LRE.L - Lancashire Holdings Ltd

[twacowfca]

It appears that some of Cathedral's over reserving may be released in Q1.

 

They insured Michael Jackson's last scheduled appearance that did not take place after his death. 

 

The production company that held the policy admitted that they withheld knowledge of his medical history and drug use which would have been a disqualification under the terms of the policy.  Then, they dropped their claim.  The claim was picked up by Jackson's estate.  Immediately before the recent trial date, there was a settlement, probably for a small amount.  Cathedral had 50% of the  $17.6M policy which may have been grossed up with interest since Jackson's death in 2009. 

 

Cathedral is conservative in reserving, but this claim is so flimsy that it us entirely possible that they may have already released most of the reserves for this. Or maybe not, because the previous owners didn't like to pay taxes.  :)

[giofranchi]

It appears that some of Cathedral's over reserving may be released in Q1.

 

They insured Michael Jackson's last scheduled appearance that did not take place after his death. 

 

The production company that held the policy admitted that they withheld knowledge of his medical history and drug use which would have been a disqualification under the terms of the policy.  Then, they dropped their claim.  The claim was picked up by Jackson's estate.  Immediately before the recent trial date, there was a settlement, probably for a small amount.  Cathedral had 50% of the  $17.6M policy which may have been grossed up with interest since Jackson's death in 2009. 

 

Cathedral is conservative in reserving, but this claim is so flimsy that it us entirely possible that they may have already released most of the reserves for this. Or maybe not, because the previous owners didn't like to pay taxes.  :)

 

I have never figured out how twacowfca gets to know all the information about LRE he posts on the board… I think it is something like the magician who won’t let his tricks be discovered by his audience…!! ;)

Anyway, thank you very much! :)

 

Gio

 

[twacowfca]

It appears that some of Cathedral's over reserving may be released in Q1.

 

They insured Michael Jackson's last scheduled appearance that did not take place after his death. 

 

The production company that held the policy admitted that they withheld knowledge of his medical history and drug use which would have been a disqualification under the terms of the policy.  Then, they dropped their claim.  The claim was picked up by Jackson's estate.  Immediately before the recent trial date, there was a settlement, probably for a small amount.  Cathedral had 50% of the  $17.6M policy which may have been grossed up with interest since Jackson's death in 2009. 

 

Cathedral is conservative in reserving, but this claim is so flimsy that it us entirely possible that they may have already released most of the reserves for this. Or maybe not, because the previous owners didn't like to pay taxes.  :)

 

I have never figured out how twacowfca gets to know all the information about LRE he posts on the board… I think it is something like the magician who won’t let his tricks be discovered by his audience…!! ;)

Anyway, thank you very much! :)

 

Gio

 

Watch the "Sorcerer's Apprentice" section of Disney's "Fantasia" to see what happens when everyone's favorite mouse starts to dabble in magic.  :)

[giofranchi]

Watch the "Sorcerer's Apprentice" section of Disney's "Fantasia" to see what happens when everyone's favorite mouse starts to dabble in magic.  :)

 

;D ;D ;D

 

Cheers!

 

Gio

 

[giofranchi]

twacowfca,

in Q4 2012 LRE paid out a special dividend, then it paid out another special dividend in Q1 2013.

Given Cathedral’s over reserving, a relative quiet and therefore profitable Q4 2013, and the fact the last special dividend was a sort of “half special dividend”, do you see any chance LRE will declare another special dividend, when it announces Q4 2013 results on Thursday, 13 February 2014?

Thank you! :)

 

Gio

 

[twacowfca]

twacowfca,

in Q4 2012 LRE paid out a special dividend, then it paid out another special dividend in Q1 2013.

Given Cathedral’s over reserving, a relative quiet and therefore profitable Q4 2013, and the fact the last special dividend was a sort of “half special dividend”, do you see any chance LRE will declare another special dividend, when it announces Q4 2013 results on Thursday, 13 February 2014?

Thank you! :)

 

Gio

 

Probably they will.  Cats have not been on the prowl recently, and Cathedral is over capitalized and may soon get permission to have some of their funds at Lloyd's released.  Lancashire intend to increase their line size on their best core business as well as with Cathedral's core business, but this won't happen instantaneously. They are not looking for more acquisitions as the main reason they bought Cathedral was to get access to Brindle's old sandbox where he used to play and the sometimes "lovely" business that may pop up there, business that Lancashire can now write without having to hold twice as much capital as the amount of premiums they get.

 

All things considered, I would not be surprised if they paid out another modest (for them) special dividend similar to what they paid EOY 2013.  If not, the reason would probably be some market moving event that would give them the opportunity to take advantage of a spike in rates, or something else that could be an exceptional risk/reward opportunity.

[giofranchi]

All things considered, I would not be surprised if they paid out another modest (for them) special dividend similar to what they paid EOY 2013.  If not, the reason would probably be some market moving event that would give them the opportunity to take advantage of a spike in rates, or something else that could be an exceptional risk/reward opportunity.

 

Both scenarios are very fine! :)

Thank you,

 

Gio

 

[Guest ajc]

Insurers Face Tougher Times (Jan 9th, 2014)

 

Special dividends

 

With rates softening, opportunities for growth are set to become more limited in 2014, leaving insurers carrying more capital than they need. But splashing that cash on big takeovers isn't so likely. That's significantly because it's the expertise of underwriting teams that count in this business and there are easier ways of obtaining talent than buying a rival. Smaller players, however, may join forces to boost scale - Novae, for instance, is rumoured to be considering a bid for rival Lloyd's player, Antares Holdings.

 

Against that background, analysts expect a round of special dividend payments. "With attractive growth opportunities limited to specific pockets of the market, we expect special dividend announcements to support already attractive normal dividend yields," believes insurance analyst Tom Carstairs of Berenberg. He's expecting special payouts from Beazley, Hiscox, Lancashire (LRE) and - from outside the UK - Swiss Re (SREN).

 

http://www.investorschronicle.co.uk/2014/01/09/shares/sectors/insurers-face-tougher-times-wSNuhV25vNPeRfMU0cikgI/article.html

 

 

[cr6196]

I know this isn't on topic but I wondered if anyone here had looked at any of the US-listed reinsurers? Particularly, RenaissanceRe?

[zippy1]

I know this isn't on topic but I wondered if anyone here had looked at any of the US-listed reinsurers? Particularly, RenaissanceRe?

 

Yes, there is one as shown below. 

I think you can post questions there.  We had a bunch people buying insurers and re-insurers a couple years ago when they well below book values.

 

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/best-insurance-investment-right-now-mfc-re-cna-or-rnr/

[WhoIsWarren]

Kinesis Capital disclosed today that it has raised and placed "in excess of U$250m".

 

If my notes are correct, they mentioned at the November 2013 Investor Day that they were looking at raising $300-500m in 2014, so they are somewhat shy of this.  Perhaps they'll raise more through the year?  Or perhaps they felt they couldn't place any more at acceptable rates / terms?

 

Anyway, no biggie.  The are playing the long game here......

 

[twacowfca]

Kinesis Capital disclosed today that it has raised and placed "in excess of U$250m".

 

If my notes are correct, they mentioned at the November 2013 Investor Day that they were looking at raising $300-500m in 2014, so they are somewhat shy of this.  Perhaps they'll raise more through the year?  Or perhaps they felt they couldn't place any more at acceptable rates / terms?

 

Anyway, no biggie.  The are playing the long game here......

 

That's quite good, given their strict standards for placement.  Recall this time last year their Saltire vehicle returned most of its capital to investors because it had lost some of its value proposition as Retro rates weakened.  The success of Kinesis , which is basically the same as Saltire, appears to show growing acceptance for Its unique proposition:  to dampen tail risk from both elemental and non elemental extreme losses.

 

Kinesis is bankrolled by astute funds that expect a very good return on their investment and will likely receive it.  Lancashire is now back at Lloyd's where the Names that still provide a substantial amount of capital are not nearly so demanding as private equity funds, as evidenced by the extraordinarily high levels bid to participate in certain successful syndicates.  Lancashire should be well positioned to attract capital from Names because of their stirling record.  :)

[WhoIsWarren]

That's quite good, given their strict standards for placement. 

 

Yes, you are right.  Here's what the Insurance Insider had to say on the matter:

 

"Kinesis Capital Management's Darren Redhead told sister publication Trading Risk that although the vehicle could have written some more business in January, it would not have been achieved at the targeted pricing." 

 

Also, "The former DE Shaw underwriter said Kinesis would consider further capital-raising exercises during the year to deploy in specialty business. He added that should there be an opportunity in the market, the firm could raise money through the Kinesis structure within a tight timeframe."

 

[giofranchi]

I have just bought more Lancashire. :)

 

Gio

[giofranchi]

twacowfca,

of course this is nothing but useless speculation… though, given the recent, very weak stock price, it is difficult to believe they will announce the payment of a special dividend three days from now… usually, when a special dividend was in the cards, the stock price moved up considerably days before the announcement… any thoughts?

 

Thank you,

 

Gio

 

[giofranchi]

Given the fact Mr. Brindle is “only” Chief Executive of Lancashire, but not its Chairman, I would like to know what people think about Mr. Martin Thomas (Chairman), and what’s his influence and true role inside the organization.

twacowfca, have you ever met with him personally? :)

Thank you,

 

Gio

 

[giofranchi]

Planned Changes to the LHL Board

 

http://www.lancashiregroup.com/media/releases/2014/11-02-2014.aspx

 

 

Gio

[fareastwarriors]

Third director to leave Lancashire in board

overhaul

 

http://www.ft.com/intl/cms/s/0/744f3ba0-931f-11e3-b07c-00144feab7de.html#axzz2swfSkWo4

 

 

Lancashire is parting company with a third director as the insurer’s chairman undertakes an overhaul of its board, amid concerns its composition may fall foul of regulators’ good practice standards.

 

After corporate governance experts warned about a lack of independence among several of its directors, Martin Thomas, chairman, said the group had “initiated a plan for refreshing the board”.

 

Neil McConachie, a former finance director and president, is to stand aside as a non-executive director at its annual meeting in May, Lancashire disclosed on Tuesday.

 

John Bishop, a former Sun Alliance managing director who also sits on the board of Berkshire Hathaway International, will also depart.

 

Lancashire paid Mr Bishop, an actuary who sits on Lancashire’s audit committee, a consultancy fee of $21,000 a year to advise on the forthcoming Solvency II regulations. It stopped doing so just over a year ago. Ralf Oelssner, senior independent director, is also leaving.

 

In its annual report last year, Lancashire said it considered all its non-executive directors as independent other than Mr McConachie, and that the composition of its board was compliant with the UK corporate governance code.

 

However, Manifest, the proxy voting agency, said in a subsequent report there were also “independence issues” with Mr Bishop and Robert Spass, a founding partner at Capital Z Partners, a former majority shareholder.

 

The chairman said Mr McConachie, who joined Lancashire in 2006, was stepping down “given his length of service as both employee and director” and that Mr Bishop was “rotating off the board after . . . six years valuable service”.

 

He said the moves would “help preserve the right balance between independent and non-independent directors”.

 

Sarah Wilson, chief executive of the proxy voting service Manifest, said: “Being former insiders would be considered an issue of greater concern than merely time served.”

 

The departure of the directors was “notable, because the board has seen the direction shareholders expect boards to take”, she added.

 

Simon Fraser, a former head of corporate broking at Merrill Lynch, joined the board in November, when Lancashire disclosed the planned departures of Mr Oelssner and Mr Bishop.

 

Other directors at Lancashire include Emma Duncan, a journalist at The Economist.

 

The development comes two days before Lancashire releases its annual results. It is expected to return almost all its earnings as dividends

– about $230m worth, including a special payout.

 

Shareholders last year voted to re-elect all the directors with overwhelming support. However, about one in 10 votes cast failed to back

Lancashire’s remuneration report, a smaller proportion than usual for a listed company.

 

Shares in the Bermuda-based company have underperformed the FTSE 250 by 24 per cent over the past year.

 

Lancashire last year made its first acquisition since it was founded eight years ago, with the £266m purchase of Cathedral Capital,

launching it on the Lloyd’s of London market.

[giofranchi]

The development comes two days before Lancashire releases its annual results. It is expected to return almost all its earnings as dividends about $230m worth, including a special payout.

 

Thank you for posting the article, fareastwarriors.

It seems a special dividend is excepted after all… though the share price continues to behave somewhat awkwardly… we will see! :)

 

Gio

 

[original mungerville]

Anyone here fussed about directors leaving to make them appear more independent? I am not if that is the reason - actually I don't mind the lack of "independent" directors for firms like Berkshire, etc. who have the best interests of shareholders at heart.

 

If its some other reason - then I guess we find out tomorrow...

 

Is that roughly where others are at?

 

Gio, there has been volatility in the stock price - it declined along with the market but when the market went up, it did not...maybe that's because of these director announcements...who knows...

[twacowfca]

Anyone here fussed about directors leaving to make them appear more independent? I am not if that is the reason - actually I don't mind the lack of "independent" directors for firms like Berkshire, etc. who have the best interests of shareholders at heart.

 

If its some other reason - then I guess we find out tomorrow...

 

Is that roughly where others are at?

 

Gio, there has been volatility in the stock price - it declined along with the market but when the market went up, it did not...maybe that's because of these director announcements...who knows...

 

Don't  make a mountain out of a molehill.  Neil was a key employee in Lancashire's early years, but he has had other interests as well as Lancashire since he decided to step down as CFO two years ago and move back to UK.  The  other two directors rotating off are highly respected but well past normal retirement age.

 

[original mungerville]

(I am not making a mountain out of a molehill - like I said, I'm not fussed.) Thanks for your detailed info on the directors leaving - much appreciated as usual. Probably simple market volatility explains the stock price movement.

[twacowfca]

The development comes two days before Lancashire releases its annual results. It is expected to return almost all its earnings as dividends about $230m worth, including a special payout.

 

Thank you for posting the article, fareastwarriors.

It seems a special dividend is excepted after all… though the share price continues to behave somewhat awkwardly… we will see! :)

 

Gio

 

Q4 results should be good, but not necessarily better than their peers in a low catastrophe quarter.  They may more likely than not pay another special dividend, but it probably won't be huge, because they have paid two other specials in the last twelve months, not to mention using $200M of their own capital as well as what they raised through the stock offering to buy Cathedral.

 

Instead, look through the stock price that has been flattish to see what 's been happening to the intrinsic value of the business. Kinesis finally has traction. It's not a commoditized product. It should add one or two percent to their ROE or perhaps more over the years if it reaches it's full potential.

 

Cathedral is Brindle's master stroke.  It's a great company and a ticket into the playground where Brindle made his mark.  Lancashire paid about 1.6 * NAV for a great company in the best P & C market in the world.  Now, subpar Lloyd's companies are reportedly receiving bids of as much as 1.4 * NAV.  That premium of .4 * NAV is the price of admission to Lloyd's as a functional ready to go business.  Cathedral could sell for 2.0 * NAV in today's market -- or more as excellent Lloyd's businesses with size are rarely available.  That's perhaps $160M more than what Lancashire paid.  :)

[giofranchi]

Q4 2013 and full year 2013 Results:

Richard Brindle, Group Chief Executive Officer, commented:

 

“I am pleased to report a strong close to an exciting year in Lancashire’s history. RoE of 3.7% for the quarter and 18.9% for the full year are good results. The special dividend we have announced today reinforces our pledge that our commitment to capital management has not changed. But for Lancashire, 2013 has seen the most dramatic changes in our history. We have broadened our platforms, our core portfolio lines and our reinsurance purchasing capabilities, but without compromising our business model or our focus on underwriting.

 

There is a lot of gloom about the state of the market. But there is some truth in the old view that good underwriters prefer a soft market. In a hard market the benefits of superior risk selection and a focus on risk-adjusted return are cancelled out by the broad spread of strong pricing. In a soft market the strong underwriting franchises differentiate themselves. We can select the right clients and attachment points in a programme. We have a solid core portfolio but have the discipline to let go of under-priced, opportunistic business. And through the judicious use of reinsurance we can improve the risk-adjusted portfolio returns even when pricing is under pressure.

 

So whilst it might be an exaggeration to say that we relish the prospect of the coming year, we don’t mind hard work, and we think our business model has evolved to cope very well with the softening market. And let’s remember that although rates are undoubtedly coming down, they’re doing so from what are historically high levels in much of our business.

 

There are also signs that the panic that affected some commentators who foresaw decimation of the traditional markets was overdone. Many of our clients understand the value of the superior policy features offered by traditional markets like reinstatements and multi-year capacity. They know that relationships are based on an understanding that claims are often a process of negotiation based on detailed policy understanding, which goes beyond the ability

to model an output.

 

So for much of the portfolio there are real barriers to entry, based on product design which make rated capital a better fit for the client. But even in U.S. catastrophe reinsurance, where alternative capital has made the most inroads, it’s not all one way traffic. For example, if we look at Cathedral’s U.S. mutual portfolio where John Hamblin and Nick Destro’s client relationships stretch back as far as twenty years, the penetration of alternative capital is close to, if not actually, zero.

 

Our own permanent vehicle for third party capital, Kinesis, has made a good start deploying over $252 million of limit at 1 January 2014. Darren Redhead’s team has developed a bespoke product combining risk and catastrophe exposures, that offers real benefits to clients on tail risk mitigation. In addition, Lancashire Insurance Company Limited (“LICL”) and Lancashire Insurance Company (UK) Limited (“LUK”) continue to find new business opportunities such as energy liability, terrorism and obligors to complement the solid core portfolios in offshore energy, aviation and marine.

 

So we don’t share the gloomy outlook. With our three platforms comprising our permanent reinsurance asset management business in Kinesis, our top-performing Lloyd's business in Cathedral and our leading specialist insurance and reinsurance businesses in Lancashire, together with our sound business model and outstanding team, we believe that we can navigate a course through this market, and indeed the next hard market when that comes.”

 

 

Gio

pr-2014-02-13.pdf

[nwoodman]

Solid set of results as expected.  Can anyone link to some articles that give a little color to "the gloom about the state of the market"?  I hope it continues as some further P/B compression on LRE would be greatly appreciated as I would love to buy some more.

 

cheers

nwoodman