LANCASHIRE HOLDINGS LIMITED RELEASE Q1 2014 RESULTS (Excerpt)

Hamilton, Bermuda – 02 May, 2014 – Lancashire Holdings Limited (“Lancashire” or “the Company” or the “Group”; Ticker: LHL.BH) has announced its results for the three month period ended 31 March 2014.

·         GROWTH IN FULLY CONVERTED BOOK VALUE PER SHARE, ADJUSTED FOR DIVIDENDS, OF 3.9% IN Q1 2014

·         COMBINED RATIO OF 66.4% IN Q1 2014

·         FULLY CONVERTED BOOK VALUE PER SHARE OF $7.49 AT 31 MARCH 2014

·         ENERGY AND TERRORISM LINES IN SYNDICATE 3010 RECEIVE LLOYD’S APPROVAL

Alex Maloney, Group Chief Executive Officer, commented:

“The first quarter has been a busy one on many fronts. There has been the successful launch of the initial Kinesis product, the development and Lloyd’s approval of the business plan for the expansion of Cathedral’s Syndicate 3010 and the realignment of the Lancashire Companies’ catastrophe exposures into the property catastrophe excess of loss line. Thanks to our strong value-added proposition with our brokers and clients as a leader for much of our business, we have been able to protect the core business lines at Lancashire Companies and Cathedral from the weakening rate environment. We have maintained our position and in spite of the pressure on signings, we continue to see strong submission levels for both new and renewal business. For our finance and actuarial teams it has also been busy as the Lancashire Companies and Cathedral work together to harmonise reporting and align practice across the Group. Operations and IT have also been working hard during the transition, particularly with preparations for the move to a new building, which will bring all the London operations of the Group under one roof later in the year.

This is my first opportunity to report to you as the CEO of the business after over eight years in underwriting roles for Lancashire. It is a tribute to Richard that my transition into this role has been so smooth. The DNA of Lancashire – the commitment to underwriting as the core of our profitability and the commitment to capital management as the core of our discipline – is deeply embedded across the whole group and will not change. We are thankful to Richard for all that he has done to build a strong management team across the Group. I am therefore confident that we are well placed for the next chapters in the Lancashire story, and that we can continue to serve our clients, brokers and shareholders as we have since our inception.”

Elaine Whelan, Group Chief Financial Officer, commented:

“While we experienced some adverse development on the 2013 accident year due to a late reported energy claim, there were no major losses in the first quarter and the Group produced a RoE of 3.9% with a combined ratio of 66.4%. RoE for the Lancashire Companies was 3.5%, with Cathedral adding 0.5% and acquisition adjustments now only detracting by 0.1%.

Our January and April renewals went well and were in line with expectations. We will continue to monitor market developments over the rest of the year but, with no indication of any change in trading conditions, it is likely that we will return a substantial portion of our earnings later in the year. Should conditions change we will clearly put any excess capital to work. While we do not currently anticipate any need to raise additional capital we are ready to do so if the circumstances merit. I would therefore like to thank our shareholders for their continued support and understanding of our capital management approach with their approval of the authority to allot and issue up to 15% of our share capital on a nonpre-emptive basis at yesterday’s AGM.”

Gross premiums written increased by 47.4% in the first quarter of 2014 compared to the same period in 2013, with the increase in premiums due primarily to consolidation of the new Lloyd’s segment, following the acquisition of Cathedral in the fourth quarter of 2013. The Group’s five principal segments, and the key market factors impacting them, are discussed below.

Property gross premiums written decreased by 11.0% for the first quarter of 2014 compared to the same period in 2013. The decrease is driven primarily by reductions in the property retrocession book, offset in part by our continued expansion of our property catastrophe excess of loss book. With reinsurance pricing in general under pressure, as property retrocession rates, terms and conditions continued to worsen rapidly, we redeployed capital to property catastrophe excess of loss, adding some new business and restructuring some existing programmes for core clients, including writing some business on a multi-year basis. Other property classes saw relatively consistent premium volumes compared to the same period of 2013.

Energy gross premiums written increased by 9.7% for the first quarter of 2014 compared to the same period in 2013. The first quarter is not typically a major renewal period for the energy book and, with the exception of more new business in our relatively new energy liabilities sub-class, premium volumes were relatively consistent across all energy classes compared to the same period of 2013.

Marine gross premiums written decreased by 9.8% for the first quarter of 2014 compared to the same period in 2013. The first quarter is not a major renewal period for the marine segment and the dollar value of the reduction in premiums is minimal.

Aviation gross premiums written increased by 84.6% for the first quarter of 2014 compared to the same period in 2013. While the first quarter is not a major renewal period for the AV52 book, pricing and renewal rates remain under pressure. The increase in AV52 premiums written compared to the first quarter of 2013 is driven by adjustments to prior year contracts. The increase in aviation satellite is mainly due to further new satellite business in the quarter as we continue to grow that line of business, plus additional satellite launches on contracts written in previous years. The satellite book premium flow tends to be more unpredictable than other classes of business given the irregular launch patterns.

The first quarter of 2014 reflects the first full quarter of gross premiums written attributable to the Lloyd’s segment since the Cathedral acquisition in the fourth quarter of 2013. The Lloyd’s segment gross premiums written in the first quarter were $108.2 million, $18.6 million or 14.7% lower than the corresponding quarter of 2013 (prior to the acquisition). The decrease largely reflects rate reductions, particularly in the property reinsurance sub-class, and the non-renewal of an aviation quota share where rates were no longer acceptable. These reductions were offset in part by continued strong rating in the direct and facultative binder portfolio.

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Ceded reinsurance premiums increased by $16.0 million, or 16.6% for the first quarter of 2014 compared to the same period in 2013. In the first quarter of 2013 $52.6 million of premiums were ceded to the Accordion sidecar. The Accordion facility is now in run-off and no business was ceded to the vehicle in the first quarter of 2014. This reduction was offset largely by $40.7 million of ceded premiums in relation to the Lloyd’s segment, which is $6.7 million lower than the corresponding quarter of 2013 (prior to the acquisition). The competitive rate environment enabled Cathedral to purchase similar levels of core cover, plus some additional cover for a reduction in cost compared to 2013. Lancashire also took advantage of lower reinsurance rates to purchase some new non-marine retrocession aggregate cover and to restructure its marine, energy and terror programmes with increased limits ceded.

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Net premiums earned as a proportion of net premiums written were 85.6% in the first quarter of 2014 compared to 112.8% for the same period in 2013. The decrease for 2014 reflects the impact of the new Lloyd’s segment, where a larger proportion of the book renews in the first quarter of the year on an annual basis compared to the Lancashire Companies’ book. The first quarter of 2013 also benefited from higher earnings from prior year deals than the first quarter of 2014, reflecting higher overall premiums written in 2012 than 2013.

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The Group’s net loss ratio for the first quarter of 2014 was 34.1% compared to 17.2% for the same period in 2013. There were no significant losses in the first quarter of 2014 and attritional losses reported were also relatively low, although one 2013 accident year mid-sized energy claim was reported in the quarter. The first quarter of 2013 included the benefit of the settlement reached for our North East Industry Loss Warranty (‘ILW’).

Prior year adverse development for the first quarter, including the energy claim mentioned above, was $10.1 million, compared to favourable development of $16.9 million for the first quarter of 2013. The first quarter of 2013 experienced releases due to lower than expected reported losses plus the benefit of the ILW settlement.

Capital

At 31 March 2014, total capital available to Lancashire was $1.791 billion, comprising shareholders’ equity of $1.459 billion and $332.2 million of long-term debt. Tangible capital was $1.626 billion. Leverage was 18.6% on total capital and 20.4% on total tangible capital. Total capital and total tangible capital at 31 March 2013 was $1.494 billion.

Dividends

During the first quarter of 2014, the Lancashire Board of Directors declared a final dividend in respect of 2013 of $0.10 (£0.06) per common share and an additional special dividend for 2013 of $0.20 (£0.12) per common share. The dividends and dividend equivalent payments, totaling $63.2 million, were paid on 16 April 2014 to shareholders and warrant holders of record on 21 March 2014.

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

Further details of the 2014 first quarter results, including the full text of this release, can be obtained from our Financial Supplement. This can be accessed via our website www.lancashiregroup.com

For further information, please contact:

Lancashire Holdings Limited

Christopher Head

Tel: +44 20 7264 4145

chris.head@lancashiregroup.com

Jonny Creagh-Coen

Tel: +44 20 7264 4066

jcc@lancashiregroup.com

Haggie Partners                      +44 20 7562 4444

Peter Rigby                             (Peter Rigby mobile +44 7803851426)

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