Author Topic: LRE.L - Lancashire Holdings Ltd  (Read 407343 times)

WhoIsWarren

  • Sr. Member
  • ****
  • Posts: 290
Re: LRE.L - Lancashire Holdings Ltd
« Reply #1370 on: October 12, 2018, 06:50:45 AM »
Cigarbutt - looking the share price alone is not fair the dividends since 2010 have been substantial! The dividend adjusted share price at the start of 2010 was 1.70 (i.e. a 3-bagger all in). 

Now if you'd said since 2013.....  :(

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).

Actually, if I'm not mistaken Lloyd's records - with a quill pen - all merchant ships (above a certain size I presume) that go down.  This isn't done by the underwriters, but rather one of the "waiters".  Lloyd's is a very traditional place, really cool to go on a tour if you're ever in London.

I'm sure you know it but Lloyd's is only one of Lancashire's four platforms.  But the point you're making is valid - a lot of insurance is a commodity.  To "beat the market" you either have to write niches that are more protected / have some barriers to entry, or else stay very disciplined.  Lancashire tries to do a combination of the two.  The second of these is much like what a good (value?) investor in the capital markets does. In fact there are similarities with the current investing and insurance markets don't you think?  Low interest rates and falling perceptions of risk have encouraged investors into both.


Cigarbutt

  • Hero Member
  • *****
  • Posts: 2406
Re: LRE.L - Lancashire Holdings Ltd
« Reply #1371 on: October 12, 2018, 08:17:46 AM »
Actually, if I'm not mistaken Lloyd's records - with a quill pen - all merchant ships (above a certain size I presume) that go down.  This isn't done by the underwriters, but rather one of the "waiters".  Lloyd's is a very traditional place, really cool to go on a tour if you're ever in London.

I'm sure you know it but Lloyd's is only one of Lancashire's four platforms.  But the point you're making is valid - a lot of insurance is a commodity.  To "beat the market" you either have to write niches that are more protected / have some barriers to entry, or else stay very disciplined.  Lancashire tries to do a combination of the two.  The second of these is much like what a good (value?) investor in the capital markets does. In fact there are similarities with the current investing and insurance markets don't you think?  Low interest rates and falling perceptions of risk have encouraged investors into both.

Thank you for the perspective WhoIsWarren.
That's actually quite a fascinating topic (risk perception).

I'm looking for a new book that may not exist yet: From coffee house to blockchain.
https://www.linkedin.com/pulse/chainthat-17th-century-london-market-coffee-house-rick-huckstep

The trend has certainly been to put emphasis on the complexity of models and on the quantity of data, which makes person-to-person haggling outdated. A risk though is that the wall of data complexity may put a veil in the growing distance between the basic underwriter and the actual pricer. I'm only a guy typing on screen but really wonder if the underwriting responsibility with its embedded fundamental analytical power is not being partially discarded by alternative forms of intelligence. The basic underwriter (actuarial side) is, by definition, partly playing blind and final pricing results form a whole lot of inputs and incentives that are far from transparent and rational. At times, it's what you don't know that can kill you and wonder if this is not such a time when down-to-earth historical long-term perspective should at least be considered, in terms of downside risk.

For the insurance underwriting part, here's a link, for which I cannot locate the origin, that was probably written with a typewriter but which may be more relevant than ever.

https://www.casact.org/pubs/forum/88fforum/88ff241.pdf
Let the good times roll.
« Last Edit: October 12, 2018, 08:19:40 AM by Cigarbutt »

fareastwarriors

  • Hero Member
  • *****
  • Posts: 3736
Re: LRE.L - Lancashire Holdings Ltd
« Reply #1372 on: November 12, 2019, 10:48:56 AM »
Awfully quiet here. What's going on with Lancashire ?

Cigarbutt

  • Hero Member
  • *****
  • Posts: 2406
Re: LRE.L - Lancashire Holdings Ltd
« Reply #1373 on: November 12, 2019, 02:47:55 PM »
Awfully quiet here. What's going on with Lancashire ?
I would say slow and steady wins the race.
Their Q3 trading statement is in line with expectations for catastrophes and they are (and will be able to) benefiting from the hard market.
A nice feature for LRE (like a few others) is that, contrary to many others who 'react' to the realization that reserves are inadequate by raising prices, they seem to wait for the market to meet their internally determined price points, which appears to be a defining factor for discipline and ability to really grow when hardening occurs. Their interim first six-month-2019 report is more complete and the reserve development table on page 26 is interesting.
I would say they deserve a premium to book value and the question is, at this point, by how much?

BroKon

  • Newbie
  • *
  • Posts: 46
Re: LRE.L - Lancashire Holdings Ltd
« Reply #1374 on: November 12, 2019, 06:22:46 PM »
They were about as bullish as they have been in years, on their Q3 call, in terms of their outlook for a potential hard market. It clearly won't be a classic in terms of P&L this year, and they haven't yet quantified Hagibis losses (although they did have a decent investment return - at least compared to their historically conservative allocation). They also won't be paying out a special dividend as they want to put their capital to work in the Jan renewals, which is indicative of how bullish they are turning.

As Cigarbutt points out they have remained very disciplined throughout the soft market, but its hard to seem them trade over 1.8x tangible book until we can see whether the Jan renewals, in for example Japanese Wind, can reprice properly, or if the excess capacity continues to dampen rate increases.

BroKon

  • Newbie
  • *
  • Posts: 46
Re: LRE.L - Lancashire Holdings Ltd
« Reply #1375 on: November 17, 2019, 06:27:54 PM »
It is also probably worth mentioning that Odey have reduced their short by just over half since June. They "only" have a 3.19% short position now, but it does help explain some of the run ups to 1.8X book we have had recently.

BroKon

  • Newbie
  • *
  • Posts: 46
Re: LRE.L - Lancashire Holdings Ltd
« Reply #1376 on: March 18, 2020, 01:49:17 AM »
Lancashire is starting to look like value again, although you could say that about quite a few names I suppose. Does anyone have a sense of what their exposure is to "major event cancellation" insurance, I remember a few years ago they talked about having exposure, but I can't find any reference to it now in their annual report. Reason I ask is that the price action got materially worse after the Euro 2020s were cancelled, and as they tend to be exposed to the higher layers, this one worried me a bit.

Cigarbutt

  • Hero Member
  • *****
  • Posts: 2406
Re: LRE.L - Lancashire Holdings Ltd
« Reply #1377 on: March 18, 2020, 06:08:51 AM »
^LRE is indeed looking good on an absolute and relative basis but the opportunity set has shown signs of life and may (who knows?) enter a non-linear phase. LRE is on a secondary watchlist and don't hesitate to feed this thread.

In part because of the above, the following impression is based on an incomplete evaluation of various disclosures and the business interruption clauses in various contracts may be subject to interpretation and exposure could, in theory, be triggered by a 'force majeure'. If that's important in your decision making, you could ask the company directly. My understanding is that LRE's exposure to business interruption is limited and may be linked to the energy segment. I think the business interruption clauses are conditionally tied to property damage and not simply tied to supply chain disruption and there is possibly even specific exclusion of pandemics-related coverage.

LRE's ROE has been and will be significantly tied to underwriting profitability (investment results are less important and negative results in that part are likely to be mitigating and not firm threatening, if applicable). LRE is very well positioned to grow market share in a profitable environment and they even have the possibility to use their pre-emptive right to issue 15% of shares if the price is right.

BroKon

  • Newbie
  • *
  • Posts: 46
Re: LRE.L - Lancashire Holdings Ltd
« Reply #1378 on: March 19, 2020, 06:03:34 PM »
For those that are interested I did some more digging, LRE discontinued their contingency book in 2016, so while they may still write some occasional contracts, its probably safe to assume that the current spate of concert and sporting cancellations won't be a loss event for them.

So in terms of downside risks, we are left with their Energy book, where they have historically suffered when oil prices were depressed due to reduced demand for insurance, and their Marine book, where you have to think that their Cruise ship business will be materially down at the next renewal.

If you can live with these risks then any price close to tangible book looks very attractive, but as Cigarbutt points out, it depends on your opportunity set, as while the price is cheap, its not distressed, which may be where the selling pressure is coming from.

BroKon

  • Newbie
  • *
  • Posts: 46
Re: LRE.L - Lancashire Holdings Ltd
« Reply #1379 on: June 10, 2020, 01:27:48 AM »
https://www.lancashiregroup.com/content/dam/lancashire/corporate2020/Investors/gated/20_Placing_Announcement_9_June_2020.pdf

Capital raise by Lancashire. If you wanted to know how hard the insurance market was becoming this should tell you all you need to know. They are among the best underwriters in the business, so this is a pretty strong signal.

Unfortunately, the shares have had a very strong run into this placement so its hard argue these are cheap anymore.