Bermudan-based underwriter Lancashire reported a combined ratio (of claims to premiums) of just 44.6 per cent for 2009, leaving the group as one of the most profitable underwriters around. Indeed, that represents a dramatic improvement on last year's already solidly profitable 86.3 per cent ratio.
This reflects the fact that Lancashire - which specialises in insuring against wind-storm damage in North America - has benefited from 2009's nearly non-existent hurricane season. But without losses to force insurers to push up premium rates, the temptation will eventually arise to chase business by cutting rates. And Lancashire does note that the reinsurance market is now off its all-time highs and that specialist classes are coming under pressure. With conditions softening, writing new business on decent terms could get difficult, leaving underwriters potentially needing less capital. Accordingly, returning funds to shareholders is on the agenda - Lancashire paid a 125¢-a-share special dividend with these figures and has flagged the possibility of further payments.
Meanwhile, the investment portfolio remains focused entirely on safe-looking cash (7.1 per cent of the book) and bonds (92.9 per cent), which delivered a solid enough 3.9 per cent return in 2009.
Broker Numis Securities expects pre-tax profit of £263m for 2010, with EPS of 96.3p.
LANCASHIRE HOLDINGS (LRE) | ||||
|---|---|---|---|---|
| ORD PRICE: | 473p | MARKET VALUE: | £805m | |
| TOUCH: | 473-474p | 12-MONTH HIGH: | 482p | LOW: 366p |
| DIVIDEND YIELD: | 2.1% | PE RATIO: | 3 | |
| NET ASSET VALUE: | 810¢ | COMBINED RATIO: | 44.6% | |
| Year to 31 Dec | Gross premiums ($m) | Pre-tax profit ($m) | Investment income (£m) | Dividend per share (¢) |
|---|---|---|---|---|
| 2005 | 3.00 | -11.6 | 2.10 | nil |
| 2006 | 626 | 160 | 54.2 | nil |
| 2007 | 753 | 392 | 78.4 | nil* |
| 2008 | 638 | 97.6 | 56.0 | nil |
| 2009 | 628 | 389 | 59.5 | 15.0* |
| % change | -2 | +299 | +6 | - |
Ex-div: 17 Mar Payment: 14 Apr *Excludes special dividends of 110¢ in 2007 and 125¢ in 2009 £=$1.54 | ||||
