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Insurer Lancashire hit by wider Costa Concordia loss

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LONDON (Reuters)—British insurer Lancashire said it expected to return cash to shareholders this year as it reported a 33% drop in its quarterly profit, blaming bigger payouts related to the Costa Concordia shipwreck and dwindling investment returns.

Lancashire, which insures heavy-duty assets such as oil rigs, ships and aircraft, made a pretax profit of $60.6 million in the three months to June, it said on Wednesday.

That was down from $91 million a year earlier, but still ahead of $52 million penciled in by analysts in a company poll.

The decline came as Lancashire revised upwards by $24.6 million its exposure to the Costa Concordia, the cruise liner that ran aground off the Italian coast in January, taking its total estimated hit from the shipwreck to $58.7 million.

But the increase in claims was outweighed by a bigger-than-expected 35% increase in premium revenues as Lancashire took advantage of rising property insurance prices in Asia after last year's Japanese earthquake and Thai floods.

The company, which has distributed $1.3 billion to investors since inception in 2005, also said it would return more capital this year unless a big increase in insurance prices opened up attractive trading opportunities.

Lancashire shares were up 2.8% Wednesday, outperforming a flat FTSE 250 share index. The stock has risen about 7% since the start of the year against a 15% increase in the FTSE non-life insurance index .

Analysts at Peel Hunt estimated the company could pay a special dividend of about $220 million, or 16 cents per share, in the third quarter of the year.

The widening Costa Concordia loss was driven largely by a $20 million payout on an industry loss warranty, a reinsurance contract that entitles the buyer to a payout if total insured losses from a claims event exceed an agreed threshold.

The ILW was triggered when estimated overall losses from the Concordia disaster exceeded $1 billion, forcing Lancashire to pay an unnamed reinsurance counterparty $20 million, said Jonny Creagh-Cohen, Lancashire's head of investor relations.

Lancashire was also hit by a 31% drop in its net investment income as bond yields fell during the second quarter.