Q2 2007 Results

Lancashire Holdings Limited
06 August 2007

                          Lancashire Holdings Limited



        Fully converted book value grows 5.4% in Q2, 13.0% year to date

          Gross written premiums grow 32.8% in Q2, 42.7% year to date

                 Combined ratio 56.6% in Q2, 52.2% year to date



Hamilton, Bermuda, 6 August 2007


Lancashire Holdings ('Lancashire' or 'the Company') today announces its results
for the second quarter of 2007 and the six month period ended 30 June 2007.


Despite a backdrop of significant industry insurance losses and challenging
investment markets, Lancashire has continued to generate excellent growth in
book value.


Financial highlights for the second quarter of 2007:


•     Fully converted book value per share grows 5.4% over the quarter;


•     Gross written premiums of $270.8 million, an increase of 32.8% from the
      second quarter of 2006. Net written premiums increased 51.6%;


•     Loss ratio of 34.4% and a combined ratio of 56.6%;


•     Total annualised investment return of 3.8% for the second quarter,
      including net investment income, realized gains and losses, and unrealized
      gains and losses;


•     Net income after tax of $82.5 million, $0.40 diluted earnings per share,
      or £0.20 diluted earnings per share.


Financial highlights for the six months to 30 June 2007:


•     Fully converted book value per share grows 13.0% for the first half of
      2007, bringing the rolling 12 month growth in fully converted book value 
      per share to 27.1%;


•     Gross written premiums of $451.5 million, an increase of 42.7% from the
      first half of 2006. Net written premiums increased 53.3%;


•     Loss ratio of 28.9% and a combined ratio of 52.2%;


•     Total annualised investment return of 5.3% for the six months to 30 June
      2007, including net investment income, realized gains and losses, and 
      unrealized gains and losses;


•     Net income after tax of $170.4 million for the six months to 30 June,
      2007, $0.83 diluted earnings per share, or £0.42 diluted earnings per 
      share.


Richard Brindle, Group Chief Executive Officer, commented:


'In both relative and absolute terms, Lancashire has enjoyed an excellent first
half of 2007. A 13% return on equity to date is evidence that our underwriting
judgment is sound and our risk management is robust. In addition to events in
Australia and Japan, we were tested by the June U.K. flooding; a loss which, on
current estimates, ranks in the top 10 of non-U.S. catastrophe events in recent
memory. Despite these events, Lancashire produced combined ratios of 56.6% and
52.2% for the quarter and year to date, respectively. Our investment portfolio
also stood up well, reflecting our strategy to keep duration short and credit
quality high. We maintain a low risk tolerance on investments, and do not
currently hold any sub-prime or CDO securities.'


'When we started this business, we chose a different path from other
post-Katrina market entrants and indeed from many existing companies. It was
assumed we would be a mono-line property cat reinsurer. In fact, the Lancashire
strategy is entirely different. Our approach is to write a diversified book of
direct specialty insurance. We have built an excellent team, broadened our
platform beyond Bermuda within nine months and established a sophisticated
framework of operations thoroughly grounded in enterprise-wide risk management
principles. Today, we're very pleased to have completed our transition to an
established major specialty insurer. Our start-up days are well and truly over.'


Underwriting results


Gross written premiums increased 32.8% in the second quarter of 2007 compared to
the same period in 2006. In 2007 to date, gross written premiums increased 42.7%
compared to the first six months of 2006. The main drivers were the UK operating
platform, which began underwriting in late 2006, and a substantial increase in
submission count. All segments experienced an increase in premiums written.
Direct and facultative property and worldwide energy classes in particular
experienced the largest growth.


In general, rates continue to soften and this is expected to continue in the
absence of significant industry losses. However, in the majority of classes
underwritten, rates and terms remain good overall.


In the quarter and for the year to date, the amount of premium ceded was similar
to the prior year periods, reflecting a slightly higher retention rate in 2007
than 2006. Net written premiums increased 51.6% in the second quarter of 2007
compared to the second quarter of 2006, and increased 53.3% year to date over
the same period in 2006.


Net earned premiums as a proportion of net written premiums were 75% in the
second quarter of 2007, and 78% in the six months to 30 June 2007. This ratio is
reflective of a growing portfolio and is expected to gradually increase as the
year progresses.


The loss ratios of 34.4% and 28.9% for the three and six months to 30 June 2007,
respectively, reflect a very good underwriting performance in all segments.
Lancashire does not currently expect to incur losses from the June UK flooding.


Investments


Net investment income was $18.6 million for the second quarter, an increase of
46.5% over the second quarter of 2006. Net investment income was $35.3 million
in the six months to 30 June 2007, an increase of 45.9% over the first half of
2006. The increase in investment income is primarily due to high net operating
cashflow, resulting in higher net invested assets.


Total investment return, including net investment income, net realized gains and
losses and net unrealized gains and losses, was $12.6 million in the quarter and
$30.5 million for the year to date. Total investment return was lower than net
investment income due primarily to weak fixed income markets in the second
quarter. This weakness was mitigated by Lancashire's strategy to maintain
duration short and credit quality high.


Capital


At 30 June 2007, total capital was $1.440 billion, comprising shareholders'
equity of $1.310 billion and $129 million of long-term debt. Leverage was 9.0%.


Guidance


2007 guidance on gross premiums and return on equity remains unchanged. Based on
anticipated terms and conditions, 2007 gross premiums written are expected to
increase by at least 20% over 2006. Fully converted book value per share is
projected to increase between 20 and 25% in 2007, including dividends, assuming
a normal level of losses.


Should Lancashire experience normal or lower than expected loss activity, and
underwriting opportunities consequently decrease, it is likely that a
significant proportion of 2007 profits will be returned to shareholders upon
approval by the Board of Directors.


Further detail of our 2007 second quarter results can be obtained from our
Financial Supplement. This can be accessed via our website
www.lancashiregroup.com.


Investor Presentation and Earnings Call


There will be an investor presentation on the results at 1200UK time (BST) on
Monday 6 August at Financial Dynamics, Holborn Gate, 26 Southampton Buildings,
London WC2A 1PB. This presentation will be hosted by Richard Brindle, Chief
Executive Officer; Neil McConachie, Chief Financial Officer; and Simon Burton,
Deputy Chief Executive Officer. Those wishing to attend are asked to contact Rob
Bailhache or Nick Henderson at Financial Dynamics on [phone] /
[e-mail] or [phone] / [e-mail].


The presentation will also be accessible via a conference call for those unable
to attend in person. To dial-in please call 0845 245 5000 / 1 866 832 0717 (pass
code: 6408031)


There will also be a live webcast of the presentation at www.lancashiregroup.com
. A replay facility can also be accessed at www.lancashiregroup.com .


For further information, please contact:


Lancashire Holdings                                   [phone]
Neil McConachie

Financial Dynamics                                    [phone]
Robert Bailhache
Nick Henderson

Kekst & Company Inc.
Michael Herley                                        (1) 212 521 4897
Mark Semer                                            (1) 212 521 4802

Investor enquiries and questions can also be directed to
[e-mail] or by accessing the Company's website
www.lancashiregroup.com.


Consolidated Balance Sheet

(Unaudited) 30 June 2007


                                                                      June 30, 2007              December 31, 2006
                                                                                 $m                             $m
assets

cash and cash equivalents                                                     367.7                          400.1

accrued interest receivable                                                    10.5                            7.5

investments

 - fixed income securities

    - available for sale                                                    1,220.1                          896.3
                                                                             
    - at fair value through income                                             17.5                            -

 - equity securities, available for sale                                       68.7                           70.3

 - other investments                                                            9.3                           11.5

reinsurance assets

 - unearned premium on premium ceded                                           63.5                           19.1

 - reinsurance recoveries                                                       0.5                            -

deferred acquisition costs                                                     63.8                           51.5

inwards premium receivable from insureds and cedants                          252.1                          173.7

investment in associate                                                        21.4                           23.2

other assets                                                                   16.5                            9.5

total assets                                                                2,111.6                        1,662.7

liabilities

insurance contracts

 - loss and loss adjustment expenses                                          121.7                           39.1

 - unearned premiums                                                          454.1                          325.7

 - other payables                                                               6.2                            3.6

amounts payable to reinsurers                                                  60.8                            2.4

deferred acquisition costs ceded                                                7.1                            2.5

other payables                                                                 22.2                           23.2

long-term debt                                                                129.3                          128.6

total liabilities                                                             801.4                          525.1
                                                                            

shareholders' equity

share capital                                                                  97.9                           97.9

share premium                                                                  40.2                           33.6

contributed surplus                                                           849.5                          849.7

fair value and other reserves                                                   4.5                            8.7

retained earnings                                                             318.1                          147.7

total shareholders' equity attributable to equity                                                          
shareholders                                                                1,310.2                        1,137.6

total liabilities and shareholders' equity                                  2,111.6                        1,662.7


basic book value per share                                                    $6.69                          $5.81

fully converted book value per share                                          $6.42                          $5.68







Consolidated Income Statement

(Unaudited) to 30 June 2007


                                                            Q2 2007         Q2 2006          Ytd 2007          Ytd 2006
                                                                 $m              $m                $m                $m

gross premiums written                                        270.8           203.9             451.5             316.3

outwards reinsurance premiums                                (69.3)          (71.0)            (75.4)            (71.0)

net premiums written                                          201.5           132.9             376.1             245.3

change in unearned premiums                                 (100.8)         (147.8)           (128.4)           (241.4)

change in unearned premiums on premium ceded                   51.2            60.4              44.4              60.4

net premiums earned                                           151.9            45.5             292.1              64.3

net investment income                                          18.6            12.7              35.3              24.2

net realised gains (losses) and impairments                     2.6           (3.2)               4.4             (3.4)

share of profit of associate                                    1.5             -                 2.8                -

net foreign exchange gains (losses)                             0.4           (0.5)               1.8             (1.1)

net other investment income (losses)                          (0.4)             -               (0.5)                -

total net revenue                                             174.6            54.5             335.9              84.0

insurance losses and loss adjustment expenses                  52.8             3.5              84.8               7.4
                                                                               
insurance losses and loss adjustment expenses recoverable     (0.5)             -               (0.5)                -

net insurance acquisition expenses                             20.9             5.7              41.2               7.6

equity based compensation                                       2.7             4.6               6.4              10.6

other operating expenses                                       12.8             7.7              26.8              13.6
                                                                              

total expenses                                                 88.7            21.5             158.7              39.2

profit before tax and finance costs                            85.9            33.0             177.2              44.8

finance costs                                                   3.1             3.0               6.1               5.5

profit before tax                                              82.8            30.0             171.1              39.3

tax                                                             0.3             -                 0.7                -

profit after tax for the period attributable to equity         82.5            30.0             170.4              39.3
shareholders

net loss ratio                                                34.4%            7.7%             28.9%             11.6%

net acquisition cost ratio                                    13.8%           12.5%             14.1%             11.8%

administrative expense ratio                                   8.4%           16.9%              9.2%             21.1%

combined ratio                                                56.6%           37.1%             52.2%             44.5%


basic earnings per share                                      $0.42           $0.15             $0.87             $0.20

diluted earnings per share                                    $0.40           $0.15             $0.83             $0.20

change in fully converted book value per                       5.4%            3.1%             13.0%              4.3%
share



Consolidated Cash Flow Statement

(Unaudited to 30 June 2007)


                                                                                Six months          Twelve months
                                                                                      2007                   2006
                                                                                        $m                     $m
cash flows from operating activities

profit before interest and tax                                                       141.4                  116.4

interest income                                                                       35.3                   53.6

interest expense                                                                     (5.6)                 (10.6)

tax                                                                                  (0.7)                  (0.2)

depreciation                                                                           0.7                    0.6
amortisation of debt securities                                                      (0.7)                  (1.2)

employee benefit expense                                                               6.4                   22.5

foreign exchange                                                                     (1.3)                    1.9

share of profit of associate                                                         (2.8)                  (3.2)

net unrealised losses (gains) on derivative financial                                  0.8                  (1.8)
instruments

net realised (gains) losses and impairments on investments                           (4.4)                  (0.8)

net fair value gains on investments at fair value through                            (0.3)                      -
income

unrealised (gains) losses on swaps                                                   (0.9)                    0.9

accrued interest receivable                                                          (3.0)                  (5.6)

reinsurance assets

- unearned premium on premium ceded                                                 (44.4)                 (19.1)

- reinsurance recoveries                                                             (0.5)                      -

deferred acquisition costs                                                          (12.3)                 (51.0)

other receivables                                                                    (6.3)                  (6.0)

inwards premium receivable from insureds and cedants                                (77.2)                (171.4)

deferred tax asset                                                                   (0.4)                  (0.8)

insurance contracts

  - losses and loss adjustment expenses                                               82.7                   39.1

  - unearned premiums                                                                128.4                  323.1

  - other payables                                                                     2.6                    3.6

amounts payable to reinsurers                                                         57.8                    2.4

deferred acquisition costs ceded                                                       4.6                    2.5

other payables                                                                       (1.1)                   18.6

corporation tax payable                                                                1.2                    1.0

accrued interest payable                                                             (0.1)                      -

net cash flows from operating activities                                             299.9                  314.5

cash flows from investing activities

purchase of property, plant and equipment                                            (1.0)                  (2.6)

investment in associate                                                                  -                 (20.0)

dividends received from associate                                                      4.6                      -

purchase of debt securities                                                        (942.5)              (2,086.1)

purchase of equity securities                                                       (15.1)                 (76.1)

proceeds on maturity and disposal of debt securities                                 595.4                1,185.6

proceeds on disposal of equity securities                                             23.0                   20.9

net purchase of other investments                                                      2.1                  (9.7)

net cash flows used in investing activities                                        (333.5)                (988.0)


net decrease in cash and cash equivalents                                           (33.6)                (673.5)

cash and cash equivalents at beginning of period                                     400.1                1,072.4

effect of exchange rate fluctuations on cash and cash equivalents                      1.2                    1.2

cash and cash equivalents at end of period                                           367.7                  400.1



About Lancashire


Lancashire, through its UK and Bermuda-based insurance subsidiaries, is a global
provider of specialty insurance products.  Its insurance subsidiaries carry the
Lancashire group rating of A minus (Excellent) from A.M. Best with a stable
outlook.  Lancashire has capital in excess of $1 billion and its Common Shares
trade on AIM under the ticker symbol LRE.  Lancashire is headquartered at
Mintflower Place, 8 Par-La-Ville Road, Hamilton HM 08, Bermuda.  The mailing
address is Lancashire Holdings Limited, P.O. Box HM 2358, Hamilton HM HX,
Bermuda. For more information on Lancashire, visit the company's website at
www.lancashiregroup.com



NOTE REGARDING FORWARD-LOOKING STATEMENTS:


CERTAIN STATEMENTS AND INDICATIVE PROJECTIONS MADE IN THIS ANNOUNCEMENT AND ON
THE CONFERENCE CALL THAT ARE NOT BASED ON CURRENT OR HISTORICAL FACTS ARE
FORWARD-LOOKING IN NATURE INCLUDING WITHOUT LIMITATION, STATEMENTS CONTAINING
WORDS 'BELIEVES', 'ANTICIPATES', 'PLANS', 'PROJECTS', 'FORECASTS', 'INTENDS',
'EXPECTS', 'ESTIMATES', 'PREDICTS', 'MAY', 'WILL', 'SEEKS', 'SHOULD', OR, IN
EACH CASE, THEIR NEGATIVE OR COMPARABLE TERMINOLOGY. ALL STATEMENTS OTHER THAN
STATEMENTS OF HISTORICAL FACTS INCLUDING, WITHOUT LIMITATION, THOSE REGARDING
THE GROUP'S FINANCIAL POSITION, RESULTS OF OPERATIONS, LIQUIDITY, PROSPECTS,
GROWTH, BUSINESS STRATEGY, PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE
OPERATIONS (INCLUDING DEVELOPMENT PLANS AND OBJECTIVES RELATING TO THE GROUP'S
INSURANCE BUSINESS) ARE FORWARD-LOOKING STATEMENTS. SUCH FORWARD-LOOKING
STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER IMPORTANT
FACTORS THAT COULD CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE
GROUP TO BE MATERIALLY DIFFERENT FROM FUTURE RESULTS, PERFORMANCE OR ACHIEVMENTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THESE FACTORS INCLUDE,
BUT ARE NOT LIMITED TO: THE NUMBER AND TYPE OF INSURANCE AND REINSURANCE
CONTRACTS THAT WE WRITE; THE PREMIUM RATES AVAILABLE AT THE TIME OF SUCH
RENEWALS WITHIN OUR TARGETED BUSINESS LINES; THE ABSENCE OF LARGE OR UNUSUALLY
FREQUENT LOSS EVENTS; THE IMPACT THAT OUR FUTURE OPERATING RESULTS, CAPITAL
POSITION AND RATING AGENCY AND OTHER CONSIDERATIONS HAVE ON THE EXECUTION OF ANY
CAPITAL MANAGEMENT INITIATIVES; THE POSSIBILITY OF GREATER FREQUENCY OR SEVERITY
OF CLAIMS AND LOSS ACTIVITY THAN OUR UNDERWRITING, RESERVING OR INVESTMENT
PRACTICES HAVE ANTICIPATED; THE RELIABILITY OF, AND CHANGES IN ASSUMPTIONS TO,
CATASTROPHE PRICING, ACCUMULATION AND ESTIMATED LOSS MODELS; LOSS OF KEY
PERSONNEL; A DECLINE IN OUR OPERATING SUBSIDIARIES' RATING WITH A.M. BEST
COMPANY; INCREASED COMPETITION ON THE BASIS OF PRICING, CAPACITY, COVERAGE TERMS
OR OTHER FACTORS; A CYCLICAL DOWNTURN OF THE INDUSTRY; CHANGES IN GOVERNMENTAL
REGULATIONS OR TAX LAWS IN JURISDICTIONS WHERE LANCASHIRE CONDUCTS BUSINESS;
LANCASHIRE OR ITS BERMUDIAN SUBSIDIARY BECOMING SUBJECT TO INCOME TAXES IN THE
UNITED STATES OR THE UNITED KINGDOM; AND THE EFFECTIVENESS OF OUR LOSS
LIMITATION METHODS.   ANY ESTIMATES RELATING TO LOSS EVENTS INVOLVE THE EXERCISE
OF CONSIDERABLE JUDGMENT AND REFLECT A COMBINATION OF GROUND-UP EVALUATIONS,
INFORMATION AVAILABLE TO DATE FROM BROKERS AND INSUREDS, MARKET INTELLIGENCE,
INITIAL TENTATIVE LOSS REPORTS AND OTHER SOURCES.  JUDGMENTS IN RELATION TO
FLOOD LOSSES INVOLVE COMPLEX FACTORS POTENTIALLY CONTRIBUTING TO THIS TYPE OF
LOSS, AND WE CAUTION AS TO THE PRELIMINARY NATURE OF THE INFORMATION USED TO
PREPARE ANY SUCH ESTIMATES.


THESE FORWARD-LOOKING STATEMENTS SPEAK ONLY AS AT THE DATE OF PUBLICATION OF
THIS DOCUMENT. LANCASHIRE HOLDINGS LIMITED EXPRESSLY DISCLAIMS ANY OBLIGATION OR
UNDERTAKING (SAVE AS REQUIRED TO COMPLY WITH ANY LEGAL OR REGULATORY OBLIGATIONS
(INCLUDING THE AIM RULES)) TO DISSEMINATE ANY UPDATES OR REVISIONS TO ANY
FORWARD-LOOKING STATEMENTS TO REFLECT ANY CHANGES IN THE GROUP'S EXPECTATIONS OR
CIRCUMSTANCES ON WHICH ANY SUCH STATEMENT IS BASED.




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