Endurance Specialty (ENH) 10-K 2004 FY Annual report

Exhibit 13.1

MANAGEMENT REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING

To the Shareholders of Endurance Specialty Holdings Ltd.

The management of Endurance Specialty Holdings Ltd. (the "Company") is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended). This internal control provides monitoring mechanisms, and actions are taken to correct deficiencies identified.

There are inherent limitations in any internal control over financial reporting, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even effective internal controls can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, controls may become inadequate or the degree of compliance with policies or procedures may deteriorate over time.

Management assessed the Company's internal control over financial reporting as of December 31, 2004. In making this assessment, management used the criteria set forth in "Internal Control – Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that, as of December 31, 2004, the Company maintained effective internal control over financial reporting.

Ernst & Young, an independent registered public accounting firm, has issued their attestation report on management's assessment of the Company's internal control over financial reporting.

/s/ Kenneth J. LeStrange
Kenneth J. LeStrange, CEO
/s/ James R. Kroner
James R. Kroner, CFO
February 16, 2005

REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

THE BOARD OF DIRECTORS AND SHAREHOLDERS

ENDURANCE SPECIALTY HOLDINGS LTD.

We have audited management's assessment, included in the accompanying Management Report on Effectiveness of Internal Control over Financial Reporting, that Endurance Specialty Holdings Ltd. maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Endurance Specialty Holdings Ltd.'s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Cont'd......

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management's assessment that Endurance Specialty Holdings Ltd. maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Endurance Specialty Holdings Ltd. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Endurance Specialty Holdings Ltd. as of December 31, 2004 and 2003, and the related consolidated statements of income and comprehensive income, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2004 of Endurance Specialty Holdings Ltd. and our report dated February 16, 2005 expressed an unqualified opinion thereon.

/s/ Ernst & Young
Hamilton, Bermuda
February 16, 2005

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Auditors					F-2
Consolidated Balance Sheets at December 31, 2004 and 2003					F-3
Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2004, 2003 and 2002					F-4
Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2004, 2003 and 2002					F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002					F-6
Notes to the Consolidated Financial Statements for the years ended December 31, 2004, 2003 and 2002					F-7

F-1

REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS

ENDURANCE SPECIALTY HOLDINGS LTD. AND SUBSIDIARIES

We have audited the accompanying consolidated balance sheets of Endurance Specialty Holdings Ltd. and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of income and comprehensive income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Endurance Specialty Holdings Ltd. and subsidiaries at December 31, 2004 and 2003, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Endurance Specialty Holdings Ltd.'s internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 16, 2005 expressed an unqualified opinion thereon.

/s/ Ernst & Young
Hamilton, Bermuda
February 16, 2005

F-2

ENDURANCE SPECIALTY HOLDINGS LTD.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2004 AND 2003
(In thousands of United States dollars, except share amounts)

				2004				2003
ASSETS
Cash and cash equivalents				$	271,143			$	150,923
Fixed maturity investments available for sale, at fair value (amortized cost: $3,570,487 and $2,497,152 at December 31, 2004 and 2003, respectively)					3,578,174				2,523,309
Investment in other ventures, under equity method					91,036				—
Premiums receivable, net (includes $9,439 and $nil from related parties at December 31, 2004 and 2003, respectively)					545,352				518,539
Deferred acquisition costs					195,419				183,387
Securities lending collateral					407,527				—
Prepaid reinsurance premiums					5,248				2,335
Losses recoverable					12,203				1,442
Accrued investment income					28,378				20,434
Intangible assets					47,107				32,407
Other assets					44,251				26,188
Total assets				$	5,225,838			$	3,458,964
LIABILITIES
Reserve for losses and loss expenses				$	1,549,661			$	833,158
Reserve for unearned premiums					897,605				824,685
Reinsurance balances payable					70,507				23,977
Securities lending payable					407,527				—
Debt					391,280				103,029
Other liabilities					46,803				29,300
Total liabilities					3,363,383				1,814,149
SHAREHOLDERS' EQUITY
Common shares
Ordinary – 61,254,992 issued and outstanding (2003 – 63,912,000)					61,255				63,912
Additional paid-in capital					1,111,633				1,189,570
Accumulated other comprehensive income					39,473				46,068
Retained earnings					650,094				345,265
Total shareholders' equity					1,862,455				1,644,815
Total liabilities and shareholders' equity				$	5,225,838			$	3,458,964

See accompanying notes to the consolidated financial statements.

F-3

ENDURANCE SPECIALTY HOLDINGS LTD.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(In thousands of United States dollars, except share amounts)

				2004				2003				2002
Revenues
Gross premiums written and acquired				$	1,711,357			$	1,601,997			$	798,760
Net premiums written and acquired				$	1,697,020			$	1,597,844			$	764,918
Change in unearned premiums					(64,420	)			(423,897	)			(395,429	)
Net premiums earned (includes $11,343, $308 and $30,690 from related parties in 2004, 2003 and 2002, respectively)					1,632,600				1,173,947				369,489
Net investment income					122,059				71,010				42,938
Net foreign exchange (losses) gains					(214	)			9,883				2,312
Net realized gains on sales of investments					6,130				5,718				6,730
Total revenues					1,760,575				1,260,558				421,469
Expenses
Losses and loss expenses (includes $9,439, $215 and $17,485 from related parties in 2004, 2003 and 2002, respectively)					937,330				663,696				204,455
Acquisition expenses (includes $1,212, $nil and $6,998 from related parties in 2004, 2003 and 2002, respectively)					329,784				230,549				64,013
General and administrative expenses					133,725				100,657				49,999
Amortization of intangibles					3,990				3,237				809
Interest expense					9,959				4,238				984
Total expenses					1,414,788				1,002,377				320,260
Income before income taxes					345,787				258,181				101,209
Income tax benefit					9,797				5,256				857
Net income					355,584				263,437				102,066
Other comprehensive (loss) income
Holding gains (losses) on investments arising during the period (net of applicable deferred income taxes in 2004 — $184; 2003 — $1,256; and 2002 — $1,337)					(12,173	)			(15,097	)			53,775
Foreign currency translation adjustments					13,480				17,060				3,662
Net loss on derivatives designated as cash flow hedge					(1,772	)			(884	)			—
Reclassification adjustment for net realized gains included in net income					(6,130	)			(5,718	)			(6,730	)
Other comprehensive (loss) income					(6,595	)			(4,639	)			50,707
Comprehensive income				$	348,989			$	258,798			$	152,773
Per share data
Weighted average number of common and common equivalent shares outstanding:
Basic					62,781,306				62,932,775				58,698,630
Diluted					67,283,261				65,899,925				58,857,664
Basic earnings per share				$	5.66			$	4.19			$	1.74
Diluted earnings per share				$	5.28			$	4.00			$	1.73

See accompanying notes to the consolidated financial statements.

F-4

ENDURANCE SPECIALTY HOLDINGS LTD.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(In thousands of United States dollars)

				2004				2003				2002
Common shares
Balance, beginning of year				$	63,912			$	55,000			$	60,000
Issuance of common shares					187				9,662				—
Repurchase of common shares					(2,844	)			(750	)			(5,000	)
Balance, end of year					61,255				63,912				55,000
Additional paid-in capital
Balance, beginning of year					1,189,570				1,009,415				1,102,000
Issuance of common shares					2,634				197,110				—
Issuance of restricted share units					8,886				3,109				—
Public offering and registration costs					(1,649	)			(3,820	)			—
Repurchase of common shares					(88,819	)			(19,545	)			(95,000	)
Settlement of restricted share units					(1,625	)			—				—
Stock-based compensation expense					2,636				3,301				2,415
Balance, end of year					1,111,633				1,189,570				1,009,415
Accumulated other comprehensive income
Cumulative foreign currency translation adjustments:
Balance, beginning of year					20,722				3,662				—
Foreign currency translation adjustments					13,480				17,060				3,662
Balance, end of year					34,202				20,722				3,662
Unrealized holding gains on investments:
Balance, beginning of year					26,230				47,045				—
Net unrealized holding gains (losses) arising during the period, net of reclassification adjustment					(18,303	)			(20,815	)			47,045
Balance, end of year					7,927				26,230				47,045
Accumulated derivative loss on cash flow hedging instruments:
Balance, beginning of year					(884	)			—				—
Net change from current period hedging transactions					(2,620	)			(1,952	)			—
Net derivative loss reclassified to earnings					848				1,068				—
Balance, end of year					(2,656	)			(884	)			—
Total accumulated other comprehensive income					39,473				46,068				50,707
Retained earnings
Balance, beginning of year					345,265				102,378				312
Net income					355,584				263,437				102,066
Issuance of restricted share units in lieu of dividends					(409	)			(45	)			—
Dividends on common shares					(50,346	)			(20,505	)			—
Balance, end of year					650,094				345,265				102,378
Total shareholders' equity				$	1,862,455			$	1,644,815			$	1,217,500

See accompanying notes to the consolidated financial statements.

F-5

ENDURANCE SPECIALTY HOLDINGS LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(In thousands of United States dollars)

				2004				2003				2002
Cash flows provided by operating activities:
Net income				$	355,584			$	263,437			$	102,066
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization					37,206				35,758				11,903
Net realized gains on sales of investments					(6,130	)			(5,718	)			(6,730	)
Deferred taxes					(9,842	)			(6,634	)			344
Stock-based compensation expense					6,979				3,301				2,415
Equity in earnings of unconsolidated ventures					(6,036	)			—				—
Premiums receivable, net					(26,813	)			65,718				(175,477	)
Deferred acquisition costs					(12,032	)			(15,558	)			(70,107	)
Prepaid reinsurance premiums					(2,913	)			5,166				13,989
Losses recoverable					(10,761	)			(1,442	)			—
Accrued investment income					(7,944	)			(9,225	)			(11,209	)
Other assets					(3,836	)			4,678				(6,915	)
Reserve for losses and loss expenses					716,503				580,673				200,840
Reserve for unearned premiums					72,920				6,863				314,372
Reinsurance balances payable					46,530				7,534				(18,778	)
Other liabilities					9,211				8,686				21,964
Net cash provided by operating activities					1,158,626				943,237				378,677
Cash flows used in investing activities:
Proceeds from sales of fixed maturity investments					1,177,505				1,176,968				346,842
Proceeds from maturities and calls on fixed maturity investments					492,291				322,218				—
Purchases of fixed maturity investments					(2,743,037	)			(2,651,110	)			(1,707,031	)
Purchase of investments in other ventures, under equity method					(85,000	)			—				—
Purchases of fixed assets					(8,530	)			(16,767	)			(4,436	)
Net cash (paid) acquired in HartRe acquisition					(6,919	)			45,638				—
Purchase of net assets — LaSalle acquisition					—				(1,532	)			(11,640	)
Net cash used in investing activities					(1,173,690	)			(1,124,585	)			(1,376,265	)
Cash flows provided by financing activities:
Issuance of common shares					2,821				206,582				—
Repurchase of common shares					(91,484	)			(20,295	)			(100,000	)
Issuance of long term debt					247,775				—				—
Settlement of restricted share units					(1,625	)			—				—
Offering and registration costs paid					(4,152	)			(3,820	)			(1,864	)
Proceeds from bank debt					143,500				—				192,000
Bank debt repaid					(103,029	)			(88,971	)			—
Interest rate lock settlement					(2,698	)			—				—
Dividends paid					(50,346	)			(20,505	)			—
Net cash provided by financing activities					140,762				72,991				90,136
Effect of exchange rate changes on cash and cash equivalents					(5,478	)			2,440				1,794
Net increase (decrease) in cash and cash equivalents					120,220				(105,917	)			(905,658	)
Cash and cash equivalents, beginning of year					150,923				256,840				1,162,498
Cash and cash equivalents, end of year				$	271,143			$	150,923			$	256,840

Seee accompanying notes to the consolidated financial statements.

F-6

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

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

1.    Organization

Endurance Specialty Holdings Ltd. ("Endurance Holdings") was organized on June 27, 2002 under the laws of Bermuda to act as a holding company of providers of property and casualty insurance and reinsurance on a worldwide basis.

Endurance Holdings' wholly-owned subsidiary, Endurance Specialty Insurance Ltd. ("Endurance Bermuda"), was organized in Bermuda on November 30, 2001. On December 14, 2001, Endurance Bermuda completed a private offering of 60 million common shares for gross cash proceeds of $1.2 billion. Under the terms of an Exchange Offer dated July 22, 2002, the shareholders of Endurance Bermuda transferred their interest in Endurance Bermuda to Endurance Holdings in exchange for an identical shareholding in Endurance Holdings. The Exchange Offer represented a business combination of companies under common control and was accounted for at historical cost. On March 5, 2003, the Company consummated the initial public offering of its ordinary shares resulting in the issuance of an additional 9.6 million ordinary shares for net proceeds of $201.5 million.

Endurance Holdings writes specialty lines of insurance and reinsurance on a global basis through its three wholly-owned operating subsidiaries: Endurance Bermuda, based in Bermuda; Endurance Worldwide Insurance Limited ("Endurance U.K."), based in London, England; and Endurance Reinsurance Corporation of America ("Endurance U.S."), based in New York.

2.    Summary of significant accounting policies

The consolidated financial statements have been prepared on the basis of accounting principles generally accepted in the United States ("U.S. GAAP") and include the accounts of Endurance Holdings and its wholly-owned subsidiaries, which are collectively referred to herein as the "Company". All intercompany transactions and balances have been eliminated on consolidation. Certain comparative information has been reclassified to conform with the 2004 presentation. The following are the significant accounting and reporting policies adopted by the Company:

(a)	Premiums and related expenses.

Premiums written and ceded are earned on a pro-rata basis over the terms of the risk period. For contracts and policies written on a losses occurring basis, the risk period is generally the same as the contract or policy term. For contracts written on a policies attaching basis, the risk period is based on the terms of the underlying contracts and policies. Premiums written and ceded include estimates based on information received from brokers, ceding companies and insureds, and any subsequent differences arising on such estimates are recorded in the periods in which they are determined. The portion of the premiums written and ceded applicable to the unexpired terms of the underlying contracts and policies are recorded as unearned premiums and prepaid reinsurance premiums, respectively. Acquisition expenses are costs that vary with and are directly related to the production of new and renewal business, and consist principally of commissions and brokerage expenses. These costs are deferred and amortized over the periods in which the related premiums are earned. Deferred acquisition costs are limited to their estimated realizable value based on the related unearned premiums. Anticipated net investment income is considered in determining the recoverability of deferred acquisition costs.

A portion of the Company's assumed quota share reinsurance agreements contain loss sensitive provisions, such as adjustable or sliding scale commissions, that may impact the ultimate amounts paid to or received from ceding companies based on loss experience. In some loss scenarios, these features would result in the ceding company's results not being proportional to

F-7

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

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

2.    Summary of significant accounting policies,   cont'd.

the Company's results from the quota share agreement, and such differences may be meaningful. The Company has recorded these agreements as reinsurance in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts". For the year ended December 31, 2004, the Company recorded written and earned premiums of $73.0 million and $52.7 million, respectively, associated with reinsurance agreements containing sliding scale commissions that, in some loss scenarios, could result in meaningful differences between the ceding company's results and the Company's results. For the year ended December 31, 2003, the Company recorded written and earned premiums of $22.6 million and $6.0 million, respectively, associated with such reinsurance agreements.

(b)	Reserve for losses and loss expenses.

The reserve for losses and loss expenses includes reserves for unpaid reported losses and for losses incurred but not reported. The reserve for unpaid reported losses and loss expenses is established by management based on reports from brokers, ceding companies and insureds and consultations with legal counsel, and represents the estimated ultimate cost of events or conditions that have been reported to or specifically identified by the Company. The reserve for incurred but not reported losses and loss expenses is established by management based on estimates of ultimate losses and loss expenses. Inherent in the estimates of ultimate losses and loss expenses are expected trends in claim severity and frequency and other factors which may vary significantly as claims are settled. Accordingly, ultimate losses and loss expenses may differ materially from the amounts recorded in the consolidated financial statements. These estimates are reviewed regularly and, as experience develops and new information becomes known, the reserves are adjusted as necessary. Such adjustments, if any, are recorded in earnings in the period in which they become known.

(c)	Reinsurance.

Losses recoverable represent estimates of losses and loss expenses that will be recovered from reinsurers. Amounts recoverable from reinsurers are estimated in a manner consistent with the provisions of the reinsurance agreements and consistent with the establishment of the Company's reserves for losses and loss expenses.

(d)	Investments.

Investments in fixed maturity securities are designated as available for sale and are carried at 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. Fair value is generally based on listed market prices. If listed market prices are not available, fair value is determined based on other relevant factors, including broker or dealer price quotations and valuation pricing models that take into account time value and volatility factors underlying the financial instruments. Realized gains and losses on the sale of investments are recognized in earnings using the specific identification method. Interest on fixed maturity securities is recorded in net investment income when earned and adjusted for any amortization of premium or discount.

Investments are reviewed for declines in value that are considered to be other-than-temporary, and if applicable, such adjustments are included in earnings as a component of realized losses. This review involves consideration of several factors including (i) the time period in which there

F-8

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

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

2.    Summary of significant accounting policies,   cont'd.

has been a significant decline in value, (ii) the significance of the decline (iii) an analysis of the liquidity, business prospects and overall financial condition of the issuer, and (iv) the Company's intent and ability to hold the investment for a period of time sufficient for the value to recover. Generally, a change in the market or interest rate environment does not constitute an impairment of an investment but rather a temporary decline.

Investments in other ventures are accounted for using the equity method of accounting whereby the initial investment is recorded at cost. The carrying amounts of these investments are increased or decreased to reflect the Company's share of income or loss and are decreased for any dividends received. The Company's share of income or loss is recorded in earnings as a component of net investment income.

The Company participates in a securities lending program whereby blocks of securities, which are included in fixed maturity investments available for sale, are loaned to third parties, primarily major brokerage firms. The Company retains all economic interest in the securities it lends, retains the earnings and cash flows associated with the loaned securities and receives a fee from the borrower for the temporary use of the securities. Collateral in the form of cash, government securities and letters of credit is required at a rate of 102% - 105% of the market value of the loaned securities and is monitored and maintained by the lending agent. The securities lending collateral, excluding letters of credit, is reported as a separate line item with a corresponding liability related to the Company's obligation to return the collateral. The Company had $400.0 million in securities on loan at December 31, 2004.

(e)	Cash equivalents.

Cash equivalents include highly liquid short-term deposits and securities with maturities of ninety days or less at the time of purchase.

(f)	Intangible assets.

Identifiable intangible assets and goodwill that arise from business combinations are accounted for in accordance with SFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets". Identifiable intangible assets are amortized in accordance with their useful lives. Goodwill and intangible assets with indefinite useful lives are not amortized but are tested for impairment annually or more often if impairment indicators arise.

(g)	Offering and registration costs.

Offering and registration costs incurred in connection with common share offerings, including investment banking fees and legal fees, are deducted from the proceeds of the offerings.

(h)	Foreign exchange.

Assets and liabilities of foreign operations whose functional currency is not the United States 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. 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.

F-9

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

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

2.    Summary of significant accounting policies,   cont'd.

(i)	Income taxes.

The Company utilizes the liability method of accounting for income taxes. Under this method, deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance against deferred tax assets is established if and when management estimates that a portion of the deferred tax asset may not be realized in the near term.

(j)	Stock-based employee compensation plans.

The Company has a stock-based employee compensation plan (the "Option Plan"), which is described more fully in Note 13. Prior to 2002, the Company accounted for the Option Plan under the recognition and measurement provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations. Effective January 1, 2002, the Company adopted the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation", prospectively to all employee awards granted, modified, or settled after January 1, 2002. Awards under the Option Plan vest over periods of up to five years. Therefore, the cost related to stock-based employee compensation included in the determination of net income for 2003 and 2002 is less than that which would have been recognized if the fair value based method had been applied to all awards granted. The cost related to stock-based employee compensation included in the determination of net income for 2004 reflects the full fair value based method applied to all grants.

The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding and unvested awards in 2003 and 2002.

				2003				2002
Net income, as reported				$	263,437			$	102,066
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects					3,301				2,415
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects					(6,019	)			(4,317	)
Pro forma net income				$	260,719			$	100,164
Earnings per share:
Basic — as reported				$	4.19			$	1.74
Basic — pro forma				$	4.14			$	1.71
Diluted — as reported				$	4.00			$	1.73
Diluted — pro forma				$	3.96			$	1.70

F-10

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

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

2.    Summary of significant accounting policies,   cont'd.

(k)	Earnings per share.

Basic earnings per common share are calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per common share are based on the weighted average number of common shares and dilutive potential common shares outstanding during the period of calculation using the treasury stock method.

(l)	Use of estimates.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported and disclosed amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(m)	New accounting pronouncement.

On December 16, 2004, the Financial Accounting Standards Board issued SFAS No. 123 (Revised 2004), "Share-Based Payment", which is a revision of SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS 123(R) supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees", and amends SFAS No. 95, "Statement of Cash Flows". Generally, the approach in SFAS 123(R) is similar to the approach described in SFAS 123. However, SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. SFAS 123(R) must be adopted no later than July 1, 2005. Early adoption will be permitted in periods in which financial statements have not yet been issued. The Company expects to adopt SFAS 123(R) on July 1, 2005.

The Company adopted the fair-value-based method of accounting for share-based payments effective January 1, 2003 using the prospective method described in SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure". Currently, the company uses the Black-Scholes-Merton formula to estimate the value of stock options granted to employees and expects to continue to use this acceptable option valuation model upon the required adoption of SFAS 123(R) on July 1, 2005. Had we adopted SFAS 123(R) in prior periods, the impact of that standard would have approximated the impact of SFAS 123 as described in the disclosure of pro forma net income and earnings per share in section (j) of this note.

F-11

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

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

3.    Investments

The amortized cost, fair value and related gross unrealized gains and losses on fixed maturity investments at December 31, 2004 and 2003 are as follows:

DECEMBER 31, 2004				Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
U.S. government and agency securities				$	1,188,907			$	3,949			$	(3,993	)		$	1,188,863
Non U.S. government securities					408,557				3,136				(2,178	)			409,515
Corporate securities					622,474				9,999				(2,862	)			629,611
Mortgage-backed securities					929,015				5,354				(4,117	)			930,252
Asset-backed securities					421,534				783				(2,384	)			419,933
				$	3,570,487			$	23,221			$	(15,534	)		$	3,578,174

DECEMBER 31, 2003				Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
U.S. government and agency securities				$	862,945			$	8,969			$	(2,029	)		$	869,885
Non U.S. government securities					216,469				2,231				(2,477	)			216,223
Corporate securities					344,575				12,304				(1,732	)			355,147
Mortgage-backed securities					764,457				8,497				(2,687	)			770,267
Asset-backed securities					308,706				3,875				(794	)			311,787
				$	2,497,152			$	35,876			$	(9,719	)		$	2,523,309

The following table summarizes, for all fixed maturity investments in an unrealized loss position at December 31, 2004, 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 Losses				Fair Value				Unrealized Losses				Fair Value				Unrealized Losses				Fair Value
U.S. government and agency securities				$	(3,953	)		$	675,416			$	(40	)		$	7,464			$	(3,993	)		$	682,880
Non U.S. government securities					(970	)			101,796				(1,208	)			116,876				(2,178	)			218,672
Corporate securities					(2,291	)			248,816				(571	)			21,889				(2,862	)			270,705
Mortgage-backed securities					(3,398	)			456,033				(719	)			30,145				(4,117	)			486,178
Asset-backed securities					(1,913	)			224,622				(471	)			9,667				(2,384	)			234,289
				$	(12,525	)		$	1,706,683			$	(3,009	)		$	186,041			$	(15,534	)		$	1,892,724

At December 31, 2004, 637 fixed maturity securities were in an unrealized loss position. Of those, 87 securities had been in a continuous unrealized loss position for twelve months or greater. The unrealized loss position of these fixed maturity securities was principally a result of changes in the interest rate environment. The Company believes these impairments are temporary.

F-12

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

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

3.    Investments, cont'd.

The following table summarizes the composition of the fixed maturity portfolio by investment ratings assigned by rating agencies:

Ratings				Fair Value				Percentage
U.S. government and agency securities				$	1,188,863				33.2	%
AAA / Aaa					1,779,131				49.8	%
AA / Aa					179,359				5.0	%
A / A					430,821				12.0	%
				$	3,578,174				100.0	%

Contractual maturities of fixed maturity securities are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

				Amortized Cost				Fair Value
Due within one year				$	269,186			$	269,448
Due after one year through five years					1,231,196				1,230,446
Due after five years through ten years					590,831				598,123
Due after ten years					128,725				129,972
Mortgage-backed securities					929,015				930,252
Asset-backed securities					421,534				419,933
				$	3,570,487			$	3,578,174

The components of net investment income for the years ended December 31, 2004, 2003 and 2002 are as follows:

				2004				2003				2002
Fixed maturity investments				$	116,232			$	70,091			$	43,846
Investment in other ventures, under equity method					6,036				—				—
Cash and cash equivalents					3,447				3,495				479
					125,715				73,586				44,325
Investment expenses					(3,656	)			(2,576	)			(1,387	)
Net investment income				$	122,059			$	71,010			$	42,938

The analysis of realized gains (losses) on sales of investments for the years ended December 31, 2004, 2003 and 2002 respectively, is as follows:

				2004				2003				2002
Gross realized gains				$	11,875			$	13,562			$	6,863
Gross realized losses					(5,745	)			(7,844	)			(133	)
Net realized gains on sales of investments				$	6,130			$	5,718			$	6,730

F-13

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

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

3.    Investments, cont'd.

Included in investment in other ventures is a portfolio of alternative investment funds (the "Funds") that invest largely in senior secured distressed debt, derivatives, equity long and short positions, senior secured bank debt and high yield securities. During the year ended December 31, 2004, the Company invested $85.0 million in these Funds. At December 31, 2004 the carrying value of the Funds is $91.0 million, which approximates fair value. Certain of the Funds are subject to redemption restriction provisions (see note 9).

4.    Reserve for losses and loss expenses

Reserves for losses and loss expenses are based in part upon the estimation of losses resulting from catastrophic events. Estimation of the losses and loss expenses resulting from catastrophic events based upon the Company's historical claims experience is inherently difficult because of the Company's short operating history and the possible severity of catastrophe claims. Therefore, the Company utilizes both proprietary and commercially available models, as well as historical reinsurance industry catastrophe claims experience, for purposes of evaluating future trends and providing an estimate of ultimate claims costs.

Several aspects of the Company's casualty insurance and reinsurance operations complicate the actuarial reserving techniques for loss reserves as compared to other insurance and reinsurance operations. Among these aspects are the differences in the Company's policy forms from more traditional forms, the lack of complete historical data for losses of the same type intended to be covered by the policies and contracts written by the Company, and the expectation that a portion of losses in excess of the Company's attachment levels will be low frequency and high severity in nature, limiting the utility of claims experience of other insureds for similar claims.

The Company uses statistical and actuarial methods to estimate ultimate expected losses and loss expenses. The period of time from the occurrence of a loss, the reporting of a loss to the Company, and the settlement of the Company's liability may be several years. During this period, additional facts and trends will be revealed. As these factors become apparent, case reserves will be adjusted, sometimes requiring an increase in the overall reserves of the Company, and at other times requiring a reallocation of incurred but not reported reserves to specific case reserves. These estimates are reviewed regularly, and such adjustments, if any, are reflected in earnings in the period in which they become known. While management believes that it has made a reasonable estimate of ultimate losses, the ultimate claims experience may not be as reliably predicted as may be the case with other insurance and reinsurance operations, and there can be no assurance that losses and loss expenses will not exceed the total reserves.

F-14

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

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

4.    Reserve for losses and loss expenses,    cont'd.

Activity in the reserve for losses and loss expenses for the years ended December 31, 2004, 2003 and 2002 is summarized as follows:

				2004				2003				2002
Net reserve for losses and loss expenses, January 1				$	831,716			$	200,840			$	—
Incurred related to:
Current year					1,074,010				699,613				204,455
Prior years					(136,680	)			(35,917	)			—
Total incurred					937,330				663,696				204,455
Paid related to:
Current year					(118,441	)			(46,317	)			(4,680	)
Prior years					(118,253	)			(40,532	)			—
Total paid					(236,694	)			(86,849	)			(4,680	)
Acquired reserves (Note 8)					—				51,645				—
Foreign exchange losses					5,106				2,384				1,065
Net reserve for losses and loss expenses, December 31					1,537,458				831,716				200,840
Losses and loss expenses recoverable					12,203				1,442				—
Reserve for losses and loss expenses, December 31				$	1,549,661			$	833,158			$	200,840

During 2004, the Company's previously estimated ultimate losses for prior accident years were reduced by $136.7 million. The reduction in incurred losses related to prior years was the result of lower than expected loss emergence related to the 2003 and 2002 accident years and was experienced most significantly in the Company's property segments.

A significant portion of the Company's contracts and policies cover excess layers for high severity exposures. Underwriting results and ultimate claims payments for this type of coverage are therefore not typically reported to the Company until later in the contract and policy lives. As a result, the level of losses paid to date is not necessarily indicative of expected future results.

5.	Reinsurance

The effects of reinsurance on premiums written and earned during the years ended December 31, 2004, 2003 and 2002 are as follows:

				Year Ended December 31, 2004								Year Ended December 31, 2003								Year Ended December 31, 2002
				Written				Earned				Written				Earned				Written				Earned
Direct				$	409,118			$	399,174			$	383,870			$	289,974			$	196,927			$	86,585
Assumed and acquired					1,302,239				1,244,902				1,218,127				893,308				601,833				309,245
Ceded					(14,337	)			(11,476	)			(4,153	)			(9,335	)			(33,842	)			(26,341	)
				$	1,697,020			$	1,632,600			$	1,597,844			$	1,173,947			$	764,918			$	369,489

F-15

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

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

5.	Reinsurance,    cont'd.

During the year ended December 31, 2004, the Company recorded reinsurance recoveries of $21.5 million (2003 - $1.4 million; 2002 - $nil) relating to losses incurred in the Property Individual Risk, Casualty Treaty Reinsurance, Property Catastrophe and Aerospace and Other Specialty Lines segments.

Reinsurance ceded contracts do not relieve the Company from its obligations to policyholders. The Company remains primarily liable to its policyholders for the portion reinsured to the extent that any reinsurer does not meet the obligations assumed under the reinsurance agreements.

At December 31, 2004, the Company has no allowance for estimated uncollectible premiums receivable (2003 - $654,000).

6.    Debt and financing arrangements

On August 6, 2004, the Company and its lenders replaced its existing letter of credit and revolving credit facility with a new three-year $850 million letter of credit and revolving credit facility. The full amount of the new credit facility may be used to issue letters of credit or for revolving credit borrowings. Up to $412.5 million of borrowings or letter of credit issuances under the credit facility may be secured by a portion of the investment portfolio of the individual borrower under the credit facility. The new credit facility expires on August 6, 2007. The lenders under the new credit facility are Bank of America, N.A., Barclays Bank PLC, Calyon, Comerica Bank, Commerzbank AG, Credit Suisse First Boston, Deutsche Bank AG, Goldman Sachs Credit Partners L.P., HSBC Bank USA, National Association, ING Bank N.V., JPMorgan Chase Bank, Lloyds TSB Bank plc, Merrill Lynch Bank USA, The Bank of New York, The Bank of Nova Scotia, The Bank of N.T. Butterfield & Son Limited, The Royal Bank of Scotland plc, and Wachovia Bank, National Association. The administrative agent is JPMorgan Chase Bank.

Proceeds of the revolving credit facility may be used by the Company or its subsidiaries for general corporate and working capital purposes and repurchases of its outstanding ordinary or class A shares and warrants to purchase its ordinary or class A shares. The Company cannot use more than $500 million of the proceeds for equity repurchases. The credit facility also provides for the issuance of standby letters of credit, of which up to $412.5 million may be secured by a portion of the investment portfolio of the Company. Endurance Holdings has guaranteed the obligations of its subsidiaries that are parties to the credit facility.

On December 22, 2004, the Company borrowed $143.5 million under the unsecured revolving credit facility. This amount remained outstanding at December 31, 2004.

The interest rate for revolving loans under the credit facility is either (i) the higher of (a) the Federal Funds Effective Rate plus 0.5% and (b) the prime commercial lending rate of JPMorgan Chase Bank or (ii) LIBOR plus a spread based on the Company's debt to capital ratio. For letters of credit issued on an unsecured basis, the Company is required to pay a fee ranging from 0.4% to 0.7% on the daily stated amount of such letters of credit. For letters of credit issued on a secured basis, the Company is required to pay a fee ranging from 0.2% to 0.3% on the daily stated amount of such letters of credit. In each case, the applicable fee is determined based upon the ratio of the Company's outstanding indebtedness to total capital, which is referred to as the Company's leverage ratio. If the Company fails to timely repay any revolving loan or timely reimburse any lender for a drawing under a letter of credit, the Company is obligated to pay interest on the unpaid or unreimbursed amount at the applicable rate, plus 2.0%. The Company incurred interest at an annualized rate of 2.92% on the revolving borrowing of December 22, 2004 for the remainder of the year ended December 31, 2004.

F-16

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

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

6.    Debt and financing arrangements,    cont'd.

The credit facility requires the Company to pay to the lenders a facility fee that ranges from 0.10% to 0.175% of the total commitments outstanding under the credit facility depending on the Company's leverage ratio. The Company must also pay the lenders a utilization fee that ranges from 0.125% to 0.25% of the total amount of revolving loans outstanding when the aggregate amount of those loans is equal to 50% of the aggregate lending commitments outstanding under the credit facility.

The credit facility requires that the outstanding principal of revolving loans be repaid in full on August 6, 2007.

The credit facility requires the Company's compliance with certain customary restrictive covenants. These include certain financial covenants, such as maintaining a leverage ratio (no greater than 0.35:1 at any time), a consolidated tangible net worth (no less than $1.25 billion at any time), and unencumbered cash and investment grade assets in excess of the greater of $400 million or the Company's outstanding debt and letters of credit. In addition, each of the Company's regulated insurance subsidiaries that has a claims paying rating from A.M. Best must maintain a rating of at least B++ at all times. The terms of the Company's credit facility restrict the declaration or payment of dividends if the Company is already in default or the payment or declaration would cause a default under the terms of the loan facilities. The credit facility also includes other covenants restricting such activities as:

•	changes in business;

•	consolidation or merger with another entity;

•	disposal of assets;

•	incurrence of additional indebtedness;

•	incurrence of liens on our property;

•	issuance of preferred or preference equity securities;

•	dissolution or liquidation;

•	transactions with affiliates; and

•	changes of control.

It is an event of default under the credit facility if there occurs any one of the following:

•	a failure of the Company to pay principal when due, interest or fees within three business days or other amounts under the credit facility following notice or demand;

•	a representation made by the Company is untrue in any material respect;

•	a failure by the Company to perform its covenants;

•	a default in connection with other indebtedness in excess of $30 million;

•	bankruptcy;

•	a material ERISA violation;

•	an adverse judgment in excess of $30 million;

•	suspension of one or more insurance licenses, with the suspension having a material adverse effect on the Company;

F-17

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

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

6.    Debt and financing arrangements,    cont'd.

•	cessation of the Endurance Holdings guarantee;

•	a failure of the lenders to have a first priority perfected security interest in the collateral; or

•	a change in control of the Company.

Upon the occurrence of an event of default under the credit facility, the lenders can terminate their commitments under the revolving credit facility, require repayment of any outstanding revolving loans, give notice of termination of any outstanding letters of credit in accordance with their terms, require the delivery of cash collateral for outstanding letters of credit and foreclose on any security held by the lenders under the credit facility.

Given that the Company's Senior Notes (described below) and the credit facility contain cross default provisions, this may result in the holders of the Senior Notes and the lenders under the credit facility declaring such debt due and payable and an acceleration of all debt due under both the Senior Notes and the revolving credit facility. If this were to occur, the Company may not have liquid funds sufficient at that time to repay any or all of such indebtedness.

On July 15, 2004, the Company issued $250 million principal amount of 7% Senior Notes pursuant to a prospectus supplement to the Shelf Registration Statement on Form S-3 (Registration No. 333-116505) ("Shelf Registration Statement") filed on June 15, 2004 and declared effective by the U.S. Securities and Exchange Commission on June 30, 2004. The Senior Notes were offered by the underwriters at a price of 99.108% of their principal amount, providing an effective yield to investors of 7.072%, and, unless previously redeemed, will mature on July 15, 2034.

The Senior Notes are senior unsecured obligations of the Company and rank equally with the Company's existing unsecured and unsubordinated debt. The Senior Notes are also effectively junior to claims of creditors of the Company's subsidiaries, including policyholders, trade creditors, debt holders and taxing authorities.

The indenture governing the Senior Notes contains certain customary covenants, including:

•	limitations on liens on the stock of restricted subsidiaries;

•	restrictions as to the disposition of the stock of restricted subsidiaries; and

•	limitations on consolidation, merger, amalgamation and sale of assets.

In addition, the following events constitute an event of default under the indenture governing the Senior Notes:

•	a default in payment of principal or any premium under the Senior Notes when due;

•	a default for 30 days in payment of any interest under the Senior Notes;

•	a failure to observe or perform any other covenant or agreement in the Senior Notes or indenture, other than a covenant or agreement included solely for the benefit of a different series of debt securities, after 90 days written notice of the failure;

•	certain events of bankruptcy, insolvency or reorganization; or

F-18

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

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

6.    Debt and financing arrangements,    cont'd.

•

a continuing default, for more than 30 days after the Company receives notice of the default, under any other indenture, mortgage, bond, debenture, note or other instrument, under which the Company or its restricted subsidiaries may incur recourse indebtedness for borrowed money in an aggregate principal amount exceeding $50 million, if the default resulted in the acceleration of that indebtedness, and such acceleration has not been waived or cured.

Where an event of default occurs and is continuing, either the indenture trustee or the holders of not less than 25% in principal amount of the Senior Notes may declare the principal and accrued interest of the Senior Notes to be due and payable immediately. If an event of default occurs involving certain events of bankruptcy, insolvency or reorganization, all unpaid principal of all the Senior Notes then outstanding, and interest accrued thereon, if any, shall be due and payable immediately, without any declaration or other act on the part of the indenture trustee or any holder of the Senior Notes. At December 31, 2004, the carrying value of the Senior Notes stood at $247.8 million whilst the fair value as determined by quoted market valuation was $259.9 million. The Company was in compliance with all covenants contained within the indenture governing the Senior Notes as of December 31, 2004.

Prior to the issuance of the Senior Notes, the Company entered into an interest rate lock on a notional amount of $125 million to protect against interest rate increases before the anticipated issuance of the Senior Notes. The objective of the interest rate lock was to protect 50% of the forecasted receipt of proceeds from the issuance of the 30 year Senior Notes offering, which was subject to change due to fluctuations in the benchmark 30 year U.S. Treasury rate. Upon issuance of the Senior Notes, the interest rate lock was settled through payment of $2.7 million. The interest rate lock agreement was designated as a "cash flow hedge" under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" and accordingly, the fair value of the derivative was recorded in other comprehensive income and is being recognized as a component of interest expense in the statement of income as the interest expense related to the Senior Notes affects earnings.

Prior to the establishment of the replacement letter of credit and revolving credit facility on August 6, 2004 and the issuance of Senior Notes on July 15, 2004, the Company had entered into a $192 million three-year term loan facility and a one-year $108 million letter of credit and revolving credit facility with a syndicate of commercial banks on August 13, 2002. On August 8, 2003, the Company and its lenders amended the three-year term loan facility and amended the letter of credit and revolving credit facility. The amendments extended the letter of credit and revolving credit facility for an additional year and increased the size of the letter of credit and revolving credit facility to $500 million. Interest rates on the term loan were LIBOR plus a spread that was based on the Company's debt to capital ratio. The interest rate applied to the outstanding balance averaged 2.92% in 2004 up to the repayment date (see below) and averaged 2.93% and 2.73% for the years ended December 31, 2003 and December 31, 2002, respectively.

In accordance with the terms of the Company's term loan facility, the Company prepaid $50.6 million of the outstanding principal on the term loan facility on March 5, 2003 with a portion of the proceeds from the Company's initial public offering of its ordinary shares. In addition, the Company made a further scheduled principal payment of $38.4 million on its term loan facility on September 26, 2003. On July 15, 2004, the Company used a portion of the net proceeds from the Senior Notes offering to repay the remaining $103 million term loan balance. At December 31, 2003 and 2002, the fair value of the borrowings under the term loan facility approximated the carrying value.

As part of its overall strategy to manage interest rate exposure, the Company entered into an interest rate swap contract to hedge the variable cash outflows related to the term loan facility. The contract became effective on March 27, 2003 and provided for the exchange of floating rate payments for fixed rate

F-19

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

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

6.    Debt and financing arrangements,    cont'd.

payments (2.62% per annum) on a declining notional amount corresponding to the outstanding principal amount of the $100 million drawn down on the term loan facility on September 27, 2002. The agreement was designated as a "cash flow hedge" under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" and accordingly, the changes in fair value of the derivative were recorded in other comprehensive income and recognized as a component of interest expense in the statement of income when the variable interest expense affects earnings.

At December 31, 2003 the fair value of the interest rate swap amounted to a liability of $884,000 and is included on the balance sheet as a component of other liabilities. The fair value of the interest rate swap was estimated by calculating the net present value of expected future cash flows based on market rates at December 31, 2003. The interest rate swap contract was terminated on July 21, 2004.

The Company made aggregate interest payments of $4.8 million during the year ended December 31, 2004 (2003 - $5.1 million, 2002 - $nil).

7.    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 six reportable business segments: property per risk treaty reinsurance, property catastrophe reinsurance, casualty treaty reinsurance, property individual risk, casualty individual risk and aerospace and other specialty lines.

•	Property Per Risk Treaty Reinsurance — reinsures individual property risks of ceding companies on a treaty basis.

•	Property Catastrophe Reinsurance — reinsures catastrophic perils for ceding companies on a treaty basis.

•	Casualty Treaty Reinsurance — reinsures third party liability exposures from ceding companies on a treaty basis.

•	Property Individual Risk — insurance and facultative reinsurance of commercial properties.

•	Casualty Individual Risk — insurance and facultative reinsurance of third party liability exposures.

•	Aerospace and Other Specialty Lines — insurance and reinsurance of aerospace lines and to a lesser extent of unique opportunities, including a limited number of other reinsurance programs such as surety, marine, energy, personal accident, terrorism and others.

Because the Company does not manage its assets by segment, investment income and total assets are not allocated to the individual segments. Management measures segment results on the basis of the combined ratio that is obtained by dividing the sum of the losses and loss expenses, acquisition expenses and general and administrative expenses by net premiums earned. General and administrative expenses incurred by segments are allocated directly. Remaining corporate overhead is allocated based on each segment's proportional share of gross premiums written. Group reinsurance protection and recoveries are allocated to segments based on the underlying exposures covered.

F-20

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

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

7.    Segment reporting,    cont'd.

The following table provides a summary of the segment revenues and results for the year ended December 31, 2004 and the carrying value of goodwill as of December 31, 2004:

				Property Per Risk Treaty Reinsurance				Property Catastrophe Reinsurance				Casualty Treaty Reinsurance
Revenues
Gross premiums written				$	441,370			$	247,009			$	441,256
Net premiums written					436,202				244,072				438,451
Net premiums earned					464,024				234,961				378,894
Expenses
Losses and loss expenses					284,631				65,651				257,723
Acquisition expenses					125,363				26,592				97,456
General and administrative expenses					31,451				19,912				33,339
					441,445				112,155				388,518
Underwriting income (loss)				$	22,579			$	122,806			$	(9,624	)
Loss ratio					61.3	%			27.9	%			68.0	%
Acquisition expense ratio					27.0	%			11.3	%			25.7	%
General and administrative expense ratio					6.8	%			8.5	%			8.8	%
Combined ratio					95.1	%			47.7	%			102.5	%
Goodwill				$	1,938			$	5,306			$	1,096

				Property Individual Risk				Casualty Individual Risk				Aerospace And Other Specialty Lines
Revenues
Gross premiums written				$	112,900			$	246,802			$	222,020
Net premiums written					110,400				246,371				221,524
Net premiums earned					102,780				235,621				216,320
Expenses
Losses and loss expenses					46,051				147,657				135,617
Acquisition expenses					12,599				23,685				44,089
General and administrative expenses					11,324				22,084				15,615
					69,974				193,426				195,321
Underwriting income				$	32,806			$	42,195			$	20,999
Loss ratio					44.8	%			62.7	%			62.7	%
Acquisition expense ratio					12.3	%			10.1	%			20.4	%
General and administrative expense ratio					11.0	%			9.4	%			7.2	%
Combined ratio					68.1	%			82.2	%			90.3	%
Goodwill				$	—			$	—			$	9,101

F-21

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

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

7.    Segment reporting,    cont'd.

The following table provides a summary of the segment revenues and results for the year ended December 31, 2003 and the carrying value of goodwill as of December 31, 2003:

				Property Per Risk Treaty Reinsurance				Property Catastrophe Reinsurance				Casualty Treaty Reinsurance
Revenues
Gross premiums written and acquired				$	469,290			$	183,594			$	390,265
Net premiums written and acquired					469,290				184,303				387,497
Net premiums earned					296,551				174,158				284,843
Expenses
Losses and loss expenses					179,031				33,393				178,725
Acquisition expenses					74,454				19,807				76,643
General and administrative expenses					25,021				13,738				22,537
					278,506				66,938				277,905
Underwriting income				$	18,045			$	107,220			$	6,938
Loss ratio					60.4	%			19.2	%			62.7	%
Acquisition expense ratio					25.1	%			11.4	%			26.9	%
General and administrative expense ratio					8.4	%			7.9	%			7.9	%
Combined ratio					93.9	%			38.5	%			97.5	%
Goodwill				$	228			$	2,236			$	228

				Property Individual Risk				Casualty Individual Risk				Aerospace And Other Specialty Lines
Revenues
Gross premiums written and acquired				$	85,863			$	214,392			$	258,593
Net premiums written and acquired					83,929				214,232				258,593
Net premiums earned					65,408				173,266				179,721
Expenses
Losses and loss expenses					23,317				118,515				130,715
Acquisition expenses					7,058				19,069				33,518
General and administrative expenses					7,955				16,882				14,524
					38,330				154,466				178,757
Underwriting income				$	27,078			$	18,800			$	964
Loss ratio					35.6	%			68.4	%			72.7	%
Acquisition expense ratio					10.8	%			11.0	%			18.7	%
General and administrative expense ratio					12.2	%			9.7	%			8.1	%
Combined ratio					58.6	%			89.1	%			99.5	%
Goodwill				$	—			$	—			$	—

F-22

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

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

7.    Segment reporting,    cont'd.

The following table provides a summary of the segment revenues and results for the year ended December 31, 2002:

				Property Per Risk Treaty Reinsurance				Property Catastrophe Reinsurance				Casualty Treaty Reinsurance
Revenues
Gross premiums written and acquired				$	168,054			$	178,120			$	203,566
Net premiums written and acquired					168,054				145,453				203,566
Net premiums earned					59,453				114,823				84,355
Expenses
Losses and loss expenses					35,577				42,804				56,070
Acquisition expenses					14,607				16,885				20,597
General and administrative expenses					10,520				11,150				12,743
					60,704				70,839				89,410
Underwriting (loss) income				$	(1,251	)		$	43,984			$	(5,055	)
Loss ratio					59.8	%			37.3	%			66.5	%
Acquisition expense ratio					24.6	%			14.7	%			24.4	%
General and administrative expense ratio					17.7	%			9.7	%			15.1	%
Combined ratio					102.1	%			61.7	%			106.0	%

				Property Individual Risk				Casualty Individual Risk				Aerospace and Other Specialty Lines
Revenues
Gross premiums written and acquired				$	62,934			$	106,903			$	79,183
Net premiums written and acquired					61,759				106,903				79,183
Net premiums earned					33,907				44,292				32,659
Expenses
Losses and loss expenses					13,283				33,958				22,763
Acquisition expenses					3,406				3,978				4,540
General and administrative expenses					3,939				6,692				4,955
					20,628				44,628				32,258
Underwriting income (loss)				$	13,279			$	(336	)		$	401
Loss ratio					39.2	%			76.7	%			69.7	%
Acquisition expense ratio					10.0	%			9.0	%			13.9	%
General and administrative expense ratio					11.6	%			15.1	%			15.2	%
Combined ratio					60.8	%			100.8	%			98.8	%

F-23

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

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

7.    Segment reporting,    cont'd.

The following table reconciles total segment results to consolidated income before income taxes for the years ended December 31, 2004, 2003 and 2002, respectively:

				2004				2003				2002
Total underwriting income				$	231,761			$	179,045			$	51,022
Net investment income					122,059				71,010				42,938
Net foreign exchange (losses) gains					(214	)			9,883				2,312
Net realized gains on sales of investments					6,130				5,718				6,730
Amortization of intangibles					(3,990	)			(3,237	)			(809	)
Interest expense					(9,959	)			(4,238	)			(984	)
Consolidated income before income taxes				$	345,787			$	258,181			$	101,209

The following table provides the geographic distribution of gross premiums written and acquired for the years ended December 31, 2004, 2003 and 2002:

				2004				2003				2002
United States				$	981,642			$	1,065,893			$	561,000
Worldwide					432,379				383,670				160,897
Europe					157,424				80,001				32,939
Japan					28,006				27,062				13,081
Canada					23,539				14,790				7,487
Other					88,367				30,581				23,356
Total gross premiums written and acquired				$	1,711,357			$	1,601,997			$	798,760

The Company attributes gross premiums written and acquired to the geographic region in which the risks originate.

8.	Business combinations

On May 15, 2003, the Company completed a transaction with The Hartford Fire Insurance Company and HartRe Company, L.L.C. (collectively, "HartRe") to assume the majority of the in-force reinsurance business of HartRe, to acquire exclusive renewal rights to that business and to hire certain employees of HartRe necessary for the operation of the assumed business. The transaction was structured as a bordereaux quota share retrocession of the majority of HartRe's reinsurance business, a purchase of HartRe's renewal rights with respect to such business and an agreement with respect to the claims handling for the business. The effective date of the arrangement was April 1, 2003.

Some of the contracts included in HartRe's in-force reinsurance business were proportionally assumed by the Company from the original inception dates of the underlying contracts. The Company did not assume any of HartRe's historical reinsurance liabilities from expired policies.

The primary reasons for the transaction were to acquire potentially profitable business, to increase the Company's presence in the U.S. domestic reinsurance marketplace and to increase the U.S. based staff of the Company. The transaction was accounted for as a purchase method business combination in accordance with SFAS No. 141, "Business Combinations".

F-24

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

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

8.	Business combinations,    cont'd.

The initial purchase price payable by the Company was $30.5 million and the fair value of the net assets acquired was $30.3 million, resulting in $0.2 million of initial goodwill. The fair value of net assets acquired is summarized as follows:

Assets
Cash				$	70,876
Premiums receivable, net					319,902
Acquisition cost of in-force contracts					86,153
Other identifiable intangible assets					19,563
Assets acquired					496,494
Liabilities
Unearned premiums					414,517
Reserve for losses and loss expenses					51,645
Liabilities acquired					466,162
Net assets acquired				$	30,332

Other identifiable intangible assets include the fair value of the customer lists, including the underwriter relationships, and the non-solicit and non-compete rights purchased. These other identifiable assets are estimated to have finite lives of up to ten years and they are being amortized over such periods.

The acquisition cost of in-force contracts are included in deferred acquisition costs in the consolidated balance sheet and are amortized over the remaining terms of the related in-force contracts. The related amortization expense in the year ended December 31, 2004 of $25.5 million (2003 - $64.5 million) is included in acquisition expenses in the consolidated statements of income.

In addition to the initial purchase price, Endurance U.S. may be required to pay further amounts to HartRe. Such contingent amounts are based on the actual acquired premiums collected and on the renewal and profitability of the in-force business acquired. Upon renewal of the business acquired over the two years following April 1, 2003, commissions are due at a range of 1-5% of premiums depending on the line of business. Contingent renewal commissions are only payable to the extent they exceed $10 million for the first year following closing and $5 million for the second year following closing. The $10 million and $5 million amounts are guaranteed and constitute part of the initial purchase price. In addition, a profit sharing commission will be paid if the net loss ratio of the acquired business associated with the property treaty, property catastrophe, and aviation lines is less than a blended target loss ratio for the acquired business. The contingent profit commission will be equal to 50% of underwriting profits generated by the difference between the ultimate loss ratio and target loss ratio multiplied by the earned premiums for the acquired business.

At December 31, 2004, commissions on renewals of the in-force contracts acquired had not exceeded the minimums of $10 million for the first year following closing and $5 million for the second year following closing, and as such, no contingent renewal commissions were accrued. At December 31, 2004, based on the acquired premiums collected and earnings of the acquired business to date, the Company has accrued an additional $14.5 million in respect of contingent profit and collection commissions, with a corresponding increase in goodwill.

F-25

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

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

8.	Business combinations,    cont'd.

Operating results of the HartRe business acquired have been included in the consolidated financial statements from April 1, 2003, which is the effective date of the retrocession agreement. As required by SFAS No. 141, the following selected unaudited pro forma information is provided to present a summary of the combined results of the Company and the HartRe business acquired assuming the transaction had been effected on January 1, 2002. The unaudited pro forma data is for informational purposes only and does not necessarily represent results that would have occurred if the transaction had taken place on the basis assumed above. Results recorded for the year ended December 31, 2004 would not have been impacted by this assumption.

				Year Ended December 31, 2003 (unaudited)				Year Ended December 31, 2002 (unaudited)
Net premiums written and acquired				$	1,874,374			$	1,025,861
Total revenues				$	1,345,974			$	522,223
Total expenses				$	1,074,885			$	404,901
Net income				$	271,089			$	117,322
Basic earnings per share				$	4.31			$	2.00
Diluted earnings per share				$	4.11			$	1.99

On May 16, 2002, the Company completed a transaction with LaSalle Re Limited ("LaSalle"), its parent, LaSalle Re Holdings Limited, and the ultimate parent of LaSalle, Trenwick Group Ltd. LaSalle is a Bermuda domiciled reinsurance company. The transaction was structured as a bordereaux quota share retrocession agreement, effective April 1, 2002, a purchase of renewal rights, a transfer and purchase agreement and an administrative services agreement. The Company did not assume any of LaSalle's historical reinsurance liabilities. The primary reasons for the transaction were to increase the Company's presence in the property catastrophe marketplace and to increase the Bermuda-based staff of the Company. The transaction was accounted for as a purchase method business combination in accordance with SFAS No. 141, "Business Combinations".

The initial purchase price payable by the Company was $25.6 million and the fair value of the net assets acquired was $24.7 million, resulting in $0.9 million of initial goodwill recorded in 2002. The goodwill generated relates entirely to the property catastrophe reinsurance business segment.

F-26

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

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

8.	Business combinations,    cont'd.

The fair value of net assets acquired is summarized as follows:

Assets
Premiums receivable, net				$	72,643
Prepaid reinsurance premiums					21,490
Acquisition cost of in-force contracts					11,513
Other identifiable intangible assets					14,205
Other assets					440
Assets acquired					120,291
Liabilities
Unearned premiums					88,558
Reinsurance balances payable					5,575
Accrued liabilities					1,410
Liabilities acquired					95,543
Net assets acquired				$	24,748

Other identifiable intangible assets include the fair value of the customer lists, including the underwriter relationships, and the non-solicit and non-compete rights purchased. These other identifiable assets are estimated to have finite lives of up to ten years and they are being amortized over such periods.

The acquisition cost of in-force contracts was included in deferred acquisition costs in the consolidated balance sheet and was amortized pro-rata over the remaining terms of the related in-force contracts. The related amortization expense for the year ended December 31, 2004 is $nil (2003 - - $1.0 million; 2002 - $10.5 million) and is included in acquisition expenses in the consolidated statements of income.

In addition to the initial purchase price, during the year ended December 31, 2003, the Company paid to LaSalle further commissions of $1.3 million based on the profitability of the April 1, 2002 in-force contracts acquired in accordance with the terms of the bordereaux quota share retrocession agreement. This profit sharing commission was recorded in 2003 as an increase in goodwill. At December 31, 2004, there were no further amounts payable to LaSalle under any of the agreements.

Operating results of the LaSalle business acquired have been included in the consolidated financial statements from April 1, 2002, which is the effective date of the retrocession agreement. As required by SFAS No. 141, the following selected unaudited pro forma information is being provided to present a summary of the combined results of the Company and the LaSalle business acquired assuming the transaction had been effected on January 1, 2002. The unaudited pro forma data is for informational purposes only and does not necessarily represent results that would have occurred if the transaction had taken place on the basis assumed above. Results recorded for the years ended December 31, 2004 and 2003 would not have been impacted by this assumption.

F-27

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

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

8.	Business combinations,    cont'd.

Year Ended December 31, 2002 — unaudited
Net premiums written				$	790,010
Total revenues				$	446,561
Total expenses				$	331,643
Net income				$	115,775
Basic earnings per share				$	1.97
Diluted earnings per share				$	1.97

The carrying value of the Company's goodwill from business combination transactions was $17.4 million at December 31, 2004 (2003 - $2.7 million) and is included in intangible assets. Estimated amortization expense on the Company's other identifiable intangible assets for the next five years as of December 31, 2004 is as follows:

Year Ending December 31,				Amount
2005				$	4,694
2006					4,506
2007					4,199
2008					3,276
2009					3,276
				$	19,951

9.	Commitments and contingencies

Concentrations of credit risk.    As of December 31, 2004, substantially all the Company's cash and investments were held by two custodians. The Company's investment guidelines limit the amount of credit exposure to any one issuer other than the U.S. Treasury and other government obligations rated AAA.

Major production sources.    During the year ended December 31, 2004, the Company obtained 72% of its gross premiums written through three brokers: Aon Corporation ("Aon") — 31.2%, Marsh & McLennan Companies, Inc. — 28.2%, and Willis Companies — 12.5%.

Letters of credit.    As of December 31, 2004, the Company's bankers had issued letters of credit of $260.9 million in favor of certain ceding companies.

Investment commitments.    As of December 31, 2004, the Company had committed cash and cash equivalents and fixed maturity investments of $234.5 million in favor of certain ceding companies to collateralize obligations. As of December 31, 2004, the Company has also pledged $294.0 million of its fixed maturity investments as collateral to secure $260.9 million in letters of credit outstanding under its credit facility. In addition, at December 31, 2004, cash and fixed maturity investments with a fair value of $3.3 million were on deposit with U.S. state regulators.

The Company is subject to certain commitments with respect to the investments in other ventures acquired during the year ended December 31, 2004. Of the year end balance of $91.0 million, $40.5 million is subject to redemption restriction provisions of two years from date of acquisition and $15.5 million is subject to redemption restriction provisions of three years from acquisition. At December 31, 2004, the Company was committed to investing a further $7.5 million in an alternative investment fund.

F-28

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

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

9.	Commitments and contingencies,    cont'd.

Employment agreements.    The Company has entered into employment agreements with certain officers that provide for option 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 December 31, 2004 are as follows:

Year Ending December 31,				Amount
2005				$	6,185
2006					5,672
2007					5,722
2008					5,830
2009					5,455
2010 and thereafter					19,219
				$	48,083

Total rent expense under operating leases for the year ended December 31, 2004 was $5,919,000 (2003 - $3,837,000; 2002 - $895,000).

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 its insurance and reinsurance agreements, disputes are generally required to be finally settled by arbitration.

Endurance Holdings, Endurance U.S. and three employees of one of Endurance Holdings' subsidiaries have been named in a lawsuit filed on November 18, 2004 in the Court of Common Pleas in Hamilton County, Ohio. The suit alleges misappropriation of trade secrets from the employees' former employer, Great American Insurance Company, and related entities and asserts other related claims. On December 22, 2004, the Company and the other defendants filed motions to dismiss the lawsuit for lack of personal jurisdiction over the defendants. These motions are pending.

On January 5, 2005, Endurance U.S. received a subpoena from the Office of the Attorney General of the State of New York (the "NYAG") in connection with its investigation into contingent commission arrangements with brokers. Although the subpoena was addressed to Endurance U.S., it called for the production of documents from all affiliates of Endurance Holdings. Among other things, the subpoena seeks documents concerning efforts by any insurance broker to exclude or limit an insurance company's access to the insurance market and documents concerning efforts or requests by any insurance broker to manipulate bids or price quotes, or submit false or inflated bids or price quotes in insurance markets. The Company provided the NYAG with an initial set of documents responsive to the subpoena on January 21, 2005 and additional document production is continuing.

F-29

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

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

10.	Shareholders' equity

The Company's share capital at December 31, 2004, 2003 and 2002 is comprised as follows:

				2004				2003				2002
Authorized — $1.00 par value each					120,000,000				120,000,000				120,000,000
Issued, outstanding and fully paid:
Ordinary common shares — $1.00 par value each					61,254,992				63,912,000				54,061,185
Class A common shares — $1.00 par value each					—				—				938,815
Total common shares					61,254,992				63,912,000				55,000,000

On June 15, 2004, the Company filed an unallocated universal Shelf Registration Statement on Form S-3 (Registration No. 333-116505) that was declared effective by the Securities and Exchange Commission on June 30, 2004. The Shelf Registration Statement permits the Company to issue, in one or more offerings, up to $500 million of debt, equity, trust preferred securities or a combination of the above. In addition to the $500 million of securities eligible to be sold from time to time by the Company, the Shelf Registration Statement also registers for possible future sales up to 38,069,699 ordinary shares beneficially owned by certain of the Company's founding shareholders. The registration of the founding shareholders' ordinary shares does not obligate these shareholders to offer or sell any of these shares. The Company will not receive any proceeds from any sale of shares by the selling shareholders.

On May 21, 2004, the Company repurchased 2,036,834 of its ordinary shares from one of its initial investors. The purchase price was $31.779 per share, representing a 1% discount to the closing market price per share on May 21, 2004. The purchase price totaled $64.7 million. The Company used existing cash on hand to fund the repurchase. The Company also announced a share repurchase program under which the Company may repurchase up to 2.0 million additional ordinary shares or share equivalents. The repurchases will be accomplished in open market or privately negotiated transactions, from time to time, depending on market conditions. The share repurchase program is currently authorized to continue until May 2006. During 2004, the Company repurchased 806,800 of its ordinary shares under this program at an average price of $33.13 per share.

On March 9, 2004, certain of the Company's founding shareholders consummated a secondary public offering of the Company's ordinary shares. The ordinary shares sold in the offering were registered under the Securities Act of 1933, as amended, on a Registration Statement on Form S-1 (Registration No. 333-112258) that was declared effective by the Securities and Exchange Commission on March 3, 2004. Of the ordinary shares registered under the Registration Statement, 8,850,000 were sold at a price to the public of $34.85 per share. The underwriters had an option, exercisable until April 2, 2004, to acquire up to an additional 1,327,500 ordinary shares registered on the Registration Statement to cover over-allotments. On March 12, 2004, the underwriters exercised this option to purchase an additional 944,500 ordinary shares at a price of $34.85 per share. All of the ordinary shares were sold by certain founding shareholders and neither the Company nor any of its officers or directors received any proceeds from the offering.

On December 7, 2004, Aon Corporation completed the sale of 9,800,000 of the Company's ordinary shares. Goldman, Sachs & Co. purchased the ordinary shares from Aon Corporation at a purchase price of $32.70 and subsequently sold the shares to public investors. All of the ordinary shares were sold by Aon Corporation and its subsidiaries and neither the Company nor any of its officers or directors received any proceeds from the offering. The ordinary shares were sold under the Company's existing Shelf

F-30

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

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

10.	Shareholders' equity,    cont'd.

Registration Statement on Form S-3. Aon Corporation retains 111,000 ordinary shares and warrants to purchase 4,099,200 of the Company's ordinary shares.

On October 3, 2003, all Class A common shareholders converted their Class A common shares on a one for one basis into Ordinary common shares.

On August 20, 2003, the Company repurchased 750,000 of its ordinary shares at $27.06 per share. The closing market price per share on August 19, 2003 was $27.90.

On March 5, 2003, Endurance Holdings completed an initial public offering which resulted in the issuance of 9,600,000 of its ordinary shares. The ordinary shares are listed for trading on the New York Stock Exchange under the symbol "ENH". Total proceeds received net of underwriting discounts and other offering expenses were $201.5 million. Net proceeds were credited to shareholders' equity. Pursuant to the terms of its term loan facility, upon consummation of the public offering, the Company repaid $50.6 million of its outstanding principal under the term loan. The Company invested the remaining net proceeds of the offering in fixed maturity investments.

In conjunction with the capitalization of the Company, certain shareholders have been issued warrants. On December 14, 2001, 9,292,490 warrants were issued with a total estimated fair value of $51.9 million. The fair value of each warrant issued was estimated on the date of grant using the Black-Scholes option-pricing model. The volatility assumption used, of approximately 19%, was derived from an average of the historical ten-year volatility of two insurance industry indices. An allowance of 30% was provided to recognize the start-up nature of the Company's operations and for the illiquidity associated with the private status of the Company's shares. The other assumptions used in the option-pricing model are as follows: risk-free interest rate of 4.5%, expected life of ten years and a dividend yield of nil.

At December 31, 2004, 7,202,347 warrants are outstanding. Such warrants are exercisable for Ordinary and Class A common shares as follows:

Ordinary common shares					6,601,417
Class A common shares					600,930
					7,202,347

These outstanding warrants, which have an exercise price of $18.87 per share, became exercisable upon capitalization of the Company on December 14, 2001, and expire on December 14, 2011.

11.	Earnings per share

The Company follows SFAS No. 128, "Earnings per Share", to account for its weighted average shares. Basic earnings per common share are calculated by dividing net income available to holders of Endurance Holdings' ordinary shares and class A shares (collectively referred to as "common shares") by the weighted average number of common shares outstanding. In addition to the actual common shares outstanding, the weighted average number of common shares included in the basic earnings per common share calculation also includes the fully vested restricted share units discussed in Note 13. Diluted earnings per common share are based on the weighted average number of common shares and dilutive potential common shares outstanding during the period of calculation using the treasury stock method.

F-31

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

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

11.	Earnings per share,    cont'd.

The following tables set forth the computation of basic and diluted earnings per share for the years ended December 31, 2004, 2003 and 2002:

				2004				2003				2002
Numerator:
Net income available to common shareholders				$	355,584			$	263,437			$	102,066
Denominator:
Weighted average shares — basic
Ordinary shares outstanding					62,578,644				62,820,625				58,698,630
Vested restricted share units outstanding					202,662				112,150				—
					62,781,306				62,932,775				58,698,630
Share equivalents:
Unvested restricted share units					—				2,172				—
Warrants					3,186,814				2,117,685				159,034
Options					1,315,141				847,293				—
Weighted average shares — diluted					67,283,261				65,899,925				58,857,664
Basic earnings per common share				$	5.66			$	4.19			$	1.74
Diluted earnings per common share				$	5.28			$	4.00			$	1.73

The following table sets forth dividends declared in the years ended December 31, 2004, 2003, and 2002 respectively.

				2004				2003				2002
Dividends declared per common share				$	0.81			$	0.32			$	—

12.	Related party transactions

Certain founding shareholders, including Aon and Zurich Financial Services Group ("Zurich"), received warrants (see Note 10). Certain founding shareholders also received $29 million, in the aggregate, for assistance with the Company's private offering completed on December 14, 2001. Zurich ceased to be an affiliate upon the repurchase of shares by the Company on September 27, 2002.

During the years ended December 31, 2004, 2003 and 2002 the Company was party to agreements with various affiliates of Aon and Zurich as follows (Zurich excluded from 2004 and 2003 data):

Underwriting activities.    In the normal course of business, the Company enters into reinsurance contracts with various subsidiaries of Aon and Zurich. Such contracts resulted in net premiums earned of $11.3 million, losses and loss expenses of $9.4 million and acquisition expenses of $1.2 million for the year ended December 31, 2004. As of December 31, 2004, related reinsurance premiums receivable totaled $4.3 million. During the year ended December 31, 2004, an affiliate of Aon produced 31.2% of the Company's gross premiums written.

For the year ended December 31, 2003, such contracts resulted in net premiums earned of $0.3 million and losses and loss expenses of $0.2 million. As of December 31, 2003, there were no related reinsurance premiums receivable. During the year ended December 31, 2003, an affiliate of Aon produced 29.4% of the Company's gross premiums written.

F-32

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

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

12.	Related party transactions,    cont'd.

For the year ended December 31, 2002, such contracts resulted in net premiums earned of $30.7 million, losses and loss expenses of $17.5 million and acquisition expenses of $7.0 million. As of December 31, 2002, there were related reinsurance premiums receivable of $45.4 million. During the year ended December 31, 2002, an affiliate of Aon produced 36.6% of the Company's gross premiums written.

In addition, the Company pays brokerage fees and commissions to Aon and its affiliates, which vary based on the amount of business produced. During the years ended December 31, 2004, 2003 and 2002, the Company incurred $32.1 million, $22.1 million and $10.6 million respectively, in brokerage fees and commissions in connection with these transactions.

For purposes of these related party calculations, gross premiums written excludes premiums acquired in business combination transactions - see Note 8.

Analytical services.    The Company utilized certain analytical services and licensed technology from an affiliate of Aon during the year ended December 31, 2002. Fees incurred of $109,000 pursuant to the agreement were included in general and administrative expenses for the year ended December 31, 2002. This agreement was terminated in 2002.

Financial accounting and administrative services.    An affiliate of Aon performed certain financial accounting and administrative services for the Company during the year ended December 31, 2002. Fees incurred of $260,000 pursuant to the agreement were included in general and administrative expenses. This agreement was terminated in 2002.

Investment management services.    The Company utilized the services of a wholly-owned subsidiary of Zurich to perform portions of its short-term investment and cash management and provide investment accounting services. Under the terms of the investment management agreement, which is subject to the Company's investment guidelines and other restrictions, the Company pays a fee based on the value of its cash and investment portfolio. The Company expensed related investment management and accounting fees of $277,000 during the year ended December 31, 2002.

Office services.    The Company rented office space and received limited administrative services from various Bermuda based subsidiaries of Zurich until April 5, 2002. Rent and office services fees for the year ended December 31, 2002 of $419,000 were paid and the expense is recorded in general and administrative expenses. This arrangement was terminated in 2002.

13.	Stock-based employee compensation plans

The Company has a stock-based employee compensation plan (the "Option Plan") which provides for the grant of options to purchase the Company's common shares, share appreciation rights, restricted share units, share bonuses and other equity incentive awards to key employees. Under the terms of the Option Plan, a total of 4,986,975 common shares have been reserved for issuance.

F-33

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

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

13.	Stock-based employee compensation plans,    cont'd.

At December 31, 2004, 3,670,290 options had been granted with vesting dates between December 14, 2001 and July 14, 2007 and 861,111 restricted share units had been granted with vesting dates between March 1, 2003 and October 20, 2009. Activity with respect to the Option Plan for the years ended December 31, 2004, 2003 and 2002 was as follows:

				2004				2003				2002
Options outstanding, beginning of year					3,436,881				3,291,631				2,662,290
Options granted					65,000				204,250				738,750
Options forfeited					(50,500	)			(47,000	)			(109,409	)
Options exercised					(197,690	)			(12,000	)			—
Options outstanding, end of year					3,253,691				3,436,881				3,291,631
Exercisable options, end of year					2,230,596				1,717,186				775,030

				2004				2003				2002
Restricted share units outstanding, beginning of year					145,437				—				—
Restricted share units granted					729,428				145,437				—
Restricted share units forfeited					(15,824	)			—				—
Restricted share units settled					(45,561	)			—				—
Restricted share units outstanding, end of year					813,480				145,437				—
Vested restricted share units, end of year					217,816				134,776				—

The following table illustrates certain weighted average exercise price data for the years ended December 31, 2004, 2003 and 2002 respectively:

				2004				2003				2002
Weighted average exercise prices of:
Options granted				$	33.90			$	24.28			$	20.00
Options forfeited				$	19.58			$	19.92			$	20.00
Options exercised				$	19.00			$	19.82			$	—

The total intrinsic value of options exercised during 2004 was $2.9 million (2003 - $0.1 million). The weighted average remaining contract life of options outstanding at December 31, 2004 is 7.2 years. The range of exercise prices for all options outstanding at December 31, 2004 under the Option Plan was $18.87 - $33.91 per share. The weighted average exercise price of options outstanding at December 31, 2004 was $19.43 (2003 - $19.95). The weighted average exercise price of exercisable options at December 31, 2004 was $19.41 (2003 - $19.84) and their weighted average remaining contract life was 7.1 years. There were no options that expired during the years ended December 31, 2004, 2003 and 2002. The maximum term of an option is 10 years.

The weighted average fair value of options granted during 2004 was $14.04 per share (2003 - $9.62 per share; 2002 - $6.23 per share). The fair value of each option issued was estimated on the date of grant using the Black- Scholes option-pricing model. The volatility assumptions used, of approximately 20% (2003 - 20%; 2002 - 19%), was derived from an average of the historical ten-year volatility of two insurance industry indices. In 2002, an allowance of 20% to 30% was made to recognize the start-up nature of the

F-34

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

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

13.	Stock-based employee compensation plans,    cont'd.

Company's operations and for the illiquidity associated with the private status of the Company's shares. No such allowance was applied in 2004 or 2003. The other assumptions used in the option-pricing model were as follows: risk free interest rate of 4.0% to 4.2% (2003 - 3.7% to 3.9%; 2002 - 3.8% to 5.2%), expected life of ten years (2003 and 2002 - ten years) and a dividend yield of nil (2003 and 2002 - nil) as the exercise prices of all options are reduced for any dividends paid.

During the year ended December 31, 2004, the Company granted 592,994 unvested restricted share units (2003 - 10,600; 2002 - nil) with a fair value of $19.4 million (2003 - $0.3 million). Unvested restricted share units are granted subject to vesting provisions which are generally five years and are automatically settled upon vesting.

On March 1, 2004, the Company settled $4.2 million of its 2003 annual bonus obligations to certain employees with grants of 124,128 fully vested restricted share units. On March 1, 2003, the Company settled $3.1 million of its 2002 annual bonus obligations to certain employees with grants of 133,389 fully vested restricted share units. In both cases the restricted share units will be automatically settled over a three year period. The fair value of the restricted share units at the date of grant was equal to the bonus obligation recognized during the years ended December 31, 2003 and 2002, and as such, no additional compensation expense has been recognized in subsequent years.

At the Company's exclusive option, the restricted share units may be settled in cash, ordinary shares or in a combination thereof. Holders of restricted share units receive additional incremental restricted share units when the Company pays dividends on its common shares. During the year ended December 31, 2004, 12,306 restricted share units (2003 - 1,448; 2002 - nil) with a fair value of $0.4 million (2003 - $45,000) were granted to holders of restricted units in lieu of dividends.

At December 31, 2004, compensation cost not yet recognized related to non-vested awards was $16.7 million. This expense is expected to be recognized between 2005 and 2009, with approximately 47% expected to be recognized in 2005.

14.	Pension Plan

The Company provides pension benefits to eligible employees through various defined contribution plans sponsored by the Company. Under the Company's defined contribution plans, the Company makes contributions to its employees' accounts in amounts ranging from 4% to 10% of its employees' eligible earnings. In addition, under certain defined contribution plans, employee contributions may be supplemented by matching contributions made by the Company based on the level of employee contribution. Lastly, the Company may provide additional contributions, depending on its annual financial performance. The employee and Company contributions in the defined contribution plans are invested at the election of each employee in one or more of several investment portfolios offered by third party investment advisors. Contributions for the year ended December 31, 2004 resulted in an expense of $4.1 million being recorded in earnings (2003 - $2.0 million; 2002 - $0.6 million).

15.	Statutory requirements and dividend restrictions

As a holding company, Endurance Holdings relies on dividends from Endurance Bermuda to provide cash flow required for debt service and dividends to shareholders. Endurance Bermuda's ability to pay dividends and make capital distributions is subject to certain regulatory restrictions based principally on the amount of Endurance Bermuda's premiums written and net reserves for losses and loss expenses, subject to an overall minimum capital and surplus requirement of $100 million. In addition, Endurance

F-35

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

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

15.	Statutory requirements and dividend restrictions,    cont'd.

Bermuda is required to maintain a minimum statutory liquidity ratio. At December 31, 2004, Endurance Bermuda's statutory capital and surplus was $2.0 billion and the minimum amount of statutory capital and surplus required to be maintained was $0.6 billion.

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. At December 31, 2004, 2003 and 2002, these requirements had been met.

Endurance U.S. is subject to regulation by the State of New York Insurance Department. Dividends may only be declared or distributed out of earned surplus. At December 31, 2004, Endurance U.S. did not have earned surplus, therefore Endurance U.S. is precluded from declaring or distributing any dividend during 2005 without the prior approval of the Superintendent of the State of New York Insurance Department.

16.	Taxes

The Company is not required to pay any income or capital gains taxes in Bermuda. The Company has received an assurance from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act of 1966 of Bermuda, as amended, that in the event any legislation is enacted in Bermuda imposing any tax computed on profits or income, or computed on any capital asset, gain or appreciation or any tax in the nature of estate duty or inheritance tax, such tax shall not be applicable to the Company until March 28, 2016 provided that the assurance is subject to the condition that it will not prevent the application of any taxes payable by the Company in respect of real property or leasehold interests in Bermuda held by it. Endurance Bermuda intends to operate in a manner such that it will owe no United States tax other than premium excise tax and withholding taxes on certain investments.

The Company's subsidiaries based in the United Kingdom and United States are subject to income taxes in their respective jurisdictions.

The income tax benefit was as follows for the years ended December 31, 2004, 2003 and 2002, respectively:

				2004				2003				2002
Current income tax benefit				$	—			$	20			$	487
Deferred income tax benefit					9,790				5,236				370
				$	9,790			$	5,256			$	857

The actual income tax benefit attributable to income for the years ended December 31, 2004, 2003 and 2002 differed from the amount computed by applying the combined effective rate of 0% under Bermuda law to income before income tax benefit, as a result of the following:

				2004				2003				2002
Computed expected tax expense				$	—			$	—			$	—
Tax benefit effect of foreign taxes					9,790				5,256				857
				$	9,790			$	5,256			$	857

F-36

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

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

16.	Taxes,    cont'd.

Deferred income taxes represent the tax effect of the differences between the book and tax bases of assets and liabilities. Net deferred income tax assets and liabilities consisted of the following as of December 31, 2004, 2003 and 2002:

				2004				2003				2002
Deferred income tax assets:
Unearned premiums				$	16,009			$	14,105			$	—
Loss reserves					7,149				3,440				—
Net operating loss carry forward					10,697				5,120				—
Net unrealized investment losses					227				—				—
Other					2,405				451				993
					36,487				23,116				993
Deferred income tax liabilities:
Deferred acquisition costs					(18,808	)			(15,856	)			—
Net unrealized investment gains					—				(514	)			(1,337	)
Other					(1,547	)			(456	)			—
					(20,355	)			(16,826	)			(1,337	)
Net deferred income tax asset (liability)				$	16,132			$	6,290			$	(344	)

The Company paid income taxes totaling $1,633,000 and $20,000 for the years ended December 31, 2004 and 2003, respectively. There were no payments of income tax made prior to 2003. Net operating loss carryforwards in the amount of $33.2 million are available for application against future taxable income and will begin expiring in 2023.

A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. Management believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the remaining deferred tax assets.

F-37

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS —(CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

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

17.	Condensed unaudited quarterly financial data

The following is a summary of the unaudited quarterly data for the year ended December 31, 2004:

				Quarter Ended March 31, 2004				Quarter Ended June 30, 2004				Quarter Ended September 30, 2004				Quarter Ended December 31, 2004
Net premiums earned				$	415,826			$	395,987			$	409,487			$	411,300
Net investment income					24,675				28,944				30,978				37,462
Net foreign exchange (loss) gains					(3,159	)			(2,879	)			3,089				2,735
Net realized gains (losses) on sales of investments					5,176				(614	)			814				754
Total revenue				$	442,518			$	421,438			$	444,368			$	452,251
Losses and loss expenses				$	222,009			$	189,208			$	308,255			$	217,858
Acquisition expenses				$	85,518			$	82,667			$	81,147			$	80,452
Net income				$	100,872			$	114,756			$	26,848			$	113,108
Basic earnings per share				$	1.57			$	1.81			$	0.43			$	1.83
Diluted earnings per share				$	1.47			$	1.69			$	0.40			$	1.71

The following is a summary of the unaudited quarterly data for the year ended December 31, 2003:

				Quarter Ended March 31, 2003				Quarter Ended June 30, 2003				Quarter Ended September 30, 2003				Quarter Ended December 31, 2003
Net premiums earned				$	189,653			$	292,466			$	335,830			$	355,998
Net investment income					14,356				16,666				18,736				21,252
Net foreign exchange gains					2,506				2,088				2,123				3,166
Net realized gains (losses) on sales of investments					4,404				3,513				(932	)			(1,267	)
Total revenue				$	210,919			$	314,733			$	355,757			$	379,149
Losses and loss expenses				$	104,145			$	165,531			$	198,665			$	195,355
Acquisition expenses				$	34,560			$	57,481			$	69,382			$	69,126
Net income				$	51,201			$	66,791			$	56,543			$	88,902
Basic earnings per share				$	0.88			$	1.03			$	0.88			$	1.39
Diluted earnings per share				$	0.86			$	0.99			$	0.83			$	1.31

F-38

SELECTED CONSOLIDATED FINANCIAL INFORMATION

The following table sets forth our selected consolidated financial information for the periods ended and as of the dates indicated. As described in Note 1 to our consolidated financial statements included elsewhere in this Annual Report, our consolidated financial statements include the accounts of Endurance Holdings, Endurance Bermuda, Endurance U.K. and Endurance U.S. Endurance Bermuda was incorporated on November 30, 2001 and commenced operations on December 17, 2001. Endurance Holdings was incorporated on June 27, 2002 and effected an exchange offer in July 2002 with the shareholders of Endurance Bermuda. The exchange offer was accounted for as a business combination of companies under common control. On December 17, 2002, we effected a share premium issuance to our existing shareholders. Except as otherwise indicated, all share data in this prospectus assumes the share premium issuance to our existing shareholders of four additional shares for each common share outstanding had occurred as of the date such data is presented.

We derived the following selected consolidated financial and additional data for the period from November 30, 2001 (inception) through December 31, 2001 and for the years ended December 31, 2002, 2003 and 2004 from our audited consolidated financial statements and related notes. These historical results are not necessarily indicative of results to be expected from any future period.

You should read the following selected consolidated financial information along with the information contained in this Annual Report, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes included elsewhere in this Annual Report.

For the years ended December 31, 2004, 2003, 2002 and the period ended December 31, 2001				2004				2003				2002				2001
				(in thousands, except per share data)
Selected Income Statement Data:
Gross premiums written and acquired (a)				$	1,711,357			$	1,601,997			$	798,760			$	376
Net premiums written and acquired (b)					1,697,020				1,597,844				764,918				376
Net premiums earned (includes $11.3 million, $0.3 million and $30.7 million from related parties in 2004, 2003 and 2002, respectively)					1,632,600				1,173,947				369,489				1
Net investment income					122,059				71,010				42,938				838
Net realized gains on sales of investments					6,130				5,718				6,730				—
Losses and loss expenses (includes $9.4 million, $0.2 million and $17.5 million from related parties in 2004, 2003 and 2002, respectively)					937,330				663,696				204,455				—
Acquisition expenses (includes $1.2 million, $nil and $7.0 million from related parties in 2004, 2003 and 2002, respectively)					329,784				230,549				64,013				—
General and administrative expenses					133,725				100,657				49,999				527
Net income					355,584				263,437				102,066				312
Per Share Data:
Dividends declared and paid per share				$	0.81			$	0.32			$	0.00			$	0.00
Basic earnings per share				$	5.66			$	4.19			$	1.74			$	0.01
Diluted earnings per share				$	5.28			$	4.00			$	1.73			$	0.01
Weighted average number of common shares outstanding:
Basic					62,781				62,933				58,699				39,630
Diluted					67,283				65,900				58,858				39,630

1

				As of December 31,
				2004				2003				2002				2001
				(in thousands, except book value per share data)
Selected Balance Sheet Data:
Cash and investments				$	3,940,353			$	2,674,232			$	1,663,249			$	1,162,498
Total assets					5,225,838				3,458,964				2,054,594				1,165,099
Reserve for losses and loss expenses					1,549,661				833,158				200,840				—
Reserve for unearned premiums					897,605				824,685				403,305				375
Debt					391,280				103,029				192,000				—
Total shareholders' equity					1,862,455				1,644,815				1,217,500				1,162,312
Per Share Data:
Book value per share (c)				$	30.30			$	25.68			$	22.14			$	19.37
Diluted book value per share (d)				$	27.91			$	24.03			$	21.73			$	19.37

Selected Ratios (based on U.S. GAAP income statement data):

For the years ended December 31,				2004				2003				2002
Loss ratio (e)					57.4	%			56.5	%			55.3	%
Acquisition expense ratio (f)					20.2	%			19.6	%			17.3	%
General and administrative expense ratio (g)					8.2	%			8.6	%			13.6	%
Combined ratio (h)					85.8	%			84.7	%			86.2	%

(a)	Gross premiums written and acquired for the year ended December 31, 2003 included $400.3 million of gross premiums acquired in the HartRe transaction. Gross premiums written and acquired for the year ended December 31, 2002 included $90.0 million of gross premiums acquired in the LaSalle transaction.

(b)	Net premiums written and acquired for the year ended December 31, 2003 included $400.3 million of gross premiums acquired in the HartRe transaction. Net premiums written and acquired for the year ended December 31, 2002 included $69.0 million of net premiums acquired in the LaSalle transaction.

(c)

Book value per share is a non-GAAP measure based on total shareholders' equity divided by basic common shares outstanding of 61,472,808 at December 31, 2004, 64,046,776 at December 31, 2003, 55,000,000 at December 31, 2002 and 60,000,000 at December 31, 2001. Common shares outstanding include 217,816 vested restricted share units for purposes of the December 31, 2004 book value per share calculation.

(d)

Diluted book value per share is a non-GAAP measure based on total shareholders' equity divided by the number of common shares and common share equivalents outstanding at the end of the period, using the treasury stock method. Common share equivalents include options and warrants which are dilutive when the market price of the Company's shares exceeds the exercise price of the options or warrants. Diluted shares outstanding were 66,729,185 at December 31, 2004, 68,444,576 at December 31, 2003, 56,016,679 at December 31, 2002 and 60,000,000 at December 31, 2001. Common shares outstanding include 217,816 vested restricted share units for purposes of the December 31, 2004 book value per share calculation. We believe that this is an effective measure of the per share value of the Company as it takes into account the effect of all outstanding dilutive securities.

(e)	The loss ratio is calculated by dividing losses and loss expenses by net premiums earned.

(f)	The acquisition expense ratio is calculated by dividing acquisition expenses by net premiums earned.

(g)	The general and administrative expense ratio is calculated by dividing general and administrative expenses by net premiums earned.

(h)	The combined ratio is the sum of the loss ratio, the acquisition expense ratio and the general and administrative expense ratio. As a recently formed company, our historical combined ratio may not be indicative of future underwriting performance.

2

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

The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the Company's consolidated financial statements and related notes included elsewhere in this Annual Report.

Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, 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 "Cautionary Statement Regarding Forward-Looking Statements" in the Company's Annual Report on Form 10-K, 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 Company's 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 Specialty Holdings Ltd. ("Endurance Holdings") was organized as a Bermuda holding company on June 27, 2002. Endurance Holdings has three wholly-owned operating subsidiaries: Endurance Specialty Insurance Ltd. ("Endurance Bermuda"), based in Bermuda; Endurance Worldwide Insurance Limited ("Endurance U.K."), based in London, England; and Endurance Reinsurance Corporation of America ("Endurance U.S."), based in New York. Endurance Holdings and its wholly-owned subsidiaries are collectively referred to in this discussion and analysis as the "Company."

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 that are profitable and have limited correlation with one another. The Company's portfolio of specialty lines of business is organized into the following segments: property per risk treaty reinsurance, property catastrophe reinsurance, casualty treaty reinsurance, property individual risk, casualty individual risk, and aerospace and other specialty lines.

The insurance lines that the Company writes are included in the property individual risk, casualty individual risk, and aerospace and other specialty lines segments. The reinsurance lines that the Company writes are included in the property per risk treaty reinsurance, property catastrophe reinsurance, casualty treaty reinsurance, and aerospace and other specialty lines segments.

Property insurance and reinsurance provides coverage of an insurable interest in tangible property for property loss, damage or loss of use. The Company writes property lines through its property per risk treaty reinsurance, property catastrophe reinsurance, property individual risk, and aerospace and other specialty lines segments.

Casualty insurance and reinsurance is 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 therefrom. It includes, but is not limited to, general liability, automobile liability, professional liability, employers' liability, workers' compensation, directors' and officers' liability, personal liability and aviation liability insurance. The Company writes casualty lines through its casualty treaty reinsurance, casualty individual risk, and aerospace and other specialty lines segments.

The Company's results of operations are affected by the following business and accounting factors and critical accounting policies:

Revenues

The Company derives its revenues primarily from premiums from its insurance policies and reinsurance contracts. The premiums the Company charges for the risks assumed are priced based on

3

many assumptions and are a function of the amount and type of policies and contracts the Company writes as well as prevailing market prices. The Company prices these risks before its ultimate costs are known, which may extend many years into the future. In addition, the Company's revenues include income generated from its investment portfolio. The Company's investment portfolio is comprised primarily of fixed maturity investments that are held as available for sale. Under U.S. GAAP, these investments are carried at fair market value and unrealized gains and losses on the Company's investments are excluded from earnings. These unrealized gains and losses are included on the Company's balance sheet in accumulated other comprehensive income as a separate component of shareholders' equity.

Expenses

The Company's expenses consist primarily of losses and loss expenses, acquisition expenses and general and administrative expenses. Losses and loss expenses are estimated by management and reflect its best estimate of ultimate losses and costs arising during the reporting period and revisions of prior period estimates. The Company records losses and loss expenses based on an actuarial analysis of the estimated losses the Company expects to be reported on policies and contracts written. The ultimate losses and loss expenses will depend on the actual costs to settle claims. Acquisition expenses consist principally of commissions and brokerage expenses that are typically a percentage of the premiums on insurance policies or reinsurance contracts written. General and administrative expenses consist primarily of personnel expenses and general operating expenses. Interest expense and amortization of intangible assets are disclosed separately from general and administrative expenses.

Marketplace Conditions and Trends

In general, the Company believes operating conditions in the insurance and reinsurance marketplace continued to be favorable during 2004. Though pricing has not sustained levels seen in the two years immediately following the events of September 11, 2001, the Company continues to see the opportunity to provide needed underwriting capacity at what the Company believes are attractive rates in conjunction with steady terms and conditions. Although the Company is beginning to see increased competition across a number of its business segments, the Company believes premium levels are presently still attractive in the lines of business in which the Company participates. At this time, the Company cannot predict with any reasonable certainty whether and to what extent current marketplace conditions and trends will persist in the future.

Critical Accounting Policies and Estimates

The Company's consolidated financial statements contain certain amounts that are inherently subjective in nature and require management to make assumptions and best estimates to determine the reported values. If factors such as those described in the "Risk Factors" section in the Company's Annual Report on Form 10-K cause actual events or results to differ materially from management's underlying assumptions or estimates, there could be a material adverse effect on the Company's results of operations and financial condition and liquidity.

The Company believes that the following critical accounting policies affect significant estimates used in the preparation of its consolidated financial statements.

Premiums.    Premiums written, acquired and ceded are earned over the terms of the risk period. Contracts and policies written on a losses occurring basis cover losses which occur during the term of the contract or policy, typically 12 months. Accordingly, the premium is earned evenly over the contract or policy term. Contracts written on a policies attaching basis cover losses which attach to the underlying insurance policies written during the terms of the contracts. Premiums earned on a policies attaching basis usually extend beyond the original term of the reinsurance contract, typically resulting in recognition of premiums earned over a 24 month period rather than the traditional 12 month period. Policies attaching contracts accounted for 47%, 51% and 34% of the Company's gross premiums written and acquired during the years ended December 31, 2004, 2003 and 2002, respectively.

4

Premiums written and ceded include estimates based on information received from brokers, ceding companies and insureds, and any subsequent differences arising on such estimates are recorded in the periods in which they are determined. Premiums on the Company's excess of loss and proportional reinsurance contracts are estimated by management when the business is underwritten. For excess of loss contracts, the deposit premium, as defined in the contract, is generally considered to be the best estimate of the contract's written premium at inception. Accordingly, this is the amount the Company generally records as written premium in the period the underlying risks incept. Estimates of premiums assumed under proportional contracts, primarily written on a policies attaching basis, are recorded in the period in which the underlying risks are expected to incept and are based on information provided by brokers and ceding companies and estimates of the underlying economic conditions at the time the risk is underwritten. As actual premiums are reported by the ceding companies, management evaluates the appropriateness of the premium estimate and any adjustment to this estimate is recorded in the period in which it becomes known. Adjustments to original premium estimates could be material and such adjustments may directly and significantly impact earnings in the period they are determined because the subject premium may be fully or substantially earned.

A portion of the Company's assumed proportional reinsurance agreements contain loss sensitive provisions, such as adjustable or sliding scale commissions, that may impact the ultimate amounts paid to or received from ceding companies based on loss experience. In some loss scenarios, these features would result in the ceding company's results not being proportional to the Company's results from the proportional agreement, and such differences may be meaningful. The Company has recorded these agreements as reinsurance in accordance with the provisions of Statement of Financial Accounting Standards No. 113 – Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts. For the year ended December 31, 2004, the Company recorded written and earned premiums of $73.0 million and $52.7 million, respectively, associated with reinsurance agreements containing sliding scale commissions that, in some loss scenarios, could result in meaningful differences between the ceding company's results and the Company's results. For the year ended December 31, 2003, the Company recorded written and earned premiums of $22.6 million and $6.0 million, respectively, associated with such reinsurance agreements.

Reserve for Losses and Loss Expenses.    The reserve for losses and loss expenses includes reserves for unpaid reported losses and losses incurred but not reported ("IBNR"). The reserve for unpaid reported losses and loss expenses is established by management based on reports from brokers, ceding companies and insureds and consultations with independent legal counsel, and represents the estimated ultimate cost of events or conditions that have been reported to or specifically identified by the Company. The reserve for IBNR losses and loss expenses is established by management based on estimates of ultimate losses and loss expenses. Inherent in the estimates of ultimate losses and loss expenses are expected trends in claim severity and frequency and other factors which may vary significantly as claims are settled. Accordingly, ultimate losses and loss expenses may differ materially from the amounts recorded in the consolidated financial statements. These estimates are reviewed regularly and, as experience develops and new information becomes known, the reserves are adjusted as necessary. Such adjustments, if any, are recorded in earnings in the period in which they become known.

Losses and loss expense reserves are initially estimated by the Company using information either developed by the Company from internal or independent external sources, or by using pricing information provided to the Company by ceding companies, insureds and brokers at the time individual contracts and policies are bound. This information is used to develop individual point estimates of carried reserves for each business segment. These individual point estimates are then aggregated along with actual losses reported to reach the total reserve carried in the Company's consolidated financial statements. All of the Company's loss reserving is currently performed on a point estimate basis. Neither the Company nor its actuarial advisors utilize any form of range estimation in the loss reserving process. The reserving method currently used is an expected loss method that is commonly applied when limited loss development experience exists. The methodology, known as the Modified Bornheuter-Ferguson method, establishes an initial loss estimate for each

5

underwriting quarter by segment and type of contract. The portion of the initial loss estimate that is the IBNR reserve is then reduced each subsequent quarter by an amount equal to the amount of losses expected to be reported for that business segment during that quarter. Over time, the IBNR reserve will be reduced to zero and be replaced with the actual losses reported to the Company. The time period over which all losses are expected to be reported to the Company varies significantly by line of business. This period can range from a few quarters for some lines, such as property catastrophe, to many years for some casualty lines. To the extent that actual reported losses for specific lines of business and segments exceed expected reported losses, the carried estimate of ultimate loss will be correspondingly increased, and to the extent that actual reported losses are less than expected reported losses, the carried estimate of ultimate losses will be reduced.

The most significant assumptions used on December 31, 2004 to estimate losses and loss expense reserves are as follows:

1.    the information developed from internal and independent external sources can be used to develop meaningful estimates of the likely future performance of business bound by the Company;

2.    the loss and exposure information provided by ceding companies, insureds and brokers in support of their submissions can be used to derive meaningful estimates of the likely future performance of business bound with respect to each contract and policy;

3.    historic loss development and trend experience is assumed to be indicative of future loss development and trends; and

4.    no significant emergence of losses or types of losses that are not represented in the information supplied to the Company by its brokers, ceding companies and insureds will occur.

While there can be no guarantee that any of the above assumptions will prove to be correct, management believes that these assumptions represent a realistic and appropriate basis for estimating loss and loss expense reserves.

At the time each insurance policy or reinsurance contract is written, an underwriter, generally working in conjunction with an actuary or a risk analyst, estimates an initial expected loss ratio for the contract. The estimate may be based on the prior experience of the insured or ceding company, current exposure profiles, analogous exposures under similar contracts with other insureds or ceding companies, modeled long-term expected losses and/or some combination of these factors. These initial expected loss ratios are utilized along with other factors, including industry experience and the judgment of the Company's actuaries, in establishing loss ratios by line of business.

Reserves for losses and loss expenses are based in part upon the estimation of losses resulting from catastrophic events. Estimation of the losses and loss expenses resulting from catastrophic events based upon the Company's historical claims experience is inherently difficult because of the Company's short operating history and the possible severity of catastrophe claims. Therefore, the Company utilizes both proprietary and commercially available models, as well as historical reinsurance industry catastrophe claims experience, for purposes of evaluating future trends and providing an estimate of ultimate claims costs.

Several aspects of the Company's casualty insurance and reinsurance operations complicate the actuarial reserving techniques for loss reserves as compared to other insurance and reinsurance operations. Among these aspects are the differences in the Company's policy forms from more traditional forms, the lack of complete historical data for losses of the same type intended to be covered by the policies and contracts written by the Company, and the expectation that a portion of losses in excess of the Company's attachment levels in many of its contracts will be low in frequency and high in severity, limiting the utility of claims experience of other insurers and reinsurers for similar claims.

The Company uses statistical and actuarial methods to estimate ultimate expected losses and loss expenses. The period of time from the occurrence of a loss, the reporting of a loss to the Company and the settlement of the Company's liability may be several years. During this period, additional facts

6

and trends may be revealed. As these factors become apparent, case reserves will be adjusted, sometimes requiring an increase in the overall reserves of the Company, and at other times requiring a reallocation of IBNR reserves to specific case reserves. These estimates are reviewed regularly, and such adjustments, if any, are reflected in earnings in the period in which they become known. The establishment of new reserves or the adjustment of previously recorded reserves could result in significant upward or downward changes to the Company's financial condition for any particular period. While management believes that it has made a reasonable estimate of ultimate losses, the ultimate claims experience may not be as reliably predicted as may be the case with other insurance and reinsurance operations, and it is possible that losses and loss expenses will exceed the total reserves.

Accordingly, 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. Such adjustments, if any, are recorded in earnings in the period in which they are determined. A 1.0% change in the December 31, 2004 reserve for losses and loss expenses would result in a 4.3% change in net income for the year ended December 31, 2004.

Under U.S. GAAP, the Company is not permitted to establish loss reserves until the occurrence of an actual loss event. Once such an event occurs, the Company establishes reserves based upon estimates of total losses incurred by the ceding companies or insureds as a result of the event, its estimate of the potential losses incurred, and its estimate of the portion of such loss the Company has insured or reinsured. As a result, only loss reserves applicable to losses incurred up to the reporting date may be recorded, with no allowance for the provision of a contingency reserve to account for expected future losses. Losses arising from future events will be estimated and recognized at the time the loss is incurred and could be substantial. See "— Reserve for Losses and Loss Expenses" below for further discussion.

Results for the year ended December 31, 2004 included $136.7 million of favorable development of reserves as established at December 31, 2003. This favorable prior period development benefited the Company's loss ratio by approximately 8.4 percentage points in 2004. This favorable development related to reductions in estimated ultimate incurred losses for the accident years 2002 and 2003 resulted from reported loss emergence in 2004 which was less than expected in the year initially incurred. This absence of reported losses versus expectations occurred primarily in the Property Catastrophe Reinsurance and Property Individual Risk segment. See "— Reserve for Losses and Loss Expenses" below for further discussion.

Investments.     The Company currently classifies all of its fixed maturity investments and short-term investments as "available for sale" and, accordingly, they are carried at estimated fair value. The fair value of fixed maturity securities is estimated using quoted market prices or dealer quotes. Investments in other ventures are accounted for using the equity method of accounting whereby the initial investment is recorded at cost. The carrying amounts of these investments are increased or decreased to reflect the Company's share of income or loss and are decreased for dividends.

In accordance with Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities," the Company periodically reviews its investments to determine whether a decline in the fair value below the amortized cost basis is other than temporary. If such a decline in the fair value is judged to be other than temporary, the Company would write down the investment to fair value establishing a new cost basis. The amount of the write-down is charged to income as a realized loss. The new cost basis is not changed for subsequent recoveries in fair value.

7

Results of Operations

Years Ended December 31, 2004, 2003 and 2002

The following is a discussion and analysis of the Company's consolidated results of operations for the years ended December 31, 2004, 2003 and 2002.

Results of operations for the years ended December 31, 2004, 2003 and 2002 were as follows:

				2004				2003				2002
				(in thousands)
Revenues
Gross premiums written and acquired				$	1,711,357			$	1,601,997			$	798,760
Net premiums written and acquired					1,697,020				1,597,844				764,918
Net premiums earned					1,632,600				1,173,947				369,489
Expenses
Losses and loss expenses					937,330				663,696				204,455
Acquisition expenses					329,784				230,549				64,013
General and administrative expenses					133,725				100,657				49,999
					1,400,839				994,902				318,467
Underwriting income					231,761				179,045				51,022
Net investment income					122,059				71,010				42,938
Net foreign exchange (losses) gains					(214	)			9,883				2,312
Net realized gains on sales of investments					6,130				5,718				6,730
Amortization of intangibles					(3,990	)			(3,237	)			(809	)
Interest expense					(9,959	)			(4,238	)			(984	)
Income tax benefit					9,797				5,256				857
Net income				$	355,584			$	263,437			$	102,066
Ratios
Loss ratio					57.4	%			56.5	%			55.3	%
Acquisition expense ratio					20.2	%			19.6	%			17.3	%
General and administrative expense ratio					8.2	%			8.6	%			13.6	%
Combined ratio					85.8	%			84.7	%			86.2	%

For the year ended December 31, 2004 the Company's results were adversely impacted by the effects of Hurricanes Charley, Frances, Ivan and Jeanne. The Company's estimated combined gross losses from these storms totaled $170.0 million. Estimated losses net of reinstatement premiums, other loss sensitive accruals, reinsurance recoveries and taxes were $134.7 million. The estimated losses were incurred in the Company's property treaty, property catastrophe, property individual risk and aerospace and other specialty lines segments. The Company's loss estimates for these hurricanes were derived primarily from a review of in-force contracts and indications received from clients.

Premiums.    Gross premiums written increased slightly during 2004 as a result of a number of factors. Premiums grew during this period as a result of the renewal of business obtained from the HartRe portfolio acquisition, growth from the Company's U.S. and U.K. subsidiaries both of which commenced operations at the beginning of 2003, and growth experienced in Endurance Bermuda. The growth in written premiums was experienced across a number of business segments including property catastrophe reinsurance, casualty treaty reinsurance, property individual risk and casualty individual risk. Premium growth of approximately $371 million in the year ended December 31, 2004 resulted from new business written at Endurance U.S. and Endurance U.K. which have observed favorable underwriting opportunities across the property per risk treaty, casualty treaty reinsurance and property individual risk segments. Significant premium growth has also been recorded in Endurance Bermuda within the property catastrophe reinsurance segment. This premium growth resulted from an increase by the Company in the capital allocated to the property and catastrophe reinsurance segment in the

8

first half of the year. Premiums written by the property catastrophe reinsurance segment increased by $63.4 million in 2004. These specific areas of premium growth were modestly offset by business that was not renewed because terms and conditions did not meet the Company's requirements

The increase in 2003 of gross premiums written and acquired was due to growth from Endurance U.S., Endurance U.K. and Endurance Bermuda, and the acquisition of the majority of the in-force reinsurance business of HartRe. The acquisition of the HartRe business contributed $400.3 million in premiums acquired across a number of business segments, including property per risk treaty reinsurance, property catastrophe reinsurance, casualty treaty reinsurance and aerospace and other specialty lines. There was additional contribution to premium growth of over $425.5 million as a result of growth at Endurance U.S. and Endurance U.K., both of which observed favorable underwriting opportunities across the property per risk treaty reinsurance, casualty treaty reinsurance and property individual risk segments. Significant premium growth also occurred in Endurance Bermuda, particularly within the aerospace and other specialty lines segment. This segment saw an increase in excess of $46.4 million for the year in aerospace premiums written. The casualty individual risk segment also experienced favorable underwriting conditions in both healthcare and excess general liability lines, yielding an increase of $107.5 million in premiums written for the year.

Premiums ceded for the year ended December 31, 2004 were $14.3 million compared with a negligible amount in the year ended December 31, 2003 and $33.8 million for the year ended December 31, 2002. During 2004, the Company purchased additional reinsurance to reduce its exposure to certain U.S. wind risks, predominantly in Florida. The reinsurance was primarily purchased within the property per risk treaty reinsurance, property catastrophe reinsurance and property individual risk segments. The premiums ceded in 2002 resulted from retrocessional contracts acquired from LaSalle in May 2002.

Net premiums earned increased in 2004 as a result of the earning of net premiums that were written in 2003 and 2002. The increase in net premiums earned in 2003 was a result of the higher level of premiums written during 2003 as compared to 2002 in addition to the earning of premiums that were written in 2002.

The following table provides the geographic distribution of gross premiums written and acquired by location of the related risks for the years ended December 31, 2004, 2003 and 2002:

				2004				2003				2002
				(in thousands)
United States				$	981,642			$	1,065,893			$	561,000
Worldwide					432,379				383,670				160,897
Europe					157,424				80,001				32,939
Japan					28,006				27,062				13,081
Canada					23,539				14,790				7,487
Other					88,367				30,581				23,356
Total gross premiums written and acquired				$	1,711,357			$	1,601,997			$	798,760

The Company attributes gross premiums written and acquired to the geographic region in which the risks originate.

Net Investment Income.    Net investment income was derived primarily from interest earned on fixed maturity investments and investments in other ventures, partially offset by investment management fees. The increase in net investment income in 2004 was principally due to an increase in invested assets of approximately 47.4% and an increase in interest rates. For 2003, the increase in net investment income was principally due to a 61% increase in invested assets, partially offset by declining average yields as a result of a lower interest rate environment. The increase in invested assets for both years resulted from positive net operating cash flows. Investment expenses for the year ended December 31, 2004 were $3.7 million compared to $2.6 million for the year ended December 31, 2003 and $1.4 million for the year ended December 31, 2002.

The annualized period book yield (which is the average yield of the invested portfolio after adjusting for accretion and amortization from the purchase price) and total return of the investment

9

portfolio (which includes realized and unrealized gains and losses) for the years ended December 31, 2004, 2003 and 2002 were as follows:

				2004				2003				2002
Annualized period book yield					3.71	%			3.79	%			3.75	%
Total return on investment portfolio					3.59	%			4.07	%			8.13	%

During 2004, the yield on the benchmark five year U.S. Treasury bond has fluctuated within a 146 basis points range, from a high of 4.10% to a low of 2.64%. The Company invested operating cash flows opportunistically throughout this period of interest rate volatility, reducing mortgage and government exposure while increasing corporate and municipal allocations. The duration on the portfolio has shortened to 2.77 years from 3.08 years at December 31, 2003. Overall, this is due to the contraction of mortgage durations and a conservative allocation to cash. Overall, the annualized period book yield of the portfolio has decreased due to investing in a volatile interest rate cycle.

The interest rate environment in the year ended December 31, 2003 was volatile as well. The yield on the benchmark five year U.S. Treasury bond moved 142 basis points from a high of 3.28% to a low of 1.86% during the year. The yield on the five year U.S. Treasury bond moved from 4.84% to 2.40% in the year ended December 31, 2002. During 2003, the Company redeployed cash into higher yielding securities thus reducing the overall portfolio cash position to 4.4% of total assets and extending the portfolio duration to 3.08 years at December 31, 2003, from 12.5% and 2.22 years, respectively, at December 31, 2002.

Losses and Loss Expenses.    The reported loss ratio is characterized by various factors and is significantly impacted by the occurrence or absence of catastrophic events and subsequent loss emergence related to such events. For the first half of 2004, the Company's loss ratio was positively impacted by both the absence of major catastrophes and lower than expected loss emergence related to prior periods. In the second half of 2004, the Company's loss ratio was negatively impacted by the effects of Hurricanes Charley, Frances, Ivan and Jeanne. The Company's estimated combined gross losses from these storms totaled $170.0 million. Estimated losses, net of reinstatement premiums, other loss sensitive accruals, loss recoveries and taxes, were $134.7 million.

During 2003 there was a shift in the mix of the Company's business towards casualty business. The impact of the HartRe transaction and the other areas of premium growth resulted in a lower proportion of property catastrophe reinsurance which produced a lower incidence of loss activity over 2002 due to the absence of significant catastrophes. While this shift in business mix resulted in a slightly higher weighted average loss ratio for 2003, some business lines, particularly property individual risk and property catastrophe reinsurance experienced lower levels of reported losses than previously anticipated, thereby resulting in favorable adjustments to reserves.

For the year ended December 31, 2004, loss emergence related to the 2002 and 2003 accident years was lower than expected and reserves held by the Company proved to be moderately redundant. During the year, the Company's previously estimated ultimate losses for those accident years were reduced by $136.7 million. This reduction in the Company's estimated losses for prior years was experienced most significantly in the Company's property segments.

During 2003, the loss reserves held by the Company for the 2002 accident year proved to be moderately redundant. As of December 31, 2003, the Company's original estimated ultimate losses of $204.5 million for accident year 2002 had been reduced by $35.9 million. This reduction in the Company's initial estimated losses for accident year 2002 was experienced most significantly in the Property Catastrophe segment, the Property Individual Risk segment, and the Casualty Individual Risk 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. Such adjustments, if any, are recorded in earnings in the period in which they are

10

determined. The overall loss reserves were established by the Company's actuaries and reflect management's best estimate of ultimate losses. See "— Critical Accounting Policies and Estimates — Reserve for Losses and Loss Expenses" for further discussion.

Acquisition Expenses. The slight year over year increase in the Company's acquisition expense ratio is due to the growth of the Company's underwriting activities, most notably at Endurance U.S. An increased mix of higher acquisition cost reinsurance business as a percentage of total premiums resulted from a number of large treaty contracts being written at Endurance U.S. during the year.

General and Administrative Expenses. Growth in general and administrative expenses principally reflects the establishment of Endurance U.S. and Endurance U.K., as well as additional staff at Endurance Bermuda. At December 31, 2004, the Company had 298 employees compared to 245 employees at December 31, 2003 and 120 employees at December 31, 2002.

The general and administrative expense ratio for the year ended December 31, 2004 was 8.2% compared to 8.6% and 13.6% for the years ended December 31, 2003 and 2002, respectively. The ratio has declined as a result of growth in premiums earned.

Net Income. The increase in net income for both the 2004 and 2003 years was due to the growth of the Company's premiums, strong underwriting margin and an increase in invested assets. For 2004, the net income growth was offset by third quarter hurricane losses. Net income in 2004, was positively impacted by the results of the Company's property catastrophe reinsurance, property individual risk and casualty individual risk segments. Net income in 2003 was positively impacted by the results of all of the Company's business segments, most notably its Property Catastrophe Reinsurance and Property Individual Risk segments.

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. 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. Ceded reinsurance and recoveries are allocated to segments 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 segments. General and administrative expenses incurred by segments are allocated directly. Remaining corporate overhead is allocated based on each segment's proportional share of gross premiums written and acquired.

11

The following table summarizes the underwriting results and associated ratios for the Company's six business segments for the year ended December 31, 2004.

				Property Per Risk Treaty Reinsurance				Property Catastrophe Reinsurance				Casualty Treaty Reinsurance
				(in thousands)
Revenues
Gross premiums written and acquired				$	441,370			$	247,009			$	441,256
Net premiums written and acquired					436,202				244,072				438,451
Net premiums earned					464,024				234,961				378,894
Expenses
Losses and loss expenses					284,631				65,651				257,723
Acquisition expenses					125,363				26,592				97,456
General and administrative expenses					31,451				19,912				33,339
					441,445				112,155				388,518
Underwriting income				$	22,579			$	122,806			$	(9,624	)
Ratios
Loss ratio					61.3	%			27.9	%			68.0	%
Acquisition expense ratio					27.0	%			11.3	%			25.7	%
General and administrative expense ratio					6.8	%			8.5	%			8.8	%
Combined ratio					95.1	%			47.7	%			102.5	%

				Property Individual Risk				Casualty Individual Risk				Aerospace and Other Specialty Lines				Total
				(in thousands)
Revenues
Gross premiums written and acquired				$	112,900			$	246,802			$	222,020			$	1,711,357
Net premiums written and acquired					110,400				246,371				221,524				1,697,020
Net premiums earned					102,780				235,621				216,320				1,632,600
Expenses
Losses and loss expenses					46,051				147,657				135,617				937,330
Acquisition expenses					12,599				23,685				44,089				329,784
General and administrative expenses					11,324				22,084				15,615				133,725
					69,974				193,426				195,321				1,400,839
Underwriting income				$	32,806			$	42,195			$	20,999			$	231,761
Ratios
Loss ratio					44.8	%			62.7	%			62.7	%			57.4	%
Acquisition expense ratio					12.3	%			10.1	%			20.4	%			20.2	%
General and administrative expense ratio					11.0	%			9.4	%			7.2	%			8.2	%
Combined ratio					68.1	%			82.2	%			90.3	%			85.8	%

12

The following table summarizes the underwriting results and associated ratios for the Company's six business segments for the year ended December 31, 2003.

				Property Per Risk Treaty Reinsurance				Property Catastrophe Reinsurance				Casualty Treaty Reinsurance
				(in thousands)
Revenues
Gross premiums written and acquired				$	469,290			$	183,594			$	390,265
Net premiums written and acquired					469,290				184,303				387,497
Net premiums earned					296,551				174,158				284,843
Expenses
Losses and loss expenses					179,031				33,393				178,725
Acquisition expenses					74,454				19,807				76,643
General and administrative expenses					25,021				13,738				22,537
					278,506				66,938				277,905
Underwriting income				$	18,045			$	107,220			$	6,938
Ratios
Loss ratio					60.4	%			19.2	%			62.7	%
Acquisition expense ratio					25.1	%			11.4	%			26.9	%
General and administrative expense ratio					8.4	%			7.9	%			7.9	%
Combined ratio					93.9	%			38.5	%			97.5	%

				Property Individual Risk				Casualty Individual Risk				Aerospace and Other Specialty Lines				Total
				(in thousands)
Revenues
Gross premiums written and acquired				$	85,863			$	214,392			$	258,593			$	1,601,997
Net premiums written and acquired					83,929				214,232				258,593				1,597,844
Net premiums earned					65,408				173,266				179,721				1,173,947
Expenses
Losses and loss expenses					23,317				118,515				130,715				663,696
Acquisition expenses					7,058				19,069				33,518				230,549
General and administrative expenses					7,955				16,882				14,524				100,657
					38,330				154,466				178,757				994,902
Underwriting income				$	27,078			$	18,800			$	964			$	179,045
Ratios
Loss ratio					35.6	%			68.4	%			72.7	%			56.5	%
Acquisition expense ratio					10.8	%			11.0	%			18.7	%			19.6	%
General and administrative expense ratio					12.2	%			9.7	%			8.1	%			8.6	%
Combined ratio					58.6	%			89.1	%			99.5	%			84.7	%

13

The following table summarizes the underwriting results and associated ratios for the Company's six business segments for the year ended December 31, 2002.

				Property Per Risk Treaty Reinsurance				Property Catastrophe Reinsurance				Casualty Treaty Reinsurance
				(in thousands)
Revenues
Gross premiums written and acquired				$	168,054			$	178,120			$	203,566
Net premiums written and acquired					168,054				145,453				203,566
Net premiums earned					59,453				114,823				84,355
Expenses
Losses and loss expenses					35,577				42,804				56,070
Acquisition expenses					14,607				16,885				20,597
General and administrative expenses					10,520				11,150				12,743
					60,704				70,839				89,410
Underwriting income (loss)				$	(1,251	)		$	43,984			$	(5,055	)
Ratios
Loss ratio					59.8	%			37.3	%			66.5	%
Acquisition expense ratio					24.6	%			14.7	%			24.4	%
General and administrative expense ratio					17.7	%			9.7	%			15.1	%
Combined ratio					102.1	%			61.7	%			106.0	%

				Property Individual Risk				Casualty Individual Risk				Aerospace and Other Specialty Lines				Total
				(in thousands)
Revenues
Gross premiums written and acquired				$	62,934			$	106,903			$	79,183			$	798,760
Net premiums written and acquired					61,759				106,903				79,183				764,918
Net premiums earned					33,907				44,292				32,659				369,489
Expenses
Losses and loss expenses					13,283				33,958				22,763				204,455
Acquisition expenses					3,406				3,978				4,540				64,013
General and administrative expenses					3,939				6,692				4,955				49,999
					20,628				44,628				32,258				318,467
Underwriting income (loss)				$	13,279			$	(336	)		$	401			$	51,022
Ratios
Loss ratio					39.2	%			76.7	%			69.7	%			55.3	%
Acquisition expense ratio					10.0	%			9.0	%			13.9	%			17.3	%
General and administrative expense ratio					11.6	%			15.1	%			15.2	%			13.6	%
Combined ratio					60.8	%			100.8	%			98.8	%			86.2	%

Property Per Risk Treaty Reinsurance

The Company's Property Per Risk Treaty Reinsurance business segment reinsures individual property risks of ceding companies on a treaty basis. The Company's Property Per Risk Treaty

14

Reinsurance contracts cover claims from individual insurance policies written by its ceding company clients and include both personal lines and commercial lines exposures. The following table summarizes the underwriting results, associated ratios and the reserve for losses and loss expenses for the Property Per Risk Treaty Reinsurance business segment for the years ended December 31, 2004, 2003 and 2002, respectively.

				Year Ended
				December 31, 2004				December 31, 2003				December 31, 2002
				(in thousands)
Revenues
Gross premiums written and acquired				$	441,370			$	469,290			$	168,054
Net premiums written and acquired					436,202				469,290				168,054
Net premiums earned					464,024				296,551				59,453
Expenses
Losses and loss expenses					284,631				179,031				35,577
Acquisition expenses					125,363				74,454				14,607
General and administrative expenses					31,451				25,021				10,520
					441,445				278,506				60,704
Underwriting income (loss)				$	22,579			$	18,045			$	(1,251	)
Ratios
Loss ratio					61.3	%			60.4	%			59.8	%
Acquisition expense ratio					27.0	%			25.1	%			24.6	%
General and administrative expense ratio					6.8	%			8.4	%			17.7	%
Combined ratio					95.1	%			93.9	%			102.1	%
Reserve for losses and loss expenses				$	379,902			$	188,757			$	34,843

Premiums.    The decrease in gross premiums written during 2004 was in large part due to certain business that was not renewed where pricing declined or terms and conditions no longer met the Company's requirements. The growth in premiums earned benefited significantly from the earning of premiums written in 2003. The Company increased premiums ceded during 2004, ceding $5.2 million of premiums during the 2004 year as compared to no ceded premiums during 2003.

The increase during 2003 in gross premiums written and acquired was in large part due to the acquisition of the HartRe business, which contributed $139.8 million in premiums acquired for the year. In addition, part of the increase in premiums written and acquired is a result of the inception of business of Endurance U.S. and Endurance U.K., which combined have contributed $148.0 million in premium growth for 2003. The growth in premiums earned in 2003 benefited significantly from the earning of premiums written in 2002.

During 2004 and 2003, 70% and 67%, respectively, of premiums in this segment were written on a policies attaching basis that are earned over a 24 month period. In 2002, 59% of premiums in this segment were written on a policies attaching basis.

Losses and Loss Expenses.    The low loss ratios in 2004 reflected the generally low level of loss activity in the first half of the year. The loss ratio for this segment was impacted by the effects of Hurricanes Charley, Frances, Ivan and Jeanne during the second half of the year. The estimated combined gross losses of these storms totaled $79.6 million for this segment. Estimated losses net of reinstatement premiums, other loss sensitive accruals and loss recoveries were $70.0 million, prior to the effect of taxes. These losses were partially offset by $48.0 million of favorable loss development from prior years.

15

The low loss ratios in 2003 and 2002 reflected the strong pricing environment experienced by this business segment as well as the generally low level of loss emergence, both catastrophic losses and attritional losses, during both years.

Acquisition Expenses.    The acquisition expense ratio for 2004 was largely consistent with the prior 2003 and 2002 years. The slight increase in 2004 was due to a moderate shift in the mix of business.

General and Administrative Expenses.    The increase in general and administrative expenses reflected the growth in the underwriting staff at Endurance U.S. and Endurance U.K. during the 2004 year. The increase in general and administrative expenses during 2003 reflected the growth in the underwriting staff across all three operating subsidiaries. General and administrative expenses as a percentage of net premiums earned have decreased as premium earnings have increased significantly without a concurrent rise in expenses.

Property Catastrophe Reinsurance

The Company's Property Catastrophe Reinsurance business segment reinsures catastrophic perils for ceding companies on a treaty basis. The Company's property catastrophe reinsurance contracts provide protection for most catastrophic losses that are covered in the underlying insurance policies written by its ceding company clients. Protection under property catastrophe treaties is provided on an occurrence basis, allowing the Company's ceding company clients to combine losses that have been incurred in any single event from multiple underlying policies. The following table summarizes the underwriting results, associated ratios and the reserve for losses and loss expenses for the Property Catastrophe Reinsurance business segment for the years ended December 31, 2004, 2003 and 2002, respectively.

				Year Ended
				December 31, 2004				December 31, 2003				December 31, 2002
				(in thousands)
Revenues
Gross premiums written and acquired				$	247,009			$	183,594			$	178,120
Net premiums written and acquired					244,072				184,303				145,453
Net premiums earned					234,961				174,158				114,823
Expenses
Losses and loss expenses					65,651				33,393				42,804
Acquisition expenses					26,592				19,807				16,885
General and administrative expenses					19,912				13,738				11,150
					112,155				66,938				70,839
Underwriting income (loss)				$	122,806			$	107,220			$	43,984
Ratios
Loss ratio					27.9	%			19.2	%			37.3	%
Acquisition expense ratio					11.3	%			11.4	%			14.7	%
General and administrative expense ratio					8.5	%			7.9	%			9.7	%
Combined ratio					47.7	%			38.5	%			61.7	%
Reserve for losses and loss expenses				$	78,621			$	62,725			$	40,122

Premiums.    The increase in gross premiums written during 2004 is due to increased capital committed to this segment in the first half of the year. The Company wrote $86.9 million of new business during 2004, predominately in the first six months. As a result of growth in total capital and diversity provided by other lines, the Company has been able to increase property catastrophe premiums while maintaining its objective of limiting the expected economic loss from a one in one hundred year series of catastrophic events to no more than 25% of total capital.

16

The growth in premiums earned in 2004 is a result of an increase in premiums written during the year compared to the prior year. The Company increased premiums ceded during the year, ceding $2.9 million of premiums as compared to no ceded premiums million during 2003.The growth in premiums earned during 2003 was a result of the reduction in ceded premiums during the year and the earning of premiums that were written prior to 2003.

Contracts written on a losses occurring basis account for 95% of contracts associated with this segment and are earned over a 12 month period.

Losses and Loss Expenses.    The relatively low loss ratios for 2004 and 2003 reflected the generally low level of catastrophic loss events and loss emergence during both years.

The 2004 loss ratio for this segment was impacted by the effects of Hurricanes Charley, Frances, Ivan and Jeanne. The estimated combined gross losses in this segment as a result of these storms totaled $62.0 million. Estimated losses net of reinstatement premiums, other loss sensitive accruals and loss recoveries were $52.6 million for this segment. These losses were partially offset by $40.4 million of favorable loss development from prior years. Favorable development of loss reserves related to prior years was due to less than expected reported losses during 2004 related to catastrophic loss events that occurred in prior years.

The 2003 losses were impacted by the Midwestern tornados, Hurricanes Fabian and Isabel as well as the California wildfires experienced in the fourth quarter. Although the frequency of catastrophe losses was relatively high in 2003, the loss severity of these events was relatively low compared to the loss events of 2002. The 2002 loss ratio was heavily influenced by losses from the August 2002 Central European floods. In addition, during 2003 the segment experienced favorable development of $14.8 million on its reserves for losses and loss expenses related to 2002.

Acquisition Expenses.    The acquisition expense ratio for 2004 was consistent with 2003. The impact of ceded reinsurance purchased in 2002, which yielded very low ceding commissions overall, resulted in the expense ratio in 2002 being higher than in 2003 when a negligible amount of reinsurance was purchased.

General and Administrative Expenses.    General and administrative expenses increased in 2004 in line with the growth in underwriting activity and increased corporate expenses. The increase in general and administrative expenses in 2003 resulted from an increased allocation of corporate overhead.

Casualty Treaty Reinsurance

The Company's Casualty Treaty Reinsurance business segment reinsures third party liability exposures from ceding companies on a treaty basis. The exposures that the Company reinsures include general liability, automobile liability, professional liability, directors' and officers' liability, umbrella liability, employers' liability and workers' compensation. The following table summarizes the underwriting results, associated ratios and the reserve for losses and loss expenses for the Casualty Treaty Reinsurance business segment for the years ended December 31, 2004, 2003 and 2002, respectively.

17

				Year Ended
				December 31, 2004				December 31, 2003				December 31, 2002
				(in thousands)
Revenues
Gross premiums written and acquired				$	441,256			$	390,265			$	203,566
Net premiums written and acquired					438,451				387,497				203,566
Net premiums earned					378,894				284,843				84,355
Expenses
Losses and loss expenses					257,723				178,725				56,070
Acquisition expenses					97,456				76,643				20,597
General and administrative expenses					33,339				22,537				12,743
					388,518				277,905				89,410
Underwriting income (loss)				$	(9,624	)		$	6,938			$	(5,055	)
Ratios
Loss ratio					68.0	%			62.7	%			66.5	%
Acquisition expense ratio					25.7	%			26.9	%			24.4	%
General and administrative expense ratio					8.8	%			7.9	%			15.1	%
Combined ratio					102.5	%			97.5	%			106.0	%
Reserve for losses and loss expenses				$	467,225			$	236,521			$	56,070

Premiums.    The increase in gross premiums written during 2004 was in large part due to organic growth the Company has experienced at Endurance Bermuda and Endurance U.S., which have generated $46.2 million and $130.5 million in new business, respectively. This premium growth has been offset by certain business that has not been renewed where terms and conditions have no longer met the Company's requirements. The growth in premiums earned benefited significantly from the earning of premiums written in 2003.

The increase in gross premiums written and acquired during 2003 was due to the acquisition of the HartRe business and organic growth due to an increased underwriting staff, in particular at Endurance U.S. The growth in premiums earned was primarily the result of the earning of premiums written prior to 2003.

Premiums written on a policies attaching basis were 67%, 72% and 67% during 2004, 2003 and 2002, respectively. Premiums written on a policies attaching basis generally earn over 24 months.

Losses and Loss Expenses.    Claims may not be reported for many years in the lines of business included in this segment. Increased uncertainty exists regarding the development of reserves due to the long tail nature of this business. The loss ratio for 2004 increased due to adverse development during the fourth quarter of 2004. The adverse development relates to client exposure to parties named in various investigations by the New York Attorney General's office and the Securities and Exchange Commission. Further the Company strengthened reserves related to contracts with national account carriers. The slight difference in loss ratio in 2003 as compared to 2002 was a result of differences in the mix of business.

Acquisition Expenses.    The acquisition cost ratio for 2004 is largely consistent with the prior year. The slight decrease is due to a moderate shift in the mix of business. The higher expense ratio in 2003 as compared to 2002 was due to an increased amount of business in this segment written as proportional reinsurance contracts, which incur higher commissions than excess of loss treaties.

General and Administrative Expenses.    General and administrative expenses have increased in line with the growth in underwriting activity, increased corporate expenses, and higher staffing levels.

18

Property Individual Risk

The Company's Property Individual Risk business segment is comprised of the insurance and facultative reinsurance of commercial properties. The policies written in this segment provide coverage for one insured for each policy. The types of risks insured are generally commercial properties with sufficiently large values to require multiple insurers and reinsurers to accommodate their insurance capacity needs. This business is written by Endurance Bermuda and Endurance U.K. The following table summarizes the underwriting results, associated ratios and the reserve for losses and loss expenses for the Property Individual Risk business segment for the years ended December 31, 2004, 2003 and 2002, respectively.

				Year Ended
				December 31, 2004				December 31, 2003				December 31, 2002
				(in thousands)
Revenues
Gross premiums written and acquired				$	112,900			$	85,863			$	62,934
Net premiums written and acquired					110,400				83,929				61,759
Net premiums earned					102,780				65,408				33,907
Expenses
Losses and loss expenses					46,051				23,317				13,283
Acquisition expenses					12,599				7,058				3,406
General and administrative expenses					11,324				7,955				3,939
					69,974				38,330				20,628
Underwriting income (loss)				$	32,806			$	27,078			$	13,279
Ratios
Loss ratio					44.8	%			35.6	%			39.2	%
Acquisition expense ratio					12.3	%			10.8	%			10.0	%
General and administrative expense ratio					11.0	%			12.2	%			11.6	%
Combined ratio					68.1	%			58.6	%			60.8	%
Reserve for losses and loss expenses				$	70,218			$	36,117			$	13,282

Premiums.    Policies written in this segment are written on a losses occurring basis and typically earn over the 12 month period of the contract.

Premiums written grew during 2004 and 2003 largely due to new business generated by Endurance U.K., which expanded its team of underwriters and support staff throughout 2003 and wrote no business during 2002. Endurance U.K. generated new business of $44 million in the year ended December 31, 2004. Certain areas of this segment have seen decreases in pricing due to increased capacity and competition. This has resulted in reduced premiums recorded on those policies renewed and a portion of policies not being renewed due to less attractive terms. The increase in premiums earned was a result of the earning of premiums that were written over the last twelve months.

Losses and Loss Expenses.    The loss ratio for this segment was impacted by the effects of Hurricanes Charley, Frances, Ivan and Jeanne. The estimated combined gross losses of these storms totaled $17.8 million in this segment. Estimated losses net of reinstatement premiums, other loss sensitive accruals and loss recoveries were $15.4 million, prior to the effect of taxes. These losses were offset by favorable loss development of $15.7 million on reserves for loss and loss adjustment expenses related to the 2002 and 2003 accident years. Favorable development on the Company's losses and loss expense reserves related to 2002 and 2003 was due to less than expected reported losses during 2004 for catastrophic loss events in these years.

19

The decrease in the 2003 loss ratio as compared to 2002 was due to favorable loss development on 2002 business partially offset by tornado damage in the mid-western United States in May 2003 and hurricane damage in Bermuda in September 2003. In general, losses in this segment were lower than expected reflecting a lack of large individual property losses experienced by the industry in 2003. In addition, during 2003, the Company experienced a moderate amount of favorable development on its reserves for losses and loss expenses related to 2002.

Acquisition Expenses.    The acquisition expense ratio for 2004 experienced a slight increase due to a moderate shift in the mix of business resulting from the growth in premiums generated by Endurance U.K. The acquisition expense ratio for 2003 was largely consistent with 2002.

General and Administrative Expenses.    General and administrative expenses have increased in line with the growth in underwriting activity, increased corporate expenses, and higher staffing levels.

Casualty Individual Risk

The Company's Casualty Individual Risk business segment is comprised of the insurance and facultative reinsurance of third party liability exposures. This includes third party general liability insurance, directors' and officers' liability insurance, errors and omissions insurance and employment practices liability insurance, all written for a wide range of industry groups, as well as medical professional liability insurance which is written for large institutional healthcare providers. The following table summarizes the underwriting results, associated ratios and the reserve for losses and loss expenses for the Casualty Individual Risk business segment for the years ended December 31, 2004, 2003 and 2002, respectively.

				Year Ended
				December 31, 2004				December 31, 2003				December 31, 2002
				(in thousands)
Revenues
Gross premiums written and acquired				$	246,802			$	214,392			$	106,903
Net premiums written and acquired					246,371				214,232				106,903
Net premiums earned					235,621				173,266				44,292
Expenses
Losses and loss expenses					147,657				118,515				33,958
Acquisition expenses					23,685				19,069				3,978
General and administrative expenses					22,084				16,882				6,692
					193,426				154,466				44,628
Underwriting income (loss)				$	42,195			$	18,800			$	(336	)
Ratios
Loss ratio					62.7	%			68.4	%			76.7	%
Acquisition expense ratio					10.1	%			11.0	%			9.0	%
General and administrative expense ratio					9.4	%			9.7	%			15.1	%
Combined ratio					82.2	%			89.1	%			100.8	%
Reserve for losses and loss expenses				$	300,112			$	152,473			$	33,958

Premiums.    All premiums written by this segment are earned ratably over the terms of the insurance policies, typically a 12-month period.

During 2004, the Company observed increased pricing overall compared to the same period in 2003. Premiums written have increased as compared to 2003 as a result of additional staff and strong renewals of existing business. The increase in premiums earned was a result of higher premiums written in the twelve months ended December 31, 2004 against those written in the corresponding period to December 31, 2003.

20

During 2003, the Company observed improved market conditions with pricing either holding firm or increasing ahead of loss trend factors. Capacity increased across all lines but had not yet adversely impacted pricing. Premiums in all lines increased in 2003 as a result of an expansion of the underwriting staff dedicated to this segment, which totaled 26 at December 31, 2003 versus 8 in December 31, 2002. The increase in premiums earned was a result of higher premiums written in 2003 and the earning of premiums written in 2002.

Losses and Loss Expenses.    The Company has received only a limited number of notices of potential losses for this segment, very few of which have yet reached a level that would result in the Company paying a claim. Accordingly, the reserve for losses and loss expenses established by the Company's actuaries was based on historical industry loss data and business segment specific pricing information. In addition, results in this segment for 2004 were favorably impacted by reductions of $15.1 million in expected losses related to prior underwriting periods.

During 2003, the Company experienced favorable development on its reserves for losses and loss expenses related to 2002. The Company's loss ratio improvement in 2003 due to a moderate reduction in the initial expected loss ratios estimated for this segment in 2003 and favorable development for the year-end 2002 loss reserves for the segment.

Acquisition Expenses.    The acquisition expense ratio for the twelve months ended December 31, 2004 was largely consistent with the prior year. The slight decrease in 2004 and 2003 reflects variations in individual contract terms.

General and Administrative Expenses.    The increase in general and administrative expenses was due to the increase in the number of staff dedicated to this segment.

Aerospace and Other Specialty Lines

The Company's Aerospace and Other Specialty Lines business segment is comprised primarily of the insurance and reinsurance of Aerospace risks and a limited number of other insurance or reinsurance programs, such as surety, agriculture, marine, energy, personal accident, terrorism and others. Aerospace risks include aviation hull, aircraft liability, aircraft products coverage and satellite launch and in-orbit coverage. The following table summarizes the underwriting results, associated ratios and the reserve for losses and loss expenses for the Aerospace and Other Specialty Lines business segment for the years ended December 31, 2004, 2003 and 2002, respectively.

21

				Year Ended
				December 31, 2004				December 31, 2003				December 31, 2002
				(in thousands)
Revenues
Gross premiums written and acquired				$	222,020			$	258,593			$	79,183
Net premiums written and acquired					221,524				258,593				79,183
Net premiums earned					216,320				179,721				32,659
Expenses
Losses and loss expenses					135,617				130,715				22,763
Acquisition expenses					44,089				33,518				4,540
General and administrative expenses					15,615				14,524				4,955
					195,321				178,757				32,258
Underwriting income (loss)				$	20,999			$	964			$	401
Ratios
Loss ratio					62.7	%			72.7	%			69.7	%
Acquisition expense ratio					20.4	%			18.7	%			13.9	%
General and administrative expense ratio					7.2	%			8.1	%			15.2	%
Combined ratio					90.3	%			99.5	%			98.8	%
Reserve for losses and loss expenses				$	253,583			$	156,565			$	22,565

Premiums.    The decrease in gross premiums written during 2004 was in large part due to certain business that has not been renewed where terms and conditions have no longer met the Company's criteria, including a large workers' compensation contract. Offsetting these decreases was premium growth generated by an expansion within the Company's marine and personal accident underwriting teams, which combined contributed $68.8 million in 2004. The growth in premiums earned was largely due to the earning of premiums written in 2003.

The increase in gross premiums written and acquired during 2003 was in large part due to the acquisition of the in-force reinsurance business of HartRe which contributed $67.2 million in aerospace premiums written and acquired and $80.4 million in other specialty accounts for the year ended December 31, 2003. Of this amount $51.9 million represented a large workers' compensation contract. The remaining increase in premiums written and acquired was due primarily to the growth in the Company's aerospace business. The effect of the HartRe acquisition and the increased aerospace premiums written were partially offset by lower premiums written in other specialty lines. The growth in premiums earned was a result of the earning of premiums that have been written since the inception of the Company given that 83% of this segment's premiums were written on a policies attaching basis in 2003 and 42% in 2002.

Losses and Loss Expenses.    The 2004 loss ratio for this segment was impacted by the effects of Hurricanes Charley, Frances, Ivan and Jeanne. The estimated combined gross losses of these storms totaled $10.5 million for this segment. Estimated losses net of reinstatement premiums, other loss sensitive accruals and loss recoveries were $9.4 million, prior to the effect of taxes. Offsetting the losses was favorable loss development on reserves for loss and loss adjustment expenses of $17.3 million related to 2002 and 2003 accident years.

The increase in the 2003 loss ratio as compared to the 2002 loss ratio was a result of two satellite related losses and a relatively high loss ratio on the workers' compensation contract acquired from HartRe.

Acquisition Expenses.    The increase in expense ratio was due to the changes in mix of business towards proportional reinsurance contracts in aerospace lines.

22

General and Administrative Expenses.    The general and administrative expense ratio has decreased as a result of the reduction of staff in the Company's Alternative Risk line and an increase in premiums earned.

General and administrative expenses increased during 2003 in line with the growth in underwriting activity and increased corporate overhead allocation.

Significant Transactions and Events

On March 9, 2004, certain of the Company's founding shareholders consummated a secondary public offering of the Company's ordinary shares, par value $1.00 per share. Goldman, Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated acted as joint bookrunning managers, together with Credit Suisse First Boston LLC, Deutsche Bank Securities Inc., JP Morgan Securities Inc. and Wachovia Capital Markets, LLC, as the representatives of the underwriters. The ordinary shares sold in the offering were registered under the Securities Act of 1933, as amended, on a Registration Statement on Form S-1 (Registration No. 333-112258) that was declared effective by the Securities and Exchange Commission on March 3, 2004. Of the ordinary shares registered under the Registration Statement, 8,850,000 were sold at a price to the public of $34.85 per share. The underwriters had an option, exercisable until April 2, 2004, to acquire up to an additional 1,327,500 ordinary shares registered on the Registration Statement to cover over-allotments. On March 12, 2004, the underwriters exercised this option to purchase an additional 944,500 ordinary shares at a price of $34.85 per share. All of the ordinary shares were sold by certain founding shareholders and neither the Company nor any of its officers or directors received any proceeds from the offering.

On May 21, 2004, the Company repurchased 2,036,834 of its ordinary shares owned by Lightyear Capital, an initial investor at the formation of the Company. The purchase price was $31.779 per share, representing a 1% discount to the closing price for the ordinary shares on May 21, 2004. The purchase price totaled $64.7 million. The Company used existing cash on hand to fund the repurchase. The Company also announced a share repurchase program under which the Company may repurchase up to 2 million additional ordinary shares or share equivalents. The repurchases will be accomplished in open market or privately negotiated transactions, from time to time, depending on market conditions. During the year ended December 31, 2004, the Company repurchased 806,800 ordinary shares at an average price of $33.13 per share. In February 2005, the share repurchase program was increased to allow for the repurchase of a total of 4 million shares and share equivalents and is currently authorized to continue until February 2007. As of February 2005, the Company has authority remaining to repurchase up to an additional 3,193,200 ordinary shares and share equivalents.

At its meeting in May 2004, the Company's Board of Directors has approved the investment of up to $100 million with investment funds managed by performance incentive based alternative investment managers. At its meeting in February 2005, the Company's Board of Directors increased the authorized level of investment in the alternative funds to $200 million, which represented approximately 5% of the Company's invested assets at the time of authorization. As of December 31, 2004, the Company had invested $85.0 million in investments in alternative funds.

On June 15, 2004, the Company filed an unallocated universal Shelf Registration Statement on Form S-3 (Registration No. 333-116505) that was declared effective by the Securities and Exchange Commission on June 30, 2004. The Shelf Registration Statement permits the Company to issue, in one or more offerings, up to $500 million of debt, equity, trust preferred securities or a combination of the above. In addition to the $500 million of securities eligible to be sold from time to time by the Company, the Shelf Registration Statement also registered for possible future sales up to 38,069,699 ordinary shares beneficially owned by certain of the Company's founding shareholders. The registration of the founding shareholders' ordinary shares does not obligate these shareholders to offer or sell any of these shares. The Company will not receive any proceeds from any sale of shares by the selling shareholders.

On July 15, 2004, the Company issued $250 million principal amount of 7% Senior Notes due 2034 pursuant to a prospectus supplement to the Shelf Registration Statement. The Senior Notes were offered by the underwriters at a price of 99.108% of their principal amount, providing an effective

23

yield to investors of 7.072%, and, unless previously redeemed, will mature on July 15, 2034. On July 15, 2004, the Company used a portion of the net proceeds from the offering to repay the $103 million term loan outstanding under its bank credit facility.

On August 6, 2004, the Company and its lenders replaced its existing letter of credit and revolving credit facility with a new three-year $850 million letter of credit and revolving credit facility. The full amount of the new credit facility may be used to issue letters of credit or for revolving credit borrowings. Up to $412.5 million of borrowings or letter of credit issuances under the credit facility may be secured by a portion of the investment portfolio of the individual borrower under the credit facility. The new credit facility expires on August 6, 2007. The lenders under the new credit facility are Bank of America, N.A., Barclays Bank PLC, Calyon, Comerica Bank, Commerzbank AG, Credit Suisse First Boston, Deutsche Bank AG, Goldman Sachs Credit Partners L.P., HSBC Bank USA, National Association, ING Bank N.V., JPMorgan Chase Bank, Lloyds TSB Bank plc, Merrill Lynch Bank USA, The Bank of New York, The Bank of Nova Scotia, The Bank of N.T. Butterfield & Son Limited, The Royal Bank of Scotland plc, and Wachovia Bank, National Association. The administrative agent is JPMorgan Chase Bank.

Endurance U.S. entered into a Renewal Rights Purchase Agreement, dated as of October 1, 2004, pursuant to which Endurance U.S. acquired a majority of the surety reinsurance business of XL Reinsurance America Inc. ("XL Re America") on a prospective basis. Endurance U.S. will pay XL Re America a commission on the surety reinsurance business renewed by Endurance U.S. Endurance U.S. is not obligated to pay any commission prior to the renewal of the business or any minimum amount of commission. In addition, Endurance U.S. will assist XL Re America with the ongoing management of the current in force and expired surety reinsurance portfolio.

On December 7, 2004, Aon Corporation, one of the Company's original founding shareholders, completed the sale of 9,800,000 of the Company's ordinary shares. Goldman, Sachs & Co. purchased the ordinary shares from Aon Corporation at a purchase price of $32.70 and subsequently sold the shares to public investors. All of the ordinary shares were sold by Aon Corporation and its subsidiaries and neither the Company nor any of its officers or directors received any proceeds from the offering. The ordinary shares were sold under the Company's existing Shelf Registration Statement on Form S-3. In the transaction, Aon Corporation sold substantially all of its direct ownership interest in the Company's ordinary shares. At February 21, 2005, Aon Corporation retains 111,335 ordinary shares and warrants to purchase 4,099,200 of the Company's ordinary shares.

On January 5, 2005, the Company received a subpoena from the New York Attorney General's office requesting documents in connection with the investigation into contingent commissions and anti-competitive practices. The Company has provided the requested documents and is continuing to cooperate fully with the New York Attorney General's investigation. When these issues first emerged in October 2004, the Company's Board of Directors commissioned an outside party to review the Company's business activities to determine whether the Company had been involved in any of the anti-competitive practices detailed in the New York Attorney General's complaint against Marsh & McLennan. Based upon the findings generated by the review, the Company believes it has not participated in any of those anti-competitive practices.

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, including Endurance Bermuda, Endurance U.K. and Endurance U.S. 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. There are restrictions on the payment of dividends by Endurance Bermuda, Endurance U.K. and Endurance U.S. to Endurance Holdings, which are described in more detail below.

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

24

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 December 31, 2004, Endurance Bermuda could pay a dividend or return additional paid-in capital totaling approximately $272 million without prior regulatory approval based upon insurance and Bermuda Companies Act regulations.

Endurance U.S. is subject to regulation by the State of New York Insurance Department. Dividends may only be declared or distributed out of earned surplus. At December 31, 2004, Endurance U.S. did not have earned surplus, therefore Endurance U.S. is precluded from declaring or distributing any dividend during 2005 without the prior approval of the Superintendent of the State of New York Insurance Department.

The Company's aggregate invested assets as of December 31, 2004 totaled $3.9 billion compared to aggregate invested assets of $2.7 billion as of December 31, 2003. The increase in invested assets since December 31, 2003 resulted from collections of premiums on insurance policies and reinsurance contracts and investment income, offset by loss and loss expenses paid, acquisition expenses paid, reinsurance premiums paid and general and administrative expenses paid.

As of December 31, 2004, the Company had committed cash and cash equivalents and fixed maturity investments of $234.5 million in favor of certain ceding companies to collateralize obligations. As of December 31, 2004, the Company has also pledged $326.9 million of its fixed maturity investments as collateral to secure $260.9 million in letters of credit outstanding under its credit facility. In addition, at December 31, 2004, cash and fixed maturity investments with a fair value of $3.3 million were on deposit with U.S. state regulators.

The Company is subject to certain commitments with respect to the investments in other ventures acquired during the year ended December 31, 2004. Of the balance of $91.0 million at December 31, 2004, $40.5 million is subject to redemption restriction provisions of two years from date of acquisition and $15.5 million is subject to redemption restriction provisions of three years from acquisition. At December 31, 2004, the Company was committed to investing a further $7.5 million in an alternative investment fund.

At December 31, 2004, letters of credit totaling $260.9 million were outstanding, credit facility borrowings of $143.5 million were outstanding and $247.8 million of Senior Notes due 2034 were outstanding. On July 15, 2004, the Company used a portion of the net proceeds from the Senior Notes offering to repay the $103 million term loan outstanding under its then existing bank credit facility.

Endurance Holdings had entered into an interest rate swap agreement effective March 27, 2003 in which it has exchanged floating rate payments for fixed rate payments (2.62% per annum) on a declining notional amount corresponding to the outstanding principal amount of the initial $100 million drawn on the term loan facility that expired on August 6, 2004. The interest rate swap agreement was terminated on July 21, 2004.

Cash flows from operating activities on a consolidated basis are provided by premiums collected and investment income, offset by loss and loss expense payments and other general and administrative expenses. Consolidated cash provided by operating activities for the years ended December 31, 2004, 2003 and 2002 was approximately $1.2 billion, $943 million and $379 million, respectively.

On an ongoing basis, the Company expects its internally generated funds, together with borrowings available under its credit facilities, capital from its Senior Notes and the capital base established by its initial public offering and the private placement, to be sufficient to operate its business. However, there can be no assurance that the Company will not incur additional indebtedness in order to implement its business strategy or pay claims.

25

The Company's contractual obligations as of December 31, 2004 are summarized as follows:

				Payments due by period
Contractual Obligations				Total				Less than 1 year				1-3 years				3-5 years				More than 5 years
				(in thousands)
Reserve for Losses and Loss Expenses				$	1,549,661			$	549,120			$	543,432			$	219,305			$	237,804
7% Senior Notes due 2034					775,000				17,500				35,000				35,000				687,500
Credit Facility Borrowing					154,384				4,195				150,189				—				—
Operating Leases (1)					48,083				6,185				11,394				11,285				19,219
Total				$	2,527,128			$	577,000			$	740,015			$	265,590			$	944,523

(1)	The Company leases office space and office equipment under operating leases.

The table above includes the estimated timing of the payment of estimated future cash flows for losses and loss expenses based on the Company's best estimate of obligations to pay policyholders at December 31, 2004. The amount and timing of the cash flows are uncertain and do not have contractual payout terms. For a discussion of these uncertainties, see Critical Accounting Policies and Estimates — Reserve for Losses and Loss Expenses. These estimated obligations will be funded through operating cash flows and existing cash and investments.

On July 15, 2004, the Company issued $250 million principal amount of 7% Senior Notes due 2034 pursuant to a prospectus supplement to the Shelf Registration Statement. The Senior Notes were offered by the underwriters at a price of 99.108% of their principal amount, providing an effective yield to investors of 7.072%, and, unless previously redeemed, will mature on July 15, 2034. On July 15, 2004, the Company used a portion of the net proceeds from the offering to repay the $103 million term loan outstanding under its bank credit facility.

The Senior Notes are senior unsecured obligations of the Company and rank equally with all of the Company's existing and future unsecured and unsubordinated debt. The Senior Notes are also effectively junior to claims of creditors of the Company's subsidiaries, including policyholders, trade creditors, debt holders and taxing authorities.

The indenture governing the Senior Notes contains certain customary covenants, including:

	•	limitations on liens on the stock of restricted subsidiaries;

	•	restrictions as to the disposition of the stock of restricted subsidiaries; and

	•	limitations on consolidation, merger, amalgamation and sale of assets.

In addition, the following events constitute an event of default under the indenture governing the Senior Notes:

	•	a default in payment of principal or any premium under the Senior Notes when due;

	•	a default for 30 days in payment of any interest under the Senior Notes;

	•	a failure to observe or perform any other covenant or agreement in the Senior Notes or indenture, other than a covenant or agreement included solely for the benefit of a different series of debt securities, after 90 days written notice of the failure;

	•	certain events of bankruptcy, insolvency or reorganization; or

	•	a continuing default, for more than 30 days after the Company receives notice of the default, under any other indenture, mortgage, bond, debenture, note or other instrument, under which the Company or its restricted subsidiaries may incur recourse indebtedness for borrowed money in an aggregate principal amount exceeding $50,000,000, if the default resulted in the acceleration of that indebtedness, and such acceleration has not been waived or cured.

Where an event of default occurs and is continuing, either the indenture trustee or the holders of not less than 25% in principal amount of the Senior Notes, may declare the principal and accrued

26

interest of the Senior Notes to be due and payable immediately. If an event of default occurs involving certain events of bankruptcy, insolvency or reorganization, all unpaid principal of all the Senior Notes then outstanding, and interest accrued thereon, if any, shall be due and payable immediately, without any declaration or other act on the part of the indenture trustee or any holder of the Senior Notes.

On August 6, 2004, the Company and its lenders replaced its existing letter of credit and revolving credit facility with a new three-year $850 million letter of credit and revolving credit facility. The full amount of the new credit facility may be used to issue letters of credit or for revolving credit borrowings. Up to $412.5 million of borrowings or letter of credit issuances under the credit facility may be secured by a portion of the investment portfolio of the individual borrower under the credit facility. The new credit facility expires on August 6, 2007. The lenders under the new credit facility are Bank of America, N.A., Barclays Bank PLC, Calyon, Comerica Bank, Commerzbank AG, Credit Suisse First Boston, Deutsche Bank AG, Goldman Sachs Credit Partners L.P., HSBC Bank USA, National Association, ING Bank N.V., JPMorgan Chase Bank, Lloyds TSB Bank plc, Merrill Lynch Bank USA, The Bank of New York, The Bank of Nova Scotia, The Bank of N.T. Butterfield & Son Limited, The Royal Bank of Scotland plc, and Wachovia Bank, National Association. The administrative agent is JPMorgan Chase Bank. The administrative agent is JPMorgan Chase Bank.

Proceeds of the revolving credit facility may be used by the Company or its subsidiaries for general corporate and working capital purposes and repurchases of its outstanding ordinary or class A shares and warrants to purchase its ordinary or class A shares. The Company cannot use more than $500 million of the proceeds for equity repurchases. The credit facility also provides for the issuance of standby letters of credit, of which up to $412.5 million may be secured by a portion of the investment portfolio of the individual borrower under the facility. Endurance Holdings guaranteed the obligations of those of its subsidiaries that are parties to the credit facility.

On December 22, 2004, the Company borrowed $143.5 million under the unsecured revolving credit facility. This amount remained outstanding at December 31, 2004.

The interest rate for revolving loans under the credit facility is either (i) the higher of (a) the Federal Funds Effective Rate plus 1/2% of 1% and (b) the prime commercial lending rate of JPMorgan Chase Bank or (ii) LIBOR. For letters of credit issued on an unsecured basis, the Company is required to pay a fee ranging from 0.40% to 0.70% on the daily stated amount of such letters of credit. For letters of credit issued on a secured basis, the Company is required to pay a fee ranging from 0.20% to 0.30% on the daily stated amount of such letters of credit. In each case, the applicable fee is determined based upon the ratio of the Company's outstanding indebtedness to total capital, which is referred to as the Company's leverage ratio. If the Company fails to timely repay any revolving loan or timely reimburse any lender for a drawing under a letter of credit, the Company is obligated to pay interest on the unpaid or unreimbursed amount at the applicable rate, plus 2.0%. The Company incurred interest at 2.92% on the revolving borrowing of December 22, 2004 for the remainder of the year ended December 31, 2004.

The credit facility requires the Company to pay to the lenders a facility fee that ranges from 0.10% to 0.175% of the total commitments outstanding under the credit facility depending on the Company's leverage ratio. The Company must also pay the lenders a utilization fee that ranges from 0.125% to 0.25% of the total amount of revolving loans outstanding when the aggregate amount of those loans is equal to 50% of the aggregate lending commitments outstanding under the credit facility.

The credit facility requires that the outstanding principal of revolving loans be repaid in full on August 6, 2007.

The credit facility requires the Company's compliance with certain customary restrictive covenants. These include certain financial covenants, such as maintaining a leverage ratio (no greater than 0.35:1.00 at any time), a consolidated tangible net worth (no less than $1.25 billion at any time), and unencumbered cash and investment grade assets in excess of the greater of $400 million or the Company's outstanding debt and letters of credit. In addition, each of the Company's regulated insurance subsidiaries that has a claims paying rating from A.M. Best must maintain a rating of at

27

least B++ at all times. The terms of the Company's credit facility restrict the declaration or payment of dividends if the Company is already in default or the payment or declaration would cause a default under the terms of the loan facilities. The credit facility also includes other covenants restricting such activities as:

	•	changes in business;

	•	consolidation or merger with another entity;

	•	disposal of assets;

	•	incurrence of additional indebtedness;

	•	incurrence of liens on our property;

	•	issuance of preferred or preference equity securities;

	•	dissolution or liquidation;

	•	transactions with affiliates; and

	•	changes of control.

It is an event of default under the credit facility if there occurs any one of the following:

	•	a failure of the Company to pay principal when due, interest or fees within three business days or other amounts under the credit facility following notice or demand;

	•	a representation made by the Company is untrue in any material respect;

	•	a failure by the Company to perform its covenants;

	•	a default in connection with other indebtedness in excess of $30 million;

	•	bankruptcy;

	•	a material ERISA violation;

	•	an adverse judgment in excess of $30 million;

	•	suspension of one or more insurance licenses, with the suspension having a material adverse effect on the Company;

	•	cessation of the Endurance Holdings guarantee;

	•	a failure of the lenders to have a first priority perfected security interest in the collateral; or

	•	a change in control of the Company.

Upon the occurrence of an event of default under the credit facility, the lenders can terminate their commitments under the revolving credit facility, require repayment of any outstanding revolving loans, give notice of termination of any outstanding letters of credit in accordance with their terms, require the delivery of cash collateral for outstanding letters of credit and foreclose on any security held by the lenders under the credit facility.

Given that the Company's Senior Notes (described above) and the credit facility contain cross default provisions, this may result in the holders of the Senior Notes and the lenders under the credit facility declaring such debt due and payable and an acceleration of all debt due under both the Senior Notes and the revolving credit facility. If this were to occur, the Company may not have liquid funds sufficient at that time to repay any or all of such indebtedness.

Off-Balance Sheet Arrangements

As of December 31, 2004, the Company has not entered into any material off-balance sheet arrangements.

Currency and Foreign Exchange

The Company's functional currency is U.S. dollars for Endurance Bermuda and Endurance U.S. and British Sterling for Endurance U.K. The reporting currency for all entities is U.S. dollars. The

28

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. Endurance U.K. is subject to the United Kingdom's Financial Services Authority 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 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.

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.

Reserve for Losses and Loss Expenses

As of December 31, 2004 and 2003, the Company had accrued losses and loss expense reserves of $1,549.7 million and $833.2 million, respectively. These amounts represent the Company's actuarial best estimate of the ultimate liability for payment of losses and loss expenses related to loss events as of December 31, 2004 and 2003, respectively. During the years ended December 31, 2004, 2003 and 2002, the Company paid losses and loss expenses of $236.7 million, $86.8 million and $4.7 million, respectively.

As of December 31, 2004, the Company had been notified of a moderate number of claims and potential claims under its insurance policies and reinsurance contracts. Of these notifications, management expects some of the claims to penetrate layers in which the Company provides coverage and case reserves have been established for these expected losses. 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 currently a 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. Such 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. See "Critical Accounting Policies and Estimates — Reserve for Losses and Loss Expenses" for further discussion.

29

The following table summarizes the net income effect of a 10% change in the Company's reserve for losses and loss expenses by segment:

				Property per Risk Treaty Reinsurance				Property Catastrophe Reinsurance				Casualty Treaty Reinsurance				Property Individual Risk				Casualty Individual Risk				Aerospace & Other Specialty Lines
				(in thousands)
Reserve for losses and loss expenses at December 31, 2004				$	379,902			$	78,621			$	467,225			$	70,218			$	300,112			$	253,583
Net income effect of a 10% change					10.7	%			2.2	%			13.1	%			2.0	%			8.4	%			7.1	%

Incurred losses for the year ended December 31, 2004 are summarized as follows:

				Property per Risk Treaty Reinsurance				Property Catastrophe Reinsurance				Casualty Treaty Reinsurance				Property Individual Risk				Casualty Individual Risk				Aerospace & Other Specialty Lines				Total
				(in thousands)
Incurred related to:
Current year				$	332,669			$	106,065			$	257,801			$	61,794			$	162,767			$	152,914			$	1,074,010
Prior years					(48,038	)			(40,414	)			(78	)			(15,743	)			(15,110	)			(17,297	)			(136,680	)
Total Incurred Losses				$	284,631			$	65,651			$	257,723			$	46,051			$	147,657			$	135,617			$	937,330

Incurred losses for the year ended December 31, 2004 include approximately $136.7 million in favorable development of reserves relating to prior accident years. The favorable loss reserve development experienced during the 2004 year benefited the Company's 2004 reported loss ratio by approximately 8.4 percentage points.

During 2004, the reduction in the Company's initial estimated losses for prior accident years was experienced most significantly in the Property per Risk Treaty segment and the Property Catastrophe segment. The balance of the redundancy was experienced evenly across the Property Individual Risk, Casualty Individual Risk and Aerospace & Other Specialty business segments. The above net reduction in estimated losses for prior accident years reflects lower than expected emergence of catastrophic and attritional losses.

Reserves for losses and loss expenses were comprised of the following at December 31, 2004:

				Property per Risk Treaty Reinsurance				Property Catastrophe Reinsurance				Casualty Treaty Reinsurance				Property Individual Risk				Casualty Individual Risk				Aerospace & Other Specialty Lines				Total
				(in thousands)
Case reserves				$	158,139			$	41,542			$	68,450			$	28,697			$	5,000			$	68,422			$	370,250
IBNR					221,763				37,079				398,775				41,521				295,112				185,161				1,179,411
Reserve for losses and loss expenses				$	379,902			$	78,621			$	467,225			$	70,218			$	300,112			$	253,583			$	1,549,661

30

Selected quarterly activity in the reserve for losses and loss expenses for the year ended December 31, 2004 is summarized as follows:

				Quarter Ended March 31, 2004				Quarter Ended June 30, 2004				Quarter Ended September 30, 2004				Quarter Ended December 31, 2004				Year Ended December 2004
				(in thousands)
Incurred related to:
Current year				$	241,381			$	229,900			$	359,187			$	243,542			$	1,074,010
Prior years					(19,372	)			(40,692	)			(50,932	)			(25,684	)			(136,680	)
Total incurred					222,009				189,208				308,255				217,858				937,330
Paid related to:
Current year					(2,752	)			(11,027	)			(28,056	)			(76,606	)			(118,441	)
Prior years					(32,819	)			(27,076	)			(21,801	)			(36,557	)			(118,253	)
Total paid				$	(35,571	)		$	(38,103	)		$	(49,857	)		$	(113,163	)		$	(236,694	)

The following table represents the development of GAAP balance sheet reserves for 2002 through December 31, 2004. This table does not present accident or policy year development data. The top line of the table shows the gross reserves for losses and loss expenses at the balance sheet date for each of the indicated years. This represents the estimated amounts of gross losses and loss expenses arising in the current year and all prior years that are unpaid at the balance sheet date, including IBNR reserves. The table also shows the reestimated amount of the previously recorded reserve based on experience as of the end of each succeeding year. The estimate changes as more information becomes known about the frequency and severity of claims for individual years. The "cumulative redundancy" represents the aggregate change to date from the original estimate on the top line of the table. The table also shows the cumulative paid amounts as of successive years with respect to the reserve liability.

Years ended December 31,				2002				2003				2004
				(in thousands)
Reserve for losses and loss expenses				$	200,840			$	833,158			$	1,549,601
1 year later					164,923				660,561				—
2 years later					143,295				—				—
Cumulative redundancy					57,545				172,597				—
Cumulative net paid losses
1 year later					49,563				155,745				—
2 years later					66,643				—				—

Ceded Reinsurance

Total premiums ceded were $14.3 million for the year ended December 31, 2004, negligible for the year ended December 31, 2003 and approximately $33.8 million for the year ended December 31, 2002. During 2004, the Company purchased additional reinsurance to reduce its exposure to certain U.S. wind risks, predominantly in Florida. The reinsurance was allocated to the property per risk treaty reinsurance, treaty catastrophe reinsurance and property individual risk segments. The premiums ceded in 2002 resulted from retrocessional contracts acquired from LaSalle in May 2002.

At December 31, 2004, the Company has reinsurance recoverables of $12.2 million related to these reinsurance agreements. The Company remains obligated for amounts ceded in the event that its reinsurers or retrocessionaires do not meet their obligations. Accordingly, the Company has evaluated

31

the reinsurers and retrocessionaires that are providing reinsurance and retrocessional protection and will continue to monitor the stability of its reinsurers and retrocessionaires.

Intangible Assets

Goodwill and other intangibles that arise from business combinations are accounted for in accordance with SFAS No. 141 "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets". These standards require that identifiable intangible assets are amortized in accordance with their useful lives and goodwill and intangible assets with indefinite useful lives should not be amortized but should be tested for impairment at least annually. As a result of its acquisition of the majority of the reinsurance business of HartRe during the year ended December 31, 2003, the Company recorded goodwill of $0.2 million. Payments to HartRe contingent upon certain performance factors related to the acquired business have increased the goodwill balance to $15.2 million at December 31, 2004. The Company also recorded other acquisition related intangibles of $19.6 million. The other acquisition related intangibles are being amortized over periods of up to ten years. As a result of its acquisition of the property catastrophe business of LaSalle during the year ended December 31, 2002, the Company recorded goodwill of $0.9 million and other acquisition related intangibles of $14.2 million. The other acquisition related intangibles are being amortized over periods of up to ten years.

Deferred Tax Assets

The Company's balance sheet contains net deferred tax assets in the amount of $16.1 million (2003 – $6.3 million). $10.7 million (2003 – $5.1 million) of the Company's net deferred tax assets relates to net operating loss carryforwards that are available to offset future taxes payable by the Company's U.S. and U.K. subsidiaries. Although the Company's U.S. operations did not generate taxable income during the year ended December 31, 2004 or during prior years, the net operating losses which gave rise to a deferred tax asset have a carryforward period through 2024. Management believes the deferred tax assets are appropriately stated given tax planning strategies that could be implemented to realize the value of the deferred tax asset.

Quantitative and Qualitative Information about Market Risk

The Company believes that it is principally exposed to four types of market risk: interest rate risk, equity risk, foreign currency risk and credit risk.

Interest Rate Risk.    The Company's primary market risk exposure is to changes in interest rates. The Company's fixed maturity portfolio is exposed to interest rate risk. Fluctuations in interest rates have a direct impact on the market valuation of these securities. As interest rates rise, the market value of the Company's fixed maturity portfolio falls, and the converse is also true. The Company expects to manage interest rate risk through an active portfolio management strategy that involves the selection, by its managers, of investments with appropriate characteristics, such as duration, yield, currency and liquidity that are tailored to the anticipated cash outflow characteristics of its liabilities. The Company's strategy for managing interest rate risk also includes maintaining a high quality portfolio with a relatively short duration to reduce the effect of interest rate changes on book value. A significant portion of the investment portfolio matures each year, allowing for reinvestment at current market rates. The portfolio is actively managed and trades are made to balance the Company's exposure to interest rates. As of December 31, 2004, assuming parallel shifts in interest rates, the impact of an immediate 100 basis point increase in market interest rates on the Company's assets invested in cash and fixed income securities of $3.8 billion would have been an estimated decrease in market value of 2.9% or approximately $111 million, and the impact on its cash and fixed income securities of an immediate 100 basis point decrease in market interest rates would have been an estimated increase in market value of 2.7% or approximately $104 million.

The Company's investments in other ventures are exposed to interest rate risk. To the extent that the securities underlying these investments are fixed maturities, fluctuations in interest rates have a direct impact on the market valuation of these investments.

32

Equity Risk.    The Company's investments in alternative funds are exposed to equity risk. To the extent that the securities underlying these investments are equity securities, fluctuations in the equity markets have a direct impact on the market valuation of these investments. The Company's investment in alternative funds at December 31, 2004 was $91.0 million which represented 2.3% of the Company's invested assets at such date.

Foreign Currency Risk.    The Company has made a significant investment in the capitalization of Endurance U.K., which is denominated in British Sterling. In addition, the Company enters into reinsurance and insurance contracts for which it is obligated to pay losses in currencies other than U.S. dollars. For the year ended December 31, 2004, approximately 22.9% of the Company's gross premiums were written in currencies other than the U.S. dollar. A portion of the Company's cash and cash equivalents, investments and loss reserves are also denominated in non-U.S. currencies. The majority of the Company's operating foreign currency assets and liabilities are denominated in Euros, British Sterling, Canadian Dollars, Japanese Yen and Australian Dollars ("Major Currencies"). The Company may, from time to time, experience losses from fluctuations in the values of these and other non-U.S. currencies, which could have a material adverse effect on its results of operations. The Company will attempt to manage its foreign currency risk by seeking to match its liabilities under insurance and reinsurance contracts that are payable in foreign currencies with investments that are denominated in such currencies. The Company purchases assets which are matched in currency to its case reserves for liabilities incurred in major currencies including U.S. dollars, Euros, British Sterling, Canadian Dollars, Japanese Yen and Australian dollars at the time such reserves are established. The Company has no currency hedges in place; however, as part of its matching strategy, the Company may consider the use of hedges when it becomes aware of probable significant losses that will be paid in non-U.S. dollar currencies. For liabilities incurred in currencies other than those listed above, U.S. dollars are converted to the currency of the loss at the time of claims payment. As a result, the Company may, from time to time, experience losses resulting from fluctuations in the values of foreign currencies.

Credit Risk.    The Company has exposure to credit risk primarily as a holder of fixed maturity securities. The Company's risk management strategy and investment policy is to invest in debt instruments of high credit quality issuers and to limit the amount of credit exposure with respect to particular ratings categories and any one issuer. The Company attempts to limit its credit exposure by purchasing fixed income investments rated A–/A3 or higher. In addition, the Company has limited its exposure to any single corporate issuer to 1% or less of its total portfolio.

33

Index to Schedules to Consolidated Financial Statements

								Pages
I.				Summary of Investments other than Investments in Related Parties at December 31, 2004					S-2
II.				Condensed Financial Statement Information of the Registrant					S-3
III.				Supplementary Insurance Information for the years ended December 31, 2004, 2003 and 2002					S-6
IV.				Reinsurance for the years ended December 31, 2004, 2003 and 2002					S-9

All other financial statement schedules are not required under the related instructions or are inapplicable and therefore have been omitted.

S-1

SCHEDULE I

ENDURANCE SPECIALTY HOLDINGS LTD. AND SUBSIDIARIES
SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES
AT DECEMBER 31, 2004
(in thousands of United States dollars)

				Cost (1)				Market Value				Amount at Which Shown on the Balance Sheet
Type of Investment:
Fixed Maturities
U.S. government and government agencies and authorities				$	1,188,907			$	1,188,863			$	1,188,863
U.S. states, municipalities and political subdivisions					156,674				156,767				156,767
Foreign governments					251,883				252,748				252,748
Corporate bonds					622,474				629,611				629,611
U.S. asset backed securities					421,534				419,933				419,933
U.S. mortgage backed securities					929,015				930,252				930,252
Total fixed maturities					3,570,487				3,578,174				3,578,174
Investment in other ventures					85,000				91,036				91,036
Total Investments				$	3,655,487			$	3,669,210			$	3,669,210

(1)	Investments in fixed maturities are shown at amortized cost.

S-2

SCHEDULE II

ENDURANCE SPECIALTY HOLDINGS LTD.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS - PARENT ONLY
DECEMBER 31, 2004 AND 2003
(In thousands of United States dollars except share amounts)

				2004				2003
ASSETS
Cash and cash equivalents				$	7,304			$	5,586
Fixed maturity investments available for sale, at fair value (amortized cost: $105,300 at December 31, 2003)					—				105,166
Investment in subsidiary					2,101,687				1,633,022
Accrued investment income					—				892
Amounts due from subsidiaries					7,354				3,087
Other assets					4,688				688
Total assets				$	2,121,033			$	1,748,441
LIABILITIES
Debt				$	247,780			$	103,029
Other liabilities					10,798				597
Total liabilities					258,578				103,626
SHAREHOLDERS' EQUITY
Common shares
Ordinary – 61,254,992 issued and outstanding (2003 – 63,912,000)					61,255				63,912
Additional paid-in capital					1,111,633				1,189,570
Accumulated other comprehensive income					39,473				46,068
Retained earnings					650,094				345,265
Total shareholders' equity					1,862,455				1,644,815
Total liabilities and shareholders' equity				$	2,121,033			$	1,748,441

See accompanying notes to the consolidated financial statements.

S-3

SCHEDULE II

ENDURANCE SPECIALTY HOLDINGS LTD.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT, Cont'd.
STATEMENTS OF INCOME - PARENT ONLY
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(In thousands of United States dollars, except share and per share amounts)

				2004				2003				2002
Revenues
Net investment income				$	1,859			$	2,358			$	4
Net realized gains on sales of investments					—				507				—
Total revenues					1,859				2,865				4
Expenses
General and administrative expenses					10,442				7,264				112
Net realized losses on sales of investments					2,543				—				—
Interest expense					9,842				4,238				984
Total expenses					22,827				11,502				1,096
Net loss before equity in net income of subsidiaries					(20,968	)			(8,637	)			(1,092	)
Equity in net income of subsidiaries					376,552				272,074				103,158
Net income				$	355,584			$	263,437			$	102,066

See accompanying notes to the consolidated financial statements.

S-4

SCHEDULE II

ENDURANCE SPECIALTY HOLDINGS LTD.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT, Cont'd.
STATEMENTS OF CASH FLOWS - PARENT ONLY
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(In thousands of United States dollars)

				2004				2003				2002
Cash flows used in operating activities:
Net income				$	355,584			$	263,437			$	102,066
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization					348				1,476				—
Net realized gains on sales of investments					2,543				(507	)			—
Stock-based compensation expense					2,351				1,565				2,415
Equity in net income of subsidiary					(376,552	)			(272,074	)			(103,158	)
Accrued investment income					892				(892	)			—
Other assets					(1,454	)			1,196				(1,884	)
Other liabilities					15,039				597				—
Net cash used in operating activities					(1,249	)			(5,202	)			(561	)
Cash flows used in investing activities:
Proceeds from sales of fixed maturity investments					112,485				91,218				—
Proceeds from maturities and calls on fixed maturity investments					6,164				19,300				—
Purchases of fixed maturity investments					(16,235	)			(216,787	)			—
Investments in subsidiary					(196,070	)			(50,000	)			(92,000	)
Dividends received from subsidiary					99,000				93,609
Net amounts loaned to subsidiaries					361				(3,363	)			—
Net cash used in investing activities					5,705				(66,023	)			(92,000	)
Cash flows provided by financing activities:
Proceeds from subsidiary borrowing					—				—				561
Issuance of common shares					2,821				206,582				—
Offering and registration costs paid					(4,152	)			—				—
Repurchase of common shares					(91,484	)			(20,295	)			(100,000	)
Settlement of restricted shares					(1,625	)			—				—
Proceeds from bank debt					—				—				192,000
Issuance of long term debt					247,775				—				—
Bank debt repaid					(103,029	)			(88,971	)			—
Interest rate lock settlement					(2,698	)			—				—
Dividends paid					(50,346	)			(20,505	)			—
Net cash provided by financing activities					(2,738	)			76,811				92,561
Net increase in cash and cash equivalents					1,718				5,586				—
Cash and cash equivalents, beginning of period					5,586				—				—
Cash and cash equivalents, end of period				$	7,304			$	5,586			$	—

See accompanying notes to the consolidated financial statements.

S-5

SCHEDULE III

ENDURANCE SPECIALTY HOLDINGS LTD. AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(In thousands of United States dollars)

YEAR ENDED DECEMBER 31, 2004

Segment				Deferred Acquisition Costs				Reserve for Losses and Loss Expenses				Unearned Premiums				Net Premiums Earned				Net Investment Income (1)				Losses and Loss Expenses				Amortization of Deferred Acquisition Costs				Other Operating Expenses (2)				Net Premiums Written
Property Per Risk Treaty Reinsurance				$	68,247			$	379,902			$	253,881			$	464,024				—			$	284,631			$	125,363			$	31,451			$	436,202
Property Catastrophe Reinsurance					8,474				78,621				55,947				234,961				—				65,651				26,592				19,912				244,072
Casualty Treaty Reinsurance					76,635				467,225				282,948				378,894				—				257,723				97,456				33,339				438,451
Property Individual Risk					6,911				70,218				58,096				102,780				—				46,051				12,599				11,324				110,400
Casualty Individual Risk					9,125				300,112				115,902				235,621				—				147,657				23,685				22,084				246,371
Aerospace and Other Specialty Lines					26,027				253,583				130,831				216,320				—				135,617				44,089				15,615				221,524
Not Allocated to Segments					—				—				—				—				122,059				—				—				—				—
Total				$	195,419			$	1,549,661			$	897,605			$	1,632,600			$	122,059			$	937,330			$	329,784			$	133,725			$	1,697,020

(1)	Because the Company does not manage its assets by segment, investment income is not allocated to the individual segments.

(2)	General and administrative expenses incurred by segments are allocated directly. Remaining corporate overhead is allocated to segments based on each segment's proportional share of gross premiums written.

S-6

SCHEDULE III

ENDURANCE SPECIALTY HOLDINGS LTD. AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(In thousands of United States dollars)

YEAR ENDED DECEMBER 31, 2003

Segment				Deferred Acquisition Costs				Reserve for Losses and Loss Expenses				Unearned Premiums				Net Premiums Earned				Net Investment Income (1)				Losses and Loss Expenses				Amortization of Deferred Acquisition Costs				Other Operating Expenses (2)				Net Premiums Written
Property Per Risk Treaty Reinsurance				$	75,137			$	188,757			$	277,621			$	296,551				—			$	179,031			$	74,454			$	25,021			$	469,290
Property Catastrophe Reinsurance					5,062				62,725				45,878				174,158				—				33,393				19,807				13,738				184,303
Casualty Treaty Reinsurance					61,067				236,521				223,135				284,843				—				178,725				76,643				22,537				387,497
Property Individual Risk					5,982				36,117				48,937				65,408				—				23,317				7,058				7,955				83,929
Casualty Individual Risk					11,467				152,473				103,718				173,266				—				118,515				19,069				16,882				214,232
Aerospace and Other Specialty Lines					24,672				156,565				125,396				179,721				—				130,715				33,518				14,524				258,593
Not Allocated to Segments					—				—				—				—				71,010				—				—				—				—
Total				$	183,387			$	833,158			$	824,685			$	1,173,947			$	71,010			$	663,696			$	230,549			$	100,657			$	1,597,844

(1)	Because the Company does not manage its assets by segment, investment income is not allocated to the individual segments.

(2)	General and administrative expenses incurred by segments are allocated directly. Remaining corporate overhead is allocated to segments based on each segment's proportional share of gross premiums written.

S-7

SCHEDULE III

ENDURANCE SPECIALTY HOLDINGS LTD. AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION, Cont'd.
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(In thousands of United States dollars)

YEAR ENDED DECEMBER 31, 2002

Segment				Deferred Acquisition Costs				Reserve for Losses and Loss Expenses				Unearned Premiums				Net Premiums Earned				Net Investment Income (1)				Losses and Loss Expenses				Amortization of Deferred Acquisition Costs				Other Operating Expenses (2)				Net Premiums Written
Property Per Risk Treaty Reinsurance				$	29,493			$	34,843			$	108,601			$	59,453				—			$	35,577			$	14,607			$	10,520			$	168,054
Property Catastrophe Reinsurance					4,337				40,122				37,303				114,823				—				42,804				16,885				11,150				145,453
Casualty Treaty Reinsurance					31,967				56,070				119,211				84,355				—				56,070				20,597				12,743				203,566
Property Individual Risk					3,247				13,283				29,055				33,907				—				13,283				3,406				3,939				61,759
Casualty Individual Risk					5,854				33,958				62,611				44,292				—				33,958				3,978				6,692				106,903
Aerospace and Other Specialty Lines					6,778				22,564				46,524				32,659				—				22,763				4,540				4,955				79,183
Not Allocated to Segments					—				—				—				—				42,938				—				—				—				—
Total				$	81,676			$	200,840			$	403,305			$	369,489			$	42,938			$	204,455			$	64,013			$	49,999			$	764,918

(1)	Because the Company does not manage its assets by segment, investment income is not allocated to the individual segments.

(2)	General and administrative expenses incurred by segments are allocated directly. Remaining corporate overhead is allocated to segments based on each segment's proportional share of gross premiums written.

S-8

SCHEDULE IV

ENDURANCE SPECIALTY HOLDINGS LTD. AND SUBSIDIARIES
REINSURANCE
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(In thousands of United States dollars)

Premiums Written				Gross				Ceded to Other Companies				Assumed from Other Companies				Net Amount				Percentage of Amount Assumed to Net
Year ended December 31, 2004: Property and liability insurance				$	409,118			$	14,337			$	1,302,239			$	1,697,020				77	%
Year ended December 31, 2003: Property and liability insurance				$	383,870			$	4,153			$	1,218,127			$	1,597,844				76	%
Year ended December 31, 2002: Property and liability insurance				$	196,927			$	33,842			$	601,833			$	764,918				79	%

S-9