Lancashire's (LRE) shares fell 5 per cent after the Bermuda-based insurer revealed that its combined ratio (of claims to premiums) had deteriorated 6 percentage points in 2013. But investors shouldn’t worry too much - with a ratio of just 70.2 per cent, Lancashire remains one of the sector’s most profitable underwriters.
That slippage wasn’t down to negative claims experience. Rather, it significantly reflected costs from November’s acquisition of underwriter Cathedral Capital and Lancashire’s contribution to the capitalisation of reinsurer Kinesis. But claims from energy losses, last summer’s European hail and flood events and further losses from the Costa Concordia disaster were also factors.
Lancashire's premium rates are under pressure, too, falling 3 per cent overall in 2013. The aviation account saw rates fall 11 per cent, while management says property-catastrophe pricing dropped 10-15 per cent. Only Lancashire’s marine account reported firmer pricing, with rates up 4 per cent. The bond and cash-focused investment portfolio also struggled: with bond yields rising, 2012’s 3.1 per cent return slipped to just 0.3 per cent.
Broker Numis Securities expects EPS of 71.8p for 2014 (from 70.9p in 2013) and net tangible assets (NTA) of 375p.
LANCASHIRE HOLDINGS (LRE) | ||||
|---|---|---|---|---|
| ORD PRICE: | 715p | MARKET VALUE: | £1.31bn | |
| TOUCH: | 715-716p | 12-MONTH HIGH: | 838p | LOW: 687p |
| DIVIDEND YIELD†: | 1.3% | PE RATIO: | 9 | |
| NET ASSET VALUE: | 798¢ | COMBINED RATIO: | 70.2% | |
| Year to 31 Dec | Gross premiums ($m) | Pre-tax profit ($m) | Investment income ($m) | Dividend per share (¢)† |
|---|---|---|---|---|
| 2009 | 628 | 389 | 56.0 | 15.0 |
| 2010 | 689 | 339 | 53.4 | 15.0 |
| 2011 | 632 | 219 | 43.2 | 15.0 |
| 2012 | 724 | 237 | 32.5 | 15.0 |
| 2013 | 680 | 218 | 25.4 | 15.0 |
| % change | -6 | -8 | -22 | - |
Ex-div: 19 Mar Payment: 16 Apr †Excludes special dividend: 125¢ in 2009, 140¢ in 2010, 80¢ in 2011, 195¢ in 2012 and 65¢ in 2013 £1=$1.65 | ||||
