This is from my write up from last year. I found the info from thumbing through the filings on the website.
It was accurate at one point but may not be right now. Also the warrants collect dividends which makes perfect sense. I think people who have been there since day one may have a low or no cost basis. I believe the hedge fund was Crescent or something like that and it sold it shares in LRE to LRE earlier in the year. Its how the bought back a huge chunk.
Filter #3 – Does it have management I can trust?
Lancashire is run by Richard Brindle, who was the long-time deputy underwriter to John Charman at Lloyds from the mid 1980s to 1999. Over that period, their average return was 17 percentage points better than the market, and they never had a losing year. Their business (“Tarquin”) was backed in 1994 by the predecessor fund to Capital Z and was sold to Ace in 1998 for a gain of approximately 5x. Capital Z obviously knew Brindle quite well from these days and their involvement in Lancashire stems from this. Both Brindle and Charman soon left Ace. Both resurfaced following 9/11. Charman founded Axis, which has generated the best ROE of the Bermuda “Class of 2001” (19%, versus the next best, ACGL, at 17%, after which it drops dramatically). Brindle resurfaced at AIG’s Lloyds business. You will find that Brindle is not your average insurance executive. In addition to having a great track record and having learned the business from the best person in the business, he is young, very smart, savvy and tough operator.
Management seems to have a large holding of warrants. These warrants also receive dividend payments which appears to help Management in properly managing the balance sheet. I have updated Lancashire to an Owner Manager holding due to large holdings being held by the Board and Management. One Board Member controls a hedge fund which owns 13% of LRE and that the rest of the Management team owns warrants and shares of around 10% - 13%.
