Overview of the Group
Lancashire is a Bermuda incorporated company with operating subsidiaries in Bermuda, London and Dubai. The Company was admitted to AIM in December 2005 and plans to move up to the Official List and to trading on the main market of the London Stock Exchange on 16 March 2009.
Principal activities
The Company’s principal activity, through its wholly owned subsidiaries, is the provision of global specialty insurance and reinsurance products.
Results and dividends
A strategic dividend of $1.10 per common share and warrant was declared on 10 December 2007 and paid on 25 January 2008 in pounds sterling at the pound/US dollar exchange rate of 1.9566 or £0.5622 per common share and warrant.
Dividend Policy
Lancashire intends to maintain a strong balance sheet at all times, while generating an attractive risk-adjusted total return for shareholders. We will actively manage capital to achieve those aims. Capital management is expected to include the payment of a sustainable annual dividend, supplemented by special dividends from time to time. Dividends will be linked to past performance and future prospects. Under most scenarios, the annual dividend is not expected to reduce from one year to the next. Special dividends are expected to vary substantially in size and in timing.
Directors
- John Bishop (appointed 19 March 2008 as a Non-Executive Director)
- Richard Brindle (President, Chief Executive Officer)
- Simon Burton (Deputy Chief Executive Officer)
- Jens Juul (Non-Executive Director)
- Neil McConachie (Vice President, Chief Financial Officer)
- Ralf Oelssner (Senior Independent Non-Executive Director)
- Robert Spass (Non-Executive Director)
- William Spiegel (Non-Executive Director)
- Martin Thomas (Non-Executive Chairman)
- Barry Volpert (Non-Executive Director)
Directors’ interests
The Directors’ beneficial interests in the Company’s common shares as at 31 December 2008 and 2007 including interests held by family members were as follows:
| Director | Common shares held at
31 December 2008 | Common shares held at
31 December 2007 |
|---|
| John Bishop |
4,807 |
– |
|---|
| Richard Brindle |
430,065 |
300,000 |
|---|
| Simon Burton |
240,000 |
240,000 |
|---|
| Jens Juul |
10,000 |
10,000 |
|---|
| Neil McConachie |
47,500 |
47,500 |
|---|
| Ralf Oelssner |
– |
– |
|---|
| Robert Spass |
372,500 |
272,500 |
|---|
| William Spiegel |
70,240 |
70,240 |
|---|
| Martin Thomas |
6,950 |
6,950 |
|---|
| Barry Volpert |
– |
– |
|---|
There have been no changes in Directors’ shareholdings between the end of the financial year and the date of this report.
The Directors hold warrants over the Company’s shares which were awarded prior to the Company’s admission to AIM in December 2005 along with other warrants awarded to the Company’s founders and employees as follows: Richard Brindle 9,181,249, Simon Burton 805,555, Neil McConachie 1,160,796 and William Spiegel 481,182. In addition to the Director's interests set out above, Barry Volpert is managing member, chairman and CEO of Crestview LLC which is interested in 15,000,000 shares in the Company and 1,183,180 warrants over the Company’s shares. Robert Spass is the beneficial owner of 1,549,135 warrants over the Company’s shares.
Further details of the executive Directors' warrants are included in the Directors’ Remuneration Report.
Transactions in own shares
The Company repurchased 9,433,168 of its own common shares from May 2008 through August 2008 for a total consideration of approximately $58.0 million as part of its $100.0 million share buyback programme authorised by the Board on 30 April 2008. The repurchased shares are held in Treasury.
Directors’ remuneration
Details of the Directors’ remuneration are set out in the Directors’ Remuneration Report.
Substantial shareholders
As at 9 March 2009 the Company was aware of the following interests of 3 per cent or more in the Company’s issued share capital:
| Name | Number of shares as at
9 March 2009 | % of shares in issue |
|---|
| Crestview Partners L.P |
15,000,000 |
8.7% |
|---|
| Wellington Management Company, LLP |
9,382,650 |
5.4% |
|---|
| BlackRock Merrill Lynch Investment Managers |
8,616,832 |
5.0% |
|---|
| Steadfast Capital LP |
8,564,154 |
5.0% |
|---|
| Goldman Sachs International |
6,369,675 |
3.7% |
|---|
| SAB Capital Partners, L.P. |
6,286,483 |
3.6% |
|---|
| Franklins Resources, Inc. |
5,825,871 |
3.4% |
|---|
The Company’s compliance with the Combined Code on Corporate Governance 2006 is set out in the Corporate Governance section of this report.
Donations
On 30 April 2008 the Board of Directors approved a cash donation of $1.0 million (2007 – $nil) to the Lancashire Foundation.
Lancashire set up the Lancashire Foundation, a Bermuda charitable trust in 2007 with the aim of creating a charitable trust for the benefit of charitable causes in Bermuda and elsewhere (the “Foundation”). The Foundation’s trustee is an independent third party professional trust company that makes donations following recommendations made by the Company’s Donations Committee consisting of Lancashire employees and independent members. Specific criteria have been set for the Foundation’s charitable giving. These criteria include causes where Lancashire staff or independent Donations Committee members have a close relationship with those who operate the charity and therefore have the ability to monitor and influence outcomes.
In 2008, the Group supported The Sunshine League, The Family Centre and BASE (Bermuda Autism Support & Education Society) in Bermuda and, in recognition of the fact that a significant element of Lancashire’s business is connected to insuring against natural catastrophes, the decision was taken to support Médecins Sans Frontières, a charity that the Foundation views as well equipped to provide immediate and lasting humanitarian aid to people directly affected by such catastrophes due to its international presence.
The Group did not make any political donations or expenditure during 2008.
Health and safety
The Group considers the health and safety of its employees to be a management responsibility equal to that of any other function. The Group operates in compliance with health and safety legislative requirements in Bermuda and the UK.
Employees
Lancashire is an equal opportunity employer, and does not tolerate unfair discrimination of any kind in any aspect of employment, including retirement, recruitment, training, promotion, compensation, benefits, advancement and career development. The Group believes that education and training for employees is a continuous process and employees are encouraged to discuss training needs with their managers. The Group’s health and safety, equal opportunities, training and other policies are available to all employees in the staff handbook which is on the Group’s intranet.
Environment
The Group has a commitment to the environment and is pleased with its status as Carbon Positive. The Group’s office emissions have been calculated by PURE the Clean Planet Trust and the carbon emissions associated with the energy usage in Lancashire’s offices in Bermuda, Dubai and London have been offset with PURE. In offsetting with PURE, the Group has made a charitable donation that will support emissions reduction projects around the world using standards that meet the proposed UK Government’s Code of Best Practice.
In addition, all carbon emissions resulting from the Group’s business travel are offset with Climate Care.
LUK is also a founding supporter of the London City Climate Pledge. The goal of the London City Climate Pledge is to develop projects that verifiably reduce carbon emissions and which demonstrably benefit local communities by increasing incomes and improving quality of life. The London City Climate Pledge is administered by PURE.
Creditor payment policy
The Company aims to pay all creditors promptly and in accordance with contractual and legal obligations.
Financial instruments and risk exposures
Information regarding the Group’s risk exposure is included in the risk disclosures in the consolidated financial statements. The Group’s use of derivative financial instruments can be found at note 20 of the consolidated financial statements.
Accounting standards
The Group’s consolidated financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”) endorsed by the European Commission. Where IFRS is silent, as it is in respect of the measurement of insurance products, the IFRS framework allows reference to another comprehensive body of accounting principles. In such instances, management determines appropriate measurement bases, to provide the most useful information to users of the consolidated financial statements, using their judgement and considering the accounting principles generally accepted in the United States (“U.S. GAAP”).
Special business at the Annual General Meeting
The Company’s Annual General Meeting is scheduled for 1.00pm on 14 May 2009 at the Company’s offices, Mintflower Place, 8 Par-la-Ville Road, Hamilton HM 08, Bermuda. Notice of the Annual General Meeting and the form of proxy accompanies this Annual Report.
New bye-laws
At the Annual General Meeting of the Company to be held on 14 May 2009, a resolution to adopt new Bye-laws is to be proposed under special business of the Company. The new Bye-laws (the “New Bye-laws”) update the Company’s current Bye-laws to take account of changes required or relevant to a Company admitted to the Official List and to trading on the Main Market. The principal changes intended to be introduced in the New Bye-laws are set out below. Other changes, which are of a minor, technical or clarifying nature, have not been noted.
Definitions
The Definitions section is to be updated to insert new definitions, which are relevant to a Main Market company, and to remove definitions relating to the Company’s admission to AIM in 2005.
Untraced shareholders
The New Bye-laws will contain an additional Bye-law which would allow Lancashire to sell, in such manner and for such price as it thinks fit, the shares of shareholders whose accounts have been dormant for a twelve year period.
Forfeiture of shares
The New Bye-laws will contain additional provisions relating to statutory declaration on forfeiture and extinction of all interests.
Notice
The New Bye-laws will change the notice period for a special general meeting of the Company from 21 days to 14 days.
Voting on resolutions
The following amendments are to be made to Bye-law 30.1 (Voting on Resolutions): “and in the case of an equality of votes the resolution shall fail” will be changed to “In the case of an equality of votes both for and against the resolution, whether on a show of hands or on a poll, the chairman of the meeting at which the show of hands takes place or at which the poll is demanded shall be entitled to a casting vote in addition to the votes to which he may be entitled as a member or as a representative or proxy of a member”; and “In the event that a Member participates in a general meeting by telephone or electronic means, the chairman of the meeting shall direct the manner in which such Member may cast his vote on a show of hands” is to be added.
Term of office of directors
Bye-laws relating to the term of office of Directors in the Bye-laws will be deleted in their entirety as they refer to the admission of Lancashire to AIM. A new Bye-law will be added in place of Bye-law 48, whereby one-third of the Directors shall retire by rotation at each Annual General Meeting; the Directors eligible for retirement will include any Director wishing to retire and those who have been longest in office since their last re-election or appointment. A retiring Director (subject to the provisions of the Act and the Bye-laws) will be eligible for re-election.
One class of directors
Following the incorporation of the Company in 2005, the Directors were divided by the Members into three classes designated Class I, Class II and Class III. Each class of Directors consists, as nearly as possible, of one-third of the total number of Directors. References to the different classes of Directors will be removed from the New Bye-laws.
Removal of directors
Bye-law 50.1 the words “(in the case of Richard Brindle, only with cause until the earlier of Admission of 1 April 2006)” are to be deleted.
Remuneration of directors
Bye-law 50 (Remuneration of Directors) is to be amended to remove all references to the admission to AIM. The New Bye-laws will provide that the amount of any remuneration payable to Directors shall be determined by the Board and shall be deemed to accrue from day-to-day.
Conflicts of interest
The New Bye-laws will include an additional Bye-law to Bye-law 61 restricting any director of Lancashire from voting and counting in the quorum on a resolution concerning his/her appointment.
Disclosure of interests in shares and company investigations
Following Admission to the Main Market, Chapter 5 of the Disclosure and Transparency Rules will govern the disclosure of interests in shares by the Company or its Members. Bye-law 87.A (Disclosure of Interests in Shares and Company Investigations) is to be amended to delete references to AIM admission and include the provisions required under the Disclosure and Transparency Rules and which are specific to Official List companies.
Communications
The New Bye-laws will contain additional Bye-laws: permitting the Company to be communicated to in electronic form; and permitting the Company to communicate with its members in electronic form and also by posting documents on its website if members have agreed, in accordance with the provisions of the Companies Act 1981 of Bermuda. Please see further details in the paragraph titled Electronic and web communications below.
Electronic and web communications
Provisions of the Companies Act 1981 of Bermuda enable companies to communicate with members by electronic and/or website communications. The Company is proposing at its next Annual General Meeting to adopt New Bye-laws to allow communications to members in electronic form and through its website. Before the Company can communicate with a member by means of website communication, the relevant member must be asked individually by the Company to agree that the Company may send or supply documents or information to him by means of a website and the Company must have received a positive response. The Company will notify the member (either in writing, or by other permitted means) when a relevant document or information is placed on the website and a member can always request a hard copy version of the document or information.
Going concern
The business review section sets out details of the Group’s financial performance, capital management, business environment and outlook. In addition, starting on the risk disclosures section of the financial statements sets out the major risks the Group is exposed to, including insurance, market, liquidity, operational and strategic, together with the Group’s policies for monitoring and controlling its exposures to these risks.
The directors believe that the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook.
After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue its operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.
Auditors
Resolutions will be proposed at the Company’s Annual General Meeting to re-appoint Ernst & Young as the Company’s auditors and to authorise the Directors to set the auditors’ remuneration. Ernst & Young have served as the Company’s auditors since 2005.
Disclosure of information to the auditors
Each of the persons who is a director at the date of approval of this Annual Report confirms that:
- So far as the director is aware, there is no relevant audit information of which the Company’s auditors are unaware; and
- The director has taken all the steps that he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information.
Approved by the Board of Directors and signed on behalf of the Board.
Greg Lunn, Company Secretary
10 March 2009