Lancashire Holdings Ltd – Q2 2010 Earnings Release (Excerpt)

Hamilton, Bermuda – 05 August, 2010 - Lancashire Holdings Limited (“Lancashire” or “the Group”) (Ticker: LHL BH) released its financial results for the six month period ended 30 June, 2010.

Financial highlights as at 30 June, 2010:

Richard Brindle, Group Chief Executive Officer, commented:

“Lancashire has performed well this quarter and, despite being one of the largest insurers of energy risks, had only modest exposure to the Deepwater Horizon drilling unit loss - one of the largest losses ever to hit the energy market. We insured against the physical loss of the platform and had only de minimus exposure to the casualty side of the loss, which we believe will prove complex and expensive to resolve. Lancashire increased book value per share by 6.5% in the second quarter; delivering a return on equity of 7.5% for the first half of the year.

Our combined ratio for the second quarter was an excellent 51.5%, demonstrating a resilient underwriting performance during an adverse claims period, and our investments returned 5.6% on an annualised basis. Lancashire once again increased book value per share, including dividends, now having done so for seventeen out of the eighteen quarters since our inception, and has generated a compound annual return of 19.4%.

Following the Deepwater Horizon loss, premium rates in the worldwide energy market have increased by between 10% and 30%. Demand for Gulf of Mexico deep water energy wind coverage has strengthened, resulting in a corresponding improvement in premium rates.

As anticipated at the beginning of the year, our property catastrophe book, particularly in Florida, came under sustained rating pressure in recent weeks. We have therefore reduced our property catastrophe exposure to windstorm in the South East and Gulf regions at both the June and July renewals. Pricing pressures also led us to decline, or reduce our participation on, several of our retrocessional accounts and we have also scaled back our direct and facultative account exposures

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Since the start of the year, there has been a reduction in Lancashire’s appetite for major catastrophe risk overall. Trading conditions, particularly in property, as a whole remain uninspiring and, once again, our nimble structure has allowed us to reposition ourselves rapidly towards more interesting segments. Energy has become the bright spot, with increased demand and somewhat reduced supply. We also watch events on Capitol Hill with interest, in particular the inquiries into the Deepwater Horizon catastrophe and the implications for Lancashire on future business opportunities.”

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

“As the second quarter progressed, we steadily generated capital in excess of requirements. We have a well-established practice of improving shareholder returns by actively managing capital, and we therefore took the opportunity to repurchase a significant number of Lancashire shares at prices that boost our return on equity. Whilst we deployed some capital towards compelling opportunities in the energy market, we reduced our risk levels overall compared to previous years and entered hurricane season with substantial capital headroom. The frequency and severity of industry loss events in the next few months will be important drivers of our 2011 capital needs, as will fast moving developments in the energy sector. As previously stated, should we fail to see material improvements in trading conditions overall, or should improvements be limited to certain classes rather than industry wide, we will still expect to return more capital to shareholders than we generate during 2010.

We are also pleased with the continued development of our relationships with the rating agencies, with the recent change to a positive outlook by A.M. Best and the assignment of an A minus rating with a stable outlook by Standard & Poor’s.”

Repurchase program

At the Annual General Meeting held on 4 May 2010 the Group’s Shareholders approved a renewal of the share repurchase program (the “Repurchase Program”) authorising the repurchase of a maximum of 18,250,306 shares, with such authority to expire on the conclusion of the 2011 Annual General Meeting or, if earlier, 15 months from the date the resolution approving the Repurchase Program was passed.

The Group continues to repurchase its own shares by way of on and off market purchases utilising the current Repurchase Program, which had 9,875,822 shares remaining to be purchased at 30 July 2010 (approximately $82.9 million at the 30 July 2010 share price). $87.4 million of shares were repurchased during the second quarter of 2010 and $100.3 million in the six months to 30 June 2010 compared to $nil in the same periods in the prior year.

As previously announced during the quarter, the Group agreed to purchase a total of $37.0 million of shares from Crestview Partners L.P., Crestview Offshore Holdings (Cayman) L.P., Crestview Holdings (TE) L.P., Crestview Partners ERISA L.P., and Crestview Partners (PF) L.P. (collectively, “Crestview”) for cancellation. Also as announced on 1 July 2010, an additional $3.7 million of shares were purchased from Crestview and cancelled. All of these shares were repurchased in off-market transactions at a discount to the then-prevailing market price.

Dividends

The Lancashire Board has declared an interim dividend of 5.0 cents per common share (approximately 3.15 pence per common share at the current exchange rate), which results in an aggregate payment of approximately $7.6 million (the “Interim Dividend”). The Interim Dividend will be paid in Pounds Sterling on 13 October 2010 (the “Interim Dividend Payment Date”) to shareholders of record on 3 September 2010 (the “Record Date”) using the GBP£/US$ spot market exchange rate at the close of business in London on the Record Date.

In accordance with the terms of Lancashire’s warrants, a payment equivalent to the Interim Dividend to shareholders will also be paid in Pounds Sterling on 13 October 2010 to those warrant holders listed on the Company’s Warrant Register as of the Record Date. The warrant payment will be made in respect of the number of common shares for which each Warrant is exercisable as at the Record Date (approximately $1.8 million in aggregate).

The Group will continue to review the appropriate level and composition of capital for the Group with the intention of managing capital to enhance risk-adjusted returns on equity.

Outlook

Lancashire aims to achieve a cross-cycle return of 13% including dividends above a risk free rate. This remains unchanged from previous guidance.

Further detail of our 2010 second quarter results can be obtained from our Financial Supplement. This can be accessed via our website www.lancashiregroup.com .

Prior to the end of August 2010, we intend to publish our Unaudited Condensed Interim Consolidated Financial Statements for the six months ended 30 June 2010 via our website www.lancashiregroup.com  

For further information please contact:

Investor enquiries and questions can also be directed to info@lancashiregroup.com or by accessing the Group website www.lancashiregroup.com.

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