Lancashire Holdings Ltd Release Preliminary Financial Results

Hamilton, Bermuda – 15 February, 2010 - Lancashire Holdings Limited (“Lancashire” or “the Company”) (Ticker: LHL BH) announces its preliminary financial results for the fourth quarter of 2009 and the twelve month period ended 31 December 2009.

Financial highlights for the fourth quarter of 2009:

·         Fully converted book value per share of $7.41 at 31 December 2009 compared to $6.89 at 31 December 2008. Return on equity, defined as growth in fully converted book value per share adjusted for dividends, of 7.0% (Q4 2008: 8.3%);

·         Operating return on equity of 7.7% (Q4 2008: 8.1%);

·         Gross written premiums of $103.4 million (Q4 2008: $130.1 million). Net written premiums of $100.0 million (Q4 2008: $130.1 million);

·         Reported loss ratio of negative 0.8% (Q4 2008: 11.5%) and combined ratio of 25.7% (Q4 2008: 35.4%). Accident year loss ratio of 24.0% (Q4 2008: 21.1%);

·         Annualised total investment return of 2.1% (Q4 2008: 8.9%);

·         Net operating profit of $122.4 million (Q4 2008: $98.3 million), or $0.65 (Q4 2008: $0.55) diluted operating earnings per share;

·         Net profit after tax of $129.6 million (Q4 2008: $81.1 million), or $0.69 (Q4 2008: $0.46) diluted earnings per share;

·         Special dividend of $263.0 million (Q4 2008: $nil) or $1.25 per common share; and

·         Share repurchases of $16.9 million (Q4 2008: $nil).

Financial highlights for the twelve months to 31 December 2009:

·         Return on equity, defined as growth in fully converted book value per share adjusted for dividends, of 26.5% (2008: 7.8%);

·         Operating return on equity of 24.9% (2008: 9.6%);

·         Gross written premiums of $627.8 million (2008: $638.1 million). Net written premiums of $577.1 million (2008: 574.7 million);

·         Reported loss ratio of 16.6% (2008: 61.8%) and combined ratio of 44.6% (2008: 86.3%). Accident year loss ratio of 27.2% (2008: 66.5%);

·         Total investment return of 3.9% (2008: 3.1%);

·         Net operating profit of $364.7 million (2008: $119.4 million), or $1.94 (2008: $0.65) diluted operating earnings per share;

·         Net profit after tax of $385.4 million (2008: $97.5 million), or $2.05 (2008: $0.53) diluted earnings per share;  

·         Interim dividend of $10.5 million (2008: $nil) or 5.0 cents per common share declared in July 2009, paid in October 2009;

·         Special dividend of $263.0 million (2008: $nil) or $1.25 per common share declared in November 2009, paid in January 2010; and

·         Share repurchases of $16.9 million (2008: $58.0 million).

Richard Brindle, Group Chief Executive Officer, commented:

“Lancashire had an excellent 2009. Return on equity, defined as growth in fully converted book value per share adjusted for dividends, was 7.0% in the fourth quarter, and 26.5% for the year. Since inception, our compound annual return on equity is 19.8%.

Our performance was largely driven by underwriting, evident in the combined ratios of 25.7% for the fourth quarter and 44.6% for the year.  Our accident year loss ratios, removing the impact of favourable prior year reserve development, were an excellent 24.0% for the fourth quarter and 27.2% for the year. Since we started in business, our weighted average combined ratio is 57.5%, a testament to our most important strategic cornerstone: Underwriting Comes First. Our investments also generated a significant contribution, with a total return for the year of 3.9%. Our appetite for investment risk remains low, and will continue to be so. We are very pleased to have achieved a positive total investment return for our shareholders in fifteen out of sixteen quarters.  Capital management again played an important role in our overall performance and we were delighted to return a substantial amount of capital to our shareholders during the year. Finally, we were very proud to list on the Main Market of the London Stock Exchange in 2009, joining the FTSE 250 in the process.

The outlook for 2010 looks reasonable. The reinsurance market, while modestly off its all-time highs, remains fairly disciplined. As expected, the specialist insurance classes are coming under some pressure, but remain relatively attractive overall. In the past 12 months, industry capital has recovered well, faster than expected. We are encouraged to see increasing numbers of companies returning capital, but remain concerned that insufficient efforts will be made across the broader market. This increased supply of capital is placing pressure on pricing in certain areas, a trend we unfortunately expect to gather pace as the year progresses. With that in mind, we actively sought to shift our renewal pattern forward for 2010, writing an increased level of well-priced property catastrophe reinsurance compared to 2009; thereby taking advantage of what we believe may be the high point of rates in the year. Correspondingly, we expect to write less business in later months than we did last year.

Most importantly, in 2010 the Lancashire approach will be business as usual: stay disciplined, don’t be tempted to sacrifice profits for volume, and prepare for the unexpected – good or bad. All in all, we are positive about the prospects for Lancashire in the next 12 months, and believe our strategy will continue to produce an attractive return for shareholders.”

Neil McConachie, President and Group Chief Financial Officer, commented:

“In 2009 we generated comprehensive income of $388.2 million. Between recent share repurchases and dividends, including our final dividend of $20.8 million announced today, we are returning $314.8 million or fully 81% of 2009 comprehensive income. More will be returned in the next weeks and months.

At Lancashire, we strongly believe that prudent but active management of capital is fundamental to our business, and this will be at the forefront of our minds in 2010. Currently, we have significant levels of capital above our requirements. At today’s share price, our favoured method of returning capital is to buy back shares. As of 25 February, we have $171.5 million remaining under existing share repurchase authorisations and anticipate requesting shareholder approval for additional capacity at our forthcoming AGM. Should prices remain attractive, this is something that we expect to do in increasing amounts. At the same time, we will continually monitor alternative approaches to capital management. Should trading conditions remain the same or gradually deteriorate, absent a change in our business plan, we would anticipate returning more capital than we generate during 2010.”

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About Lancashire

Lancashire, through its UK and Bermuda-based insurance subsidiaries, is a global provider of specialty insurance products. Its insurance subsidiaries carry the Lancashire group rating of A minus (Excellent) from A.M. Best with a stable outlook. Lancashire has capital in excess of $1 billion and its Common Shares trade on the main market of the London Stock Exchange under the ticker symbol LRE. Lancashire is headquartered at Power House, 7 Par-la-Ville Road, Hamilton HM 11, Bermuda. The mailing address is Lancashire Holdings Limited, P.O. Box HM 2358, Hamilton HM HX, Bermuda. For more information on Lancashire, visit the Company's website at www.lancashiregroup.com.