LRE.L - Lancashire Holdings Ltd

[WhoIsWarren]

 

I shall remain a minority of one who thinks that Brindle's departure is not necessarily a bad thing.

 

 

Twacowfca,

 

I've been mulling over your words here for a few days.  When you say "not necessarily a bad thing", are you perhaps of the thinking that it might be a good think that Richard has left?

 

Tom has already hinted at this, but perhaps you are saying that Richard's input into Lancashire's ongoing success has been overstated?  His lack of day-to-day involvement for some period of time could mean that he's been nothing more than a figure head -- and one increasingly out of touch with customers and brokers.  Do you also feel he may have held the group back in certain ways, ways that Alex could address in time?

 

Thanks

[watsa_is_a_randian_hero]

Has anyone considered whether the departure could be positive from the perspective of if LRE can prove it was not wholly dependent upon Brindle, it may become a better acquisition target, increasing its value?

 

Perhaps this is merely a test by Brindle...taking the training wheels off while standing close behind and watching. 

[twacowfca]

 

I shall remain a minority of one who thinks that Brindle's departure is not necessarily a bad thing.

 

 

Twacowfca,

 

I've been mulling over your words here for a few days.  When you say "not necessarily a bad thing", are you perhaps of the thinking that it might be a good think that Richard has left?

 

Tom has already hinted at this, but perhaps you are saying that Richard's input into Lancashire's ongoing success has been overstated?  His lack of day-to-day involvement for some period of time could mean that he's been nothing more than a figure head -- and one increasingly out of touch with customers and brokers.  Do you also feel he may have held the group back in certain ways, ways that Alex could address in time?

 

Thanks

 

By no means. Richard has been more than an exceptional CEO who has led them from being a  commoditized reinsurer of catastrophes to become the best of breed as a lead underwriter in the Bermuda , London and now Lloyd's markets , the most dynamic and lastingly profitable in the world.  He has given them a quick and nimble collaborative culture focused entirely on prospective underwriting profit unlike the culture at any other insurer with the exception of NICO.  Like Warren at at BRK, he has shown them how not to reach for yield with the result that they have never had a comprehensive loss from investing, except three quarters with a loss of less than one percent, in eight years of existence.  That includes the financial crisis when almost all insurers took huge hits to their balance sheets and last spring when most insurers had high single digit or double digit hits to surplus when interest rates popped up suddenly.

 

The two top guys in Lancashire's leadership team and their CFO were handpicked at their IPO or soon after, and they have executed their strategy very well from day one.  Now Brindle's two London understudies have been promoted to lead the company almost certainly with more incentives  to match their increased responsibility.  That makes them most unlikely to depart from Lancashire's winning ways or to have any thought of jumping ship .

 

:)

[WhoIsWarren]

 

I shall remain a minority of one who thinks that Brindle's departure is not necessarily a bad thing.

 

 

Twacowfca,

 

I've been mulling over your words here for a few days.  When you say "not necessarily a bad thing", are you perhaps of the thinking that it might be a good think that Richard has left?

 

Tom has already hinted at this, but perhaps you are saying that Richard's input into Lancashire's ongoing success has been overstated?  His lack of day-to-day involvement for some period of time could mean that he's been nothing more than a figure head -- and one increasingly out of touch with customers and brokers.  Do you also feel he may have held the group back in certain ways, ways that Alex could address in time?

 

Thanks

 

By no means. Richard has been more than an exceptional CEO who has led them from being a  commoditized reinsurer of catastrophes to become the best of breed as a lead underwriter in the Bermuda , London and now Lloyd's markets , the most dynamic and lastingly profitable in the world.  He has given them a quick and nimble collaborative culture focused entirely on prospective underwriting profit unlike the culture at any other insurer with the exception of NICO.  Like Warren at at BRK, he has shown them how not to reach for yield with the result that they have never had a comprehensive loss from investing, except three quarters with a loss of less than one percent, in eight years of existence.  That includes the financial crisis when almost all insurers took huge hits to their balance sheets and last spring when most insurers had high single digit or double digit hits to surplus when interest rates popped up suddenly.

 

The two top guys in Lancashire's leadership team and their CFO were handpicked at their IPO or soon after, and they have executed their strategy very well from day one.  Now Brindle's two London understudies have been promoted to lead the company almost certainly with more incentives  to match their increased responsibility.  That makes them most unlikely to depart from Lancashire's winning ways or to have any thought of jumping ship .

 

:)

 

Hmm.  Are you reassessing your "not necessarily a bad thing" comment? :)

 

Certainly, as you've laid it out, Brindle's been instrumental in getting the business strategy right from IPO.  But that's done now.  As long as Alex and his underwriters keep disciplined and keep sweet those core client / broker relationships, it's perhaps not obvious that a CEO who was already halfway out the door will be greatly missed?

 

Have you spent much time with Alex -- if so, what are your impressions?

 

BTW, in case people haven't already seen it, here's the latest (22nd April) from the Insurance Insider on Lancashire / Alex Maloney:

 

Incoming Lancashire Holdings CEO Alex Maloney has promised a continuation of the firm's distinctive fleet-footed management style following the surprise announcement of founding CEO Richard Brindle's impending departure.

 

Brindle is to retire from the London-listed (re)insurer at the end of this month. Fellow founding executive Maloney is currently group chief underwriting officer and head of the firm's UK arm.

 

Speaking to The Insurance Insider, Maloney said: "Richard has left the company in brilliant form so it's not like we need to change anything - we will tweak it here and there, but it's very much business as usual.

 

"I've worked at Lancashire long enough to know that my views and his views on the underwriting side are very similar, and the whole culture of the company is based around those views, so it's not going to change."

 

Maloney said the firm remained content with its current business mix and relatively small size, despite the vogue for greater scale and "relevance" championed in recent M&A activity in the sector.

 

"I wouldn't agree that you need to be a $5bn-$8bn company... that's just not what Lancashire is about.

 

"Lancashire has always been about doing the right thing and making money for shareholders - we've got no interest in being the biggest company in the world or having a global platform," the executive affirmed.

 

Maloney added that the challenging current market conditions meant that the specialty-focused firm would be looking to its core portfolio of business to allow it to trade through.

 

"The market is obviously more challenging than it was 12 months ago, but in this kind of market it's all about your core portfolio and ours is very good," he explained, extolling Lancashire's relationships and those of recent acquisition, Lloyd's managing agent Cathedral.

 

"One of the reasons we've bought Cathedral is that if you look at some of the relationships they have, they've had them for 25 years. The market we're in today is very much the haves and the have nots - and we're a 'have' - it's about maintaining our relationships with clients and brokers and trading our way through the market," he concluded.

 

Maloney noted that the Lloyd's planning process meant the Cathedral syndicate would naturally be less nimble than the Lancashire company platform, although there were plans to expand the syndicate to write more specialty lines.

 

"You have to be realistic about market conditions - but if there's an up-tick we'll take it.

 

"Kinesis [the group's ILS-focused asset management division] can go from $300mn of capital to $3bn almost overnight, if the market opportunity is there. But there's no change in culture, we've always thought that way," he concluded.

 

 

[twacowfca]

Alex's greatest strength is relational.  It's one thing for an insurance company to say they are going to be very picky with what they write, but that's not easy to do, because brokers and clients will normally prefer to take the business to insurers that aren't picky. 

 

Executing Lancashire's strategy depends on extraordinary attention to things that are important to clients and brokers other than mainly relying on price.  These long term rèlationships are the heart of Lancashire's business that enables them to be picky and yet attractive to become the lead underwriter on most of what they write.  Most other insurers try to do this by wining dining and schmoozing. Lancashire has a very different way, and Alex has been the great leader in this core area.

[Kiltacular]

Alex's greatest strength is relational.  It's one thing for an insurance company to say they are going to be very picky with what they write, but that's not easy to do, because brokers and clients will normally prefer to take the business to insurers that aren't picky. 

 

Executing Lancashire's strategy depends on extraordinary attention to things that are important to clients and brokers other than mainly relying on price.  These long term rèlationships are the heart of Lancashire's business that enables them to be picky and yet attractive to become the lead underwriter on most of what they write.  Most other insurers try to do this by wining dining and schmoozing. Lancashire has a very different way, and Alex has been the great leader in this core area.

 

Thanks for the updates. I've kept my shares.

[WhoIsWarren]

Alex's greatest strength is relational.  It's one thing for an insurance company to say they are going to be very picky with what they write, but that's not easy to do, because brokers and clients will normally prefer to take the business to insurers that aren't picky. 

 

Executing Lancashire's strategy depends on extraordinary attention to things that are important to clients and brokers other than mainly relying on price.  These long term rèlationships are the heart of Lancashire's business that enables them to be picky and yet attractive to become the lead underwriter on most of what they write.  Most other insurers try to do this by wining dining and schmoozing. Lancashire has a very different way, and Alex has been the great leader in this core area.

 

Thanks twacowfca. What precisely makes these relationships so tight is difficult to fully appreciate from the outside (which is where I -- and probably most of this board -- sit).  I know what you say is likely the core of Lancashire's secret sauce, but it's oh-so difficult to verify.

 

Separately, the Insurance Insider has reported that the highly-rated Atrium aviation war team Bruce Carman and Matt Thomas, who had already resigned, have agreed to join Lancashire's Cathedral.  According to The Insider, the team is understood to lead around three quarters of all aviation war business in the market (or around $65m of annual premiums).  That's an unbelievable market share and the fact that they have chosen to join Cathedral (post Brindle!) speaks volumes about the desirability of Lancashire / Cathedral as a place to work for the best underwriters.

 

 

[argonaut]

LREs discreet release of above info:

 

http://otp.investis.com/clients/uk/lancashiregroup/rns/regulatory-story.aspx?cid=326&newsid=406279

 

I wonder if these Aviation war insurance folks can take the renewals with them in this industry or have to start from scratch to build new relationships?

 

I find these niches of profitability quite interesting (and continue to hold LR to see how they do) but I read somewhere that Alex too believes in keeping LRE on the small side and I hope that they will let all the niches expand as fully as possible (while keeping to their strict underwriting of course :))...

[WhoIsWarren]

I wonder if these Aviation war insurance folks can take the renewals with them in this industry or have to start from scratch to build new relationships?

 

I find these niches of profitability quite interesting (and continue to hold LR to see how they do) but I read somewhere that Alex too believes in keeping LRE on the small side and I hope that they will let all the niches expand as fully as possible (while keeping to their strict underwriting of course :))...

 

Oh, without a doubt, the relationships belong to Carman and his team -- these premiums will almost certainly be written through Cathedral next renewal.

 

As I understand it, Lancashire is looking to add more of these teams over the coming months / quarters, again through Cathedral.  These will be in areas adjacent to where they are already writing, but where they haven't been able to make any inroads, because people like Carman have the business sewn up. 

 

I wouldn't say Alex has a problem with size or growth per se.  The whole Lancashire model centres around only writing well-priced business.  That means your 'core' business is going to be one of serving profitable niches.  Lancashire -- and Alex -- is more than happy to write well-priced commoditised business too, as in 2006 and 20011/12, through their three platforms.  This is especially the case for Lancashire and Kinesis, which are very scalable.  I understand that Lloyd's operators have less ability to scale up and down (capacity allocations, central oversight).  Thus, hiring teams with strong track records and stable books of business into Cathedral would seem ideal for taking advantage of the Lloyd's structure (market access, capital efficiency, less flexibility).

 

[Sunrider]

Hello all

 

I see results are out 3.9% ROE for the quarter doesn't look so bad but as I am no expert in insurance and have only skimmed this briefly I was wondering what the more learned folks on this board think? Was there more to be expected from Cathedral this quarter? Also, why is the one sidecar in run-off - I seem to recall it was only established last year?

 

Thanks - C.

[twacowfca]

Hello all

 

I see results are out 3.9% ROE for the quarter doesn't look so bad but as I am no expert in insurance and have only skimmed this briefly I was wondering what the more learned folks on this board think? Was there more to be expected from Cathedral this quarter? Also, why is the one sidecar in run-off - I seem to recall it was only established last year?

 

Thanks - C.

 

The earnings are good. I thought they might come in about $70M but they were lowered $12.9 M by a non cash amortization of an asset that Cathedral held before their recent acquisition.  By another metric, fully diluted book value per share, (FDBV/SH) that is very similar to the FCBV/SH they reported, FDBV/SH increased 5.0% first Q. :)

 

Their results were also impacted by a late filed claim of $20M that was related to a loss in 2013.  All things considered, Q1 was very good, from my perspective.

 

Last year, they sold an ILW for a nice profit that had increased in value as Hurricane Sandy loss estimates increased in late 2012.  the market was very pleased with last year's reported results, but I think core results are even better this year.  :)

 

The Saltire sidecar is in runoff because it was the beta version of what has become a big and growing success in its reincarnation as Kinesis under Daren Redhead's leadership. It 's unique, and they have already sold five times as much premium as was sold in the Saltire vehicle. :) Kinesis easily could add 10%+  to LRE's bottom line if losses in it its first year are low for the clients who bought it. :)

 

 

[Cevian]

I was thinking a little further about Brindle's sudden departure and trying to make sense of the suddenness of it all. One possibility is that Brindle might be suffering from some yet undisclosed illness. If this were the case the storyline would be much different since it would no longer point to a possibility of some other issue within the Company which instigated Brindle's departure.

 

Thoughts?

[peter1234]

From the press release:

These considerations allow me to move on in the sure knowledge that the business is healthy and in good shape, as indeed I am myself.

 

Anything is possible, but it would contradict what they stated.

;)

[Sunrider]

Hi - sorry never got to respond, thank you for your quick analysis.

 

LRE sure is taking a beating in the last few weeks... Do you know if this is just lack of news, which really isn't uncommon for them, or big holders getting out?

 

Thanks!

 

Hello all

 

I see results are out 3.9% ROE for the quarter doesn't look so bad but as I am no expert in insurance and have only skimmed this briefly I was wondering what the more learned folks on this board think? Was there more to be expected from Cathedral this quarter? Also, why is the one sidecar in run-off - I seem to recall it was only established last year?

 

Thanks - C.

 

The earnings are good. I thought they might come in about $70M but they were lowered $12.9 M by a non cash amortization of an asset that Cathedral held before their recent acquisition.  By another metric, fully diluted book value per share, (FDBV/SH) that is very similar to the FCBV/SH they reported, FDBV/SH increased 5.0% first Q. :)

 

Their results were also impacted by a late filed claim of $20M that was related to a loss in 2013.  All things considered, Q1 was very good, from my perspective.

 

Last year, they sold an ILW for a nice profit that had increased in value as Hurricane Sandy loss estimates increased in late 2012.  the market was very pleased with last year's reported results, but I think core results are even better this year.  :)

 

The Saltire sidecar is in runoff because it was the beta version of what has become a big and growing success in its reincarnation as Kinesis under Daren Redhead's leadership. It 's unique, and they have already sold five times as much premium as was sold in the Saltire vehicle. :) Kinesis easily could add 10%+  to LRE's bottom line if losses in it its first year are low for the clients who bought it. :)

[WhoIsWarren]

 

............or big holders getting out?

 

 

You heard that gio sold, right?  ;D

 

Of course you can always make up a story to rationalise something, but I imagine the continued pressure on insurance pricing allied to the management changes has been enough to shake some investors' confidence.

 

I can't tell whether large shareholders are selling or not.  Clearly, the big unknown is Invesco, which owned 18.4m shares as at 12th Feb 2014 (as reported in the Annual Report).  Invesco's Neil Woodford, an investing legend over this side of the pond, has just left the firm and is taking some of Invesco's clients with him. Therefore Invesco might be forced sellers (may be offset by Woodford).  Per Bloomberg though, Invesco had 19.2m shares as at 14th May 2014 which, if correct, means Invesco has bought more.

 

 

[rjstc]

 

............or big holders getting out?

 

 

You heard that gio sold, right?  ;D

 

Of course you can always make up a story to rationalise something, but I imagine the continued pressure on insurance pricing allied to the management changes has been enough to shake some investors' confidence.

 

I can't tell whether large shareholders are selling or not.  Clearly, the big unknown is Invesco, which owned 18.4m shares as at 12th Feb 2014 (as reported in the Annual Report).  Invesco's Neil Woodford, an investing legend over this side of the pond, has just left the firm and is taking some of Invesco's clients with him. Therefore Invesco might be forced sellers (may be offset by Woodford).  Per Bloomberg though, Invesco had 19.2m shares as at 14th May 2014 which, if correct, means Invesco has bought more.

 

Other than Brindle leaving, I see nothing other than a well set up business going through a normal business cycle. If Brindle was still there people would be falling all over themselves buying at these levels & saying it was a great bargain. I doubt the business has fallen apart just because he left less than a month ago.

[giofranchi]

 

............or big holders getting out?

 

 

You heard that gio sold, right?  ;D

 

Ahahahahah!!!!

 

Anyway, I want to make it clear once more: I have almost no doubt twacowfca is right about LRE, and the business will go on performing exceedingly well, and will create much more shareholders value!

 

My decision was based only on this fact: I always look for what I call (maybe naively) an “entrepreneurial force” at the helm of any business I invest in.

Am I able to judge that so called “force” correctly? I don’t know… probably not… but that’s what I try to do: Mr. Brindle imo is such an outstanding entrepreneur, while I don’t feel so sure about Mr. Maloney…

 

This is my only reason! And I hope it is clear. :)

 

Gio

 

[abyli]

New presentation, it seems nothing has changed...

 

http://www.lancashiregroup.com/~/media/Files/L/Lancashire-Group/Attachments/presentations/2014/analyst-presentation-may-14.pdf

 

Lancashire – What’s changed

 

Lancashire remains a simple, underwriting-focused and disciplined specialty (re)insurer

• Executive management team has been here since the beginning. Alex since 2005, Elaine

since March 2006 and Paul since May 2007

• Alex Maloney had been responsible for strategy and culture as head of the London office for

the last three years

• Processes and structure, including the UMCC, are hard-wired into Lancashire’s DNA

• Commitment to managing the cycle remains key and the RRC remains the principal vehicle for

this with Lancashire, Cathedral and Kinesis

• Lots of opportunity to manage exposure and returns through reinsurance, to achieve the best

risk adjusted return

• No change to focus on underwriting

• No change to commitment to capital management through special dividend or share

repurchase as dictated by share price and outlook

• Cathedral team are very experienced and have been managing a business for the last 13 years

• Darren’s track record speaks for itself both at Talbot in Lloyd’s and latterly at DE Shaw

[abyli]

twacowfca:

 

"Darren’s track record speaks for itself both at Talbot in Lloyd’s and latterly at DE Shaw. "

 

Do you know where to find Darren Redhead's track record? Thanks.

 

Bing

[Sunrider]

Thanks - useful. I need to look at their news a bit more often, methinks.

 

New presentation, it seems nothing has changed...

 

http://www.lancashiregroup.com/~/media/Files/L/Lancashire-Group/Attachments/presentations/2014/analyst-presentation-may-14.pdf

 

Lancashire – What’s changed

 

Lancashire remains a simple, underwriting-focused and disciplined specialty (re)insurer

• Executive management team has been here since the beginning. Alex since 2005, Elaine

since March 2006 and Paul since May 2007

• Alex Maloney had been responsible for strategy and culture as head of the London office for

the last three years

• Processes and structure, including the UMCC, are hard-wired into Lancashire’s DNA

• Commitment to managing the cycle remains key and the RRC remains the principal vehicle for

this with Lancashire, Cathedral and Kinesis

• Lots of opportunity to manage exposure and returns through reinsurance, to achieve the best

risk adjusted return

• No change to focus on underwriting

• No change to commitment to capital management through special dividend or share

repurchase as dictated by share price and outlook

• Cathedral team are very experienced and have been managing a business for the last 13 years

• Darren’s track record speaks for itself both at Talbot in Lloyd’s and latterly at DE Shaw

[WhoIsWarren]

twacowfca:

 

"Darren’s track record speaks for itself both at Talbot in Lloyd’s and latterly at DE Shaw. "

 

Do you know where to find Darren Redhead's track record? Thanks.

 

Bing

 

I don't have Darren's record unfortunately, but here's a recent interview with him in which he tells us a bit about his career to date.  Not a great interview to be honest - interviewer seems to repeat his questions.  There's some discussion on Kinesis, which you may find of use.

 

http://www.artemis.bm/blog/2014/05/13/ils-investment-manager-interview-darren-redhead-ceo-of-kinesis-capital-management-limited/

 

"I’ve gained more than 30 years of experience within the insurance and reinsurance industry, ranging from Lloyd’s of London to general insurance to insurance-linked securities. Back in 2001 I helped set-up Talbot Syndicate and also worked on one of the first non-elemental ILS notes in the 90’s. I held the position of Chief Underwriting Officer at DE Shaw, where I helped develop innovative multi-class collateralized structures for the hedge funds reinsurance arm."

 

 

[Kiltacular]

Is it time to double down?  Any new negative news driving the drop or just Mr. Market. If the latter, i will be adding. 

[muscleman]

 

............or big holders getting out?

 

 

You heard that gio sold, right?  ;D

 

Ahahahahah!!!!

 

Anyway, I want to make it clear once more: I have almost no doubt twacowfca is right about LRE, and the business will go on performing exceedingly well, and will create much more shareholders value!

 

My decision was based only on this fact: I always look for what I call (maybe naively) an “entrepreneurial force” at the helm of any business I invest in.

Am I able to judge that so called “force” correctly? I don’t know… probably not… but that’s what I try to do: Mr. Brindle imo is such an outstanding entrepreneur, while I don’t feel so sure about Mr. Maloney…

 

This is my only reason! And I hope it is clear. :)

 

Gio

 

Gio, I wonder what did you buy after you sold out LRE?  ;)

[giofranchi]

Gio, I wonder what did you buy after you sold out LRE?  ;)

 

I have bought more ALS, more BH, more TPRE, more GLRE, more VRX, more ENDP, and more LMCA. I have also increased a bit my cash position. :)

 

Gio

 

[fareastwarriors]

Is it time to double down?  Any new negative news driving the drop or just Mr. Market. If the latter, i will be adding.

 

I added more...because I forgot I set a limit order. It was executed this morning so Yes I'm adding (if accidently).