LANCASHIRE HOLDINGS LIMITED – Q4 2013 Results (Excerpt)

Hamilton, Bermuda – 14 February, 2014 – Lancashire Holdings Limited (“Lancashire” or “the Company”; Ticker: LHL BH) has announced its results for the fourth quarter of 2013 and the year ended 31 December 2013.

Richard Brindle, Group Chief Executive Officer, commented:

“I am pleased to report a strong close to an exciting year in Lancashire’s history. RoE of 3.7% for the quarter and 18.9% for the full year are good results. The special dividend we have announced today reinforces our pledge that our commitment to capital management has not changed. But for Lancashire, 2013 has seen the most dramatic changes in our history. We have broadened our platforms, our core portfolio lines and our reinsurance purchasing capabilities, but without compromising our business model or our focus on underwriting.

There is a lot of gloom about the state of the market. But there is some truth in the old view that good underwriters prefer a soft market. In a hard market the benefits of superior risk selection and a focus on risk-adjusted return are cancelled out by the broad spread of strong pricing. In a soft market the strong underwriting franchises differentiate themselves. We can select the right clients and attachment points in a programme. We have a solid core portfolio but have the discipline to let go of under-priced, opportunistic business. And through the judicious use of reinsurance we can improve the risk-adjusted portfolio returns even when pricing is under pressure.

So whilst it might be an exaggeration to say that we relish the prospect of the coming year, we don’t mind hard work, and we think our business model has evolved to cope very well with the softening market. And let’s remember that although rates are undoubtedly coming down, they’re doing so from what are historically high levels in much of our business.

There are also signs that the panic that affected some commentators who foresaw decimation of the traditional markets was overdone. Many of our clients understand the value of the superior policy features offered by traditional markets like reinstatements and multi-year capacity. They know that relationships are based on an understanding that claims are often a process of negotiation based on detailed policy understanding, which goes beyond the ability to model an output.

So for much of the portfolio there are real barriers to entry, based on product design which make rated capital a better fit for the client. But even in U.S. catastrophe reinsurance, where alternative capital has made the most inroads, it’s not all one way traffic. For example, if we look at Cathedral’s U.S. mutual portfolio where John

Hamblin and Nick Destro’s client relationships stretch back as far as twenty years, the penetration of alternative capital is close to, if not actually, zero.

Our own permanent vehicle for third party capital, Kinesis, has made a good start deploying over $252 million of limit at 1 January 2014. Darren Redhead’s team has developed a bespoke product combining risk and catastrophe exposures, that offers real benefits to clients on tail risk mitigation. In addition, Lancashire Insurance Company

Limited (“LICL”) and Lancashire Insurance Company (UK) Limited (“LUK”) continue to find new business opportunities such as energy liability, terrorism and obligors to complement the solid core portfolios in offshore energy, aviation and marine.

So we don’t share the gloomy outlook. With our three platforms comprising our permanent reinsurance asset management business in Kinesis, our top-performing Lloyd's business in Cathedral and our leading specialist insurance and reinsurance businesses in Lancashire, together with our sound business model and outstanding team, we believe that we can navigate a course through this market, and indeed the next hard market when that comes.”

Elaine Whelan, Group Chief Financial Officer, commented:

“Our acquisition of the Cathedral Group completed on 7 November 2013. Lancashire, as a combined group, produced a RoE of 3.7% for the quarter and 18.9% for the year. The quarter included two months of Cathedral’s performance, but also our adjustments for acquisition accounting and contingent advisory fees. The one-off adjustments were largely offsetting, so the RoE for the quarter for Lancashire was approximately 3.2%, with Cathedral adding approximately 0.5%. As we highlighted in the third quarter, the Group also benefited from our equity issuance and hedging activities – these contributed approximately 6% to our RoE for the year.

Ignoring the one-off impacts, the Group had a reasonable quarter with no notable losses reported, and Cathedral’s results were in line with prior year performance and expectations. Our investment portfolio produced a small positive return, driven by strong performance in our bank loan and emerging market debt portfolios.

We are continuing to re-balance our capital requirements as a combined Group and work on re-structuring our capital base is ongoing. A large part of that has already been completed, however, and we are therefore able to top up the special dividend we declared last quarter with a further special dividend, plus the related dividend equivalent payments, of approximately $43 million. With the special dividend declared in November, combined with our interim and final ordinary dividends for this financial year, we have now returned 88.4% of comprehensive income for the year and 93.3% of comprehensive income since inception. While pricing is declining in some areas of our portfolio, our overall outlook remains reasonable and we will continue to review opportunities as a combined group and refine our capital position accordingly.”

Capital

At 31 December 2013, total capital available to Lancashire was $1.792 billion, comprising shareholders’ equity of $1.460 billion and $332.3 million of long-term debt. Tangible capital was $1.615 billion. Leverage was 18.5% on total capital and 20.6% on total tangible capital. Total capital and total tangible capital at 31 December 2012 was $1.646 billion.

Dividends

The Lancashire Board declared the following dividends during 2013:

·         A final dividend in respect of 2012 of $0.10 per common share;

·         An interim dividend of $0.05 per common share; and

·         A special dividend of $0.45 per common share.

Lancashire announces that its Board has declared the following dividend payments (collectively the “Dividends”):

(i)            a final dividend for 2013 of $0.10 per common share (approximately £0.06 per common share at the current exchange rate) amounting to an aggregate payment of approximately $18.1 million; and

(ii)           an additional special dividend for 2013 of $0.20 per common share (approximately £0.12 per common share at the current exchange rate) amounting to an aggregate payment of approximately $36.2 million.

The Dividends will result in an aggregate payment of approximately $54.3 million. The Dividends will be paid as a single payment in Pounds Sterling on 16 April 2014 (the “Dividend Payment Date”) to shareholders of record on 21 March 2014 (the “Record Date”) using the £ / $ spot market exchange rate at 12 noon London time on the Record Date.

Shareholders interested in participating in the dividend reinvestment plan (“DRIP”) or other services including international payment, are encouraged to contact the Group’s registrars, Capita Registrars, for more details at: http://www.capitaregistrars.com/shareholder.aspx

In addition to the dividend payment to shareholders, a dividend equivalent payment of approximately $8.7 million in aggregate will be paid on the Dividend Payment Date to holders of share 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

The audited Annual Report and Accounts are expected to be posted to shareholders no later than 10 March 2014 and will also be made available on the Group website.

Further details of our 2013 fourth quarter results, including the full text of this release, can be obtained from the Financial Supplement via 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

Lancashire Holdings Limited

Christopher Head                    +44 20 7264 4145

chris.head@lancashiregroup.com

Jonny Creagh-Coen               +44 20 7264 4066

jcc@lancashiregroup.com

Haggie Partners          +44 20 7562 4444

Peter Rigby     (Peter Rigby mobile +44 7803851426)