Q2 2015 results

RNS Number : 3693U

Lancashire Holdings Limited

29 July 2015

 



LANCASHIRE HOLDINGS LIMITED

GROWTH IN FULLY CONVERTED BOOK VALUE PER SHARE, ADJUSTED FOR DIVIDENDS AND EXCLUDING WARRANT EXERCISES,

OF 2.3% IN Q2 2015 AND 6.6% YEAR TO DATE;

INCLUDING WARRANT EXERCISES, YEAR TO DATE GROWTH IS 4.5%

COMBINED RATIO OF 78.2% IN Q2 2015, 75.1% YEAR TO DATE

INTERIM DIVIDEND OF 5 CENTS PER COMMON SHARE

FULLY CONVERTED BOOK VALUE PER SHARE OF $6.66 AS AT 30 JUNE 2015

29 July 2015

London, UK

Lancashire Holdings Limited ("Lancashire" or "the Group") today announces its results for the second quarter of 2015 and the six months ended 30 June 2015.

Financial highlights

	30 June 2015	30 June 2014
Fully converted book value per share	$6.66	$7.67
Return on equity excluding warrant exercises1 - Q2	2.3%	3.1%
Return on equity excluding warrant exercises1 - YTD	6.6%	7.1%
Return on equity2 - Q2	2.2%	2.4%
Return on equity2 - YTD	4.5%	6.4%
Return on tangible equity 3 - Q2	2.3%	3.0%
Return on tangible equity 3 - YTD	4.6%	8.4%
Operating return on average equity - Q2	2.9%	2.9%
Operating return on average equity - YTD	6.4%	7.0%
Interim dividends per common share4	$0.05	$0.05

¹  Return on equity excluding the impact of warrants exercised in the period.

²   Return on equity is defined as growth in fully converted book value per share, adjusted for dividends.

³   Return on equity excluding goodwill and other intangible assets.

⁴   See "Dividends" below for Record Date and Dividend Payment Date.

Financial highlights:

			Three months ended			Six months ended
			30 June 2015	30 June 2014		30 June 2015		30 June 2014
Highlights ($m)
Gross premiums written			179.3	318.4		423.6		635.1
Net premiums written			155.1	290.5		284.3		494.9
Profit before tax			37.1	41.5		88.6		98.9
Profit after tax***			38.9	44.8		92.6		104.9
Comprehensive income***			31.8	51.6		94.5		115.1
Net operating profit***			38.4	43.4		90.5		106.3
Per share data
Diluted earnings per share		$0.19		$0.23		$0.47		$0.53
Diluted earnings per share - operating		$0.19		$0.22		$0.46		$0.54
Financial ratios
Total investment return including internal currency hedging			-	0.5%		1.0%		0.8%
Total investment return excluding internal currency hedging			0.1%	0.6%		0.8%		0.9%
Net loss ratio			34.9%	34.9%		32.0%		34.5%
Combined ratio			78.2%	74.6%		75.1%		70.6%
Accident year loss ratio			59.4%	39.4%		52.2%		34.0%

^*** These amounts are attributable to Lancashire and exclude non-controlling interests.

Alex Maloney, Group Chief Executive Officer, commented:

"When I commented last quarter that we were starting to see some signs of a floor being reached in catastrophe bond and ILW pricing, we hoped that this signalled the start of a return to discipline. Whilst there has been some evidence of the brakes being applied to premium reductions in natural catastrophe markets during the second quarter, indiscipline in the specialty markets continues. We have continued to purchase more reinsurance as pricing continues to be favourable; as we have said before, the silver lining in a difficult market is when we are the customer. For instance, we have been able to buy treaty protection for our political risk portfolio for the first time since we began writing it. So it is not all one-way traffic but there's no hiding the fact that this is a difficult market and we have to work hard and, if necessary, decline inadequately priced business.

On our headline reduction in premiums written, two things need to be remembered; first, we wrote a significant number of multi-year deals in 2014 precisely to mitigate the expected continued pricing declines; second, the resultant earned premium numbers, which represent a 14% decrease on the previous year, compare more favourably. Lancashire has, as usual been proactive about managing the cycle and we continue to see the benefit of having three business platforms, with contributions from Cathedral and Kinesis bolstering the Group's RoE for the quarter and year to date.

Our line size and leadership capability ensure that we remain important to our clients and brokers, and we are maintaining our core portfolio by adding value to each transaction. Unless you add value in this market you will be marginalised.  Even in the terrorism lines, where broker facilities are taking an increasing market share, Lancashire's substantial capacity and strong team relationships mean that we have been able to preserve our underwriting standards and the bulk of our income. In energy we have seen the double whammy of a soft insurance market and a soft oil price which have both affected demand. However the loyalty of clients whom we have supported across the cycle has yielded some increased shares and new orders especially on our Gulf of Mexico wind product, which reduces the impact of the soft conditions. It's worth emphasising that our exposure is decreasing as well as our premium; that is part of managing the cycle and finding the optimal risk profile.  In aviation, rates are declining at a more moderate pace compared to other lines, but given the recent loss record this is not a surprise. In marine hull and war where we have avoided a spate of smaller losses, rating continues to soften. For property reinsurance, the risk excess of loss books written in Bermuda and Cathedral's portfolio of US smaller clients have been somewhat immune from the more aggressive reductions seen on the larger US and international catastrophe programmes. We continue to find capacity to cede parts of our risk, generating fees and again reducing our exposures.

Although there has been an absence of major catastrophe losses in the second quarter, there have been some sizeable losses in the offshore energy line to the extent that the market is around break-even point before we enter Gulf of Mexico windstorm season. There have also been a series of satellite losses, bringing further pain to the aviation and space market. We have worked to protect our core portfolio and we feel that the result of this is that our business is in very good shape for this point in the cycle. We will stick to the fundamental Lancashire approach of being nimble and focusing on the underwriting."

Elaine Whelan, Group Chief Financial Officer, commented:

"Excluding the impact of warrant exercises, the Group produced an RoE of 2.3% for the quarter, bringing our RoE for the first six months of the year to 6.6%. Our combined ratio for the quarter was 78.2%, or 75.7% including fees and profit commissions on our third party capital management activities.

Despite a few mid-sized losses in the quarter, with no notable cat events, plus some favourable development on prior year reserves, our loss ratio was a very healthy 34.9%. With significant volatility in the investment markets, we were pleased with a flat return for the quarter.

While the trading environment continues to be challenging, our performance through the first half of the year demonstrates our ability to manage the cycle and the quality of our portfolio. As ever, we will match our capital to our underwriting opportunities and we will continue to manage our risk levels in accordance with market conditions."

Lancashire Companies' Renewal Price Index for major classes

The Lancashire Companies' Renewal Price Index ("RPI") is an internal methodology that management uses to track trends in premium rates on a portfolio of insurance and reinsurance contracts. The RPI is calculated on a per contract basis and reflects the Lancashire Companies' assessment of relative changes in price, terms, conditions and limits on like for like renewals only, and is weighted by premium volume (see "Note Regarding RPI Methodology" at the end of this announcement for further guidance). The RPI does not include new business and only covers business written by the Lancashire Companies to offer a consistent basis for analysis and therefore does not include Lancashire's Lloyd's business. The following RPIs are expressed as an approximate percentage of pricing achieved on similar contracts written in 2014:

Class			YTD 2015	Q2 2015	Q1 2015
Aviation (AV52)			94%	94%	94%
Gulf of Mexico energy			95%	95%	88%
Energy offshore worldwide			88%	83%	91%
Marine			91%	91%	91%
Property retrocession and reinsurance			87%	84%	89%
Terrorism			91%	92%	89%
Combined			90%	89%	90%

Underwriting results

Gross premiums written

	Q2				YTD
	2015	2014	Change	Change	2015	2014	Change	Change
	$m	$m	$m	%	$m	$m	$m	%
Property	51.8	69.9	(18.1)	(25.9)	128.6	187.4	(58.8)	(31.4)
Energy	41.5	127.3	(85.8)	(67.4)	78.1	177.2	(99.1)	(55.9)
Marine	11.4	21.9	(10.5)	(47.9)	33.7	48.6	(14.9)	(30.7)
Aviation	6.7	17.3	(10.6)	(61.3)	17.7	31.7	(14.0)	(44.2)
Lloyd's	67.9	82.0	(14.1)	(17.2)	165.5	190.2	(24.7)	(13.0)
Total	179.3	318.4	(139.1)	(43.7)	423.6	635.1	(211.5)	(33.3)

Gross premiums earned

	Q2				YTD
	2015	2014	Change	Change	2015	2014	Change	Change
	$m	$m	$m	%	$m	$m	$m	%
Property	54.2	66.0	(11.8)	(17.9)	110.7	130.2	(19.5)	(15.0)
Energy	42.4	57.3	(14.9)	(26.0)	90.4	111.6	(21.2)	(19.0)
Marine	11.9	17.7	(5.8)	(32.8)	27.3	32.8	(5.5)	(16.8)
Aviation	11.0	14.7	(3.7)	(25.2)	21.1	27.2	(6.1)	(22.4)
Lloyd's	59.9	65.1	(5.2)	(8.0)	123.0	132.5	(9.5)	(7.2)
Total	179.4	220.8	(41.4)	(18.8)	372.5	434.3	(61.8)	(14.2)

Gross premiums written decreased by 43.7% in the second quarter of 2015 compared to the same period in 2014.  In 2015 to date, gross premiums written decreased by 33.3% compared to the first six months of 2014. The decrease in premiums for the quarter and year to date came primarily from the property and energy segments where a number of multi-year deals written in 2014 are not yet due to renew. Of the total reduction of $211.5 million in gross premiums written for the year to date, non-annual deals in those segments accounted for $140.2 million. Excluding the impact of these deals, the year to date reduction in gross premiums written was 11.2%. Gross premiums earned for the quarter and year to date decreased by 18.8% and 14.2% respectively. The Group's five principal segments, and the key market factors impacting them, are discussed below.

Property gross premiums written decreased by 25.9% for the second quarter of 2015 compared to the same period in 2014 and decreased by 31.4% in the first six months of 2015 compared to the first six months of 2014. Similar to the first quarter of 2015, while some pricing pressure remains, the vast majority of the decrease is driven by multi-year deals written in the second quarter of 2014 which are not yet due to renew.  The property catastrophe excess of loss, terrorism and political risk classes all saw reductions due to the timing of multi-year contract renewals in both the first and second quarters of 2015, although this is more typical of the terrorism and political risk books where business flow is less predictable. Only a small proportion of the political risk book is renewable with most business being driven by specific projects.

Energy gross premiums written decreased by 67.4% for the second quarter of 2015 compared to the same period in 2014 and decreased by 55.9% in the first six months of 2015 compared to the first six months of 2014. The Gulf of Mexico book was responsible for most of the decrease in the quarter with $64.5 million of multi-year year deals written in the second quarter of 2014 not yet due for renewal. We saw some new business in the quarter, but a few of the 2014 multi-year deals were cancelled and replaced in the quarter, reducing the overall gross premiums written. However, that reduction has a minimal impact on expected 2015 earnings for the Gulf of Mexico book.  Reductions in the worldwide offshore book continued due to the timing of non-annual contract renewals plus the impact of declining rates. The reduction in gross premiums earned in the energy book is significantly less than the reduction in gross premiums written, reflecting the impact of continued earnings on the prior year multi-year deals.

Marine gross premiums written decreased by 47.9% for the second quarter of 2015 compared to the same period in 2014 and decreased by 30.7% in the first six months of 2015 compared to the first six months of 2014. The decrease for the quarter and year to date is due to non-annual contract renewals in the marine hull subclass written in the second quarter of 2014.

Aviation gross premiums written decreased by 61.3% for the second quarter of 2015 compared to the same period in 2014 and decreased by 44.2% in the first six months of 2015 compared to the first six months of 2014. The decrease in aviation satellite for both the second quarter and first six months of 2015 compared to the same periods in 2014 is mainly due to the timing of satellite launches on contracts written in previous years. Pricing and renewal rates remain under pressure in the AV52 class.

In the Lloyd's segment gross written premiums decreased by 17.2% for the second quarter of 2015 compared to the same period in 2014 and decreased by 13.0% in the first six months of 2015 compared to the first six months of 2014.  The decrease in premiums is due to pricing pressure across all historic lines of business, slightly offset by growth in the energy, terrorism and aviation classes that Cathedral began writing in 2014.

*******

Ceded reinsurance premiums decreased by $3.7 million, or 13.3%, for the quarter and decreased by $0.9 million, or 0.6%, for the six months ended 30 June 2015, in each case compared to the same periods in 2014. With the restructuring of the marine, energy and terrorism programmes in the first quarter of 2015, some covers that were written in the second quarter of 2014 were cancelled and renewed into the 1 January 2015 programme. The saving from those cancellations was offset by new cover purchased on the political risk book. For the quarter and year to date both Lancashire and Cathedral have taken advantage of favourable conditions in the reinsurance market to buy more limit and attach lower for around the same outlay.

*******

Net premiums earned as a proportion of net premiums written were 92.5% in the second quarter of 2015 compared to 64.2% for the same period in 2014 and 104.7% in the six months to 30 June 2015, compared to 73.0% in the same period in 2014. The increased percentage for both the quarter and year to date compared to the same periods in 2014 is primarily due to the impact of multi-year deals written in the first half of 2014 where we are seeing the benefit of earnings coming through on those deals in the first half of 2015.

*******

The Group's net loss ratio for the second quarter of 2015 was 34.9% compared to 34.9% for the same period in 2014 and 32.0% for the six months ended 30 June 2015 compared to 34.5% for the same period in 2014. The accident year loss ratio for the second quarter of 2015, including the impact of foreign exchange revaluations, was 59.4% compared to 39.4% for the same period in 2014 and 52.2% for the six months ended 30 June 2015 compared to 34.0% for the same period in 2014.  The second quarter of 2015 included one mid-sized energy and two mid-sized satellite losses. The first quarter of 2015 also included a mid-sized energy loss. There were no other significant losses reported in the first six months of 2015 and attritional losses were also relatively low. There were no significant losses reported in the first six months of 2014.

Prior year favourable development for the second quarter of 2015 was $35.2 million, compared to favourable development of $8.2 million for the second quarter of 2014.  The favourable development in the second quarter of 2015 was primarily due to IBNR releases. For the second quarter of 2014 releases across a number of mid-sized claims and IBNR releases were offset somewhat by adverse development on prior accident year mid-sized marine and energy claims.  Favourable development was $61.2 million for the six months to 30 June 2015 driven by IBNR releases and additional recoveries on our 2011 Thai flood losses. This compares to adverse development of $1.9 million for the same period in 2014, which was impacted by development on prior accident year mid-sized marine and energy claims plus a late reported claim from 2013.

The following tables show the impact of prior year development on the Group's loss ratio:

	Q2 2015		YTD 2015
	Losses	Loss Ratio	Losses	Loss Ratio
	$m	%	$m	%
At 30 June	50.0	34.9	95.1	32.0
Absent prior year development	85.2	59.4	156.3	52.5
Adjusted losses and ratio	85.2	59.4	156.3	52.5

Note:  Adjusted loss ratio excludes prior year development and the impact of foreign exchange revaluations.

	Q2 2014		YTD 2014
	Losses	Loss Ratio	Losses	Loss Ratio
	$m	%	$m	%
At 30 June	65.0	34.9	124.7	34.5
Absent prior year development	73.2	39.3	122.8	34.0
Adjusted losses and ratio	73.2	39.3	122.8	34.0

Note:  Adjusted loss ratio excludes prior year development and the impact of foreign exchange revaluations.

The table below provides further detail of the prior years' loss development by class, excluding the impact of foreign exchange valuations.

	Q2		YTD
	2015	2014	2015	2014
	$m	$m	$m	$m
Property	13.3	16.0	27.7	17.3
Energy	8.6	2.0	17.4	(7.8)
Marine	5.5	(16.0)	7.1	(15.2)
Aviation	0.8	(0.3)	(0.2)	-
Lloyd's	7.0	6.5	9.2	3.8
Total	35.2	8.2	61.2	(1.9)

Note: Positive numbers denote favourable development.

Excluding the impact of foreign exchange revaluations, previous accident years' ultimate losses developed as follows during 2015 and 2014:

	Six months ended 30 June 2015	Six months ended 30 June 2014
	$m	$m
2006 accident year	0.7	0.2
2007 accident year	0.9	(0.3)
2008 accident year	(2.6)	2.2
2009 accident year	3.2	2.5
2010 accident year	(4.5)	4.0
2011 accident year	19.7	(3.6)
2012 accident year	1.9	1.3
2013 accident year	20.2	(8.2)
2014 accident year	21.7	-
Total	61.2	(1.9)

Note: Positive numbers denote favourable development.

The ratio of IBNR to total net loss reserves was 32.0% at 30 June 2015 compared to 29.4% at 30 June 2014.

Investments

Net investment income, excluding realised and unrealised gains and losses, was $7.0 million for the second quarter of 2015, a decrease of 7.9% from the second quarter of 2014. Net investment income was $14.6 million for the first six months of 2015, a decrease of 0.7% compared to the same period in 2014. Total investment return, including net investment income, net other investment income, net realised gains and losses, impairments and net change in unrealised gains and losses, was a loss of $0.3 million for the second quarter of 2015 compared to a gain of $12.2 million for the second quarter of 2014, and was $21.1 million for the first six months of 2015 compared to $20.1 million for the corresponding period in 2014.  In the second quarter of 2015 returns were depressed by rising treasury yields, causing flat to slightly negative returns in the standard fixed income portfolios, offset somewhat by positive returns in the bank loan portfolio of 0.8%. In the corresponding quarter of 2014 a decline in treasury yields, combined with narrowing credit spreads, led to positive returns in the Group's fixed income portfolio. For the year to date, with flat returns in the second quarter of 2015, we maintained the strong returns generated in the first quarter of 2015 where returns were bolstered by strong performance in the hedge fund and bank loan portfolios. During the first six months of 2014 a decline in treasury yields, combined with narrowing credit spreads, led to positive returns in the Group's fixed income portfolio.

The corporate bond allocation represented 30.5% of managed invested assets at 30 June 2015 compared to 28.5% at 30 June 2014. At 30 June 2015 the Group's allocation to bank loans represented 6.0% of the portfolio compared to 5.8% at 30 June 2014.

The managed portfolio was as follows:

	As at 30 June 2015	As at 31 December 2014	As at 30 June 2014
Fixed income securities	82.0%	81.9%	84.1%
Cash and cash equivalents	9.1%	10.6%	11.4%
Hedge funds	8.1%	6.8%	3.7%
Equity securities	0.8%	0.7%	0.7%
Other investments	-	-	0.1%
Total	100.0%	100.0%	100.0%

Key investment portfolio statistics were:

	As at 30 June 2015	As at 31 December 2014	As at 30 June 2014
Duration	1.6 years	1.5 years	1.3 years
Credit quality	AA-	AA-	AA-
Book yield	1.5%	1.5%	1.3%
Market yield	1.5%	1.5%	1.1%

Third Party Capital Management

The $0.9 million and $1.6 million share of profit of associates for the second quarter and first six months of 2015 reflects Lancashire's 10% equity interest in the Kinesis vehicle. The share of profit of associates of $0.9 million for the second quarter of 2014 and $2.5 million for the six months to 30 June 2014 is related to the Kinesis vehicle and the remaining interest in the Accordion vehicle.

Other income consists of the following items:

	Q2		YTD
	2015 $m	2014 $m	2015 $m	2014 $m
Kinesis underwriting fees	0.8	0.8	1.5	1.4
Kinesis profit commission	0.2	-	5.3	-
Lloyd's managing agency fees & profit commission	2.6	3.1	3.0	3.5
Saltire profit commission	-	-	-	3.0
Total	3.6	3.9	9.8	7.9

During the first half of 2014 profit commission of $6.7 million was received following the commutation of our quota share agreement with Accordion, with the vehicle subsequently liquidated.  The profit commission was recorded in net insurance acquisition expenses and reduced the net acquisition cost ratio by 1.9%.

Other operating expenses

Operating expenses consist of the following items:

	Q2		YTD
	2015 $m	2014 $m	2015 $m	2014 $m
Employee salaries and benefits	13.0	16.5	27.8	30.4
Payroll taxes and national insurance on equity compensation	1.2	(1.8)	1.2	(4.2)
Other operating expenses	9.8	13.4	21.8	24.5
Amortisation of intangible assets	-	2.5	-	6.9
Total	24.0	30.6	50.8	57.6

Employee remuneration costs were lower in the second quarter and first six months of 2015 compared to the same periods in the prior year largely due to the impact of the founding CEO's retirement package that was awarded in the second quarter of 2014.  The second quarter and the first six months of 2014 included a reversal of national insurance accruals in relation to equity compensation exercises driven by both the timing of exercises and fluctuations in the share price.

Other operating expenses are lower in the second quarter and first six months of 2015 compared to the same periods in the prior year largely due to reduced donations to the Lancashire Foundation, as the Foundation has sufficient funds to meet their goals in the current year. The amortisation of intangible assets arising on the acquisition of Cathedral was completed in the third quarter of 2014 and there was no further amortisation in 2015.

Equity based compensation was $0.4 million in the second quarter of 2015 compared to $8.3 million in the same period last year.  The equity based compensation charge is driven by the anticipated vesting level of the active awards based on current performance expectations. In the second quarter of 2014 the retirement of the founding CEO and accelerated vesting of his RSS awards gave rise to an equity based compensation charge of $3.5 million.

Capital

At 30 June 2015, total capital available to Lancashire was $1.656 billion, comprising shareholders' equity of $1.333 billion and $322.8 million of long-term debt. Tangible capital was $1.502 billion. Leverage was 19.5% on total capital and 21.5% on total tangible capital. Total capital and total tangible capital at 30 June 2014 were $1.836 billion and $1.678 billion respectively.

Warrants

The outstanding warrants to purchase Lancashire's common shares were issued on 16 December 2005 and expire on 16 December 2015. Warrant exercises during 2015 were as follows:

	Number of Management Team Ordinary & Performance warrants	Number of Founder warrants	Number of Lancashire Foundation warrants	Number of Ordinary warrants	Total Number of warrants
Outstanding and exercisable as at 31 December 2014	676,662	15,032,679	648,143	2,350,000	18,707,484
Exercised during the period	(676,662)	(14,183,729)	-	(2,350,000)	(17,210,391)
Outstanding and exercisable as at 31 March 2015	-	848,950	648,143	-	1,497,093
Exercised during the period	-	(254,174)	(648,143)	-	(902,317)
Outstanding and exercisable as at 30 June 2015	-	594,776	-	-	594,776

Dividends

During the first quarter of 2015, the Lancashire Board of Directors declared a final dividend in respect of 2014 of $0.10 (£0.07) per common share and an additional special dividend for 2015 of $0.50 (£0.34) per common share. The dividend and dividend equivalent payments, totalling $119.0 million ($118.0 million and $1.0 million respectively), were paid on 15 April 2015 to shareholders of record on 20 March 2015.

Lancashire announces that its Board of Directors has declared an interim dividend for 2015 of $0.05 per common share (approximately (£0.03) per common share at the current exchange rate), which will result in an aggregate payment of approximately $9.9 million. The dividend will be paid in Pounds Sterling on 25 September  2015 (the "Dividend Payment Date") to shareholders of record on 28 August 2015 (the "Record Date") using the £ / $ spot market exchange rate at 12 Noon London time on the Record Date.

In addition to the interim dividend payment to shareholders, a dividend equivalent payment of approximately $0.03 million in aggregate will be paid on the Dividend Payment Date to holders of the remaining warrants issued by Lancashire pursuant to the terms of the warrants.

Shareholders interested in participating in the dividend reinvestment plan ("DRIP") or other services including international payment, are encouraged to contact the Group registrars, Capita Registrars for more details at: http://www.capitaassetservices.com

The Group will continue to review the appropriate level and composition of capital for the Group with the intention of managing capital to enhance risk-adjusted returns on equity.

Financial information

Further details of our 2015 second quarter results can be obtained from our Financial Supplement. This can be accessed via our website www.lancashiregroup.com.

Prior to the end of July 2015, we intend to publish our Unaudited Condensed Interim Consolidated Financial Statements for the six months ended 30 June 2015 via our website at www.lancashiregroup.com.

Analyst and Investor Earnings Conference Call

There will be an analyst and investor conference call on the results at 1:00pm UK time / 8:00am EDT on Wednesday, 29 July 2015. The conference call will be hosted by Lancashire management.

The call can be accessed by dialling (International) + 1 201 689 8567 (Toll Free US & Canada + 1 877 407 0782 / Toll Free UK + 0 800 756 3429). The call can also be accessed via webcast, please go to our website (www.lancashiregroup.com) to access.

A replay facility will be available until 29 August 2015. The dial in number for the replay facility is (International) [phone] or Toll Free US & Canada [phone] with Conference ID#:  13612123. The replay facility will also be accessible at www.lancashiregroup.com 

For further information, please contact:

Lancashire Holdings Limited Christopher Head	[phone] [e-mail]
Jonny Creagh-Coen	[phone] [e-mail]
Haggie Partners	[phone]
David Haggie	(David Haggie mobile [phone])

About Lancashire

Lancashire, through its UK and Bermuda-based operating subsidiaries, is a global provider of specialty insurance  and reinsurance products. The Group companies carry the following ratings:

	Financial Strength Rating (1)	Financial Strength Outlook(1)	Long Term Issuer Rating (2)
A.M. Best	A (Excellent)	Stable	bbb
Standard & Poor's	A-	Stable	BBB
Moody's	A3	Stable	Baa2

^{(1)Financial Strength Rating and Financial Strength Outlook apply to Lancashire Insurance Company Limited and Lancashire Insurance Company (UK) Limited.}

^{(2) Long Term Issuer Rating applies to Lancashire Holdings Limited.}

Cathedral benefits from Lloyd's ratings: A.M. Best: A (Excellent); Standard & Poor's: A+ (Strong); and Fitch: AA- (Very Strong).

Lancashire has capital in excess of $1.5 billion and its common shares trade on the premium segment of the Main Market of the London Stock Exchange under the ticker symbol LRE. Lancashire has its corporate headquarters and mailing address at 29th Floor, 20 Fenchurch Street, London EC3M 3BY, United Kingdom and its registered office at Power House, 7 Par-la-Ville Road, Hamilton HM 11, Bermuda.

For more information on Lancashire and Lancashire's subsidiary and Lloyd's segment, Cathedral Capital Limited ("Cathedral"), visit the Lancashire's website at www.lancashiregroup.com 

Lancashire Insurance Company Limited is regulated by the Bermuda Monetary Authority in Bermuda.

Lancashire Insurance Company (UK) Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the UK.

Kinesis Capital Management Limited is regulated by the Bermuda Monetary Authority in Bermuda.

Cathedral Underwriting Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the UK. It is also authorised and regulated by Lloyd's.

NOTE REGARDING RPI METHODOLOGY

LANCASHIRE'S RENEWAL PRICE INDEX ("RPI") IS AN INTERNAL METHODOLOGY THAT ITS MANAGEMENT USES TO TRACK TRENDS IN PREMIUM RATES OF A PORTFOLIO OF INSURANCE AND REINSURANCE CONTRACTS. THE RPI DOES NOT TAKE INTO ACCOUNT ANY BUSINESS OR CONTRACTS OF THE CATHEDRAL GROUP, WHICH IS LANCASHIRE'S LLOYD'S SEGMENT. THE RPI WRITTEN BY THE LANCASHIRE COMPANIES IN THE PROPERTY, ENERGY, MARINE AND AVIATION SEGMENTS IS CALCULATED ON A PER CONTRACT BASIS AND REFLECTS LANCASHIRE'S ASSESSMENT OF RELATIVE CHANGES IN PRICE, TERMS, CONDITIONS AND LIMITS AND IS WEIGHTED BY PREMIUM VOLUME. THE CALCULATION INVOLVES A DEGREE OF JUDGEMENT IN RELATION TO COMPARABILITY OF CONTRACTS AND THE ASSESSMENT NOTED ABOVE. TO ENHANCE THE RPI METHODOLOGY, MANAGEMENT OF LANCASHIRE MAY REVISE THE METHODOLOGY AND ASSUMPTIONS UNDERLYING THE RPI, SO THE TRENDS IN PREMIUM RATES REFLECTED IN THE RPI MAY NOT BE COMPARABLE OVER TIME. CONSIDERATION IS ONLY GIVEN TO RENEWALS OF A COMPARABLE NATURE SO IT DOES NOT REFLECT EVERY CONTRACT IN LANCASHIRE'S PORTFOLIO. THE FUTURE PROFITABILITY OF THE PORTFOLIO OF CONTRACTS WITHIN THE RPI IS DEPENDENT UPON MANY FACTORS BESIDES THE TRENDS IN PREMIUM RATES.

NOTE REGARDING FORWARD-LOOKING STATEMENTS:

CERTAIN STATEMENTS AND INDICATIVE PROJECTIONS (WHICH MAY INCLUDE MODELED LOSS SCENARIOS) MADE IN THIS RELEASE OR OTHERWISE THAT ARE NOT BASED ON CURRENT OR HISTORICAL FACTS ARE FORWARD-LOOKING IN NATURE INCLUDING, WITHOUT LIMITATION, STATEMENTS CONTAINING THE WORDS "BELIEVES", "ANTICIPATES", "PLANS", "PROJECTS", "FORECASTS", "GUIDANCE", "INTENDS", "EXPECTS", "ESTIMATES", "PREDICTS", "MAY", "CAN", "LIKELY",  "WILL", "SEEKS", "SHOULD", OR, IN EACH CASE, THEIR NEGATIVE OR COMPARABLE TERMINOLOGY. ALL SUCH STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDING, WITHOUT LIMITATION, THE GROUP'S FINANCIAL POSITION,  LIQUIDITY,  RESULTS OF OPERATIONS,  PROSPECTS,  GROWTH, CAPITAL MANAGEMENT PLANS AND EFFICIENCIES, ABILITY TO CREATE VALUE, DIVIDEND POLICY, OPERATIONAL FLEXIBILITY, COMPOSITION OF MANAGEMENT, 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 ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS.

THESE FACTORS INCLUDE, BUT ARE NOT LIMITED TO: THE GROUP'S ABILITY TO INTEGRATE ITS BUSINESSES AND PERSONNEL; THE SUCCESSFUL RETENTION AND MOTIVATION OF THE GROUP'S KEY MANAGEMENT; THE INCREASED REGULATORY BURDEN FACING THE GROUP, THE NUMBER AND TYPE OF INSURANCE AND REINSURANCE CONTRACTS THAT THE GROUP WRITES OR MAY WRITE; THE GROUP'S ABILITY TO IMPLEMENT SUCCESSFULLY ITS BUSINESS STRATEGY DURING 'SOFT' AS WELL AS 'HARD' MARKETS; THE PREMIUM RATES WHICH MAY BE AVAILABLE AT THE TIME OF SUCH RENEWALS WITHIN THE GROUP'S TARGETED BUSINESS LINES; THE POSSIBLE LOW FREQUENCY OF LARGE EVENTS; POTENTIALLY UNUSUAL LOSS FREQUENCY; THE IMPACT THAT THE GROUP'S FUTURE OPERATING RESULTS, CAPITAL POSITION AND RATING AGENCY AND OTHER CONSIDERATIONS MAY HAVE ON THE EXECUTION OF ANY CAPITAL MANAGEMENT INITIATIVES OR DIVIDENDS; THE POSSIBILITY OF GREATER FREQUENCY OR SEVERITY OF CLAIMS AND LOSS ACTIVITY THAN THE GROUP'S UNDERWRITING, RESERVING OR INVESTMENT PRACTICES HAVE ANTICIPATED; THE RELIABILITY OF, AND CHANGES IN ASSUMPTIONS TO, CATASTROPHE PRICING, ACCUMULATION AND ESTIMATED LOSS MODELS; INCREASED COMPETITION FROM EXISTING ALTERNATIVE CAPITAL PROVIDERS, INSURANCE LINKED FUNDS AND COLLATERALISED SPECIAL PURPOSE INSURERS AND THE RELATED DEMAND AND SUPPLY DYNAMICS AS CONTRACTS COME UP FOR RENEWAL; THE EFFECTIVENESS OF THE GROUP'S LOSS LIMITATION METHODS; THE POTENTIAL LOSS OF KEY PERSONNEL; A DECLINE IN THE GROUP'S OPERATING SUBSIDIARIES' RATING WITH A.M. BEST, STANDARD & POOR'S, MOODY'S OR OTHER RATING AGENCIES; INCREASED COMPETITION ON THE BASIS OF PRICING, CAPACITY, COVERAGE TERMS OR OTHER FACTORS; A CYCLICAL DOWNTURN OF THE INDUSTRY; THE IMPACT OF A DETERIORATING CREDIT ENVIRONMENT FOR ISSUERS OF FIXED INCOME INVESTMENTS; THE IMPACT OF SWINGS IN MARKET INTEREST RATES AND SECURITIES PRICES; A RATING DOWNGRADE OF, OR A MARKET DECLINE IN, SECURITIES IN ITS INVESTMENT PORTFOLIO; CHANGES IN GOVERNMENTAL REGULATIONS OR TAX LAWS IN JURISDICTIONS WHERE THE GROUP CONDUCTS BUSINESS; ANY OF THE GROUP'S BERMUDIAN SUBSIDIARIES BECOMING SUBJECT TO INCOME TAXES IN THE UNITED STATES OR THE UNITED KINGDOM; THE INAPPLICABILITY TO THE GROUP OF SUITABLE EXCLUSIONS FROM THE UK CFC REGIME; AND ANY CHANGE IN UK GOVERNMENT POLICY WHICH IMPACTS THE CFC REGIME.

ALL FORWARD-LOOKING STATEMENTS IN THIS RELEASE SPEAK ONLY AS AT THE DATE OF PUBLICATION. LANCASHIRE EXPRESSLY DISCLAIMS ANY OBLIGATION OR UNDERTAKING (SAVE AS REQUIRED TO COMPLY WITH ANY LEGAL OR REGULATORY OBLIGATIONS INCLUDING THE RULES OF THE LONDON STOCK EXCHANGE) 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.

Consolidated statement of comprehensive income

       (Unaudited)

	Quarter 2  2015	Quarter 2  2014	YTD  2015	YTD  2014
	$m	$m	$m	$m
Gross premiums written	179.3	318.4	423.6	635.1
Outwards reinsurance premiums	(24.2)	(27.9)	(139.3)	(140.2)
Net premiums written	155.1	290.5	284.3	494.9
Change in unearned premiums	0.1	(97.6)	(51.1)	(200.8)
Change in unearned premiums on premiums ceded	(11.8)	(6.5)	64.4	67.2
Net premiums earned	143.4	186.4	297.6	361.3
Net investment income	7.0	7.6	14.6	14.7
Net other investment income (losses)	(0.8)	(1.2)	4.2	(0.9)
Net realised gains (losses) and impairments	0.6	(1.0)	0.4	(3.9)
Share of profit of associates	0.9	0.9	1.6	2.5
Other income	3.6	3.9	9.8	7.9
Net foreign exchange losses	(2.1)	(0.8)	(3.0)	(3.3)
Total net revenue	152.6	195.8	325.2	378.3
Insurance losses and loss adjustment expenses	56.3	57.8	115.2	125.8
Insurance losses and loss adjustment expenses recoverable	(6.3)	7.2	(20.1)	(1.1)
Net insurance acquisition expenses	38.2	43.4	77.4	73.0
Other operating expenses	24.0	30.6	50.8	57.6
Equity based compensation	0.4	8.3	4.8	10.7
Total expenses	112.6	147.3	228.1	266.0
Results of operating activities	40.0	48.5	97.1	112.3
Financing costs	(2.9)	(7.0)	(8.5)	(13.4)
Profit before tax	37.1	41.5	88.6	98.9
Tax credit	1.8	3.2	4.3	5.8
Profit after tax	38.9	44.7	92.9	104.7
Non-controlling interest	-	0.1	(0.3)	0.2
Profit after tax attributable to Lancashire	38.9	44.8	92.6	104.9
Net change in unrealised gains/losses on investments	(7.4)	6.9	1.8	10.3
Tax recovery (expense) on net change in unrealised gains/losses on                                                                                                                     investments	0.3	(0.1)	0.1	(0.1)
Other comprehensive (loss) income	(7.1)	6.8	1.9	10.2
Total comprehensive income attributable to equity shareholders	31.8	51.6	94.5	115.1
Net loss ratio	34.9%	34.9%	32.0%	34.5%
Net acquisition cost ratio	26.6%	23.3%	26.0%	20.2%
Administrative expense ratio	16.7%	16.4%	17.1%	15.9%
Combined ratio	78.2%	74.6%	75.1%	70.6%
Basic earnings per share	$0.20	$0.24	$0.48	$0.57
Diluted earnings per share	$0.19	$0.23	$0.47	$0.53
Change in fully converted book value per share, excluding warrant exercises	2.3%	3.1%	6.6%	7.1%
Change in fully converted book value per share	2.2%	2.4%	4.5%	6.4%

Consolidated balance sheet

(Unaudited)
		30 Jun 2015	30 Jun 2014	31 Dec 2014
		$m	$m	$m
Assets
Cash and cash equivalents		303.0	345.4	303.5
Accrued interest receivable		6.9	8.5	7.7
Investments		1,964.8	2,155.7	1,986.9
Reinsurance assets
- Unearned premiums on premiums ceded		89.1	82.1	24.7
- Reinsurance recoveries		95.9	123.5	112.4
- Other receivables		8.4	6.9	5.3
Deferred acquisition costs		108.5	123.6	104.6
Other receivables		24.9	28.8	36.6
Inwards premiums receivable from insureds and cedants		380.3	464.5	316.2
Corporation tax receivable		-	4.8	4.3
Investment in associate		31.5	28.3	52.7
Property, plant and equipment		8.1	2.4	9.1
Intangible assets		153.8	157.8	153.8
Total assets		3,175.2	3,532.3	3,117.8
Liabilities
Insurance contracts
- Losses and loss adjustment expenses		746.6	831.5	752.6
- Unearned premiums		530.2	642.9	479.1
- Other payables		46.5	39.3	40.8
Amounts payable to reinsurers		74.1	70.5	34.2
Deferred acquisition costs ceded		0.8	0.7	0.1
Corporation tax payable		4.2	-	-
Other payables		83.2	69.3	83.5
Deferred tax liability		28.5	37.4	38.7
Interest rate swap		4.3	4.0	4.9
Long-term debt		322.8	331.9	326.6
Total liabilities		1,841.2	2,027.5	1,760.5
Shareholders' equity
Share capital		100.2	94.6	96.1
Own shares		(25.8)	(21.2)	(43.3)
Other reserves		866.4	868.3	887.1
Accumulated other comprehensive income		2.7	13.1	0.8
Retained earnings		389.7	549.5	416.1
Total shareholders' equity attributable to Lancashire		1,333.2	1,504.3	1,356.8
Non-controlling interest		0.8	0.5	0.5
Total shareholders' equity		1,334.0	1,504.8	1,357.3
Total liabilities and shareholders' equity		3,175.2	3,532.3	3,117.8
Basic book value per share		$6.74	$8.05	$7.24
Fully converted book value per share		$6.66	$7.67	$6.96

Statement of consolidated cashflows

(Unaudited)

				Six Months 2015		Six Months 2014		Twelve Months 2014
				$m		$m		$m
Cash flows from operating activities
Profit before tax				88.6		98.9		226.5
Tax refunded				2.7		1.0		1.0
Depreciation				1.0		0.6		2.1
Amortisation of intangible asset				-		19.4		23.4
Interest expense on long-term debt				7.5		7.8		15.5
Interest and dividend income				(20.4)		(21.9)		(50.5)
Net amortisation of fixed income securities				4.3		4.9		9.9
Equity based compensation				4.8		10.7		23.3
Foreign exchange losses				12.8		7.8		7.3
Share of profit of associates				(1.6)		(2.5)		(5.9)
Net other investment (income) losses				(4.2)		0.9		(1.4)
Net realised (gains) losses and impairments				(0.4)		3.9		5.9
Net unrealised (gains) losses on interest rate swaps				(0.6)		3.9		4.7
Changes in operational assets and liabilities
-insurance and reinsurance contracts				(32.9)		(7.8)		(35.5)
-other assets and liabilities				9.0		(29.9)		(13.8)
Net cash flows from operating activities				70.6		97.7		212.5
Cash flows from (used in) from investing activities
Interest, dividends and other income received				21.2		27.9		52.0
Net purchase of property, plant and equipment				-		(0.3)		(8.7)
Investment in associates				22.8		38.8		17.9
Purchases of investments				(548.5)		(1,215.4)		(2,153.7)
Proceeds on sale of investments				567.8		1,077.0		2,159.0
Net cash flows from (used in) from investing activities				63.3		(72.0)		66.5
Cash flows used in financing activities
Interest paid				(7.6)		(7.8)		(15.5)
Dividends paid				(119.0)		(63.2)		(321.0)
Share repurchased				-		-		(25.0)
Warrants exercised				-		-		14.1
RSS compensation				-		(9.8)		(9.8)
Distributions by trust				(4.0)		(5.5)		(6.7)
Purchase of shares from non-controlling interests				-		-		(1.1)
Net cash flows used in financing activities				(130.6)		(86.3)		(365.0)
Net increase (decrease) in cash and cash equivalents				3.3		(60.6)		(86.0)
Cash and cash equivalents at beginning of period				303.5		403.0		403.0
Effect of exchange rate fluctuations on cash and cash equivalents			(3.8)		3.0		(13.5)
Cash and cash equivalents at end of period				303.0		345.4		303.5

 

END

 

 

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