Endurance Specialty 10Q 2011 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


þ		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


		for the period ended June 30, 2011,


o		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file number 1-31599

ENDURANCE SPECIALTY HOLDINGS LTD.

(Exact Name of Registrant as Specified in Its Charter)


Bermuda (State or other jurisdiction of incorporation or organization)		98-0392908 (I.R.S. Employer Identification No.)

Wellesley House
90 Pitts Bay Road
Pembroke HM 08, Bermuda
(Address of principal executive offices,
including postal code)

Registrant’s Telephone Number, Including Area Code: (441) 278-0400

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesþ Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filerþ		Accelerated filero		Non-accelerated filero		Smaller reporting companyo

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


	Common Shares Outstanding
Description of Class	as of August 1, 2011
Ordinary Shares — $1.00 par value		40,517,691

INDEX


	Page
Part I. FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets at June 30, 2011 (unaudited) and December 31, 2010		2

Unaudited Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2011 and 2010		3

Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Six Months Ended June 30, 2011 and 2010		4

Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2011 and 2010		5

Notes to the Unaudited Condensed Consolidated Financial Statements		6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		36

Item 3. Quantitative and Qualitative Disclosures about Market Risk		61

Item 4. Controls and Procedures		62

Part II. OTHER INFORMATION

Item 1. Legal Proceedings		63

Item 1A. Risk Factors		63

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		64

Item 3. Defaults Upon Senior Securities		65

Item 4. (Removed and Reserved)		65

Item 5. Other Information		65

Item 6. Exhibits		65

SIGNATURES		66

Exhibit 31.1
Exhibit 31.2
Exhibit 32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

ENDURANCE SPECIALTY HOLDINGS LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of United States dollars except share amounts)


	JUNE 30,		DECEMBER 31,
	2011		2010
	(UNAUDITED)
ASSETS
Investments
Fixed maturity investments, available for sale at fair value (amortized cost: $4,852,819 and $5,010,147 at June 30, 2011 and December 31, 2010, respectively)	$	4,961,948	$	5,116,702
Short-term investments, available for sale at fair value (amortized cost: $303,974 and $70,455 at June 30, 2011 and December 31, 2010, respectively)		303,895		70,444
Equity securities, available for sale at fair value (cost: $29,638 and $8,000 at June 30, 2011 and December 31, 2010, respectively)		32,322		13,565
Other investments		395,078		376,652

Total investments		5,693,243		5,577,363
Cash and cash equivalents		750,844		609,852
Premiums receivable, net		1,154,480		827,609
Deferred acquisition costs		182,870		154,484
Securities lending collateral		84,652		59,886
Prepaid reinsurance premiums		198,708		107,977
Losses recoverable		369,081		319,349
Accrued investment income		31,189		32,934
Goodwill and intangible assets		186,835		181,954
Deferred tax asset		38,144		33,684
Net receivable on sales of investments		3,685		602
Other assets		66,309		73,711

Total assets	$	8,760,040	$	7,979,405


LIABILITIES
Reserve for losses and loss expenses	$	3,748,124	$	3,319,927
Reserve for unearned premiums		1,304,146		842,154
Deposit liabilities		30,300		32,505
Reinsurance balances payable		209,548		228,860
Securities lending payable		84,652		59,886
Debt		528,540		528,411
Net payable on purchases of investments		80,532		—
Other liabilities		103,922		119,509

Total liabilities		6,089,764		5,131,252


Commitments and contingent liabilities

SHAREHOLDERS’ EQUITY
Preferred shares
Series A, non-cumulative — Par value $1.00 — 8,000,000 issued and outstanding (2010 — 8,000,000); aggregate liquidation preference $200,000 (2010 — $200,000)		8,000		8,000
Series B, non-cumulative — Par value $1.00 — 9,200,000 issued and outstanding (2010 — Nil); aggregate liquidation preference $230,000 (2010 — Nil)		9,200		—
Common shares
Ordinary — $1.00 par value, 40,509,263 issued and outstanding (2010 — 47,218,468)		40,509		47,218
Additional paid-in capital		509,165		613,915
Accumulated other comprehensive income		141,140		138,571
Retained earnings		1,962,262		2,040,449

Total shareholders’ equity		2,670,276		2,848,153

Total liabilities and shareholders’ equity	$	8,760,040	$	7,979,405

See accompanying notes to unaudited condensed consolidated financial statements

ENDURANCE SPECIALTY HOLDINGS LTD.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
AND COMPREHENSIVE INCOME (LOSS)

(In thousands of United States dollars, except share and per share amounts)


	THREE MONTHS ENDED						SIX MONTHS ENDED
	JUNE 30,						JUNE 30,
	2011			2010			2011			2010
Revenues
Gross premiums written	$	502,924		$	489,568		$	1,503,282		$	1,308,437
Ceded premiums written		(61,166	)		(38,765	)		(262,652	)		(154,692	)

Net premiums written		441,758			450,803			1,240,630			1,153,745
Change in unearned premiums		44,820			5,592			(371,219	)		(332,161	)

Net premiums earned		486,578			456,395			869,411			821,584
Net investment income		39,842			33,351			92,343			89,830
Net realized and unrealized gains		21,532			2,657			25,307			6,201
Total other-than-temporary impairment losses		(484	)		(738	)		(1,740	)		(1,507	)
Portion of loss recognized in other comprehensive income		(448	)		(254	)		(839	)		(346	)

Net impairment losses recognized in earnings		(932	)		(992	)		(2,579	)		(1,853	)
Other underwriting income (loss)		1,088			(2,663	)		19			(2,368	)

Total revenues		548,108			488,748			984,501			913,394

Expenses
Net losses and loss expenses		361,970			292,947			763,823			525,544
Acquisition expenses		67,887			66,708			133,505			130,652
General and administrative expenses		65,886			55,676			131,847			114,641
Amortization of intangibles		3,026			2,588			5,824			5,176
Net foreign exchange losses (gains)		3,348			129			(3,570	)		6,100
Interest expense		9,057			9,050			18,111			16,658

Total expenses		511,174			427,098			1,049,540			798,771

Income (loss) before income taxes		36,934			61,650			(65,039	)		114,623
Income tax benefit (expense)		4,143			(3,057	)		18,699			(241	)

Net income (loss)		41,077			58,593			(46,340	)		114,382
Preferred dividends		(3,875	)		(3,875	)		(7,750	)		(7,750	)

Net income (loss) available (attributable) to common and participating common shareholders	$	37,202		$	54,718		$	(54,090	)	$	106,632

Comprehensive income (loss)
Net income (loss)	$	41,077		$	58,593		$	(46,340	)	$	114,382
Other comprehensive income
Net unrealized holding gains on investments arising during the period (net of applicable deferred income taxes of ($1,559) and ($6,168) for the six months ended June 30, 2011 and 2010, respectively)		29,593			46,540			26,174			100,808
Portion of other-than-temporary impairment losses recognized in other comprehensive income (loss) (net of applicable deferred taxes of $69 and Nil for the six months ended June 30, 2011 and 2010, respectively)		379			254			770			346
Foreign currency translation adjustments		804			(1,959	)		3,467			(10,393	)
Reclassification adjustment for net realized gains included in net income (loss)		(22,464	)		(1,665	)		(27,886	)		(4,348	)
Reclassification adjustment for net losses on derivative designated as cash flow hedge included in net income (loss)		22			22			44			44

Other comprehensive income		8,334			43,192			2,569			86,457

Comprehensive income (loss)	$	49,411		$	101,785		$	(43,771	)	$	200,839


Per share data
Basic earnings (losses) per common share	$	0.92		$	1.02		$	(1.36	)	$	1.97

Diluted earnings (losses) per common share	$	0.87		$	0.97		$	(1.36	)	$	1.88

Dividend per common share	$	0.30		$	0.25		$	0.60		$	0.50

See accompanying notes to unaudited condensed consolidated financial statements.

ENDURANCE SPECIALTY HOLDINGS LTD.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS’ EQUITY

(In thousands of United States dollars)


	SIX MONTHS ENDED
	JUNE 30,
	2011			2010
Preferred shares
Balance, beginning of period		8,000			8,000
Issuance of series B, non-cumulative preferred shares		9,200			—

Balance, end of period	$	17,200		$	8,000


Common shares
Balance, beginning of period		47,218			55,116
Issuance of common shares		782			753
Repurchase of common shares		(7,491	)		(3,205	)

Balance, end of period		40,509			52,664


Additional paid-in capital
Balance, beginning of period		613,915			929,577
Issuance of common shares		12,085			5,452
Issuance of series B, non-cumulative preferred shares		214,822			—
Repurchase of common shares and share equivalents		(333,313	)		(114,590	)
Public offering and registration costs		(549	)		63
Settlement of equity awards		(5,981	)		(4,996	)
Stock-based compensation expense		8,186			7,066

Balance, end of period		509,165			822,572


Accumulated other comprehensive income
Cumulative foreign currency translation adjustments:
Balance, beginning of period		10,877			16,109
Foreign currency translation adjustments		3,467			(10,393	)

Balance, end of period		14,344			5,716

Unrealized holding gains on investments, net of deferred taxes:
Balance, beginning of period		129,814			38,247
Net unrealized holding gains arising during the period, net of reclassification adjustment		(1,712	)		96,460
Other-than-temporary impairment losses during the period		770			346

Balance, end of period		128,872			135,053

Accumulated derivative loss on cash flow hedging instruments:
Balance, beginning of period		(2,120	)		(2,208	)
Net change from current period hedging transactions, net of reclassification adjustment		44			44

Balance, end of period		(2,076	)		(2,164	)

Total accumulated other comprehensive income		141,140			138,605


Retained earnings
Balance, beginning of period		2,040,449			1,742,442
Net (loss) income		(46,340	)		114,382
Dividends on preferred shares		(7,750	)		(7,750	)
Dividends on common shares		(24,097	)		(26,810	)

Balance, end of period		1,962,262			1,822,264


Total shareholders’ equity	$	2,670,276		$	2,844,105

See accompanying notes to unaudited condensed consolidated financial statements.

ENDURANCE SPECIALTY HOLDINGS LTD.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of United States dollars)


	SIX MONTHS ENDED
	JUNE 30,
	2011			2010
Cash flows provided by operating activities
Net (loss) income	$	(46,340	)	$	114,382
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Amortization of net premium on investments		7,418			3,640
Amortization of other intangibles and depreciation		11,393			10,528
Net realized gains on investment sales		(25,307	)		(6,201	)
Net impairment losses recognized in earnings		2,579			1,853
Deferred taxes		(8,581	)		(14,896	)
Stock-based compensation expense		8,186			7,066
Equity in earnings of other investments		(14,938	)		(10,018	)
Premiums receivable, net		(326,871	)		(521,470	)
Deferred acquisition costs		(28,386	)		(28,500	)
Prepaid reinsurance premiums		(90,731	)		(22,497	)
Losses recoverable		(49,732	)		219,776
Accrued investment income		1,745			(513	)
Other assets		8,259			3,493
Reserve for losses and loss expenses		428,197			117,611
Reserve for unearned premiums		461,992			354,296
Deposit liabilities		(2,205	)		(2,997	)
Reinsurance balances payable		(19,844	)		(10,902	)
Other liabilities		(28,582	)		1,523

Net cash provided by operating activities		288,252			216,174

Cash flows used in investing activities
Proceeds from sales of available for sale investments		1,816,660			1,684,727
Proceeds from maturities and calls on available for sale investments		472,933			813,664
Proceeds from the redemption of other investments		12,274			14,633
Purchases of available for sale investments		(2,286,722	)		(2,475,207	)
Purchases of other investments		(15,762	)		(202	)
Net settlements of other assets		(416	)		—
Purchases of fixed assets		(6,180	)		(1,677	)
Change in securities lending collateral received		(24,766	)		(214,478	)
Net cash paid for subsidiary acquisition		(3,175	)		(384	)

Net cash flows used in investing activities		(35,154	)		(178,924	)

Cash flows (used in) provided by financing activities
Issuance of common shares		12,760			6,115
Issuance of series B, non-cumulative preferred shares		224,022			—
Repurchase of common shares		(344,272	)		(121,706	)
Change in securities lending payable		24,766			214,423
Settlement of equity awards		(5,981	)		(4,996	)
Offering and registration costs paid		(280	)		(2,064	)
Proceeds from issuance of debt		455			81,401
Repayments of debt		(414	)		(769	)
Dividends on preferred shares		(7,750	)		(7,750	)
Dividends on common shares		(24,094	)		(26,807	)

Net cash (used in) provided by financing activities		(120,788	)		137,847

Effect of exchange rate changes on cash and cash equivalents		8,682			(13,280	)

Net increase in cash and cash equivalents		140,992			161,817
Cash and cash equivalents, beginning of period		609,852			528,944

Cash and cash equivalents, end of period	$	750,844		$	690,761

See accompanying notes to unaudited condensed consolidated financial statements.

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS

(Amounts in tables expressed in thousands of United States dollars, except
for ratios, share and per share amounts)

General

Endurance Specialty Holdings Ltd. (“Endurance Holdings”) was organized as a Bermuda holding company on June 27, 2002. Endurance Holdings writes specialty lines of insurance and reinsurance on a global basis through its wholly-owned operating subsidiaries:


Operating Subsidiaries			Domicile
Endurance Specialty Insurance Ltd.			Bermuda
Endurance Worldwide Insurance Limited			England
Endurance Reinsurance Corporation of America			Delaware
Endurance American Insurance Company			Delaware
Endurance American Specialty Insurance Company			Delaware
Endurance Risk Solutions Assurance Co.			Delaware
American Agri-Business Insurance Company			Texas

Summary of significant accounting policies

The accompanying unaudited condensed consolidated financial statements have been prepared on the basis of accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Results for the three and six months ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. The unaudited condensed consolidated financial statements include the accounts of Endurance Holdings and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Management is required to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying disclosures. Actual results could differ from those estimates. Among other matters, significant estimates and assumptions are used to record premiums written and ceded, and to record reserves for losses and loss expenses and contingencies. Estimates and assumptions are periodically reviewed and the effects of revisions are recorded in the consolidated financial statements in the period that they are determined to be necessary.

The balance sheet at December 31, 2010 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2010 contained in Endurance Holdings’ Annual Report on Form 10-K, as amended, for the fiscal year ended December 31, 2010 (the “2010 Annual Report on Form 10-K”).

Certain reclassifications have been made for 2010 to conform to the 2011 presentation and have no impact on net income previously reported.

ENDURANCE SPECIALTY HOLDINGS LTD.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS — CONTINUED
(Amounts in tables expressed in thousands of United States dollars, except
for ratios, share and per share amounts)

Summary of significant accounting policies, cont’d.

There were no material changes in the Company’s significant accounting and reporting policies subsequent to the 2010 Annual Report on Form 10-K with the exception of the additions to the Company’s accounting policies described below relating to the Company’s investment in equity securities and entry into derivative instruments commencing in the first quarter of 2011.

(a)

Equity Investments

The Company currently classifies its investments in equity securities as “available for sale” and accordingly, they are carried at estimated fair value, with related net unrealized gains or losses excluded from earnings and included in shareholders’ equity as a component of accumulated other comprehensive income. The Company determines the fair value of its available for sale securities in accordance with current accounting guidance, which defines fair value and establishes a fair value hierarchy based on inputs to the various valuation techniques used for each fair value measurement. The use of valuation techniques for any given investment requires a significant amount of judgment and consideration of factors specific to the underlying investment. Fair value measurements determined by the Company seek to maximize observable inputs and minimize the use of unobservable inputs.

The Company determines the estimated fair value of each individual security utilizing the highest level inputs available. Transfers between levels are assumed to occur at the end of each period.

For equity securities, the Company considers its ability and intent to hold an equity security in an unrealized loss position for a reasonable period of time to allow for a full recovery. When the Company determines that the decline in value of an equity security is other-than-temporary, the Company reduces the cost of the equity security to its fair value and recognizes the loss in the Consolidated Statements of Income (Loss) and Comprehensive Income (Loss). The new cost basis is not changed for subsequent recoveries in fair value.

(b)

Derivatives

Current accounting guidance requires the recognition of all derivative financial instruments including embedded derivative instruments, as either assets or liabilities in the Consolidated Balance Sheets at fair value.

The Company may use various derivative instruments such as foreign exchange forward contracts, foreign currency option contracts, futures, options, interest rate swaps, total return swaps, swaptions, credit default swaps and foreign currency forward contracts to enhance the efficiency of the investment portfolio and economically hedge certain risks. These contracts do not qualify, and are not designated, as hedges. Thus, changes in fair value and any realized gains (losses) are recognized in net realized and unrealized gains or net foreign exchange (losses) gains in the Consolidated Statements of Income (Loss) and Comprehensive Income (Loss). Margin balances required of counterparties are included in cash and cash equivalents. Where the Company has entered into master netting agreements with counterparties, or the Company has the legal and contractual right to offset positions, the derivative positions are generally netted by the counterparty and are reported accordingly in other assets and other liabilities.

Summary of significant accounting policies, cont’d.

(c)

Recent accounting pronouncements

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU 2011-4”). ASU 2011-4 amends Accounting Standards Codification Topic 820, “Fair Value Measurement” (“ASC 820”) to change several requirements for measuring fair value and disclosing information about fair value measurements. Among the more significant changes, ASU 2011-4 amends ASC 820 to clarify certain existing fair value measurement and disclosure requirements as follows:

•

The “highest-and-best-use” and “valuation-premise” concepts only apply to measuring the fair value of nonfinancial assets. The previous guidance permitted the application of these concepts to financial assets and liabilities.

•

A reporting entity is required to measure the fair value of its own equity instruments from the perspective of a market participant that holds that instrument as an asset.

•

Reporting entities are required to disclose quantitative information about inputs used in estimating Level 3 fair value measurements.

ASU 2011-4 will be effective for the first quarter of 2012, with early adoption prohibited. The Company does not expect this standard to have a material impact on the Company’s consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05 “Comprehensive Income (Topic 220): Presentation of Comprehensive Income” (“ASU 2011-05”). ASU 2011-05 eliminates the option in current GAAP to permit the presentation of other comprehensive income in the statement of changes in shareholders’ equity. The remaining two options are:

•

A single continuous statement of net income and comprehensive income; or

•

Two separate, but consecutive, statements of net income and other comprehensive income

ASU 2011-05 is effective for interim and annual reporting periods ending on or after December 15, 2011. Early adoption is permitted and full retrospective application is required. The Company does not expect this standard to have a material impact on the Company’s consolidated financial statements.

Investments

Composition of Net Investment Income and Invested Assets

The components of net investment income for the three and six months ended June 30, 2011 and 2010 are as follows:


	Three months ended June 30,						Six months ended June 30,
	2011			2010			2011			2010
Available for sale investments	$	41,889		$	43,837		$	84,075		$	87,327
Other investments		1,181			(6,951	)		14,938			10,018
Cash and cash equivalents		244			100			435			192

	$	43,314		$	36,986		$	99,448		$	97,537
Investment expenses		(3,472	)		(3,635	)		(7,105	)		(7,707	)

Net investment income	$	39,842		$	33,351		$	92,343		$	89,830

The following table summarizes the composition of the investment portfolio by investment type at June 30, 2011 and December 31, 2010:


	June 30, 2011					December 31, 2010
Type of Investment	Fair Value		Percentage			Fair Value		Percentage
Fixed maturity securities	$	4,961,948		77.9	%	$	5,116,702		82.7	%
Cash and cash equivalents⁽¹⁾		673,997		10.6	%		610,454		9.9	%
Other investments⁽²⁾		395,078		6.2	%		376,652		6.1	%
Short term investments		303,895		4.8	%		70,444		1.1	%
Equity securities		32,322		0.5	%		13,565		0.2	%

Total	$	6,367,240		100.0	%	$	6,187,817		100.0	%


(1)		Includes net receivable on sales of investments and net payable on purchases of investments.

(2)		Consists of investments in alternative funds and high yield loan funds.

The following table summarizes the composition of the fixed income investment portion of the portfolio, which includes fixed maturity securities and short term investments, by investment ratings assigned by rating agencies at June 30, 2011 and December 31, 2010. In some cases, where bonds are unrated, the rating of the issuer has been applied.


	June 30, 2011					December 31, 2010
Ratings	Fair Value		Percentage			Fair Value		Percentage
U.S. government and agencies securities	$	914,977		17.3	%	$	1,010,819		19.5	%
AAA / Aaa		2,722,066		51.7	%		2,639,682		50.9	%
AA / Aa		437,538		8.3	%		465,315		9.0	%
A / A		803,480		15.3	%		793,980		15.3	%
BBB		176,678		3.4	%		50,733		1.0	%
Below BBB		206,712		3.9	%		221,848		4.2	%
Not rated		4,392		0.1	%		4,769		0.1	%

Total	$	5,265,843		100.0	%	$	5,187,146		100.0	%

Investments, cont’d.

Contractual maturities of the fixed income portfolio are shown below as of June 30, 2011 and December 31, 2010. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	June 30, 2011				December 31, 2010
	Amortized				Amortized
	Cost		Fair Value		Cost		Fair Value
Due within one year	$	741,358	$	743,825	$	390,886	$	393,333
Due after one year through five years		1,835,723		1,877,536		2,240,820		2,279,581
Due after five years through ten years		449,289		458,507		404,322		413,462
Due after ten years		64,402		68,097		64,663		68,988
Residential mortgage-backed securities
Agency mortgage-backed securities		934,036		962,979		855,637		883,948
Non-agency mortgage-backed securities		237,015		228,152		254,138		246,410
Commercial mortgage-backed securities
Agency mortgage-backed securities		27,521		28,041		22,130		22,889
Non-agency mortgage-backed securities		538,508		567,315		578,951		604,820
Asset-backed securities		328,941		331,391		269,055		273,715

Total	$	5,156,793	$	5,265,843	$	5,080,602	$	5,187,146

At June 30, 2011 and December 31, 2010, the Company held $27.3 million and $27.6 million of insurance enhanced bonds (asset-backed securities), respectively, representing 0.5% and 0.5% of the available for sale securities, respectively. At June 30, 2011, the overall credit quality of the insurance enhanced bond portfolio was an average rating of “Ba” from Moody’s and “AA” from Standard & Poor’s. The overall credit quality of the financial guarantors had an average rating of “Ca” by Moody’s and most were not rated by Standard & Poor’s.

In addition to the Company’s available for sale investments, the Company invests in (i) hedge funds and private equity funds that generally invest in senior secured bank debt, high yield securities, distressed debt, distressed real estate, derivatives and equity long/short strategies (“alternative funds”) and (ii) high yield loan funds. The Company’s alternative funds and high yield loan funds are recorded on the Company’s balance sheet as “Other Investments.” At June 30, 2011 and December 31, 2010, the Company had invested, net of capital returned, a total of $282.9 million and $279.6 million, respectively, in Other Investments. At June 30, 2011 and December 31, 2010, the carrying value of Other Investments was $395.1 million and $376.7 million, respectively. Certain of Other Investments are subject to redemption restriction provisions (see Note 9).

Investments, cont’d.

Net Realized and Unrealized Investment Gains

Realized and unrealized investment gains and losses are recognized in earnings using the first in and first out method. The analysis of net realized and unrealized investment gains for the three and six months ended June 30, 2011 and 2010 are as follows:


	Three months ended June 30,						Six months ended June 30,
	2011			2010			2011			2010
Gross realized gains on investment sales	$	22,086		$	4,645		$	33,659		$	14,167
Gross realized losses on investment sales		(485	)		(1,988	)		(8,193	)		(7,966	)
Change in fair value of derivative financial instruments⁽¹⁾		(69	)		—			(159	)		—

Net realized and unrealized investment gains	$	21,532		$	2,657		$	25,307		$	6,201


(1)		See Note 6

Unrealized Gains and Losses and Other-than-temporary Impairments

The amortized cost, fair value and related gross unrealized gains and losses and non-credit other-than-temporary impairment (“OTTI”) losses on the Company’s securities classified as available for sale at June 30, 2011 and December 31, 2010 are as follows:


			Gross		Gross
	Amortized		Unrealized		Unrealized					Non-Credit
June 30, 2011	Cost		Gains		Losses			Fair Value		OTTI⁽²⁾
U.S. government and agencies securities	$	891,321	$	24,879	$	(1,223	)	$	914,977	$	—
U.S. state and municipal securities		56,581		1,071		(5	)		57,647		—
Foreign government securities		93,557		2,300		(40	)		95,817		—
Government guaranteed corporate securities		516,638		4,940		(156	)		521,422		—
Corporate securities		1,228,701		29,255		(3,749	)		1,254,207		—
Residential mortgage-backed securities
Agency mortgage-backed securities		934,036		30,767		(1,824	)		962,979		—
Non-agency mortgage-backed securities		237,015		3,356		(12,219	)		228,152		(26,428	)
Commercial mortgage-backed securities
Agency mortgage-backed securities		27,521		528		(8	)		28,041		—
Non-agency mortgage-backed securities⁽¹⁾		538,508		30,374		(1,567	)		567,315		(79	)
Asset-backed securities		328,941		3,353		(903	)		331,391		—

Total fixed maturity investments	$	4,852,819	$	130,823	$	(21,694	)	$	4,961,948	$	(26,507	)
Short term investments		303,974		4		(83	)		303,895		—

Total fixed income investments	$	5,156,793	$	130,827	$	(21,777	)	$	5,265,843	$	(26,507	)

Equity securities	$	29,638	$	2,831	$	(147	)	$	32,322	$	—


⁽¹⁾		Balances include amounts related to collateralized debt obligations held with total fair values of $28.6 million.

⁽²⁾		Represents total OTTI recognized in accumulated other comprehensive income. It does not include the change in fair value subsequent to the impairment measurement date. At June 30, 2011, the gross unrealized loss related to fixed income investments for which a non-credit OTTI was recognized in accumulated other comprehensive income was $5.9 million.

Investments, cont’d.


			Gross		Gross
	Amortized		Unrealized		Unrealized					Non-Credit
December 31, 2010	Cost		Gains		Losses			Fair Value		OTTI⁽²⁾
U.S. government and agencies securities	$	993,667	$	23,576	$	(6,424	)	$	1,010,819	$	—
U.S. state and municipal securities		29,472		745		(238	)		29,979		—
Foreign government securities		138,157		2,557		(253	)		140,461		—
securities		663,709		7,806		(365	)		671,150		—
Corporate securities		1,205,231		31,174		(3,894	)		1,232,511		—
Residential mortgage-backed securities
Agency mortgage-backed securities		855,637		30,946		(2,635	)		883,948		—
Non-agency mortgage-backed securities		254,138		4,457		(12,185	)		246,410		(29,495	)
Commercial mortgage-backed securities
Agency mortgage-backed securities		22,130		761		(2	)		22,889		—
Non-agency mortgage-backed securities⁽¹⁾		578,951		28,673		(2,804	)		604,820		(109	)
Asset-backed securities		269,055		6,168		(1,508	)		273,715		—

Total fixed maturity investments	$	5,010,147	$	136,863	$	(30,308	)	$	5,116,702	$	(29,604	)
Short term investments		70,455		3		(14	)		70,444		—

Total fixed income investments	$	5,080,602	$	136,866	$	(30,322	)	$	5,187,146	$	(29,604	)

Equity securities	$	8,000	$	5,583	$	(18	)	$	13,565	$	—


⁽¹⁾		Balances include amounts related to collateralized debt obligations held with total fair values of $13.1 million.

⁽²⁾		Represents total OTTI recognized in accumulated other comprehensive income. It does not include the change in fair value subsequent to the impairment measurement date. At December 31, 2010, the gross unrealized loss related to fixed income investments for which a non-credit OTTI was recognized in accumulated other comprehensive income was $6.2 million.

Investments, cont’d.

The following tables summarize, for all available for sale securities in an unrealized loss position at June 30, 2011 and December 31, 2010, the aggregate fair value and gross unrealized loss by length of time the security has continuously been in an unrealized loss position.


	Less than 12 months					12 months or greater					Total
	Unrealized			Fair		Unrealized			Fair		Unrealized			Fair
June 30, 2011	Losses⁽¹⁾			Value		Losses⁽¹⁾			Value		Losses⁽¹⁾			Value
U.S. government and agencies securities	$	(1,223	)	$	185,025	$	—		$	—	$	(1,223	)	$	185,025
U.S. state and municipal securities		(5	)		11,584		—			—		(5	)		11,584
Foreign government securities		(40	)		11,091		—			—		(40	)		11,091
Government guaranteed corporate securities		(119	)		100,345		(37	)		8,570		(156	)		108,915
Corporate securities		(3,623	)		243,681		(126	)		1,861		(3,749	)		245,542
Residential mortgage-backed securities
Agency mortgage-backed securities		(1,824	)		195,074		—			—		(1,824	)		195,074
Non-agency mortgage-backed securities		(229	)		24,117		(11,990	)		140,282		(12,219	)		164,399
Commercial mortgage-backed securities
Agency mortgage-backed securities		(8	)		9,485		—			—		(8	)		9,485
Non-agency mortgage-backed securities		(855	)		47,051		(712	)		8,371		(1,567	)		55,422
Asset-backed securities		(361	)		142,874		(542	)		18,289		(903	)		161,163

Total fixed maturity investments	$	(8,287	)	$	970,327	$	(13,407	)	$	177,373	$	(21,694	)	$	1,147,700
Short term investments		(83	)		115,424		—			—		(83	)		115,424

Total fixed income investments	$	(8,370	)	$	1,085,751	$	(13,407	)	$	177,373	$	(21,777	)	$	1,263,124

Equity securities	$	(147	)	$	8,371	$	—		$	—	$	(147	)	$	8,371


⁽¹⁾		Gross unrealized losses include unrealized losses on non-OTTI and non-credit OTTI securities recognized in accumulated other comprehensive income at June 30, 2011.

As of June 30, 2011, 512 available for sale securities were in an unrealized loss position. Of those, 92 securities had been in a continuous unrealized loss position for twelve months or greater.

Investments, cont’d.


	Less than 12 months					12 months or greater					Total
	Unrealized			Fair		Unrealized			Fair		Unrealized			Fair
December 31, 2010	Losses⁽¹⁾			Value		Losses⁽¹⁾			Value		Losses⁽¹⁾			Value
U.S. government and agencies securities	$	(6,424	)	$	368,452	$	—		$	—	$	(6,424	)	$	368,452
U.S. state and municipal securities		(238	)		9,301		—			—		(238	)		9,301
Foreign government securities		(253	)		22,585		—			—		(253	)		22,585
Government guaranteed corporate securities		(356	)		131,980		(9	)		4,714		(365	)		136,694
Corporate securities		(3,556	)		243,307		(338	)		5,429		(3,894	)		248,736
Residential mortgage-backed securities
Agency mortgage-backed securities		(2,635	)		160,532		—			19		(2,635	)		160,551
Non-agency mortgage- backed securities		(473	)		26,205		(11,712	)		172,646		(12,185	)		198,851
Commercial mortgage-backed securities
Agency mortgage-backed securities		(2	)		455		—			—		(2	)		455
Non-agency mortgage- backed securities		(1,227	)		75,626		(1,577	)		10,590		(2,804	)		86,216
Asset-backed securities		(555	)		70,218		(953	)		13,218		(1,508	)		83,436

Total fixed maturity investments	$	(15,719	)	$	1,108,661	$	(14,589	)	$	206,616	$	(30,308	)	$	1,315,277
Short term investments		(14	)		30,178		—			—		(14	)		30,178

Total fixed income investments	$	(15,733	)	$	1,138,839	$	(14,589	)	$	206,616	$	(30,322	)	$	1,345,455

Equity securities	$	(18	)	$	640	$	—		$	—	$	(18	)	$	640


⁽¹⁾		Gross unrealized losses include unrealized losses on non-OTTI and OTTI securities recognized in accumulated other comprehensive income at December 31, 2010.

As of December 31, 2010, 376 available for sale securities were in an unrealized loss position. Of those, 112 securities had been in a continuous unrealized loss position for twelve months or greater.

The analysis of OTTI for the three and six months ended June 30, 2011 and 2010 are as follows:


	Three months ended June 30,						Six months ended June 30,
	2011			2010			2011			2010
Total other-than-temporary impairment losses	$	(484	)	$	(738	)	$	(1,740	)	$	(1,507	)
Portion of loss recognized in other
comprehensive income (loss)		(448	)		(254	)		(839	)		(346	)

Net impairment losses recognized in earnings (losses)	$	(932	)	$	(992	)	$	(2,579	)	$	(1,853	)

Investments, cont’d.

Of the $0.9 million (2010: $1.0 million) of OTTI losses recognized by the Company in the second quarter of 2011, the majority of it related to reductions in expected recovery values on mortgage-backed securities during the period, along with certain credit related downgrades in corporate securities. At June 30, 2011, the Company had not made any decisions to sell securities in an unrealized loss position and determined that it was unlikely that the Company would be required to sell securities in an unrealized loss position.

The following table provides a roll-forward of the amount related to credit losses for the Company’s fixed income investments recognized in (losses) earnings for which a portion of an OTTI loss was recognized in accumulated other comprehensive income for the three and six months ended June 30, 2011:


	Three months ended June 30,						Six months ended June 30,
	2011			2010			2011			2010
Beginning balance	$	(10,389	)	$	(13,173	)	$	(10,214	)	$	(13,122	)
Addition for the amount related to the credit loss for which an other-than-temporary impairment was not previously recognized		(12	)		—			(12	)		—
Addition for the amount related to the credit loss for which an other-than-temporary impairment was previously recognized		(698	)		(254	)		(1,089	)		(346	)
Reductions for increases in cash flows expected to be collected that are recognized over the remaining life of the security		—			—			—			—
Reductions for securities sold during the period		961			—			1,177			41

Ending balance	$	(10,138	)	$	(13,427	)	$	(10,138	)	$	(13,427	)

Securities Lending

The Company participates in a securities lending program whereby fixed maturity investments are loaned by the Company to third parties, primarily major brokerage firms and commercial banks. The borrowers of the Company’s securities provide the Company with collateral, typically cash, which the Company separately maintains. The Company typically invests such collateral in overnight repurchase agreements. Securities with an estimated fair value of $82.8 million and $58.7 million were on loan under the program at June 30, 2011 and December 31, 2010, respectively. The Company was liable for collateral under the Company’s control of $84.7 million and $59.9 million at June 30, 2011 and December 31, 2010, respectively. As of June 30, 2011 and December 31, 2010, the fair value of the investments purchased with the cash collateral received from the borrower was $84.7 million and $59.9 million. The investments purchased with the cash collateral had an average credit quality rating of “Aaa” by Moody’s and “AAA” by Standard & Poor’s at June 30, 2011. All securities on loan are issued on a term or overnight basis and are subject to daily recall at the Company’s discretion.

Investments, cont’d.

Variable Interest Entities

Entities that do not have sufficient equity at risk to allow the entity to finance its activities without additional financial support or in which the equity investors, as a group, do not have the characteristic of a controlling financial interest are referred to as variable interest entities (“VIE”). A VIE is consolidated by the variable interest holder that is determined to have the controlling financial interest (primary beneficiary) as a result of having both the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses or right to receive benefits from the VIE that could potentially be significant to the VIE. The Company determines whether it is the primary beneficiary of an entity subject to consolidation based on a qualitative assessment of the VIE’s capital structure, contractual terms, nature of the VIE’s operations and purpose and the Company’s relative exposure to the related risks of the VIE on the date it becomes initially involved in the VIE. The Company reassesses its VIE determination with respect to an entity on an ongoing basis.

The Company is involved in the normal course of business with VIEs primarily as a passive investor in residential and commercial mortgage-backed securities and through its interests in other investments in alternative and high yield loan funds that are structured as limited partnerships considered to be third party VIEs. The Company determined that it was not the primary beneficiary for any of these investments as of June 30, 2011. The Company believes its exposure to loss with respect to these investments is generally limited to the investment carrying amounts reported in the Company’s consolidated balance sheet and any unfunded investment commitments.

Fair value measurement

The Company determines the fair value of its fixed income investments and equity securities in accordance with current accounting guidance, which defines fair value and establishes a fair value hierarchy based on inputs to the various valuation techniques used for each fair value measurement. The Company determines the estimated fair value of each individual security utilizing the highest level inputs available. Valuation inputs by security type may include the following:

•

Government and agencies securities — These securities are generally priced by pricing services or index providers. The pricing services or index providers may use current market trades for securities with similar quality, maturity and coupon. If no such trades are available, the pricing service typically uses analytical models which may incorporate option adjusted spreads, daily interest rate data and market/sector news. The Company generally classifies the fair values of government and agencies securities in Level 2. Current issue U.S. government securities are generally valued based on Level 1 inputs, which use the market approach valuation technique.

•

Government guaranteed corporate securities — These securities are generally priced by pricing services or index providers. The pricing service or index providers may use current market trades for securities with similar quality, maturity and coupon. If no such trades are available, the pricing service typically uses analytical spread models which may incorporate inputs from the U.S treasury curve or LIBOR. The Company generally classifies the fair values of its government guaranteed corporate securities in Level 2.

•

Corporate securities — These securities are generally priced by pricing services or index providers. The pricing services or index providers typically use discounted cash flow models that incorporate benchmark curves for treasury, swap and high issuance credits. Credit spreads are developed from current market observations for like or similar securities. The Company generally classifies the fair values of its corporate securities in Level 2.

Fair value measurement, cont’d.

•

Preferred equity securities — These securities are generally priced by pricing services or index providers. The pricing services or index providers typically use discounted cash flow models that incorporate benchmark curves for treasury, swap and high issuance credits. Credit spreads are developed from current market observations for like or similar securities. The Company generally classifies the fair values of its preferred equity securities in Level 2.

•

Common equity securities — These securities primarily consist of exchange traded funds. These securities are generally priced by pricing services based on quoted market prices in active markets. The Company generally classifies the fair values of its common equity securities in Level 1.

•

Derivative instruments — These instruments are generally priced by pricing services, broker/dealers and/or recent trading activity. The market value approach valuation technique is used to estimate the fair value for these derivatives based on significant observable market inputs. Certain derivative instruments are priced by pricing services based on quoted market prices in active markets. These derivative instruments are generally classified in Level 1. Other derivative instruments are priced using industry valuation models and are considered Level 2, as the inputs to the valuation model are based on observable market inputs.

•

Structured securities including agency and non-agency, residential and commercial, mortgage and asset-backed securities — These securities are generally priced by broker/dealers. Broker/dealers may use current market trades for securities with similar qualities. If no such trades are available, inputs such as bid and offer, prepayment speeds, the U.S. treasury curve, swap curve and cash settlement may be used in a discounted cash flow model to determine the fair value of a security. The Company generally classifies the fair values of its structured securities in Level 2.

Transfers between levels are assumed to occur at the end of each period.

Fair value measurement, cont’d.

The following tables set forth the Company’s available for sale investments and derivative instruments categorized by the level within the hierarchy in which the fair value measurements fall, on a recurring basis at June 30, 2011 and December 31, 2010:


	Fair Value Measurements at June 30, 2011
			Quoted
			Prices in
			Active
			Markets		Significant
			for		Other		Significant
	Total at		Identical		Observable		Unobservable
	June 30,		Assets		Inputs		Inputs
	2011		(Level 1)		(Level 2)		(Level 3)
Assets
U.S. government and agencies securities	$	914,977	$	—	$	914,977	$	—
U.S. state and municipal securities		57,647		—		57,647		—
Foreign government securities		95,817		—		95,817		—
Government guaranteed corporate securities		521,422		—		521,422		—
Corporate securities		1,254,207		—		1,246,934		7,273
Residential mortgage-backed securities
Agency mortgage-backed securities		962,979		—		962,979		—
Non-agency mortgage-backed securities		228,152		—		227,636		516
Commercial mortgage-backed securities
Agency mortgage-backed securities		28,041		—		28,041		—
Non-agency mortgage-backed securities		567,315		—		546,638		20,677
Asset-backed securities		331,391		—		331,391		—

Total fixed maturity investments	$	4,961,948	$	—	$	4,933,482	$	28,466
Short term investments		303,895		—		303,895		—
Equity securities		32,322		22,371		9,951		—
Other assets (see Note 6)		139		—		139		—

Total assets	$	5,298,304	$	22,371	$	5,247,467	$	28,466

Liabilities
Other liabilities (see Note 6)	$	248	$	—	$	248	$	—

During the six months ended June 30, 2011, certain corporate and commercial mortgaged-backed securities were acquired and classified as Level 3 securities. The Company used pricing models with significant unobservable inputs in order to determine the fair value of these securities.

During the six months ended June 30, 2011, certain of the Company’s fixed maturity investments were transferred from Level 2 to Level 3. The reclassifications were largely related to high yield commercial mortgage-backed and collateralized debt obligation securities. During the quarter, the market activity for these securities decreased and therefore observable inputs were no longer available at June 30, 2011 and the fair value of these securities was based on pricing models.

Fair value measurement, cont’d.

During the six months ended June 30, 2011, fixed maturity and short-term investments were transferred out of Level 1 to Level 2 as they no longer qualified as on the run U.S. treasury securities. During the quarter ended June 30, 2011, the Company purchased equity securities in exchange traded funds, which are classified as Level 1 securities.

During the six months ended June 30, 2011, certain collateralized debt obligation securities were transferred into Level 2 from Level 3. During the quarter, the market activity for these securities increased and therefore the fair value of these securities was based on observable inputs.


	Fair Value Measurements at December 31, 2010
			Quoted
			Prices in
			Active		Significant
			Markets for		Other		Significant
	Total at		Identical		Observable		Unobservable
	December 31,		Assets		Inputs		Inputs
	2010		(Level 1)		(Level 2)		(Level 3)
Assets
U.S. government and agencies securities	$	1,010,819	$	38,275	$	972,544	$	—
U.S. state and municipal securities		29,979		—		29,979		—
Foreign government securities		140,461		—		140,461		—
Government guaranteed corporate securities		671,150		—		671,150		—
Corporate securities		1,232,511		—		1,232,511		—
Residential mortgage-backed securities
Agency mortgage-backed securities		883,948		—		883,948		—
Non-agency mortgage-backed securities		246,410		—		245,325		1,085
Commercial mortgage-backed securities
Agency mortgage-backed securities		22,889		—		22,889		—
Non-agency mortgage-backed securities		604,820		—		597,512		7,308
Asset-backed securities		273,715		—		272,469		1,246

Total fixed maturity investments	$	5,116,702	$	38,275	$	5,068,788	$	9,639
Short term investments		70,444		—		70,444		—
Equity securities		13,565		—		13,565		—
Other assets		—		—		—		—

Total assets	$	5,200,711	$	38,275	$	5,152,797	$	9,639

Liabilities
Other liabilities	$	—	$	—	$	—	$	—

Fair value measurement, cont’d.

Level 3 securities are primarily comprised of non-agency commercial mortgage-backed securities, collateralized debt obligations and non-agency residential mortgage-backed securities. Level 3 assets represented less than 0.54% and 0.19% of the Company’s total available for sale assets at June 30, 2011 and December 31, 2010, respectively. Net impairment losses recognized in earnings included losses on Level 3 securities for the three and six months ended June 30, 2011 in the amount of $0.2 million and $0.5, respectively ($0.4 million and $0.9 million for the three and six months ended June 30, 2010, respectively), representing realized losses due to OTTI.

There were no material changes in the Company’s valuation techniques for the six months ended June 30, 2011.

The following tables present the securities lending collateral reinvested by the Company in connection with its securities lending program, categorized by the level within the hierarchy in which the fair value measurements fall, on a recurring basis at June 30, 2011 and December 31, 2010, respectively:

Fair Value Measurements at June 30, 2011

Quoted Prices

Significant

in Active

Other

Significant

Markets for

Observable

Unobservable

Total at

Identical Assets

Inputs

June 30, 2011

(Level 1)

(Level 2)

(Level 3)

Securities lending collateral

84,652

—

84,652

—

Fair Value Measurements at December 31, 2010

Quoted Prices

Significant

in Active

Other

Significant

Total at

Markets for

Observable

Unobservable

December 31,

Identical Assets

Inputs

2010

(Level 1)

(Level 2)

(Level 3)

Securities lending collateral

59,886

—

59,886

—

Fair value measurement, cont’d.

The following tables present a reconciliation of the beginning and ending balances for all available for sale investments measured at fair value on a recurring basis using Level 3 inputs during the three and six months ended June 30, 2011 and 2010, respectively:


	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Level 3, beginning of period	$	21,156		$	6,718		$	9,639		$	5,554
Total net realized gains included in earnings		5			8			11			9
Total net realized and unrealized losses included in earnings		(222	)		(399	)		(470	)		(871	)
Change in unrealized gains included in other comprehensive income		539			1,030			1,496			2,069
Change in unrealized losses included in other comprehensive income		(145	)		(184	)		(171	)		(337	)
Purchases		—			2,790			—			2,831
Sales		(1,191	)		(99	)		(1,940	)		(168	)
Transfers in to Level 3		21,156			10,448			36,665			11,559
Transfers out of Level 3		(12,832	)		(4,827	)		(16,764	)		(5,161	)

Level 3, end of period	$	28,466		$	15,485		$	28,466		$	15,485

At June 30, 2011 and December 31, 2010, the carrying value of the Company’s other investments was $395.1 million and $376.7 million, respectively, which approximates fair value.

At June 30, 2011 and December 31, 2010, the carrying value of the Company’s senior notes was $528.4 million and $528.3 million, respectively, and the fair value was $548.4 million and $536.9 million, respectively.

Earnings per share

The two-class method utilized by the Company is an earnings allocation formula that determines earnings (losses) per share for the holders of Endurance Holdings’ ordinary and class A shares (also referred to as “common shares”) and participating common shares, which includes unvested restricted shares which receive cash dividends, according to dividends declared (or accumulated) and participation rights in undistributed earnings. Net income (loss) available (attributable) to common and participating common shareholders is reduced by the amount of dividends declared in the current period and by the contractual amount of dividends that must be paid for the current period related to the Company’s common and participating common shares. Any remaining undistributed earnings are allocated to the common and participating common shareholders to the extent that each security may share in earnings as if all of the earnings for the period had been distributed. In periods of loss, no losses are allocated to participating common shareholders. Instead, all such losses are allocated solely to the common shareholders.

Basic earnings (losses) per common share are calculated by dividing net income (loss) available (attributable) to common shareholders by the weighted average number of common shares outstanding. The weighted average number of common shares excludes any dilutive effect of outstanding warrants, options and convertible securities such as unvested restricted shares.

Earnings per share, cont’d.

Diluted earnings (losses) per common share are based on the weighted average number of common _____shares and assumes the exercise of all dilutive stock warrants and options and the vesting or conversion of all convertible securities such as unvested restricted shares using the two-class method described above.

The following table sets forth the computation of basic and diluted earnings (losses) per share for the three and six months ended June 30, 2011 and 2010:


	THREE MONTHS ENDED						SIX MONTHS ENDED
	JUNE 30,						JUNE 30,
	2011			2010			2011			2010
Numerator:
Net income (loss) available (attributable) to common and participating common shareholders	$	37,202		$	54,718		$	(54,090	)	$	106,632
Less amount allocated to participating common shareholders⁽¹⁾		(710	)		(1,120	)		(516	)		(2,051	)


Net income (loss) allocated (attributed) to common shareholders	$	36,492		$	53,598		$	(54,606	)	$	104,581

Denominator:
Weighted average shares — basic
Outstanding		39,710			52,509			40,227			52,954
Vested restricted share units		—			—			—			4

Weighted average shares — basic		39,710			52,509			40,227			52,958


Share equivalents:
Warrants		2,072			1,924			—			1,921
Options		371			773			—			877
Restricted share units		3			4			—			9

Weighted average shares — diluted		42,156			55,210			40,227			55,765


Basic earnings (losses) per common share	$	0.92		$	1.02		$	(1.36	)	$	1.97

Diluted earnings (losses) per common share	$	0.87		$	0.97		$	(1.36	)	$	1.88


(1)		Represents earnings attributable to holders of unvested restricted shares issued under the Company’s equity compensation plans that are considered participating. In periods of loss, no losses are allocated to participating common shareholders (unvested restricted shares).

Earnings per share cont’d.

Endurance Holdings declared a dividend of $0.484375 per Series A preferred share on May 11, 2011 (2010 — $0.484375). The preferred share dividend was paid on June 15, 2011 to shareholders of record on June 1, 2011. Endurance Holdings also declared a dividend of $0.30 per common share on May 11, 2011 (2010 — $0.25). The dividend was paid on June 30, 2011 to shareholders of record on June 16, 2011.


	THREE MONTHS ENDED				SIX MONTHS ENDED
	JUNE 30,				JUNE 30,
	2011		2010		2011		2010

Dividends declared per Series A preferred share	$	0.484375	$	0.484375	$	0.968750	$	0.968750

Dividends declared per common share	$	0.30	$	0.25	$	0.60	$	0.50

Derivatives

The Company’s derivative instruments are recorded in the Consolidated Balance Sheet at fair value, with changes in fair value and gains and losses recognized in net realized and unrealized investment gains (losses) and net foreign exchange gains (losses) in the Consolidated Statements of Income (Loss) and Comprehensive Income (Loss). The majority of the Company’s derivatives are not designated as hedges under current accounting guidance. The Company’s objectives for holding these derivatives are as follows:

Interest Rate Futures, Swaps, Swaptions and Options

The Company may use interest rate futures, swaps, swaptions and options within its portfolio of fixed maturity investments to manage its exposure to interest rate risk, which can include increasing or decreasing its exposure to this risk through modification of the portfolio composition and duration.

Foreign Exchange Forwards, Futures and Options

The Company may utilize foreign exchange forward contracts and options as part of its overall currency risk management and investment strategies.

Credit Default Swaps

The Company may purchase protection through credit default swaps to mitigate the risk associated with its underwriting operations, most notably in the credit/surety line, and to manage market exposures.

The Company may assume or economically hedge credit risk through credit default swaps to replicate or hedge investment positions. The original term of these credit default swaps is generally five years or less.

Commodity Futures and Options

The Company may utilize commodity futures and options to economically hedge certain underwriting risks.

Derivatives, cont’d.

The fair values and the related notional values of derivatives included in the Company’s Consolidated Balance Sheet at June 30, 2011 are noted below. The Company first entered into these derivatives in the first quarter of 2011.


	June 30, 2011
				Notional
	Fair			Principal
	Value			Amount
Foreign exchange forward contracts	$	82		$	23,452
Interest rate swaptions		22			4,100
Credit default swaps		5			350
Interest rate futures contracts		30			300,000

Total recorded in other assets	$	139		$	327,902


Credit default swaps		(17	)		1,500
Interest rate swaps		(226	)		10,000
Interest rate swaptions		(5	)		8,900

Total recorded in other liabilities		(248	)		20,400


Net derivative unrealized loss	$	(109	)	$	348,302

The fair values of all derivatives at June 30, 2011 were recorded in other assets or other liabilities in the Company’s Consolidated Balance Sheet. None of the above derivatives have been designated as hedges under current accounting guidance.

The gains and losses on the Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for derivatives for the six months ended June 30, 2011 were as follows:


	Three Months			Six Months
	Ended			Ended
	June 30, 2011			June 30, 2011
Foreign exchange forward contracts	$	(6	)	$	(366	)

Total included in net foreign exchange gains (losses)	$	(6	)	$	(366	)

Futures contracts	$	260		$	250
Credit default swaps		92			6
Interest rate swaps		(438	)		(434	)
Interest rate swaptions		17			19

Total included in net realized and unrealized investment gains (losses)	$	(69	)	$	(159	)

Total derivatives	$	(75	)	$	(525	)

Stock-based employee compensation and other stock plans

The Company has a stock-based employee compensation plan, which provides the Company with the ability to grant options to purchase the Company’s ordinary shares, share appreciation rights, restricted shares, share bonuses and other equity incentive awards to key employees.

No options were granted, expired or vested during the quarters ended June 30, 2011 and 2010. The total intrinsic value of options exercised during the quarter ended June 30, 2011 was $6.6 million (2010 — $9.3 million). The Company received proceeds of $2.3 million (2010 — $5.7 million) from the exercise of options during the quarter ended June 30, 2011. The Company issued new ordinary shares in connection with the exercise of the above options. There were no unrecognized stock-based compensation expenses related to unvested stock options at June 30, 2011 and 2010.

No options were granted, expired or vested during the six months ended June 30, 2011 and 2010. The total intrinsic value of options exercised during the six months ended June 30, 2011 was $21.5 million (2010 — $9.3 million). The Company received proceeds of $12.2 million (2010 - $5.7 million) from the exercise of options during the six months ended June 30, 2011. The Company issued new ordinary shares in connection with the exercise of the above options. There were no unrecognized stock-based compensation expenses related to unvested stock options at June 30, 2011 and 2010.

During the quarter ended June 30, 2011, the Company granted an aggregate of 22,136 (2010 — 20,634) restricted shares and restricted share units with weighted average grant date fair values of $0.9 million (2010 — $0.8 million). During the quarter ended June 30, 2011, the aggregate fair value of restricted shares and restricted share units that vested was $3.4 million (2010 — $5.7 million). For the quarter ended June 30, 2011, compensation costs recognized in earnings for all restricted shares and restricted share units were $3.6 million (2010 — $3.4 million). At June 30, 2011, compensation costs not yet recognized related to unvested restricted shares and restricted share units was $15.9 million (2010 — $18.9 million).

During the six months ended June 30, 2011, the Company granted an aggregate of 304,992 (2010 — 527,088) restricted shares and restricted share units with weighted average grant date fair values of $14.8 million (2010 — $20.2 million). During the six months ended June 30, 2011, the aggregate fair value of restricted shares and restricted share units that vested was $12.8 million (2010 — $14.2 million). For the six months ended June 30, 2011, compensation costs recognized in earnings for all restricted shares and restricted share units were $8.2 million (2010 — $7.3 million).

The Company also has an Employee Share Purchase Plan under which employees of Endurance Holdings and certain of its subsidiaries may purchase Endurance Holdings’ ordinary shares. For the quarter ended June 30, 2011, total expenses related to the Company’s Employee Share Purchase Plan were approximately $53,200 (2010 — $46,300) and $106,500 (2010 -$90,100) for the six months ended June 30, 2011.

Segment reporting

The determination of the Company’s business segments is based on how the Company monitors the performance of its underwriting operations. The Company has two reportable business segments, Insurance and Reinsurance, which are comprised of the following lines of business:

Insurance segment lines of business

•

Agriculture

•

Professional Lines

•

Casualty

•

Property

•

Healthcare Liability

•

Workers’ Compensation

Reinsurance segment lines of business

•

Catastrophe

•

Casualty

•

Property

•

Aerospace and Marine

•

Surety and Other Specialty

Management measures segment results on the basis of the combined ratio, which is obtained by dividing the sum of the net losses and loss expenses, acquisition expenses and general and administrative expenses by net premiums earned. When purchased within a single line of business, ceded reinsurance and recoveries are accounted for within that line of business. When purchased across multiple lines of business, ceded reinsurance and recoveries are allocated to the lines of business in proportion to the related risks assumed. The Company does not manage its assets by segment; accordingly, investment income and total assets are not allocated to the individual business segments. General and administrative expenses incurred by the segments are allocated directly. Remaining general and administrative expenses not directly incurred by the segments are allocated primarily based on estimated consumption, headcount and other variables deemed relevant to the allocation of such expenses.

Segment reporting, cont’d.

The following table provides a summary of segment revenues, results and reserves for losses and loss expenses for the three months ended June 30, 2011:


	Insurance			Reinsurance			Total
Revenues
Gross premiums written	$	225,750		$	277,174		$	502,924
Ceded premiums written		(52,244	)		(8,922	)		(61,166	)

Net premiums written		173,506			268,252			441,758

Net premiums earned		249,397			237,181			486,578
Other underwriting income		—			1,088			1,088

		249,397			238,269			487,666


Expenses
Net losses and loss expenses		191,396			170,574			361,970
Acquisition expenses		15,861			52,026			67,887
General and administrative expenses		36,227			29,659			65,886

		243,484			252,259			495,743

Underwriting income (loss)	$	5,913		$	(13,990	)	$	(8,077	)


Net loss ratio		76.7	%		71.9	%		74.4	%
Acquisition expense ratio		6.4	%		22.0	%		14.0	%
General and administrative expense ratio		14.5	%		12.5	%		13.5	%

Combined ratio		97.6	%		106.4	%		101.9	%


Reserve for losses and loss expenses	$	1,892,813		$	1,855,311		$	3,748,124

Segment reporting, cont’d.

The following table provides a summary of segment revenues, results and reserves for losses and loss expenses for the three months ended June 30, 2010:


	Insurance			Reinsurance			Total
Revenues
Gross premiums written	$	231,626		$	257,942		$	489,568
Ceded premiums written		(36,639	)		(2,126	)		(38,765	)

Net premiums written		194,987			255,816			450,803

Net premiums earned		227,858			228,537			456,395
Other underwriting loss		—			(2,663	)		(2,663	)

		227,858			225,874			453,732


Expenses
Net losses and loss expenses		170,773			122,174			292,947
Acquisition expenses		16,554			50,154			66,708
General and administrative expenses		27,146			28,530			55,676

		214,473			200,858			415,331

Underwriting income	$	13,385		$	25,016		$	38,401


Net loss ratio		74.9	%		53.5	%		64.2	%
Acquisition expense ratio		7.3	%		21.9	%		14.6	%
General and administrative expense ratio		11.9	%		12.5	%		12.2	%

Combined ratio		94.1	%		87.9	%		91.0	%


Reserve for losses and loss expenses	$	1,711,918		$	1,562,719		$	3,274,637

The following table reconciles total segment results to income before income taxes for the three months ended June 30, 2011 and 2010:


	Three Months Ended June 30,
	2011			2010

Total underwriting (loss) income	$	(8,077	)	$	38,401
Net investment income		39,842			33,351
Net foreign exchange losses		(3,348	)		(129	)
Net realized and unrealized investment gains		21,532			2,657
Net impairment losses recognized in earnings		(932	)		(992	)
Amortization of intangibles		(3,026	)		(2,588	)
Interest expense		(9,057	)		(9,050	)

Income before income taxes	$	36,934		$	61,650

Segment reporting, cont’d.

The following table provides gross and net premiums written by line of business for the three months ended June 30, 2011 and 2010:


	Gross			Net			Gross			Net
	premiums			premiums			premiums			premiums
	written			written			written			written
Business Segment	2011			2011			2010			2010
Insurance
Agriculture	$	57,125		$	46,049		$	54,170		$	45,169
Professional lines		49,181			37,624			56,567			49,422
Casualty		63,178			43,811			55,406			37,527
Property		35,904			25,996			43,158			40,950
Healthcare liability		20,454			20,115			22,442			22,031
Workers’ compensation		(92	)		(89	)		(117	)		(112	)

Total Insurance		225,750			173,506			231,626			194,987


Reinsurance
Catastrophe		146,249			139,337			123,808			123,808
Casualty		45,619			45,617			56,919			56,831
Property		52,185			52,185			39,999			39,999
Aerospace and marine		26,743			24,726			24,131			22,101
Surety and other specialty		6,378			6,387			13,085			13,077

Total Reinsurance		277,174			268,252			257,942			255,816


Total	$	502,924		$	441,758		$	489,568		$	450,803

Segment reporting, cont’d.

The following table provides a summary of the segment revenues and results for the six months ended June 30, 2011:


	Insurance			Reinsurance			Total
Revenues
Gross premiums written	$	851,581		$	651,701		$	1,503,282
Ceded premiums written		(245,779	)		(16,873	)		(262,652	)

Net premiums written		605,802			634,828			1,240,630

Net premiums earned		411,889			457,522			869,411
Other underwriting income		—			19			19

		411,889			457,541			869,430


Expenses
Net losses and loss expenses		290,232			473,591			763,823
Acquisition expenses		32,169			101,336			133,505
General and administrative expenses		73,033			58,814			131,847

		395,434			633,741			1,029,175

Underwriting income (loss)	$	16,455		$	(176,200	)	$	(159,745	)


Net loss ratio		70.5	%		103.5	%		87.9	%
Acquisition expense ratio		7.8	%		22.1	%		15.4	%
General and administrative expense ratio		17.7	%		12.9	%		15.1	%

Combined ratio		96.0	%		138.5	%		118.4	%

Segment reporting, cont’d.

The following table provides a summary of the segment revenues and results for the six months ended June 30, 2010:


	Insurance			Reinsurance			Total
Revenues
Gross premiums written	$	695,967		$	612,470		$	1,308,437
Ceded premiums written		(152,039	)		(2,653	)		(154,692	)

Net premiums written		543,928			609,817			1,153,745

Net premiums earned		373,534			448,050			821,584
Other underwriting loss		(2	)		(2,366	)		(2,368	)

		373,532			445,684			819,216


Expenses
Net losses and loss expenses		256,857			268,687			525,544
Acquisition expenses		33,980			96,672			130,652
General and administrative expenses		57,267			57,374			114,641

		348,104			422,733			770,837

Underwriting income	$	25,428		$	22,951		$	48,379


Net loss ratio		68.8	%		59.9	%		64.0	%
Acquisition expense ratio		9.1	%		21.6	%		15.9	%
General and administrative expense ratio		15.3	%		12.8	%		13.9	%

Combined ratio		93.2	%		94.3	%		93.8	%

The following table reconciles total segment results to (loss) income before income taxes for the six months ended June 30, 2011 and 2010, respectively:


	Six Months Ended June 30,
	2011			2010

Total underwriting (loss) income	$	(159,745	)	$	48,379
Net investment income		92,343			89,830
Net foreign exchange gains (losses)		3,570			(6,100	)
Net realized and unrealized investment gains		25,307			6,201
Net impairment losses recognized in earnings		(2,579	)		(1,853	)
Amortization of intangibles		(5,824	)		(5,176	)
Interest expense		(18,111	)		(16,658	)

(Loss) income before income taxes	$	(65,039	)	$	114,623

Segment reporting, cont’d.

The following table provides gross and net premiums written by line of business for the six months ended June 30, 2011 and 2010:


	Gross			Net			Gross			Net
	premiums			premiums			premiums			premiums
	written			written			written			written
Business Segment	2011			2011			2010			2010
Insurance
Agriculture	$	565,830		$	392,521		$	404,369		$	313,276
Professional lines		84,650			68,748			90,075			77,024
Casualty		102,060			69,570			89,634			58,565
Property		60,594			38,581			69,681			55,038
Healthcare liability		38,591			36,521			42,758			40,554
Workers’ compensation		(144	)		(139	)		(550	)		(529	)

Total Insurance		851,581			605,802			695,967			543,928


Reinsurance
Catastrophe		284,496			270,460			246,477			246,567
Casualty		161,971			161,171			164,893			164,094
Property		122,272			122,272			104,521			104,521
Aerospace and marine		47,581			45,565			42,197			40,132
Surety and other specialty		35,381			35,360			54,382			54,503

Total Reinsurance		651,701			634,828			612,470			609,817


Total	$	1,503,282		$	1,240,630		$	1,308,437		$	1,153,745

Commitments and contingencies

Concentrations of credit risk.The Company’s reinsurance recoverables at June 30, 2011 and December 31, 2010 amounted to $369.1 million and $319.3 million, respectively. At June 30, 2011, substantially all reinsurance recoverables were due from the U.S. government or from reinsurers rated A- or better by A.M. Best or Standard & Poor’s.

Major production sources.The following table shows the percentage of net premiums written generated through the Company’s largest brokers for the six months ended June 30, 2011 and 2010, respectively:


Broker	2011			2010

Aon Benfield		21.5	%		23.5	%
Marsh & McLennan Companies, Inc.		16.3	%		19.4	%
Willis Companies		8.3	%		7.2	%

Total of largest brokers		46.1	%		50.1	%

Commitments and contingencies, cont’d.

Letters of credit.As of June 30, 2011, the Company had issued letters of credit of $407.9 million (December 31, 2010 — $439.3 million) under its credit facility in favor of certain ceding companies to collateralize obligations.

Investment commitments.As of June 30, 2011 and December 31, 2010, the Company had pledged cash and cash equivalents and fixed maturity investments of $128.3 million and $146.3 million, respectively, in favor of certain ceding companies to collateralize obligations. As of June 30, 2011 and December 31, 2010, the Company had also pledged $467.5 million and $500.9 million of its cash and fixed maturity investments as required to meet collateral obligations for $407.9 million and $439.3 million in letters of credit outstanding under its credit facility, respectively. In addition, at June 30, 2011 and December 31, 2010, cash and fixed maturity investments with fair values of $363.4 million and $369.1 million were on deposit with U.S. state regulators, respectively, and cash and fixed maturity investments with fair values of $11.1 million and $10.7 million were on deposit with Canadian regulators, respectively.

The Company is subject to certain commitments with respect to Other Investments at June 30, 2011 and December 31, 2010. The Company is generally subject to redemption restriction provisions of between one to five years from the date of the original commitment and rolling redemption restrictions on a one or two year basis thereafter. Due to redemption restrictions, the Company is prohibited from requesting redemptions during 2011 of $117.9 million (December 31, 2010 — $118.9 million) of its Other Investments held at June 30, 2011. In addition, as of June 30, 2011 the Company was committed to investing a further $16.4 million (December 31, 2010 — $11.7 million) in various investment funds classified as Other Investments.

Reinsurance commitments. In the ordinary course of business, the Company enters into reinsurance agreements that may include terms which could require the Company to collateralize certain of its obligations.

Employment agreements.The Company has entered into employment agreements with certain officers that provide for equity incentive awards, executive benefits and severance payments under certain circumstances.

Operating leases.The Company leases office space and office equipment under operating leases. Future minimum lease commitments at June 30, 2011 are as follows:


Twelve months ended June 30,	Amount

2012	$	12,876
2013		12,687
2014		7,539
2015		5,338
2016		3,792
2017 and thereafter		10,940

	$	53,172

Total lease expense under operating leases for the six months ended June 30, 2011 was $6.3 million (2010 — $5.2 million).

Commitments and contingencies, cont’d.

Taxation.The Canada Revenue Agency (“CRA”) has commenced an examination of income tax returns for 2008 and 2009 for the Canadian branch of one of the Company’s U.S. subsidiaries. The Company believes that its income tax filing positions and deductions will be sustained and does not expect to receive any adjustments that would result in a material change to its financial position and therefore no reserves for uncertain income tax positions have been established

Legal proceedings.The Company is party to various legal proceedings generally arising in the normal course of its business. While any proceeding contains an element of uncertainty, the Company does not believe that the eventual outcome of any litigation or arbitration proceeding to which it is presently a party could have a material adverse effect on its financial condition or business. Pursuant to the Company’s insurance and reinsurance agreements, disputes are generally required to be settled by arbitration.

10.Significant Transaction

On June 1, 2011, Endurance Holdings issued 9,200,000 shares of its 7.5% Non-Cumulative Preferred Shares, Series B (the “Series B Preferred Shares”). The Series B Preferred Shares sold in the offering were registered under the Securities Act of 1933, as amended, and are traded on the New York Stock Exchange. The Series B Preferred Shares were issued at a price to the public of $25.00 per share. Endurance Holdings received net proceeds from this offering of $224.0 million after expenses and underwriting discounts. The proceeds from this offering were used to provide additional capital to Endurance Holdings’ subsidiaries and for other general corporate purposes.

The Series B Preferred Shares have no stated maturity date and are redeemable in whole or in part at the option of Endurance Holdings any time after June 1, 2016 at a redemption price of $25.00 per share plus any declared and unpaid dividends, without accumulation of any undeclared dividends. Endurance Holdings may redeem all but not less than all of the Series B Preferred Shares before that date at a redemption price of $26.00 per share, plus any declared and unpaid dividends, to the date of redemption, if Endurance Holdings is required to submit a proposal to the holders of the Series B Preferred Shares concerning an amalgamation, consolidation, merger, similar corporate transaction or change in Bermuda law.

Dividends on the Series B Preferred Shares, when, as and if declared by the Board of Directors of Endurance Holdings or a duly authorized committee of the board, accrue and are payable on the liquidation preference amount from the original issue date, quarterly in arrears on each dividend payment date, at an annual rate of 7.5%. Any such dividends to be distributed to the holders of the Series B Preferred Shares are computed on the basis of a 360-day year consisting of twelve 30-day months.

Dividends on the Series B Preferred Shares are not cumulative. Accordingly, in the event dividends are not declared on the Series B Preferred Shares for payment on any dividend payment date, then such dividends do not accrue and are not payable. If Endurance Holdings’ board of directors or a duly authorized committee of the board has not declared a dividend before the dividend payment date for any dividend period, Endurance Holdings has no obligation to pay dividends for such dividend period after the dividend payment date for that dividend period, whether or not dividends on the Series B Preferred Shares are declared for any future dividend period.

10.

Significant Transaction, cont’d.

The Series B Preferred Shares:

•

rank senior to junior shares with respect to the payment of dividends and distributions upon Endurance Holdings’ liquidation, dissolution or winding-up. Junior shares include Endurance Holdings’ ordinary shares and any other common shares to be issued in the future, including class A shares and any other class of shares that rank junior to the Series B Preferred Shares (collectively “Junior Shares”) either as to the payment of dividends or as to the distribution of assets upon liquidation, dissolution or winding-up; and

•

rank at least equally with each other series of shares ranking on parity with the Series B Preferred Shares as to dividends and distributions upon Endurance Holdings’ liquidation or dissolution or winding up, which are referred to as parity shares. As of the date hereof, Endurance Holdings’ 7.75% Non-Cumulative Preferred Shares, Series A (the “Series A Preferred Shares”) are currently outstanding and rank on parity with the Series B Preferred Shares. Other than the Series A Preferred Shares, no other series of parity shares is outstanding.

During any dividend period, so long as any Series B Preferred Shares remain outstanding, unless the full dividends for the latest completed dividend period on all outstanding Series B Preferred Shares have been declared and paid:

•

no dividend shall be paid or declared on Junior Shares, other than a dividend payable solely in Junior Shares; and

•

no Junior Shares shall be purchased, redeemed or otherwise acquired for consideration by Endurance Holdings, directly or indirectly (other than (i) as a result of a re-classification of Junior Shares for or into other Junior Shares, or the exchange or conversion of one Junior Share for or into another Junior Share, (ii) through the use of the proceeds of a substantially contemporaneous sale of Junior Shares and (iii) as permitted by the bye-laws of Endurance Holdings in effect on the date of issuance of the Series B Preferred Shares).

For any dividend period in which dividends are not paid in full upon the Series B Preferred Shares, the Series A Preferred Shares and any other parity shares, all dividends declared for such dividend period with respect to the Series B Preferred Shares, the Series A Preferred Shares and any other parity shares shall be declared on a pro-rata basis.

Upon any voluntary or involuntary liquidation, dissolution or winding-up of Endurance Holdings, holders of the Series B Preferred Shares and any parity shares are entitled to receive out of Endurance Holdings’ assets available for distribution to shareholders, before any distribution is made to holders of Endurance Holdings’ common equity securities, a liquidating distribution in the amount of $25.00 per Series B Preferred Share plus any declared and unpaid dividends, without accumulation of any undeclared dividends. Distributions will be made pro rata as to the Series B Preferred Shares and any parity shares and only to the extent of Endurance Holdings’ assets, if any, that are available after satisfaction of all liabilities to creditors.

Holders of the Series B Preferred Shares have no voting rights, except with respect to certain fundamental changes in the terms of the Series B Preferred Shares and in the case of certain dividend non-payments or as otherwise required by Bermuda law or Endurance Holdings’ bye-laws.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion and analysis of the financial condition and results of operations for the three and six months ended June 30, 2011 of Endurance Specialty Holdings Ltd. (“Endurance Holdings”) and its wholly-owned subsidiaries (collectively, the “Company”). This discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and related notes contained in this Quarterly Report on Form 10-Q (this “Form 10-Q”) as well as the audited consolidated financial statements and related notes for the fiscal year ended December 31, 2010, the discussions of critical accounting policies and the qualitative and quantitative disclosure about market risk contained in Endurance Holdings’ Annual Report on Form 10-K, as amended, for the fiscal year ended December 31, 2010 (the “2010 Annual Report on Form 10-K”).

Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-Q, including information with respect to the Company’s plans and strategy for its business, includes forward-looking statements that involve risk and uncertainties. Please see the section “Cautionary Statement Regarding Forward-Looking Statements” below for more information on factors that could cause actual results to differ materially from the results described in or implied by any forward-looking statements contained in this discussion and analysis. You should review the “Risk Factors” set forth in the 2010 Annual Report on Form 10-K, for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained herein.

Overview

Endurance Holdings was organized as a Bermuda holding company on June 27, 2002 and has seven wholly-owned operating subsidiaries:

•

Endurance Specialty Insurance Ltd. (“Endurance Bermuda”), domiciled in Bermuda with branch offices in Zurich and Singapore;

•

Endurance Worldwide Insurance Limited (“Endurance U.K.”), domiciled in England;

•

Endurance Reinsurance Corporation of America (“Endurance U.S. Reinsurance”), domiciled in Delaware;

•

Endurance American Insurance Company (“Endurance American”), domiciled in Delaware;

•

Endurance American Specialty Insurance Company (“Endurance American Specialty”), domiciled in Delaware;

•

Endurance Risk Solutions Assurance Co. (“Endurance Risk Solutions”), domiciled in Delaware; and

•

American Agri-Business Insurance Company, domiciled in Texas and managed by ARMtech Insurance Services, Inc. (together “ARMtech”).

The Company writes specialty lines of property and casualty insurance and reinsurance on a global basis and seeks to create a portfolio of specialty lines of business that are profitable and have limited correlation with one another. The Company’s portfolio of specialty lines of business is organized into two business segments, Insurance and Reinsurance.

In the Insurance segment, the Company writes agriculture, professional lines, casualty, property, healthcare liability and workers’ compensation insurance. In the Reinsurance segment, the Company writes catastrophe, casualty, property, aerospace and marine and surety and other specialty reinsurance.

The Company’s Insurance and Reinsurance segments both include property related coverages which provide insurance or reinsurance of an insurable interest in tangible property for property loss, damage or loss of use. In addition, the Company’s Insurance and Reinsurance segments include various casualty insurance and reinsurance coverages which are primarily concerned with the losses caused by injuries to third parties, i.e., not the insured, or to property owned by third parties and the legal liability imposed on the insured resulting from such injuries.

Application of Critical Accounting Estimates

The Company’s condensed consolidated financial statements are based on the selection of accounting policies and application of significant accounting estimates which require management to make significant estimates and assumptions. The Company believes that some of the more critical judgments in the areas of accounting estimates and assumptions that affect its financial condition and results of operations are related to the recognition of premiums written and ceded, reserves for losses and loss expenses, other-than-temporary impairments within the investment portfolio, fair value measurements of certain portions of the investment portfolio and contingencies. For a detailed discussion of the Company’s critical accounting estimates, please refer to the 2010 Annual Report on Form 10-K, and the Notes to the Unaudited Condensed Consolidated Financial Statements in this Form 10-Q. There were no material changes in the application of the Company’s critical accounting estimates subsequent to that report, other than as described in the Notes to the Unaudited Condensed Consolidated Financial Statements in this Form 10-Q relating to the Company’s investment in equities and the use of derivative financial instruments. Management has discussed the application of these critical accounting estimates with the Company’s Board of Directors and the Audit Committee of the Board of Directors.

Consolidated Results of Operations — For the Three Months Ended June 30, 2011 and 2010

Results of operations for the three months ended June 30, 2011 and 2010 were as follows:


	Three Months Ended June 30,
	2011			2010			Change⁽¹⁾
	(U.S. dollars in thousands, except for ratios)
Revenues
Gross premiums written	$	502,924		$	489,568			2.7	%
Ceded premiums written		(61,166	)		(38,765	)		57.8	%

Net premiums written		441,758			450,803			(2.0	)%

Net premiums earned		486,578			456,395			6.6	%
Net investment income		39,842			33,351			19.5	%
Net realized and unrealized investment gains		21,532			2,657		NM		⁽²⁾
Net impairment losses recognized in earnings		(932	)		(992	)		(6.0	)%
Other underwriting income (loss)		1,088			(2,663	)	NM		⁽²⁾

Total revenues		548,108			488,748			12.1	%

Expenses
Losses and loss expenses		361,970			292,947			23.6	%
Acquisition expenses		67,887			66,708			1.8	%
General and administrative expenses		65,886			55,676			18.3	%
Amortization of intangibles		3,026			2,588			16.9	%
Net foreign exchange losses		3,348			129		NM		⁽²⁾
Interest expense		9,057			9,050			0.1	%
Income tax (benefit) expense		(4,143	)		3,057		NM		⁽²⁾

Net income	$	41,077		$	58,593			(29.9	)%

Net loss ratio		74.4	%		64.2	%		10.2
Acquisition expense ratio		14.0	%		14.6	%		(0.6	)
General and administrative expense ratio		13.5	%		12.2	%		1.3

Combined ratio		101.9	%		91.0	%		10.9


(1)		With respect to ratios, changes show increase or decrease in percentage points.

(2)		Not meaningful.

Premiums

Gross premiums written in the three months ended June 30, 2011 were $502.9 million, an increase of $13.4 million, or 2.7%, compared to the same period in 2010. Net written premiums in the three months ended June 30, 2011 were $441.8 million, a decrease of $9.0 million, or 2.0%. The change in net premiums written was driven by the following factors:

•

A decrease in the property, healthcare liability and professional lines of the Insurance segment in the quarter ended June 30, 2011 compared to 2010. These reductions were driven by increased competition, which led to either non-renewing business or a move to higher policy attachment points;

•

A decline in the casualty line of the Reinsurance segment in the quarter ended June 30, 2011 compared to 2010 as a result of non-renewed business;

	•		Growth in the catastrophe line of the Reinsurance segment driven predominantly by price increases in our U.S. exposed business renewing in the second quarter; and

	•		An increase in the property line of the Reinsurance segment as a result of a positive premium adjustment which contributed $13.2 million in the quarter ended June 30, 2011.

Ceded premiums written by the Company increased in the quarter ended June 30, 2011 as compared to the same period in 2010 because of increased cessions to third party reinsurers, as the Company chose to increase the level of protection against possible losses in the catastrophe line of the Reinsurance segment and the property and professional lines of business in the Insurance segment.

Net premiums earned for the three months ended June 30, 2011 were $486.6 million, an increase of $30.2 million, or 6.6%, from the second quarter of 2010. The increase in net premiums earned resulted principally from growth in net written premiums recorded in more recent periods.

Net Investment Income

The Company’s net investment income of $39.8 million increased 19.5% or $6.5 million for the quarter ended June 30, 2011 as compared to the same period in 2010. Net investment income during the second quarter of 2011 included net mark to market gains of $1.2 million on Other Investments, comprised of alternative funds and high yield loan funds, as compared to mark to market losses of $7.0 million on Other Investments in the second quarter of 2010. Investment income generated from the Company’s fixed income investments, which consist of fixed maturity investments and short-term investments, declined by $1.9 million for the three months ended June 30, 2011 compared to the same period in 2010. This decline resulted from lower reinvestment rates over the past 12 months driven by lower market yields, partially offset by a higher average investment portfolio balance. Investment expenses, including investment management fees, for the second quarter of 2011, were $3.5 million compared to $3.6 million for the same period in 2010.

The annualized net earned yield and total return of the investment portfolio for the three months ended June 30, 2011 and 2010 and market yield and portfolio duration as of June 30, 2011 and 2010 were as follows:


	Three Months Ended June 30,
	2011			2010
Annualized net earned yield⁽¹⁾		2.62	%		2.23	%
Total return on investment portfolio⁽²⁾		1.32	%		1.42	%
Market yield⁽³⁾		2.18	%		2.43	%
Portfolio duration⁽⁴⁾	2.28 years			2.19 years


(1)		The actual net earned income from the investment portfolio after adjusting for expenses and accretion of discount and amortization of premium from the purchase price divided by the average book value of assets.

(2)		Includes realized and unrealized gains and losses.

(3)		The internal rate of return of the investment portfolio based on the given market price or the single discount rate that equates a security price (inclusive of accrued interest) for the portfolio with its projected cash flows. Excludes other investments and operating cash.

(4)		Includes only cash and cash equivalents and fixed income investments managed by the Company’s investment managers.

During the second quarter of 2011, the yield on the benchmark five year U.S. Treasury bond fluctuated within a 95 basis point range, with a high of 2.32% and a low of 1.37%. Trading activity in the Company’s portfolio during the second quarter included reductions in corporate fixed maturity securities and U.S. agency mortgage-backed securities and increased allocations to U.S. government securities and short-term investments. The duration of the fixed income investments decreased to 2.28 years at June 30, 2011 from 2.39 years at December 31, 2010.

Net Realized and Unrealized Gains

The Company’s investment portfolio is managed to generate attractive economic returns and income while providing the Company with liquidity. Movements in financial markets and interest rates influence the timing and recognition of net realized investment gains and losses as the portfolio is adjusted and rebalanced. Proceeds from sales of investments classified as available for sale during the three months ended June 30, 2011 were $799.5 million compared to $527.1 million during the same period a year ago. Net realized investment gains increased significantly during the three months ended June 30, 2011 compared to the same period in 2010 as the Company realized gains as a result of managing the duration of the investment portfolio. Gross realized investment gains and losses for the three months ended June 30, 2011 and 2010 were as follows:


	Three Months Ended June 30,
	2011			2010
	(U.S. dollars in thousands)
Gross realized gains on investment sales	$	22,086		$	4,645
Gross realized losses on investment sales		(485	)		(1,988	)
Change in fair value of derivative financial instruments		(69	)		—

Net realized and unrealized investment gains	$	21,532		$	2,657

Net Impairment Losses Recognized in Earnings

During the three months ended June 30, 2011, the Company identified available for sale securities that were considered to be other-than-temporarily impaired. The Company considered whether it intended to sell or would be more likely than not required to sell its fixed income investments in an unrealized loss position at June 30, 2011. The Company did not identify any such securities meeting these criteria. As such, the Company performed various analyses and reviews, which are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates” in our 2010 Annual Report on Form 10-K, to determine whether the investments in an unrealized loss position were other-than-temporarily impaired as a result of credit related factors or non-credit related factors. Net impairment losses recognized in earnings for three months ended June 30, 2011 and 2010 were as follows:


	Three Months Ended June 30,
	2011			2010
	(U.S. dollars in thousands)
Total other-than-temporary impairment losses	$	(484	)	$	(738	)
Portion of loss recognized in other comprehensive income (loss)		(448	)		(254	)

Net impairment losses recognized in earnings	$	(932	)	$	(992	)

The $0.9 million and $1.0 million of other-than-temporary impairment (“OTTI”) losses recognized by the Company in the second quarters of 2011 and 2010 relating to specific credit events for its fixed income investments were primarily due to reductions in expected recovery values on structured securities (mortgage and asset backed) during the period, along with certain credit related downgrades in corporate securities. Of this total, $0.4 million was shifted from a non-credit OTTI loss previously recognized in other comprehensive income (loss) to a credit OTTI loss recorded in net income for the second quarter of 2011.

Net Foreign Exchange Losses

At June 30, 2011, the Company remeasured its monetary assets and liabilities denominated in foreign currencies, which resulted in a net foreign exchange loss of $3.3 million compared to a foreign exchange loss of $0.1 million for the same period of 2010. The net foreign exchange loss incurred was due to offsetting exposures across the Company as the U.S. dollar weakened against other major currencies. In the prior year, the small net foreign exchange loss resulted from the weakening Euro.

Net Losses and Loss Expenses

The Company’s reported net losses and loss expenses are characterized by various factors and are significantly impacted by the occurrence or absence of catastrophic events and subsequent loss emergence related to such events. For the three months ended June 30, 2011, tornadoes in the United States adversely affected the Company’s net loss ratio in the Reinsurance segment. The Company recorded losses, net of reinstatement premiums and other loss sensitive accruals, of $61.8 million in relation to these events which added 13.0 percentage points to the Company’s net loss ratio for the second quarter of 2011. For the three months ended June 30, 2010, there were no significant catastrophic events that impacted the Company’s net loss ratio. In addition, the Company recorded higher reserves for attritional losses in the agriculture line of the Insurance segment in the second quarter of 2011 compared to 2010 as a result of current drought conditions in the Southwest United States and excess moisture in the Midwest United States in the spring.

Favorable prior year loss reserve development was $44.8 million for the second quarter of 2011 compared to $29.5 million during the same period in 2010. In the second quarter of 2011, prior year loss reserves emerged favorably across each line of the Insurance segment and the short tail and other lines of the Reinsurance segment.

The Company participates in lines of business where claims may not be reported for many years. Accordingly, management does not believe that reported claims are the only valid means for estimating ultimate obligations. Ultimate losses and loss expenses may differ materially from the amounts recorded in the Company’s consolidated financial statements. These estimates are reviewed regularly and, as experience develops and new information becomes known, the reserves are adjusted as necessary. Reserve adjustments, if any, are recorded in earnings in the period in which they are determined. The overall loss reserves were established by the Company’s actuaries and reflect management’s best estimate of ultimate losses. See “Reserve for Losses and Loss Expenses” below for further discussion.

Acquisition Expenses

The acquisition expense ratio for the three months ended June 30, 2011 was generally consistent with the acquisition expense ratio for the same period in 2010.

General and Administrative Expenses

The Company’s general and administrative expense ratio for the second quarter of 2011 increased compared to the same period in 2010 due to higher personnel costs resulting from increased headcount. At June 30, 2011, the Company had a total of 856 employees compared to 783 employees at June 30, 2010.

Income Tax Benefit

The Company recorded a tax benefit for the quarter ended June 30, 2011 of $4.1 million compared to a tax expense of $3.1 million for the quarter ended June 30, 2010 due to an increase in net losses experienced in its United States taxable jurisdictions compared to 2010.

Net Income

The Company produced net income of $41.1 million in the three months ended June 30, 2011 compared to net income of $58.6 million in the same period of 2010. The decrease for the current period compared to the same period in 2010 was primarily due to the increase in catastrophe losses.

Consolidated Results of Operations — For the Six Months Ended June 30, 2011 and 2010

Results of operations for the six months ended June 30, 2011 and 2010 were as follows:


	Six Months Ended June 30,
	2011			2010			Change⁽¹⁾
	(U.S. dollars in thousands, except for ratios)
Revenues
Gross premiums written	$	1,503,282		$	1,308,437			14.9	%
Ceded premiums written		(262,652	)		(154,692	)		69.8	%

Net premiums written		1,240,630			1,153,745			7.5	%

Net premiums earned		869,411			821,584			5.8	%
Net investment income		92,343			89,830			2.8	%
Net realized gains on investment sales		25,307			6,201		NM		⁽²⁾
Net impairment losses recognized in earnings		(2,579	)		(1,853	)		39.2	%
Other underwriting income (loss)		19			(2,368	)	NM		⁽²⁾

Total revenues		984,501			913,394			7.8	%

Expenses
Losses and loss expenses		763,823			525,544			45.3	%
Acquisition expenses		133,505			130,652			2.2	%
General and administrative expenses		131,847			114,641			15.0	%
Amortization of intangibles		5,824			5,176			12.5	%
Net foreign exchange (gains) losses		(3,570	)		6,100		NM		⁽²⁾
Interest expense		18,111			16,658			8.7	%
Income tax (benefit) expense		(18,699	)		241		NM		⁽²⁾

Net (loss) income	$	(46,340	)	$	114,382		NM		⁽²⁾


Net loss ratio		87.9	%		64.0	%		23.9
Acquisition expense ratio		15.4	%		15.9	%		(0.5	)
General and administrative expense ratio		15.1	%		13.9	%		1.2

Combined ratio		118.4	%		93.8	%		24.6


(1)		With respect to ratios, changes show increase or decrease in percentage points.

(2)		Not meaningful.

Premiums

Gross premiums written in the six months ended June 30, 2011 were $1,503.3 million, an increase of $194.8 million, or 14.9%, compared to the same period in 2010. Net premiums written in the six months ended June 30, 2011 were $1,240.6 million, an increase of $86.9 million, or 7.5%, compared to the same period in 2010. The increase in net premiums written was driven primarily by the agriculture business within the Insurance segment resulting from increased commodity prices for corn, cotton and soybeans. Net premiums written were also positively impacted by modest growth in the property and catastrophe lines of the Reinsurance segment and the casualty line of the Insurance segment as a result of new business written and increased shares and improved pricing on renewals. Offsetting these increases were declines in the property and professional lines of the Insurance segment and surety and other lines of the Reinsurance segment as a result of non-renewed business.

Net premiums earned for the six months ended June 30, 2011 were $869.4 million, an increase of $47.8 million, or 5.8%, from the six months ended June 30, 2010 principally due to growth in net premiums written experienced over the last twelve months compared to the same period last year.

Net Investment Income

The Company’s net investment income of $92.3 million increased 2.8% or $2.5 million for the six months ended June 30, 2011 as compared to the same period in 2010. Net investment income during the first six months of 2011 included net mark to market gains of $14.9 million on alternative investments and high yield loan funds, included in Other Investments, as compared to mark to market gains of $10.0 million in the first six months of 2010. Investment income generated by the Company’s fixed income investments declined by $3.3 million in the first six months of 2011 compared to 2010 due to lower reinvestment rates. Investment expenses for the six months ended June 30, 2011, including investment management fees, were $7.1 million compared to $7.7 million for the same period in 2010.

The annualized net earned yield, total return on the investment portfolio for the six months ended June 30, 2011 and 2010 and market yield and portfolio duration as of June 30, 2011 and 2010 were as follows:


	Six Months Ended June 30,
	2011			2010
Annualized net earned yield⁽¹⁾		3.02	%		3.03	%
Total return on investment portfolio⁽²⁾		2.23	%		3.18	%
Market yield⁽³⁾		2.18	%		2.43	%
Portfolio duration⁽⁴⁾	2.28 years			2.19 years


(1)		The actual net earned income from the investment portfolio after adjusting for expenses and accretion of discount and amortization of premium from the purchase price divided by the average book value of assets.

(2)		Includes realized and unrealized gains and losses.

(3)		The internal rate of return of the investment portfolio based on the given market price or the single discount rate that equates to a security price (inclusive of accrued interest) for the portfolio with its projected cash flows. Excludes other investments and operating cash.

(4)		Includes only cash and cash equivalents and fixed income investments held by the Company’s investment managers.

During the six months ended June 30, 2011, the yield on the benchmark five year U.S. Treasury bond fluctuated within a 103 basis points range, with a high of 2.40% and a low of 1.37%. Trading activity in the Company’s portfolio for the first half of 2011 included reductions in U.S. agency securities and securities guaranteed by foreign governments and increased allocations to short-term investments, U.S. government mortgage-backed and asset-backed securities. The duration of the fixed income investments has increased compared to June 30, 2010 primarily due to the decreased allocation to cash and cash equivalents and the purchase of longer duration corporate securities.

Net Realized Gains on Investment Sales

The Company’s investment portfolio is managed to generate attractive economic returns and income while providing the Company with liquidity. Movements in financial markets and interest rates influence the timing and recognition of net realized investment gains and losses as the portfolio is adjusted and rebalanced. Proceeds from sales of investments classified as available for sale during the six months ended June 30, 2011 were $1,816.7 million compared to $1,684.7 million during the same period a year ago. Net realized investment gains increased significantly during the six months ended June 30, 2011 compared to the same period in 2010 as the Company realized gains as a result of managing the duration of the investment portfolio. Gross realized investment gains and losses for the six months ended June 30, 2011 and 2010 were as follows:


	Six Months Ended June 30,
	2011			2010
	(U.S. dollars in thousands)
Gross realized gains on investment sales	$	33,659		$	14,167
Gross realized losses on investment sales		(8,193	)		(7,966	)
Change in fair value of derivative financial instruments		(159	)		—

Net realized and unrealized investment gains	$	25,307		$	6,201

Net Impairment Losses Recognized in Earnings

During the six months ended June 30, 2011, the Company identified available for sale securities that were considered to be other-than-temporarily impaired. The Company initially considered whether it intended to sell or would be more likely than not required to sell the securities in an unrealized loss position at June 30, 2011. The Company did not identify any such securities meeting these criteria. As such, the Company performed various analyses and reviews, which are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates” in our 2010 Annual Report on Form 10-K, to determine whether the investments in an unrealized loss position were other-than-temporarily impaired as a result of credit factors or other factors. Net impairment losses recognized in earnings for the six months ended June 30, 2011 and 2010 were as follows:


	Six Months Ended June 30,
	2011			2010
	(U.S. dollars in thousands)
Total other-than-temporary impairment losses	$	(1,740	)	$	(1,507	)
Portion of loss recognized in other comprehensive income (loss)		(839	)		(346	)

Net impairment losses recognized in earnings	$	(2,579	)	$	(1,853	)

The $2.6 million of OTTI losses recognized by the Company in the six months ended June 30, 2011 relating to specific credit events occurred primarily due to reductions in expected recovery values on structured securities (mortgage and asset backed) during the period, along with certain credit related downgrades in corporate securities. Of this total, $0.8 million was shifted from a non-credit OTTI loss previously recognized in other comprehensive income (loss) to a loss recorded as a credit impairment.

For the six months ended June 30, 2010, the Company recorded $1.9 million of OTTI losses in earnings. This amount included a portion related to credit losses and a portion related to non-credit related factors. Non-credit related factors included market and sector related factors, including limited liquidity and credit spread widening.

The Company assessed its intent and ability to hold certain equity securities that were in an unrealized loss position at June 30, 2011 and as a result recognized approximately $0.03 million in OTTI losses in the six months ended June 30, 2011.

Net Foreign Exchange Losses (Gains)

At June 30, 2011, the Company remeasured its monetary assets and liabilities denominated in foreign currencies, which resulted in net foreign exchange gain of $3.6 million compared to $6.1 million of loss for the same period of 2010. The current period net foreign exchange gains resulted primarily from the strengthening of Euro denominated assets held as the U.S. dollar weakened during 2011. In the prior year, net foreign exchange losses resulted from the strengthening of the U.S. dollar compared to other currencies during the period.

Net Losses and Loss Expenses

The Company’s reported net losses and loss expenses are characterized by various factors and are significantly impacted by the occurrence or absence of catastrophic events and subsequent loss emergence related to such events. For the six months ended June 30, 2011, the Tohuko, Japan earthquake and tsunami, Christchurch, New Zealand earthquake, Queensland, Australia floods and United States tornadoes adversely affected the Company’s net loss ratio in the Reinsurance segment. The Company recorded losses, net of reinstatement premiums and other loss sensitive accruals, of $250.8 million in relation to these events which added 29.3 percentage points to the Company’s net loss ratio for the six months ended June 30, 2011. For the six months ended June 30, 2010, the Chilean earthquake and European Windstorm Xynthia adversely affected the Company’s net loss ratio in the Reinsurance segment. The Company recorded losses, net of reinstatement premiums and other loss sensitive accruals, of $63.0 million in relation to the two events, which added 7.9 percentage points to the Company’s net loss ratio for the first half of 2010. In addition, the Company recorded higher reserves for attritional losses in the agriculture and property lines of the Insurance segment in the six months ended June 30, 2011 compared to 2010.

Favorable prior year loss reserve development was $93.5 million for the first six months of 2011 as compared to $68.1 million for the same period in 2010. In the second half of 2011 and 2010, prior year loss reserves emerged favorably across each line of the Insurance segment and the short tail and other lines of the Reinsurance segment.

The Company participates in lines of business in which claims may not be reported for many years. Accordingly, management does not believe that reported claims are the only valid means for estimating ultimate obligations. Ultimate losses and loss expenses may differ materially from the amounts recorded in the Company’s consolidated financial statements. These estimates are reviewed regularly and, as experience develops and new information becomes known, the reserves are adjusted as necessary. Reserve adjustments, if any, are recorded in earnings in the period in which they are determined. The overall loss reserves were established by the Company’s actuaries and reflect management’s best estimate of ultimate losses. See “Reserve for Losses and Loss Expenses” below for further discussion.

Acquisition Expenses

The acquisition expense ratio for the six months ended June 30, 2011 was comparable to that of the same period in 2010.

General and Administrative Expenses

The Company’s general and administrative expense ratio for the first half of 2011 increased compared to the same period in 2010 due to higher personnel costs resulting from increased headcount and lower third party commissions and expense reimbursement offsets in the agriculture line of the Insurance segment. At June 30, 2011, the Company had a total of 856 employees compared to 783 employees at June 30, 2010.

Net (Loss) Income

The Company produced a net loss of $46.3 million for the six months ended June 30, 2011 compared to net income of $114.4 million in the same period of 2010 primarily due to an increase in losses and loss expenses as a result of the Japan and New Zealand earthquakes, the Australian floods and the tornadoes in the United States.

Reserve for Losses and Loss Expenses

In order to capture the key dynamics of loss development and expected volatility that may arise within the disclosed amounts for the reserve for losses and loss expenses, the key lines of business within each business segment are aggregated based on their potential expected length of loss emergence. The period over which loss emergence occurs is typically referred to as the tail. The Company has classified its lines of business as either having a “short,” “long” or “other” tail pattern. The Company views short tail business as that for which development typically emerges within a period of several quarters while long tail business would emerge over many years. The Company’s lines of business are generally included in the following reserving categories:

Insurance Segment — Short Tail Line

•

Property

Insurance Segment — Long Tail Lines

•

Casualty

•

Healthcare liability

•

Professional lines

•

Workers compensation (discontinued)

Insurance Segment — Other Tail Lines

•

Agriculture

Reinsurance Segment — Short Tail Lines

•

Catastrophe

•

Property

•

Aerospace and marine

•

Surety

Reinsurance Segment — Long Tail Lines

•

Casualty

•

Other specialty

As of June 30, 2011, the Company had accrued losses and loss expenses reserves of $3.7 billion (December 31, 2010 — $3.3 billion). This amount represents management’s best estimate of the ultimate liability for payment of losses and loss expenses related to loss events. During the six months ended June 30, 2011 and 2010, the Company’s net paid losses and loss expenses were $402.0 million and $163.7 million, respectively.

As more fully described under “Reserving Process” in the Company’s Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2010 Annual Report on Form 10-K, the Company incorporates a variety of actuarial methods and judgments in its reserving process. Two key inputs in the various actuarial methods employed by the Company are initial expected loss ratios and expected loss reporting patterns. These key inputs impact the potential variability in the estimate of the reserve for losses and loss expenses and are applicable to each of the Company’s business segments. The Company’s loss and loss expense reserves consider and reflect, in part, deviations resulting from differences between expected loss and actual loss reporting as well as judgments relating to the weights applied to the reserve levels indicated by the actuarial methods. Expected loss reporting patterns are based upon internal and external historical data and assumptions regarding claims reporting trends over a period of time that extends beyond the Company’s own operating history.

Differences between actual reported losses and expected losses are anticipated to occur in any individual period and such deviations may influence future initial expected loss ratios and/or expected loss reporting patterns as the recent actual experience becomes part of the historical data utilized as part of the ongoing reserve estimation process. The Company has demonstrated the impact of changes in the speed of the loss reporting patterns, as well as changes in the expected loss ratios, within the table under the heading “Potential Variability in Reserves for Losses and Loss Expenses” in the Company’s Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2010 Annual Report on Form 10-K.

Losses and loss expenses for the three and six months ended June 30, 2011 are summarized as follows:


Three Months Ended	Incurred related to:					Total incurred
June 30, 2011	Current year		Prior years			losses
	(U.S. dollars in thousands)
Insurance:
Short tail	$	13,723	$	(5,150	)	$	8,573
Long tail		69,420		(5,490	)		63,930
Other		131,443		(12,550	)		118,893

Total Insurance		214,586		(23,190	)		191,396


Reinsurance:
Short tail		127,257	$	(19,245	)		108,012
Long tail		58,876		335			59,211
Other		6,032		(2,681	)		3,351

Total Reinsurance		192,165		(21,591	)		170,574


Totals	$	406,751	$	(44,781	)	$	361,970


Six Months Ended	Incurred related to:					Total incurred
June 30, 2011	Current year		Prior years			losses
	(U.S. dollars in thousands)
Insurance:
Short tail	$	27,057	$	(14,424	)	$	12,633
Long tail		134,627		(8,050	)		126,577
Other		186,350		(35,328	)		151,022

Total Insurance		348,034		(57,802	)		290,232


Reinsurance:
Short tail		386,995	$	(33,408	)		353,587
Long tail		113,879		610			114,489
Other		8,401		(2,886	)		5,515

Total Reinsurance		509,275		(35,684	)		473,591


Totals	$	857,309	$	(93,486	)	$	763,823

Losses and loss expenses for the three and six months ended June 30, 2011 included $44.8 million and $93.5 million in favorable development of reserves relating to prior accident years, respectively. The favorable loss reserve development experienced during the three and six months ended June 30, 2011 benefited the Company’s reported loss ratio by approximately 9.2 and 10.8 percentage points, respectively. This net reduction in estimated losses for prior accident years resulted primarily from lower than expected claims emergence across all reserving groups included within the Insurance segment and the short tail and other reserving groups in the Reinsurance segment.

For the three and six months ended June 30, 2011, the Company did not materially alter the two key inputs utilized to establish reserve for losses and loss expenses (initial expected loss ratios and loss reporting patterns) related to prior years for the insurance and reinsurance reserve categories as the variances in reported losses for those reserve categories were within the range of possible results anticipated by the Company.

Insurance

Short Tail Insurance.For the three and six months ended June 30, 2011, the favorable loss emergence within the short tail insurance reserve category was primarily due to lower than expected reported claims and favorable case reserve development related to the property line of business.

Long Tail Insurance.For the six months ended June 30, 2011, the Company recorded favorable loss emergence within this reserve category primarily due to lower than expected claims activity within the healthcare liability and professional lines of business. Favorable loss emergence was partially offset by modest adverse development within U.S. casualty business and adverse loss emergence within the workers’ compensation line of business which the Company exited in 2009.

Other Insurance.For the three and six months ended June 30, 2011, the Company recorded favorable loss emergence within this reserve catetory primarily due to lower than anticipated agriculture claims settlements for the 2010 crop year.

Reinsurance

Short Tail Reinsurance.For the three and six months ended June 30, 2011, the Company recorded favorable loss emergence within this reserve category primarily due to lower than expected claims activity and favorable case reserve development within the catastrophe and surety and other specialty lines of business.

Long Tail Reinsurance. For the three and six months ended June 30, 2011, the Company recorded a modest amount of unfavorable loss emergence within this reserve category primarily due to higher than expected claims reported within the Company’s self insured risks business which is a part of the surety and other specialty line of business within the Reinsurance segment.

Other Reinsurance.For the three and six months ended June 30, 2011, the Company recorded a modest amount of favorable loss emergence within this reserve category primarily due to lower than expected claims reported within the agriculture business that is part of the surety and other specialty line of business within the Reinsurance segment.

Losses and loss expenses for the three and six months ended June 30, 2010 are summarized as follows:


Three Months Ended	Incurred related to:					Total incurred
June 30, 2010	Current year		Prior years			losses
	(U.S. dollars in thousands)
Insurance:
Short tail	$	6,786	$	(5,632	)	$	1,154
Long tail		75,673		347			76,020
Other		96,413		(2,814	)		93,599

Total Insurance		178,872		(8,099	)		170,773


Reinsurance:
Short tail		89,797		(19,366	)		70,431
Long tail		49,121		794			49,915
Other		4,635		(2,807	)		1,828

Total Reinsurance		143,553		(21,379	)		122,174


Totals	$	322,425	$	(29,478	)	$	292,947


Six Months Ended	Incurred related to:					Total incurred
June 30, 2010	Current year		Prior years			losses
	(U.S. dollars in thousands)
Insurance:
Short tail	$	13,362	$	(11,545	)	$	1,817
Long tail		136,588		(1,094	)		135,494
Other		132,685		(13,139	)		119,546

Total Insurance		282,635		(25,778	)		256,857

Reinsurance:

Short tail		213,805		(40,704	)		173,101
Long tail		91,207		830			92,037
Other		5,969		(2,420	)		3,549

Total Reinsurance		310,981		(42,294	)		268,687


Totals	$	593,616	$	(68,072	)	$	525,544

Losses and loss expenses for the three and six months ended June 30, 2010 included $29.5 million and $68.1 million in favorable development of reserves relating to prior accident years, respectively. The favorable loss reserve development experienced during the three and six months ended June 30, 2010 benefited the Company’s reported loss ratio by approximately 6.5 and 8.3 percentage points, respectively. This net reduction in estimated losses for prior accident years resulted primarily from lower than expected claims emergence across all reserving groups within the Insurance segment and the short tail and other reserving groups in the Reinsurance segment.

For the three and six months ended June 30, 2010, the Company did not materially alter the two key inputs utilized to establish its reserve for losses and loss expenses (initial expected loss ratios and loss reporting patterns) for business related to prior years for the insurance and reinsurance reserve categories as the variances in reported losses for those reserve categories were within the range of possible results anticipated by the Company.

Insurance

Short Tail Insurance.For the three and six months ended June 30, 2010, the favorable loss emergence within the short tail insurance reserve category was primarily due to lower than expected reported claims and favorable case reserve development related to the property line of business.

Long Tail Insurance.For the six months ended June 30, 2010, the Company recorded favorable loss emergence within this reserve category primarily due to lower than expected claims activity within the healthcare liability line of business. Favorable loss emergence was partially offset by adverse loss emergence related to the workers’ compensation line of business which the Company exited in 2009.

Other Insurance.Lower than anticipated agriculture claims settlements for the 2009 crop year resulted in a reduction in prior years estimated loss and loss expenses within this reserve category for the three and six months ended June 30, 2010.

Reinsurance

Short Tail Reinsurance.For the three and six months ended June 30, 2010, the Company recorded favorable loss emergence within this reserve category primarily due to lower than expected claims activity and favorable case reserve development within the catastrophe, property and surety and other specialty lines of business.

Long Tail Reinsurance. For the three and six months ended June 30, 2010, the Company recorded a modest amount of unfavorable loss emergence within this reserve category primarily due to higher than expected reported claims within the casualty line of business and the self insured risks business which is a part of the surety and other specialty line of business within the Reinsurance segment.

Other Reinsurance.For the three and six months ended June 30, 2010, the Company recorded a modest amount of favorable loss emergence within this reserve category, primarily due to lower than expected claims reported within the agriculture business included in the surety and other specialty line of business.

The total reserves for losses and loss expenses recorded on the Company’s balance sheet were comprised of the following at June 30, 2011:


					Reserve for losses
	Case Reserves		IBNR Reserves		and loss expenses
	(U.S. dollars in thousands)
Insurance:
Short tail	$	19,410	$	28,858	$	48,268
Long tail		375,869		1,192,329		1,568,198
Other		247,145		29,202		276,347

Total Insurance		642,424		1,250,389		1,892,813


Reinsurance:
Short tail		431,972		461,863		893,835
Long tail		268,802		681,704		950,506
Other		1,187		9,783		10,970

Total Reinsurance		701,961		1,153,350		1,855,311


Totals	$	1,344,385	$	2,403,739	$	3,748,124

The total reserves for losses and loss expenses recorded on the Company’s balance sheet were comprised of the following at December 31, 2010:


					Reserve for losses
	Case Reserves		IBNR Reserves		and loss expenses
	(U.S. dollars in thousands)
Insurance:
Short tail	$	14,730	$	30,600	$	45,330
Long tail		325,750		1,167,648		1,493,398
Other		116,687		74,178		190,865

Total Insurance		457,167		1,272,426		1,729,593


Reinsurance:
Short tail		319,322		351,428		670,750
Long tail		248,870		658,514		907,384
Other		990		11,210		12,200

Total Reinsurance		569,182		1,021,152		1,590,334


Totals	$	1,026,349	$	2,293,578	$	3,319,927

Underwriting results by operating segments

The determination of the Company’s business segments is based on the manner in which management monitors the performance of the Company’s underwriting operations. As a result, we report two business segments — Insurance and Reinsurance.

Management measures the Company’s results on the basis of the combined ratio, which is obtained by dividing the sum of the losses and loss expenses, acquisition expenses and general and administrative expenses by net premiums earned. The Company’s historic combined ratios may not be indicative of future underwriting performance. When purchased within a single line of business, ceded reinsurance and recoveries are accounted for within that line of business. When purchased across multiple lines of business, ceded reinsurance and recoveries are allocated to the lines of business in proportion to the related risks assumed. The Company does not manage its assets by segment; accordingly, investment income and total assets are not allocated to the individual business segments. General and administrative expenses incurred by the segments are allocated directly. Remaining general and administrative expenses not directly incurred by the segments are allocated primarily based on estimated consumption, headcount and other variables deemed relevant to the allocation of such expenses. Ceded reinsurance and recoveries are recorded within the segment to which they apply.

Insurance

The following table summarizes the underwriting results and associated ratios for the Company’s Insurance segment for the three and six months ended June 30, 2011 and 2010.


	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
	(U.S. dollars in thousands, except for ratios)
Revenues
Gross premiums written	$	225,750		$	231,626		$	851,581		$	695,967
Ceded premiums written		(52,244	)		(36,639	)		(245,779	)		(152,039	)

Net premiums written		173,506			194,987			605,802			543,928

Net premiums earned		249,397			227,858			411,889			373,534
Other underwriting loss		—			—			—			(2	)

		249,397			227,858			411,889			373,532

Expenses
Losses and loss expenses		191,396			170,773			290,232			256,857
Acquisition expenses		15,861			16,554			32,169			33,980
General and administrative expenses		36,227			27,146			73,033			57,267

		243,484			214,473			395,434			348,104

Underwriting income	$	5,913		$	13,385		$	16,455		$	25,428


Net loss ratio		76.7	%		74.9	%		70.5	%		68.8	%
Acquisition expense ratio		6.4	%		7.3	%		7.8	%		9.1	%
General and administrative expense ratio		14.5	%		11.9	%		17.7	%		15.3	%

Combined ratio		97.6	%		94.1	%		96.0	%		93.2	%

Premiums.Gross premiums written for the three and six months ended June 30, 2011 in the Insurance segment decreased by 2.5% and increased by 22.4% over the same periods in 2010, respectively. Gross and net premiums written for each line of business in the Insurance segment were as follows:


	Three Months Ended June 30,
	2011						2010
	Gross			Net			Gross			Net
	Premiums			Premiums			Premiums			Premiums
	Written			Written			Written			Written
	(U.S. dollars in thousands)
Agriculture	$	57,125		$	46,049		$	54,170		$	45,169
Professional Lines		49,181			37,624			56,567			49,422
Casualty		63,178			43,811			55,406			37,527
Property		35,904			25,996			43,158			40,950
Healthcare Liability		20,454			20,115			22,442			22,031
Workers’ Compensation		(92	)		(89	)		(117	)		(112	)

Total	$	225,750		$	173,506		$	231,626		$	194,987


	Six Months Ended June 30,
	2011						2010
	Gross			Net			Gross			Net
	Premiums			Premiums			Premiums			Premiums
	Written			Written			Written			Written
	(U.S. dollars in thousands)
Agriculture	$	565,830		$	392,521		$	404,369		$	313,276
Professional Lines		84,650			68,748			90,075			77,024
Casualty		102,060			69,570			89,634			58,565
Property		60,594			38,581			69,681			55,038
Healthcare Liability		38,591			36,521			42,758			40,554
Workers’ Compensation		(144	)		(139	)		(550	)		(529	)

Total	$	851,581		$	605,802		$	695,967		$	543,928

The decrease in the Insurance segment net premiums written for the three months ended June 30, 2011 and increase in net premiums written for the six months ended June 30, 2011 compared to the same periods in 2010 was driven by the following factors:

•

Declines in the property and professional lines in both the three and six month periods due to increased competition which led to either non-renewing business or a move to higher policy attachment points combined with reduced premium retentions; and

•

Growth in agriculture net premiums written of $79.2 million in the current six month period due to increased commodity prices for corn, cotton and soybeans offset by lower retentions as the Company increased its ceded premiums to the Federal Crop Insurance Corporation.

Net premiums earned by the Company in the Insurance segment increased in both the three and six month periods ended June 30, 2011 compared to the same periods in 2010. The increases were primarily due to the increase in net premiums written in the agriculture line in 2011 compared to 2010.

Losses and Loss Expenses.The increases in the net loss ratios in the Company’s Insurance segment for the three and six months ended June 30, 2011 compared to the same periods in 2010 reflected higher levels of current accident year losses in the agriculture line as a result of current drought conditions experienced in the Southwest United States and excess moisture in the Midwest United States in the spring. Higher current year losses also impacted the property line as a result of several small loss events related to storms and flooding. Offsetting these loss increases was a reduction in the current accident year loss ratio in the casualty line and higher favorable prior year loss reserve development recorded in the agriculture line in 2011. During the second quarter and first six months of 2011, the Company’s previously estimated loss and loss expense reserves for the Insurance segment for prior accident years were reduced by $23.2 million and $57.8 million, respectively, which decreased the net loss ratio by 9.3 and 14.0 percentage points, as compared to reductions of $8.1 million and $25.8 million, which decreased the net loss ratio by 3.6 and 6.9 percentage points, for the three and six months ended June 30, 2010. The agriculture, property, healthcare liability and professional lines of business all experienced net reductions in estimated losses for prior accident years in the six months ended June 30, 2011 as claims have not materialized or were settled for lower amounts than were originally estimated.

Acquisition Expenses.The Company’s acquisition expenses and acquisition expense ratios in the Insurance segment decreased during the second quarter and first six months of 2011 compared to 2010 as a result of a larger portion of the net premiums earned originating from the agriculture line, which has lower net acquisition costs than other lines of business in the Insurance segment.

General and Administrative Expenses.The increases in the general and administrative expense ratios in the Insurance segment for the second quarter and first six months of 2011 as compared to 2010 were due to higher personnel costs as the Company has been investing in several new insurance lines of business, which requires higher initial expenses compared to revenues. In addition there has been a reduction in third party commission and expense reimbursement offsets, primarily in the agriculture line.

Reinsurance

The following table summarizes the underwriting results and associated ratios for the Company’s Reinsurance business segment for the three and six months ended June 30, 2011 and 2010.


	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
	(U.S. dollars in thousands, except for ratios)
Revenues
Gross premiums written	$	277,174		$	257,942		$	651,701		$	612,470
Ceded premiums written		(8,922	)		(2,126	)		(16,873	)		(2,653	)

Net premiums written		268,252			255,816			634,828			609,817

Net premiums earned		237,181			228,537			457,522			448,050
Other underwriting income (loss)		1,088			(2,663	)		19			(2,366	)

		238,269			225,874			457,541			445,684

Expenses
Losses and loss expenses		170,574			122,174			473,591			268,687
Acquisition expenses		52,026			50,154			101,336			96,672
General and administrative expenses		29,659			28,530			58,814			57,374

		252,259			200,858			633,741			422,733

Underwriting (loss) income	$	(13,990	)	$	25,016		$	(176,200	)	$	22,951


Net loss ratio		71.9	%		53.5	%		103.5	%		59.9	%
Acquisition expense ratio		22.0	%		21.9	%		22.1	%		21.6	%
General and administrative expense ratio		12.5	%		12.5	%		12.9	%		12.8	%

Combined ratio		106.4	%		87.9	%		138.5	%		94.3	%

Premiums.In the second quarter of 2011, net premiums written in the Reinsurance segment increased by 4.9% over the same period of 2010. In the six months ended June 30, 2011 net premiums written in the Reinsurance segment increased by 4.1% over the same period in 2010. Gross and net premiums written for each line of business in the Reinsurance segment for the three and six months ended June 30, 2011 and 2010 were as follows:


	Three Months Ended June 30,
	2011				2010
	Gross		Net		Gross		Net
	Premiums		Premiums		Premiums		Premiums
	Written		Written		Written		Written
	(U.S. dollars in thousands)
Catastrophe	$	146,249	$	139,337	$	123,808	$	123,808
Casualty		45,619		45,617		56,919		56,831
Property		52,185		52,185		39,999		39,999
Aerospace and marine		26,743		24,726		24,131		22,101
Surety and other specialty		6,378		6,387		13,085		13,077

Total	$	277,174	$	268,252	$	257,942	$	255,816


	Six Months Ended June 30,
	2011				2010
	Gross		Net		Gross		Net
	Premiums		Premiums		Premiums		Premiums
	Written		Written		Written		Written
	(U.S. dollars in thousands)
Catastrophe	$	284,496	$	270,460	$	246,477	$	246,567
Casualty		161,971		161,171		164,893		164,094
Property		122,272		122,272		104,521		104,521
Aerospace and marine		47,581		45,565		42,197		40,132
Surety and other specialty		35,381		35,360		54,382		54,503

Total	$	651,701	$	634,828	$	612,470	$	609,817

Net premiums written in the Reinsurance segment for the three and six months ended June 30, 2011 were $268.3 million and $634.8 million compared to $255.8 million and $609.8 million during the same periods in 2010. The movements in net premiums written in the Reinsurance segment for the second quarter and six months ended June 30, 2011 compared to the same periods in 2010 were primarily due to the following factors:

•

Catastrophe premiums increased as a result of renewals at higher rates and new business recorded on international catastrophe programs. Part of this growth in new business was attributable to relationships established following the assumption of business from Glacier Reinsurance AG in a quota share and renewal rights transaction in the third quarter of 2010;

•

Growth in the property line of business from the Company’s international operations through new business and increased shares of renewals. In addition, a significant favorable premium adjustment contributed $13.2 million to net written premium in the second quarter of 2011; and

•

Declines in the casualty and surety and other lines as a result of non-renewed business.

Net premiums earned by the Company in the Reinsurance segment for the second quarter and first six months of 2011 increased compared to 2010 due to the growth in gross premiums written in more recent periods.

Losses and Loss Expenses.The net loss ratio in the Company’s Reinsurance segment for the three and six months ended June 30, 2011 increased compared to the same periods in 2010 as a result of catastrophe losses incurred in the period related to the Tohuko, Japan earthquake and tsunami, Christchurch, New Zealand earthquake, Queensland, Australia floods and United States tornadoes. The Company recorded losses, net of reinstatement premiums and other loss sensitive accruals, of $61.8 million and $250.8 million in relation to these events for the three and six months ended June 30, 2011. The net losses from the 2011 events added 27.1 and 55.8 percentage points to the Reinsurance segment’s net loss ratios for the second quarter and first six months of 2011. The Company’s Reinsurance segment results for the first six months of 2010 were impacted by net losses of $63.0 million in relation to the Chilean earthquake and Windstorm Xynthia that occurred in the first quarter. The Company recorded $21.6 million and $35.7 million of favorable prior year loss reserve development in the three and six months ended June 30, 2011 compared to $21.4 million and $42.3 million in the three and six months ended June 30, 2010. During the second quarter and first six months of 2011, the majority of the favorable loss reserve development emanated from the short tail catastrophe and surety and other specialty lines of business, as claims emergence in these lines was less than originally estimated by the Company.

Acquisition Expenses.The Company’s acquisition expense ratios in the Reinsurance segment for the three and six months ended June 30, 2011 were comparable to the same periods in 2010.

General and Administrative Expenses.The general and administrative expense ratios in the Reinsurance segment for the three and six months ended June 30, 2011 were consistent to those in the same periods in 2010.

Liquidity and Capital Resources

Endurance Holdings is a holding company that does not have any significant operations or assets other than its ownership of the shares of its direct and indirect subsidiaries. Endurance Holdings relies primarily on dividends and other permitted distributions from its insurance subsidiaries to pay its operating expenses, interest on debt and dividends, if any, on its ordinary shares, its 7.75% Non-Cumulative Preferred Shares, Series A (“Series A Preferred Shares”) and its 7.5% Non-Cumulative Preferred Shares, Series B (“Series B Preferred Shares”). There are restrictions on the payment of dividends by the Company’s insurance subsidiaries as described in more detail below.

Ability of Subsidiaries to Pay Dividends.The ability of Endurance Bermuda to pay dividends is dependent on its ability to meet the requirements of applicable Bermuda law and regulations. Under Bermuda law, Endurance Bermuda may not declare or pay a dividend if there are reasonable grounds for believing that Endurance Bermuda is, or would after the payment be, unable to pay its liabilities as they become due, or the realizable value of Endurance Bermuda’s assets would thereby be less than the aggregate of its liabilities and its issued share capital and share premium accounts. Further, Endurance Bermuda, as a regulated insurance company in Bermuda, is subject to additional regulatory restrictions on the payment of dividends or distributions. As of June 30, 2011, Endurance Bermuda could pay a dividend or return additional paid-in capital totaling approximately $571.8 million (December 31, 2010 — $640.4 million) without prior regulatory approval based upon the Bermuda insurance and corporate regulations.

Endurance U.S. Reinsurance, Endurance American, Endurance American Specialty and Endurance Risk Solutions are subject to regulation by the State of Delaware Department of Insurance and ARMtech is subject to regulation by the Texas Department of Insurance. Dividends for each U.S. operating subsidiary are limited to the greater of 10% of policyholders’ surplus or statutory net income, excluding realized capital gains. In addition, dividends may only be declared or distributed out of earned surplus. At December 31, 2010, Endurance U.S. Reinsurance, Endurance American, Endurance Risk Solutions and Endurance American Specialty did not have earned surplus; therefore, these companies are precluded from declaring or distributing dividends at June 30, 2011 without the prior approval of the applicable insurance regulator. At June 30, 2011, ARMtech (with notice to the Texas Department of Insurance) could pay dividends of $2.8 million without prior regulatory approval from the applicable regulators. In addition, any dividends paid by Endurance American, Endurance American Specialty and Endurance Risk Solutions would be subject to the dividend limitation of their respective parent insurance companies.

Under the jurisdiction of the United Kingdom’s Financial Services Authority (“FSA”), Endurance U.K. must maintain a margin of solvency at all times, which is determined based on the type and amount of insurance business written. The FSA regulatory requirements impose no explicit restrictions on Endurance U.K.’s ability to pay a dividend, but Endurance U.K. would have to notify the FSA 28 days prior to any proposed dividend payment. Dividends may only be distributed from profits available for distributions. At June 30, 2011, Endurance U.K. did not have profits available for distributions.

Cash and Invested Assets.The Company’s aggregate invested assets, including fixed maturity investments, short term investments, equity securities, other investments, cash and cash equivalents and pending securities transactions, as of June 30, 2011 totaled $6.4 billion compared to aggregate invested assets of $6.2 billion as of December 31, 2010. The increase in invested assets since December 31, 2010 resulted from collections of premiums on insurance policies and reinsurance contracts, the proceeds from our offering of $230.0 million of Series B Preferred Shares, as discussed below, and investment income, offset by losses and loss expenses paid, interest and dividends paid, acquisition expenses paid, reinsurance premiums paid, general and administrative expenses paid and repurchases of the Company’s ordinary shares.

As of June 30, 2011 and December 31, 2010, the Company had pledged cash and cash equivalents and fixed maturity investments of $128.3 million and $146.3 million, respectively, in favor of certain ceding companies to collateralize obligations. As of June 30, 2011 and December 31, 2010, the Company had also pledged $467.5 million and $500.9 million of its cash and fixed maturity investments to meet collateral obligations for $407.9 million and $439.3 million in letters of credit outstanding under its credit facility, respectively. In addition, at June 30, 2011 and December 31, 2010, cash and fixed maturity investments with fair values of $363.4 million and $369.1 million were on deposit with U.S. state regulators, respectively, and cash and fixed maturity investments with fair values of $11.1 million and $10.7 million were on deposit with Canadian regulators, respectively.

During the six month periods ended June 30, 2011 and 2010, the Company used its capital to repurchase its ordinary shares and share equivalents in open market and private transactions. On January 28, 2011, the Company repurchased 7,143,056 ordinary shares and options to purchase 10,000 ordinary shares from two affiliated funds of Perry Corp., a founding shareholder of the Company. The aggregate repurchase price for the shares and the options was $321.5 million. The repurchase price per ordinary share was $44.99 per share. The ordinary shares acquired by the Company represented approximately 15% of its ordinary shares outstanding at December 31, 2010. Endurance Holdings funded the repurchase of these shares primarily from calling an outstanding loan between Endurance Holdings and Endurance Bermuda. Endurance Bermuda funded the settlement of the loan from its existing cash and investments. The repurchase does not impact the dividend payment capacity of Endurance Bermuda for 2011.

Preferred Share Issuance. On June 1, 2011, Endurance Holdings issued 9,200,000 shares of its Series B Preferred Shares. The Series B Preferred Shares sold in the offering were registered under the Securities Act of 1933, as amended, and are traded on the New York Stock Exchange. The Series B Preferred Shares were issued at a price to the public of $25.00 per share. Endurance Holdings received net proceeds from this offering of $224.0 million after expenses and underwriting discounts. The proceeds from this offering were used to provide additional capital to Endurance Holdings’ subsidiaries and for other general corporate purposes.

The Series B Preferred Shares:

•

rank senior to junior shares with respect to the payment of dividends and distributions upon Endurance Holdings’ liquidation, dissolution or winding-up. Junior shares include Endurance Holdings’ ordinary shares and any other shares to be issued in the future, including class A shares and any other class of shares that rank junior to the Series B Preferred Shares (collectively “Junior Shares”) either as to the payment of dividends or as to the distribution of assets upon liquidation, dissolution or winding-up; and

•

rank at least equally with each other series of shares ranking on parity with the Series B Preferred Shares as to dividends and distributions upon Endurance Holdings’ liquidation or dissolution or winding up, which are referred to as parity shares. As of the date hereof, the Series A Preferred Shares are currently outstanding and rank on parity with the Series B Preferred Shares. Other than the Series A Preferred Shares, no other series of parity shares is outstanding.

•

no dividend shall be paid or declared on Junior Shares, other than a dividend payable solely in Junior Shares; and

•

For any dividend period in which dividends are not fully paid in full upon the Series B Preferred Shares, the Series A Preferred Shares and any other parity shares, all dividends declared for such dividend period with respect to the Series B Preferred Shares, the Series A Preferred Shares and any other parity shares shall be declared on a pro-rata basis.

Credit Facility.Under the Company’s amended and restated credit facility, the Company and its subsidiaries have access to a revolving line of credit of up to $1,175.0 million which expires May 8, 2012. As of June 30, 2011, there were no borrowings under this facility and letters of credit outstanding under the facility were $407.9 million.

Historically, the operating subsidiaries of the Company have generated sufficient cash flows to meet all of their obligations. Because of the inherent volatility of the business written by the Company, the seasonality in the timing of payments by ceding companies, the irregular timing of loss payments, the impact of a change in interest rates on the Company’s investment returns as well as seasonality in coupon payment dates for fixed maturity investments, cash flows from the Company’s operating activities may vary significantly between periods. The Company expects to continue to generate positive operating cash flows through 2011, absent the occurrence of additional significant catastrophic events. In the event that paid losses accelerate beyond the ability to fund such payments from operating cash flows, the Company would use its cash balances available, liquidate a portion of its investment portfolio, access its existing credit facility, or arrange for additional financing. However, there can be no assurance that the Company will be successful in executing these strategies.

Currency and Foreign Exchange

The Company’s functional currencies are U.S. dollars for its U.S. and Bermuda operations and British Sterling for its U.K. operations. The reporting currency for all operations is U.S. dollars. The Company maintains a portion of its investments and liabilities in currencies other than the U.S. dollar. The Company has made a significant investment in the capitalization of Endurance U.K, which is subject to the FSA’s rules concerning the matching of the currency of its assets to the currency of its liabilities. Depending on the profile of Endurance U.K.’s liabilities, it may be required to hold some of its assets in currencies corresponding to the currencies of its liabilities. The Company may, from time to time, experience gains or losses resulting from fluctuations in the values of foreign currencies, which could have a material adverse effect on the Company’s results of operations.

Assets and liabilities of foreign operations whose functional currency is not the U.S. dollar are translated at exchange rates in effect at the balance sheet date. Revenues and expenses of such foreign operations are translated at average exchange rates during the year. The effect of the translation adjustments for foreign operations is included in accumulated other comprehensive income (loss).

Other monetary assets and liabilities denominated in foreign currencies are revalued at the exchange rates in effect at the balance sheet date with the resulting foreign exchange gains and losses included in earnings. Revenues and expenses denominated in foreign currencies are translated at the prevailing exchange rate on the transaction date.

Effects of Inflation

The effects of inflation could cause the severity of claims to rise in the future. The Company’s estimates for losses and loss expenses include assumptions about future payments for settlement of claims and claims handling expenses, such as medical treatments and litigation costs. To the extent inflation causes these costs to increase above reserves established for these claims, the Company will be required to increase the reserve for losses and loss expenses with a corresponding reduction in its earnings in the period in which the deficiency is identified. In addition, inflation could lead to higher interest rates causing the current unrealized gain position on the Company’s fixed maturity portfolio to decrease or become an unrealized loss position. The current short duration of the Company’s fixed maturity portfolio has the potential to help reduce the negative effects of higher interest rates on the Company’s fixed maturity portfolio. The Company may also choose to hold its fixed income investments to maturity which would result in the unrealized gains largely amortizing through net investment income.

Cautionary Statement Regarding Forward-Looking Statements

Some of the statements contained herein, and certain statements that the Company may make in press releases or that Company officials may make orally, may include forward-looking statements which reflect the Company’s current views with respect to future events and financial performance. Such statements include forward-looking statements both with respect to us in general and the insurance and reinsurance sectors specifically, both as to underwriting and investment matters. Statements which include the words “expect,” “intend,” “plan,” “believe,” “project,” “anticipate,” “seek,” “will,” and similar statements of a future or forward-looking nature identify forward-looking statements for purposes of the federal securities laws or otherwise.

All forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause actual results to differ materially from those indicated in such statements. We believe that these factors include, but are not limited to, the following:

•

the effects of competitors’ pricing policies, and of changes in laws and regulations on competition, including those regarding contingent commissions, industry consolidation and development of competing financial products;

•

greater frequency or severity of claims and loss activity, including as a result of natural or man-made catastrophic events, than our underwriting, reserving or investment practices have anticipated;

	•		greater frequency or severity of loss activity, as a result of changing climate conditions;

	•		changes in market conditions in the agriculture industry, which may vary depending upon demand for agricultural products, weather, commodity prices, natural disasters, technological advances in agricultural practices, changes in U.S. and foreign legislation and policies related to agricultural products and producers;

	•		termination of or changes in the terms of the U.S. multiple peril crop insurance program and termination or changes to the U.S. farm bill, including modifications to the Standard Reinsurance Agreement put in place by the Risk Management Agency of the U.S. Department of Agriculture;

	•		decreased demand for property and casualty insurance or reinsurance or increased competition due to an increase in capacity of property and casualty insurers and reinsurers;

	•		changes in the availability, cost or quality of reinsurance or retrocessional coverage;

	•		the inability to renew business previously underwritten or acquired;

	•		the inability to obtain or maintain financial strength or claims-paying ratings by one or more of our subsidiaries;

	•		our ability to effectively integrate acquired operations and to continue to expand our business;

	•		uncertainties in our reserving process, including the potential for adverse development of our loss reserves or failure of our loss limitation methods;

	•		the ability of the counterparty institutions with which we conduct business to continue to meet their obligations to us;

	•		the failure or delay of the Florida Citizens Property Insurance Corporation, the Florida Hurricane Catastrophe Fund or private market participants in Florida to promptly pay claims, particularly following a large windstorm or of multiple smaller storms;

	•		our continued ability to comply with applicable financial standards and restrictive covenants, the breach of which could trigger significant collateral or prepayment obligations;

	•		Endurance Holdings or Endurance Bermuda becomes subject to income taxes in jurisdictions outside of Bermuda;

	•		changes in tax regulations or laws applicable to us, our subsidiaries, brokers or customers;

	•		state, federal and foreign regulations that impede our ability to charge adequate rates and efficiently allocate capital;

	•		changes in insurance regulations in the U.S. or other jurisdictions in which we operate, including the implementation of Solvency II by the European Commission and the establishment of the Federal Insurance Office and other regulatory changes mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 in the United States;

	•		reduced acceptance of our existing or new products and services;

	•		loss of business provided by any one of a few brokers on whom we depend for a large portion of our revenue, and our exposure to the credit risk of our brokers;

	•		assessments by states for high risk or otherwise uninsured individuals;

	•		the impact of acts of terrorism and acts of war;

	•		the effects of terrorist related insurance legislation and laws;

	•		loss of key personnel;

	•		political stability of Bermuda;

	•		changes in the political environment of certain countries in which we operate or underwrite business;

	•		changes in accounting regulation, policies or practices;

	•		our investment performance;

	•		the valuation of our invested assets and the determination of impairments of those assets, if any;

	•		the possible downgrade of U.S. government securities by credit rating agencies, and the resulting effect on the value of U.S. government and other securities in our investment portfolio as well as the uncertainty in the market generally;

	•		the breach of our investment guidelines or the inability of those guidelines to mitigate investment risk;

	•		the need for additional capital in the future which may not be available or only available on unfavorable terms;

	•		actions by our competitors, many of which are larger or have greater financial resources than we do;

	•		the ability to maintain the availability of our systems and safeguard the security of our data in the event of a disaster or other unanticipated event; and

	•		changes in general economic conditions, including inflation, foreign currency exchange rates, interest rates, and other factors.

The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in our 2010 Annual Report on Form 10-K, including the risk factors set forth in Item 1A thereof and hereof. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.


Item 3.		Quantitative and Qualitative Disclosures About Market Risk

Equity Price Risk.The Company invests a portion of its investment portfolio in marketable equity securities (fair market value of $32.3 million) at June 30, 2011. These equity investments are exposed to equity price risk, defined as the potential that the Company incurs an economic loss due to a decline of common stock prices. Beta analysis is used to measure the sensitivity of our equity portfolio to changes in the value of the S&P 500 Index (an index representative of the broad equity market). Our current equity portfolio has a beta of 0.69 in comparison to the S&P 500 Index.

In addition to beta analysis, a sensitivity analysis can be used to assess equity price risk under varying conditions. The base sensitivity analysis below uses market scenarios of the S&P 500 Index declining both 10 percent and 20 percent to determine the impact of such a decline on the value of the Company’s equity securities. These scenarios would result in approximate decreases in the fair market value of the Company’s equity securities of $2.2 million and $4.5 million, respectively. As we designate all equities as available-for-sale, these fair value declines would impact the Company’s Consolidated Balance Sheet.


	20%			%			10%			%			June 30,		10%		%			20%		%
	decrease			change			decrease			change			2011		increase		change			increase		change
	(U.S. dollars in thousands)
Equities	$	(4,471	)		(13.83)	%	$	(2,236	)		(6.92)	%	$	32,322	$	2,236		6.92	%	$	4,471		13.83	%
Total invested assets⁽¹⁾	$	(4,471	)		(0.07)	%	$	(2,236	)		(0.04)	%	$	6,367,240	$	2,236		0.04	%	$	4,471		0.07	%
Shareholders’ equity	$	(4,471	)		(0.17)	%	$	(2,236	)		(0.08)	%	$	2,670,276	$	2,236		0.08	%	$	4,471		0.17	%


(1)		Includes total investments and cash and cash equivalents net of investments pending settlement.

The changes described above do not take into account any potential mitigating impact from the Company’s fixed income or alternative investment portfolios or the impact of taxes.

Derivative Counterparty Credit Risk. In addition to the Company’s exposure to credit risk as a holder of fixed maturity investments, short-term investments, equity securities and alternative funds and high yield loan funds, and the Company’s exposure to credit risk as relates to reinsurance and retrocessional recoverables, the Company also has credit risk exposure as a party to derivative financial instruments. In order to mitigate the risks associated with derivatives, the Company diversifies its counterparty credit risk, ensures that the counterparties to its derivative contracts are credit worthy and monitors on a regular basis its exposure by counterparty in order to mitigate the counterparty credit risks associated with its derivative contracts. In addition, counterparty risk is mitigated by the periodic receipt on payment of margin. At June 30, 2011, the Company’s absolute notional value of derivative contracts was $348.3 million, while the net unrealized loss position of those derivative contracts was $0.1 million.

Derivative Interest Rate Risk. The Company uses interest rate futures and swaps within our portfolio of fixed maturity investments to manage our exposure to interest rate risk, which can include increasing or decreasing our exposure to this risk. At June 30, 2011, we had $300.0 million of notional long positions and $10.0 million of notional short positions of Eurodollar futures contracts and interest rate swaps. We account for these derivatives at fair value and record them in our consolidated balance sheet as other assets or other liabilities depending on the rights or obligations. The fair value of these derivatives as recognized in other assets and liabilities in our consolidated balance sheet at June 30, 2011, was $ (0.2) million.

The aggregate hypothetical loss generated from an immediate upward parallel shift in the treasury yield curve of 100 basis points would cause a decrease in market value of our net position in these derivatives of approximately $0.2 million at June 30, 2011. Credit spreads are assumed to remain constant in these hypothetical examples.

Other than set forth above, there have been no material changes in market risk from the information provided under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Quantitative and Qualitative Information about Market Risk” included in the Company’s 2010 Annual Report on Form 10-K.


Item 4.		Controls and Procedures

a) Disclosure Controls and Procedures. The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.

(b) Internal Control Over Financial Reporting. There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the Company’s second fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II
OTHER INFORMATION


Item 1.		Legal Proceedings

We are party to various legal proceedings generally arising in the normal course of our business. While any proceeding contains an element of uncertainty, we do not believe that the eventual outcome of any litigation or arbitration proceeding to which we are presently a party could have a material adverse effect on our financial condition or business. Pursuant to our insurance and reinsurance agreements, disputes are generally required to be finally settled by arbitration.


Item 1A.		Risk Factors

Before investing in any of our securities, you should carefully consider the risk factors and all other information set forth in our 2010 Annual Report onForm 10-K, as supplemented by the following risk factors and other information in this onForm 10-Q. These risks could materially affect our business, results of operations or financial condition and cause the trading price of our securities to decline.You could lose all or part of your investment.The headings used in this section are solely to aid the reader as to general categories of risks related to investing in the Company. The risk factors listed may apply to more than one category or to the Company generally. Accordingly, the headings used in this section should not be construed as limiting in any manner the general applicability of any of the risk factors included in this section

We are exposed to equity market and derivative financial instrument risks, which may adversely affect our results of operations, financial condition or liquidity.

We are exposed to risks associated with our investments in equity securities and investments in derivative financial instruments, which are subject to significant financial and capital markets risk, including changes in interest rates, credit spreads, equity prices, real estate markets, foreign currency exchange rates, market volatility, the performance of the economy in general, the performance of the specific securities included in our investment portfolio and other factors outside our control.

Our exposure to equity price risk relates primarily to equity market price variability. Although we take measures to manage the economic risks of investing in a changing equity market, we may not be able to adequately mitigate the equity risk of our assets relative to our liabilities, which could have an adverse effect on our results of operations, financial condition or liquidity.

Losses due to defaults by our derivative counterparties could adversely affect the value of our investments, results of operations, financial condition or cash flows.

Derivative counterparties may default on the amounts they owe to us due to bankruptcy, insolvency, lack of liquidity, adverse economic conditions, operational failure, fraud or other reasons. The occurrence of a major economic downturn, acts of corporate malfeasance, widening risk spreads or other events that adversely impact our derivative counterparties or the collateral supporting our derivative instruments could cause our net income to decline and have a material adverse effect on our financial condition.

Our failure to comply with the financial strength standards governing our derivative instruments could obligate us to post collateral or settle our outstanding derivative instruments.

Certain of the Company’s derivative agreements contain provisions that are tied to the financial strength ratings of the individual legal entity that entered into the derivative agreement as set by nationally recognized statistical rating agencies. If the legal entity’s financial strength were to fall below certain ratings, the counterparties to the derivative agreements could demand immediate and ongoing full collateralization and in certain instances demand immediate settlement of all outstanding derivative positions traded under each impacted bilateral agreement. The settlement amount is determined by netting the derivative positions transacted under each agreement. If the termination rights were to be exercised by the counterparties, it could have a material adverse effect on the Company’s liquidity, financial condition, results of operations and ability to conduct hedging activities by increasing the associated costs and decreasing the willingness of counterparties to transact with the legal entity.

The downgrade of U.S. government securities by credit rating agencies could adversely impact the value of the U.S. government and other securities in our investment portfolio and create uncertainty in the market generally.

The downgrade of the U.S. government securities from AAA to AA+ or AA by credit rating agencies has the potential to adversely impact the value of the U.S. government and other securities in our investment portfolio. A downgrade in the rating of U.S. government securities may cause the Company’s investment portfolio’s average credit rating to fall and may result in the Company no longer being in compliance with its current Investment Policy at its current level of U.S. government security holdings. In addition to the foregoing, a downgrade in the rating of U.S. government securities may have an adverse impact on fixed income markets, which in turn could cause our net income to decline or have a material adverse effect on our financial condition.

Other than set forth above, there have been no material changes to the risk factors disclosed in Item 1A. Risk Factors in our 2010 Annual Report on Form 10-K.


Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds

ISSUER PURCHASES OF EQUITY SECURITIES


							(d) Maximum Number
					(c) Total Number		(or Approximate Dollar
					of Shares		Value) of Shares
	(a) Total		(b) Average		Purchased as Part of		that May Yet Be
	Number of		Price Paid		Publicly Announced		Purchased Under the
Period	Shares Purchased⁽¹⁾		per Share		Plans or Programs^{(1) (2)}		Plans or Programs^{(1) (2)}
April 1, 2011 – April 30, 2011		—	$	—		—		2,458,354
May 1, 2011 – May 31, 2011		—	$	—		—		2,458,354
June 1, 2011 – June 30, 2011		—	$	—		—		2,458,354

Total		—	$	—		—		2,458,354


(1)		Ordinary shares or share equivalents.

(2)		At its meeting on August 12, 2010, the Board of Directors of the Company authorized the repurchase of up to a total of 7,000,000 ordinary shares and share equivalents through November 9, 2011, superceding all previous authorizations.


Item 3.		Defaults Upon Senior Securities

None


Item 4.		(Removed and Reserved)

Not applicable


Item 5.		Other Information

None


Item 6.		Exhibits

(a)

The following sets forth those exhibits filed pursuant to Item 601 of Regulation S-K:


Exhibit
Number		Description

	31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act.

	31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act.

	32	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	101	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Balance Sheets as at June 30, 2011 (unaudited) and December 31, 2010; (ii) the Unaudited Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income for the three and six months ended June 30, 2011 and 2010; (iii) the Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity for the six months ended June 30, 2011 and 2010; (iv) the Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010; and (v) the Notes to the Unaudited Condensed Consolidated Financial Statements for the three and six months ended June 30, 2011 and 2010.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	ENDURANCE SPECIALTY HOLDINGS LTD.
Date: August 9, 2011	By:	/s/ David Cash
		David Cash
		Chief Executive Officer

Date: August 9, 2011	By:	/s/ Michael J. McGuire
		Michael J. McGuire
		Chief Financial Officer (Principal Financial Officer)

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Endurance Specialty (ENH) Inactive 10-Q2011 Q2 Quarterly report

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