Lancashire Holdings Live Discussion

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Greyinvestor 09 Oct 2018

Update I’m saddened too by the loss of Catlin, and by Beazley getting too expensive. But I’m now equally weighted in RQIH and BPM. To my mind they offer decent value…

FRTEB 03 May 2018

Re: Update The bounce back commences... First quarter results show gross premiums up almost 10% and net profit of $42M compared to $30m for the same quarter last year. The market seems to like the results - sp up over 4% as I type.

FRTEB 15 Feb 2018

Update A very disappointing update but not unexpected - it's been on the cards with various catastrophes over the last year. No mention of a special divi (not surprising) and the interim & final don't add up to much. Never mind. It's days like this I look back fondly at my Catlin, Amlin and Novae that paid good dividends but were all taken over. Not much chance of that happening any time soon with LRE but they'll bounce back in due course - as is the way with (re-)insurance companies.

evenlongershot 02 Jan 2018

woodford out I read that Neil Woodford sold out. So I've bought in. Hoping that Woodford's wrong calls last year extend to this stock. Also encouraged by the Chairman putting £250k into the company last November at a share price considerably higher than today. Hoping for a 2018 take over...

Guitarsolo 13 Nov 2017

Re: Good rise Silks, "Does someone know a special dividend is in the offing???"I doubt it.......EPS has been falling for 4 years (this is likely to be the fifth). After Hurricanes HIM (which LRE helpfully said would cost net $100-200m - that's 50c-$1 per share) I can't imagine EPS will exceed 40c. LRE will do it's usual thing and "hand back" shareholders' capital having sat on it for however many years and not done much with I think the share price increase has been due to positive broker notes but (imho) they are just chasing somewhere to get you to put your dosh. But, what do I know, I was forecasting the share price to tank from 670p (post HIM). Overall, LRE is far too frothy for me. It's a potential takeover target because of its syndicate status which is in demand. But the metrics are still poor; premiums STILL falling even after HIM, claims high, investment returns rubbish, too much capital in the system. Good luck to holders - but I won't be jumping on board just yet (not at these prices anyway). Guitarsolo

SilksDream 01 Nov 2017

Good rise Good rise over the last few days.Does someone know a special dividend is in the offing???Should find out tomorrow.SD

Guitarsolo 12 Sep 2017

Re: Tyre kicking "I think that today's price rise is just silly."Quite so! It's nearly back to £7! Irma may not have been a complete wipe out (Katrina style) but speaking to loss adjusters in Miami I can tell you there is plenty of damage, plenty! Insured losses (that's what matters to LRE) are going to run into many billions and that will feed through to all reinsurers who are going to have a very bad year. The thing is, the mood seems to be that it wasn't "bad enough" to be a catalyst to change the market. Premium rates might hold but in reality they need to go up 20% or more. [link] This is a link to the Q4 2016 results. About a quarter of the way down is a table for the "RPI - Renewal Price Index" - basically an expression of this year's premium compared to last year for major classes (it can't be completely accurate as the asset being insured will change as well). EVERY measure is less than 100%. Same goes for the Lloyd's segment. Effectively, the premiums are heading down and down. Proof of the "soft" market. Wait for these to start changing and then LRE's fortunes may improve.Guitarsolo - does love a hard market!

Guitarsolo 12 Sep 2017

Re: Tyre kicking Should have put a "Sell" flag on that as well. If I was a holder (and I am not at present) I would think about getting out at these prices before the reality of the cost of Harvey/Irma kick in. Also, if LRE's share price is being bolstered by a possible takeover, the storm events will have either put a buyer off, or severely reduced the price they are willing to pay now that these claims are either coming in, or are IBNR (incurred but not reported). Sell imo. Guitarsolo

Greyinvestor 11 Sep 2017

Re: Tyre kicking Good stuff, Guitar. I think that today's price rise is just silly. The market is over reacting to news at the moment and the shares are now on an inflated valuation in my view.....What amazes me is that none of the professional investors seems to have looked at the balance sheet, or made comment on the poor EPS record. I used to feel that Invesco/Perpetual/Woodford did penetrating research, but their grip seems to be fading......

Guitarsolo 11 Sep 2017

Re: Tyre kicking Grey, Excellent post, especially if that was a "quick go"!I would very much agree with you - although I am usually less specific about NAV/NTAVs! Thanks for your quick calculations. After the takeovers of Amlin, Catlin, Novae, Canopius, and Endurance (last two privately owned), I think most owners of Lloyd's syndicates and companies have a rather inflated view of their companies' values. It's inevitable I suppose. So when LRE's share price was around £7 I too thought there was a lot of froth in that. Looking at the basics (premium rates and direction, claims and claims ratios, operating costs, regulation, new capital in the market, EPS, divi/ divi cover) I too think LRE isn't yet anywhere near being attractive for me - especially after today's bounce (up 46p to 657) which is presumably on the back of Irma not being "too" bad and José veering away into the Atlantic. I've owned LRE in the past (and have various holdings in CSN, DLG, AV. and LGEN) and would do so again - but we're nowhere near an attractive entry point whilst the soft market remains. As Grey points out, the divi payout is mostly made up of a special which is likely to keep dropping (and effectively means handing investors back their money!). Total divi this year might not exceed 20p (that's a guess by the way!). I'll sit and wait for the market to harden - but I've been waiting for that for years! It may never happen with seemingly endless new capital flooding the market.As Grey also points out, despite purchasing Cathedral, LRE has fewer strings to its bow than others like Beazley and Hiscox. It is not an operator in the "specialty" markets (where I work) and so can't diversify. Not that that guarantees better returns though. For holders of LRE, you've still got a reasonably well company here and a chance of a takeover. LRE's access to the market makes it attractive no matter what classes of business it writes. A weak pound drives up £-denominated earnings and makes it cheaper for an overseas takeover. But it isn't attractively priced enough yet to tempt me back. Guitarsolo - watching for a change of premium rates direction

Greyinvestor 10 Sep 2017

Apologies Sorry, I typed Games when I intended to type Guitar!

Greyinvestor 10 Sep 2017

Tyre kicking I'm away for most of this week, in Yorkshire, so I may not be able to post for a bit. But I will have a quick go.Long term posters will know that I've been a big fan of this sector, despite bumps along the way. However I sold out of LRE some time back, because of what I viewed as an excessive valuation and suspect strategy. I particularly disliked buying shares out of post tax income and then being taxed when my capital was handed back as a supposed dividend.This share needs careful analysis, more than most, but here is my take on it:The revenue has declined over a number of years, despite a serious acquisition (of Cathedral). Net profit, EPS et al have also declined sharply.The P/E ratio has been rising steadily. This is counter intuitive, and probably being driven by the large 'dividends'.The core dividend is about 11.4p, giving a yield of about 1.86%. There are 'specials' on top, which are giving you back your own money.I believe that an absolutely key number is the fully converted net tangible asset value. This doesn't lie. It shows that the asset backing of the company gone from £5.87 to £4.14 over four years, if my sums are right.Experts will immediately argue that the company has paid out £2.15 in 'special' dividends over this period. This is true, but by my calculations the company should have generated more than that out of retained profits.What the above says to me is that the acquisition, plus huge payouts to founders of the company, has severely damaged shareholder value. Not good.So how to value the company going forward?Giving the company the benefit of the doubt, let's assume that this is now a settled business.I would expect a serious hit to short term profits from the catastrophes. But then the burning of market capital should lead to modest rate rises, and to potential growth. This is fine with me, but not necessarily with everyone else. As of today 4.2% of Lancashire is in the hands of happy 'shorters'.There may not be a large special dividend this year.I think that you can value the company in two ways:Based on NTA, fair value is a bit below todays price, maybe somewhere around £5.75.Based upon projected earnings, I think that the company is substantially overvalued. Let's be optimistic and pitch for $100m this year ie £75m (well below analyst forecasts). This puts fair value at about £4.50.During the 2008 crisis, these company sold for around NTA. So in this case £4.14.I have LRE on my watch list. I have a very large holding in BEZ, and I'm holding. They have gone up four or five times during my holding period. The difference is that, like HSX, they have speciality businesses. LRE doesn't, or not to the same degree.A weak Sell in my view, at this price.Sorry Games, this is just my view. I'm often wrong.

Guitarsolo 06 Sep 2017

Re: LRE Prospects H2, Yes, there was only a short time between 1987 and Michael Fish and his magnetic wind symbols! Market crash? Well, like any (re)insurer, LRE probably holds lots of bonds and gilts to cover its liabilities. There's a lot of talk about the overheated bond market (stoked by low interest rates and low returns elsewhere, everyone chasing the yield). So if those prices crashed you would expect LRE's assets to fall but not necessarily its operating profit as investment returns are piddly anyway. If Harvey, Irma (and Jose) cause some substantial losses then operating profit will be hit hard as the claims ratio rises. But then premiums will rise in subsequent years so it might help. If you look under the chart tab at the share price since 2005 (sorry I tried to copy and past but it didn't work) you'll see that 2005-2008/9 the price bounced around 250p but only fell to just under 200p during the crash (as far as I can see) not too bad at all, very good compared to other financials. After that, it had a stellar rise to 900p before falling away to 650p now. I'd like to know what others (and Greyinvestor in particular) attributes this to, but I think there is a strong correlation with the dividend. 2009-2014 (ish) there were some very juicy divis - especially the specials. But since then they have dropped off a bit and hence the share price drop. If the above is correct, then the share price performance correlates strongly to the dividend - which in turn correlates to EPS (since the special dividends mean that much of the EPS is paid out as a dividend) and EPS correlates to net profits. If this year's net profits get hammered by the cat losses then the share price could be dragged lower when shareholders hoping for a juicy divi realise that in the short term it will be disappointing. Hence my comment that the time to really pile in is when the market hardens. Short term opportunities still exist though.....but I would wait to see what happens in the next few days and then what happens with Jose!Guitar - gently weeping!

Hydrogen Economy 06 Sep 2017

Re: LRE Prospects GSGood post.The market has been waiting for (aka hoping for) a large catastrophe to burn some of the capital away and harden the market.That's fine, as long as it's not my capital being burned away! Hard to know how long it will take before all this feeds through into higher rates and profitability, markets are forward looking so I guess the SP may anticipate that but I guess it will take some time for the bottom to be reached (presumably when market feels it knows how big a liability LRE are sitting on.Any thoughts on the resilience to market crash ? Presumably crashes don't generally coincide with catastrophes. Ah but then I seem to remember in 1987....H2

Guitarsolo 06 Sep 2017

Re: LRE Prospects HE, Your post and my current obsession with following Irma prompted me to re-read the press release of 27th July:file:///C:/Users/Simon/Downloads/Q2%202017%20LHL%20Earnings%20Release%20-%20FINAL%20(1).PDFA couple of noteworthy comments in the Alex Maloney (Group CEO) section, to paraphrase:1) There has been a lower level of catastrophe losses in the first half of 2017 compared to 2016. - Oh dear, said before the recent events but that was unfortunate and he obviously hadn't consulted [link] to see what was brewing in the Atlantic in the form of Harvey and Irma......but that's life in reinsurance.2) LRE purchased more protection against hurricane risk than in previous years.....Well done, prophetic almost! That might soften the blow of Irma losses if it causes substantial damage to Florida. OverallThere are many reasons to buy LRE, particularly post an expensive catastrophe when the share price should have fallen to take into account forthcoming losses. As you have noted, "cats" are good news perversely as they lead to higher rates. However, take a good look at the July press release and you'll see that almost across the board rates (i.e. premiums) have been falling - but the risk hasn't changed! That eats away at profit margins (although LRE's have been good albeit in low-claim years). Like any reinsurer, LRE will struggle to make a substantial profit until the market hardens (rates rise). I work in reinsurance (but no connection with LRE or property insurance) and can tell you that the whole market needs to harden to return to profitability. The problem is that there is massive over-capitalisation in the market. Too much money looking for a home. QE is largely to blame along with terrible returns on other types of investment. The market has been waiting for (aka hoping for) a large catastrophe to burn some of the capital away and harden the market. Irma might be it (in conjunction with Harvey) if it the "right sort of losses" (right amount, right cause etc). Overall, in the short term Irma does provide an opportunity to dip into LRE and other reinsurers with the cost of a cat of two already baked in to the share price. But the best time to invest will be when the market hardens properly. It might need a cat or two more for that! Oh, and you asked what might be next.....José!!!! It's forming in the Atlantic. It's early days but it could form another big windstorm. Hurricane season doesn't end until 30th November so there's still time. Guitarsolo