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Lancashire bounds ahead

RESULTS: Bermuda-based insurer Lancashire has delivered another sector-beating underwriting performance, while a chunky special dividend payout makes for a very fat yield
February 22, 2013

Despite a $59.2m (£39m) loss from the Costa Concordia disaster and a $44.5m hit from Hurricane Sandy, Bermuda-based insurer Lancashire (LRE) still turned out a very profitable underwriting performance last year. The group’s combined ratio of claims to premiums remained steady at a sector-beating 63.9 per cent.

IC TIP: Buy at 872p

Premium rates are rising solidly, too, with rates up 4 per cent overall during 2012. Lancashire's property retrocession and reinsurance book saw rates rise 20 per cent, while the marine account delivered an 8 per cent rate hike and the offshore energy book boosted rates by 3 per cent. These were offset by the aviation and terrorism accounts, which saw rates fall 7 per cent and 3 per cent, respectively. The investment book, which is entirely focused on cash and safe-looking fixed income securities, managed a 3.1 per cent return - not bad at all in today's low interest rate environment.

Broker Numis Securities expects pre-tax profit of $244m for 2013, giving EPS of 127¢ and net tangible assets (NTA) of 581p (2012: 515p).

LANCASHIRE HOLDINGS (LRE)

ORD PRICE:872pMARKET VALUE:£1.42bn
TOUCH:872-874p12-MONTH HIGH:888pLOW: 682p
DIVIDEND YIELD†:1.1%PE RATIO:9
NET ASSET VALUE:852¢COMBINED RATIO:63.9%

Year to 31 DecGross premiums ($m)Pre-tax profit ($m)Investment income ($m)Dividend per share (¢)†
200863897.655.0nil
200962838956.015.0
201068933953.415.0
201163221943.215.0
201272423732.515.0
% change+15+8-25-

Ex-div: 20 Mar

Payment: 17 Apr

†Excludes special dividends: 125¢ in 2009, 140¢ in 2010, 80¢ in 2011 and 195¢ in 2012

£1=$1.53