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ENDURANCE REPORTS SECOND QUARTER NET INCOME OF $149.1 MILLION AND SECOND QUARTER ANNUALIZED RETURN ON AVERAGE COMMON EQUITY OF 26.8%
PEMBROKE, Bermuda – July 28, 2009 – Endurance Specialty Holdings Ltd. (NYSE:ENH) today reported net income of $149.1 million and $2.42 per diluted common share for the second quarter of 2009 versus net income of $103.3 million and $1.54 per diluted common share in the second quarter of 2008.
For the six months ended June 30, 2009, net income was $227.4 million and $3.65 per diluted common share versus net income of $181.1 million and $2.67 per diluted common share for the six months ended June 30, 2008.
Operating highlights for the quarter ended June 30, 2009 were as follows:
| · | Gross premiums written of $559.2 million, an increase of 7.9% over the same period in 2008; |
| · | Net premiums written of $480.0 million, an increase of 2.3% over the same period in 2008; |
| · | Combined ratio of 89.6%, which included 8.3 percentage points of favorable prior year loss reserve development; |
| · | Net investment income of $88.8 million, an increase of $28.4 million over the same period in 2008; |
| · | Operating income, which excludes after-tax realized investment gains and losses and foreign exchange gains and losses, of $130.8 million and $2.11 per diluted common share; and |
| · | Operating return on average common equity for the quarter of 5.9%, or 23.5% on an annualized basis. |
Operating highlights for the six months ended June 30, 2009 were as follows:
| · | Gross premiums written of $1,342.5 million, a decrease of 3.2% over the same period in 2008; |
| · | Net premiums written of $1,062.9 million, a decrease of 4.3% over the same period in 2008; |
| · | Combined ratio of 90.8%, which included 9.3 percentage points of favorable prior year loss reserve development; |
| · | Net investment income of $153.4 million, an increase of $46.0 million over the same period in 2008; |
| · | Operating income, which excludes after-tax realized investment gains and losses and foreign exchange gains and losses, of $219.0 million and $3.51 per diluted common share; |
| · | Operating return on average common equity for the first half of the year of 9.9%, or 19.7% on an annualized basis; and |
| · | Book value of $38.07 per diluted common share, up 15.2% from December 31, 2008. |
Kenneth J. LeStrange, Chairman and Chief Executive Officer, commented, “Endurance generated outstanding operating results and growth in book value this quarter, with solid contributions from both of our business segments and very strong investment portfolio results. In the second quarter, we were able to
grow our business in several areas due to the strong market position of our insurance and reinsurance operations, the quality of our balance sheet, the continued transition of business to Endurance from larger distressed competitors, and improved pricing in several lines of business. Although markets remain competitive, our short tailed property and catastrophe lines of business have seen strong rate increases, and we continue to see unique opportunities to grow selectively.”
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Insurance Segment
Operating highlights for Endurance’s Insurance segment for the quarter ended June 30, 2009 were as follows:
| · | Gross premiums written of $230.8 million, a decrease of 15.1% from the second quarter of 2008; |
| · | Net premiums written of $153.8 million, a decrease of 34.4% from the second quarter of 2008; |
| · | Combined ratio of 94.9%, an improvement of 3.8 percentage points from the second quarter of 2008; and |
| · | Favorable prior year loss reserve development of 8.9 percentage points during the current period, compared to 10.4 percentage points of favorable prior year loss reserve development in the second quarter of 2008. |
Operating highlights for Endurance’s Insurance segment for the six months ended June 30, 2009 were as follows:
| · | Gross premiums written of $753.0 million, a decrease of 12.1% from the same period in 2008; |
| · | Net premiums written of $476.2 million, a decrease of 19.4% from the same period in 2008; |
| · | Combined ratio of 90.4%, an improvement of 10.4 percentage points from the same period in 2008; and |
| · | Favorable prior year loss reserve development of 14.0 percentage points during the current period, compared to 7.1 percentage points of favorable prior year loss reserve development in the same period in 2008. |
Gross and net premium declines in the Insurance segment were driven by reductions in workers’ compensation and property lines as a result of Endurance’s exit from the California workers’ compensation and U.K. property insurance markets in the first quarter of 2009. These lines contributed $73.2 million and $159.5 million of net written premiums in the second quarter and first half of 2008. Net premium declines in the current periods in the Insurance segment were also driven by reductions in the agriculture insurance line due to lower commodity prices and in the casualty insurance line, primarily due to the impact of a new reinsurance treaty for this line that incepted in the fourth quarter of 2008, resulting in reduced retentions. The decreases in net premiums written in the Insurance segment were partially offset by growth in net premiums written in the professional line of business in the three and six months ended June 30, 2009 compared to the same period in 2008, primarily from a small risk environmental program that incepted in the second half of 2008.
The improvement in the Insurance segment combined ratio in the second quarter of 2009 compared to 2008 resulted from decreases in the acquisition expense ratio and the net loss ratio, partially offset by an increase in the general and administrative expense ratio. The acquisition expense ratio for the three months ended June 30, 2009 compared to 2008 declined due to a shift in premiums written from the workers’ compensation line to the professional line, which generally has lower associated acquisition costs. The net loss ratio declined primarily as a result of lower current year loss activity. Partially offsetting these declines was a slight increase in the general and administrative expense ratio due to strategic employee additions and the reduction in third party commissions and expense reimbursement offsets, primarily in the Insurance segment’s agriculture line.
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For the six months ended June 30, 2009, the combined ratio improved compared to 2008 primarily from a decrease in the net loss ratio, which was driven predominantly by higher levels of favorable prior year loss reserve development recorded during the current period. Favorable loss reserve development emerged in both the second quarter and first six months of 2009 across each of the business lines in the Insurance segment as claims did not develop as originally estimated.
Reinsurance Segment
Operating highlights for Endurance’s Reinsurance segment for the quarter ended June 30, 2009 were as follows:
| · | Gross premiums written of $328.4 million, an increase of 33.4% over the same period in 2008; |
| · | Net premiums written of $326.3 million, an increase of 38.8% from the second quarter of 2008; |
| · | Combined ratio of 84.1%, an increase of 6.5 percentage points from the second quarter of 2008; and |
| · | Favorable prior year loss reserve development of 7.7 percentage points during the current period, compared to 14.7 percentage points of favorable prior year loss reserve development in the second quarter of 2008. |
Operating highlights for Endurance’s Reinsurance segment for the six months ended June 30, 2009 were as follows:
| · | Gross premiums written of $589.5 million, an increase of 11.3% over the same period in 2008; |
| · | Net premiums written of $586.8 million, an increase of 12.9% from the same period in 2008; |
| · | Combined ratio of 91.2%, an increase of 18.2 percentage points from the same period in 2008; and |
| · | Favorable prior year loss reserve development of 4.6 percentage points during the current period, compared to 16.5 percentage points of favorable prior year loss reserve development in the same period in 2008. |
The increase in gross and net premiums written in the Reinsurance segment resulted primarily from growth in new business written, as well as increased pricing on renewal contracts in Endurance’s property and catastrophe lines. Growth in the Reinsurance segment’s casualty line was mainly due to a few large professional lines and small risk casualty treaties that were newly written, partially offset by non-renewals of business not meeting our return requirements.
The combined ratios in the Reinsurance segment for the current periods increased generally as a result of higher net loss ratios due to the recognition of less favorable prior year loss reserve development in the current periods versus 2008. In addition, Endurance recorded a higher level of attritional loss reserves in the current periods to reflect the potential for increased claims from several smaller scale industry catastrophe events occurring in the second quarter and first six months of 2009.
The increases in the net loss ratios for the second quarter and first six months of 2009 were partially offset by decreases in the current periods’ acquisition expense ratios compared to the same periods in 2008. The current periods’ acquisition expense ratios declined primarily due to lower profit commissions in the property line from increased loss estimates.
Investments
Endurance’s net investment income increased 46.9% or $28.4 million for the quarter ended June 30, 2009 and 42.9% or $46.0 million for the six months ended June 30, 2009 as compared to the same periods in 2008. During the second quarter and six months ended June 30, 2009, Endurance’s net investment income included mark to market gains of $40.5 million and $51.0 million on its alternative investments and high yield loan funds included in other investments, as compared to losses of $0.5 million and $16.6 million in the second quarter and first six months of 2008. Investment income generated from Endurance’s fixed maturity investments decreased by $10.1 million and $15.4 million for the three and six months ended June 30, 2009 compared to the same periods in 2008 due to lower reinvestment rates during the current periods and a higher allocation of investments to cash and cash equivalents and short duration securities. The ending book yield on Endurance’s fixed maturity investments at June 30, 2009 was 3.51%, down from 4.45% at December 31, 2008 as a result of modest trading activity and lower reinvestment rates during the current periods.
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Endurance’s fixed maturity portfolio, which comprises approximately 91% of Endurance’s investments as of June 30, 2009, maintained an average credit quality of AAA as of June 30, 2009. Endurance recorded net realized losses on investment sales of $1.5 million during the second quarter and $1.7 million of net realized gains on investment sales for the first six months of 2009 compared to net realized investment gains of $0.2 million and $3.0 million during the same periods in 2008.
During the second quarter of 2009, Endurance adopted new accounting guidance regarding the recognition and reporting requirements for other-than-temporary impairments (“OTTI”) on its debt securities. The adoption of the new OTTI accounting guidance had the following effects on Endurance’s financial statements for the period prior to the second quarter of 2009:
| · | Of the $93.4 million of OTTI recorded by Endurance prior to the second quarter of 2009 for securities owned at April 1, 2009, $60.1 million was determined to relate to specific credit events and $33.3 million was determined to relate to all other factors; |
| · | The $60.1 million of OTTI determined to relate to specific credit events had previously been written down by Endurance and had no effect on Endurance’s income statement or balance sheet in the current quarter; and |
| · | The $33.3 million of OTTI determined to relate to all other factors had no effect on Endurance’s income statement, but caused an increase in retained earnings and an offsetting increase in accumulated other comprehensive loss, with no effect on total shareholders’ equity. |
The adoption of the new OTTI accounting guidance had the following effects on Endurance’s financial statements for the second quarter of 2009:
| · | Of the $37.8 million of OTTI recorded by Endurance in the second quarter of 2009, $6.6 million was determined to relate to specific credit events and $31.2 million was determined to relate to all other factors; |
| · | The $6.6 million of OTTI determined to relate to specific credit events was recorded in Endurance’s income statement as a reduction in its second quarter earnings; and |
| · | The $31.2 million of OTTI determined to relate to all other factors was recorded in Endurance’s balance sheet within accumulated other comprehensive loss. |
The OTTI recognized by Endurance in the second quarter of 2009 primarily resulted from reductions in expected recovery values on structured securities (mortgage and asset-backed) during the period, along with certain credit related downgrades in corporate securities.
Endurance ended the second quarter of 2009 with cash and invested assets of $5.7 billion, which represents a 7.0% increase from December 31, 2008. Net operating cash flow was $225.8 million for the six months ended June 30, 2009 versus $269.8 million for the same period in 2008.
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Capitalization and Shareholders’ Equity
At June 30, 2009, Endurance’s shareholders’ equity was $2.5 billion or $38.07 per diluted common share versus $2.2 billion or $33.06 per diluted common share at December 31, 2008. During the three months ended June 30, 2009, Endurance repurchased 602,448 of its common shares and share equivalents in private and open market transactions for an aggregate repurchase price of $16.7 million. Year-to-date, Endurance has repurchased 1.0 million shares and share equivalents in private and open market transactions for an aggregate repurchase price of $25.8 million.
Earnings Call
Endurance will host a conference call on July 29, 2009 at 8:30 a.m. Eastern time to discuss its financial results. The conference call can be accessed via telephone by dialing (877) 672-9216 or (706) 634-9637 (international) and entering pass code: 68800514. Those who intend to participate in the conference call should register at least ten minutes in advance to ensure access to the call. A telephone replay of the conference call will be available through August 12, 2009 by dialing (800) 642-1687 or (706) 645-9291 (international) and entering the pass code: 68800514.
The public may access a live broadcast of the conference call at the “Investors” section of Endurance’s website, www.endurance.bm. Following the live broadcast, an archived version will continue to be available on Endurance’s website.
A copy of Endurance’s financial supplement for the second quarter of 2009 will be available on Endurance’s website at www.endurance.bm shortly after the release of earnings.
Operating income, operating return on average common equity, operating income per dilutive common share, operating income allocated to common shareholders and combined ratio excluding prior year net loss reserve development are non-GAAP measures. Reconciliations of these measures to the appropriate GAAP measures are included in the attached tables.
About Endurance Specialty Holdings
Endurance Specialty Holdings Ltd. is a global specialty provider of property and casualty insurance and reinsurance. Through its operating subsidiaries, Endurance writes property, casualty, healthcare liability, agriculture, workers' compensation, professional lines of insurance and property, catastrophe, casualty, agriculture, marine, aerospace, and surety and other specialty lines of reinsurance. We maintain excellent financial strength as evidenced by the ratings of A (Excellent) from A.M. Best (XV size category) and A (Strong) from Standard and Poor’s on our principal operating subsidiaries. Endurance’s headquarters are located at Wellesley House, 90 Pitts Bay Road, Pembroke HM 08, Bermuda and its mailing address is Endurance Specialty Holdings Ltd., Suite No. 784, No. 48 Par-la-Ville Road, Hamilton HM 11, Bermuda. For more information about Endurance, please visit www.endurance.bm.
Safe Harbor for Forward-Looking Statements
Some of the statements in this press release may include forward-looking statements, which reflect our current views with respect to future events and financial performance. Such statements may include forward-looking statements both with respect to us in general and the insurance and reinsurance sectors specifically, both as to underwriting and investment matters. Statements which include the words "expect," "intend," "plan," "believe," "project," "anticipate," "seek," "will," and similar statements of a future or forward-looking nature identify forward-looking statements in this press release for purposes of the U.S. federal securities laws or otherwise. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the Private Securities Litigation Reform Act of 1995.
All forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or may be important factors that could cause actual results to differ from those indicated in the forward-looking statements. These factors include, but are not limited to, developments in the world’s financial and capital markets that could adversely affect the performance of Endurance’s investment portfolio or access to capital, changes in the composition of Endurance’s investment portfolio, competition, possible terrorism or the outbreak of war, the frequency or severity of unpredictable catastrophic events, changes in demand for insurance or reinsurance, rating agency actions, uncertainties in our reserving process, a change in our tax status, acceptance of our products, the availability of reinsurance or retrocessional coverage, retention of key personnel, political conditions, the impact of current regulatory investigations, changes in accounting policies, changes in general economic conditions and other factors described in our Annual Report on Form 10-K for the year ended December 31, 2008 as amended on May 8, 2009.
Forward-looking statements speak only as of the date on which they are made, and we undertake no obligation publicly to update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.
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ENDURANCE SPECIALTY HOLDINGS LTD.
CONSOLIDATED BALANCE SHEETS
(in thousands of United States dollars, except share and per share amounts)
June 30, 2009 | December 31, 2008 | |||||||
| Assets | ||||||||
| Cash and cash equivalents | $ | 1,234,900 | $ | 1,061,994 | ||||
| Fixed maturity investments, available for sale, at fair value | 4,059,327 | 3,875,137 | ||||||
| Short term investments, available for sale, at fair value | 106,032 | 111,333 | ||||||
| Preferred equity securities, available for sale, at fair value | 14,842 | 25,360 | ||||||
| Other investments | 318,729 | 284,263 | ||||||
| Premiums receivable, net | 1,052,662 | 609,387 | ||||||
| Deferred acquisition costs | 171,914 | 160,870 | ||||||
| Securities lending collateral | 174,846 | 112,940 | ||||||
| Prepaid reinsurance premiums | 223,267 | 149,591 | ||||||
| Losses recoverable | 361,605 | 557,834 | ||||||
| Accrued investment income | 26,668 | 30,872 | ||||||
| Goodwill and intangible assets | 195,873 | 200,791 | ||||||
| Deferred tax assets | 24,508 | 20,691 | ||||||
| Receivable on pending investment sales | 41,230 | 3,104 | ||||||
| Other assets | 72,942 | 68,303 | ||||||
| Total Assets | $ | 8,079,345 | $ | 7,272,470 | ||||
| Liabilities | ||||||||
| Reserve for losses and loss expenses | $ | 3,264,442 | $ | 3,235,456 | ||||
| Reserve for unearned premiums | 1,212,474 | 885,488 | ||||||
| Net deposit liabilities | 51,787 | 58,622 | ||||||
| Securities lending payable | 175,431 | 115,603 | ||||||
| Reinsurance balances payable | 271,248 | 233,561 | ||||||
| Debt | 447,534 | 447,468 | ||||||
| Payable on pending investment purchases | 95,689 | 9 | ||||||
| Other liabilities | 85,143 | 88,980 | ||||||
| Total Liabilities | 5,603,748 | 5,065,187 | ||||||
| Shareholders’ Equity | ||||||||
| Preferred shares | ||||||||
| Series A, non-cumulative – 8,000,000 issued and outstanding (2008 – 8,000,000) | 8,000 | 8,000 | ||||||
| Common shares | ||||||||
| 57,090,980 issued and outstanding (2008 – 57,203,454) | 57,091 | 57,203 | ||||||
| Additional paid-in capital | 1,008,374 | 1,029,363 | ||||||
| Accumulated other comprehensive loss | (67,495 | ) | (132,665 | ) | ||||
| Retained earnings | 1,469,627 | 1,245,382 | ||||||
| Total Shareholders' Equity | 2,475,597 | 2,207,283 | ||||||
| Total Liabilities and Shareholders' Equity | $ | 8,079,345 | $ | 7,272,470 | ||||
| Book Value per Common Share | ||||||||
| Dilutive common shares outstanding | 59,779,890 | 60,718,312 | ||||||
Diluted book value per common share[a] | $ | 38.07 | $ | 33.06 | ||||
Note: All financial information contained herein is unaudited, except the balance sheet data for the year ended December 31, 2008, which was derived from Endurance’s audited financial statements.
[a] Excludes the $200 million liquidation value of the preferred shares.
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ENDURANCE SPECIALTY HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands of United States dollars, except share and per share amounts)
| Quarter Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||
| Revenues | ||||||||||||||||
| Gross premiums written | $ | 559,155 | $ | 518,063 | 1,342,461 | $ | 1,386,654 | |||||||||
| Net premiums written | 480,027 | 469,385 | 1,062,942 | 1,110,172 | ||||||||||||
| Change in unearned premiums | (45,807 | ) | (16,300 | ) | (250,447 | ) | (285,044 | ) | ||||||||
| Net premiums earned | 434,220 | 453,085 | 812,495 | 825,128 | ||||||||||||
| Other underwriting income | 596 | 1,933 | 4,193 | 1,193 | ||||||||||||
| Net investment income | 88,834 | 60,482 | 153,384 | 107,360 | ||||||||||||
| Net realized (losses) gains on investment sales | (1,500 | ) | 224 | 1,741 | 3,047 | |||||||||||
| Total other-than-temporary impairment losses | (37,809 | ) | (4,237 | ) | (49,935 | ) | (18,544 | ) | ||||||||
| Portion of loss recognized in accumulated other comprehensive loss | 31,165 | - | 31,165 | - | ||||||||||||
Net impairment losses recognized in earnings(1) | (6,644 | ) | (4,237 | ) | (18,770 | ) | (18,544 | ) | ||||||||
| Total revenues | 515,506 | 511,487 | 953,043 | 918,184 | ||||||||||||
| Expenses | ||||||||||||||||
| Losses and loss expenses | 270,816 | 275,325 | 490,952 | 464,827 | ||||||||||||
| Acquisition expenses | 63,850 | 75,636 | 132,124 | 150,010 | ||||||||||||
| General and administrative expenses | 54,529 | 52,493 | 114,786 | 102,537 | ||||||||||||
| Amortization of intangibles | 2,588 | 2,637 | 5,176 | 5,325 | ||||||||||||
| Net foreign exchange gains | (27,723 | ) | (5,621 | ) | (27,785 | ) | (2,514 | ) | ||||||||
| Interest expense | 7,538 | 7,534 | 15,093 | 15,068 | ||||||||||||
| Total expenses | 371,598 | 408,004 | 730,346 | 735,253 | ||||||||||||
| Income before income taxes | 143,908 | 103,483 | 222,697 | 182,931 | ||||||||||||
| Income tax benefit (expense) | 5,232 | (145 | ) | 4,740 | (1,782 | ) | ||||||||||
| Net income | 149,140 | 103,338 | 227,437 | 181,149 | ||||||||||||
| Preferred dividends | (3,875 | ) | (3,875 | ) | (7,750 | ) | (7,750 | ) | ||||||||
| Net income available to common and participating common shareholders | $ | 145,265 | $ | 99,463 | $ | 219,687 | $ | 173,399 | ||||||||
| Per share data | ||||||||||||||||
Basic earnings per common share(2) | $ | 2.53 | $ | 1.66 | $ | 3.83 | $ | 2.90 | ||||||||
Diluted earnings per common share(2) | $ | 2.42 | $ | 1.54 | $ | 3.65 | $ | 2.67 | ||||||||
(1) Effective April 1, 2009, the Company adopted FSP FAS No. 115-2 and FAS 124-2, "Recognition and Presentation of Other-Than-Temporary Impairments," which required the Company to identify whether an investment was in an unrealized loss position due to credit or noncredit related factors. Only credit related impairments are recognized in earnings.
(2) Effective January 1, 2009, the Company adopted Emerging Issues Task Force Issue No. 03-6-1, “Participating Securities and the Two-Class Method” (“EITF 03-6-1”), which requires basic and diluted earnings per share to be calculated under the two-class method if there are participating securities. Participating securities include unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents. The Company’s unvested restricted shares issued under its stock compensation plans receive nonforfeitable cash dividends and thus are participating securities as defined by EITF 03-6-1. Amounts for the periods ended June 30, 2008 have been restated to reflect this change. For more information on EITF 03-6-1 and its effect on the Company’s financial statements, please refer to our most recently filed Quarterly Report on Form 10-Q.
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ENDURANCE SPECIALTY HOLDINGS LTD.
RESULTS BY SEGMENT
(in thousands of United States dollars)
| For the quarter ended June 30, 2009 | ||||||||||||||||||||
Insurance | Reinsurance | Total Company Subtotal | Deposit Accounting(1) | Reported Totals | ||||||||||||||||
| Revenues | ||||||||||||||||||||
| Gross premiums written | $ | 230,792 | $ | 328,593 | $ | 559,385 | $ | (230 | ) | $ | 559,155 | |||||||||
| Ceded premiums written | (77,030 | ) | (2,098 | ) | (79,128 | ) | - | (79,128 | ) | |||||||||||
| Net premiums written | 153,762 | 326,495 | 480,257 | (230 | ) | 480,027 | ||||||||||||||
| Net premiums earned | 223,588 | 211,453 | 435,041 | (821 | ) | 434,220 | ||||||||||||||
| Other underwriting income | 103 | - | 103 | 493 | 596 | |||||||||||||||
| Total underwriting revenues | 223,691 | 211,453 | 435,144 | (328 | ) | 434,816 | ||||||||||||||
| Expenses | ||||||||||||||||||||
| Net losses and loss expenses | 166,046 | 105,844 | 271,890 | (1,074 | ) | 270,816 | ||||||||||||||
| Acquisition expenses | 20,855 | 42,628 | 63,483 | 367 | 63,850 | |||||||||||||||
| General and administrative expenses | 25,179 | 29,350 | 54,529 | - | 54,529 | |||||||||||||||
| 212,080 | 177,822 | 389,902 | (707 | ) | 389,195 | |||||||||||||||
| Underwriting income | $ | 11,611 | $ | 33,631 | $ | 45,242 | $ | 379 | $ | 45,621 | ||||||||||
| Net loss ratio | 74.3 | % | 50.0 | % | 62.5 | % | 62.4 | % | ||||||||||||
| Acquisition expense ratio | 9.3 | % | 20.2 | % | 14.6 | % | 14.7 | % | ||||||||||||
| General and administrative expense ratio | 11.3 | % | 13.9 | % | 12.5 | % | 12.5 | % | ||||||||||||
| Combined ratio | 94.9 | % | 84.1 | % | 89.6 | % | 89.6 | % | ||||||||||||
(1) Reconciles the Company’s underwriting results by segment to the Company’s financial statement presentation.
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ENDURANCE SPECIALTY HOLDINGS LTD.
RESULTS BY SEGMENT
(in thousands of United States dollars)
| For the quarter ended June 30, 2008 | |||||||||||||||||||||
Insurance | Reinsurance | Total Company Subtotal | Deposit Accounting (1) | Reported Totals | |||||||||||||||||
| Revenues | |||||||||||||||||||||
| Gross premiums written | $ | 271,973 | $ | 246,386 | $ | 518,359 | $ | (296 | ) | $ | 518,063 | ||||||||||
| Ceded premiums written | (37,583 | ) | (11,095 | ) | (48,678 | ) | - | (48,678 | ) | ||||||||||||
| Net premiums written | 234,390 | 235,291 | 469,681 | (296 | ) | 469,385 | |||||||||||||||
| Net premiums earned | 245,383 | 210,001 | 455,384 | (2,299 | ) | 453,085 | |||||||||||||||
| Other underwriting income | - | - | - | 1,933 | 1,933 | ||||||||||||||||
| Total underwriting revenues | 245,383 | 210,001 | 455,384 | (366 | ) | 455,018 | |||||||||||||||
| Expenses | |||||||||||||||||||||
| Net losses and loss expenses | 188,171 | 86,737 | 274,908 | 417 | 275,325 | ||||||||||||||||
| Acquisition expenses | 29,000 | 47,499 | 76,499 | (863 | ) | 75,636 | |||||||||||||||
| General and administrative expenses | 25,071 | 27,422 | 52,493 | - | 52,493 | ||||||||||||||||
| 242,242 | 161,658 | 403,900 | (446 | ) | 403,454 | ||||||||||||||||
| Underwriting income | $ | 3,141 | $ | 48,343 | $ | 51,484 | $ | 80 | $ | 51,564 | |||||||||||
| Net loss ratio | 76.7 | % | 41.3 | % | 60.4 | % | 60.7 | % | |||||||||||||
| Acquisition expense ratio | 11.8 | % | 22.6 | % | 16.8 | % | 16.7 | % | |||||||||||||
| General and administrative expense ratio | 10.2 | % | 13.1 | % | 11.5 | % | 11.6 | % | |||||||||||||
| Combined ratio | 98.7 | % | 77.0 | % | 88.7 | % | 89.0 | % | |||||||||||||
(1) Reconciles the Company’s underwriting results by segment to the Company’s financial statement presentation.
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ENDURANCE SPECIALTY HOLDINGS LTD.
RESULTS BY SEGMENT
(in thousands of United States dollars)
| For the six months ended June 30, 2009 | ||||||||||||||||||||
Insurance | Reinsurance | Total Company Subtotal | Deposit Accounting(1) | Reported Totals | ||||||||||||||||
| Revenues | ||||||||||||||||||||
| Gross premiums written | $ | 753,006 | $ | 591,971 | $ | 1,344,977 | $ | (2,516 | ) | $ | 1,342,461 | |||||||||
| Ceded premiums written | (276,814 | ) | (2,705 | ) | (279,519 | ) | - | (279,519 | ) | |||||||||||
| Net premiums written | 476,192 | 589,266 | 1,065,458 | (2,516 | ) | 1,062,942 | ||||||||||||||
| Net premiums earned | 404,262 | 409,928 | 814,190 | (1,695 | ) | 812,495 | ||||||||||||||
| Other underwriting income | 3,062 | - | 3,062 | 1,131 | 4,193 | |||||||||||||||
| Total underwriting revenues | 407,324 | 409,928 | 817,252 | (564 | ) | 816,688 | ||||||||||||||
| Expenses | ||||||||||||||||||||
| Net losses and loss expenses | 264,850 | 227,266 | 492,116 | (1,164 | ) | 490,952 | ||||||||||||||
| Acquisition expenses | 45,696 | 85,568 | 131,264 | 860 | 132,124 | |||||||||||||||
| General and administrative expenses | 54,938 | 59,848 | 114,786 | - | 114,786 | |||||||||||||||
| 365,484 | 372,682 | 738,166 | (304 | ) | 737,862 | |||||||||||||||
| Underwriting income (loss) | $ | 41,840 | $ | 37,246 | $ | 79,086 | $ | (260 | ) | $ | 78,826 | |||||||||
| Net loss ratio | 65.5 | % | 55.4 | % | 60.5 | % | 60.4 | % | ||||||||||||
| Acquisition expense ratio | 11.3 | % | 20.9 | % | 16.1 | % | 16.3 | % | ||||||||||||
| General and administrative expense ratio | 13.6 | % | 14.6 | % | 14.1 | % | 14.1 | % | ||||||||||||
| Combined ratio | 90.4 | % | 90.9 | % | 90.7 | % | 90.8 | % | ||||||||||||
(1) Reconciles the Company’s underwriting results by segment to the Company’s financial statement presentation.
- 10 -
ENDURANCE SPECIALTY HOLDINGS LTD.
RESULTS BY SEGMENT
(in thousands of United States dollars)
| For the six months ended June 30, 2008 | ||||||||||||||||||||
Insurance | Reinsurance | Total Company Subtotal | Deposit Accounting(1) | Reported Totals | ||||||||||||||||
| Revenues | ||||||||||||||||||||
| Gross premiums written | $ | 857,107 | $ | 531,864 | $ | 1,388,971 | $ | (2,317 | ) | $ | 1,386,654 | |||||||||
| Ceded premiums written | (266,576 | ) | (9,906 | ) | (276,482 | ) | - | (276,482 | ) | |||||||||||
| Net premiums written | 590,531 | 521,958 | 1,112,489 | (2,317 | ) | 1,110,172 | ||||||||||||||
| Net premiums earned | 413,364 | 415,737 | 829,101 | (3,973 | ) | 825,128 | ||||||||||||||
| Other underwriting income | - | - | - | 1,193 | 1,193 | |||||||||||||||
| Total underwriting revenues | 413,364 | 415,737 | 829,101 | (2,780 | ) | 826,321 | ||||||||||||||
| Expenses | ||||||||||||||||||||
| Net losses and loss expenses | 319,122 | 147,937 | 467,059 | (2,232 | ) | 464,827 | ||||||||||||||
| Acquisition expenses | 52,117 | 98,655 | 150,772 | (762 | ) | 150,010 | ||||||||||||||
| General and administrative expenses | 45,632 | 56,905 | 102,537 | - | 102,537 | |||||||||||||||
| 416,871 | 303,497 | 720,368 | (2,994 | ) | 717,374 | |||||||||||||||
| Underwriting (loss) income | $ | (3,507 | ) | $ | 112,240 | $ | 108,733 | $ | 214 | $ | 108,947 | |||||||||
| Net loss ratio | 77.2 | % | 35.6 | % | 56.3 | % | 56.3 | % | ||||||||||||
| Acquisition expense ratio | 12.6 | % | 23.7 | % | 18.2 | % | 18.2 | % | ||||||||||||
| General and administrative expense ratio | 11.0 | % | 13.7 | % | 12.4 | % | 12.4 | % | ||||||||||||
| Combined ratio | 100.8 | % | 73.0 | % | 86.9 | % | 86.9 | % | ||||||||||||
(1) Reconciles the Company’s underwriting results by segment to the Company’s financial statement presentation.
- 11 -
ENDURANCE SPECIALTY HOLDINGS LTD.
CONSOLIDATED FINANCIAL RATIOS
As Reported
| For the quarter ended June 30 | ||||||||||||||||||||||||
| Insurance | Reinsurance | Total | ||||||||||||||||||||||
| 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | |||||||||||||||||||
| Net loss ratio | 74.3 | % | 76.7 | % | 49.8 | % | 42.0 | % | 62.4 | % | 60.7 | % | ||||||||||||
| Acquisition expense ratio | 9.3 | % | 11.8 | % | 20.4 | % | 22.4 | % | 14.7 | % | 16.7 | % | ||||||||||||
| General and administrative expense ratio | 11.3 | % | 10.2 | % | 13.9 | % | 13.2 | % | 12.5 | % | 11.6 | % | ||||||||||||
| Combined ratio | 94.9 | % | 98.7 | % | 84.1 | % | 77.6 | % | 89.6 | % | 89.0 | % | ||||||||||||
Effect of Prior Year Net Loss Reserve Development
Favorable / (Unfavorable)
| For the quarter ended June 30 | ||||||||||||||||||||||||
| Insurance | Reinsurance | Total | ||||||||||||||||||||||
| 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | |||||||||||||||||||
| Net loss ratio | 8.9 | % | 10.4 | % | 7.7 | % | 14.7 | % | 8.3 | % | 12.4 | % | ||||||||||||
Net of Prior Year Net Loss Reserve Development
| For the quarter ended June 30 | ||||||||||||||||||||||||
| Insurance | Reinsurance | Total | ||||||||||||||||||||||
| 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | |||||||||||||||||||
| Net loss ratio | 83.2 | % | 87.1 | % | 57.5 | % | 56.7 | % | 70.7 | % | 73.1 | % | ||||||||||||
| Acquisition expense ratio | 9.3 | % | 11.8 | % | 20.4 | % | 22.4 | % | 14.7 | % | 16.7 | % | ||||||||||||
| General and administrative expense ratio | 11.3 | % | 10.2 | % | 13.9 | % | 13.2 | % | 12.5 | % | 11.6 | % | ||||||||||||
| Combined ratio | 103.8 | % | 109.1 | % | 91.8 | % | 92.3 | % | 97.9 | % | 101.4 | % | ||||||||||||
The combined ratio is the sum of the loss, acquisition expense and general and administrative expense ratios. Endurance presents the combined ratio as a measure that is commonly recognized as a standard of performance by investors, analysts, rating agencies and other users of its financial information. The combined ratio, excluding prior year net loss reserve development, enables investors, analysts, rating agencies and other users of its financial information to more easily analyze Endurance’s results of underwriting activities in a manner similar to how management analyzes Endurance’s underlying business performance. The combined ratio, net of prior year net loss reserve development, should not be viewed as a substitute for the combined ratio.
- 12 -
ENDURANCE SPECIALTY HOLDINGS LTD.
CONSOLIDATED FINANCIAL RATIOS
As Reported
| For the six months ended June 30 | ||||||||||||||||||||||||
| Insurance | Reinsurance | Total | ||||||||||||||||||||||
| 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | |||||||||||||||||||
| Net loss ratio | 65.5 | % | 77.2 | % | 55.4 | % | 35.4 | % | 60.4 | % | 56.3 | % | ||||||||||||
| Acquisition expense ratio | 11.3 | % | 12.6 | % | 21.2 | % | 23.8 | % | 16.3 | % | 18.2 | % | ||||||||||||
| General and administrative expense ratio | 13.6 | % | 11.0 | % | 14.6 | % | 13.8 | % | 14.1 | % | 12.4 | % | ||||||||||||
| Combined ratio | 90.4 | % | 100.8 | % | 91.2 | % | 73.0 | % | 90.8 | % | 86.9 | % | ||||||||||||
Effect of Prior Year Net Loss Reserve Development
Favorable / (Unfavorable)
| For the six months ended June 30 | ||||||||||||||||||||||||
| Insurance | Reinsurance | Total | ||||||||||||||||||||||
| 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | |||||||||||||||||||
| Net loss ratio | 14.0 | % | 7.1 | % | 4.6 | % | 16.5 | % | 9.3 | % | 11.8 | % | ||||||||||||
Net of Prior Year Net Loss Reserve Development
| For the six months ended June 30 | ||||||||||||||||||||||||
| Insurance | Reinsurance | Total | ||||||||||||||||||||||
| 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | |||||||||||||||||||
| Net loss ratio | 79.5 | % | 84.3 | % | 60.0 | % | 51.9 | % | 69.7 | % | 68.1 | % | ||||||||||||
| Acquisition expense ratio | 11.3 | % | 12.6 | % | 21.2 | % | 23.8 | % | 16.3 | % | 18.2 | % | ||||||||||||
| General and administrative expense ratio | 13.6 | % | 11.0 | % | 14.6 | % | 13.8 | % | 14.1 | % | 12.4 | % | ||||||||||||
| Combined ratio | 104.4 | % | 107.9 | % | 95.8 | % | 89.5 | % | 100.1 | % | 98.7 | % | ||||||||||||
The combined ratio is the sum of the loss, acquisition expense and general and administrative expense ratios. Endurance presents the combined ratio as a measure that is commonly recognized as a standard of performance by investors, analysts, rating agencies and other users of its financial information. The combined ratio, excluding prior year net loss reserve development, enables investors, analysts, rating agencies and other users of its financial information to more easily analyze Endurance’s results of underwriting activities in a manner similar to how management analyzes Endurance’s underlying business performance. The combined ratio, excluding prior year net loss reserve development, should not be viewed as a substitute for the combined ratio.
- 13 -
ENDURANCE SPECIALTY HOLDINGS LTD.
RECONCILIATION
GROSS AND NET PREMIUMS WRITTEN BY SEGMENT
(in thousands of United States dollars)
The following tables show Endurance's gross and net premiums written for the quarters and six months ended June 30, 2009 and 2008:
| Quarter Ended June 30, 2009 | Quarter Ended June 30, 2008 | |||||||||||||||
| Gross Premiums Written | Net Premiums Written | Gross Premiums Written | Net Premiums Written | |||||||||||||
| Insurance | ||||||||||||||||
| Property | $ | 40,084 | $ | 22,125 | $ | 52,360 | $ | 36,641 | ||||||||
| Casualty | 50,605 | 28,291 | 38,737 | 34,953 | ||||||||||||
| Healthcare liability | 23,202 | 22,871 | 25,485 | 25,169 | ||||||||||||
| Workers’ compensation | (1,413 | ) | (2,608 | ) | 69,888 | 63,482 | ||||||||||
| Agriculture | 56,235 | 28,713 | 50,921 | 44,193 | ||||||||||||
| Professional lines | 62,079 | 54,370 | 34,582 | 29,952 | ||||||||||||
| Subtotal Insurance | $ | 230,792 | $ | 153,762 | $ | 271,973 | $ | 234,390 | ||||||||
| Reinsurance | ||||||||||||||||
| Casualty | $ | 83,813 | $ | 83,805 | $ | 36,258 | $ | 36,287 | ||||||||
| Property | 55,245 | 55,245 | 34,604 | 34,604 | ||||||||||||
| Catastrophe | 148,380 | 148,380 | 130,217 | 122,231 | ||||||||||||
| Agriculture | 2,917 | 2,917 | 5,822 | 5,187 | ||||||||||||
| Aerospace and Marine | 23,568 | 21,540 | 24,250 | 21,916 | ||||||||||||
| Surety and other specialty | 14,440 | 14,378 | 14,939 | 14,770 | ||||||||||||
| Subtotal Reinsurance | $ | 328,363 | 326,265 | $ | 246,090 | $ | 234,995 | |||||||||
| Total | $ | 559,155 | $ | 480,027 | $ | 518,063 | $ | 469,385 | ||||||||
- 14 -
ENDURANCE SPECIALTY HOLDINGS LTD.
RECONCILIATION
GROSS AND NET PREMIUMS WRITTEN BY SEGMENT
(in thousands of United States dollars)
| Six Months Ended June 30, 2009 | Six Months Ended June 30, 2008 | |||||||||||||||
| Gross Premiums Written | Net Premiums Written | Gross Premiums Written | Net Premiums Written | |||||||||||||
| Insurance | ||||||||||||||||
| Property | $ | 67,835 | $ | 39,612 | $ | 83,542 | $ | 51,644 | ||||||||
| Casualty | 81,229 | 46,171 | 63,861 | 50,066 | ||||||||||||
| Healthcare liability | 42,915 | 40,080 | 41,978 | 41,661 | ||||||||||||
| Workers’ compensation | 29,166 | 14,321 | 153,367 | 139,387 | ||||||||||||
| Agriculture | 434,645 | 252,016 | 464,340 | 266,593 | ||||||||||||
| Professional lines | 97,216 | 83,992 | 50,019 | 41,180 | ||||||||||||
| Subtotal Insurance | $ | 753,006 | $ | 476,192 | $ | 857,107 | $ | 590,531 | ||||||||
| Reinsurance | ||||||||||||||||
| Casualty | $ | 159,205 | $ | 158,974 | $ | 105,223 | $ | 106,453 | ||||||||
| Property | 90,032 | 90,032 | 69,222 | 69,195 | ||||||||||||
| Catastrophe | 257,829 | 257,829 | 235,451 | 227,386 | ||||||||||||
| Agriculture | 7,776 | 7,776 | 16,734 | 16,099 | ||||||||||||
| Aerospace and Marine | 35,795 | 33,670 | 60,785 | 58,542 | ||||||||||||
| Surety and other Specialty | 38,818 | 38,469 | 42,132 | 41,966 | ||||||||||||
| Subtotal Reinsurance | 589,455 | 586,750 | $ | 529,547 | $ | 519,641 | ||||||||||
| Total | $ | 1,342,461 | $ | 1,062,942 | $ | 1,386,654 | $ | 1,110,172 | ||||||||
- 15 -
ENDURANCE SPECIALTY HOLDINGS LTD.
RECONCILIATIONS
(in thousands of United States dollars, except share and per share amounts)
The following is a reconciliation of Endurance's net income, net income per diluted common share, net income allocated to common shareholders under the two-class method and annualized return on average common equity to operating income, operating income per diluted common share, operating income allocated to common shareholders under the two-class method and operating return on average common equity (all non-GAAP measures) for the quarters and six months ended June 30, 2009 and 2008:
Quarter Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||
| Net income | $ | 149,140 | $ | 103,338 | 227,437 | $ | 181,149 | |||||||||
| Add (Less) after-tax items: | ||||||||||||||||
| Net foreign exchange gains | (26,804 | ) | (4,071 | ) | (26,853 | ) | (4,081 | ) | ||||||||
| Net realized (losses) gains on investments sales | 1,800 | (826 | ) | (378 | ) | (3,407 | ) | |||||||||
| Net impairment losses recognized in earnings | 6,644 | 4,237 | 18,770 | 18,544 | ||||||||||||
| Operating income before preferred dividends | 130,780 | 102,678 | 218,976 | 192,205 | ||||||||||||
| Preferred dividends | (3,875 | ) | (3,875 | ) | (7,750 | ) | (7,750 | ) | ||||||||
| Operating income available to common and participating common shareholders | $ | 126,905 | $ | 98,803 | $ | 211,226 | $ | 184,455 | ||||||||
| Operating income allocated to common shareholders under the two-class method | $ | 124,516 | $ | 96,732 | $ | 207,278 | $ | 180,902 | ||||||||
| Weighted average dilutive common shares | 58,895,178 | 63,155,699 | 58,984,177 | 63,690,828 | ||||||||||||
| Operating income per diluted common share | $ | 2.11 | $ | 1.53 | $ | 3.51 | $ | 2.84 | ||||||||
Average common equity [a] | $ | 2,164,569 | $ | 2,336,035 | $ | 2,141,440 | $ | 2,323,077 | ||||||||
| Operating return on average common equity | 5.9 | % | 4.2 | % | 9.9 | % | 7.9 | % | ||||||||
| Annualized operating return on average common equity | 23.5 | % | 16.9 | % | 19.7 | % | 15.9 | % | ||||||||
| Net income | $ | 149,140 | $ | 103,338 | $ | 227,437 | $ | 181,149 | ||||||||
| Preferred dividends | (3,875 | ) | (3,875 | ) | (7,750 | ) | (7,750 | ) | ||||||||
| Net income available to common and participating common shareholders | $ | 145,265 | $ | 99,463 | $ | 219,687 | $ | 173,399 | ||||||||
| Net income allocated to common shareholders under the two-class method | $ | 142,532 | $ | 97,378 | $ | 215,581 | $ | 170,056 | ||||||||
| Net income per diluted common share | $ | 2.42 | $ | 1.54 | $ | 3.65 | $ | 2.67 | ||||||||
| Return on average common equity, Net income | 6.7 | % | 4.3 | % | 10.3 | % | 7.5 | % | ||||||||
| Annualized return on average common equity, Net income | 26.8 | % | 17.0 | % | 20.5 | % | 14.9 | % | ||||||||
[a] Average common equity is calculated as the arithmetic average of the beginning and ending common equity balances for the stated period, which excludes the $200 million liquidation value of the preferred shares.
Operating income and operating income per diluted common share are internal performance measures used by Endurance in the management of its operations. Operating income allocated to common shareholders (excludes unvested restricted shares outstanding which are considered participating) per diluted common share represents operating income divided by weighted average dilutive common shares, which has been calculated in accordance with the two-class method under U.S. GAAP. Operating income represents after-tax operational results excluding, as applicable, after-tax net realized capital gains or losses and after-tax net foreign exchange gains or losses because the amount of these gains or losses is heavily influenced by, and fluctuates in part, according to the availability of market opportunities. Endurance believes these amounts are largely independent of its business and underwriting process and including them distorts the analysis of trends in its operations. In addition to presenting net income and net income per dilutive common share determined in accordance with the two-class method under GAAP, Endurance believes that showing operating income and operating income per dilutive common share enables investors, analysts, rating agencies and other users of its financial information to more easily analyze Endurance’s results of operations in a manner similar to how management analyzes Endurance’s underlying business performance. Operating income and operating income per dilutive common share should not be viewed as substitutes for GAAP net income and net income per dilutive common share, respectively.
Endurance presents return on equity as a measure that is commonly recognized as a standard of performance by investors, analysts, rating agencies and other users of its financial information.
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