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Lancashire pays out a special dividend of $124m

Lancashire Holdings Ltd’s profits after tax dropped 29 percent during the third quarter of 2011 despite beating analysts’ forecasts on the day the company announced a special dividend of $124 million for its shareholders.

The company reported net income of $75.7 million after tax for the quarter compared to $106 million for the same period last year.

Bermuda-based Lancashire, which plans to move its corporate tax base to the UK in January ahead of a reform of taxes on companies with overseas interests, was down 26.5 percent on the year, but ahead of the $61 million expected by analysts in a company poll.

The decline reflected a combination of foreign exchange losses and weaker investment income, which dropped by a fifth due to lower bond yields. The company also had to absorb losses after offloading its entire equities portfolio.

Richard Brindle, Lancashire Group CEO, said: “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 percent in the third quarter delivering a return on equity of 10.4 percent for the first nine months of the year.

“We have now increased book value per share, including dividends, for 22 out of the 23 quarters since our inception in 2005. This represents a compound annual return of 19.8 percent.

“I am pleased to announce a special dividend of $124 million or 80 cents per common share (approximately 49 cents 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.”

Elaine Whelan, Lancashire Group chief financial officer, said: “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 percent. Investments unfortunately suffered a loss of 0.6 percent.”

Lancashire said the latest special dividend brings the total it has returned to investors since inception in 2005 to $1.3 billion.

The company handed back $400 million last year, mostly in the form of share buy-backs.

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Published November 07, 2011 at 1:00 am (Updated November 07, 2011 at 8:28 am)

Lancashire pays out a special dividend of $124m

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