Interim Results

Lancashire Holdings Limited
31 August 2006

Hamilton, Bermuda, 31 August 2006


                          Lancashire Holdings Limited


Unaudited interim consolidated financial statements for the 6 month period to 30
                                   June 2006


This disclosure should be read in conjunction with Lancashire Holdings Limited's
prior announcement of interim results for the six month period ended 30 June
2006 on 7 August 2006.



On receipt of an opinion review letter from auditors, Ernst & Young, Lancashire
today discloses its full unaudited interim consolidated financial statements for
the six month period 30 June 2006, including the consolidated income statement,
the consolidated balance sheet, the consolidated cash flow statement and the
statement of accounting policies.



There is no material change in the results for the six month period ended 30
June 2006 from the prior announcement on 7 August 2006.



consolidated income statement

for the period ended june 30, 2006


                                                                       notes            2006             2005
                                                                                          $m               $m

gross premiums written                                                                 316.3              2.6
outwards reinsurance premiums                                                         (71.0)                -
net premiums written                                                                   245.3              2.6
change in unearned premiums                                                          (241.4)            (2.6)
change in unearned premiums on premium ceded                                            60.4                -
net premiums earned                                                                     64.3                -
net investment income                                                      3            24.2              2.1
net realised gains (losses)                                                3           (3.4)
net foreign exchange gains (losses)                                                    (1.1)              0.3
total net revenue                                                                       84.0              2.4
insurance losses and loss adjustment expenses                                            7.4                -
insurance losses and loss adjustment expenses recoverable                                  -                -
net insurance losses                                                                     7.4                -
insurance acquisition expenses                                             4             7.6                -
other operating expenses                                                 5,6            24.2             10.0
total expenses                                                                          39.2             10.0

results of operating activities                                                         44.8            (7.6)
finance costs                                                                            5.5              4.0
profit (loss) before tax                                                                39.3           (11.6)
tax                                                                        8               -                -
profit (loss) for the period attributable to equity shareholders                        39.3           (11.6)

earnings per share
basic                                                                     23           $0.20          $(0.24)
diluted                                                                   23           $0.20          $(0.24)


consolidated balance sheet

as at june 30, 2006


                                                                           notes          2006              2005
                                                                                            $m                $m
assets
cash and cash equivalents                                                      9         215.0           1,072.4
accrued interest receivable                                                   13           7.9               2.0
investments
- fixed income securities                                                     10         866.5                 -
- equity securities                                                           10          86.9                 -
reinsurance assets
- unearned premium on premium ceded                                           12          60.4                 -
deferred acquisition costs                                                    14          29.7               0.5
other receivables                                                             13          80.6               0.3
inwards premium receivable from insureds and cedants                          13         165.0               2.1
investment in associate                                                       11          20.0                 -
property, plant and equipment                                                 17           0.6               0.4
total assets                                                                           1,532.6           1,077.7

liabilities
insurance contracts
- losses and loss adjustment expenses                                         12           7.4                 -
- unearned premiums                                                           12         244.0               2.6
amounts payable to reinsurers                                             12, 15          32.0                 -
deferred acquisition costs ceded                                              16           5.6                 -
other payables                                                                15         124.7               2.2
accrued interest payable                                                      18           0.5               0.4
long-term debt                                                                18         127.1             125.4
total liabilities                                                                        541.3             130.6

shareholders' equity
share capital                                                                 20          97.9              97.9
share premium                                                                            871.4             860.8
fair value and other reserves                                                  3         (5.7)                 -
retained earnings (deficit)                                                               27.7            (11.6)
total shareholders' equity attributable to equity shareholders                           991.3             947.1
total liabilities and shareholders' equity                                             1,532.6           1,077.7



consolidated statement of changes in equity

for the six months ended june 30, 2006


                                                                                  fair value   retained
                                                           share          share    and other  (deficit)
                                                 notes   capital        premium     reserves   earnings        total
                                                              $m             $m           $m         $m           $m

balance as at october 12, 2005 (date of                        -              -         -  -             -         -
incorporation)
loss for the period                                            -              -            -     (11.6)       (11.6)
total recognised income for the period                         -              -            -     (11.6)       (11.6)
issue of share capital                              20      97.9          880.7            -          -        978.6
equity offering expenses                                       -         (58.6)            -          -       (58.6)
formation expenses                                             -         (36.1)            -          -       (36.1)
warrant issues - founders & sponsor                 21         -           66.4            -          -         66.4
warrant issues - management                          6         -            8.4            -          -          8.4
balance as at december 31, 2005                             97.9          860.8            -     (11.6)        947.1
profit for the period                                          -              -            -       39.3         39.3
change in investment unrealised gains (losses)       3         -              -        (5.7)          -        (5.7)
total recognised income for the period                         -              -        (5.7)       39.3         33.6
warrant issues - management & performance 6                    -            9.8            -          -          9.8
options issues - management                          6         -            0.8            -          -          0.8
balance as at june 30, 2006                                 97.9          871.4        (5.7)       27.7        991.3



consolidated cash flow statement

for the six months ended june 30, 2006


                                                   2006                  2005
                                notes                $m                    $m

cash flows from operating activities

profit (loss) before interest income and expense   19.4                (13.3)

interest income                                    25.0                   2.1

interest expense                                  (5.1)                 (0.4)

employee benefits expense           5              10.6                   8.4

foreign exchange                                    1.1                 (0.3)

realised (gains) losses on 
  investments                       3               3.4                     -

accrued interest receivable                       (5.9)                 (2.0)

unearned premium on premium ceded                (60.4)                     -

deferred acquisition costs                       (29.2)                 (0.5)

other receivables                                (80.3)                 (0.3)

inwards premium receivable from insureds 
  and cedants                                   (162.6)                 (2.1)

losses and loss adjustment expenses                 7.4                     -

unearned premiums                                 241.4                   2.6

amounts payable to reinsurers                      32.0                     -

deferred acquisition costs ceded                    5.6                     -

other payables                                    122.4                   1.3

accrued interest payable                            0.1                   0.4

net cash flows from (used in) operating 
  activities                                      124.9                 (4.1)



cash flows from investing activities

purchase of property, plant and 
  equipment                       17               (0.3)                (0.4)

investment in associates          11              (20.0)                    -

purchase of debt securities                    (1,531.2)                    -
                                                                
purchase of equity securities                     (85.5)                    -

proceeds on maturity and disposal of debt 
  securities                                       653.1                    -

proceeds on disposal of equity securities            1.3                    -

net cash flows used in investing activities      (982.6)                (0.4)


cash flows from financing activities

proceeds from issue of share capital                   -                978.6

transaction costs from issue of share capital          -               (12.2)

formation expenses                                     -               (15.2)

proceeds from issue of long-term debt                  -                125.7

net cash flows from financing activities               -              1,076.9


net (decrease) increase in cash and 
  cash equivalents                               (857.7)              1,072.4

cash and cash equivalents at beginning 
  of period                                      1,072.4                    -

effect of exchange rate fluctuations on 
  cash and cash equivalents                          0.3                    -

cash and cash equivalents at end of 
  period                                           215.0              1,072.4


accounting policies

for the six months ended june 30, 2006


summary of significant accounting policies

The basis of preparation, consolidation principles and significant accounting
policies adopted in the preparation of Lancashire Holdings Limited ('LHL') and
its subsidiaries' (collectively 'the Group') interim consolidated financial
statements are set out below. The interim consolidated financial statements for
the six months ended June 30, 2006 have not been audited.



basis of preparation

Given the significant development in the Group's business from the last audited
consolidated financial statements, condensed interim consolidated financial
statements have not been presented.  As management's preference is to share
these developments with shareholders and other users, the Group's interim
consolidated financial statements are prepared in accordance with accounting
principles generally accepted under International Financial Reporting Standards
('IFRS') endorsed by the European Commission.  Subsequent interim period
statements may be prepared in accordance with IAS 34: Interim Financial
Reporting.



Where IFRS is silent, as it is in respect of the measurement of insurance
products, the IFRS framework allows reference to another comprehensive body of
accounting principles.  In such instances, management determine appropriate
measurement bases, to provide the most useful information to users of the
interim consolidated financial statements, using their judgment and considering
the accounting principles generally accepted in the United States ('US GAAP').



Comparative figures have been presented for the period from October 12, 2005,
the date of incorporation, to December 31, 2005, as the Group was not in
existence at June 30, 2005.



The new IFRS 7, Financial Instruments Disclosure, which has been issued but is
not yet effective, has not been applied.  IFRS 7 is not expected to have a
material impact on the results reported in the interim consolidated financial
statements.



The interim consolidated balance sheet of the Group is presented in order of
decreasing liquidity.



use of estimates

The preparation of financial statements in conformity with IFRS requires
management to make estimates and assumptions that affect the reported and
disclosed amounts at the balance sheet date and the reported and disclosed
amounts of revenues and expenses during the reporting period.  Actual results
may differ materially from the estimates made.



basis of consolidation

i. subsidiaries

The Group's interim consolidated financial statements include the assets,
liabilities, equity, revenues, expenses and cash flows of Lancashire Holdings
Limited and its subsidiaries.  A subsidiary is an entity in which the Group
owns, directly or indirectly, more than 50% of the voting power of an entity or
otherwise has the power to govern the operating and financial policies.  The
results of subsidiaries acquired are included in the interim consolidated
financial statements from the date on which control is transferred to the Group.
  Intercompany balances, profits and transactions are eliminated.



Subsidiaries' accounting policies are consistent with the Group's accounting
policies.



ii. associates

Investments in which the Group has significant influence over the operational
and financial policies of the investee, are initially recognised at cost and
thereafter accounted for using the equity method.  Under this method, the Group
records its proportionate share of income or loss from such investments in its
results of operations for the period.  Adjustments are made to associates'
accounting policies, where necessary, in order to be consistent with the Group's
accounting policies.



foreign currency translation

The functional currency for all Group entities is United States ('U.S.')
dollars.  The interim consolidated financial statements are presented in U.S.
dollars.  Items included in the financial statements of each of the Group's
entities are measured using the functional currency, which is the currency of
the primary economic environment in which operations are conducted.



Foreign currency transactions are recorded in the functional currency for each
entity using the exchange rates prevailing at the dates of the transactions, or
at the average rate for the period when this is a reasonable approximation.
Monetary assets and liabilities denominated in foreign currencies are translated
at period end exchange rates. The resulting exchange differences on translation
are recorded in the interim consolidated income statement.  Non-monetary assets
and liabilities carried at historical cost denominated in a foreign currency are
translated at historic rates.  Non-monetary assets and liabilities carried at
fair value denominated in a foreign currency are translated at the exchange rate
at the date the fair value was determined, with resulting exchange differences
recorded in the fair value reserves in shareholders' equity.



insurance contracts

i. classification

Insurance contracts are those contracts that transfer significant insurance risk
at the inception of the contract.  Contracts that do not transfer significant
insurance risk are accounted for as investment contracts.  Insurance risk is
transferred when an insurer agrees to compensate a policyholder if a specified
uncertain future event adversely affects the policyholder.



ii. premiums and acquisitions costs

Premiums are first recognised as written at the date that the contract is bound.
 The Group writes both excess of loss and pro-rata contracts.  For the majority
of excess of loss contracts, written premium is recorded based on the minimum
and deposit or flat premium, as defined in the contract.  Subsequent adjustments
to the minimum and deposit premium are recognised in the period in which they
are determined.  For pro-rata contracts and excess of loss contracts where no
deposit is specified in the contract, written premium is recognised based on
estimates of ultimate premiums provided by the insureds or ceding companies.
Initial estimates of written premium are recognised in the period in which the
underlying risks incept.  Subsequent adjustments, based on reports of actual
premium by the insureds or ceding companies, or revisions in estimates, are
recorded in the period in which they are determined.



Premiums are earned ratably over the term of the underlying risk period of the
reinsurance contract, except where the period of risk differs significantly from
the contract period.  In these circumstances, premiums are recognised over the
period of risk in proportion to the amount of insurance protection provided.
The portion of the premium related to the unexpired portion of the risk period
is reflected in unearned premium.



Where contract terms require the reinstatement of coverage after a ceding
company's loss, the mandatory reinstatement premiums are recorded as written
premium when the loss event occurs.



Inwards premiums receivable from insureds and cedants are recorded net of
commissions, brokerage, premium taxes and other levies on premiums.  These
balances are reviewed for impairment, with any impairment loss recognised in
income in the period in which they are determined.



Acquisition costs represent commissions, brokerage and other variable costs that
relate directly to the securing of new contracts and the renewing of existing
contracts.  They are deferred over the period in which the related premiums are
earned, to the extent they are recoverable out of future revenue margins.  All
other acquisition costs are recognised as an expense when incurred.



iii. outwards reinsurance

Outwards reinsurance premiums comprise the cost of reinsurance contracts entered
into.  Outwards reinsurance premiums are accounted for in the period in which
the underlying risks incept.  The provision for reinsurers' share of unearned
premiums represents that part of reinsurance premiums written which is estimated
to be earned in future financial periods.  Unearned reinsurance commissions are
recognised as a liability using the same principles.  Any amounts recoverable
from reinsurers are estimated using the same methodology as the underlying
losses.



The Group monitors the credit worthiness of its reinsurers on an ongoing basis
and assesses any reinsurance assets for impairment, with any impairment loss
recognised in income in the period in which it is determined.



iv. losses

Losses comprise losses and loss adjustment expenses paid in the period and
changes in the provision for outstanding losses, including the provision for
losses incurred but not reported ('IBNR') and related expenses.  Losses and loss
adjustment expenses are charged to income as they are incurred and are mainly
external costs related to the negotiation and settlement of claims.



A significant portion of the Group's business is property catastrophe and other
classes with high attachment points of coverage.  Reserving for losses in such
programs is inherently complicated in that losses in excess of the attachment
level of the Group's policies are characterised by high severity and low
frequency and other factors which could vary significantly as losses are
settled.  This limits the volume of industry loss experience available from
which to reliably predict ultimate losses following a loss event.  In addition,
the Group has limited past loss experience due to its short operating history,
which increases the inherent uncertainty in estimating ultimate loss levels.



Losses and loss adjustment expenses represent the estimated ultimate cost of
settling all losses and loss adjustment expenses arising from events which have
occurred up to the balance sheet date, including a provision for IBNR.  The
Group does not discount its liabilities for unpaid losses.  Outstanding losses
are initially set on the basis of reports of losses received from third parties.
 Estimated IBNR reserves consist of a provision for additional development in
excess of case reserves reported by ceding companies or insureds, as well as a
provision for losses which have occurred but which have not yet been reported to
us by ceding companies or insureds.  IBNR reserves are estimated by management
using various actuarial methods as well as a combination of our own loss
experience, historical insurance industry loss experience, our underwriters'
experience, estimates of pricing adequacy trends, and management's professional
judgment.  The Group's internal actuaries review the reserving assumptions and
methodologies on a quarterly basis and the Group's loss estimates are subject to
a semi-annual corroborative review by independent actuaries using generally
accepted actuarial principles.



The estimation of the ultimate liability arising is a complex and judgmental
process.  It is reasonably possible that uncertainties inherent in the reserving
process, delays in insureds or ceding companies reporting losses to the Group,
together with the potential for unforeseen adverse developments, could lead to a
material change in losses and loss adjustment expenses.



v. liability adequacy tests

At each balance sheet date, the Group performs a liability adequacy test using
current best estimates of future cash flows generated by its insurance
contracts, plus any investment income thereon.  If, as a result of these tests,
the carrying amount of the Group's insurance liabilities is found to be
inadequate, the deficiency is charged to the consolidated income statement for
the period initially by writing off deferred acquisition costs and subsequently
by establishing a provision.



cash and cash equivalents

Cash and cash equivalents are carried in the interim consolidated balance sheet
at cost and includes cash in hand, deposits held on call with banks and other
short-term highly liquid investments with a maturity of three months or less at
the date of purchase.  Carrying amounts approximate fair value due to the short
term nature of the instruments.



Interest income earned on cash and cash equivalents is recognised on the
effective interest rate method.  The carrying value of accrued interest income
approximates fair value due to its short term nature.



investments

The Group's fixed income and equity investments are classified as available for
sale and are carried at fair value.  Other investments are recorded at estimated
fair value based on financial information received and other information
available to management, including factors restricting the liquidity of the
investments.  Regular way purchases and sales of investments are recognised at
fair value less transaction costs on the trade date and are subsequently carried
at fair value.  Estimated fair value of quoted investments is determined based
on bid prices from recognised exchanges. Investments are derecognised when the
Group has transferred substantially all of the risks and rewards of ownership.
Realised gains and losses are included in income in the period in which they
arise.  Unrealised gains and losses from changes in fair value are included in
the fair value reserve in shareholders' equity.  On derecognition of an
investment, previously recorded unrealised gains and losses are removed from
shareholders' equity and included in current period income.



Amortisation and accretion of premiums and discounts are calculated using the
effective interest rate method and are recognised in current period net
investment income.  Dividends on equity securities are recorded as revenue on
the date the dividends become payable to the holders of record.  The carrying
value of accrued interest income approximates fair value due to its short term
nature.



The Group reviews the carrying value of its investments for evidence of
impairment.  An investment is impaired if its carrying value exceeds the
estimated recoverable amount and there is objective evidence of impairment to
the asset.  Such evidence would include a prolonged decline in fair value below
cost or amortised cost, where other factors do not support a recovery in value.
 If an impairment is deemed appropriate, the difference between cost or
amortised cost and fair value is removed from the fair value reserve in
shareholders' equity and charged to current period income.



Impairment losses on equity securities are not subsequently reversed.



derivative financial instruments

Derivatives are recognised at fair value on the date a contract is entered into,
the trade date, and are subsequently carried at fair value.  Derivative
instruments with a positive value are recorded as derivative financial assets
and those with a negative value are recorded as derivative financial
liabilities.



Derivative financial instruments include swap, option, forward and future
contracts.  They derive their value from the underlying instrument and are
subject to the same risks as that underlying instrument, including liquidity,
credit and market risk.  Fair values are based on exchange quotations, with
changes in the fair value of instruments that do not qualify for hedge
accounting recognised in current period income.



Derivative financial assets and liabilities are offset and the net amount
reported in the interim consolidated balance sheet only to the extent there is a
legally enforceable right of offset and there is an intention to settle on a net
basis, or to realise the assets and liabilities simultaneously.



property, plant and equipment

Property, plant and equipment is carried at historical cost, less accumulated
depreciation and any impairment in value.  Depreciation is calculated to
write-off the cost over the established useful economic life on a straight-line
basis as follows:



IT equipment                                 33% per annum

Office furniture and equipment               33% per annum

Leasehold improvements                       20% per annum


The assets' residual values, useful lives and depreciation methods are reviewed
and adjusted if appropriate, at each balance sheet date.



An item of property, plant or equipment is derecognised on disposal or when no
future economic benefits are expected to arise from the continued use of the
asset.



Gains and losses on the disposal of property, plant and equipment are determined
by comparing proceeds with the carrying amount of the asset, and are included in
the income statement.  Costs for repairs and maintenance are charged to the
consolidated income statement as incurred.



long term debt

Long-term debt is recognised initially at fair value, net of transaction costs
incurred.  Thereafter it is held at amortised cost, with the amortisation
calculated using the effective interest rate method.



leases

Rentals payable under operating leases are charged to income on a straight-line
basis over the lease term.



employee benefits



i. equity compensation plans



The Group operates a management warrant plan and an option plan.  The fair value
of the equity instrument granted is estimated on the date of grant.  The fair
value is recognised as an expense pro-rata over the vesting period of the
instrument.  The total amount to be expensed is determined by reference to the
fair value of the awards estimated at the grant date, excluding the impact of
any non-market vesting conditions.



At each balance sheet date, the Group revises its estimate of the number of
warrants and options that are expected to become exercisable.  It recognises the
impact of the revision of original estimates, if any, in the consolidated income
statement, and a corresponding adjustment is made to shareholders' equity over
the remaining vesting period.



On vesting or exercise, the differences between the expense charged to the
consolidated income statement and the actual cost to the Group is transferred to
retained earnings.  Where new shares are issued, the proceeds received are
credited to share capital and share premium.



ii. pensions

The Group operates a defined contribution plan.  On payment of contributions to
the plan there is no further obligation to the Group.  Contributions are
recognised as employee benefits in the consolidated income statement in the
period to which they relate.



founder and sponsor warrants

The Group issued warrants to certain founding shareholders and a sponsor on
listing.  The fair value of the equity instruments granted were estimated on the
date of grant.



Warrants issued to founding shareholders were treated as a capital transaction
and the associated fair value was credited to the share premium account.  The
fair value of warrants issued to the sponsor for assistance with incorporation
and other start-up services was credited to the share premium account.  The
total amount to be credited was determined by reference to the fair value of the
awards estimated at the grant date, excluding the impact of any non-market
vesting conditions.



taxation

Income tax expense represents the sum of the tax currently payable and any
deferred tax.  The tax payable is calculated based on taxable profit for the
period.  Taxable profit for the period can differ from that reported in the
consolidated income statement due to certain items which are not tax deductible
or which are deferred to subsequent periods.



Deferred tax is recognised on differences between the assets and liabilities in
the consolidated balance sheet and their tax base.  Deferred tax assets or
liabilities are accounted for using the balance sheet liability method.



risk disclosures

for the six months ended june, 30 2006



risk disclosures: introduction

The Group enters into contracts that directly accept and transfer insurance
risk.  This in turn creates exposure for the Group to insurance risk and
financial risk.



The Group's appetite for accepting risk is established by the Board of
Directors.  The management of risks is described below.



A. insurance risk

The Group underwrites contracts that transfer insurance risk.  The Group's
underwriters assess the likely losses using their experience and knowledge of
past loss experience and current circumstances.  This allows them to estimate
the premium sufficient to meet likely losses and expenses.  The Group considers
insurance risk at an individual contract level and at an aggregate portfolio
level.  The Group's exposure in connection with such contracts is, in the event
of insured losses, whether premium will be sufficient to cover the loss payments
and expenses.



The Group underwrites worldwide short tail insurance and reinsurance property
risks, including risks exposed to natural catastrophes.  The four principal
classes are property, energy, marine and aviation.  The Group does not currently
underwrite a material amount of casualty business.  The level of risk tolerance
per class is set by the Board of Directors, who delegate day to day
responsibility to senior management.



A number of controls are deployed to limit the amount of insurance exposure
underwritten:



•         A business plan is produced annually which targets premium by class

•         The business plan is monitored and reviewed on an on-going basis

•         Each authorised class has a pre-determined normal maximum line
          structure proposed by management and agreed by the Board

•         The Group has a pre-determined target limit on probabilistic loss of
          capital for certain catastrophic events

•         A daily underwriting meeting is held to peer review all risks

•         Sophisticated pricing models are utilised in the underwriting process,
          and are updated frequently to latest versions

•         Computer modeling tools are deployed to simulate catastrophes and
          resultant losses to the portfolio

•         Reinsurance is purchased to mitigate losses in peak areas of exposure



The Group has established an internal audit function which is independent of the
underwriting process.  The head of internal audit reports directly to the Audit
Committee.  The internal audit function is required to perform risk reviews on
the underwriting function to ensure compliance with Group policies and required
procedures.



The Group establishes targets for the maximum proportion of capital, including
long term debt, that can be lost in a single extreme event.  As of June 30,
2006, the impact of a 1 in 100 year U.S. hurricane event was 20% of capital,
after collection of reinsurance and after payment and collection of
reinstatement premiums.  There can be no guarantee that the assumptions and
techniques deployed in calculating this figure are accurate. There could also be
an unmodeled loss which exceeds these figures.  In addition, a loss with an
occurrence probability of greater than 1 in 100 years could cause a larger loss
to capital.



The Group commenced underwriting in December 2005, but wrote an insignificant
amount of business for the period from incorporation to December 31, 2005.
Comparatives have therefore not been presented in the analysis provided in
section A: insurance risk.



Details of gross premiums written by line of business are provided below for the
six month period ending June 30, 2006:



                                $m                    %


property                     129.4                40.9

energy                       151.2                47.8

marine                        21.7                 6.9

aviation                      14.0                 4.4


total                        316.3               100.0



Details of gross premiums written by geographic area of risks insured are
provided below for the six month period ending June 30, 2006:





                                   $m                   %


worldwide offshore              111.8                35.3

USA and Canada                   79.5                25.1

worldwide (1)                    76.2                24.1

worldwide, excluding the US (2)  25.2                 8.0

middle east                       6.5                 2.1

far east                          6.1                 1.9

others                           11.0                 3.5

total                           316.3               100.0



(1) Worldwide comprises insurance and reinsurance contracts that insure or
reinsure risks in more than one geographic area.

(2) Worldwide, excluding the U.S. comprises insurance and reinsurance contracts
that insure or reinsure risks in more than one geographic area, but that
specifically exclude the United States of America and Canada.



Sections a to d below describe the risks in each of the four principal classes
of business written by the Group.



a. property



Gross premium written, for the six months through June 30, 2006:


                                                    $m

property retrocession                             86.4

property direct and facultative                   39.1

terrorism                                          3.6

property cat excess of loss                        0.3

total                                            129.4


Property retrocession is written on an excess of loss basis through treaty
arrangements.  Programs are generally written on a pillared basis, with separate
geographic zonal limits for risks in the U.S. and Canada and for risks outside
the U.S. and Canada.  The gross limit on exposure to property retrocession risks
in 2006 has been limited to $300 million per geographic zone in the aggregate.
As at June 30, 2006, the gross exposure is less than $300 million.  Reinsurance
has also been purchased to mitigate gross losses in the U.S. and Canada.
Property cat excess of loss may be written in a similar manner to property
retrocession but is not written on a pillared basis.  The Group is exposed to
large catastrophic losses such as wind and earthquake loss from assuming
property retrocession risks.  The Group's appetite and exposure guidelines to
large losses are set out on page 13.



Property direct and facultative is written for the full value of the risk, on a
primary or excess of loss basis.  Cover is generally provided to large
commercial enterprises with high value locations.  Perils covered are typically
fire, explosion, flood and business interruption, although catastrophe covers
for wind and earthquake damage may also be given in some cases.



Terrorism cover is provided for U.S. and worldwide property risks, but excludes
nuclear, chemical and biological coverage in most territories.



b. energy



Gross premium written, for the six months through June 30, 2006:


                                                    $m

gulf of mexico offshore energy                   120.6

worldwide offshore energy                         24.4

onshore energy                                     3.3

other energy                                       2.9

total                                            151.2



Energy risks are mostly written on a direct basis.  Gulf of Mexico energy
programs cover elemental (natural catastrophe) and non-elemental risks.  The
largest exposure is from hurricanes in the Gulf of Mexico.  Exposure to such
events is controlled and measured through loss modeling but the accuracy of this
exposure analysis is limited by the quality of data and effectiveness of the
modeling.  It is possible that a catastrophic event exceeds the expected event
loss.  The Group's appetite and exposure guidelines to large losses are set out
on page 13.  Policies have sub-limits on coverage for elemental losses, and
significant policy restrictions on other areas of cover such as business
interruption and control of well.  Reinsurance protection has been purchased to
protect a portion of loss from elemental energy claims. Non-elemental energy
risks include fire and explosion.



Worldwide offshore energy programs are generally for non-elemental risks.
Onshore energy risks can include onshore Gulf of Mexico and worldwide energy
installations and are largely subject to the same loss events as described
above.



Other energy primarily comprises insurance of energy installations under
construction.



c. marine



Gross premium written, six months through June 30, 2006


                                        $m

marine hull and total loss             5.8

marine P&I clubs                       4.7

marine excess of loss                  4.3

other marine                           6.9

total                                 21.7


Marine hull and total loss is generally written on a direct basis and covers
marine risks on a worldwide basis primarily for physical damage and loss.
Marine P&I is the reinsurance of The International Group of Protection and
Indemnity Clubs.  Marine excess of loss is generally written on a treaty basis.



Other marine includes marine war, which is direct insurance of loss of vessels
from war or terrorist attack, and insurance for marine property under
construction.  Marine cargo programs are not normally written.  The largest
exposure is from physical loss rather than from elemental loss events.



d. aviation

                                        $m


AV 52                                 14.0

other aviation                           -

total                                 14.0



Aviation AV52 is written on a direct basis and provides coverage for third party
liability resulting from acts of war or hijack against aircraft.



Other aviation business may include aviation hull war risks and industry loss
warranty programs in the future, although no such programs had been written by
June 30, 2006.



reinsurance

The Group, in the normal course of business and in accordance with its risk
management practices, seeks to reduce the loss that may arise from events that
could cause unfavourable underwriting results by entering into reinsurance
arrangements.  Reinsurance does not relieve the Group of its obligations to
policyholders.  Under the Group's reinsurance security policy, reinsurers are
generally required to be rated A- or better by A.M. Best.  The Group considers
reinsurers that are not rated or do not fall within the above rating category on
a case by case basis, and may require therefore collateral to be posted to
support obligations.  The Group monitors the credit worthiness of its reinsurers
on an ongoing basis.



The Group purchases excess of loss reinsurance, including industry loss warranty
covers, and proportional reinsurance.  To date, the reinsurance purchased
reduces the Group's net exposure to a large natural catastrophe loss in the U.S.
which is the Group's largest gross exposure to loss.  The Group has not
currently purchased reinsurance for risks outside the U.S.



There is no guarantee that reinsurance coverage will be available to meet all
potential loss circumstances, as it is possible that the cover purchased is not
sufficient.  Any loss amount which exceeds the program would be retained by the
Group.  Some parts of the reinsurance program have limited reinstatements
therefore the number of claims which may be recovered from second or subsequent
losses is limited.



insurance liabilities

For most insurance and reinsurance companies, the most significant judgment made
by management is the estimation of loss and loss adjustment expense reserves.
The estimation of the ultimate liability arising from claims made under
insurance and reinsurance contracts is a critical estimate for the Group.



Under generally accepted accounting principles, loss reserves are not permitted
until the occurrence of an event which may give rise to a claim.  As a result,
only loss reserves applicable to losses incurred up to the reporting date are
established, with no allowance for the provision of a contingency reserve to
account for expected future losses.  Claims arising from future catastrophic
events can be expected to require the establishment of substantial reserves from
time to time.



However, loss and loss adjustment expense reserves are maintained to cover the
Group's estimated liability for both reported and unreported claims.  Reserving
methodologies that calculate a point estimate for the ultimate losses are
utilised, and then a range is developed around the point estimate.  The point
estimate represents management's best estimate of ultimate loss and loss
adjustment expenses.  The Group's internal actuaries review the reserving
assumptions and methodologies on a quarterly basis with loss estimates being
subject to a semi-annual corroborative review by independent actuaries, using
generally accepted actuarial principles.



The extent of reliance on management judgment in the reserving process differs
as to whether the business is insurance or reinsurance, whether it is short-tail
or long-tail and as to whether the business is written on an excess of loss or
on a pro-rata basis.  Over a typical annual period, the Group expects to write
approximately 70% of programs on a direct basis and 30% as reinsurance.
Typically, over 80% of programs are expected to be written on an excess of loss
basis.  The Group does not currently write a significant amount of long-tail
business.



a. insurance versus reinsurance

Loss reserve calculations for direct insurance business are not precise in that
they deal with the inherent uncertainty of future contingent events.  Estimating
loss reserves requires management to make assumptions regarding future reporting
and development patterns, frequency and severity trends, claims settlement
practices, potential changes in the legal environment and other factors such as
inflation.  These estimates and judgments are based on numerous factors, and may
be revised as additional experience or other data becomes available or reviewed
as new or improved methodologies are developed or as current laws change.



Furthermore, as a broker market reinsurer for both excess of loss and
proportional contracts, management must rely on loss information reported to
brokers by primary insurers who must estimate their own losses at the policy
level, often based on incomplete and changing information.  The information
management receives varies by cedant and may include paid losses, estimated case
reserves, and an estimated provision for incurred but not reported losses ('IBNR
reserves').  Additionally, reserving practices and the quality of data reporting
may vary among ceding companies which adds further uncertainty to the estimation
of the ultimate losses.



b. short-tail versus long-tail

In general, claims relating to short tail property risks, such as those
underwritten by the Group, are reported more promptly by third parties than
those relating to long tail risks, including the majority of casualty risks.
However, the timeliness of reporting can be affected by such factors as the
nature of the event causing the loss, the location of the loss, and whether the
losses are from policies in force with primary insurers or with reinsurers.



c. excess of loss versus proportional

For excess of loss business, management are aided by the fact that each treaty
has a defined limit of liability arising from one event.  Once that limit has
been reached, there is no further exposure to additional losses from that treaty
for the same event.  For proportional treaties, generally an initial estimated
loss and loss expense ratio (the ratio of losses and loss adjustment expenses
incurred to premiums earned) is used, based upon information provided by the
insured or ceding company and/or their broker and management's historical
experience of that treaty, if any, and the estimate is adjusted as actual
experience becomes known.



d. time lags

There is a time lag inherent in reporting from the original claimant to the
primary insurer to the broker and then to the reinsurer, especially in the case
of excess of loss reinsurance contracts.  Also, the combination of low claim
frequency and high severity make the available data more volatile and less
useful for predicting ultimate losses.  In the case of proportional contracts,
reliance is placed on an analysis of a contract's historical experience,
industry information, and the professional judgment of underwriters in
estimating reserves for these contracts.  In addition, if available, reliance is
placed partially on ultimate loss ratio forecasts as reported by cedants, which
are normally subject to a quarterly or six month lag.



e. uncertainty

As a result of the time lag described above, an estimation must be made of IBNR
reserves, which consist of a provision for additional development in excess of
the case reserves reported by ceding companies, as well as a provision for
claims which have occurred but which have not yet been reported by ceding
companies.  Because of the degree of reliance that is necessarily placed on
ceding companies for claims reporting, the associated time lag, the low
frequency/high severity nature of much of the business that the Group
underwrites, and the varying reserving practices among ceding companies, reserve
estimates are highly dependent on management judgment and therefore uncertain.
During the loss settlement period, which may be years in duration, additional
facts regarding individual claims and trends often will become known, and
current laws and case law may change, with consequent impact on reserving.



The claim count on the types of insurance and reinsurance that the Group writes,
which are low frequency and high severity in nature, is generally low.



For certain catastrophic events there is greater uncertainty underlying the
assumptions and associated estimated reserves for losses and loss adjustment
expenses.  Complexity resulting from problems such as policy coverage issues,
multiple events affecting one geographic area and the resulting impact on claims
adjusting (including allocation of claims to event and the effect of demand
surge on the cost of building materials and labour) by, and communications from,
ceding companies, can cause delays to the timing with which the Group is
notified of changes to loss estimates.



In the six months to June 30, 2006, management were not notified or made aware
of any losses of a material size.  As such, at June 30, 2006 management's
estimates for IBNR represented approximately 100% of total loss reserves.  The
majority of the estimate relates to potential claims on non-elemental risks
where timing delays in cedant reporting may mean losses have occurred which
management were not made aware of by June 30, 2006.



B. financial risk disclosures

The Group is exposed if proceeds from financial assets are not sufficient to
fund obligations arising from its insurance contracts.



The Group segments its investment portfolio into two main components:  A
category to meet expected insurance liabilities ('core portfolio') and a
balancing category which represents funds in excess of those required to meet
expected insurance liabilities ('surplus portfolio').



The core portfolio needs to be sufficiently liquid to settle claims.  The core
portfolio is invested in fixed income securities and cash and cash equivalents
and with a bias towards shorter durations and higher quality assets.



The surplus portfolio is invested in fixed income, cash and cash equivalents and
a modest amount of equity securities.  Currently, the Group does not hold any
alternative investments such as hedge funds.



Investment guidelines are established by the Investment Committee of the Board
of Directors.  Separate investment guidelines exist for the core portfolio, the
surplus portfolio and the Group's consolidated portfolio.  Investment guidelines
set parameters within which investment managers must operate.  Important
parameters include guidelines on permissible assets, duration ranges, credit
quality, and maturity. Investment guidelines are monitored on a monthly basis.



Asset allocation is as follows:


                                              june 30, 2006                    december 31, 2005
                                          $m        $m        $m           $m          $m         $m
                                         core     surplus   total         core      surplus      total

fixed income securities                  434.0     432.5   866.5            -          -           -
equity securities                          -       86.9    86.9             -          -           -
cash                                     123.3     91.7    215.0         1,072.4       -        1,072.4
total                                    557.3     611.1   1,168.4       1,072.4       -        1072.4

                                           %         %        %             %          %           %
fixed income securities                  37.1      37.0      74.1                      -           -
equity securities                          -        7.4      7.4            -          -           -
cash                                     10.6       7.9      18.5         100.0        -         100.0
total                                    47.7      52.3    100.0          100.0        -         100.0



The investment mix of the fixed income portfolio is as follows:


                                              june 30, 2006                    december 31, 2005
                                            $m          $m        $m            $m           $m     $m
                                          core     surplus     total          core      surplus  total

U.S. treasuries                         35.1      57.2       92.3                -            -      -
U.S. government agencies               135.1      36.6       171.7               -            -      -
asset backed securities                 72.5      37.3       109.8               -            -      -
mortgage backed securities              82.4      242.5      324.9               -            -      -
corporate bonds                        101.1       8.9       160.0               -            -      -
other                                   7.8         -         7.8                -            -      -
total                                  434.0      432.5      866.5               -            -      -

                                             %           %         %             %            %      %
U.S. treasuries                         4.0        6.6       10.6                -            -      -
U.S. government agencies                15.6       4.2       19.8                -            -      -
asset backed securities                 8.4        4.3       12.7                -            -      -
mortgage backed securities              9.5       28.0       37.5                -            -      -
corporate bonds                         11.7       6.8       18.5                -            -      -
other                                   0.9         -         0.9                -            -      -
total                                   50.1      49.9       100.0               -            -      -



Both the core and surplus fixed income portfolios are managed by two external
investment managers with identical mandates.  The equity portfolio is managed by
one investment manager.  The equity portfolio is invested predominantly in U.S.
and Canadian securities in a diversified range of sectors.  The performance of
the managers is monitored on an on-going basis.



An analysis of the most important components of financial risk is detailed in a
to e below.



a. valuation risk

The Group's net asset value is directly impacted by movements in the value of
investments held.  Values can be impacted by movements in interest rates, credit
ratings, economic environment and outlook, and exchange rates.



The impact of a 10% fall in the value of the Group's equity portfolio at June
30, 2006 would be $8.6 million.  Valuation risk in the equity portfolio is
mitigated by adopting a deep value strategic approach and by diversifying the
portfolio across asset classes and geographic zones.



b. interest rate risk

The majority of the Group's investments comprise fixed income securities.  The
fair value of the Group's fixed income portfolio is inversely correlated to
movements in market interest rates.  If market interest rates fall, the fair
value of the Group's fixed income investments would tend to rise and vice versa.
  The sensitivity of the price of fixed income securities is indicated by its
duration(1).  The greater a security's duration, the greater its percentage
price volatility.



The sensitivity of the Group's fixed income portfolio at June 30, 2006 to
interest rate movements is as follows:


immediate shift in yield (basis points)                        %          $m

                                         
100                                                         -2.6      (22.4)
75                                                          -1.9      (16.8)
50                                                          -1.3      (11.2)
25                                                          -0.7       (5.6)
-25                                                          0.7         5.6
-50                                                          1.3        11.2
-75                                                          1.9        16.8
-100                                                         2.6        22.4


The Board limits interest rate risk on its investment portfolio by establishing
and monitoring duration ranges within investment guidelines.  The duration of
the fixed income portfolios at June 30, 2006 was 1.59 for the core portfolio and
3.59 for the surplus portfolio.





((1)) Duration is the weighted average maturity of a security's cash flows,
where the present values of the cash flows serve as the weights.





Insurance contract liabilities are not directly sensitive to the level of market
interest rates, as they are undiscounted and contractually non-interest bearing.



The Group has issued long-term debt as described in note 18.  The loan notes
bear interest at a floating rate plus a fixed margin of 3.7%.  The Group is
subject to interest rate risk on the coupon payments of the long-term debt.  The
Group has mitigated the interest rate risk by entering into swap contracts as
follows:


                                                             maturity               prepayment interest hedged(2)
                                                                 date                  date(1)

senior loan notes €24 million                           june 15, 2035           march 15, 2011             50%

subordinated loan notes $97 million                 december 15, 2035        december 15, 2011             50%



(1) The subordinated note can be prepaid from 16 December 2005, with a sliding
scale redemption price penalty which reduces to zero by 15 December 2011.

(2) The Group has entered into swaps to fix the interest rate on 50% of the
principal through the prepayment dates specified above.



The current Euribor interest rate on 50% of the senior loan notes has been fixed
at 2.96%.  The current LIBOR interest rate on 50% of the subordinated loan notes
has been fixed at 5.33%.  The Group remains exposed to interest risk on the
portion of the notes which have not been hedged.



c. liquidity risk

The Group can be exposed to daily calls on its available investment assets,
principally from insurance claims.  Liquidity risk is the risk that cash may not
be available to pay obligations when they are due without incurring an
unreasonable cost.



The maturity dates of the Group's fixed income portfolio at June 30, 2006 were
as follows:


                                                                          $m          $m         $m
                                                                        core     surplus      total

less than one year                                                       3.3           -        3.3
between one year and two years                                         169.3        19.9      189.2
between two and three years                                             55.6        26.4       82.0
between three and four years                                            63.6        29.1       92.7
between four and five years                                             30.5        45.5       76.0
over five years                                                        106.0       311.6      417.6
                                                                       428.3       432.5      860.8

perpetual and non-dated securities                                       5.7           -        5.7
total                                                                  434.0       432.5      866.5



Actual maturities may differ from contractual maturities because certain
borrowers have the right to call or pre-pay certain obligations with or without
call or prepayment penalties.



The Board limits liquidity risk in several ways.  First, a portion of the
investment portfolio is segregated for the short term liquidity requirements
arising from insurance obligations.  The core portfolio is highly liquid with
short maturity.  All core portfolio securities are quoted on major exchanges.
Secondly, the Board has established asset allocation and maturity parameters
within investment guidelines such that the vast majority of the Group's
investments are in high quality assets which could be converted into cash
promptly and at minimal expense.



d. currency risk

The Group currently underwrites out of a single location, Bermuda, however risks
are assumed on a worldwide basis.  Risks assumed are predominantly denominated
in U.S. dollars.  The Group is exposed to currency risk to the extent its assets
are denominated in different currencies to its liabilities.  The Group is also
exposed to non-retranslation risk on non-monetary assets such as unearned
premiums.  At each balance sheet date exchange gains and losses can impact the
consolidated income statement.



The Group has hedged the large majority of currency risk by closely matching the
U.S. dollar liabilities with U.S. dollar assets.  The Group's main foreign
currency exposure relates to its insurance obligations and the €24 million
senior notes long-term debt liability.  While the unhedged balances are not
large, in the second half of 2006, the Group expects to more closely hedge these
currency exposures by modestly increasing investments in non U.S. dollar assets
or holding larger balances of non U.S. dollar cash.



The Group's assets and liabilities, categorised by currency at their translated
carrying amount was as follows:


assets                                                    $m          $m          $m          $m          $m
                                                      U.S. $    sterling        euro       other       total

cash and cash equivalents                              213.2         0.5         1.2         0.1       215.0

accrued interest receivable                              7.9           -           -           -         7.9

investments                                            953.4           -           -           -       953.4

unearned premium on premium ceded                       60.4           -           -           -        60.4

deferred acquisition costs                              27.6         0.1         1.4         0.6        29.7

other receivables                                       80.6           -           -           -        80.6

inwards premium receivable from insureds               147.8         1.1        13.1         3.0       165.0

investment in associate                                 20.0           -           -           -        20.0

property, plant and equipment                            0.6           -           -           -         0.6


total assets as at june 30, 2006                     1,511.5         1.7        15.7         3.7     1,532.6




liabilities                                               $m          $m          $m          $m          $m
                                                      U.S. $    sterling        euro       other       total


losses and loss adjustment expenses                      7.1         0.1         0.2           -         7.4

unearned premiums                                      224.6         1.9        13.8         3.7       244.0

amounts payable to reinsurers                           32.0           -           -           -        32.0

deferred acquisition costs ceded                         5.6           -           -           -         5.6

other payables                                         124.2         0.2           -         0.3       124.7

accrued interest payable                                 0.4           -         0.1           -         0.5

long-term debt                                          97.0           -        30.1           -       127.1


total liabilities as at june 30, 2006                  490.9         2.2        44.2         4.0       541.3


assets                                                    $m          $m          $m          $m          $m
                                                      U.S. $    sterling        euro       other       total

cash and cash equivalents                            1,072.4           -           -           -     1,072.4

accrued interest receivable                              2.0           -           -           -         2.0

investments                                                -           -           -           -           -

unearned premium on premium ceded                          -           -           -           -           -

deferred acquisition costs                               0.5           -           -           -         0.5

other receivables                                        0.3           -           -           -         0.3

inwards premium receivable from insureds                 2.1           -           -           -         2.1

investment in associate                                    -           -           -           -           -

property, plant and equipment                            0.4           -           -           -         0.4


total assets as at december 31, 2005                 1,077.7           -           -           -     1,077.7




liabilities                                               $m          $m          $m          $m          $m
                                                      U.S. $    sterling        euro       other       total

losses and loss adjustment expenses                        -           -           -           -           -

unearned premiums                                        2.6           -           -           -         2.6

amounts payable to reinsurers                              -           -           -           -           -

deferred acquisition costs ceded                           -           -           -           -           -

other payables                                           2.2           -           -           -         2.2

accrued interest payable                                 0.4           -           -           -         0.4

long-term debt                                          97.0           -        28.4           -       125.4


total liabilities as at december 31, 2005              102.2           -        28.4           -       130.6




e. credit risk

Credit risk is the risk that a counterparty may fail to pay, or repay, a debt or
obligation.  The Group is exposed to credit risk on its fixed income investment
portfolio, its inwards premium receivable from insureds and cedants, and on any
amounts recoverable from reinsurers.



Credit risk on the fixed income portfolio is managed by establishing investment
guidelines that set parameters on the absolute credit ratings of holdings and
the concentration of holdings within credit rating bandings.  The guidelines
also place limits on the size of investment in a single issuer or class of
issuer.  Compliance with guidelines is regularly monitored.



Credit risk from reinsurance recoverables is primarily managed by review and
approval of reinsurer security by the Group's reinsurance security committee as
discussed on page 17.



The table below presents an analysis of the Group's major exposures to
counterparty credit risk, based on Standard & Poor's or equivalent rating.  The
table includes amounts due from policyholders and unsettled investment trades.
The quality of these receivables is not graded, but based on managements
historical experience there is limited default risk associated with these
amounts.  Outstanding claims, including IBNR, recoverable from reinsurers was
zero at June 30, 2006 and December 31, 2005, and therefore has not been
included.






                                  june 30, 2006                       december 31, 2005
                                    $m                   $m               $m                   $m
                          cash & fixed      premium & other     cash & fixed      premium & other
                                income          receivables                      income receivables
                                                                           

AAA                              927.3                    -          1,072.4                    -

AA+, AA, AA-                      30.2                    -                -                    -

A+, A, A-                         78.9                    -                -                    -

BBB+, BBB, BBB-                   38.7                    -                -                    -

other                              6.4                245.6                -                  2.1


                               1,081.5                245.6          1,072.4                  2.1



notes to the accounts

for the six months ended june 30, 2006



1.      general information



The Group is a provider of global property insurance and reinsurance products.
LHL was incorporated under the laws of Bermuda on October 12, 2005.  LHL is
listed on the Alternative Investment Market ('AIM'), a subsidiary market of the
London Stock Exchange.  The registered office of LHL is Clarendon House, 2
Church Street, Hamilton HM 11, Bermuda.  LHL has three wholly owned
subsidiaries: Lancashire Insurance Company Limited ('LICL'), Lancashire
Insurance Holdings (UK) Limited ('LIHUKL') and Lancashire Insurance Marketing
Services Limited ('LIMSL').  LICL is the Group's principal operating subsidiary
and was incorporated under the laws of Bermuda as a Class 4 insurer on October
28, 2005.  LICL provides insurance and reinsurance products to its customers,
with an emphasis on property, energy, marine and aviation lines of business.
LIMSL is authorised by the United Kingdom Financial Services Authority to
undertake insurance mediation activities.  LIMSL provides business introduction
and other support services to LICL, and was incorporated under the laws of the
United Kingdom on October 7, 2005.  LIHUKL is a holding company for two
non-operating wholly owned subsidiaries.



2.      segmental reporting


Management and the Board review the Group's business primarily by its four principal classes:  property, energy, marine 
and aviation.  Management has therefore deemed these classes to be its business and primary segments for the purposes of
segmental reporting.  Further sub classes of business are underwritten within each primary segment.  The Group commenced
underwriting in December 2005, but wrote an insignificant amount of business in the period from incorporation to 
December 31, 2005. Comparatives have therefore not been presented for segments.

revenue and expense by business segment

                            $m                    $m                    $m                    $m                    $m
                      property                energy                marine              aviation                 total

gross premiums written   129.4                 151.2                  21.7                  14.0                 316.3

analysed by geographical 
segment worldwide 
offshore                     -                  97.3                  14.5                     -                 111.8

USA and Canada            54.3                  25.0                   0.2                     -                  79.5

worldwide including the 
U.S.                      40.8                  19.8                   1.7                  13.9                  76.2

worldwide excluding the 
U.S.                      24.8                     -                   0.4                     -                  25.2

middle east                1.4                   4.6                   0.4                   0.1                   6.5

far east                   3.4                   0.2                   2.5                     -                   6.1

rest of world              4.7                   4.3                   2.0                     -                  11.0


total                    129.4                 151.2                  21.7                  14.0                 316.3


outwards reinsurance 
premiums                (39.8)                (31.2)                     -                     -                (71.0)

change in unearned 
premiums                (91.3)               (123.7)                (15.5)                (10.9)               (241.4)

change in unearned 
premiums ceded            32.3                  28.1                     -                     -                  60.4

insurance losses and 
loss adjustment expenses (2.1)                 (3.5)                 (1.8)                     -                 (7.4)

insurance acquisition 
expenses                 (3.1)                 (2.9)                 (1.0)                 (0.6)                 (7.6)


net underwriting profit   25.4                  18.0                   3.4                   2.5                  49.3


                            $m                    $m                    $m                    $m                    $m
                      property                energy                marine              aviation                 total

net investment return                                                                                             20.8

net foreign exchange gains (losses)                                                                              (1.1)

other operating expenses                                                                                        (24.2)

finance costs                                                                                                    (5.5)

profit before tax                                                                                                 39.3

loss ratio                6.9%                 14.3%                  29.0%                  0.0%                11.6%

acquisition cost ratio   10.1%                 11.9%                  16.1%                 19.4%                11.8%

expense ratio                -                     -                      -                     -                37.6%


combined ratio           17.0%                 26.2%                  45.1%                 19.4%                61.0%



assets and liabilities by business segment


assets                      $m                    $m                     $m                    $m                   $m
                      property                energy                 marine              aviation                total

attributable to 
business segments        110.4                 123.8                   14.6                  12.6                261.4

other assets                                                                                                   1,271.2

total assets                                                                                                   1,532.6

liabilities                 $m                    $m                     $m                    $m                   $m


attributable to 
business segments        100.7                 160.1                   17.3                  10.9                289.0

other liabilities            -                     -                      -                     -                252.3

total liabilities                                                                                                541.3

total net assets                                                                                                 991.3


The Group's net assets are located primarily in Bermuda.


3.      investment return


The total investment return for the Group is as follows:
                                                                                          2006         2005
                                                                                            $m           $m
investment income

- interest on fixed income securities                                                     10.8            -

- net amortisation of premium (discount)                                                   0.4            -

- interest income on cash and cash equivalents                                            13.0          2.1

net investment income                                                                     24.2          2.1

net realised gains (losses)

- fixed income securities                                                                (3.4)            -

net realised gains (losses)                                                              (3.4)            -

unrealised gains (losses) recognised in shareholders' equity

- fixed income securities                                                                (8.4)            -

- equity securities                                                                        2.7            -

net unrealised gains (losses) recognised in shareholders' equity                         (5.7)            -

total investment return                                                                   15.1          2.1


4.      insurance acquisition expenses

                                                                                          2006         2005
                                                                                            $m           $m


insurance acquisition expenses                                                            31.2          0.5

changes in deferred insurance acquisition expenses                                      (23.6)        (0.5)


total                                                                                      7.6            -


5.   other operating expenses


                                                                                          2006         2005
                                                                                            $m           $m


operating expenses unrelated to underwriting                                              13.6          1.6

equity based compensation                                                                 10.6          8.4

total                                                                                     24.2         10.0



6.   employee benefits


                                                                                          2006         2005
                                                                                            $m           $m


wages and salaries                                                                         1.9          0.2

pension costs                                                                              0.2            -

other benefits                                                                             2.4            -

equity based compensation                                                                 10.6          8.4


total                                                                                     15.1          8.6


As at June 30, 2006, the Group had 25 (2005 - 4) employees.


equity based compensation


There are two forms of equity based compensation: warrants and a long term
incentive plan.



On admission to AIM, warrants to purchase common shares were issued for
immediate allocation to certain members of management or reserved for later
allocation to employees of the Group.  There are two forms of warrant:
Management Team Ordinary Warrants and Management Team Performance Warrants.



All warrants issued to management will expire ten years from the date of issue
and will be exercisable at an initial price per share of US$5.00 equal to the
price per share paid by investors in the initial public offering.  Settlement is
at the discretion of the Group and may be in cash or shares.



management team ordinary warrants ('ordinary warrants')

Ordinary warrants do not have associated performance criteria. 25% of such
warrants vested immediately upon issuance.  Thereafter, 25% of such warrants
will vest on the first, second and third anniversary of the grant date.



On December 16, 2005, ordinary warrants to purchase 12,708,695 common shares
were issued, representing the full allocation of ordinary warrants.



management team performance warrants ('performance warrants')

Performance warrants vest over a four year period and are dependent on certain
performance criteria with specific measurement dates of December 31, 2007,
December 31, 2008 and December 31, 2009.  Half of these warrants will vest only
on achievement of a fully diluted book value per share in comparison to a
planned appreciation threshold of between 70% and 100% at certain dates.  The
remaining half of these warrants will vest only on achievement of an IRR in
comparison to a planned IRR of between 70% and 100% at certain dates.



On 16 December, 2005, performance warrants to purchase 7,625,218 common shares
were issued, representing the full allocation of performance warrants.



The fair value of each warrant was estimated on the date of grant using the
Black-Scholes option-pricing model.  Assumptions used for valuation of these
grants were as follows: risk free interest rate of 4.93%; an expected life of
ten years; volatility of 30% being the maximum contractual rate; performance
targets will be met; dividend yield of nil due to contractual dividend
protection; the Group will settle in shares; no forfeitures, other than leavers
which are assumed to be 10% of total employees, and no dilutive events.


Warrants                                                                                Weighted
                                                              Number                     Average
                                                            Thousands                Exercise Price

                                                                                           US$

Allocated as at December 31, 2005                             14,463                      $5.00
Allocated during the period                                   2,567                       $5.00
Allocated as at June 30, 2006                                 17,030                      $5.00
Exercisable at June 30, 2006 and December 31, 2005            2,498                         -



The fair value of warrants granted for the period ended June 30, 2006 was $2.62
(2005 - $2.62) per share.  A share-based payment expense of $9.8 million (2005 -
$8.4 million) is included in other operating expenses in the interim
consolidated income statement.



long term incentive plan ('LTIP')

Options may be granted under the LTIP at the discretion of the remuneration
committee. Options granted under the LTIP are limited to 5% of the common share
capital in issue at the date of grant.  All options issued will expire ten years
from date of issue and the exercise price is equal to or greater than the
average market value of the shares on the twenty previous trading days prior to
grant. 25% of such options vested immediately upon issuance.  Thereafter, 25% of
such options will vest on the first, second and third anniversary of the grant
date. There are no associated performance criteria.



On March 9, 2006, certain members of staff were issued options to purchase
2,249,439 common shares.



The fair value of each option was estimated on the date of grant using the
Black-Scholes option-pricing model.  Assumptions used for valuation of these
grants were as follows: risk free interest rate of 5.125%; an expected life of
six years; volatility of 30% being the maximum contractual rate; performance
targets will be met; dividend yield of nil due to contractual dividend
protection; the Group will settle in shares; no forfeitures, other than leavers
which are assumed to be 10% of total employees, and no dilutive events.


Options                                                                                 Weighted
                                                              Number                     Average
                                                            Thousands                Exercise Price

                                                                                           US$

Granted during the period and outstanding at June 30,         2,249                       $5.65
2006
Exercisable at June 30, 2006                                    -                           -



The fair value of options granted during the period ended June 30, 2006 was
$2.27 per share.  A share-based payment expense of $0.8 million (2005 - $nil) is
included in other operating expenses in the interim consolidated income
statement.



7. results of operating activities



Results of operating activities are stated after charging the following amounts:


                                                                                          2006         2005
                                                                                            $m           $m


depreciation on owned assets                                                               0.1            -

operating lease charges                                                                    0.2            -

auditors remuneration

- group audit fees                                                                         0.4          0.1

- other services                                                                           0.3          0.6


total                                                                                      1.0          0.7



Fees paid to the Group's auditors for other services are approved by the Group's
audit committee. Such fees comprise the following amounts:

                                                                                          2006         2005
                                                                                            $m           $m


taxation advice                                                                            0.1            -

FSA regulatory advice                                                                      0.2            -

other                                                                                        -          0.6


total                                                                                      0.3          0.6



8. tax



Bermuda

The Group has received an undertaking from the Bermuda government exempting it
from all local income, withholding and capital gains taxes until March 28, 2016.
  At the present time no such taxes are levied in Bermuda.



United States

The Group does not consider itself to be engaged in trade or business in the
United States and, accordingly, does not expect to be subject to United States
taxation.



United Kingdom

The UK subsidiaries are subject to normal UK tax on all profits.  For the period
ended June 30, 2006 there was no corporation tax liability.



9. cash and cash equivalents


                                                                                          2006         2005
                                                                                            $m           $m


cash at bank and in hand                                                                  72.6         12.2

cash equivalents                                                                         142.4      1,060.2


total                                                                                    215.0      1,072.4



Cash equivalents have an original maturity of three months or less.  The
carrying amount of these assets approximates to their fair value.



Cash and cash equivalents totaling $10.5 million (2005 - $5.4 million) were on
deposit in various trust accounts for the benefit of policyholders or
counterparties to agreements to cover their credit risk.



10. investments


as at june 30, 2006                                        $m             $m             $m            $m
                                                      cost or          gross          gross     estimated
                                                    amortised     unrealised     unrealised          fair
                                                         cost           gain           loss         value

fixed income

- U.S. treasuries                                        93.2            0.1          (1.0)          92.3

- U.S. government agencies                              173.1              -          (1.4)         171.7

- asset backed securities                               110.5              -          (0.7)         109.8

- mortgage backed securities                            328.1            0.4          (3.6)         324.9

- corporate bonds                                       162.2              -          (2.2)         160.0

- other                                                   7.8              -              -           7.8


                                                        874.9            0.5          (8.9)         866.5

equity securities                                        84.2            4.3          (1.6)          86.9


total                                                   959.1            4.8         (10.5)         953.4



Equity securities are generally deemed non-current.  Fixed income maturities are
presented in the risk disclosures section.



In 2005 the Group's assets were held entirely in cash and cash equivalents.
Comparatives for the above table have therefore not been presented.



11. investment in associate



On June 15, 2006 the Group made an investment of $20.0 million which represents
a 21% interest in Sirocco Holdings Limited ('Sirocco'), a company incorporated
in Bermuda. Sirocco's operating subsidiary, Sirocco Reinsurance Limited ('
Sirocco Re'), is authorised as a Class 3 insurer by the Bermuda Monetary
Authority. Sirocco Re was established to assume Gulf of Mexico energy risks from
the Group.  Sirocco is an unquoted investment and its shares do not trade in any
active market.  Sirocco is carried at $20.0 million, representing management's
best estimate of fair value at June 30, 2006.


                                                                     2006
                                                                       $m


as at january 1, 2006                                                   -

acquisition                                                          20.0


as at june 30, 2006                                                  20.0



Investments in associates are generally deemed non-current.  Key financial
information for Sirocco for the period ending June 30, 2006 is as follows:


                                                                       $m

assets                                                              116.9

liabilities                                                          19.4

revenues                                                              3.1

profit (loss)                                                         2.5



12. insurance contracts and reinsurance assets


insurance liabilities                                                       $m               $m          $m
                                                                 losses & loss         unearned
                                                                    adjustment         premiums       
                                                                      expenses                        total
                                                                                       
as at october 12, 2005 (date of incorporation)                               -                -           -

movement in period                                                           -              2.6         2.6

exchange adjustments                                                         -                -           -


as at december 31, 2005                                                      -              2.6         2.6

movement in period                                                         7.4            241.4       248.8

exchange adjustments                                                         -                -           -


as at june 30, 2006                                                        7.4            244.0       251.4


reinsurance assets                                                          $m               $m          $m
                                                                      unearned      reinsurance
                                                                      premiums          payable       total

as at october 12, 2005 (date of incorporation)                               -                -           -

movement in period                                                           -                -           -

exchange adjustments                                                         -                -           -


as at december, 31 2005                                                      -                -           -
movement in period                                                        60.4           (32.0)        28.4

exchange adjustments                                                         -                -           -


as at june 30, 2006                                                       60.4           (32.0)        28.4



Further information on the calculation of loss reserves and the risks associated
with them is provided in the risk disclosures section, which starts on page 13.
The risks associated with general insurance contracts are complex and do not
readily lend themselves to meaningful sensitivity analysis.  The impact of an
unreported event could lead to a significant increase in our loss reserves.
Management believe that the loss reserves established as at June 30, 2006 are
adequate, however a 20% increase in unpaid losses would lead to a $1.4m (2005 -
$nil) increase in loss reserves.



The split of losses and loss adjustments expenses between notified outstanding
losses and losses incurred but not reported is shown below:


                                                               2006         2005
                                                                 $m           $m


outstanding losses                                                -            -

losses incurred but not reported                                7.4            -


losses and loss adjustment expense reserves                     7.4            -



It is estimated that 100% of the losses and loss adjustment expenses above will
settle in the next 12 months.



claims development

The development of insurance liabilities is indicative of the Group's ability to
estimate the ultimate value of its insurance liabilities.  The Group began
writing insurance and reinsurance business in December 2005.  Due to the
underlying risks and lack of known loss events occurring during the period to
December 31, 2005, the Group does not expect to incur any losses from coverage
provided in 2005.  Accordingly, a loss development table has not been included.



13. insurance and other receivables


                                                                                          2006         2005
                                                                                            $m           $m


inwards premium receivable from insureds and cedants                                     165.0          2.1

other receivables                                                                         80.6          0.3

accrued interest receivable                                                                7.9          2.0


total receivables                                                                        253.5          4.4



Other receivables consist primarily of unsettled investment trades.  All
receivables are considered current other than $0.2 million (2005 - $nil) related
to multi-year contracts.  The carrying value approximates fair value due to the
short term nature of the receivables.  There are no provisions in place for
impairment or irrecoverable balances.  There is no significant concentration of
credit risk within the Group's receivables.



14. deferred acquisition costs



The reconciliation between opening and closing deferred acquisition costs is
shown below:

                                                                              $m


balance as at october 12, 2005 (date of incorporation)                         -

movement in period                                                           0.5


balance as at december 31, 2005                                              0.5

movement in period                                                          29.2


balance as at june 30, 2006                                                 29.7



15. reinsurance and other payables


                                                              2006          2005

                                                                $m            $m


amounts payable to reinsurers                                 32.0             -

other payables                                               124.7           2.2

total payables                                               156.7           2.2



Other payables consist primarily of unsettled investment trades.  All payables
are considered current.  The carrying value approximates fair value due to the
short-term value of the payables.



16. deferred acquisition costs ceded



The reconciliation between opening and closing deferred acquisition costs ceded
is shown below:

                                                                              $m


balance as at october 12, 2005 (date of incorporation)                         -

movement in period                                                             -


balance as at december 31, 2005                                                -

movement in period                                                           5.6


balance as at june 30, 2006                                                  5.6


17. property, plant and equipment
                                                                              IT
                                                                       equipment

                                                                              $m
cost

as at october 12, 2005 (date of incorporation)                                 -

additions                                                                    0.4

as at december 31, 2005                                                      0.4

accumulated depreciation

as at october 12, 2005 (date of incorporation)                                 -
                                                                               
charge for the period                                                          -

as at december, 31 2005                                                      0.4

net book value

as at october 12, 2005 (date of incorporation)                                 -

as at december 31, 2005                                                      0.4


                                                                              IT
                                                                       equipment

                                                                              $m
cost

as at january 1, 2006                                                        0.4

additions                                                                    0.3

as at june 30, 2006                                                          0.7

accumulated depreciation

as at january 1, 2006                                                          -

charge for the period                                                        0.1

as at june 30, 2006                                                          0.1

net book value

as at january 1,2006                                                         0.4

as at june 30, 2006                                                          0.6


18. long term debt and financing arrangements


                                                               2006         2005

                                                                 $m           $m


senior loan note of €12.0 million                              15.1         14.2

senior loan note of €12.0 million                              15.0         14.2

subordinated loan note of $97.0 million                        97.0         97.0


carrying value and fair value                                 127.1        125.4



On December 15, 2005 the Group issued $97 million in aggregate principal amount
of subordinated loan notes and €24 million in aggregate principal amount of
senior loan notes ('long-term debt') at an issue price of $1,000 and €1,000 of
their principal amounts respectively.



The Euro senior loan notes are repayable on June 15, 2035 with a prepayment
option available from March 15, 2011.  Interest on the principal is based on a
set margin (3.7%) above Euribor and is payable quarterly.



The US dollar subordinated loan notes are repayable on December 15, 2035 with a
sliding scale redemption price from December 16, 2005.  Interest on the
principal is based on a set margin (3.7%) above Libor and is payable quarterly.



The Group is exposed to cash flow interest rate risk and currency risk.  Further
information is provided in the risk disclosures section.



The interest accrued on the loans payable was $0.5 million (2005 - $0.4 million)
at the balance sheet date.



Due to the long term nature of the loans and the floating interest rates, the
carrying value approximates fair value.



letters of credit

As LICL is not an admitted insurer or reinsurer throughout the U.S., the terms
of certain contracts require LICL to provide letters of credit to policyholders
as collateral.  On May 17, 2006, LICL entered into a syndicated collateralised
three year credit facility in the amount of $350 million.  This facility is
available for the issue of letters of credit to ceding companies.  It also
contains a $75m loan sub-limit available for general corporate purposes.  As at
June 30, 2006 no letters of credit had been issued and there was no outstanding
debt under this facility.



19. derivative financial instruments



The Group hedges a portion of its floating rate borrowings using interest rate
swaps to transfer floating to fixed rate.  These instruments are held at fair
value through the consolidated income statement.  During the period, $nil (2005
- $nil) was credited to other income in respect of the interest rate swap.  The
net fair value position to the Group was $nil (2005 - $nil).  The Group has the
right to net settle this instrument.  The next cash settlement due on this
instrument is negligible (2005 - $nil) and is due on September 15, 2006.



20. share capital


authorised ordinary shares of $0.50 each                                                 number           $m

as at december 31, 2005 and june 30, 2006                                         3,000,000,000        1,500


allocated, called up and fully paid                                                      number           $m


as at october 12, 2005 (date of incorporation)                                                -            -

shares issued                                                                       195,713,902         97.9


as at december 31, 2005 and june 30, 2006                                           195,713,902         97.9



LHL issued 16,000,000 new shares on October 27, 2005 as part of its initial
capitalisation and launch.  On December 9, 2005, LHL's outstanding shares were
consolidated on a 5:1 basis into 3,200,000 shares.  On December 16, 2005, an
aggregate of 192,513,902 new shares were issued as part of LHL's private
placement in the U.S. and initial public offering in the U.K., which included
shares issued on the exercise of an over-allotment option.  As a result of all
the shares issued, a total of $978.6 million was raised, $97.9 million of which
is included in share capital and $880.7 million of which was included in share
premium, net of $19.9 million of offering expenses, formation expenses and
warrants issued to management, founders and a sponsor.



21. warrants and options


                                                                  management        management
                                                           ordinary warrants       performance
                                     founder       sponsor                            warrants
                                    warrants      warrants                                         options
                                      number        number            number            number      number
                                                                                                    
as at october 12, 2005 (date
of incorporation)
                                           -             -                 -                 -           -
issued
                                  17,791,919     7,625,217        12,708,695         7,625,218           -
exercised
                                           -             -                 -                 -           -
as at december 31, 2005           17,791,919     7,625,217        12,708,695         7,625,218           -
issued                                     -             -                 -                 -   2,249,439

exercised                                  -             -                 -                 -           -
as at june 30, 2006               17,791,919     7,625,217        12,708,695         7,625,218   2,249,439



warrants

All warrants issued will expire ten years from the date of issue and are
exercisable at an initial price per share of US$5.00 equal to the price per
share paid by investors in the initial public offering.  Settlement is at the
discretion of the Group and may be in cash or shares. The warrant holder may
elect a cashless exercise. The method of settlement is at the discretion of the
Group and may be in cash or shares.



founders

The Group's founders provided industry expertise, resources and relationships
during the fourth quarter of 2005.  For the founders position and consideration,
the Group issued warrants to certain founding shareholders to purchase in the
aggregate, up to 17,791,919 common shares.  These warrants were granted on
December 12, 2005 and were fully vested and exercisable upon issuance.



sponsor

In consideration for incorporation services received, warrants have been issued
to Benfield Advisory Limited to purchase 7,625,217 common shares.  These
warrants were granted on December 16, 2005 and were fully vested and exercisable
upon issuance.



Management warrants and options are discussed in note 6.



22. lease commitments



The Group has payment obligations in respect of operating leases for certain
items of office equipment and office space.  Operating lease expenses for the
period were $0.2 million (2005 - $nil).  Lease payments under non-cancellable
operating leases are as follows:


                            2006                 2005

                            $m                    $m


due in less than one year    -                     -

due between one and five 
years                      1.9                     -
                                    
due in more than five 
years                      2.4                     -


total                      4.3                     -



23. earnings per share



Basic earnings or loss per share amounts are calculated by dividing net profit
or loss for the period attributable to shareholders by the weighted average
number of common shares outstanding during the year.



Diluted earnings or loss per share amounts are calculated by dividing the net
profit or loss attributable to shareholders by the weighted average number of
common shares outstanding during the year plus the weighted average number of
common shares that would be issued on the conversion of all dilutive potential
common shares into common shares.



The following reflects the loss and share data used in the basic and diluted
loss per share computations:


                               2006                    2005
                                 $m                      $m


Profit (loss) for the period 
attributable to shareholders   39.3                  (11.6)


                                                                            Number of       Number of
                                                                               shares          shares
                                                                            Thousands       Thousands

Basic weighted average number of shares                                       195,714          48,320
Potentially dilutive shares related to share-based compensation                 4,195           5,733

Diluted weighted average number of shares                                     199,909          54,053



Share based payments are only treated as dilutive when their conversion to
common shares would decrease earnings per share or increase loss per share from
continuing operations.  In the prior period, incremental shares from the assumed
exercising of warrants are not included in calculating the diluted earnings or
loss per share as it would drive the loss per share further negative.



24. related party disclosures



The interim consolidated financial statements include Lancashire Holdings
Limited and the subsidiaries listed below:


Name                                                                 Domicile

Lancashire Insurance Company Limited                                 Bermuda
Lancashire Insurance Marketing Services Limited                      United Kingdom
Lancashire Holdings Financing Trust I                                United States
Lancashire Insurance Holdings (UK) Limited                           United Kingdom
Lancashire Insurance Services (UK) Limited                           United Kingdom
Lancashire Insurance Services Limited                                United Kingdom



All subsidiaries are wholly owned, either directly or indirectly.



The Group has issued loan notes via a trust vehicle - Lancashire Holdings
Financing Trust I (the 'Trust') (see Note 18).  The Group has 100% of the voting
rights in the Trust, provided that there is no default on the loan notes.  While
the ability of the Group to influence the actions of the Trust is limited by the
Trust Agreement, the Trust was set up by the Group with the sole purpose of
issuing the loan notes.  The Trust is in essence controlled by the Group,
operates exclusively for the benefit of the Group, and is therefore
consolidated.



key management compensation



Remuneration for key management for the period ending June 30, 2006 was as
follows:


                            2006                 2005
                              $m                   $m

short-term compensation      0.8                    -

share based compensation     7.5                    5.2

total                        8.3                    5.2



transactions with directors and shareholders



Significant shareholders have a representation on the Board of Directors.
During the period the Group paid $0.3 million (2005 - $nil) in directors' fees
and expenses.  A further $0.2 million (2005 - $nil) was paid in respect of
monitoring fees for significant shareholders pursuant to Monitoring Agreements,
the terms of which are as disclosed in the application to list on AIM.



transactions with associates



During the period the Group ceded $22.2 million (2005 - $nil) of premium to
Sirocco and received $4.3 million (2005 - $nil) of commission income.



transactions with sponsor



During the period the Group incurred net brokerage and consulting costs of $4.5
million with Benfield Group.



25. non-cash transactions



Accrued formation expenses of $nil (2005 - $0.9 million) have been recorded
directly in shareholders' equity.  This amount represents a non-cash transaction
and therefore is not included within the change in operational assets and
liabilities in the consolidated cashflow statement.



26. statutory requirements and dividend restrictions



As a holding company, LHL relies on dividends from its subsidiaries to provide
cash flow required for debt service and dividends to shareholders.  LICL's
ability to pay dividends and make capital distributions is subject to certain
regulatory restrictions based principally on the amount of LICL's premiums
written and reserves for losses and loss expenses, subject to an overall minimum
solvency requirement of $100 million.  LICL is required to maintain a minimum
statutory liquidity ratio.  At June 30, 2006, LICL's statutory capital and
surplus was $1,090.8 million (2005 - $1,069.6 million) and the minimum amount of
statutory capital and surplus required to be maintained was $100 million.
Statutory capital and surplus is different from shareholders' equity due to
certain items that are capitalised under IFRS but expensed, have a different
valuation basis, or are not admitted under the Bermuda Insurance Act 1978 and
related Regulations (the 'Act').



In addition, LICL is required to maintain a minimum liquidity ratio, whereby
relevant assets, as defined in the Act, must exceed 75% of relevant liabilities.
 As at June 30, 2006 and December 31, 2005 the liquidity ratio was met.



27. presentation



Certain amounts in the December 31, 2005 consolidated financial statements have
been re-presented to conform with the current year's presentation and format.
These changes in presentation have no effect on the previously reported net
loss.



28. subsequent events



On July 21, 2006 the UK Financial Services Authority ('FSA') notified the Group
that it is minded to grant authorisation to a new underwriting company to be
based in London.  The Group expects to satisfy the remaining conditions of the
FSA approval in due course and commence underwriting shortly thereafter.  The
new underwriting company will be capitalised from existing resources and will
not change the existing Group business plan or lines of business.


                           INDEPENDENT REVIEW REPORT


TO THE SHAREHOLDERS

LANCASHIRE HOLDINGS LIMITED


Introduction



We have been instructed by Lancashire Holdings Limited (the 'Company') to review
the financial information for the six months ended 30 June 2006 which comprises
of the Consolidated Income Statement, Consolidated Balance Sheet, Consolidated
Cash Flow Statement, Consolidated Statement of Changes in Equity and the related
notes 1 to 28.  We have read the other information contained in the interim
report and considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.



This report is made solely to the Company having regard to guidance contained in
International Standard on Review Engagements 2410, 'Review of Interim Financial
Information Performed by the Independent Auditor of the Entity'.  To the fullest
extent permitted by the law, we do not accept or assume responsibility to anyone
other than the Company, for our work, for this report, or for the conclusions we
have formed.



Directors' responsibilities



The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors.  The directors
are responsible for preparing the interim report as required by the AIM Rules
issued by the London Stock Exchange.



Review work performed



We conducted our review in accordance with International Standard on Review
Engagements 2410, 'Review of Interim Financial Information Performed by the
Independent Auditor of the Entity'.  A review consists principally of making
enquiries of management and applying analytical procedures to the financial
information and underlying financial data, and based thereon, assessing whether
the accounting policies and presentation have been consistently applied, unless
otherwise disclosed.  A review excludes audit procedures such as tests of
controls and verification of assets, liabilities and transactions.  It is
substantially less in scope than an audit performed in accordance with
International Standards on Auditing and therefore provides a lower level of
assurance than an audit.  Accordingly we do not express an audit opinion on the
financial information.



Review conclusion



On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2006.


August 2, 2006
Chartered Accountants


Shareholder information



The additional information consisting of the shareholder information and
directors and advisers has been prepared from the records of the Group. While it
does not form part of the interim statement, it should be read in conjunction
with it and with the responsibilities section of the independent review report
thereon.


Financial Calendar


2006

Fourth quarter             Trading release


2007


February / March         Announcement of results for the year ending 31 December 2006


Shareholder enquiries, register and website


Please contact us at [e-mail] or, for enquiries concerning share
registration, call our Registrar, Capita IRG (Offshore) Limited on
01534-463-2363. The Group's website can be accessed at www.lancashire.bm


Directors and Advisers


Directors                                           Registered office

Robert Spass (Chairman)*                            Clarendon House

Richard Brindle (CEO)                               2 Church Street

Neil McConachie                                     Hamilton HM 11

Ralf Oelssner*                                      Bermuda

William Spiegel*

Barry Volpert*


Audit Committee                                     Auditors

Robert Spass (Chairman)                             Ernst & Young

Ralf Oelssner                                       P.O. Box 463

William Spiegel                                     Hamilton HM HX

                                                    Bermuda

Remuneration Committee                              Registrar

William Spiegel (Chairman)                          Capita IRG (Offshore) Limited

Ralf Oelssner                                       Liberation Square

                                                    1/3 The Esplanade

Nomination Committee                                St. Helier

Robert Spass (Chairman)                             Jersey

Richard Brindle

Barry Volpert                                       Investment Committee

                                                    Robert Spass (Chairman)

Secretary                                           Neil McConachie

Gregory Lunn                                        Barry Volpert


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