discounts. The proceeds from this offering are being used to provide additional capital to Endurance Holdings’ subsidiaries and for other general corporate purposes. The Series A Preferred Shares have no stated maturity date and are redeemable in whole or in part at the option of Endurance Holdings any time after December 15, 2015 at a redemption price of $25.00 per share plus any declared and unpaid dividends, without accumulation of any undeclared dividends. Endurance Holdings may redeem all but not less than all of the Series A Preferred Shares before that date at a redemption price of $26.00 per share, plus any declared and unpaid dividends, to the date of redemption, if Endurance Holdings:
In addition, the Series A Preferred Shares are redeemable at a redemption price of $25.00 per share, plus declared and unpaid dividends, at the option of Endurance Holdings upon the occurrence of certain tax events.
Dividends on the Series A Preferred Shares, when, as and if declared by the board of directors of Endurance Holdings or a duly authorized committee of the board, accrue and are payable on the liquidation preference amount from the original issue date, on a non-cumulative basis, quarterly in arrears on each dividend payment date, at an annual rate of 7.75%. Any such dividends to be distributed to the holders of the Series A Preferred Shares are computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends on the Series A Preferred Shares are not cumulative. Accordingly, in the event dividends are not declared on the Series A Preferred Shares and any parity shares for payment on any dividend payment date, then such dividends do not accrue and are not be payable. If Endurance Holdings’ board of directors or a duly authorized committee of the board has not declared a dividend before the dividend payment date for any dividend period, Endurance Holdings has no obligation to pay dividends for such dividend period after the dividend payment date for that dividend period, whether or not dividends on the Series A Preferred Shares are declared for any future dividend period.
During any dividend period, so long as any Series A Preferred Shares remain outstanding, unless the full dividends for the latest completed dividend period on all outstanding Series A Preferred Shares have been declared and paid:
 | | |
| | Endurance Holdings, directly or indirectly (other than (i) as a result of a reclassification of Junior Shares for or into other Junior Shares, or the exchange or conversion of one Junior Share for or into another Junior Share, (ii) through the use of the proceeds of a substantially contemporaneous sale of Junior Shares and (iii) as permitted by the bye-laws of Endurance Holdings in effect on the date of issuance of the Series A Preferred Shares). |
For any dividend period in which dividends are not paid in full upon the Series A Preferred Shares and any parity shares, all dividends declared for such dividend period with respect to the Series A Preferred Shares and such parity shares shall be declared on a pro-rata basis.
Upon any voluntary or involuntary liquidation, dissolution or winding-up of Endurance Holdings, holders of the Series A Preferred Shares and any parity shares are entitled to receive out of Endurance Holdings’ assets available for distribution to shareholders, before any distribution is made to holders of Junior Shares, a liquidating distribution in the amount of $25 per Series A Preferred Share plus any declared and unpaid dividends, without accumulation of any undeclared dividends. Distributions will be made pro rata as to the Series A Preferred Shares and any parity shares and only to the extent of Endurance Holdings’ assets, if any, that are available after satisfaction of all liabilities to creditors.
Holders of the Series A Preferred Shares have no voting rights, except with respect to certain fundamental changes in the terms of the Series A Preferred Shares and in the case of certain dividend non-payments or as otherwise required by Bermuda law or Endurance Holdings’ bye-laws.
The Series A Preferred Shares are listed on the New York Stock Exchange under the symbol ‘‘ENHPRA.’’
On October 6, 2005, Endurance Holdings issued 6,079,000 of its ordinary shares. Goldman, Sachs & Co. purchased the ordinary shares from Endurance Holdings and subsequently sold the ordinary shares to public investors. The ordinary shares issued in the offering were registered under the Securities Act of 1933, as amended, on a prospectus supplement to the Shelf Registration Statement at a price of $33.15 per share ($32.90 per share, net of underwriters discount) raising approximately $200 million in net proceeds. The proceeds from this offering are being used by Endurance Holdings to provide additional capital to its subsidiaries and for other general corporate purposes.
On August 9, 2005, Endurance Holdings entered into a purchase agreement by and among Endurance Holdings, Goldman, Sachs & Co. and Texas Pacific Group and Thomas H. Lee (the ‘‘Selling Shareholders’’) for the sale of 7,741,030 ordinary shares held by the Selling Shareholders. The ordinary shares were sold under Endurance Holdings’ Form S-3 Shelf Registration Statement and represented approximately 13% of the ordinary shares then outstanding. Endurance Holdings did not receive any proceeds from this offering.
On May 4, 2005, Endurance Holdings entered into a purchase agreement by and among Endurance Holdings, Goldman, Sachs & Co. and Texas Pacific Group and Thomas H. Lee (the ‘‘Selling Shareholders’’) for the sale of 8,000,000 ordinary shares, par value $1.00 of Endurance Holdings held by the Selling Shareholders. The ordinary shares were sold under Endurance Holdings’ Form S-3 shelf registration statement (Reg. No. 333-116505) and represented approximately 13% of the ordinary shares then outstanding. Endurance Holdings did not receive any proceeds from this offering.
The Shelf Registration Statement permits Endurance Holdings to issue, in one or more offerings, up to an additional $148.5 million of debt, equity, or trust preferred securities. In addition, the Shelf Registration Statement also registers for possible future sales substantially all of the ordinary shares beneficially owned by certain of Endurance Holdings’ founding shareholders. The registration of the founding shareholders’ ordinary shares does not obligate these shareholders to sell any of these shares.
On April 18, 2005, Endurance Holdings amended its existing Credit Agreement among Endurance Holdings, various designated subsidiary borrowers, various lending institutions and JPMorgan Chase Bank, N.A. as Administrative Agent (the ‘‘Amended Agreement’’) in order to (i)
46
allow for the issuance of multi-currency letters of credit, (ii) allow for the ‘‘fronting’’ of letters of credit by banks that are participants in the Amended Agreement, (iii) extend the maturity of the facility to April 18, 2010, and (iv) increase the size of the facility to $925 million from $850 million. The remaining material terms of Endurance Holdings’ existing Credit Agreement, described previously in the 2004 Annual Report on Form 10-K, are unchanged.
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., Endurance U.S, and Traders & Pacific. 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., Endurance U.S. and Traders & Pacific 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 Bermuda is, and 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 September 30, 2005, Endurance Bermuda could pay a dividend or return additional paid-in capital totaling approximately $367.8 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 September 30, 2005, 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.
Traders & Pacific is subject to regulation by the State of Delaware Department of Insurance. Dividends are limited to the greater of 10% of policyholders’ surplus or net income, excluding realized capital gains. In addition, dividends may only be declared or distributed out of earned surplus. At September 30, 2005, Traders & Pacific did not have earned surplus; therefore Traders & Pacific is precluded from declaring or distributing dividends during 2005 without the prior approval of the Delaware Insurance Commissioner. Any dividends paid by Traders & Pacific are paid to Endurance U.S. and are then subject to Endurance U.S.’s dividend limitations.
Endurance U.K. is subject to regulation by the United Kingdom Financial Services Authority (the ‘‘FSA’’). U.K. company law prohibits Endurance U.K. from declaring a dividend to its shareholders unless it has ‘‘profits available for distribution.’’ The determination of whether a company has profits available for distribution is based on its accumulated realized profits less its accumulated realized losses. While the United Kingdom insurance regulatory laws impose no statutory restrictions on a general insurer's ability to declare a dividend, the FSA strictly controls the maintenance of each insurance company's solvency margin within its jurisdiction. Any such payment or proposal could result in regulatory intervention. In addition, the FSA requires authorized insurance companies to notify the FSA in advance of any significant dividend payment. At September 30, 2005, Endurance U.K. did not have profits available for distribution and could not pay a dividend.
The Company's aggregate cash and invested assets as of September 30, 2005 totaled $4.5 billion compared to $4.3 billion as of June 30, 2005. The increase in cash and invested assets since June 30, 2005 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, general and administrative expenses paid and repurchases of the Company’s ordinary shares.
47
On an ongoing basis, the Company expects its funds to be sufficient to operate its business. Subsequent to the quarter closing, the Company raised additional capital of approximately $600 million through offerings of ordinary shares, 7.75% Non-Cumulative Preferred Shares, Series A, and 6.15% Senior Notes due October 15, 2015. Please see section entitled ‘‘Significant transactions and events’’ above for further detail on the Company’s capital initiatives undertaken subsequent to September 30, 2005. There can be no assurance that the Company will not incur additional indebtedness or issue additional equity in order to implement its business strategy or to pay claims.
On October 26, 2005, Endurance Holdings declared quarterly dividends of $0.25 per share payable on its ordinary shares and $0.34 per share payable on its 7.75% Non-Cumulative Preferred Shares, Series A. The dividend on Endurance Holdings’ outstanding ordinary shares will be payable on December 30, 2005 to the ordinary shareholders of record on December 16, 2005 and the dividend on Endurance’s Series A Preferred Shares will be payable on December 15, 2005 to the Series A Preferred shareholders of record on December 1, 2005.
The following table sets forth Endurance Holdings’ consolidated capitalization as of September 30, 2005, on an actual basis and as adjusted to reflect the issuance by Endurance Holdings of ordinary shares, Series A Preferred Shares and 6.15% Senior Notes as noted above in ‘‘Significant transactions and events’’.
| | | | | | | | | | |
| | | As of September 30, 2005 |
| | | Actual | | As Adjusted |
| | | (in thousands, other than shares) |
| Debt Outstanding | | | | | | | | |
| Bank debt | | $ | 143,500 | | | $ | — | |
| Outstanding 7% Senior Notes due 2034 | | | 247,797 | | | | 247,797 | |
| Outstanding 6.15% Senior Notes, due 2015 | | | — | | | | 197,978 | |
| Total debt | | | 391,297 | | | | 445,775 | |
| Shareholders’ equity | | | | | | | | |
| Ordinary shares — 59,935,738 issued and outstanding, actual (66,014,738 issued and outstanding , as adjusted) | | | 59,936 | | | | 66,015 | |
| Non-cumulative preferred shares, Series A — (8,000,000, issued and outstanding, as adjusted) | | | — | | | | 8,000 | |
| Additional paid-in capital | | | 1,072,936 | | | | 1,452,156 | |
| Accumulated other comprehensive loss | | | (8,330 | ) | | | (8,330 | ) |
| Retained earnings | | | 433,553 | | | | 433,553 | |
| Total shareholders’ equity | | | 1,558,095 | | | | 1,951,394 | |
| Total capitalization | | $ | 1,949,392 | | | $ | 2,397,169 | |
|
Quantitative and qualitative information about market risk
There have been no material changes in market risk from the information provided under the caption ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations — Quantitative and Qualitative Information about Market Risk’’ included in the 2004 Annual Report on Form 10-K.
Currency
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 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
48
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.
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 September 30, 2005, the Company had accrued losses and loss expense reserves of $2.5 billion. This amount represents management’s best estimate of the ultimate liability for payment of losses and loss expenses related to loss events as of September 30, 2005. During the three and nine month periods ended September 30, 2005, the Company paid losses and loss expenses of $97.4 million and $294.4 million, respectively.
As of September 30, 2005, the Company had been notified of a 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. In addition, 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 losses and loss expenses. See ‘‘Critical Accounting Policies — Reserve for Losses and Loss Expenses’’ included in the 2004 Annual Report on Form 10-K for further details.
Incurred losses for the three months ended September 30, 2005 are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Property
per Risk
Treaty
Reinsurance | | Property
Catastrophe
Reinsurance | | Casualty
Treaty
Reinsuranceance | | Property
Individual
Risk | | Casualty
Individual
Risk | | Aerospace &
Other
Specialty
Lines | | Deposit
Accounting (1) | | Total |
| | | (in thousands) |
| Incurred related to: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Current year | | $ | 256,366 | | | $ | 174,188 | | | $ | 62,232 | | | $ | 122,700 | | | $ | 47,484 | | | $ | 158,356 | | | $ | (12,842 | ) | | $ | 808,484 | |
| Prior years | | | (13,506 | ) | | | (1,667 | ) | | | (2,530 | ) | | | (2,351 | ) | | | (438 | ) | | | (3,384 | ) | | | — | | | | (23,876 | ) |
| Total Incurred Losses | | $ | 242,860 | | | $ | 172,521 | | | $ | 59,702 | | | $ | 120,349 | | | $ | 47,046 | | | $ | 154,972 | | | $ | (12,842 | ) | | $ | 784,608 | |
|
49
Incurred losses for the nine months ended September 30, 2005 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 | | Deposit
Accounting (1) | | Total |
| | | (in thousands) |
| Incurred related to: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Current year | | $ | 404,787 | | | $ | 198,758 | | | $ | 213,027 | | | $ | 174,300 | | | $ | 146,793 | | | $ | 251,892 | | | $ | (27,349 | ) | | $ | 1,362,208 | |
| Prior years | | | (54,400 | ) | | | (8,930 | ) | | | 5,211 | | | | (6,662 | ) | | | (22,064 | ) | | | (10,780 | ) | | | — | | | | (97,625 | ) |
| Total Incurred Losses | | $ | 350,387 | | | $ | 189,828 | | | $ | 218,238 | | | $ | 167,638 | | | $ | 124,729 | | | $ | 241,112 | | | $ | (27,349 | ) | | $ | 1,264,583 | |
|
| |
| (1) | This column reconciles the Company's incurred losses by segment to the Company's financial statement presentation. See ‘‘Deposit accounting’’ above for further discussion. |
Incurred losses for the three months ended September 30, 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 | | $ | 123,533 | | | $ | 59,528 | | | $ | 67,408 | | | $ | 20,057 | | | $ | 42,398 | | | $ | 46,264 | | | $ | 359,188 | |
| Prior years | | | (18,047 | ) | | | (17,643 | ) | | | (5,401 | ) | | | (3,082 | ) | | | (1,851 | ) | | | (4,909 | ) | | | (50,933 | ) |
| Total Incurred Losses | | $ | 105,486 | | | $ | 41,885 | | | $ | 62,007 | | | $ | 16,975 | | | $ | 40,547 | | | $ | 41,355 | | | $ | 308,255 | |
|
Incurred losses for the nine months ended September 30, 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 | | $ | 255,823 | | | $ | 83,227 | | | $ | 196,389 | | | $ | 46,807 | | | $ | 123,063 | | | $ | 125,160 | | | $ | 830,469 | |
| Prior years | | | (30,906 | ) | | | (34,930 | ) | | | (11,248 | ) | | | (12,861 | ) | | | (8,618 | ) | | | (12,434 | ) | | | (110,997 | ) |
| Total Incurred Losses | | $ | 224,917 | | | $ | 48,297 | | | $ | 185,141 | | | $ | 33,946 | | | $ | 114,445 | | | $ | 112,726 | | | $ | 719,472 | |
|
Current year incurred losses for the three and nine months ended September 30, 2005 increased due to the effects of Hurricanes Katrina and Rita. Gross losses in relation to these two events were recorded in the amount of $575.9 million within the Property Per Risk Treaty Reinsurance, Property Catastrophe Reinsurance, Property Individual Risk, and Aerospace and Other Specialty Lines segments. Total incurred losses for the three and nine months ended September 30, 2005 include approximately $23.9 million and $97.6 million in favorable development of reserves relating to prior accident years, respectively. The favorable loss reserve development experienced during the three and nine months ended September 30, 2005 benefited the Company's reported loss ratio by approximately 5.4 and 7.4 percentage points, respectively.
The reductions in estimated losses for prior accident years reflected lower than expected emergence of catastrophic and attritional losses. The favorable loss development was experienced most significantly in the Company’s Property Per Risk Treaty Reinsurance and Casualty Individual Risk segments. The Casualty Individual Risk segment has received few claims which have reached a level that would result in the Company paying a claim. Unfavorable loss development was experienced in the Casualty Treaty Reinsurance segment for the nine month period due to the establishment of precautionary reserves based on recent legal actions brought by the New York Attorney General and the Securities and Exchange Commission against certain insurance brokers and insurance industry participants and additional potential claims related to mutual fund exposures.
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Reserves for losses and loss expenses are comprised of the following at September 30, 2005:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Property per
RiskTreaty
Reinsurance | | Property
Catastrophe
Reinsurance | | Casualty
Treaty
Reinsurance | | Property
Individual Risk | | Casualty
Individual Risk | | Aerospace &
Other Specialty
Lines | | Deposit
Accounting(1) | | Total |
| | | (in thousands) |
| Case Reserves | | $ | 205,395 | | | $ | 83,421 | | | $ | 135,683 | | | $ | 72,528 | | | $ | 13,236 | | | $ | 110,995 | | | $ | (5,901 | ) | | $ | 615,357 | |
| IBNR | | | 385,512 | | | | 149,975 | | | | 519,725 | | | | 133,516 | | | | 412,232 | | | | 331,145 | | | | (18,427 | ) | | | 1,913,678 | |
| Reserve for Losses and Loss Expenses | | $ | 590,907 | | | $ | 233,396 | | | $ | 655,408 | | | $ | 206,044 | | | $ | 425,468 | | | $ | 442,140 | | | $ | (24,328 | ) | | $ | 2,529,035 | |
|
| |
| (1) | This column reconciles the Company's reserves for losses and loss expenses by segment to the Company's financial statement presentation. See ‘‘Deposit accounting’’ above for further discussion. |
Reserves for losses and loss expenses are comprised of the following at September 30, 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 | | $ | 117,585 | | | $ | 19,473 | | | $ | 59,650 | | | $ | 20,998 | | | $ | 5,000 | | | $ | 60,641 | | | $ | 283,347 | |
| IBNR | | | 241,376 | | | | 83,715 | | | | 347,130 | | | | 45,543 | | | | 261,909 | | | | 185,942 | | | | 1,165,615 | |
| Reserve for Losses and Loss Expenses | | $ | 358,961 | | | $ | 103,188 | | | $ | 406,780 | | | $ | 66,541 | | | $ | 266,909 | | | $ | 246,583 | | | $ | 1,448,962 | |
|
Cautionary statement regarding forward-looking statements
Some of the statements contained herein, and certain statements that the Company may make in press releases or that Company officials may make orally, may include forward-looking statements which reflect the Company’s current views with respect to future events and financial performance. Such statements include forward-looking statements both with respect to the Company in general and the insurance and reinsurance sectors specifically, both as to underwriting and investment matters. Statements that include the words ‘‘expect,’’ ‘‘intend,’’ ‘‘plan,’’ ‘‘believe,’’ ‘‘project,’’ ‘‘anticipate,’’ ‘‘seek,’’ ‘‘will,’’ and similar statements of a future or forward-looking nature identify forward-looking statements for purposes of the federal securities laws or otherwise.
All forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are, or will be, important factors that could cause actual results to differ materially from those indicated in such statements. The Company believes these factors include, but are not limited to, the following:
| |
| — | the effects of competitors' pricing policies, and of changes in laws and regulations on competition, including those regarding contingent commissions, industry consolidation and development of competing financial products; |
| |
| — | the impact of acts of terrorism and acts of war; |
| |
| — | the effects of terrorist related insurance legislation and laws; |
| |
| — | greater frequency or severity of claims and loss activity, including as a result of natural or man-made catastrophic events, than the Company’s underwriting, reserving or investment practices have anticipated; |
| |
| — | decreased level of demand for property and casualty insurance or reinsurance, or increased competition due to an increase in capacity of property and casualty reinsurers; |
| |
| — | the inability to obtain or maintain financial strength or claims-paying ratings by one or more of the Company’s subsidiaries; |
| |
| — | uncertainties in the Company’s reserving process; |
| |
| — | Endurance Holdings or Endurance Bermuda becomes subject to income taxes in the United States or the United Kingdom; |
51
| |
| — | changes in regulations or tax laws applicable to the Company, the Company’s subsidiaries, brokers or customers; |
| |
| — | acceptance of the Company’s products and services, including new products and services; |
| |
| — | the inability to renew business previously underwritten or acquired; |
| |
| — | changes in the availability, cost or quality of reinsurance or retrocessional coverage; |
| |
| — | loss of key personnel; |
| |
| — | political stability of Bermuda; |
| |
| — | changes in accounting policies or practices; |
| |
| — | the impact of the investigations of the New York Attorney General, the Securities and Exchange Commission and other regulators on the insurance and reinsurance industry and the Company in particular; and |
| |
| — | changes in general economic conditions, including inflation, foreign currency exchange rates and other factors which could affect the Company’s investment portfolio. |
The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in the 2004 Annual Report on Form 10-K and our Current Report on Form 8-K dated October 3, 2005. The Company undertakes no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.
Item 4. Controls and Procedures
a) Disclosure Controls and Procedures. The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.
b) Internal Control Over Financial Reporting. There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the Company’s third fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings
We are party to various legal proceedings generally arising in the normal course of our business. While any proceeding contains an element of uncertainty, we do not believe that the eventual outcome of any litigation or arbitration proceeding to which we are presently a party could have a material adverse effect on our financial condition or business. Pursuant to our insurance and reinsurance agreements, disputes are generally required to be finally settled by arbitration.
Endurance Holdings, Endurance U.S. and three employees of one of Endurance Holdings’ subsidiaries were 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 Custom Insurance Services, Inc., and related entities; and asserts other related claims. The suit sought an unspecified amount of damages and injunctive relief against the defendants. On December 22, 2004, Endurance Holdings, Endurance U.S. and the other defendants filed motions to dismiss the lawsuit for lack of personal jurisdiction over the defendants and based on the doctrine of forum non conveniens. The lawsuit was settled effective September 16, 2005 and on October 7, 2005 the lawsuit was dismissed with prejudice.
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. We have provided the NYAG with documents responsive to the subpoena.
Item 2. Changes in Securities and Issuer Purchases of Equity Securities
(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers
ISSUER PURCHASES OF EQUITY SECURITIES
| | | | | | | | | | | | | | | | | | |
| Period | | (a) Total
Number of Shares
Purchased (1) | | (b) Average
Price Paid per
Share | | (c) Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs(1)(2) | | (d) Maximum Number (or
Approximate Dollar Value)
of Shares that May Yet Be
Purchased Under the Plans
or Programs(1)(2) |
| July 1, 2005 − July 31, 2005 | | | — | | | $ | — | | | | — | | | | 2,437,386 | |
| August 1, 2005 − August 31, 2005 | | | 409,686 | | | | 36.61 | | | | 409,686 | | | | 2,027,700 | |
| September 1, 2005 − September 30, 2005 | | | 273,500 | | | | 36.56 | | | | 273,500 | | | | 1,754,200 | |
| Total | | | 683,186 | | | $ | 36.59 | | | | 683,186 | | | | 1,754,200 | |
|
| |
| (1) | Ordinary shares or share equivalents. |
| |
| (2) | On May 24, 2004, the Company initiated a share repurchase program. Under this program, the Company will repurchase up to 2,000,000 of its ordinary shares and share equivalents. The repurchases will be accomplished in open market or privately negotiated transactions, from time to time, depending on market conditions. On February 17, 2005 the Company extended this program by a further 2,000,000 shares and authorized the program through February 2007. |
Item 3. Defaults Upon Senior Securities
None
Item 4. Submissions of Matters to a Vote of Security Holders
None
53
Item 5. Other Information
None
Item 6. Exhibits
| | |
| (a) | The following sets forth those exhibits filed pursuant to Item 601 of Regulation S-K: |
|
| | | | | | |
| Exhibit Number | | Description |
| | 31.1 | | | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act. |
| | 31.2 | | | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act. |
| | 32 | | | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ENDURANCE SPECIALTY HOLDINGS LTD. |
| | | | | | | | | | |
| Date: November 8, 2005 | | By: | | /s/ Kenneth J. LeStrange |
| | | | | Kenneth J. LeStrange
Chairman of the Board,
Chief Executive Officer,
President |
| Date: November 8, 2005 | | By: | | /s/ James R. Kroner |
| | | | | James R. Kroner
Chief Financial Officer
(Principal Financial Officer) |
|
55
![[X]](https://capedge.com/proxy/10-Q/0000950136-05-007027/xbox.gif){kind=small}
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act![[ ]](https://capedge.com/proxy/10-Q/0000950136-05-007027/ebox.gif){kind=small}
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934