Lancashire Holdings benefits from best conditions in a decade

“The best market conditions we have seen in a decade,” was the emphatic verdict of Lancashire Holdings (LRE) chief executive Alex Maloney after the Bermuda-based specialist reinsurer delivered a thumping rise in profits. This allowed patient shareholders to be rewarded with a second special dividend of 50¢ a share (39p), along with a projected 50 per cent rise in the annual payment as the year progresses.

The company, which participates in specialist Lloyd’s syndicates, rode that market’s buoyant growth, with Lancashire’s underwriting growth of 17 per cent in written premiums to £1.93bn reflecting the strength of the underlying market conditions.  

That was combined with largely negligible losses for the year – the group’s total net loss was just $106mn (£83mn) with none of these material for the company, or roughly a third of the total for 2022; a quiet hurricane season led to few large loss events and consequently helped to drive the profitability on underwriting. The results were also helped by a net 94 per cent increase in Lancashire’s income from investments, which when unrealised gains and losses are stripped out, totalled $108mn.

It should be noted that Lancashire will pay the special dividend on 12 April, with an ex-dividend date of 14 March, which is different from the annual payment date.

Broker Peel Hunt said the shares are currently valued at 1.4 times tangible net assets for 2024, with the planned launch of the US insurance business likely to boost the company’s property book. The broker values the shares at a current price/earnings ratio of 8 for this year.

It is hard to argue with the fundamentals, especially with an indicative dividend yield of 8.8 per cent, when the special dividend is included, acting as a risk premium. Buy.

Last IC view: Buy, 593p, 10 Aug 2023