February 21, 2013 / 7:36 AM / 5 years ago

UPDATE 2-Insurer Lancashire to return $170 mln to investors

LONDON, Feb 21 (Reuters) - British insurer Lancashire said it would hand back $170 million of capital to investors via a special dividend because flat insurance prices were limiting opportunities for profitable underwriting.

Shareholders in Lancashire, which insures ships, oil rigs and aircraft, will receive a one-off payout of $1.05 per share, on top of a final dividend for 2012 of 10 cents a share, the company said on Thursday.

Lancashire, which moved its tax domicile to Britain from Bermuda last year, also said its pretax profit for 2012 rose 8 percent to $236.8 million, ahead of the $219 million penciled in by analysts in a company poll.

The insurer’s forecast-beating performance partly reflected a $44.5 million hit from Superstorm Sandy, at the lower end of the $40 million to $60 million range it forecast in December.

However, Lancashire’s final bill for Sandy could fall as low as $4.5 million if the total insured loss from the storm exceeds $20 billion, as this would entitle the insurer to a $40 million payout under a specialist reinsurance contract it bought in June last year, head of investor relations Jonny Creagh-Coen said.

The contract is an industry loss warranty (ILW), a form of reinsurance that pays out if total insured losses from a storm or earthquake exceed an agreed threshold.

“We bought $40 million of it, and that may well come into our favour - it means our Sandy loss could go down to $4.5 million,” Creagh-Coen told Reuters.

The ILW is triggered by reference to loss estimates calculated by data aggregator Property Claims Service.

Disaster modelling firms reckon Sandy, a 1,000 mile wide storm that pummelled the north-eastern United States last October, could cost the insurance industry up to $25 billion.

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