We established our first rule of business, Underwriting comes first.
We place excellence in underwriting first and foremost. Each risk underwritten must bear scrutiny individually and as part of our portfolio. If we can achieve this year in, year out, we will create superior returns for our shareholders.
We don’t focus on consistent top line growth. Our appetite has grown when the opportunities were attractive and we have cut back smartly when they went away. That’s been the right strategy. Our loss ratio to date from inception is 32.1%. If we had aimed for consistent top line growth it would be a lot higher.
The market in 2010 is softening: we expect to write less business than in 2009, with fewer deals meeting our return requirements. That will keep the quality of our portfolio high and gives us the best chance to keep our loss ratio low.
| 2006 | 2007 | 2008 | 2009 | Inception to date |
|
| Loss ratio | 16.1 | 23.9 | 61.8 | 16.6 | 32.1 |
| Acquisition cost ration | 14.3 | 12.5 | 16.4 | 17.8 | 15.4 |
| Expense ratio | 13.9 | 9.9 | 8.1 | 10.2 | 10.0 |
| Combined ratio | 44.3 | 46.3 | 86.3 | 44.6 | 57.5 |
| Lancashire | S&P 500 | |
| Compound1 | 19.8 | -4.3 |
| 2009 | 26.5 | 26.5 |
| 2008 | 7.8 | -37.0 |
| 2007 | 31.4 | 5.5 |
| 2006 | 17.8 | 15.8 |
Return on Equity (ROE) = growth in fully converted book value per share, adjusted for dividends.
1Compound annual return from inception, 15 December 2005 through 31 December 2009. The S&P 500 figures include the effect of reinvested dividends