Lancashire shares fall as Canaccord cuts rating to 'sell' from 'hold'

Shares in Lancashire Holdings fell on Friday after Canaccord Genuity reduced its rating on the insurer to ‘sell’ from ‘hold’ but raised its price target to 680p from 600p.

Canaccord noted that while Lancashire reported a strong third quarter on Thursday, Lancancare’s converted book value per share declined and the company said it was likely to write less business in 2017 due to tough competition from investment funds.

Lancashire reported an increase in third quarter return on tangible equity to 3.7% from 2.9% in the same period a year ago. Profit before tax came to $42.9m, up from $32.9 last year and ahead of the consensus forecast of $33.7m and Canaccord’s estimate of $37.8m.

“The good result was primarily due to low loss incidence, with no large or catastrophic claims, although a 7 point reserve increase for the Jubilee energy loss meant reserve releases at 4% of earned premium were lower than recent experience,” Canaccord said.

“The good result was also helped by realised and other investment gains and foreign exchange.”

Looking ahead, Lancashire said given the weak pricing outlook, it would continue to give excess capital back to shareholders
As a result the group said it was returning about $150 of capital via a special dividend of $0.75 per share.

Cancaccord said it raised its price target based on the higher special dividend.

However, the broker said: “Even if one were to roll forward for another year of special dividend of $0.55, we would still see downside to our fair value, given the 10-11% return on equity outlook, and we downgrade from ‘hold’ to ‘sell’.

Shares dropped 3.63% to 730.50p at 0946 GMT.