Investor Presentation
2
Safe Harbor for Forward Looking Statements
Some of the statements in this presentation include forward-looking statements which reflect our current views with respect to future events and financial performance. Such
statements include forward-looking statements both with respect to us in general and the insurance and reinsurance sectors specifically, both as to underwriting and investment
matters. Statements which include the words "expect," "intend," "plan," "believe," "project," "anticipate," "seek," "will," and similar statements of a future or forward-looking nature
identify forward-looking statements in this presentation 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.
statements include forward-looking statements both with respect to us in general and the insurance and reinsurance sectors specifically, both as to underwriting and investment
matters. Statements which include the words "expect," "intend," "plan," "believe," "project," "anticipate," "seek," "will," and similar statements of a future or forward-looking nature
identify forward-looking statements in this presentation 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 legislation and regulatory initiatives, changes in accounting policies, changes in general economic conditions and other factors described in our
most recent Annual Report on Form 10-K.
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 legislation and regulatory initiatives, changes in accounting policies, changes in general economic conditions and other factors described in our
most recent Annual Report on Form 10-K.
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.
whether as a result of new information, future developments or otherwise.
Regulation G Disclaimer
In presenting the Company’s results, management has included and discussed certain non-GAAP measures. Management believes that these non-GAAP measures, which may
be defined differently by other companies, better explain the Company's results of operations in a manner that allows for a more complete understanding of the underlying trends
in the Company's business. However, these measures should not be viewed as a substitute for those determined in accordance with GAAP. For a complete description of non-
GAAP measures and reconciliations, please review the Investor Financial Supplement on our web site at www.endurance.bm.
be defined differently by other companies, better explain the Company's results of operations in a manner that allows for a more complete understanding of the underlying trends
in the Company's business. However, these measures should not be viewed as a substitute for those determined in accordance with GAAP. For a complete description of non-
GAAP measures and reconciliations, please review the Investor Financial Supplement on our web site at www.endurance.bm.
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.
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.
Net premiums written (prior to deposit accounting adjustments) is a non-GAAP internal performance measure used by Endurance in the management of its operations. Net
premiums written (prior to deposit accounting adjustments) represents net premiums written and deposit premiums, which are premiums on contracts that are deemed as either
transferring only significant timing risk or transferring only significant underwriting risk and thus are required to be accounted for under GAAP as deposits. Endurance believes
these amounts are significant to its business and underwriting process and excluding them distorts the analysis of its premium trends. In addition to presenting gross premiums
written determined in accordance with GAAP, Endurance believes that net premiums written (prior to deposit accounting adjustments) 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. Net premiums written (prior to deposit accounting adjustments) should not be viewed as a substitute for gross premiums written determined in
accordance with GAAP.
premiums written (prior to deposit accounting adjustments) represents net premiums written and deposit premiums, which are premiums on contracts that are deemed as either
transferring only significant timing risk or transferring only significant underwriting risk and thus are required to be accounted for under GAAP as deposits. Endurance believes
these amounts are significant to its business and underwriting process and excluding them distorts the analysis of its premium trends. In addition to presenting gross premiums
written determined in accordance with GAAP, Endurance believes that net premiums written (prior to deposit accounting adjustments) 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. Net premiums written (prior to deposit accounting adjustments) should not be viewed as a substitute for gross premiums written determined in
accordance with GAAP.
Return on Average Equity (ROAE) is comprised using the average common equity calculated as the arithmetic average of the beginning and ending common equity balances for
stated periods. Return on Beginning Equity (ROBE) is comprised using the beginning common equity for stated periods. The Company presents various measures of Return on
Equity that are commonly recognized as a standard of performance by investors, analysts, rating agencies and other users of its financial information.
stated periods. Return on Beginning Equity (ROBE) is comprised using the beginning common equity for stated periods. The Company presents various measures of Return on
Equity that are commonly recognized as a standard of performance by investors, analysts, rating agencies and other users of its financial information.
Forward looking statements & regulation G disclaimer
3
¿ Deep expertise across business units
¿ Specialty focus and strong diversification has the
potential to generate higher returns for shareholders,
with lower volatility
potential to generate higher returns for shareholders,
with lower volatility
¿ Strong balance sheet supported by conservative
investment portfolio and prudent reserve balances
investment portfolio and prudent reserve balances
¿ Meaningfully improved the risk management and
diversification of our business over the past three
years
diversification of our business over the past three
years
¿ Proven track record of success: superior ROE,
underwriting expertise, extensive distribution
capabilities, risk management culture
underwriting expertise, extensive distribution
capabilities, risk management culture
¿ Well positioned to fill gaps left by weakened
incumbents
incumbents
Established global specialty franchise with full
range of capabilities
range of capabilities
Price/Book vs. ROE
3-year average operating ROAE
1. Common stock price as a percentage of diluted book value per share as of August 7, 2009
Note: Composite peer median based on SNL data. Includes Allied World, Arch, Ren Re, IPC Re, Axis, Transatlantic, Everest, Partner Re, Montpelier,
Platinum and Max Capital
Platinum and Max Capital
Compelling investment opportunity
Investor value proposition
4
Introduction to Endurance Specialty Holdings
¿ Strong Market Positioning
– Widely diversified, global specialty insurance and reinsurance provider
– Over 700 employees in global offices across the United States, Bermuda, Europe, and Asia
– Domiciled in Bermuda
– Traded on the New York Stock Exchange (ENH)
¿ Excellent Operating Results
– 14.2% annualized operating ROE since inception
– 12.9% annualized growth in book value per share plus dividends since inception
– 92.2% combined ratio inception to date
¿ Solid Financial Foundation
– Excellent financial strength with nearly $8.1 BN in assets, $3.1 BN in total capital and $2.5
BN in shareholders’ equity as of June 30, 2009
BN in shareholders’ equity as of June 30, 2009
w High quality, liquid investment portfolio
w Prudent loss reserves
– Rated “A” by A.M. Best and Standard and Poor’s and A2 by Moody’s with stable outlooks
– Received the highest ERM ranking of “Excellent” from Standard and Poor’s
¿ Endurance has the potential to generate superior returns on equity over time
5
Growth in book value
Superior returns on equity across underwriting cycles
Ethics, integrity, and transparency
To become
the best specialty
insurance and
reinsurance company
in the world
the best specialty
insurance and
reinsurance company
in the world
Growth through
specialization
Maximizing returns through
focused portfolio
focused portfolio
management
Balance sheet
strength and durability
¿ Aggressively deploy capital to
opportunities where we can
maintain a competitive
advantage based on
specialized:
opportunities where we can
maintain a competitive
advantage based on
specialized:
– Products
– Technology
– Distribution
¿ Invest to ensure that business
model is scalable
model is scalable
¿ Manage pricing cyclicality
through broad access to
distribution and focus on
returns-based underwriting
through broad access to
distribution and focus on
returns-based underwriting
¿ Manage loss volatility through
a diversified portfolio of
businesses
a diversified portfolio of
businesses
¿ Leverage strengths across the
businesses, e.g. dynamic
capital allocation
businesses, e.g. dynamic
capital allocation
¿ Maintain strong balance sheet
and reserves
and reserves
¿ Nurture conservative risk
culture
culture
¿ Leverage best-in-class ERM
¿ Employ disciplined capital
management across our
underwriting and investment
activities
management across our
underwriting and investment
activities
Our strategy is focused on delivering superior results for shareholders
6
¿ More attractive margins
¿ Better retention driven by deeper relationships
and expertise
and expertise
¿ High barriers to entry
¿ Stable earnings
How specialization leads to success
Why Endurance is well-positioned to succeed
¿ Deep underwriting knowledge of markets and
distribution across major specialty lines
distribution across major specialty lines
¿ Technological advantage which improves our
pricing ability and efficiency
pricing ability and efficiency
¿ Customized operating model by market type
¿ Active portfolio management to deploy and
retract capital in response to changing
market conditions
retract capital in response to changing
market conditions
¿ Strong balance sheet positions us well to
compete, particularly against those who
have faltered
compete, particularly against those who
have faltered
Source: AM Best US Surplus Lines, 2008 Market Review
One example of the success of specialization:
Excess and surplus lines outperform the overall
P&C industry
Excess and surplus lines outperform the overall
P&C industry
Growth through specialization
Specialty businesses are an attractive market where Endurance is well-poised to succeed
Specialty businesses are an attractive market where Endurance is well-poised to succeed
7
¿ Rapid entry into workers' compensation as the
market became attractive in 2006; managed
exit from the business as margins tightened
in 2008
market became attractive in 2006; managed
exit from the business as margins tightened
in 2008
¿ Exiting the UK property business when it
did not meet our business mix and
profitability requirements
did not meet our business mix and
profitability requirements
¿ Introduction of surety, aerospace, and
agriculture businesses which have different
risk profiles than catastrophe to create a more
diversified portfolio
agriculture businesses which have different
risk profiles than catastrophe to create a more
diversified portfolio
¿ Exiting offshore energy and national property
accounts in 2005 following Katrina, given
unanticipated volatility and lack of model
clarity; decision validated by 2008 results
accounts in 2005 following Katrina, given
unanticipated volatility and lack of model
clarity; decision validated by 2008 results
Levers we employ in portfolio management
¿ Thoughtfully but aggressively entering markets
when conditions are attractive
when conditions are attractive
¿ Diversify risks through the introduction of low
correlation businesses
correlation businesses
¿ Actively monitor and react to changing market
conditions
conditions
¿ Reduce exposures during soft markets
¿ Increase/decrease the amount of ceded
business as necessary
business as necessary
¿ Exit selected business lines when
fundamentals dictate doing so
fundamentals dictate doing so
Some examples
¿ While growing through specialization and building robust businesses that withstand both hard and
soft cycles, we also maximize our returns through active portfolio management
soft cycles, we also maximize our returns through active portfolio management
¿ Organizational agility underpins our ability to allocate capital dynamically
Maximizing returns through focused portfolio management
8
Endurance’s business units
Trailing twelve months (TTM) net premiums written: $1.74 BN*
Reinsurance
Insurance
¿ Agriculture
¿ Personal Accident
¿ Surety
¿ Casualty & Workers’ Compensation
¿ Professional Liability
¿ Property Per Risk
¿ Small Business
¿ Direct Treaty
¿ Aerospace
¿ Casualty Clash
¿ International Property Catastrophe
¿ US Property Catastrophe
¿ Workers’ Compensation Catastrophe
¿ ARMtech Agriculture
¿ US Property
¿ US Casualty
¿ US Miscellaneous E&O
¿ UK Property
¿ Healthcare
¿ Excess Casualty
¿ Professional Lines
¿ Workers’ Compensation
¿ Habitational
¿ Environmental
International
4%
Fortune 1000
12%
Middle Market
7%
21%
Bermuda
23%
US
24%
Program
9%
¿ Casualty
¿ Marine
¿ Motor
¿ Personal Accident
¿ Professional Indemnity
¿ Property
¿ Surety
¿ Trade Credit
Small Risk
* Prior to deposit accounting adjustments
Business overview
9
Growth curve of our business1
2002-June 30, 2009
1. Based on net premiums written
Small Risk
Program
Middle Market
International
Fortune 1000
US
Bermuda
Reinsurance
Insurance
Meaningfully improved risk
management and diversification
of our business since 2005
management and diversification
of our business since 2005
Endurance is expanding its capabilities into a range of attractive businesses
10
$387.7
$980.6
Managing the insurance portfolio
¿ We have significantly broadened our
insurance capabilities.
insurance capabilities.
– Added agriculture line of business
through the acquisition of ARMtech
through the acquisition of ARMtech
– Opportunistically grew and exited
California’s workers’ compensation
California’s workers’ compensation
– Expanded professional lines through
addition of underwriting teams and
new relationships
addition of underwriting teams and
new relationships
– Meaningfully expanded our distribution
relationships
relationships
¿ Reduced healthcare premiums in an
increasingly competitive environment
increasingly competitive environment
Insurance net premiums written
$866.3
Continue to expand insurance capabilities while maintaining discipline
11
$1,375.0
$808.8
Managing the reinsurance portfolio
¿ Active portfolio management has enhanced
reinsurance portfolio:
reinsurance portfolio:
– From 2005 through 2008, portfolio was
actively reduced where pricing, terms or data
quality have not met our requirements
actively reduced where pricing, terms or data
quality have not met our requirements
w Casualty declined 57%
w Property declined 46%
w Aerospace and Marine declined 67%
– Improved deployment of catastrophe
capacity has improved risk adjusted returns
capacity has improved risk adjusted returns
¿ We have maintained our underwriting expertise
and are well positioned to grow as opportunities
arise
and are well positioned to grow as opportunities
arise
Reinsurance net premiums written*
* Prior to deposit accounting adjustments
$876.1
Reinsurance book has reduced due to cycle management but is highly scaleable
12
Our results
Summary
Summary
¿ Strong return to shareholders
– Inception to date total return to investors of 16.7%. Total return measured by the change in
diluted book value per common share plus dividends divided by beginning diluted book value
per share.
diluted book value per common share plus dividends divided by beginning diluted book value
per share.
¿ Superior returns on equity
– 19.3% average annual operating ROE from 2006 through 2008, and better than peer median
throughout the cycle
throughout the cycle
– 14.2% inception to date average annual operating ROE
¿ Exceptional underwriting performance
– Inception to date combined ratio of 92.2%
– 2008 Ike and Gustav losses were below peer averages
¿ Disciplined capital management approach exemplified by
– Attractive dividend yield of ~3-4%
– $1.1 billion of capital returned to shareholders since inception
¿ Performance across key metrics compares favorably to peers
13
Book Value ($MM) and Diluted Book Value
Per Common Share ($)
Per Common Share ($)
From December 31, 2001 - June 30, 2009
Note: Diluted Book Value Per Share calculated on weighted number of average diluted shares outstanding.
* Diluted book value growth plus dividends
12.9% CAGR, diluted book
value per common share*
value per common share*
Our results
Diluted book value per common share has grown 126% since inception*
Diluted book value per common share has grown 126% since inception*
14
Operating ROE(%)1
From 2002-2008
1. ROE is defined as 3-yr rolling average operating ROAE
2. Composite peer median based on SNL data. Includes Allied World, Arch, Ren Re, IPC re, Axis, Transatlantic, Everest, PartnerRe, Platinum, Montpelier
and Max Capital
and Max Capital
Impact of Hurricanes Gustav and Ike
claims and mark to market accounting
impact from investment portfolio
claims and mark to market accounting
impact from investment portfolio
Impact of Hurricanes
Katrina, Rita, and
Wilma claims
Katrina, Rita, and
Wilma claims
Endurance
ENH 3-year rolling average ROE
19%
Median peer 3-year rolling average ROE
First year after
inception; capital not
yet fully deployed
inception; capital not
yet fully deployed
18%
8.4%
6.9%
Our results
We have outperformed peers throughout the cycle1
We have outperformed peers throughout the cycle1
15
Strong and flexible capital structure
¿ IBNR represents 64% of company reserves
¿ 75% of long tail reserves are IBNR
Prudent and strong reserves
¿ Established history and growth
¿ Rated “A” by A.M. Best and S&P; A2 by Moody’s
¿ Debt to total capital of 15.3%
Common Share Capital
Retained Earnings
Preferred Equity
Debt
Contingent Equity
Reserves as of June 30, 2009
Balance sheet strength at June 30, 2009
16
Industry-leading practice: loss triangles published annually in February
provide a transparent view of Endurance’s loss development
provide a transparent view of Endurance’s loss development
¿ Composition of Ultimate Loss &
Loss Adjustment Expense (LAE)
for each accident year
Loss Adjustment Expense (LAE)
for each accident year
¿ Ultimate Loss & LAE ratios
represent latest available
estimate of loss and expenses as
a percentage of earned
premiums
represent latest available
estimate of loss and expenses as
a percentage of earned
premiums
What to look for:
¿ Loss emergence shows the
change in total expected losses
over time
change in total expected losses
over time
¿ Negative total development figures
represent reserves that have been
released into earnings
represent reserves that have been
released into earnings
¿ Changes in reserves at end of
each 12-month period for each
accident year are reflected in
Ultimate Loss & LAE
each 12-month period for each
accident year are reflected in
Ultimate Loss & LAE
Accident Year | Earned Premium | Paid Loss & ALAE | Case Reserves & ALAE | Additional Case Reserves | IBNR | ULAE | Ultimate Loss & LAE | Ultimate Loss & LAE Ratio |
2001 | 1,320 | 295 | 0 | 0 | 24 | 0 | 320 | 24% |
2002 | 461,490 | 110,528 | 19,539 | 9,326 | 38,278 | 1,007 | 178,677 | 39% |
2003 | 1,241,128 | 319,503 | 56,153 | 10,258 | 124,598 | 2,865 | 513,376 | 41% |
2004 | 1,635,212 | 577,846 | 71,612 | 12,837 | 180,870 | 3,981 | 847,145 | 52% |
2005 | 1,788,208 | 1,330,584 | 211,331 | 27,078 | 225,370 | 7,102 | 1,801,464 | 101% |
2006 | 1,878,301 | 403,706 | 105,119 | 12,215 | 328,621 | 8,539 | 858,200 | 46% |
2007 | 1,763,709 | 313,668 | 162,789 | 19,887 | 447,286 | 17,466 | 961,097 | 54% |
2008 | 2,164,829 | 489,409 | 443,097 | 18,324 | 687,581 | 22,757 | 1,661,170 | 77% |
10,934,196 | 3,545,538 | 1,069,639 | 109,925 | 2,032,628 | 63,717 | 6,821,449 | 62% |
Gross
ITD summary
Endurance Specialty Holdings LTD.
Accident Year Global Development Triangles
Accident Year Global Development Triangles
Valuation date: December 31, 2008
Value in Thousands USD(1.4629 USD/GBP)
Ultimate Loss & LAE
12 | 24 | 36 | 48 | 60 | 72 | 84 | 96 | |
2001 | 398 | 322 | 319 | 277 | 320 | |||
2002 | 240,931 | 209,542 | 182,184 | 195,440 | 189,694 | 182,052 | 178,677 | |
2003 | 736,190 | 628,688 | 556,093 | 538,247 | 528,584 | 513,376 | ||
2004 | 1,095,479 | 993,890 | 908,496 | 879,490 | 847,145 | |||
2005 | 1,804,173 | 1,863,194 | 1,833,851 | 1,801,464 | ||||
2006 | 989,294 | 908,165 | 858,200 | |||||
2007 | 976,391 | 961,097 | ||||||
2008 | 1,661,170 |
@ 12 | 12 - 24 | 24 - 36 | 36 - 48 | 48 - 60 | 60 - 72 | 72 - 84 | 84 - 96 | Total Development | |
2001 | 398 | (75) | (3) | (42) | 43 | 320 | |||
2002 | 240,931 | (31,389) | (27,357) | 13,256 | (5,746) | (7,643) | (3,375) | (62,254) | |
2003 | 736,190 | (107,502) | (72,595) | (17,845) | (9,664) | (15,207) | (222,814) | ||
2004 | 1,095,479 | (101,589) | (85,394) | (29,006) | (32,345) | (248,334) | |||
2005 | 1,804,173 | 59,020 | (29,343) | (32,387) | (2,710) | ||||
2006 | 989,294 | (81,129) | (49,965) | (131,094) | |||||
2007 | 976,391 | (15,295) | (15,295) | ||||||
2008 | 1,661,170 | ||||||||
Total | 7,503,628 | (277,884) | (264,654) | (65,584) | (47,830) | (22,853) | (3,417) | 43 | (682,181) |
Loss Emergence
Calendar Year Emergence
Timely published loss triangles—an example of our commitment to transparency
17
Alternatives are limited and carefully selected
Currently carried at an average of 83% of amortized cost:
– 61% of CMBS are vintage 2005 or older
– 59% of RMBS are vintage 2005 or older
– No subprime MBS
– No credit or interest rate derivatives
¿ Market yield: 3.77%
¿ Book yield: 3.51%
¿ Average rating: Aaa/AAA
¿ Duration: 2.07 years
65% of
investments are in
cash, U.S.
Government or
U.S. Government
backed securities
investments are in
cash, U.S.
Government or
U.S. Government
backed securities
(1) Net of investments pending settlement
$5.7 Billion in Investments
Investment portfolio composition at June 30, 2009
18
Senior non-agency RMBS portfolio as of 6/30/09
(1) Does not include $7 million of notes that are non-US RMBS.
(1)
The RMBS portfolio is trading $95mm below face value (average price of 75%). The
current discount to face value would be realized through actual writedowns on the
securities under the following approximate cumulative default and severity scenarios:
current discount to face value would be realized through actual writedowns on the
securities under the following approximate cumulative default and severity scenarios:
•’06 and ‘07 Prime - 50% cumulative defaults / 70% loss severity
•‘05 and Earlier Prime - 45% cumulative defaults / 60% loss severity
•‘06 Alt-A - 70% cumulative defaults / 80% loss severity
•‘05 Alt-A - 50% cumulative defaults / 70% loss severity
•‘04 and Earlier Alt-A - 40% cumulative defaults / 60% loss severity
19
The analysis above excludes a seasoned CMBS portfolio (87% 2004 and earlier) with an
aggregate market value of $25mm and the following average characteristics:
aggregate market value of $25mm and the following average characteristics:
Senior non-agency CMBS portfolio as of 6/30/09
(1)
(1)
The CMBS portfolio is trading $68mm below face value (average price of 88%). The current
discount to face value would be realized through actual writedowns on the securities under the
following approximate cumulative default and severity scenarios:
discount to face value would be realized through actual writedowns on the securities under the
following approximate cumulative default and severity scenarios:
•‘06 and ‘07 Vintage - 90% cumulative defaults / 50% loss severity
•‘05 Vintage - 80% cumulative defaults / 40% loss severity
20
Conclusion
Endurance is a compelling investment opportunity
Endurance is a compelling investment opportunity
¿ Endurance offers investors significant upside potential, based on combination of:
– Strong franchise positions in attractive specialty markets
w Globally diversified portfolio of insurance and reinsurance units operated with deep and distinctive expertise
w Superior distribution capabilities with strong access to independent agent, middle market and retail
distribution networks
distribution networks
w Active portfolio management actions have maintained strong risk adjusted return potential while reducing
overall volatility
overall volatility
– Excellent balance sheet strength and liquidity
w High quality fixed income investment portfolio offers upside potential from current market values
w Prudent reserving philosophy and strong reserve position; Strong history of favorable development
w Industry leading ERM
– The future outlook is attractive
w Outlook for P&C insurance sector overall is attractive;
w Pricing in most lines is stable or improving with opportunities to continue generating attractive returns
w Endurance is well-positioned to fill gaps left by weakened incumbents
– Relative value vs. peers
w ENH currently trading at a discount to book and peers, which appears unwarranted given strong absolute
and relative performance and strong positioning
and relative performance and strong positioning
w P&C stock prices have fallen in line with other financials, which appears unwarranted given the industry’s
financial performance and improving market conditions
financial performance and improving market conditions
Appendix
22
Buy
Build
Partner
2008
2006
2001
2002
2003
2004
2005
2007
Acquired
LaSalle
portfolio
LaSalle
portfolio
Acquired
HartRe
HartRe
Acquired
ARMtech
ARMtech
Partnered with
leading California
workers’ comp
provider
leading California
workers’ comp
provider
Acquired XL
Surety
reinsurance
Surety
reinsurance
Established
US
reinsurance
US
reinsurance
Established
UK/Europe
reinsurance
UK/Europe
reinsurance
Established
Fortune 1000
insurance
Fortune 1000
insurance
Established
UK Middle
Market
insurance
UK Middle
Market
insurance
Established
US
Middle
Market
insurance
US
Middle
Market
insurance
Established
Agriculture
reinsurance
Agriculture
reinsurance
Partnered with
leading
environmental
contractor provider
leading
environmental
contractor provider
Established
operations
operations
Partnered with
leading habitational
risk provider
leading habitational
risk provider
Established
catastrophe
reinsurance
catastrophe
reinsurance
Growth through specialization
We have a strong track record of entering new businesses to meet our strategic aims
We have a strong track record of entering new businesses to meet our strategic aims
23
Optimally manage capital and risks
¿ Manage towards a required return on
risk-adjusted capital
risk-adjusted capital
¿ Quantify risks taken and limit ones
that threaten solvency/viability
that threaten solvency/viability
Clearly defined risk tolerances
Strong governance structure
Corporate culture
¿ Ownership mentality
¿ Transparency and communication of
ERM strategies
ERM strategies
Balance sheet strength and durability
Our commitment to ERM supports superior performance
Our commitment to ERM supports superior performance
24
1. % of net written premiums in 2008
Each of our
businesses
are led by
industry
leading
professionals
with market
expertise and
maintain the
following
sources of
competitive
advantage
businesses
are led by
industry
leading
professionals
with market
expertise and
maintain the
following
sources of
competitive
advantage
Endurance
Insurance
55%1
Middle Market
Small Risk
Program
Bermuda
US
Fortune 1000
International
Reinsurance
45%
Diverse mix of access to exposure, split
between insurance and reinsurance,
and across customer segments
between insurance and reinsurance,
and across customer segments
¿ Service and
technology-based
distribution
strategy
technology-based
distribution
strategy
¿ Strong local
presences
presences
¿ Strong product
development
development
¿ Cost-efficient
production
production
¿ Professional
team with
extremely strong
underwriting
experience
team with
extremely strong
underwriting
experience
¿ Long-term
relationships
(over 20 years)
with key brokers
relationships
(over 20 years)
with key brokers
¿ Very strong
reinsurance
relationships
reinsurance
relationships
¿ Individual risk
underwriting
model, as
opposed to
market share
approach
underwriting
model, as
opposed to
market share
approach
¿ Very low
historical loss
ratio based on
superior
underwriting
historical loss
ratio based on
superior
underwriting
¿ Deep
distribution
management
capabilities
distribution
management
capabilities
¿ Utilize
technology to
enhance control
environment
technology to
enhance control
environment
¿ Multi-disciplined
teams of
professionals
dedicated to
program
management
and oversight
teams of
professionals
dedicated to
program
management
and oversight
¿ Access to
business
through
combination of
insurance and
reinsurance
networks
business
through
combination of
insurance and
reinsurance
networks
¿ 3-pronged
underwriting
approach
underwriting
approach
– Specialized
– Relationship-
based
based
– Opportunistic
¿ Dedicated
professional
teams with skills
tailored to each
approach
professional
teams with skills
tailored to each
approach
¿ Face-to-face
service model
and access to
global network
of clients
service model
and access to
global network
of clients
¿ Industry leading
underwriting
margins
underwriting
margins
¿ Aggressive
portfolio
management
portfolio
management
¿ Industry leading
technology and
modeling
technology and
modeling
¿ Distinctive
footprint and
lean
underwriting
approach vs.
most Bermuda
competitors
footprint and
lean
underwriting
approach vs.
most Bermuda
competitors
¿ Shifting focus of
business to
Zurich and
Singapore
business to
Zurich and
Singapore
¿ Strong local
market
presence with
experienced
professionals
market
presence with
experienced
professionals
Business organization and competitive advantages
25
1. As of October 9, 2008
2. Premiums and loss ratios are net of cessions to the FCIC only
¿ Acquired in December 2007
¿ Traditional multi peril crop insurer with a 6.1%
market share of the $4.7 BN MPCI market1
market share of the $4.7 BN MPCI market1
¿ Endurance’s portfolio currently includes over
50,000 clients and 100,000+ individual policies
50,000 clients and 100,000+ individual policies
¿ Agriculture insurance is an attractive and growing
segment
segment
Overview of Small Risk - ARMtech
¿ Strong local presence of field representatives that
deliver technology driven products to independent
agents
deliver technology driven products to independent
agents
¿ Product development expertise
¿ Expense advantage - low cost manufacturer
– Leverage technology
– Centralized and scaleable back office
– Well distributed sales and claims staff
Competitive advantage
¿ We will leverage our exceptional customer
service, scalable operating platform, and low cost
structure to grow the market share
service, scalable operating platform, and low cost
structure to grow the market share
¿ Continue to grow in the small risk space utilizing
strong local presence and distribution, product
development, and technology
strong local presence and distribution, product
development, and technology
Go forward strategy and outlook
ARMtech performance from 2002-20082
Case study: ARMtech represents a successful entry into Agriculture
26
¿ Endurance began investing and organically
growing it’s US middle market business in 2005
growing it’s US middle market business in 2005
¿ Developed a well established branch network
– Provide admitted and non-admitted policy
forms
forms
– World class policy administration system that
allows for rapid integration of new products
allows for rapid integration of new products
¿ Middle Market represents a large but fragmented
opportunity with attractive margins. This space:
opportunity with attractive margins. This space:
– Reflects less concentrated single risk
exposures, which balances our Fortune 1000
business
exposures, which balances our Fortune 1000
business
– Represents business which is often poorly
served by standard carriers
served by standard carriers
– Has historical results better than industry
Overview of Middle Market
¿ Our credible underwriting staff with extensive
experience managing through hard and soft
markets
experience managing through hard and soft
markets
¿ Long term relationships with key producers who
are leaders in the wholesale distribution system
are leaders in the wholesale distribution system
¿ Proven ability to attract underwriters and find
niche pockets of attractive business, e.g.
successfully opened 10 branch locations
niche pockets of attractive business, e.g.
successfully opened 10 branch locations
Competitive advantage
¿ Extend our existing US business model
geographically and by product
geographically and by product
¿ Continue to organically build through leveraging
existing capabilities and hiring new teams to take
advantage of current market opportunities
existing capabilities and hiring new teams to take
advantage of current market opportunities
Go forward strategy and outlook
We are now building a similarly differentiated specialized portfolio within Middle Market
27
¿ This business is one of the highest margin
businesses through the underwriting cycle
businesses through the underwriting cycle
– Rating agency constraints and market
behaviors put floor on cycle
behaviors put floor on cycle
¿ Success requires active portfolio management
– Key is to maintain proper infrastructure and set
of internal controls
of internal controls
¿ Track record of attractive underwriting margins
– Inception to date underwriting ratio of 58.0%
– Our performance in 2008 with Ike and Gustav
was significantly better than peers1
was significantly better than peers1
Overview of Bermuda Catastrophe
¿ Industry leading technical underwriter
– Recognized as Excellent in ERM by S&P
– Face-to-face contact with clients aids risk
selection
selection
¿ Seasoned industry participant that has leveraged
active client management to move towards more
attractive accounts
active client management to move towards more
attractive accounts
¿ Global reinsurance network provides greater
access to clients
access to clients
Competitive advantage
¿ Continue to write quality business through both
hard and soft cycles
hard and soft cycles
¿ Attract internal and external sources of capital
¿ Portfolio manage concentrations and leverage
global network to seek out diversifying exposures
global network to seek out diversifying exposures
Go forward strategy and outlook
1. Composite peer median based on SNL data. Includes Platinum, Allied World, Arch, Ren Re, IPC re, Axis, Transatlantic, Everest, PartnerRe, Montpelier
and Max Capital
and Max Capital
Underwriting Ratio from 2002-2Q09
Case study: Strong performance in Bermuda Cat driven by strategy and cycle management
28
¿ California market identified as an opportunity,
especially in small business niche markets (small,
regional company focus through independent agents)
especially in small business niche markets (small,
regional company focus through independent agents)
¿ Entered the business in 2006 with a partner who
provided technology and distribution expertise
provided technology and distribution expertise
– Partner was a successful reinsurance client
– Relationship parlayed into primary insurance
partnership; serves as template for future
opportunities
partnership; serves as template for future
opportunities
¿ Ramped up the business to over 100,000 policies in
three years
three years
¿ In late 2008, concluded that expected loss cost
trends would continue to erode and competitive
pressures would increase
trends would continue to erode and competitive
pressures would increase
– Exited the business in early 2009
¿ From 2006 to 2008, we wrote $541 MM in net
premiums and the business has generated returns
above initial expectations
premiums and the business has generated returns
above initial expectations
Overview of California Workers’ Compensation
Net premiums written
Workers’ Comp insurance industry performance1
1995-2008
1995-2008
1. Source: WCIRB estimated accident year combined loss and expense ratios
Note: 2008 industry combined ratios projected based on market trends and Endurance’s performance
Exited
business
business
Endurance spotted an historic
opportunity to enter what is generally
considered a difficult market
opportunity to enter what is generally
considered a difficult market
Case study: Our California Workers’ Comp insurance play represents a successful, replicable
business model
29
¿ Historically a high margin business
¿ Comprised of large risk casualty business which
includes, healthcare, excess casualty, and
professional lines insurance
includes, healthcare, excess casualty, and
professional lines insurance
¿ Endurance is expanding market share by opening
2 new offices
2 new offices
– US healthcare team and US professional lines
¿ Challenges faced by large distressed carriers
creating opportunities
creating opportunities
¿ This business has generated economic margins
of ~30% (includes underwriting and investment
returns)
of ~30% (includes underwriting and investment
returns)
Overview of Fortune 1000
¿ Strong distribution management capabilities
¿ Demonstrated low underwriting ratio as compared
to peers
to peers
¿ Endurance is a technical risk underwriter
– Actuarial models built around exposure
management based on proprietary
information gained from client knowledge
management based on proprietary
information gained from client knowledge
– Strong reliance on pricing tools
Competitive advantage
¿ Continue to selectively expand our footprint from
Bermuda to the United States to better align with
evolving distribution model
Bermuda to the United States to better align with
evolving distribution model
¿ Leverage our distribution management
capabilities
capabilities
¿ We believe the combination of underwriting
excellence and expanded operational capabilities
positions us very well for the next 5 years
excellence and expanded operational capabilities
positions us very well for the next 5 years
Go forward strategy and outlook
Fortune 1000 - business overview
30
¿ Represents a large opportunity for Endurance in
today’s marketplace as the weakening of
incumbents will increase available share of new
program businesses
today’s marketplace as the weakening of
incumbents will increase available share of new
program businesses
¿ To be individually underwritten in a cost effective
way this business is better accessed through
distribution partnerships
way this business is better accessed through
distribution partnerships
¿ We have two distinct partnership models
depending on the type of risk:
depending on the type of risk:
Overview of Program Business
¿ Broad underwriting capabilities
– Better qualified to monitor underwritten
business
business
– Ability and discipline to be selective
¿ Underwriting mature books of business that are
susceptible to analysis
susceptible to analysis
¿ Demonstrated successful experience in this
business model
business model
Competitive advantage
¿ Capitalize on weakness of large incumbents
– Flight to more stable business partners
¿ Leverage in-house underwriting expertise
Go forward strategy and outlook
Opportunistic entry and exit | Ongoing partnership | ||
Example | California Worker’s compensation | Environmental insurance | |
Details | Entry in 2006 when the business was attractive, exit in 2009 as cost trends eroded and competitive pressures increased | Ongoing where partner underwrites using Endurance’s underwriting technology platform |
Program business overview
31
¿ US Reinsurance is the broadest and deepest
reinsurance market with a wide variety of risks,
aggressive competitors and pronounced
underwriting cycles
reinsurance market with a wide variety of risks,
aggressive competitors and pronounced
underwriting cycles
¿ Historically, reinsurers in the US have competed
using market tracking and market share
strategies. However, Endurance aspires to
generate higher margins by using a three-pronged
approach
using market tracking and market share
strategies. However, Endurance aspires to
generate higher margins by using a three-pronged
approach
– Specialized underwriting: Stable, well-respected
underwriting teams that operate as specialists
within their niche
underwriting teams that operate as specialists
within their niche
– Opportunistic/capabilities underwriting:
Opportunistic approach to identifying and targeting
attractive businesses while maintaining discipline
to exit and enter markets as the cycle dictates
Opportunistic approach to identifying and targeting
attractive businesses while maintaining discipline
to exit and enter markets as the cycle dictates
– Relationship underwriting: Focused strategy of
working with best of breed companies that have
strong franchises and are less susceptible to
competition
working with best of breed companies that have
strong franchises and are less susceptible to
competition
w Technical underwriters similar to Endurance
Overview of US Reinsurance
¿ Distinctive combination of cycle management and
comprehensive underwriting capabilities
comprehensive underwriting capabilities
¿ Experienced team with broad expertise
¿ Specialist underwriters supported by claims and
actuarial teams
actuarial teams
¿ Flexible technology platform
Competitive advantage
¿ Expand specialty underwriting products
– Surety and direct lines of business
¿ Opportunistically enter markets that are
experiencing greater diversification due to
counterparty risk
experiencing greater diversification due to
counterparty risk
¿ Expand relationships where clients are proving to
be strategically positioned to withstand market
pressures
be strategically positioned to withstand market
pressures
Go forward strategy and outlook
US Reinsurance business overview
32
¿ Global operations in London, Zurich, and
Singapore
Singapore
¿ Broadly bifurcated market approach to serve both
London and local markets
London and local markets
– Maintain capabilities to serve in both markets
– Deep and broad relationships with clients
¿ Positioning resources to replicate strategy
employed in the US
employed in the US
¿ Represents a large opportunity for Endurance in
today’s marketplace as the weakening of large
incumbents will increase available share of new
business
today’s marketplace as the weakening of large
incumbents will increase available share of new
business
Overview of International Reinsurance
¿ Differentiated operating model which combines
specialized underwriting skills with operational
efficiency
specialized underwriting skills with operational
efficiency
– Local senior underwriters
– Lean focused multi-disciplinary team
¿ Leverage of assembled network of expertise to
draw from the Bermuda catastrophe and New
York specialist teams
draw from the Bermuda catastrophe and New
York specialist teams
Competitive advantage
¿ Leverage relationships into other lines of business
– We have widely dispersed cat clients and
contract base
contract base
¿ Build network through face to face contact and
ability to respond quickly to market opportunities
ability to respond quickly to market opportunities
Go forward strategy and outlook
International Reinsurance business overview
33
$MM (except per share data and %) | June 30, 2009 | June 30, 2008 | $ Change | % Change |
Net premiums written | 480.0 | 469.4 | 10.6 | 2.2 |
Net premiums earned | 434.2 | 453.1 | (18.9) | (4.2) |
Net investment income | 88.8 | 60.5 | 28.3 | 46.8 |
Net underwriting income | 45.6 | 51.6 | (6.0) | (11.6) |
Net income | 149.1 | 103.3 | 45.8 | 44.3 |
Operating income | 130.8 | 102.7 | 28.1 | 27.4 |
Fully diluted net income EPS | 2.42 | 1.54 | 0.88 | 57.1 |
Fully diluted operating EPS | 2.11 | 1.53 | 0.58 | 37.9 |
Financial highlights
June 30, 2009 | June 30, 2008 | |
Operating ROE | 23.5% | 16.9% |
Net loss ratio | 62.4% | 60.7% |
Acquisition expense ratio | 14.7% | 16.7% |
General and administrative expense ratio | 12.5% | 11.6% |
Combined ratio | 89.6% | 89.0% |
Diluted book value per share | $38.07 | $36.72 |
Investment leverage | 2.62 | 2.39 |
Key operating ratios
Financial results for second quarter 2009
34
In $MM | June 30, 2009 | June 30, 2008 | $ Change | % Change |
Property | 22.1 | 36.6 | (14.5) | (39.6) |
Casualty | 28.3 | 35.0 | 6.7 | (19.1) |
Healthcare liability | 22.9 | 25.2 | 2.3 | (9.1) |
Workers’ compensation | (2.6) | 63.5 | (66.1) | NM |
Agriculture | 28.7 | 44.2 | (15.5) | (35.1) |
Professional lines | 54.4 | 30.0 | 24.4 | 81.3 |
Total insurance | 153.8 | 234.4 | 80.6 | (34.4) |
Insurance Segment
In $MM | June 30, 2009 | June 30, 2008 | $ Change | % Change |
Casualty | 84.0 | 36.3 | 47.7 | 131.4 |
Property | 55.2 | 34.9 | 20.3 | 58.2 |
Catastrophe | 148.4 | 122.2 | 26.2 | 21.4 |
Agriculture | 2.9 | 5.2 | (2.3) | (44.2) |
Aerospace and marine | 21.6 | 21.9 | (0.3) | (1.4) |
Surety and other specialty | 14.4 | 14.8 | (0.4) | (2.7) |
Total reinsurance | 326.5 | 235.3 | 91.2 | 38.8 |
Reinsurance Segment*
In $MM | March 31, 2009 | $ Change | % Change | |
Deposit accounting adjustments | (0.2) | (0.3) | 0.1 | 33.3 |
Total | 480.0 | 469.4 | 10.6 | 2.2 |
Total
* Prior to deposit accounting adjustments
Net written premiums
35
In $MM | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | YTD June 30, 2009 | 2002 through 2Q09 |
Net premiums written | 765 | 1,598 | 1,697 | 1,619 | 1,586 | 1,575 | 1,784 | 1,342 | 11,687 |
Net premiums earned | 369 | 1,174 | 1,633 | 1,724 | 1,639 | 1,595 | 1,766 | 812 | 10,712 |
Net underwriting income | 51 | 179 | 232 | (410) | 304 | 322 | 111 | 79 | 868 |
Net investment income | 43 | 71 | 122 | 180 | 257 | 281 | 130 | 153 | 1,238 |
Net income before preferred dividend | 102 | 263 | 356 | (220) | 498 | 521 | 99 | 227 | 1,846 |
Net income available to common shareholders | 102 | 263 | 356 | (223) | 483 | 506 | 83 | 220 | 1,789 |
Diluted EPS | $1.73 | $4.00 | $5.28 | ($3.60) | $6.73 | $7.13 | $1.31 | $3.65 |
Financial highlights since 2002
Key operating ratios | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | YTD June 30, 2009* | Inception- to -date |
Combined ratio | 86.2% | 84.7% | 85.8% | 123.5% | 81.5% | 79.9% | 93.5% | 90.8% | 92.2% |
Operating ROE | 7.8% | 17.3% | 19.9% | (11.9%) | 25.7% | 23.8% | 8.5% | 19.7% | 14.2% |
Book value per share | $21.73 | $24.03 | $27.91 | $23.17 | $28.87 | $35.05 | $33.06 | $38.07 |
* Operating ROE is annualized
Financial overview: historical
36
Pay an attractive dividend yield
Return capital as market conditions soften
Note: Dividend yield based on common shares. Endurance also issues a $1.94 dividend to its preferred shares on an annual basis.
* Annual dividend per share is annualized for 2009
Capital management
We have maintained a disciplined capital management approach
We have maintained a disciplined capital management approach