Bermudian-based insurer Lancashire - which largely side-stepped the sector's hefty catastrophe-related losses last year - revealed yet another sector-beating performance. Despite taking a $24.6m (£15.9m) hit from the Costa Concordia disaster, it managed a highly-profitable half-year combined ratio (of claims to premiums) of 67.2 per cent - such quality underwriting leaves the shares worth buying.
And having avoided heavy losses itself, Lancashire is now benefiting from the sector's efforts to compensate for those losses by hiking rising premium rates and, overall, Lancashire's rates rose 6 per cent on renewal in the year to date. Moreover, the insurer has seen especially hefty rate hikes for some accounts: its property retrocession and reinsurance book, for example, saw renewal rates jump 25 per cent. The investment book managed a 1.7 per cent return, too - not bad given today's ultra-low interest rate environment. Yet the portfolio remains focused on safe-looking bonds and cash.
Broker Numis Securities expects full-year EPS of 81.4p (75.7p in 2011), net tangible assets (NTA) of 568p and a 9.68p full-year dividend. There's also a reasonable chance of another hefty special dividend, depending on how the forthcoming hurricane season turns out.
LANCASHIRE (LRE) | ||||
|---|---|---|---|---|
| ORD PRICE: | 776p | MARKET VALUE: | £1.26bn | |
| TOUCH: | 775-776p | 12-MONTH HIGH: | 827p | LOW: 564p |
| DIVIDEND YIELD: | 1.2%* | PE RATIO: | 9 | |
| NET ASSET VALUE: | 879¢ | COMBINED RATIO: | 67.2% | |
| Half-year to 30 Jun | Gross premiums ($m) | Pre-tax profit ($m) | Net investment income ($m) | Dividend per share (¢) |
|---|---|---|---|---|
| 2011 | 378 | 99.4 | 23.8 | 5.00 |
| 2012 | 515 | 107 | 17.1 | 5.00 |
| % change | +36 | +8 | -28 | |
Ex-div: 29 Aug Payment: 26 Sep *Excludes 2011's 80¢ special dividend £1=$1.55 | ||||
