Lancashire Group Holdings Cash Cow Play

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As long term readers of my Chrisoil twitter site know (LSE:LRE) Lancashire Holdings Group is based in the non life insurance sector for Aviation, Energy, Oil, Marine Property and Terrorism which are highly profitable producing one of the biggest annual dividends on the London stock market.


Investor attraction is mainly the annual income which ranges from 9% to 15% depending on what price you bought in and the positive exchange rate being paid in dollars before conversion to sterling. Normally if a company pays over 7% its distressed but lancashire is a rare company paying these high amounts year after year since IPO. This is mainly due to the structure of the holding company and nature of the non life sector. However Lancashire is exceptional due to its compounded annual growth combined with reduced volatilty making it the  best choice in the sector.

Its easy to see why Neil Woodford of Woodford funds loves Lancashire, one of Britains leading fund managers over the long term and believes the futures bright based on management, risk approach, organic growth and increasing dividends.

Looking at the company, the Lloyds of London name was a big movement forward purchasing Cathedral Capital halting the declines of a soft market at present. With the share price showing growth since the lows of last year, the market is forecasting a returning to profitable growth in 2015 and 2016. Which includes increasing dividends where as Hiscox for example have made little effort to do effective deals and will be left open in this soft market unable to maintain large payouts on the size of Lancashire.

The Underwriting element is still the biggest element of Lancashire Group combined with management strength takes a proactive approach. For example company insurance post earthquakes or hurricanes demand high prices and reduce reinsurance when the market area gets poor again. They do not just reinsure junk insurance every year for overall top line turnover on low profit which most of its competitors seem to be doing. Thats why Lancashire profit margins are very high therefore the company can cope with bad news environment.

Onto  Kinesis which is a seperate in fashion fund producing fee income plus commisson in an ever changing insurance world is an excellent addition.

These three elements help Lancashire sail through the soft market, waiting for the new cycle to begin combined with increased interest rates forecast in the future and a good few world events to shake things up.

On the interest rate question we all know historically we are at the bottom and rates will increase. This fall has lead to the non life sector being out of fashion because 40% of the insurance companies profits came from normal interest rates or derivatives. So long term when the tide does turn and this sector will be back in fashion with 40% increased profit margins its only a question of when, not if which should be in 2016. But as a long hold i can wait collecting 15% income streams.

Since IPO  days in 2007 the companies growth has been 194%, this is exceptional performance considering the sector being income rather than growth and i would expect a strong performance will continue over the long term.

You can listen to more information about (LSE:LRE) Lancashire Holdings Group by listening into my thoughts with ADVFN Justin Waite show on my blog

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Until the next time more ramblings from the castle can be seen @chrisoil






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