Lancashire Holdings Ltd – Q3 2011 Results (Excerpt)

Hamilton, Bermuda – 04 November, 2011 - Lancashire Holdings Limited (“Lancashire” or “the Company”; Ticker: LHL BH) today announces its results for the third quarter of 2011 and the nine month period ended 30 September 2011.

Richard Brindle, Group Chief Executive Officer, commented:

“Lancashire has delivered another solid performance this quarter. The Atlantic wind season threatened serious losses with the US landfall of Hurricane Irene, but a fall in the intensity of the wind speeds resulted in thankfully lower losses to life and property than might have been anticipated. More importantly, the quarter saw very challenging financial markets, where global uncertainty led to rapid fluctuations in the asset side of our balance sheet. We believe we have taken the appropriate actions to protect our assets through these very difficult times.

We increased book value per share by 3.6% in the third quarter delivering a return on equity of 10.4% for the first nine months of the year.

We have now increased book value per share, including dividends, for twenty two out of the twenty three quarters since our inception in 2005. This represents a compound annual return of 19.8%.

I am pleased to announce a special dividend of $124 million or $0.80 per common share (approximately £0.49 per common share at the current exchange rate). Including dividend equivalent payments to warrant holders, this is a total capital return of $152 million. We have given careful consideration to our capital requirements for the coming year, and the proposed dividend enables us to return profits to our shareholders, whilst still equipping us well to capture potential compelling opportunities in the 2012 underwriting year.

In a year which has witnessed several major catastrophe losses, as well as the introduction of the new RMS models for US and European windstorm risks, we have seen premium rates holding, or improving, across most of our core lines of business during the quarter. We believe that premium rates on property reinsurance lines will continue to improve, and Lancashire's Accordion side car facility will see significant deployment of its capacity in the lead up to January 2012.

I would like to thank our shareholders for their support at the special general meeting on 18 August 2011. This has facilitated both the move in tax residency from Bermuda to the UK and given Lancashire additional flexibility to raise capital rapidly through the issue of up to 10% of shares on a non-pre-emptive basis, giving us further ability to take full advantage of the tools to meet the needs and opportunities arising in the catastrophe lines we underwrite.

Lancashire remains well equipped to succeed in uncertain times. Since our formation we have maintained a focused and expert team, particularly in the areas of underwriting and capital management, who are ready to respond rapidly and innovatively to events, however they may impact our business.”

Elaine Whelan, Group Chief Financial Officer, commented:

“With shades of history repeating itself, strong underwriting performance in the third quarter was dampened by investment results. In a quarter where, once again, there were a number of industry losses, our underwriting produced a strong combined ratio of 43.5%. Investments unfortunately suffered a loss of 0.6%. Given our desire for capital preservation, and facing further investment market volatility, we liquidated the small allocation to equities we held. We have, however, still managed to produce a respectable overall return on equity of 3.6% for the quarter.

With the announcement of our special dividend and dividend equivalent payments, we will have returned $1.3 billion, or 84.5%, of comprehensive income generated since inception and 96.9% of comprehensive income for the year to date. Market conditions for 2012 look like they are gradually improving, albeit not spectacularly, so at this point we are keen to hold sufficient levels of capital to allow us to take full advantage of any opportunities that come our way, while returning a prudent level of excess capital to our shareholders. As always, we will continue to actively monitor our capital levels versus underwriting opportunities.”

Capital

At 30 September 2011, total capital was $1.562 billion, comprising shareholders’ equity of $1.433 billion and $129.6 million of long-term debt. Leverage was 8.3%. Total capital was $1.575 billion at 30 September 2010 and $1.416 billion at 31 December 2010.

Repurchase programme

No shares were repurchased during the nine months to 30 September 2011 compared to $136.4 million of shares which were repurchased during the same period of 2010.

The Group’s current authorised share repurchase programme permits a maximum of 16,860,242 shares to be repurchased.

Dividends

The Lancashire Board of Directors has declared a special dividend to be paid out of retained earnings of $0.80 per common share (approximately £0.49 per common share at the current exchange rate), which results in an aggregate payment of approximately $124.3 million (the “Special Dividend”). The Special Dividend will be paid in Pounds Sterling on 21 December 2011 (the “Special Dividend Payment Date”) to shareholders of record on 25 November 2011 (the “Record Date”) using the GBP£/US$ spot market exchange rate at 12 noon London time on the Record Date.

In accordance with the terms of Lancashire’s warrants, a payment equivalent to the Special Dividend to shareholders will also be paid in Pounds Sterling on 21 December 2011 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 $27.7 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.

Further details of this Press Release and these 2011 third quarter results can be obtained from the Company website www.lancashiregroup.com

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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.