S.$1,455m as at 30 June 2013. The pro forma tangible book value of the Lancashire Group as at 30 June 2013 is U.S.$1,298m. The Enlarged Group's gearing following the Acquisition is maintained within management's appetite at 19.7%. The Board believes that there is potential further upside arising from more efficient capital management of the Cathedral business and Lancashire will work together with the Cathedral management team to explore these options further. Lancashire remains committed to its current dividend and capital management strategy and expects the Acquisition will deliver enhanced dividend capacity in the future.

 

 

At first glance, the idea of buying into Lloyds would seem to be a wash or a small negative for most outside insurers, like a babe going into the woods.  But for Lancashire it appears to be an opportunity to leverage Lancashire's (and Brindle's) nonpareil reputation.

 

Think of Brindle as being the best Poker player in the world who is a net winner in four out of five of the poker tournaments he enters.  Up till now he has refused to enter the biggest tournaments because he doesn't want to pay the usual rake off fees the house takes on the action. 

 

A funny thing happened in the meantime, Brindle has developed quite a following, people who want to pay him to be allowed to bet alongside him, people with lots of money who need more action that can only be provided by the biggest casino in the world, with all sorts of interesting side games that are very profitable for a good player.

 

Cathedral is very good at attracting capital from names.  They have a great underwriting record, better than almost all except Lancashire. Their manager has a record that goes back 20+ years when Brindle was also establishing his reputation among the players and names at Lloyd's.  Cathedral's outstanding underwriting record is not quite so good as LRE's, but their ROE is higher at 26% compounded because of the somewhat non recourse leverage available through the Lloyd's platform.

 

It will be interesting to see how this works out in the future .

 

I have bought more LRE at 775 pence today. Now LRE is 18.5% of my firm's portfolio. If Mr. Brindle pays 1.6 x BV, I can too. And I am quite confident a lot of cash will be generated from this acquisition: a larger market, little higher CRs, with a little more leverage = more opportunities for growth, always keeping a ROE in the high teens / low twenties.

 

giofranchi

[twacowfca]

Interesting development, at first glance seems a pretty full price

 

http://otp.investis.com/clients/uk/lancashiregroup/rns/regulatory-story.aspx?cid=326&newsid=357428

 

The Acquisition is expected to be accretive to earnings and book value in the first year, with a pro forma book value of U.S.$1,455m as at 30 June 2013. The pro forma tangible book value of the Lancashire Group as at 30 June 2013 is U.S.$1,298m. The Enlarged Group's gearing following the Acquisition is maintained within management's appetite at 19.7%. The Board believes that there is potential further upside arising from more efficient capital management of the Cathedral business and Lancashire will work together with the Cathedral management team to explore these options further. Lancashire remains committed to its current dividend and capital management strategy and expects the Acquisition will deliver enhanced dividend capacity in the future.

 

 

At first glance, the idea of buying into Lloyds would seem to be a wash or a small negative for most outside insurers, like a babe going into the woods.  But for Lancashire it appears to be an opportunity to leverage Lancashire's (and Brindle's) nonpareil reputation.

 

Think of Brindle as being the best Poker player in the world who is a net winner in four out of five of the poker tournaments he enters.  Up till now he has refused to enter the biggest tournaments because he doesn't want to pay the usual rake off fees the house takes on the action. 

 

A funny thing happened in the meantime, Brindle has developed quite a following, people who want to pay him to be allowed to bet alongside him, people with lots of money who need more action that can only be provided by the biggest casino in the world, with all sorts of interesting side games that are very profitable for a good player.

 

Cathedral is very good at attracting capital from names.  They have a great underwriting record, better than almost all except Lancashire. Their manager has a record that goes back 20+ years when Brindle was also establishing his reputation among the players and names at Lloyd's.  Cathedral's outstanding underwriting record is not quite so good as LRE's, but their ROE is higher at 26% compounded because of the somewhat non recourse leverage available through the Lloyd's platform.

 

It will be interesting to see how this works out in the future .

 

I have bought more LRE at 775 pence today. Now LRE is 18.5% of my firm's portfolio. If Mr. Brindle pays 1.6 x BV, I can too. And I am quite confident a lot of cash will be generated from this acquisition: a larger market, little higher CRs, with a little more leverage = more opportunities for growth, always keeping a ROE in the high teens / low twenties.

 

giofranchi

 

Brindle paid 1.6 * NAV for Cathedral.  I haven't looked at Cathedral's financials yet.  That's less than what Lancashire itself should be worth in a decent market.  That seems like less than a bargain price, but probably not considering their mini moats.  Think of Buffett's paying 3 * BV to acquire the remaining public shares of Geico in the 1990's.  If Lancashire's reputation and support can increase Cathedral's NWP substantially at any thing close to the same average ROE of 26% per annum that Cathedral has achieved, that will be more than worth the price paid.

 

There's another aspect to consider, Cathedral's capacity is about €350M , probably about 60% more than Lancashire's de facto capacity in their current operations. Cathedral is only utilizing about €200M of that capacity.  For that huge increase in capacity and access to a market where that capacity can be utilized profitably without likely having to inject any of its own capital, Lancashire is diluting its stock only by about 10% without any anticipated dilution of BV/ SH or EPS.

 

Now, the deal makes quite a bit of sense.  :)

 

 

The deal looks even better.  1.6 * NTA is calculated end of March.  The indications are that things have gone well for them since then.  I imagine the deal will likely close at 1.5 * NTA or better.  That's about the average for Lloyd's take outs recently, including some with reserving issues.  For the same multiple, Lancashire gets one of the very best.  :)

[twacowfca]

Interesting development, at first glance seems a pretty full price

 

http://otp.investis.com/clients/uk/lancashiregroup/rns/regulatory-story.aspx?cid=326&newsid=357428

 

The Acquisition is expected to be accretive to earnings and book value in the first year, with a pro forma book value of U.S.$1,455m as at 30 June 2013. The pro forma tangible book value of the Lancashire Group as at 30 June 2013 is U.S.$1,298m. The Enlarged Group's gearing following the Acquisition is maintained within management's appetite at 19.7%. The Board believes that there is potential further upside arising from more efficient capital management of the Cathedral business and Lancashire will work together with the Cathedral management team to explore these options further. Lancashire remains committed to its current dividend and capital management strategy and expects the Acquisition will deliver enhanced dividend capacity in the future.

 

 

At first glance, the idea of buying into Lloyds would seem to be a wash or a small negative for most outside insurers, like a babe going into the woods.  But for Lancashire it appears to be an opportunity to leverage Lancashire's (and Brindle's) nonpareil reputation.

 

Think of Brindle as being the best Poker player in the world who is a net winner in four out of five of the poker tournaments he enters.  Up till now he has refused to enter the biggest tournaments because he doesn't want to pay the usual rake off fees the house takes on the action. 

 

A funny thing happened in the meantime, Brindle has developed quite a following, people who want to pay him to be allowed to bet alongside him, people with lots of money who need more action that can only be provided by the biggest casino in the world, with all sorts of interesting side games that are very profitable for a good player.

 

Cathedral is very good at attracting capital from names.  They have a great underwriting record, better than almost all except Lancashire. Their manager has a record that goes back 20+ years when Brindle was also establishing his reputation among the players and names at Lloyd's.  Cathedral's outstanding underwriting record is not quite so good as LRE's, but their ROE is higher at 26% compounded because of the somewhat non recourse leverage available through the Lloyd's platform.

 

It will be interesting to see how this works out in the future .

 

I have bought more LRE at 775 pence today. Now LRE is 18.5% of my firm's portfolio. If Mr. Brindle pays 1.6 x BV, I can too. And I am quite confident a lot of cash will be generated from this acquisition: a larger market, little higher CRs, with a little more leverage = more opportunities for growth, always keeping a ROE in the high teens / low twenties.

 

giofranchi

 

Brindle paid 1.6 * NAV for Cathedral.  I haven't looked at Cathedral's financials yet.  That's less than what Lancashire itself should be worth in a decent market.  That seems like less than a bargain price, but probably not considering their mini moats.  Think of Buffett's paying 3 * BV to acquire the remaining public shares of Geico in the 1990's.  If Lancashire's reputation and support can increase Cathedral's NWP substantially at any thing close to the same average ROE of 26% per annum that Cathedral has achieved, that will be more than worth the price paid.

 

There's another aspect to consider, Cathedral's capacity is about €350M , probably about 60% more than Lancashire's de facto capacity in their current operations. Cathedral is only utilizing about €200M of that capacity.  For that huge increase in capacity and access to a market where that capacity can be utilized profitably without likely having to inject any of its own capital, Lancashire is diluting its stock only by about 10% without any anticipated dilution of BV/ SH or EPS.

 

Now, the deal makes quite a bit of sense.  :)

 

 

The deal looks even better.  1.6 * NTA is calculated end of March.  The indications are that things have gone well for them since then.  I imagine the deal will likely close at 1.5 * NTA or better.  That's about the average for Lloyd's take outs recently, including some with reserving issues.  For the same multiple, Lancashire gets one of the very best.  :)

 

Took a quick look at Cathedral's financials.  Now the acquisition looks sweet.  Part of the net assets LRE is buying is high yield preferred stock and ultra high yield loans to Cathedral that are now held by  its current owners.  Last year, Cathedral paid over £20,000,000 in interest and dividends to its owners who held these issues in addition to the regular dividends Cathedral paid on its common stock.  When the acquisition closes,  it appears that that amount of loan interest and preferred dividends will fall to LRE's bottom line in addition to Cathedral's regular earnings.  :)

[link01]

Took a quick look at Cathedral's financials.  Now the acquisition looks sweet.  Part of the net assets LRE is buying is high yield preferred stock and ultra high yield loans to Cathedral that are now held by  its current owners.  Last year, Cathedral paid over £20,000,000 in interest and dividends to its owners who held these issues in addition to the regular dividends Cathedral paid on its common stock.  When the acquisition closes,  it appears that that amount of loan interest and preferred dividends will fall to LRE's bottom line in addition to Cathedral's regular earnings.  :)

 

that's some excellent financial gum-shoeing. I confess to being a little that they were paying 1.6x book before this.

 

it also occurs to me that there might be some not so obvious benefits to taking out & joining with underwriting competitors that appear to be truly 'gems of the first water'.

[twacowfca]

Took a quick look at Cathedral's financials.  Now the acquisition looks sweet.  Part of the net assets LRE is buying is high yield preferred stock and ultra high yield loans to Cathedral that are now held by  its current owners.  Last year, Cathedral paid over £20,000,000 in interest and dividends to its owners who held these issues in addition to the regular dividends Cathedral paid on its common stock.  When the acquisition closes,  it appears that that amount of loan interest and preferred dividends  will fall mostly to LRE's income in addition to Cathedral's regular earnings.  :)

 

that's some excellent financial gum-shoeing. I confess to being a little that they were paying 1.6x book before this.

 

it also occurs to me that there might be some not so obvious benefits to taking out & joining with underwriting competitors that appear to be truly 'gems of the first water'.

 

It's likely that Brindle and the people at Cathedral go way back and have mutual admiration for each other.  Cathedral's annual reports show that Peter Scales and Richard Brindle are cut from the same cloth with the same perspective on everything important that Brindle and his team relate in their clear communications to shareholders. 

 

The organization that became Cathedral was formed about 1997 when Lloyd's was shedding its old, unlimited liability model for the "names" that provided most of its financial muscle in favor of limited liability corporate structure.  It was soon after that when Charman sold the syndicates for which Brindle was chief underwriter for a price that was three times NAV.

[Ian L]

Took a quick look at Cathedral's financials.  Now the acquisition looks sweet.  Part of the net assets LRE is buying is high yield preferred stock and ultra high yield loans to Cathedral that are now held by  its current owners.  Last year, Cathedral paid over £20,000,000 in interest and dividends to its owners who held these issues in addition to the regular dividends Cathedral paid on its common stock.  When the acquisition closes,  it appears that that amount of loan interest and preferred dividends will fall to LRE's bottom line in addition to Cathedral's regular earnings.  :)

 

Hello. I have been lurking on this forum for a few months and a shareholder in Lancashire for a few years and have found this thread very interesting so thankyou for sharing your insights.

In the investor presentation for Lancashire, they gave a 5 year summary of the income statements, which showed the finance costs of Cathedral to be 10.4M, 12.3M, 12.1M, 9M and 11.9M.

Looking at the annual reports income statement, this is backed up, though in the cash flow statement, very little cash was paid in 2011, and almost double the cash was paid in 2012 (20.6M). (maybe to do with the loss Cathedral made in 2011?)

So, according to that, it would seem that Lancashire would be receiving only the finance costs of 10-12M on top of Cathedral's headline profit. Or is there something extra I have missed?

[giofranchi]

I have bought more LRE at 755 pence today. Now LRE is 20% of my firm's portfolio.

 

What the market is seeing just as a dilution to shareholders, I see as proof that Mr. Brindle will find ways to grow BV for many years to come. I think Mr. Brindle is proving wrong the thesis Lancashire only is a dividend play. Instead, he is saying: Lancashire is both a dividend and a growth story. Of course, I like it very much. :)

 

giofranchi

 

[rjstc]

I have bought more LRE at 755 pence today. Now LRE is 20% of my firm's portfolio.

 

What the market is seeing just as a dilution to shareholders, I see as proof that Mr. Brindle will find ways to grow BV for many years to come. I think Mr. Brindle is proving wrong the thesis Lancashire only is a dividend play. Instead, he is saying: Lancashire is both a dividend and a growth story. Of course, I like it very much. :)

 

giofranchi

 

Gio are you still on the island? Sitting on the beach with all the beautiful Italian babes surrounding you. Buying more LRE with your cell phone. What a life!!!!

[TwoCitiesCapital]

Anybody know anything about the shares that trade in the u.S. on the OTC market? I can't find any ADR conversion ratio or anything. Anybody know if Scottrade allows to you to trade the London exchange?  Thinking about starting a small tracking position as I learn more and get comfortable with my knowledge of the company. 

 

 

[giofranchi]

Gio are you still on the island? Sitting on the beach with all the beautiful Italian babes surrounding you. Buying more LRE with your cell phone. What a life!!!!

 

Hi Ron,

and yes: still here on this beautiful island! I have a villa with a small park, that I think is one of the most relaxing places I know of! If you ever plan a trip to Italy, don’t fail to let me know, because I want you to be my guest! :)

 

But you would be surprised how incredibly bad a ‘gigolo’ I really am! Also, to talk to beautiful babes about Lancashire doesn’t help much…!! ;D ;D ;D

 

All the best,

 

Gio

 

[Ross812]

Anybody know anything about the shares that trade in the u.S. on the OTC market? I can't find any ADR conversion ratio or anything. Anybody know if Scottrade allows to you to trade the London exchange?  Thinking about starting a small tracking position as I learn more and get comfortable with my knowledge of the company.

 

The ADR shares trade at a 1:1 ratio with LRE.L. To get the equivalent price take the quoted price (in pence) on yahoo (LRE.L/100)*(GBP:USD). Currently it works out to LCSHF = (747.5/100)*1.546) = $11.56. Scottrade does not allow you to trade on the London exchange so you are going to have to buy the ADR. You are going to take a 2% hit in/out with the ADR over the London shares because there is very little liquidity.

 

I hold LRE.L in a IB account. 6 GBP per trade. There are no withholding taxes in a Roth IRA by the way. 

 

 

[twacowfca]

Took a quick look at Cathedral's financials.  Now the acquisition looks sweet.  Part of the net assets LRE is buying is high yield preferred stock and ultra high yield loans to Cathedral that are now held by  its current owners.  Last year, Cathedral paid over £20,000,000 in interest and dividends to its owners who held these issues in addition to the regular dividends Cathedral paid on its common stock.  When the acquisition closes,  it appears that that amount of loan interest and preferred dividends will fall to LRE's bottom line in addition to Cathedral's regular earnings.  :)

 

Hello. I have been lurking on this forum for a few months and a shareholder in Lancashire for a few years and have found this thread very interesting so thankyou for sharing your insights.

In the investor presentation for Lancashire, they gave a 5 year summary of the income statements, which showed the finance costs of Cathedral to be 10.4M, 12.3M, 12.1M, 9M and 11.9M.

Looking at the annual reports income statement, this is backed up, though in the cash flow statement, very little cash was paid in 2011, and almost double the cash was paid in 2012 (20.6M). (maybe to do with the loss Cathedral made in 2011?)

So, according to that, it would seem that Lancashire would be receiving only the finance costs of 10-12M on top of Cathedral's headline profit. Or is there something extra I have missed?

 

Yes, My quick take was wrong.  That £20.6M was for two years, I think because of some discontinuity in how it was charged in what year.  Normalized, It ought to be about half that. I took more than a quick look at their financials yesterday. It looks like their net income adjusted for what normally would be paid on the loans and preferred held by their owners was about £20M.

 

Interestingly, their syndicates had a profit of £50M last year.  I assume that's IBIT and before Holdco expenses.  Their tax rate would depend, I think, on how much of their business is international.  International business for Lloyds is taxed hardly at all if I'm not mistaken. Perhaps 30% of their profits may have flowed through to their names.  That leaves perhaps £35M for the Holdco.  Brindle has said that Lancashire will continue to manage funds of names.  That profit won't flow to LRE.  However, as names may occasionally drop off, there may be some incremental benefit. All in all, it looks like a very good business.

 

 

Knowing Brindle, I wouldn't be surprised to find out that they will have some nice reserve redundancies.  It looks like their business is doing quite well this year.  There may be some pleasant surprises ahead.  :)

 

I was unable to connect frm the US to the phone numbers provided for their investor presentation.  Was there anything interesting that you learned from it ?

 

Also, please tell how you came to invest in Lancashire.  :)

 

[Ian L]

I was unable to connect frm the US to the phone numbers provided for their investor presentation.  Was there anything interesting that you learned from it ?

 

Also, please tell how you came to invest in Lancashire.  :)

 

I did not listen to a phone call, I was referring to the investor presentation pdf on their website, though Im not sure if you can get to that from the USA. I think most if not all of the info can be obtained from other sources such as the Cathedral annual reports.

 

I have to admit that in 2009 I invested mainly for their earnings and dividend yield. I had not been able to find Bindle's long term record. I thought it would be risky, but that the dividends would compensate for that risk. Following their performance in recent years, and reading this thread, I have been pleased to note that I was correct about the value of the company, but overestimated its risk.