“We do what it says on the tin”Lancashire Investor Day | December 2009 | www.lancashiregroup.com

STRATEGY SUCCESS SUSTAINABILITY

Underwriting comes first 60% combined ratio since inception

Stay nimble Very active cycle management

Maintain a strong balance sheet

Consistently profitable investments

Deliver a cross-cycle return of at least

risk-free plus 13%

Manage capital through the cycle

Majority of IPO capital returned in under 4 years

Compound annual

22

ROE = 19%

“Underwriting comes first”

As an insurance company, our most important aim is excellencein underwriting. Each risk underwritten must bear scrutiny on anindividual basis and as part of our overall portfolio. If we can

hi hi i i l b li hi illachieve this, year in year out, consistently, we believe this willgenerate a superior return for shareholders

3

Text taken from Lancashire Website

Underwriting Comes First

Underwriting will always come first at Lancashire. Why?

• We are an insurance company. Not an investment manager. Not a hedge fund.

• Underwriting drives the majority of our ROE

• Underwriting builds the market relationships and drives franchise value

Lancashire underwriting is a collective, collaborative, consistent discipline

• Daily conference call

• Focus on quality, not quantity

• Focus on team, not individuals

• Underwriters compensated on Growth in book value per share

Inception-to-date loss ratio = 35%

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Underwriting Comes First: Exceptional Performance C bi d R tiCombined Ratio

90

100

60

70

80

Lloyd's 1

30

40

50Lloyds 1Bermuda 2Lancashire

0

10

20

1 ”Lloyd’s” = Amlin, Beazley, Brit, Catlin, Chaucer, Hardy, Hiscox, Novae, Omega. Information source: company reports and sell side research Methods of calculation can vary between companies. 2009 performance is through 30th June 20092 “Bermuda” = Arch Axis Endurance Flagstone Montpelier Partner Re Platinum Ren Re and Validus Information source: company

2006 2007 2008 2009

Bermuda = Arch, Axis, Endurance, Flagstone, Montpelier, Partner Re, Platinum, Ren Re, and Validus. Information source: company reports and sell-side research. Methods of calculation can vary between companies. 2009 performance is through 30th September 2009

5

Underwriting Comes First: RPI trends by major class

Class 2006 2007 2008 20091 Estimated 20102

Property Reinsurance 100 97 96 127 Flat to -5%

Property Direct & Facultative 100 92 83 90 Flat to -5%

Energy Gulf of Mexico 100 80 64 137 Flat to -5%

Energy Worldwide 100 85 75 84 Flat

Marine 100 88 80 82Flat

Terrorism 100 86 71 66Down 5 to

10%

Aviation (AV52 only) 100 80 69 68 Flat to -5%Aviation (AV52 only) 100 80 69 68 Flat to 5%

1the 2009 estimate rate index is based on management estimates on potential peak rates during 2009 relative to 2006 rates. These estimates are based on a number of factors including rates achieved on recently renewed contracts plus significant judgment on factors influencing supply and demand of the classes illustrated above. The estimated rates are based on information available at the time of the preparation of this presentation may be materially incorrect and are subject to change without notice

6

time of the preparation of this presentation, may be materially incorrect, and are subject to change without notice. 2 As of December 15th 2009. Represents managements estimates of potential movement in annual rates between 2009 and 2010.

Underwriting Comes First: Portfolio evolution800

400

500

600

700

Mill

ions

0

100

200

300$

M

100%100%

2006 2007 2008 2009 (estimate)

Property Energy Marine Aviation

40%

60%

80%

40%

60%

80%

0%

20%

2006 2007 2008 2009

0%

20%

2006 2007 2008 2009

7

7

Insurance ReinsuranceElemental Non Elemental

Underwriting & Marketing Conference Call

ModelingPROPEL output per accountEQ, Flood, Named Windstorm, Tornado/HailPML. AAL, Loss CostDTC Analysis

ALWAYS

CUO: Group & Operating company

CEO G

REVIEWREVIEW

CEO: Group

Senior underwriters: Operating companyRating SheetOccupancy Loss Frequency CurvesDefault rates by OccupancyUnderwriter qualitative selection

OFTEN

Chief Actuary

CEO: Operating companies

ACCOUNTACCOUNT

INDUSTRYINDUSTRY

ClaimsAccount HistorySector reviewLosses Avoided

CEO: Operating companies

Chief Risk Officer

ModelersGEOGEO--POLITICALPOLITICAL

RPIPrice and ExposureLoss-Affected / Non Loss-AffectedElemental / Non Elemental

PORTFOLIOPORTFOLIO SOMETIMES

Group & Operating company CFOs MarketingClient PresentationSector ReviewAttachment Point Review

8

Underwriting Comes First: UMCC

999

Underwriting Comes First: Estimated 2009 portfolio split

75% insurance 25% reinsurance 38% nat-cat exposed 62% other

Energy 30%Aviation 8%offshore WW

t tionshore WW

GoM9%

16%

AV528%

hull4%

construction2%

2%

Marine 12%

builders risk3%

other5%

property cat

retro10%

political risk3%

p p y13%

Property 50%D&F14%

terrorism11%

Based on estimates as of 15th December 2009. Estimates could change without notice in response to several factors, including trading conditions.

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Underwriting Comes First: Common themes across portfolio

• Generally write middle to higher layers

• Little appetite for programmes with high expected loss frequency

• Find profitable niches in less attractive classesFind profitable niches in less attractive classes

• Core of portfolio is set of high quality clients / cedents

• Non-core portfolio expands and shrinks as market changes

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Property Segment: Direct and FacultativeE t d 2010 t h fl t t d 5%

Key themes

Expected 2010 rate change: flat to down 5%

• We prefer light industries by their nature less likely to incur material losses over high process risk heavy industries

Type of D&F account DescriptionPercentage of

Premium IncomeType of D&F account Description Premium Income

Heavy Mining, processing, fabrication, petroleum, etc. Less than 10%

Moderate Railroad, agriculture, electrical, services, etc. Between 20-25%

Light Communication, education, temporary lodging etc. Between 70-75%

• 97% of portfolio is excess layers• Target middle market through wholesale MGA’s g g

Outlook

• Market under pressure with largest reductions in primary and lower layered business

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• US domestic aggressiveness steadied

Property Segment: TerrorismExpected 2010 rate change: down 5 to 10%

Key themes

Expected 2010 rate change: down 5 to 10%

• Over 90% of our policies are outside New York City

• We prefer Closed1 Access Risks versus Open2 Access Risks

• 33% of book is Open Access Risks; 67% are Closed Access Risks

• Average attachment point for open access is over double attachment for closed access

• Manhattan attachment point is over double the attachment of the rest of the portfolio

Outlook

• Market remains very competitive, but plenty new opportunities particularly in small to mid sized business, construction, and in low exposure territories

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1 “Closed Access” Risks include Manufacturing, Chemical and Pharma, Power, Energy, Construction2 “Open Access” Risks include Shopping Centers, Sport & Entertainment, Hotels, Metro, Airports

Property Segment: RetrocessionExpected 2010 rate change: flat to down 5%

Key themes

Expected 2010 rate change: flat to down 5%

• We are a lead market in the class, writing predominantly private layers

• Target large international reinsurers in the U.S., Europe, Lloyd’s and Bermuda

• Worldwide lines are sold in a pillared format

• Coverage is provided on a single territory, multi territory or worldwide basis

• The majority of our clients have been with us since our first year

Outlook

• Rates coming under modest pressure but near historical highs

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Energy Gulf of MexicoExpected 2010 rate change: flat to down 5%

Key themes

• Majority of portfolio is deep water assets little appetite for most shelf risks

Expected 2010 rate change: flat to down 5%

Majority of portfolio is deep water assets, little appetite for most shelf risks• 2009 vs. 2008 GoM shelf policy limit down 82%

• 2009 vs. 2008 GoM total policy limit down 65%

• Most preferred asset types are spars and drill shipsMost preferred asset types are spars and drill-ships

• Least preferred asset types are shelf platforms and pipelines

• Pro-active to clients needs

Outlook

• Modestly increased demand after surprisingly low 2009 volumes

• Rates remain near all-time high

• Market remains dislocated

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Energy Worldwide & OtherExpected 2010 rate change: mostly flat; onshore energy down 5%Expected 2010 rate change: mostly flat; onshore energy down 5%

Key themes

• Offshore worldwide: Continue to build out core relationships

• Construction: Recession put many projects on hold. Write excess of prototypical technology and generally weighted to top layers of programmes

• Onshore Worldwide: Partial market penetration. Preference for top layers but will look at top end engineered risk on an alternative structure

Outlook

• Offshore worldwide: plenty of small to medium sized attritional losses during the year plus West Atlas will see a flat rating environment

• Construction: Anticipate new opportunities from Brazil, Africa, Gulf of Mexico and India

• Onshore Worldwide: Market coming under pressure but top layers less so

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Marine & Aviation AV52Expected 2010 rate change: Marine: flat Aviation: flat to down 5%Expected 2010 rate change: Marine: flat Aviation: flat to down 5%

Key Themes

• Marine Hull, Marine Builders Risk: Target Cruise ships, LNG Tankers, High profile/value account. No cargo and generally no small/medium sized accounts.Target most reputable yards

• Marine IGPIA/ P&I: Both direct and reinsurance capacity geared towards top end of• Marine IGPIA/ P&I: Both direct and reinsurance capacity, geared towards top end of programmes

• Marine Hull War: Written under lineslips and includes piracy• Aviation: AV52 only. No Hull or Liabilities

Outlook

• Marine Hull Marine Builders Risk: rates remain relatively static with modest growth in• Marine Hull, Marine Builders Risk: rates remain relatively static with modest growth in recession hit yards

• Marine IGPIA/ P&I: rates increasing marginally but flat on top layers• Marine Hull War: premium buoyed by breach AP’s for transits through the Gulf of Aden• Aviation: rates flat but coming under pressure

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• Aviation: rates flat but coming under pressure

“Stay Nimble”

We underwrite the good deals. We turn down the bad ones. Togrow in a hard market and shrink in a soft market with efficiencymeans staying nimble. We achieve this through a collegiate

d i i h i h l h d d k iunderwriting approach, tight control on overheads and keepingour eyes open for opportunities.

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Text taken from Lancashire Website

Stay NimbleLancashire is a very nimble company: Why is this so important?Lancashire is a very nimble company: Why is this so important?

• The world changes quickly and unpredictably

• Underwriting opportunities appear and disappear very fast

• Investment markets are volatileInvestment markets are volatile

• High fixed costs can encourage underwriting for quantity not quality

• Different classes are on different cycles

• M lti l l ti k it h d t t b k i ft k t• Multiple locations makes it harder to cut-back in soft markets

• It’s important to cut-back in bad times, not just expand in the good times

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In the 2008 soft market, Lancashire reduced top line premium by 15%

Stay Nimble: How do we do it?

• Tight operating structure, “Group” underwriting mindset

• Low headcount, low fixed costs

• Flexible capital management options: avoid commitment to large annual dividendFlexible capital management options: avoid commitment to large annual dividend

• Stated focus on ROE, not top-line growth: eliminate market pressure to expand

• Core versus non-core portfolio

• Continually assess threats and opportunities

• Extensive risk learning undertaken following losses or wrong decisions

2020

Extensive risk learning undertaken following losses or wrong decisions

Stay Nimble: Lancashire examples

Late 2005 Zero to IPO in 77 days!

2006 v Business plan

2007 v 2006

Wrote no Marine XOL; rapid establishment of London office

Premiums increased 20%, structured products sold early, 83% f fit t d t h h ld

2008 v 2007

of profits returned to shareholders

Premiums decreased 15%, further de-risking of investments, reduce underwriting of commodity risks

2009 v 2008

g y

Rebalance portfolio from GoM energy towards Property Cat, substantial capital returns, modestly increase investment risk

2010 v 2009 Further increase in Property Cat, enter Sovereign Risk, GCube.

2121

We do all the traditional stuff and do it well

ERM and Underwriting at LancashireWe do all the traditional stuff and do it well

2222

ERM and Underwriting at LancashireBut what is ERM in action? Real life example: Ike Loss Learning

1. We start with questions

• What loss did we expect?

• What loss did the models expect?

• What loss actually happened?What loss actually happened?

2. Then we do the hard work

• What do the models miss?

• What are the real-loss ratios?

• What is a credible extreme loss scenario?

• Create a synthetic portfolio

• Create the “ideal” portfolio

• Create the “real-optimised” portfolio

2323

Create the real optimised portfolio

ERM and Underwriting at LancashireHurricane Ike risk learningHurricane Ike risk learning

RMS assumes waves are correlated with wind – true for Katrina, not true for Ikeshelf assets before… shelf assets after…shelf assets after…

BUT deepwater assets performed as expected…

before AND after!

2424

ERM and Underwriting at Lancashire

Set damage ratios: What kind of damage happens to what kind of assets in a major event?

Asset/Contract Type RMS 2008 100 Year Damage Ratio

Actual Ike Damage Lancashire 100 year

Damage RatioYear Damage Ratio Ratios Damage Ratio

Shelf Package 40.6% 34.3% 62.5%

Sh lf EShelf Excess 19.7% 19.4% 42.2%

Deepwater Primary 5.1% 1.2% 7.0%

Deepwater Excess 5.5% 0.2% 3.8%

Drillers/Contractors 9.2% 9.9% 14.5%

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ERM and Underwriting at LancashireGulf of Mexico presents a finite data set. We know what assets there are and where they are and what happened to them in hurricanes

Stage 1 we create a SYNTHETIC PORTFOLIO.Stage 2 we model different outcomes for the synthetic portfolio to arrive at an IDEAL PORTFOLIOStage 2 we model different outcomes for the synthetic portfolio to arrive at an IDEAL PORTFOLIO

Drillship Semi-Sub Spar Semi-Sub Platform

Stage 3 we don’t live in an ideal world so arrive at REAL OPTIMISED PORTFOLIOStage 3 we don t live in an ideal world so arrive at REAL OPTIMISED PORTFOLIO

Drillship Semi-Sub Spar Semi-Sub Platform

PLUS Jack Up

2626

Following Ike risk learning Lancashire created new application: FLOAT

ERM and Underwriting at LancashireFollowing Ike risk learning, Lancashire created new application: FLOAT FLOAT complements existing RMS, BLAST and PROPEL applications

Then we instituted guidelines e.g.• Maximum 17 5% of total aggregate exposed to shelf assets• Maximum 17.5% of total aggregate exposed to shelf assets

This is ERM in action at Lancashire

• Learn lessons

• Challenge assumption

• Do the research from multiple sources

• Get the theory right

• Apply it to real situations and IMPLEMENT

2727

Stay Nimble: increasing property cat reinsuranceU.S. Property Cat International Property Cat Uniform characteristics

− Regional product with limited exposure to nationwide cover

− Following key and well respected markets

− Prefer higher layers but will optimise specificexposure to nationwide cover

− Preference for mutuals rather than layered and shared writers in the E&S market

respected markets

− Reduced capacity to reflect rating environment

will optimise specific opportunities

− Syndication

− Key strategic partners with tested business models, mature distribution links and

− Main Focus:Canada model changeUK & Western Europe expansion

− Strong links with key broking houses ensures Lancashire is seen as a key market

high regard for reinsurance purchase

− Florida still uncertain, further TICL d ti thi l

expansionBuild on established Japanese bookSolvency 2 impacting emerging European market

TICL reduction this year plus admitted markets withdrawal from Tier 1 PML accounts

g g pbalance sheets, require more cover Strategic partners in NZ / Australasia

2828

− Key footprints in each territory

Stay Nimble: Lancashire property cat appetite

We will generally deploy the most capacity where rates are most attractive

2929

Sovereign Risk (CF1)

Stay Nimble – Sovereign riskSovereign Risk (CF )• CF is an extension of our Political Risk portfolio: the peril is the political stability of a country• Lancashire underwriters have proven track records in this peril• Lancashire does not write trade credit

Quasi Sovereign Risk (CR2)

• Lancashire will write selective areas of the CR sub class• ‘private’ companies that fall within the private obligor definition but that have strong sovereign links

and are inherently tied to the actions of the state

Why Now?• Rating has increased substantially following a number of losses in CR sub Class• Availability of reinsurance restricted going forwards across both subclasses• The underlying risk has improved as the banking sector scrutinizes suitable customers to aThe underlying risk has improved as the banking sector scrutinizes suitable customers to a

far greater degree following the recent global credit crisis• Competitors aggregates full in key territories

Access• Existing network of approved brokers and investment banks• Placed by political risk brokers with whom we already have an established relationship

3030

1CF provides coverage against non-payment or default by a government entity (public obligors) as a result of a political peril2CR covers lenders against non-payment or default as a result of action or inaction of a commercial entity (private obligor).

Stay Nimble – Alternative energy

Alternative Energy

• New sub class backing G Cubee sub c ass bac g G Cube• GCube is a MGA backed by Lloyd’s underwriters specialising in renewable energy business

globally

• Wind Power • Solar Power• Solar Power • Hydro Power

Why GCube and Why Now?

• Complex and prototypical technology: few underwriters have sufficient knowledge• Better bet to back the best quality existing market writer

• Superior engineering review & wordingp g g g

• The green train has left, complements our energy classes

3131

“Maintain a strong balance sheet”

We meet policyholders claims promptly, accurately andcompletely. Our balance sheets should instill a high level ofconfidence in all stakeholders, including shareholders,confidence in all stakeholders, including shareholders,regulators, rating agencies, counterparties and employees.

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Text taken from Lancashire Website

Maintain a Strong Balance Sheet

• Lancashire maintains a very strong balance sheet. What does this mean?

B bl t b b t l l l d i bl t t k d t f• Be able to absorb extremely large losses and remain able to take advantage of ensuing opportunities

• Exposure no more than 25% of capital to highly remote events1

• Maintain highly conservative and liquid investment portfolio with ability to withstand extreme market shocks.

• Avoid commitments, implied or otherwise, to large regular dividends

• Avoid surprises:

• Real time of monitoring risk levels, risk limits and capital needs

• Do not aggressively reserve for losses

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1 1 in 100 year windstorm / 1 in 250 year earthquake

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Maintain a Strong Balance Sheet: BLASTBLAST = Best Lancashire Assessment of Solvency over Time

UNDERWRITING1. Premiums

y

MANAGEMENT

2. Expenses3. Losses

RESERVING

BLASTBLASTINVESTMENT

CREDIT RISK

GROUP RISK

OPERATIONAL RISK

CAPITAL

OPERATIONAL RISK

34

Maintain a Strong Balance Sheet: Lancashire capital model

• Underwriting Risk (Significant)Premiums based on Business Plan and adjusted throughout the year– Premiums based on Business Plan and adjusted throughout the year

– Expenses (Operational Expense + Acquisition Expenses)– Losses split into 3 categories

• Attritional (small claims expected every year)• Large or Individual (medium to large man made claims)• Large or Individual (medium to large man made claims)• Elemental (Natural Catastrophe)

• Load added to modeling output to account for uncertainty or deficiences in the modelsmodels

– In force Reinsurance program is coded in the model

• Reserve Risk (Not significant)– Lancashire portfolio is short tail. Discovery is fast and adjustments to reservesLancashire portfolio is short tail. Discovery is fast and adjustments to reserves

are done within months not years after.– Reserves are undiscounted

35

Maintain a Strong Balance Sheet: Lancashire capital model

• Credit Risk (Not Significant)– Correlated to Large Elemental Market Losses– High quality of Reinsurance panelg q y p

• Market Investment Risk (Not Significant)– Prudent portfolio as proven in 2008/2009

Can be significant at many other companies– Can be significant at many other companies

• Group Risk (Not significant)– Mainly related to internal quota share for LUK– Intra company quota share has a collateral agreement

• Operational Risk (Could be significant if weak controls)– Underwriting disciplineUnderwriting discipline – Understanding the limitations of the models (the best models don’t replace best

judgment)

36

Maintain a Strong Balance Sheet: Consistent Investment Return

6%

8%

2%

4%

6%

-2%

0%

-4%

2006 2007 2008 2009 (9mo.) Inception to Date

Lloyd's Bermuda Lancashire

1Lloyd’s = Amlin, Beazley, Brit, Catlin, Chaucer, Hardy, Hiscox, Novae, Omega. Information source: company reports, sell side research Methods of calculation can vary between companiesresearch. Methods of calculation can vary between companies. 2 Bermuda = Arch, Axis, Endurance, Flagstone, IPC Re, Montpelier, Partner Re, Platinum, Ren Re, and Validus. Information source: company reports, sell side research. Methods of calculation can vary between companies.

40

Maintain a Strong Balance Sheet: Conservative approach

• We have consistently maintained our philosophy: Rule #1: “don’t lose your money”

– Positive investment return in 14 out of 15 quartersClose management involvement in tactical

31%

9%

23%

FDIC

Agency MBS

– Close management involvement in tactical decision making

• Conservative investment strategy:– Emphasis on preservation of invested assets

P id ffi i t li idit f t t

15%

8%

24%

9%

Corporate

FDICCorporate

– Provide sufficient liquidity for prompt payment of claims

– No exposure to alternative asset classes– Transparency: financial supplement includes

a list of assets on a security by security basis 6%

3%

6%

4%

Agency

Other Govt

• Average portfolio rating of: AA+

• Short duration: 2.2 years ** 8%

10%

8%

13%

Short Term

U.S. Govt. *

• Book Yield: 2.7%

• Book Yield excl managed cash: 2.9%

19%13%

0% 5% 10% 15% 20% 25% 30% 35%

Cash & CashEquivalents **

31 D 08 30 N 09

38

38

31-Dec-08 30-Nov-09

* U.S. Government includes 3.4% of Treasury Inflation Protection Securities** $263 million of Cash has been excluded, as this will be paid out on January 7, 2010

Maintain a strong balance sheet: Asset allocation vs. peers

Asset Allocation vs. Peers at September 30, 2009

25%

30%

35%

10%

15%

20%

0%

5%

Short Term

&Agen

...Corp

orates

ency M

BSncy

RMBS

CMBS

ABSvern

ment

Other

Cash &

ShTrea

surie

s & Co

AgeNon-A

genc

Other Gov

Lancashire Peer Group

39

39

Lancashire Peer Group

Peer Group Arch, Aspen, Axis, Endurance, Flagstone, Montpelier, Partner Re, Ren Re and Validus.Corporates include debt issued by financial institutions, guaranteed by the FDIC.

“Manage capital through the cycle”

We don’t have a strategic target level of capital. Underwritingg g p gopportunities will drive capital, not the other way around Wecarry sufficient capital to support all the deals which meet ourreturn hurdles. We won’t let our capital levels drive how muchpremium we generate This is an unusual approach grantedpremium we generate. This is an unusual approach granted.

40

Text taken from Lancashire Website

Manage Capital Through the Cycle

Lancashire is one of most active managers of capital in the market. Why?

C it l i th t th d• Capital is the means not the end• Too little capital = weak balance sheet, missed opportunities• Too much capital = hurts ROE, burns hole in pocket• Goldilocks strategy = “capital levels are just right”

When we don’t have any smart ideas. what to do with it, we give it back toshareholders.

87 % of IPO capital returned or authority to return

4141

Manage Capital Through the Cycle: Our approachSteps:

I. Assess future opportunitiesII. Assess environmental factorsIII. Decide on optimum mix of mechanismsIV. Adjust capital to meet targetV. Go back to Step 1. Formally discussed at each quarter’s board meeting,

management assesses fortnightly 1 750

1,000

1,250

1,500

1,750

$ m

illio

ns

0

250

500

750

$

-500

-250

0

'Dec 05 'Dec-06 'Dec-07 'Dec-08 Sep-09

4242

equity sub-debt retained earnings dividends paid share buybacks

1 September retained earnings have been reduced for the January 2010 dividend payable of $263 million and share buybacks done through December 11, 2009 of $16 million.

Manage capital through the cycle: ROE performance

ROE

25 0%

30.0%

35.0%

40.0%

10.0%

15.0%

20.0%

25.0%Lloyds Bermuda

Lancashire

21

-5.0%

0.0%

5.0%

2006 2007 2008 2009 YTDannualised

CompoundRoE

Annualised

1Lloyd’s = Amlin, Beazley, Brit, Catlin, Chaucer, Hardy, Hiscox, Novae, Omega. Information source: company reports, sell side research. Methods of calculation can vary between companies. Lloyds’ 2009 YTD and Compound RoE is through June 30, 2009, annualised.2 Bermuda = Arch, Axis, Endurance, Flagstone, IPC Re, Montpelier, Partner Re, Platinum, Ren Re, and Validus. Information source:

42

, , , g , , p , , , ,company reports, sell side research. Methods of calculation can vary between companies. Bermuda’s 2009 YTD

and Compound RoE is through September 30, 2009, annualised.

Safe Harbour StatementsCERTAIN STATEMENTS AND INDICATIVE PROJECTIONS (WHICH MAY INCLUDE MODELED LOSS SCENARIOS) MADE THAT ARE NOT BASED ON CURRENT OR HISTORICAL FACTS ARE FORWARD-LOOKING IN NATURE INCLUDING WITHOUT LIMITATION, STATEMENTS CONTAINING THE WORDS 'BELIEVES', 'ANTICIPATES', 'PLANS', 'PROJECTS', 'FORECASTS', 'GUIDANCE', 'INTENDS', 'EXPECTS', 'ESTIMATES', 'PREDICTS', 'MAY', 'CAN', 'WILL', 'SEEKS', 'SHOULD', OR, IN EACH CASE, THEIR NEGATIVE OR COMPARABLE TERMINOLOGY. ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDING, WITHOUT LIMITATION, THOSE REGARDING THE GROUP'S FINANCIAL POSITION, RESULTS OF OPERATIONS, LIQUIDITY, PROSPECTS, GROWTH, CAPITAL MANAGEMENT PLANS BUSINESS STRATEGY PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS (INCLUDINGMANAGEMENT PLANS, BUSINESS STRATEGY, PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS (INCLUDING DEVELOPMENT PLANS AND OBJECTIVES RELATING TO THE GROUP'S INSURANCE BUSINESS) ARE FORWARD-LOOKING STATEMENTS. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER IMPORTANT FACTORS THAT COULD CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE GROUP TO BE MATERIALLY DIFFERENT FROM FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS.THESE FACTORS INCLUDE, BUT ARE NOT LIMITED TO: THE NUMBER AND TYPE OF INSURANCE AND REINSURANCE CONTRACTS THAT WE WRITE; THE PREMIUM RATES AVAILABLE AT THE TIME OF SUCH RENEWALS WITHIN OUR TARGETED BUSINESS LINES; THE LOW FREQUENCY OF LARGE EVENTS; UNUSUAL LOSS FREQUENCY; THE IMPACT THAT OUR FUTURE OPERATING RESULTS, CAPITAL POSITION AND RATING AGENCY AND OTHER CONSIDERATIONS HAVE ON THE EXECUTION OF ANY CAPITAL MANAGEMENT INITIATIVES; THE POSSIBILITY OF GREATER FREQUENCY OR SEVERITY OF CLAIMS AND LOSS ACTIVITY THAN OUR UNDERWRITING, RESERVING OR INVESTMENT PRACTICES HAVE ANTICIPATED; THE RELIABILITY OF, AND CHANGES IN ASSUMPTIONS TO, CATASTROPHE PRICING, ACCUMULATION AND ESTIMATED LOSS MODELS; LOSS OF KEY PERSONNEL; A DECLINE IN OUR OPERATING SUBSIDIARIES' RATING WITH A M BEST COMPANY AND/OR OTHER RATING AGENCIES; INCREASED COMPETITION ON THE BASIS OFSUBSIDIARIES RATING WITH A.M. BEST COMPANY AND/OR OTHER RATING AGENCIES; INCREASED COMPETITION ON THE BASIS OF PRICING, CAPACITY, COVERAGE TERMS OR OTHER FACTORS; A CYCLICAL DOWNTURN OF THE INDUSTRY; THE IMPACT OF A DETERIORATING CREDIT ENVIRONMENT CREATED BY THE FINANCIAL MARKETS AND CREDIT CRISIS; A RATING DOWNGRADE OF, OR A MARKET DECLINE IN, SECURITIES IN OUR INVESTMENT PORTFOLIO; CHANGES IN GOVERNMENTAL REGULATIONS OR TAX LAWS IN JURISDICTIONS WHERE LANCASHIRE CONDUCTS BUSINESS; LANCASHIRE OR ITS BERMUDIAN SUBSIDIARY BECOMING SUBJECT TO INCOME TAXES IN THE UNITED STATES OR THE UNITED KINGDOM; AND THE EFFECTIVENESS OF OUR LOSS LIMITATION METHODS. ANY ESTIMATES RELATING TO LOSS EVENTS INVOLVE THE EXERCISE OF CONSIDERABLE JUDGEMENT AND REFLECT A COMBINATION OF GROUND-UP EVALUATIONS, INFORMATION AVAILABLE TO DATE FROM BROKERS AND INSUREDS, MARKET INTELLIGENCE, INITIAL AND/OR TENTATIVE LOSS REPORTS AND OTHER SOURCES. JUDGEMENTS IN RELATION TO NATURAL CATASTROPHE AND MAN MADE EVENTS INVOLVE COMPLEX FACTORS POTENTIALLY CONTRIBUTING TO THESE TYPES OF LOSS, AND WE CAUTION AS TO THE PRELIMINARY NATURE OF THE INFORMATION USED TO PREPARE ANY SUCH ESTIMATES.THESE FORWARD-LOOKING STATEMENTS SPEAK ONLY AS AT THE DATE OF PUBLICATION. LANCASHIRE HOLDINGS LIMITED EXPRESSLY DISCLAIMS ANY OBLIGATION OR UNDERTAKING (SAVE AS REQUIRED TO COMPLY WITH ANY LEGAL OR REGULATORY OBLIGATIONS (INCLUDING THE RULES OF THE LONDON STOCK EXCHANGE)) TO DISSEMINATE ANY UPDATES OR REVISIONS TO ANY

44

OBLIGATIONS (INCLUDING THE RULES OF THE LONDON STOCK EXCHANGE)) TO DISSEMINATE ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKING STATEMENTS TO REFLECT ANY CHANGES IN THE GROUP'S EXPECTATIONS OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENT IS BASED..

NOTE REGARDING RPI TOOL

LANCASHIRE’S RENEWAL PRICE INDEX (“RPI”) IS AN INTERNAL TOOL THAT ITS MANAGEMENT USES TO TRACK TRENDS IN PREMIUM RATES OF A PORTFOLIO OF INSURANCE AND REINSURANCE CONTRACTS. THE RPI IS CALCULATED ON A PER CONTRACT BASIS AND REFLECTS LANCASHIRE’S ASSESSMENT OF RELATIVE CHANGES IN PRICE, TERMS, CONDITIONS AND LIMITS AND IS WEIGHTED BY PREMIUM VOLUME. THE CALCULATION INVOLVES A DEGREE OF JUDGMENT IN RELATION TO COMPARABILITY OF CONTRACTS AND THE ASSESSMENT NOTED ABOVE. TO ENHANCE THE RPI TOOL, MANAGEMENT OF LANCASHIRE MAY REVISE THE METHODOLOGY AND ASSUMPTIONS UNDERLYING THE RPI, SO THE TRENDS IN PREMIUM RATES REFLECTED IN THE RPI MAY NOT BE COMPARABLE OVER TIME CONSIDERATION IS ONLY GIVEN TO RENEWALS OF A COMPARABLE NATURE SO IT DOES NOT REFLECT EVERYOVER TIME. CONSIDERATION IS ONLY GIVEN TO RENEWALS OF A COMPARABLE NATURE SO IT DOES NOT REFLECT EVERY CONTRACT IN LANCASHIRE'S PORTFOLIO. THE FUTURE PROFITABILITY OF THE PORTFOLIO OF CONTRACTS WITHIN THE RPI IS DEPENDENT UPON MANY FACTORS BESIDES THE TRENDS IN PREMIUM RATES.

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Appendix 1: RPI Spread

2009 YTD Renewal Rate by Band

300

200

250

150

200

mbe

r of

Acc

ount

s

50

100

Num

0

50

< 90% 90% - 95% 95% - 100% 100% - 105% 105% - 110% > 110%

4646

Appendix 2: Richard Brindle Has a Track Record of Long-term Outperformance

Syndicates 488 & 2488 vs. Lloyd’s market1 Ascot vs. Lloyd’s market1 Lancashire vs. peers2,3

Syndicates 488 & 2488 average = 17.5%Lloyd’s average = 0.9%

Ascot average = 43.3%Lloyd’s average = 0.2%

Lancashire average = 19.0%Peer average = 15.8%

30.9%

39.0%

27.2%

44.6%42.0%

25 4%

31.4%

11.9% 12.7%

7.1% 7.5%

13.7%12.3%

22.1%

8.5%8.6% 10.0%

16.0% 17.6%

9.8%8.2%

19.3% 18.9%

15.3%

25.4%

7.8%

22.8%

17.8%

-1.3%

-7.5% -7.5%

1.3%

-0.7%

-16.2% -16.8%

-13.8%

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

-15.0%

2001 2002 2006 2007 2008

1 Profit before personal expenses as a percentage of capacity

47

2 Return on equity3 Peers include Amlin, Arch, Axis, Endurance, Flagstone, Hiscox, Montpelier, Partner Re, Platinum, Ren Re, and Validus

46

Appendix 3: Focused operating structure

Lancashire HoldingsLancashire Holdings

Lancashire London

60% premium54 employees

Lancashire Bermuda

40% premium42 employees

Lancashire Middle East and Asia

Marketing office3 employees

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Appendix 4: Market Position, Brand and Distribution

• Lancashire is the lead market on 47% of in-force business: • Lancashire Leads or holds Agreement Party status on 62% of its in-force business• Lancashire enjoys excellent support across brokers:

Aon13%

Willis11%

Aon Benfield7%

Aurhur Gallagher

Other Brokers16%

1%

Benfield10%Miller

5%

Guy Carpenter5%

JLT9%Lloyd & Partners

Marsh12%

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oyd & a t e s11%

www.lancashiregroup.com

(1) 441 278 8950

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