Author Topic: LRE.L - Lancashire Holdings Ltd  (Read 361276 times)

Sullivcd

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Re: LRE.L - Lancashire Holdings Ltd
« Reply #1360 on: June 19, 2018, 10:22:05 AM »
Does anyone know why the share price has been off recently?


WhoIsWarren

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Re: LRE.L - Lancashire Holdings Ltd
« Reply #1361 on: June 25, 2018, 03:23:06 AM »
Does anyone know why the share price has been off recently?

As far as I'm aware there is no news specific to Lancashire.  More sellers than buyers.

Industry pricing continues to disappoint, which is quite a hit given the losses incurred last year.  Who knows exactly what's going on there, but cheap money accepting mispriced risk could explain part of it.

The one bright spot is that since the 2017 losses, many traditional insurers have been exiting loss-making lines of business, indicating point of max pain has probably been reached.  Lancashire hasn't had much portfolio trimming to do as it never over-expanded and indeed it is able to pick up the odd good underwriter and round out its offering.  There's no doubt that the group needs to have a wider portfolio offering in time, but now's not the time to aggressively do this.  I really admire the Group for its patience.  Hats off to the board and CEO Alex Maloney for resisting the siren call of growth.  The path they've chosen certainly doesn't win the hearts and minds of "story" investors

Cigarbutt

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Re: LRE.L - Lancashire Holdings Ltd
« Reply #1362 on: June 25, 2018, 05:03:30 AM »
Does anyone know why the share price has been off recently?

As far as I'm aware there is no news specific to Lancashire.  More sellers than buyers.

Industry pricing continues to disappoint, which is quite a hit given the losses incurred last year.  Who knows exactly what's going on there, but cheap money accepting mispriced risk could explain part of it.

The one bright spot is that since the 2017 losses, many traditional insurers have been exiting loss-making lines of business, indicating point of max pain has probably been reached.  Lancashire hasn't had much portfolio trimming to do as it never over-expanded and indeed it is able to pick up the odd good underwriter and round out its offering.  There's no doubt that the group needs to have a wider portfolio offering in time, but now's not the time to aggressively do this.  I really admire the Group for its patience.  Hats off to the board and CEO Alex Maloney for resisting the siren call of growth.  The path they've chosen certainly doesn't win the hearts and minds of "story" investors

Lancashire is a company I respect a lot too. Lagging market performance is understandable given the general short term orientation mindset. If you look at their pattern of exposure (direct exposure and level of reinsurance purchased) concurrent to the last January renewal period, they are still protecting from the downside. Even if 2017 had material insured events, it was not a true stress test.

As far as the underlying cycle, in my humble opinion, this cycle has been incredibly unusual. It must be awfully hard to maintain discipline and to walk away from most “opportunities” when competitors use malleable assumptions and statistical extrapolation of the recent past in order to evaluate the price of downside risk, a price that is “discovered” after the fact and which has, historically, often differed materially from the original estimate.

Of course now, they look too conservative and irrelevant. That perception too may change.

Something I find interesting is that there may be reasons for the incredible softness (suppressed interest rates, abundance of cheap capital etc) but a firm does not need to identify and define those factors, it simply needs to show discipline and walk away when the price does not make sense. Simple but not easy.

Never bought a stock on the London Exchange but Lancashire may eventually be one.

Sunrider

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Re: LRE.L - Lancashire Holdings Ltd
« Reply #1363 on: October 10, 2018, 02:19:20 AM »
Any of the experts here have a view on their loss pre-announcement? Seems to be quite a hit $30 +30-45m. In the years that I had a position in this stock, I don’t recall them ever feeling compelled to pre-announce large losses (didn’t have any). I’ve not dug in but this seems to run counter to their ‘underwriting first’ / unique skill narrative.

Any views welcome!

Dynamic

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Re: LRE.L - Lancashire Holdings Ltd
« Reply #1364 on: October 10, 2018, 03:52:40 AM »
I'd also appreciate views on this.

Perhaps it's simply a sign of honest bumpy earnings rather than dishonest smooth earnings, the sort of thing I appreciated when Berkshire Hathaway was so exposed to catastrophe losses. The company still expects to be profitable over the first 9 months of 2018 on aggregate, so it looks like the type of random clumping of loss experience we should expect from time to time.

I've watched it loosely for some time but never bought any LRE.L - usually finding GARP opportunities I preferred to invest in - but I would suffer no tax issues with their sometimes substantial special dividends of their excess profit and generally admire a company that acknowledges it has no good uses for excess capital and distributes it to shareholders rather than chasing inadequately priced risks in a quest for market share.

Rupert Hargreaves, writing for Motley Fool UK on 8th October, seems keen to buy on weakness, expecting a decent forward yield, and hopes the projected losses are mildly overestimated. He has been bullish on Lancashire for quote some time and points out that star fund manager, Neil Woodford, is also a fan.

I would imagine that full year profits will be fairly modest and there will either be no special dividend or one that is smaller than in many recent years. I imagine they'd hope to resume a healthy special dividend next year barring large losses.

Cigarbutt

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Re: LRE.L - Lancashire Holdings Ltd
« Reply #1365 on: October 10, 2018, 07:28:23 PM »
Humble contribution.
Surprised too by the announcement as this is not part of a widespread movement in the reinsurance industry vs Q3 catastrophe results.
LRE has pre-announced catastrophe results before and has been conservative, in correlation to their profile (underwriting culture, reserve development etc).
This could be the beginning of a new trend but I think this is likely to be "random clumping" and the trigger for the announcement may have been the result of an idiosyncratic exposure in the marine segment and I wonder if the recent Lürssen shipyard fire is the explanation for the unusual marine loss.
https://www.reinsurancene.ws/pcs-designates-lurssen-shipyard-fire-as-market-braces-for-major-loss/

WhoIsWarren

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Re: LRE.L - Lancashire Holdings Ltd
« Reply #1366 on: October 11, 2018, 01:38:54 AM »
Cigarbutt - yes, the marine loss largely relates to the one you mention.  I understand this shipyard has been a long standing client and has never had a loss, so I think it's right to think of this as 'random clumping'.

Tough times for the company, but there are reasons to be somewhat optimistic.  There is very definitely a withdrawal of capacity from the specialty markets, partly driven by a Lloyd's stated objective to be more selective with business plan approvals for 2019.  The results haven't been finalised yet but it seems like they're serious -- pressured by the rating agencies and the UK financial regulator.  Even in the absence of actions by Lloyd's, specialty insurers are getting real about the pricing environment and are pulling out of poorly performing lines.  You see announcements every week on this front, have done for a lot of this year.  Not from Lancs though, as they always write for profit not for top line.

In addition to improved specialty insurance pricing, Lancashire has added a couple of new teams in the last few months, as discussed at the last quarterly results / earnings call.  It's worth pointing out that management has been VERY disciplined regarding bringing in new teams over the last few years -- making sure they can get the numbers to work, not just getting top line growth.  For that they deserve huge credit.  Now with the rest of the industry culling staff, top quality underwriters are more willing to move for more realistic salaries.  It's reasonable to assume some will fancy the idea of working at an "underwriting first" shop like Lancashire.  Don't expect dramatic moves, but 2-3-4 teams in 2019 would be nice.

Factoring in some improved pricing and the 2 previously announced new teams, revenues and profits will increase by a reasonable rate in 2019, without factoring in any heroics. There could be other positives, for example the offshore energy market which has endured a rough 3-4 years.


« Last Edit: October 11, 2018, 01:42:59 AM by WhoIsWarren »

Dynamic

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Re: LRE.L - Lancashire Holdings Ltd
« Reply #1367 on: October 11, 2018, 05:08:12 AM »
Thanks Cigarbutt and WhoIsWarren.

That narrative sounds very reasonable, WhoIsWarren, and it does seem to fit the story that Lancashire remains focused on disciplined, conservative and profitable underwriting and is forthright in recognising and revealing losses when they occur.

A price around 540p sounds a lot more attractive than earlier prices in the 600s and 700s I've been watching. I may give it some serious consideration.

WhoIsWarren

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Re: LRE.L - Lancashire Holdings Ltd
« Reply #1368 on: October 11, 2018, 07:57:39 AM »
No problem.

That was the positive narrative - there's a negative one too! :(  :o
Between 2017/18 Lancashire won't have made any money. I'm hoping it's because we're near the bottom of the cycle, but it's worrying that pricing not rebound more after last year's losses.  The speed at which capital can be added to the market is different from the past -- in theory days rather than months/quarters.  Perhaps poor horse (poor racecourse better analogy)??

However at current share price I am very confident that the private market value is quite a bit higher, not withstanding the fact that PMVs have come down over the last year or two.

Cigarbutt

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Re: LRE.L - Lancashire Holdings Ltd
« Reply #1369 on: October 12, 2018, 06:06:20 AM »
^There have been dividends along the way but share price is at the same level it was in 2010.

The Lloyd's insurance market is being redefined and the industry looks incredibly commoditized in a world awash with capital.
Lloyd's was formed in 1688, a revolution period than ended up as a gloriously smooth transition but it must have been a tough time to be in the insurance market.
I think Lloyd's will remain relevant and cost focus should be a permanent feature but the bet that LRE.L is making is that, somehow, sanity will come back to the pricing side.

At this point, this is anybody's guess:
https://www.fitchratings.com/site/pr/10047166
The link also adds some perspective on the relatively unexpected pre-announcement.

Would be tempted to buy here for the long run but wonder if it may not be darkest just before dawn as potential triggers for a true hard market may lessen LRE's capacity to enjoy the upside. The underlying cycle seems to be broken and need to go back in history to study previous cycles. Hopefully, won't need to go back to the time when marine underwriters used to record the sinking of ships with quill pens (oops, some apparently are still doing that in the Lloyd's world).