With virtually no costly catastrophes to dent performance, Lancashire (LRE) delivered yet another impressive half-year underwriting result. A combined ratio (of claims to premiums) of under 71 per cent crowns the group as perhaps the UK listed sector's most profitable insurer. That reflects a bias towards such consistently low-loss insurance niches as terrorism and political risk cover.
But earnings slipped as premium rates continued to soften. Overall, Lancashire's rates fell 7 per cent, with particularly hefty rate pressure recorded in property retrocession and reinsurance (down 13 per cent) and aviation (down 11 per cent). The cost base was heftier than usual, too: operating costs rose 68 per cent to $57.6m (£34m). But that was significantly down to the $11.6m retirement package for the founding chief executive Richard Brindle, who stood down in April.
Lancashire's investment return was just 0.9 per cent, which isn't surprising given the book's focus on cash and bonds. To boost that return, 4.5 per cent of the book has been invested in higher-yielding assets such as equities and hedge funds.
Broker Numis Securities expects full-year pre-tax profit of $247.5m giving EPS of 68p (from $218.1m and 68.5p in 2013) and net tangible assets (NTA) of 383.2p.
LANCASHIRE (LRE) | ||||
|---|---|---|---|---|
| ORD PRICE: | 640p | MARKET VALUE: | £1.22bn | |
| TOUCH: | 639-642p | 12-MONTH HIGH: | 801p | LOW: 602p |
| DIVIDEND YIELD: | 1.4%* | PE RATIO: | 10 | |
| NET ASSET VALUE: | 791¢ | COMBINED RATIO: | 70.6% | |
| Half-year to 30 Jun | Gross premiums ($m) | Pre-tax profit ($m) | Investment income ($m) | Dividend per share (¢) |
|---|---|---|---|---|
| 2013 | 424 | 137 | 12.6 | 5* |
| 2014 | 635 | 99 | 14.7 | 5 |
| % change | +50 | -28 | +16 | - |
Ex-div: 27 Aug Payment: 24 Sep *Excludes total special dividends of 65¢ in 2013 £1=$1.7 | ||||
