Lancashire Holdings Ltd – Year End 2010 Results (Excerpt)

Hamilton, Bermuda – 21 February, 2011 - Lancashire Holdings Limited (“Lancashire” or “the Company”; Ticker: LHL BH) today announces its results for the fourth quarter of 2010 and the year ended 31 December 2010.

• GROWTH IN FULLY CONVERTED BOOK VALUE PER SHARE, ADJUSTED FOR DIVIDENDS, OF 6.4% IN Q4, 23.3%IN 2010;
• COMBINED RATIO OF 20.8% FOR Q4, 54.4% FOR 2010;
• FINAL DIVIDEND OF 10.0 CENTS PER COMMON SHARE
• FULLY CONVERTED BOOK VALUE PER SHARE OF $7.57 AT 31 DECEMBER 2010

Richard Brindle, Group Chief Executive Officer, commented:

"In October 2010 Lancashire marked its fifth anniversary and, since our foundation, our approach to underwriting and capital management has been marked by discipline, teamwork and flexibility. These principles have once again been our trademark in the final quarter of 2010 when, as a general rule, premium rates have been flat or declining.

I am therefore pleased to report another excellent set of financial results, and to note that Lancashire's performance has, for the third time in the last four years, enabled us to pay a special dividend to our shareholders. Lancashire increased book value per share by 6.4% in the fourth quarter, delivering a return on equity of 23.3% for the full year. Since our inception in 2005 we have generated a compound annual return on equity of 20.3%. As of 18 February 2011 our original shareholders have received an annualized internal rate of return of 24.3% on their investment.

2010 witnessed an active claims environment. Lancashire had moderate exposure to losses from both the Deepwater Horizon disaster and the Chile Maule earthquake but minimal losses to the New Zealand earthquake in the third quarter, the Australian floods at the turn of the year and the recent unrest in Tunisia and Egypt. Our overall premiums written fell in the fourth quarter. Premiums written increased significantly for energy but declined in other areas. This reflects the relative attractiveness of available opportunities between classes.

Looking ahead, in the core area of underwriting, the bright spots continue to be in the offshore energy lines and the marine retrocessional sector, where premium rates have improved following the Deepwater Horizon disaster in the spring of 2010. We increased our sovereign risk book, contracts in the political risk class relating to sovereign or quasi-sovereign obligors, where we believe pricing remains attractive. Otherwise, premium rates have continued to weaken and we have reduced our underwriting exposure accordingly.

In 2011 we believe that, whilst premium rates will tend to decline overall, our discipline, flexibility and strong and experienced team will keep our business model highly competitive. Companies often lose their discipline at this point in the cycle. Our daily underwriting call helps us stay focused on risk selection whilst protecting our core broker and client relationships. Lancashire is well positioned both for the soft market and to quickly take advantage of the next market moving event, whenever it might occur.”

Elaine Whelan, Group Chief Financial Officer, commented:

“Our combined ratio for the fourth quarter was an excellent 20.8%, reflecting very low losses incurred by Lancashire, including in the property catastrophe class. Strong underwriting performance in the fourth quarter was dampened by a substantial drop in bond values, particularly in U.S. Treasuries. Unfortunately, as a result, our investments suffered a loss of 0.4% during the fourth quarter. We do not currently hold any equities and therefore did not benefit from the strong performance of that asset class. However, our investment portfolio structure ensured Q4 losses were minimal and we were still able to produce a respectable total investment return of 1.6% for the second half of 2010 and 4.2% for the year.

With the announcement of our final dividend today we will have returned $1.135 billion, or 82%, of comprehensive income generated over the first five years of trading to our shareholders, and over 130% of comprehensive income generated this year, ending 2010 with just under $100 million less capital than we started with. We continue to actively monitor our capital levels versus the opportunities we see. We will also request shareholder approval for a renewed share repurchase authorisation at our Annual General Meeting in May. This should afford us the flexibility to manage our capital throughout the coming year, however circumstances unfold.”

Capital

At 31 December 2010, total capital was $1.416 billion, comprising shareholders’ equity of $1.287 billion and $128.8 million of long-term debt. Leverage was 9.1%. Total capital at 31 December 2009 was $1.510 billion.

Repurchase program

There were no shares repurchased during the fourth quarter of 2010 compared to $16.9 million of shares repurchased in the same period of 2009. In total $136.4 million of shares were repurchased in the year ended 31 December 2010 and $16.9 million in the year ended 31 December 2009. The share repurchase program had 7,841,826 shares of the authorised maximum of 18,250,306 remaining to be purchased at 31 December 2010.

The Board will be proposing, at the Annual General Meeting to be held on 5 May 2011 that the shareholders approve a renewed share repurchase program with such authority to expire on the conclusion of the 2012 Annual General Meeting or, if earlier, 15 months from the date the resolution approving the renewed share repurchase program is passed.

Dividends

The Lancashire Board declared the following dividends during 2010:

• A Final dividend in respect of 2009 of $0.10 per common share;

• An Interim dividend of $0.05 per common share; and

• A Special dividend of $1.40 per common share.

Lancashire announces that its Board has declared a final dividend in respect of 2010 of $0.10 per common share (approximately 6.2 pence per common share at the current exchange rate), which results in an aggregate payment of approximately $9.4 million. The dividend will be paid in Pounds Sterling on 20 April 2011 (the “Dividend Payment Date”) to shareholders of record on 18 March 2011 (the “Record Date”) using the £ / $ spot market exchange rate at the close of business in London on the Record Date.

In addition to the final dividend payment to shareholders, approximately $2.3 million in aggregate will be paid on the Dividend Payment Date to holders of share purchase warrants issued by the Company pursuant to the terms of the warrants.

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. 

Financial information and posting of accounts

The consolidated financial statements set out below are audited. The audited Annual Report and Accounts are expected to be posted to shareholders no later than 14 March 2011 and will also be available on the Company’s website by this date.

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

Analyst and Investor Earnings Conference Call

There will be an analyst and investor conference call on the results at 1:00 pm UK time / 8:00 am EST on Monday, 21 February 2011. The call will be hosted by Lancashire management.

The call can be accessed by dialing +44 (0) 20 7138 0844 / +1 212 444 0895 with the passcode 9768470. The call can also be accessed via webcast, please go to our website (www.lancashiregroup.com) to access.

A replay facility will be available for two weeks until Monday, 7 March 2011. The dial in number for the replay facility is +44 (0) 20 7111 1244 / + 1 347 366 9565 with passcode 9768470#. The replay facility can also be accessed at 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’s website www.lancashiregroup.com

About Lancashire

Lancashire, through its UK and Bermuda-based insurance subsidiaries, is a global provider of specialty insurance products. The Group companies carry the following ratings:

                                               Financial                      Long Term            Outlook

                                               strength                       Issuer

                                               Rating (1)                     Rating (2)

A.M. Best                                A-                                BBB-                           Positive

Standard & Poor’s                   A-                                BBB                             Stable

Moody’s                                  A3                                Baa2                            Stable

(1)Financial Strength Rating applies to Lancashire Insurance Company Limited and Lancashire Insurance Company (UK) Limited

(2) Long Term Issuer Rating applies to Lancashire Holdings Limited

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

Lancashire Insurance Company (UK) Limited is regulated by the Financial Services Authority in the UK.

Lancashire Marketing Services (Middle East) Limited is authorised and regulated by the Dubai Financial Services Authority.

Lancashire Insurance Company Limited is regulated by the Bermuda Monetary Authority in Bermuda.