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LRE.L - Lancashire Holdings Ltd

nwoodman

By nwoodman
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WhoIsWarren Newbie

WhoIsWarren

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What did you all make of elaine says Darren Redhead is playing "expensive to keep around"?  Think he's headed out the door soon as well?

 

I think that Elaine was (half) joking.  I listened to the call and you could hear some tittering after she said it.

 

My guess is that Darren is more expensive than others around the office.  He's top of his game in the alternative space, with lots of experience and investor contacts.  He could easily work at one of the dedicated 3rd party ILS firms or indeed in one of the investment banks, who I think would pay highly for his services.  I believe that underwriters -- even the best ones -- aren't paid nearly as well as investment bankers (any insurance insiders out there that can confirm that?), so Darren's package might stand out.

 

 

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CorpRaider Newbie

CorpRaider

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Thanks!  That's the context I was looking for, having been unable to listen to the call.  Sounded like they expect Brindle might start up a new operation as early as next year (or the next firmish market thereafter).  Perhaps if and when he starts something new we can get some more information on what really went down.  I feel like it could provide a useful case study for me on how quickly dynamics can change with management.  It felt to me like acquiring Cathedral and opening Kinesis was sort of a hard left turn.

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fareastwarriors Newbie

fareastwarriors

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Airline insurers face biggest bill since 9/11

"Lancashire, the Lloyd’s insurer, said last week it was planning to take advantage of an expected rise in premium levels"

 

http://www.ft.com/intl/cms/s/0/14a987ec-1429-11e4-b46f-00144feabdc0.html?siteedition=intl#axzz38kKnR3hm

 

 

 

Airline insurers face biggest bill since 9/11

 

 

 

 

 

 

Airline insurers are reviewing cover for aircraft involved in hostile acts such as the downing of Malaysia Airlines flight MH17 as the industry faces its most expensive year since the 9/11 attacks in 2001 with annual losses set to pass $2bn.

 

Senior insurance brokers have warned that some underwriters are demanding more than threefold increases in premiums in recent days for so-called “war” insurance policies.

 

Some insurance companies want details of exact flight paths and are considering withdrawing completely from providing certain types of cover for flights over hotspots in the Middle East and parts of Africa, the brokers added.

 

Fear of soaring claims for airline war policies comes in the wake of recent fighting at Tripoli airport in Libya, which damaged almost two dozen planes, as well as the MH17 disaster, which killed 298. Payouts on war insurance policies alone are expected to reach several hundred million dollars this year.

 

Airlines are vulnerable to abrupt changes in policy terms of war insurance, which covers physical damage to aircraft from hostile acts. Such policies can be cancelled with just seven days notice.

 

On top of war insurance, airlines spend several times more in premiums – typically amounting to millions of dollars each for major airlines – on separate coverage known as “all-risk” policies. These policies are likely to see a rise in premiums but nothing like the increase expected for war insurance.

 

Malaysia Airlines is likely to face higher-than-average increases, brokers said, especially given the MH17 disaster struck little more than four months after the disappearance of another of its jets.

 

Besides the Malaysian disasters, plane crashes last week in Mali and Taiwan will also contribute to insurers’ losses. All-risk policies cover liability claims, compensation payments to passengers, legal fees and physical damage to aircraft not caused by hostile acts.

 

Higher premiums would reverse successive years of lower insurance costs for airlines, with premiums almost halving over the past five years, according to brokers, due to a relative absence of losses.

 

Aviation war insurers including the Lloyd’s of London market are facing an annual bill this year several times bigger than their premium income, which totals only about $60m.

 

Although some premiums have already risen sharply, however, brokers say they expect most airlines to continue securing insurance with underwriters prepared to fill any gaps in coverage. Lancashire, the Lloyd’s insurer, said last week it was planning to take advantage of an expected rise in premium levels.

 

Brokers expect both liability claims and hull losses to run into several hundred million dollars this year.

 

Attritional losses – caused by more regular damage, such as bird strikes – typically come to about $600m annually. This would push the total losses for 2014 past $2bn.

 

However, the total costs remain uncertain because while physical damage losses can be settled quickly, the liability bill can take several years to finalise.

 

Compensation paid to relatives depend on several factors, such as the nationalities of passengers and their earnings potential. A relatively small number of Americans killed in the recent disasters should cap the losses.

 

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WhoIsWarren Newbie

WhoIsWarren

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Sounded like they expect Brindle might start up a new operation as early as next year (or the next firmish market thereafter).  Perhaps if and when he starts something new we can get some more information on what really went down.  I feel like it could provide a useful case study for me on how quickly dynamics can change with management.

 

Brindle is very unlikely to start up again until we have another hard market.  In the current soft environment, brokers / cedents are narrowing down their list of insurers to those with the best underwriters, who are trusted etc.  It would be next to impossible for a start up to win business -- even if they were able to entice the best underwriters to leave their current jobs (very difficult).

 

As a reminder, Lancashire started up in late 2005 and by 2007 was writing $600m in net premiums, which is pretty much the same as today.  But in the early years this was all commoditised lines that were well-priced, enabling them to make nice profits.  This strategy wouldn't make a lot of sense in today's pricing environment.

 

It was only over time that Lancashire was able to earn the trust of clients and brokers, to make those key relationship-rich hires and build out their core client portfolio.  Today with commoditised lines priced unattractively Lancashire is down to its core through-the-cycle portfolio.

 

I don't think we'll ever know for sure why Brindle left.  We may hear stories (like "Richard is Richard"), but how reliable are they??

 

Brindle's gone, no point on dwelling on him too much I think.  Have to look  forward.  The King is dead.  Long live the King.

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fareastwarriors Newbie

fareastwarriors

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Interesting article in FT: Broker JLT warns could be insurance failures as result of current low pricing.  This is exactly why Brindle won't / can't set up in these times.

 

http://www.ft.com/intl/cms/s/0/8b5d9362-171a-11e4-8617-00144feabdc0.html?siteedition=intl#axzz38tj1f8yD

 

 

 

 

JLT warns of insurance failures

 

 

Competitive pressures in large parts of the global insurance industry have become so intense that some underwriters risk failing if prices fall further, the head of the sector’s largest broker in Europe has warned.

 

Steep declines in premium levels were no longer merely the downward part of a “normal cycle”, said Dominic Burke, chief executive of London-listed Jardine Lloyd Thompson. “If this continues then we may well have failures,” he added

 

Mr Burke’s warning is among the outspoken yet about the impact of low prices for some lines of “big ticket” specialist corporate insurance, which have dropped to their lowest levels in more than a decade.

 

His comments come a day after the insurer Hiscox said it would shrink its reinsurance business as it forecast further downward pressure on premiums, while rival Lloyd’s insurer, Beazley, said last week that the market was “one of the most difficult in our history”.

 

Competition is especially intense in natural disaster reinsurance, for which the levels of capital that back the cover have risen almost two-thirds since the financial crisis to $555bn, according to Aon Benfield Analytics.

 

Low interest rates have driven yield-hungry capital market investors to “catastrophe bonds” and a relative absence of natural disasters has also pushed prices down.

 

Insurers have continued to post bumper profits because of the lack of claims, but Mr Burke cautioned that some underwriters could encounter difficulties when big a disaster does strike.

 

Historically, the industry would expect to generate returns of 12-15 per cent. But the rate at which policies were now being priced implied some insurers were targeting long-term returns on capital of as low 4 per cent, he added.

 

Mike Reynolds, JLT’s finance director, raised particular concerns about reinsurers covering the risk of big hurricanes in Florida, where prices have fallen especially steeply.

 

Shares in JLT fell 3 per cent on Tuesday to £10.25 after the company said it was “cautious over the outlook for the remainder of the year”, citing the strong pound as well as pressure on prices.

 

The wary outlook came even though JLT, the world’s fifth largest insurance broker by sales, boosted first-half pre-tax profits from £85m a year ago to £98m and increased the dividend by 5 per cent to 10.6p.

 

Joanna Parsons, analyst at Westhouse, said the intermediary had so far been shielded from the worst of the pressures because it garnered about half its sales from fees, which were less exposed to the falling insurance prices than commissions.

 

JLT has also been taking market share and was growing in areas including employee benefits business, she added. However, the analyst cut her forecast for the insurance broker’s annual pre-tax profits by 6 per cent.

 

First-half sales at JLT, which last year acquired the reinsurance broking division of Towers Watson for £156m, rose 15 per cent to £560m. Diluted earnings per share rose from 26.9p to 30.3p.

 

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Aurelius Newbie

Aurelius

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I'm planning on selling/rebuying LRE to save taxes, as LRE is a position I've taken a loss on so far.

 

I was wondering when the optimal time to sell (for a maximum loss) would be. Of course no one knows if market sentiments for LRE change through the end of the year, but I'm sure some of you veterans have better information regarding how the stock price has generally behaved when dividends are being paid out.

 

From IR, dividends:

"On 23 July 2014 an interim dividend of $0.05 (approximately £0.03) per common share was declared, payable on 24 September 2014 to shareholders of record on 29 August 2014."

-you would suspect the share price to decline on the 25 August, right? (Although £0.03 isn't a lot)

 

Second quarter 2014 press release:

"With the continued pressure on the trading environment, we expect to manage our risk levels accordingly. As ever, the balance of capital we hold will match the underwriting opportunities we foresee. If there are no major events, and no change in the market, it remains likely that we will return the majority, if not all, of our earnings to our shareholders later in the year.”

-Perhaps even better to wait until the end of the year when, hopefully, they pay out a special dividend or there is a mayor event. Do any of you have a rough estimate as to how big such a dividend might be? On the other hand you would expect the price of LRE to go up before such an event occured!  ???

 

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fareastwarriors Newbie

fareastwarriors

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How come they don't juse announce one big one instead doing a series of smaller ones...?

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WhoIsWarren Newbie

WhoIsWarren

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From today's Insurance Insider.  Apart from the timing of the move (very soft market), no surprise really (though I still struggle to understand the man's motivations)

 

Brindle working on new venture

 

Lancashire founder Richard Brindle is in the early stages of work on a start-up that will see him return to the (re)insurance market next year, The Insurance Insider can reveal.

 

Broking sources said that Brindle has been approached by a number of private equity investors interested in backing any future venture that he puts together, with talks ongoing.

 

It is understood that Brindle has engaged a major Wall Street investment bank to advise on the project.

 

Information on the top-secret project is scant at this stage, but the broking sources said that the former Lancashire CEO will not look to create an identikit hedge fund reinsurance vehicle with the standard $750mn-$1bn of capital.

 

To ensure the relevance of the business in an increasingly tiered market where even $2bn-equity companies are seen as under threat, Brindle may have to break with the recent pattern for start-ups and look to raise a higher sum.

 

The insurance entrepreneur, who made an extraordinary success of Lancashire, is widely believed to have become disillusioned with the onerousness of running a public company. Sources said he would likely keep any comeback vehicle private for the foreseeable future.

 

Brindle is understood to have held talks with AM Best and senior brokers to gauge the current state of the market. He has also spoken to underwriters, with headhunting sources suggesting that he has been evaluating talent in the energy sector.

 

After its half-year results, Lancashire executives told The Insurance Insider that Brindle's non-compete only runs until 1 January 2015.

 

The circumstances around Brindle's departure are not clear, however, his weariness with the responsibilities attached to running a business listed on the London Stock Exchange is believed to have contributed to his exit.

 

Given that he is an entrepreneur in his early 50s, news of Brindle's return is unlikely to surprise the market. However, the timing is likely to raise some eyebrows.

 

After he and John Charman sold Tarquin to Ace in 1998, Brindle spent a number of years out of the market before returning in the wake of Hurricane Katrina. Most assumed that he would again bide his time.

 

Given that Brindle told sister publication Insider Quarterly last autumn that specialty carriers were facing the most difficult market since the late 1990s, it seems unlikely that he will return with a simple "me-too" London-Bermuda play, even if he feels that access to the best underwriters and his own reputation could secure him a seat at the market's already over-crowded table. If Brindle were merely founding Lancashire mark II, he would not be doing it in this market.

 

But at this early stage the entrepreneur is keeping his new model under close wraps.

 

Lancashire was founded as a Bermuda-based insurer in late 2005 with $1bn of capital, provided by backers including Cap Z, Moore Capital, Crestview Partners, The Cypress Group, Och-Ziff and SAB Capital, and joined the London Stock Exchange's junior market almost immediately.

 

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peter1234 Newbie

peter1234

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From today's Insurance Insider.  Apart from the timing of the move (very soft market), no surprise really (though I still struggle to understand the man's motivations)

 

Brindle working on new venture

 

Thanks for sharing!

 

Unfortunately, not much info besides the headline.

 

So we will have to wait.

;)

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CorpRaider Newbie

CorpRaider

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Thanks very much for sharing that WhoisWarren.  The information on potential motivations was interesting.  I hope he won't start poaching too heavily from Lancashire. 

 

W/r/t to the buybacks: at least they are offsetting some of the pending dilution in some of the securities they've issued and are tax efficient distributions based on a rational, quantitative rule.  In short; I like them.

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