Lancashire Holdings Limited

Alex Maloney - Group CEO Paul Gregory - Group Chief Underwriting Officer and CEO Elaine Whelan - Group CFO and CEO

Okay. Thank you.

Thanks everyone for dialing in. The Lancashire Group has produced another solid sets of results for the second quarter.

Our underwriting portfolio continues to produce excellent results with little loss activity in the quarter, coupled with strong reserve releases. We had underlying topline growth masked by busy quarter for premium movements mainly from long term policies.

Investment markets have been volatile and as the interest rates have increased in the US, we’ve seen the value of our fixed income bond portfolio reduce. So we’re happy with our hedging strategy on the short duration of our portfolio.

Our combine ratio for the quarter was 69.2% and 67.1% for the year-to-date is a fine reward for our skill and patience in the market place which is changing slowly after the years of ill-disciplined underwriting driven by growth strategies which made no sense. The second quarter developed as we expected, with rate increases slowing, but in the first quarter, but we are still showing positive renewal pricing for the quarter and the year to date.

New business in the quarter is up when compared to the same quarter last year, and we continue to source our long term core clients. We purchased the same reinsurance program for 2018 versus 2017 and if not a little more, which was the correct strategy when compared to the underwriting opportunity we witnessed in the first half of 2018.

Our risk adjusted underwriting return has increased year-on-year. In the first six months of the year, we have for the first time been able to execute on two new product lines in onshore energy and power and have very recently continued this trend with another underwriting hire that adds to our niche and complimentary aviation product line to the Group you’ve just seen aviation offering.

All these hires that add strategy of focusing on the spot and specialist underwriting portfolios which we believe are insulated from third party capital inflows and underwriting platforms. Income from these things will be modest for 2018 and we’ll always match the available underwriting opportunity, but will gain traction throughout 2019.

There is a lot of distress in our market place at the moment, driven by the realization that no hired market has materialized to mask years of poor underwriting results which were previously hidden by benign cat years. We have seen numerous closures of underwriting portfolios and there were numerous syndicates and companies currently up for sale.

This market will consolidate whether we release any catalogue series over the coming months or not. All of this is the inevitable consequence of consistent poor underwriting results.

Although this will be socially difficult for the insurance industry, this will ultimately turn in to a smaller more efficient market place for the future. In summary, I’m delighted with our first half year performance, and although the current market didn’t reach the levels, we were expecting and we’re still experiencing positive growth and have been able to execute on new product lines.

Nothing changes for us, our core strategy remains unchanged. We will continue to demonstrate the underwriting and test of discipline that we’ve always demonstrated, but I am confident that we are finally seeing sanity return in to a market place that needs to go back to the basics and concentrate on profitable underwriting.

I’ll now hand it over to Paul Gregory, Group CEO.

Thanks Alex. In catering to the first quarter, the second quarter of ’18 has continued to be relatively benign, particularly with regard to natural catastrophe losses.

This benign loss in environment and some favorable prior year development has helped the Group achieve another solid quarter of underwriting performance. We continue to see positive rate movement across the majority of our product lines and relative stability in the others.

There’s no question that there remains a high degree of capacity and competition particularly in the catastrophe reinsurance lines, which undoubtedly dampen further forward momentum through Q2. However, where we find ourselves with that at mid-year, we’ve made single digit rate increases across the entire portfolio.

It is probably where we expected to be when we shared our views at the start of this year. We also believe that this vindicates our decision to not add materially more risk to the Group’s balance sheet.

As Alex has mentioned, we’ve seen more new business in Q2 than we did this time the last year and there have been some select opportunity in certain classes to grow both existing relationships and start new ones at more acceptable rating levels. We’ve seen year-on-year premium growth in property catastrophe, property risk, terrorism, aviation, property D&F, and the marine cargo.

Some of it grow its rate, some its new business, and some its positive impact to the renewal timing. Counter balance in this growth is a negative impact of multi-year and non-annual premium specifically in the marine and energy classes which Elaine will provide more detail on.

But ultimately the underlying portfolio has grown in line with a market opportunity which is pleasing. We’ve made no secret of the fact, if we are able add good underwriting balance to the Group in the niche short term specialty lines and we’ll do so.

As Alex commented, we’ve recently added the third new product line to the Group’s underwriting portfolio by entering our niche aviation sub-class that complements the Group’s current aviation offering. That makes three new product lines in the last nine months.

There’s currently a fair amount of disruption in the London market. A number of companies are up for sale, others are to be merged or consolidated and others are being forced to review the viability of various product lines.

We’re fortunate as a group that we’re not in a position where we have to review any of our product lines. This is because historically we’ve made decisions early and exit the classes that we did not feel were profitable over the longer term or as importantly not enter new classes where the only obvious benefit is the topline.

This means that now we can look at the state of advantage of such disruption and employ new underwriters to the Group, if we believe they can add value to the bottom line. So from an underwriting perspective, we are perfectly comfortable with where we find ourselves at mid-year.

Underwriting has also been good; the rate environment whilst not spectacular has improved. There have been some discreet pockets of new business to access, our risk levels remain appropriate for the current levels of return, and we’ve been able to take advantage of market disruption and ads new underwriting talent to the Group within complementary product lines.

I’ll now pass it over to Elaine.

Thanks Paul. Hi everyone, the second quarter is fairly quiet and the most fun for us.

We also had some decent net favorable to the other end of the quarter, which resulted in a net loss ratio of 18.5% and a combined ratio of 69.2%. Our investment portfolio performance rolled to another rate hike which returned to 0.5%.

Our ROE for the quarter is 2.9%, bringing us to 5.9% for the year-to-date. Our gross premiums written have reduced this quarter due to much larger impact of multi-year and non-annual dual renewal payment in the last quarter.

Those impacts could be most probably seen in our energy and marine classes and most notably in the Gulf of Mexico energy and marine hull books. In the Gulf of Mexico book there’s around a $17 million impact and the marine hull has a bit of $4 million impact of multi-year deals that aren’t up for renewal yet.

Q2 2017 also had some adjustments on prior underwriting year risk-attached in contracts across a few lines of business, but this is [opinion]. The multi-year deal imply underwriting new adjustments last year and [I did] a topline comparison a bit.

However, on other lines of business we continue to see rate increases in new business, in particular across our cooperative book on both the Lancashire and Cathedral platform. And as Paul has mentioned, our new underwriters are also off to a good start and we’re seeing new business in the energy onshore and power books.

Part of the end season our reinsured spend this quarter is as a result of buying cover for those new lines of business. The rest is mainly due to the extensions under the new quota share agreement we put in place at (inaudible).

We had a slight uptick in our additional losses this quarter, but nothing was indicative of any change on how we think about our extension. It’s just timing and the monthly nature of our book.

We didn’t have any major events or risk losses and our prior year reserves continue to develop favorably with the release of $26.6 million. We had some largely offsetting movement in a couple of prior year claims; otherwise we just had general IBNR releases due to a lack of report coming through.

Our hidden reserves were relatively stable. Our loss ratio again is 18.5% and our accident year ratio is 43.6%.

As I mentioned investment produced a return of 0.5% for the quarter. We’re getting some benefit of the rate hikes and our fixed maturity portfolio (inaudible) which helped to more than offset the loss [ratio] despite increase in yields and spreads in the quarter.

Our risk asset continued to perform well ahead against the interest rate increases. We expect volatility to continue to cause further rate increases this year, but we are well positioned for both of those.

G&A is relatively in line with Q2 2017 although there was an increase in employment cost that was offset by a reduction in unemployment cost. As I’ve mentioned in previous quarters, we are currently slightly low on sterling as we are hedging some of the future sterling expenses from our UK operations.

With the depreciation of sterling and other currencies as a result of this quarter, we’ve built an FX loss. Lastly on capital, we continue to be comfortable with our current level of capital, we are more than adequate for the book we expect to write this year.

With almost 70% of our book written in the first half of the year, we expect the second half renewals to be fairly straight forward. I’d refer to those monster underwriting opportunities and adjust our capital accordingly, and will reassess our capital needs after winter season.

With that I’m going hand it over to the operator for questions.

Okay. So there are definitely no questions, that definitely right, yeah?

And that’s not an error?

Okay. Thanks for your time.