Lancashire Holdings Limited

Alex Maloney - Group Chief Executive Officer Paul Gregory - Group Chief Underwriting Officer and Chief Executive Officer, Lancashire Insurance Company (UK) Limited Elaine Whelan - Group Chief Financial Officer and Chief Executive Officer, Lancashire Insurance Company Limited Peter Scales - Chief Executive Officer, Cathedral Capital Limited

Kamran Hossain - RBC Capital Markets Ben Cohen - Canaccord Genuity Andreas Van Embden - Peel Hunt, LLP Jonny Urwin - UBS Investment Bank Nick Johnson - Numis Securities Paris Hadjiantonis - Keefe, Bruyette & Woods, Inc.

Okay, thank you. Good morning, good afternoon, everyone.

Thank you for dialing in to our third quarter conference call. Today we have myself, Paul Gregory, CEO; Elaine Whelan, CFO; Pete Scales, CEO of our Cathedral business; Darren Redhead, COO of Kinesis; and Denise O’Donoghue, CIO.

I’m pleased to report we grew fully converted book value per share by 2.6% for the third quarter, with an excellent combined ratio of 70.2%. This brings our year-to-date growth in fully converted book value per share to 9.3%, excluding any impact of warrant exercises.

So, I’m delighted that we continue to show that we can increase the value for Lancashire’s shareholders in this challenging market. This quarter we have been tested on both sides of our balance sheet.

We’ve experienced losses, most notably the Tianjin port explosion, and we have witnessed the volatility in investment markets. So I believe our results demonstrate that we have the correct underwriting and investment strategy for the current trading conditions.

We do not believe that Tianjin loss or this quarter’s investment losses will change the immediate outlook for the industry, but yet again, take more dollars out of the system. So as time goes by, we believe that smaller historical losses will have a more volatile effect on the industry’s earnings.

There really is little margin left in most classes of business, with zero in some even in a cat-free year. So it feels like we are near the bottom of the market.

This market reminds me of the trade conditions we witnessed in the late ‘90s, which skirted the bottom of the market until the events of 9/11 unfolded. There will need to be a catalyst for change and capital will have to be impaired before real change happens.

Again, even with the losses we have sustained in this quarter, we continue to demonstrate Lancashire’s ability to trade through the current market conditions and provide an acceptable return for our shareholders. We observed with interest some of the different strategies being deployed by others to try and mitigate the current conditions.

Most we do not subscribe to, so we fix our own strategy and underwrite our way through this stage of the cycle. We look forward to the day when we can play a different tune.

But until that day comes, we stay committed and focused to doing the best jobs for our shareholders, clients and brokers. I’ll now hand over to Paul Gregory.

Thanks, Alex. In the absence of any significant loss events, the softening market conditions have continued through the third quarter, and expect to continue through the remainder of 2015.

It’s fair to say that the pace of change of softening is less drastic, but the direction of travel remains the same. There have been a number of loss events in the quarter, but none of the quantum to bring about any market change in any class of business.

However, the attrition continues. For us, a year to date and third quarter combined ratio in the low 70%, once again demonstrates the quality of our underlying portfolio, and the group has escaped any material impact from the most talked about losses in the quarter.

Our underwriting team continues to underwrite in a disciplined manner, focusing on underwriting profitability and not top-line income. This strategy applies across all three platforms of the group, and we’re fortunate to have an underwriting bench strength that is most basic by making sensible underwriting decisions, and we’ve demonstrated an ability to continue to deliver underwriting profit through all stages of the cycle.

Our top-line written premiums are once again impacted by both the energy segment with some non-annual contracts, particularly this quarter in the marine portfolio. The Cathedral book is less lumpy and performs as expected with far less dramatic premium reductions, which broadly track the rate reductions in their classes of business.

We’ve spoke openly about the drastic premium deterioration in the upstream energy market over previous quarters. And both the demand and rating environment continue to be challenging.

We’ve been successfully maintaining our position on core clients, unless you want to grow your top-line and exposure in a falling market, there’s no way you can prevent top-line shrinkage in these market conditions, simply maintaining the status-quo results in significant premium reductions. We accept this, because ultimately this is the sensible decision to take, even if, as a group we’re weighted to the energy sector, given our market-leading position in that class.

We anticipate energy market conditions to remain challenging into 2016, albeit losses in the sector this year will give the market pause for thought, so we do expect the pace of change to slow a little. There are a small number of high-premium marine accounts for even outside the third quarter, which accounts for almost all the premium reduction in this class of business.

So we’ll see the benefit of these contracts renewing in the fourth quarter and beyond. Premium reductions elsewhere are simply a sign of market conditions and disciplined underwriting.

The positive remains as a significant buyer of reinsurance across the group, we’re able to pay the reinsurance programs, allow us to appropriately balance risk and return, and at one-one we will view our reinsurance requirements, once again. It would be refreshing to sit here today and be in a position to explain the numerous opportunities and things we can exploit.

But until market conditions change, our focus remains on defending the core book, underwriting discipline will remain. It may now seem a somewhat boring story, and it feels we’ve been preaching this for rather a long time, but we believe that in these market conditions patience is a virtue.

And we’ll wait to exploit any such opportunities swiftly when they do arrive, and we have the underwriting platforms to do just that. In the meantime, our cycle management on the underwriting side allows us to expedite our capital management strategy, by returning earnings via our special dividend announced today.

I’ll now pass over to Elaine.

Thanks, Paul. Hi, everyone.

Our results are on the website, as usual. We had another quiet quarter in the last run, and again had some favorable developments on prior accident year reserves.

Underwriting performance is therefore pretty strong, with a net loss ratio of 26.4%. In an incredibly volatile quarter for investments, we had a small investment loss, but that was well contained at less than 20 basis points.

So, as Alex said, overall ROE for the quarter is a decent 2.6% bringing us to 9.3% for the year, after adjusting for the impact of warrants. Cathedral and Kinesis contributed 0.9% and 0.5%, respectively, to the ROE for the quarter and 2.3% and 0.9% to the year to date.

As Paul mentioned, there is a reduction again in gross premiums written this quarter compared to last year. As before, that is primarily driven by multi-year deals that we wrote in 2014.

The majority of our book is written in the first-half of the year, the reduction caused by prior year multi-year contracts is less pronounced this quarter than in prior quarters. About $30 million of multi-year contracts were written in Q3 [ph] 2014 that weren’t up for renewal this quarter.

For the year-to-date, approximately $184 million of multi-year contracts written in 2014 are not yet due to renew. We still have the benefit of the earnings in those deals coming through, and you’ll see in the press release the reduction in our gross premiums earned is much less than in written.

If you recall, I said last quarter that ignoring the lines of business that tend to be characterized by non-annual contracts, we wrote up to $120 million of multi-year deals across the property cat and energy offshore lines. About 30% to 35% of that earned in 2014 and about 45% of that will earn this year, with the majority of the rest earning in 2016.

Multi-year deals in our terrorism and political risk books are more typical of those lines of business, with deal flow being more unpredictable in the political risk book, in particular. For the fourth quarter, I’d expect we’ll see a bit more pressure on premiums.

But as it’s our lowest volume quarter, there’ll be less of an impact. As in prior years, we don’t give top-line guidance, but we should have less of an impact in 2016 from the multi-year deals.

There will still be some earnings coming through from 2014 deals, but our top-line will be more stable compared to this year. While we expect pricing pressure to continue, there are always bits and pieces of new business and other opportunities out there.

We’ve also recently hired a few more underwriters, and so we expect a little more business to come our way from them. On acquisition costs, I noted last quarter that I expect to see that ratio in the 25% to 26% range due to changes in business mix and changes in our reinsurance program.

The current quarter and year-to-date ratios are in line with that. On losses, as I mentioned we were very light on losses this quarter.

There were no cat events to speak of, but we did have a few smaller current accident year losses come through, so our accident year ratio is slightly elevated due to that, at 47.2% for the quarter, although there we no loss of any great significance in there. Otherwise, we had some more favorable development on prior accident years, with the vast majority of that coming from the 2013 and 2014 accident years.

Again, there are no specific drivers of the releases this quarter, just general IBNR releases, with a lack of anything reported, which is always nice to have. As I mentioned, our investment portfolio, including our currency hedging had a small loss for the quarter.

The markets had another quarter of significant volatility, so we were pleased our portfolio performed relatively well, supporting our strategy of a small allocation to low-volatility risk assets. With the risk-off-quarter, the losses in the risk assets were offset somewhat by positive returns in our standard fixed-income portfolio, as reduction in yields offset the widening credit spreads.

With the rebound in markets in October, our portfolio has also recouped - already recouped third quarter loss. For the immediate future, we continue to focus on interest rate risk, and are happy with our current positioning situation, and hedging against Fed rate hikes, whenever they finally come.

On KCM, as the 2015 underwriting fees are earned in line with the underlying risk profile, most of that came in over the third quarter, with about $1.5 million due to earn in Q4. As there are no losses in the 1/1/15 underwriting cycle, profit commissions could be just under $7 million.

So the earliest we would receive that would be Q1 2016. Just a reminder that KCM’s expenses are included in Lancashire’s G&A.

So much the last quarter, our G&A ratio looks a little high again, and that’s in part, due to reduced earnings as you see the actual dollar spend is down on last year. There’s a bit more movement in our G&A quarter-on-quarter now than there used to be, as Cathedral’s warrant accrued are linked to their profit.

So that will be moving around a bit over the year. But for the full year, I’d expect the dollar spend to be broadly in line with last year, once the amortization of our finite life intangible assets are backed out.

The movement in our stock compensation expense is due to vesting and performance assumptions, and it can move around a bit quarter-on-quarter. Our financing expenses this quarter were impacted by the mark-to-market of our interest rate swaps.

Ignoring movements in that, the financing costs tend to be around $4 million a quarter. Finishing off on capital, as you will have noted in our press release, we’re declaring a dividend of $0.95 per share.

That comes to about $188 million, which is clearly greater than earnings. For 2016, we expect a continuation of current market trends, and further ability to enhance our reinsurance program.

As a result, we’re able to trim capital back a little further to around the $1.35 billion to $1.4 billion level. That’s just a little lower than previous guidance, reflecting the strength of our core book.

It’s unlikely that we’ll do a further special dividend after year-end, but we’ll wait and see how the renewal season goes. With that, I’ll now hand over to the operator for questions.

Hi, afternoon. I’ve just got one question.

It’s basically in your statement you refer to a number of mid-size losses, which I understand probably include things like Tianjin. Would it be possible just to kind of quantify how much of mid this - kind of collection of mid-size losses added to your combined ratio, or how much it was in monetary terms?

Just because, when I - I guess when I adjust for the reserve release, your underlying looks fairly weak. So just any kind of help on that would be really, really helpful.

Thank you.

So, you got that one?

Yes, sure. Hi, we’ve had a few things that haven’t been significant enough for us to really strip out and Tianjin is one of them.

There were some other property losses in there as well. If you back out both of those, then you get to around about our kind of attritional run rate, around about 34% mark.

Similarly, on the year-to-date basis, we’ve had a few energy losses and some satellite losses and some property losses. None of them have had more than a 5% impact on our loss ratio, but when you take them out collectively, and again you get back to kind of around about a 34% attritional rate.

So, I think that rate that we’ve been talking about for the last little while is still appropriate and will be into next year [indiscernible] pricing as well.

I mean, just on that, I guess now that the premium base has fallen fairly significantly year-on-year, is it worth kind of reconsidering the threshold for what is an attrition loss and what’s not? Just so that when we look at the numbers it seems a little bit easier to compare versus peers?

Yes, I think if you had anything that was of significance in there that we felt it was worthwhile splitting out and doing it, we’d back that out. But, as I say, there’s a number of smaller losses and when you add them up together, they come to a bit more of a meaningful number in terms of our attritional rate, but none of them are individually significant.

Okay, perfect. Thanks very much.

Oh, hi, there. Can I ask two things?

Firstly, on the Tianjin loss, relatively small, could you just give us some color in terms of what underwriting decisions led to you doing, I guess, quite a lot better than your peers on that? And the second thing I wanted to ask was you’ve had, I guess now, three quarters of $30 million reserve releases each quarter, $90 million in total, so very material in the context of your overall profitability.

Can you maybe talk to your confidence level in reserves, and maybe also just contrast the development in Cathedral, where I think you’ve indicated before things are very conservatively reserved with the rest of the Lancashire Group? Thank you.

Well, okay, Ben, I’ll take the Tianjin one first, and then I’ll hand over to Elaine, and maybe some - we’ll have some color from Peter, well, about the Cathedral numbers. On the reserving, as a general statement, we are always conservative.

It doesn’t matter if it’s Lancashire or Cathedral any way. That’s the way we’ve always done it.

On the Tianjin loss, you’re probably asking the worst person in the company about Chinese underwriting, because I think it just highlights how difficult it is to write some of these exposures in territories like China. And I think when we look at our loss numbers, we’re delighted that we’ve got an immaterial loss.

But they are based on very little data, and I would suggest that everyone’s in the market is based on very little data. And I think that’s the difficulty of writing lots of business in territories such as China.

I think it also backs up our view of if you add an office in Singapore these are kind of the exposures you’re handling every single day, and we’ve made a conscious decision not to do that. So the Chinese loss is a good one for us, because it sort of backs up our view of not underwriting areas of the world where you’ve just got no information, but equally it’s a global world, with global clients, and we’re always going to have some exposure to China, but I think that, for me, it just highlights how difficult it is to write territories such as that.

And that’s why we look quite good this quarter. So, Elaine, do you want to answer the question about reserving?

Yes, sure. Hi, Ben.

I would be pretty reluctant to say that that’s a trend that’s developing and something you should factor into your modeling going forward. Our reserve releases have been primarily across the years, they’ve been across 2011, 2012, and - sorry, 2013, and 2014.

2011 earlier this year, we managed to book in some more recoveries on our hipod [ph] losses, and that’s quite nice to have that develop that way. In 2013 and 2014, we have reserved for them as you would do normally, we just haven’t had the level of reported losses coming through on those years, and in my view, that’s a pretty nice problem to have.

So, would that have been out of the sort of attritional loss ratio that you were booking in those years rather than out of sort of named single losses?

Yes, yes, exactly. There’s no specific event development that’s driving those releases.

Right.

Hi, Ben. It’s Peter.

Also just to give you the color on the Cathedral base. Again, it’s pretty much the same thing, where basically you had three pretty benign years particularly on the property accounts, and to a point the airplanes [ph] where you simply have a loss pick, where you - simply nothing’s happened to achieve a loss pick.

If we haven’t got a loss, we pay the money out. It just takes a while to unload, and that’s just your combination of a number of years into the GAAP accounting as your earnings profile comes up.

Okay. But presuming on that basis, we should still have a couple more years to run as - you move through the Lloyd’s accounting on 2013 and 2014.

Would that be fair?

I’ll just [indiscernible] I wouldn’t bet any favorites, but there’s nothing in there that I’m aware of at the moment in terms of loss profile. You’re aware of all the major market losses are.

2015 started quite well, but again, as soon as you start seeing losses going into accounts that will have an effect on the earnings.

Okay. Thank you very much.

It’s just we’ve always been fairly conservative people.

Yes.

Hello, thank you. Yes, I had a question about your risk appetite going into 2016.

Obviously, you’ve bought more reinsurance this year. Your PMLs have been coming down.

I just wanted to pick your brains on what plans you have for 1/1 and your risk appetite into 2016, please? Thanks.

Okay. I’ll start on that one, Andreas, and then might be Paul comes in on that one.

I think that every year we go through the same process, and every year when you’re budgeting and you’re buying your reinsurance, you kind of decide how much risk you want to take. And, obviously, as the market has got weaker, we’ve taken less risk, because there’s no reason to think that our view changes.

There’s obviously a limit to how much - you can buy reinsurance and take no risk, but, obviously, you’ll have no return. So, there’s a way to limit to that.

I think if you look at what we’ve done on the capital side, that’s very much borne out two things. That’s taking less risk, and, obviously, the efficiency of the reinsurance that we’ve been able to access.

So, I think there is a limit to how much we can do. We’re currently renewing our reinsurance programs.

We think that the reinsurance market is probably closer to bottom as well. I don’t think that market’s going to be up massively as of January 1, but we’re always trying to match our risk appetite to our earnings, but we are that takes risk, and we would love to take more risk, quite frankly.

So, we will continue sort of trading our way through this stage of the cycle, and we believe this is the right thing you should do at this stage of the cycle. You should definitely not be taking any more risk, but we’re looking forward to the day where we can take a lot more risk, because that means the market’s got better.

So we do it every year. There’s a limit to how much we can do, and, obviously, there’s a cost to buying reinsurance, and we have a strong motivation, cut what we can.

But, yes, we’re constantly adjusting risk, even on individual deals. The market’s at the level where even individual deals come in where we may adjust the risk, and we may try and transform that individual deal by buying some type or sort of reinsurance or just trying to look at it a different way.

So, you kind of have to work hard on everything to try and get you the best risk-adjusted return in this market, and we’re very focused on that.

I think, as well - Andreas, it’s Paul. We have, as our results historically have proven, got a good book of core business, and we absolutely want to be in a positive, as we’ve said, over the last three quarters, to defend that portfolio, and that’s exactly what we’ve done this year.

So, we have got some good business. We want to keep that on the books.

We’ll be looking to keep that on the books, and, as Alex rightly says, the way we can manage the risk we have to the balance in various ways, some of which is strategy, some of which is fact, but we absolutely still want to keep our core portfolio of business in all of our lines.

All right. Thank you very much.

Hi, there. Thanks for taking my questions.

I’ve got two. Firstly, on the capital base, I mean, obviously, it’s shrunk quite a lot over the last two to three years, and I completely get why as you’ve pulled back the premium base and reinsured more, but, I mean, realistically, where - how low can that go?

I mean, how many more years of returning more than your earnings can you do if the cycle stays pretty depressed? And then, linked to that, my second question would be around M&A.

I mean, it’s very sensible what you’re doing in returning capital rather than just chasing risks that you shouldn’t write, but, I mean, in terms of M&A, mostly people talk about you being on the receiving end, but what about smaller bolt-on acquisitions that give you access to some more resilient business in this cycle, if there are any? I mean, at what point does that become more attractive, and you’d prefer to allocate capital to maybe some sort of smaller specialty lines, or whatever, instead of giving it back to shareholders?

Those are my questions. Thanks.

Sure. Okay, so, I’ll start with question two, and then I’ll back up to Elaine for the capital question.

I think the M&A thing is incredibly fashionable at the moment. We would argue that we started it and we had a very successful acquisition of Cathedral, but that was a very clean, well-run business, and very easy to understand and the results speak for themselves.

I think, if I pretended that we’re M&A experts it would be naive, and I think that buying companies now could be a very, very bad thing to do. You’ve got to look at why - why someone would be selling something now.

You probably are buying something at the bottom of the market. If you did buy something that wasn’t as clean as, say, a Cathedral, like very much like buying a house, you can look at the house and walk around it, but you don’t really know what you’ve got until you’ve bought it.

So, we are very cautious about anything that we were to acquire today. That’s not to say, we wouldn’t do it, and, as you said, the kind of bolt-on smaller acquisitions are probably easier.

But, equally, we just haven’t seen much that interests us. Most things that are up for sale do come to our door.

That’s one thing. There’s lot of friendly bankers showing us stuff all the time, but, for us, we just can’t see any logical reason to do most of those deals, and, the only thing we focus on here is trying to make money and trying to do the best thing for our shareholders, so just getting bigger for the sake of it doesn’t appeal to us.

Lots of the commentary about M&A we don’t agree with. We can still compete in the markets we’re in, so, I really don’t think it solves the problem, but absolutely if, as we’ve always said, if there was better things to do with our capital that gave us a better return, over time, we would much rather do that than keep constantly giving it back to shareholders.

But equally, I think just showing the discipline that we won’t spend the money if we can’t find something - spend that money on something good that will add value over time, we just refuse to do it. So, I think if there was interesting stuff, yes, we would buy stuff.

Yes, we would bolt-on stuff. We’re not averse to doing that, at all, but we’re definitely not going to do it for the sake of it.

So - but, look, never say, never. Something may come along, something may surprise us.

There may be something of interest, but it’s pretty unlikely, to be honest.

Thanks.

I hope none of the friendly bankers are listening in today.

I’ve got lots of friendly bankers.

On the capital side, we always go through the same processes there, as well. We look to see what we think we could underwrite, and then we look at how much capital we need to [indiscernible], how small we can get doing that, depends on businesses, right, and the business mix.

And, as Paul said earlier, we’re pretty much at the point where we’ve got a really good core book, and I think things will be fairly stable going into next year with that core book. So we’re pretty comfortable at the level we’re at the moment, and as for returning more than earnings, if we’re fairly comfortable where we are then we would probably look to return earnings, if there’s another opportunity starting next year.

And I think at this stage if we were giving back just our earnings, I think that’s still a pretty attractive dividend yield.

I mean, is there a point where you actually can’t go any lower, like where you hit any rating agency restrictions, or regulatory restrictions?

Again, it’s driven by very business mix. So, a very easy way to reduce your capital is to reduce your exposure.

Okay. Thank you.

Afternoon, all. Hello.

A general question, really on the balance of power between brokers and underwriters. Just wanting to whether you think it’s becoming harder to retain the core book, without being obliged to write unattractive risk?

Do you think it’s still possible to be a truly discerning underwriter in this market? Or are you [indiscernible]?

Excellent question.

Nick, maybe you can come sit in our office for a week and you can experience it for yourselves. I think we spend a huge amount of time on planes and meeting clients for exactly the reason of trying to have direct relationships with those clients.

And when I say, direct, I mean, it’s just we love the broker network. It’s a very cost efficient way for us to access business around the world, but having - sort of spending lots of times with your core clients is incredibly valuable, because you’re absolutely right.

The big brokers wield a lot of power, and you have to add value, and we’ve spoken about being relevant for quarters upon quarters now. And I think that the big brokers are definitely hugely powerful in this market, and if you don’t add value - and you can do that in many ways - they will abuse you, quite frankly, and you will end up writing facilities and different things that you probably shouldn’t at this stage of the cycle, so it’s a constant battle.

And we constantly find ways to add value, and we think we can hold our own with the brokers, and we have a kind of a Rugby kind of relationship with the brokers. They come in and beat us up, then we beat them up, and then we go for a beer afterwards, and it seems to work quite well.

But I think you have to add value. You have to be in sort of the top tier of people that they want to deal with.

Every broker, every big broking house comes in and says the same thing. They all say they’ve got too many underwriters on their books.

They’re all looking to cut down the amount of underwriters they want to deal with. So, you have to be relevant.

You have to stay in that pack. Otherwise, you’re adding no value in this market, and the brokers will hold too much power.

So I’m very comfortable, we can still hold our own. I’m very comfortable with great trading relationships with those brokers, and that you have to remember, as well, we can sit here moaning about brokers, but they’re under massive pressure themselves, as well.

So you’re in an environment where everyone’s under pressure. People frequently get upset.

But, as I said, unless you add value, you just may as well pack up and go home. We don’t do anything where we can’t add value or hold our own.

But those discussions we have every day in a very, very difficult market.

I mean - Hi, Nick. It’s Paul.

I mean, Alex is point around the clients is the key on. If you’ve got good relationships with your clients, and you’ve added value to them through a cycle, that’s the most important thing there.

As Alex said, brokers are an incredibly network to us, but our clients are, ultimately, our customers, and we spend a huge amount of time on all parts of the business over the last - or ever since we’ve been running as a business, spending time with those clients, working with them, providing them with products that work buying their clients, et cetera, et cetera. So if your relationships with your clients are strong, yes, you will get pressure from brokers.

That’s a natural part of the cycle, but those relationships will bear out that you will continue to see that business.

Thank you very much. Yes, very interesting.

Thank you.

Yes. Hi, everybody.

I just have one question for today. If you could actually give us an idea of what we should be expecting for attrition losses for next year that would be very helpful.

I mean, you have been guiding for a normalized 34% this year, but I guess we thought the pressure in terms of margin that you have been seeing, I guess, it would be natural to assume that that number is going to be a bit higher. Any comments?

Thank you.

Hi, Paris. I think the 34% we’ve been talking about is still relevant to our book of business.

I think we’ll wait and see what the pricing impact of the renewal book are next year, and you might want to price adjust that. But otherwise, I don’t really see any reason to change that.

We have had a few mid-size losses this year, but our attritional rate is still running about that level.

Fair enough. Thank you.

Thanks very much. I just had a follow-up on the ROE outlook for next year.

I guess, in the context of the price declines that you’ve seen, that will be earning through maybe into 2016, and then weighing that against the capital return that you’re planning to make in your fourth quarter, what is a reasonable ROE to be looking for? Thank you.

And on that, Ben, we wouldn’t give any hard guidance, because you can bet your life our number would be wrong. Obviously, we don’t think the environment will get any better next year, so, we think it will weaken, but equally, if you look at our book of business, and the reinsurance we can buy, we don’t see any wild, material changes, but, obviously, there will be a price change, and even on the price change side, it feels like things are slowing down a bit.

That’s not to say that it will stop, but it does feel like we are getting to that stage of the cycle where even people that have been very aggressive are now slowing down, because I think most people appreciate that we are close to the bottom of the cycle. So I’m not sure we’ll see some of the really aggressive stuff we’ve seen this year.

But, as I said, it will definitely come off a bit. I don’t think it’s going to be savage.

Okay, thank you.

Well, hello, folks. Congratulations again, on what I think is a remarkable quarter, all things considered, especially, I think, to Elaine, again, many thanks for the discipline on the portfolio there.

And I think where some insurers, maybe quite a few, have actually had portfolio losses that have greatly impacted their balance sheet, it’s really insignificant what we’ve experienced. So, that’s congratulations in order there.

Elaine, I have a question. Again, when Lancashire was founded, there was a statement about ROE of 13% over the risk-free rate.

Well, now that the risk-free rate is approaching zero, there’s some interesting [Technical Difficulty] true risk-free rate if you consider the yield curve, is actually below zero. So, I think if you’re - looks like, you’re within spitting distance of getting a respectable small, double-digit return for the year.

Could you comment on that, as regarding the long-term goals? And I think that, personally, that’s exceptional and remarkable in the current very soft environment that you would actually be tracking what you anticipated you would do over the whole cycle.

So again, congratulations there. So, any comments there from Elaine?

And again, to the underwriting team, it’s remarkable to see that good discipline on your underwriting, and could you give us a little more detail? I was just fascinated with the detail about how - not only the brokers, but how you interface with your core clients in difficult environments.

And I know that there’s anecdotal accounts about how sometimes that works, which are very interesting, but if anyone - Paul or anyone else would like to comment on exactly how that - a little more detail there, and perhaps, what that’s the area are the new team of underwriters going to be? Thanks a lot.

Hi, Frank. I appreciate the comment, and I completely agree with you on the risk-free rate.

As far as our guidance is concerned, compared to when we started, the risk-free rate was higher, but we were able to make higher returns, including on our investment portfolio at that point. We’ve obviously had some discussions about that internally over the last little while and the market that we’re in, as well, and see no real reason to change that.

We’ve always said that we expect that we’ll have lower years and we’ll have higher years, and that’s exactly where we are. We’re compounding at over 18% since we started, so, pretty happy with that.

It’s obviously, been pretty tough in the last little while, but maybe that negative risk-free rate’s been helping us there.

Hi, Frank.

Yes.

On the client interaction side, it’s just good old-fashioned spending time with them, quite honestly. We take the time, as underwriters, to sit down with them, listen to them, understand their business, what drives their business.

At different parts of the cycle, there are different things that drive their businesses, and then see what we can do within the realms of reasonableness, to assist them wherever their business is at their point in the cycle. It’s quite easy, really.

It’s just about spending time with them, being open with them, being honest with them, in terms of what’s happening in our business, and what we can and can’t do, and we - to be honest, we’ve been doing that ever since we started. At Cathedral, the team there have been doing that for 20-plus years.

And it’s as simple as that. It’s not actually that difficult.

It’s not rocket science. But you just take the time out, and you spend time with them, and you understand their business as simple as that.

Yes, I mean, I think is that, Frank. And also, it’s about picking the right clients.

There’s lots of clients that come across our door that, quite frankly, we don’t want to have a long-term relationship with, and their buying habits don’t suit the company that we are. So, as Paul said, we’re trying to have long-term relationships with clients, and that sometimes it’s great for them, and sometimes it’s great for us, and if you look at our old clients, the insurance market might be great for them, but their own businesses are under huge pressures, so, if we can partner through them through these difficult times, that pays dividends in the future.

If you look at the Cathedral book, the John Hamblin book, some of the stories of how John’s responded to claims with some of his clients, it’s that cemented that relationship for 20 years. So, it went into that used in the market where it rises or decreases, but you just build that relationship over time, and you’ve just got to make sure that, as an underwriter that you’re backing the right clients, effectively, which is what we’re trying to do, which is why we spend so much time talking about core clients and core relationships.

Yes, I guess that’s kind of what I’m thinking. I just remarkably after the big earthquake in Japan that I think, Lancashire was the very first insurer to actually send a payment, even before a claim had been made.

So just those types of things, I guess, over the years have really cemented that relationship?

Yes, it’s things like that. It’s the last thing you want to do of any client, when they’re going through a very difficult period, is sort of go in there heavy-handed.

As the insurance company, you want to try and make it as easy as possible for them, and the experience is very much the same as when you buy your homeowners. The last thing you want when something bad has happened is a lot of hassle from your insurer.

And if we can find ways to make that easier for our clients, hopefully, they remember that, and we build a long-term relationship.

Great. Thank you, gentlemen.

Keep up the good work.

Thanks, Frank.

Thanks, Frank.

Okay. Thank you for your questions, and we’ll see you next quarter.