PEMBROKE, Bermuda – April 27, 2005 – Endurance Specialty Holdings Ltd. (NYSE:ENH), today reported net income of $96.3 million or $1.45 per diluted share for the first quarter of 2005 versus net income of $100.9 million or $1.47 per diluted share in the first quarter of 2004. In the first quarter of 2005, operating income, which excludes after-tax realized investment gains and losses and foreign exchange gains and losses, was $102.7 million or $1.55 per diluted share versus $98.7 million or $1.44 per diluted share in the first quarter of 2004. Annualized operating return on average equity was 21.9% during the first quarter of 2005.
Kenneth J. LeStrange, Chairman and Chief Executive Officer, commented, “Endurance produced another strong financial result for our shareholders this quarter. Despite varied and challenging market conditions, we have remained disciplined, focused and opportunistic. We are proud to have generated another outstanding return on equity this quarter that was well ahead of our stated guidance, and to have grown book value significantly year over year. With our diversified book of business, the strength of our balance sheet and our commitment to profitable underwriting, we are well positioned to produce strong returns for our owners over the short and long term.”
Gross premiums written were $702.5 million for the quarter ended March 31, 2005, a decrease of 2.5% from the $720.6 million in gross premiums written for the first quarter of 2004. Earned premiums in the quarter were $437.6 million, an increase of 5.2% from the first quarter of 2004.
Gross premiums written in 2005 did not include $85.6 million in premiums from a small number of quota share contracts that were written in the first quarter of 2005. Endurance chose to account for these quota share contracts under the deposit method of accounting. While not underwritten as finite risk reinsurance, these contracts contained adjustable features, primarily sliding scale ceding commissions and profit sharing commissions, which Endurance believes are more properly characterized under the deposit method of accounting based upon a conservative interpretation of FAS 113. Under the deposit method of accounting, revenues and expenses from reinsurance contracts are not recognized as written premium and incurred losses; rather, the profits from these contracts are recognized net as other underwriting income or investment income over the contract or expected claim payment periods.
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The Company benefited from $46.0 million in net favorable reserve development for the first quarter of 2005 from prior years, compared to $19.4 million in the first quarter of 2004. This reduction in the Company’s estimated losses for prior years was largely driven by lower than anticipated frequency in the Property Per Risk Treaty Reinsurance and Property Catastrophe Reinsurance segments.
Investment income was $40.0 million in the first quarter of 2005, an increase of 62.2% from the $24.7 million of investment income in the first quarter of 2004, reflecting a significant build-up of invested assets and a rise in interest rates over the past year.
In the first quarter of 2005, Endurance repurchased 755,814 shares for $26.7 million.
At March 31, 2005, the Company’s GAAP shareholder’s equity was $1.9 billion or $28.23 per diluted share, up 10.7% from March 31, 2004.
Total assets were $5.7 billion and cash and invested assets were $4.1 billion, an increase of 36.0% from the quarter ended March 31, 2004. Net operating cash flow was $220.1 million for the quarter versus $269.8 million at March 31, 2004.
Endurance also announced that its Board of Directors declared a quarterly dividend of $0.25 per share payable on its ordinary shares. The dividend will be payable on June 30, 2005 to the shareholders of record on June 16, 2005.
Endurance will host a conference call on Thursday, April 28, 2005 at 10:00 AM Eastern to discuss its financial results. The conference call can be accessed via telephone by dialing (800) 949-2165 (toll-free) or (312) 461-9314 (international). A telephone replay of the conference call will be available through May 11, 2005 by dialing (888) 203-1112 (toll-free) or (719) 457-0820 (international) and entering the pass code: 3324354.
The public may access a live broadcast of the conference call at the “Investors” section of Endurance’s website,www.endurance.bm.
A copy of the Company’s financial supplement for the first quarter of 2005 will be available on the Company’s website athttp://www.endurance.bmshortly after the release of earnings.
Operating income and annualized operating return on average equity are non-GAAP measures. A reconciliation of these measures to net income is provided on the attached table entitled “Reconciliation”.
About Endurance Specialty Holdings
Endurance Specialty Holdings Ltd. is a global provider of property and casualty insurance and reinsurance. Through its operating subsidiaries, Endurance currently writes property per risk treaty reinsurance, property catastrophe reinsurance, casualty treaty reinsurance, property individual risks, casualty individual risks, and other specialty lines. Endurance’s operating subsidiaries have been assigned a group rating of A (Excellent) from A.M. Best, A2 by Moody’s and A- from Standard & Poor’s. 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 http://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.
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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, 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, 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, 2004.
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
AT MARCH 31, 2005 AND DECEMBER 31, 2004
(in thousands of United States dollars, except per share amounts)
| | March 31,
2005 | | December 31,
2004 | |
Assets | | | | | | | |
Cash and cash equivalents | | $ | 273,785 | | $ | 271,143 | |
Fixed maturity investments available for sale, at fair value | | | 3,673,191 | | | 3,578,174 | |
Investments in other ventures, under equity method | | | 108,536 | | | 91,036 | |
Premiums receivable, net | | | 847,327 | | | 545,352 | |
Deferred acquisition costs | | | 238,182 | | | 195,419 | |
Securities lending collateral | | | 404,673 | | | 407,527 | |
Prepaid reinsurance premiums | | | 5,990 | | | 5,248 | |
Losses recoverable | | | 12,434 | | | 12,203 | |
Accrued investment income | | | 32,166 | | | 28,378 | |
Intangible assets | | | 42,364 | | | 47,107 | |
Other assets | | | 56,440 | | | 44,251 | |
Total Assets | | $ | 5,695,088 | | $ | 5,225,838 | |
| | | | | | | |
Liabilities | | | | | | | |
Reserve for losses and loss expenses | | $ | 1,706,957 | | $ | 1,549,661 | |
Reserve for unearned premiums | | | 1,157,973 | | | 897,605 | |
Deposit liabilities | | | 56,108 | | | — | |
Reinsurance balances payable | | | 67,319 | | | 70,507 | |
Securities lending payable | | | 404,673 | | | 407,527 | |
Debt | | | 391,286 | | | 391,280 | |
Other liabilities | | | 28,132 | | | 46,803 | |
Total Liabilities | | | 3,812,448 | | | 3,363,383 | |
| | | | | | | |
Shareholders’ Equity | | | | | | | |
Common shares | | | | | | | |
60,579 issued and outstanding (2004 – 61,255) | | | 60,579 | | | 61,255 | |
Additional paid-in capital | | | 1,091,722 | | | 1,111,633 | |
Accumulated other comprehensive (loss) income | | | (662 | ) | | 39,473 | |
Retained earnings | | | 731,001 | | | 650,094 | |
Total Shareholders’ Equity | | | 1,882,640 | | | 1,862,455 | |
| | | | | | | |
Total Liabilities and Shareholders’ Equity | | $ | 5,695,088 | | $ | 5,225,838 | |
| | | | | | | |
Book Value per Common Share | | | | | | | |
Dilutive common shares outstanding | | | 66,681 | | | 66,729 | |
Diluted book value per common share | | $ | 28.23 | | $ | 27.91 | |
Note: All financial information contained herein is unaudited, except the balance sheet data for the year ended December 31, 2004, which was derived from the Company’s audited financial statements.
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ENDURANCE SPECIALTY HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE QUARTERS ENDED MARCH 31, 2005 AND MARCH 31, 2004
(in thousands of United States dollars, except per share amounts)
| | Quarter Ended
March 31, 2005 | | Quarter Ended
March 31, 2004 | |
Revenues | | | | | | | |
Gross premiums written | | $ | 702,491 | | $ | 720,631 | |
| | | | | | | |
Net premiums written | | $ | 699,178 | | | 717,007 | |
Change in unearned premiums | | | (261,580 | ) | | (301,181 | ) |
| | | | | | | |
Net premiums earned | | | 437,598 | | | 415,826 | |
Net investment income | | | 40,011 | | | 24,675 | |
Net realized (losses) gains on sales of investments | | | (4,453 | ) | | 5,176 | |
Other underwriting income | | | 171 | | | — | |
Total revenues | | | 473,327 | | $ | 445,677 | |
| | | | | | | |
Expenses | | | | | | | |
Losses and loss expenses | | | 251,059 | | | 222,009 | |
Acquisition expenses | | | 86,775 | | | 85,518 | |
General and administrative expenses | | | 33,546 | | | 31,767 | |
Amortization of intangibles | | | 1,220 | | | 944 | |
Net foreign exchange losses | | | 2,421 | | | 3,159 | |
Interest expense | | | 5,471 | | | 828 | |
Total expenses | | | 380,492 | | | 344,225 | |
| | | | | | | |
Income before income taxes | | | 92,835 | | | 101,452 | |
Income tax benefit (expense) | | | 3,424 | | | (580 | ) |
Net income | | $ | 96,259 | | $ | 100,872 | |
| | | | | | | |
Per share data | | | | | | | |
| | | | | | | |
Weighted average number of common and common equivalent shares outstanding: | | | | | | | |
Basic | | | 61,292 | | | 64,084 | |
Diluted | | | 66,166 | | | 68,555 | |
Basic earnings per share | | $ | 1.57 | | $ | 1.57 | |
Diluted earnings per share | | $ | 1.45 | | $ | 1.47 | |
Note: All financial information contained herein is unaudited, except the balance sheet data for the year ended December 31, 2004, which was derived from the Company’s audited financial statements.
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ENDURANCE SPECIALTY HOLDINGS LTD.
CONSOLIDATED FINANCIAL RATIOS
FOR THE QUARTERS ENDED MARCH 31, 2005 AND MARCH 31, 2004
| | Quarter Ended
March 31, 2005 | | Quarter Ended
March 31, 2004 | |
GAAP Ratios | | | | | |
Loss ratio | | 57.4 | % | 53.4 | % |
Acquisition expense ratio | | 19.8 | % | 20.6 | % |
General and administrative expense ratio | | 7.7 | % | 7.6 | % |
Combined ratio | | 84.9 | % | 81.6 | % |
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ENDURANCE SPECIALTY HOLDINGS LTD.
RECONCILIATION
FOR THE QUARTERS ENDED MARCH 31, 2005 AND MARCH 31, 2004
(in thousands of United States dollars)
The following is a reconciliation of the Company’s net income to operating income and annualized operating return on average equity (both of which are non-GAAP measures) for the three months ended March 31, 2005 and 2004:
| | Quarter Ended
March 31, 2005 | | Quarter Ended
March 31, 2004 | |
Net Income | | $ | 96,259 | | $ | 100,872 | |
Add (Less) after-tax items: | | | | | | | |
Net foreign exchange losses | | | 2,292 | | | 2,415 | |
Net realized losses (gains) on investments | | | 4,122 | | | (4,602 | ) |
Operating Income | | $ | 102,673 | | $ | 98,685 | |
| | | | | | | |
Average equity [a] | | $ | 1,872,548 | | $ | 1,703,959 | |
| | | | | | | |
Operating return on average equity | | | 5.5 | % | | 5.8 | % |
Annualized operating return on average equity | | | 21.9 | % | | 23.2 | % |
[a] | Average equity is calculated as the arithmetic average of the beginning and ending equity balances for the stated period. |
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.
Operating income is an internal performance measure used by the Company in the management of its operations. 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. The Company 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 determined in accordance with GAAP, the Company believes that showing operating income enables investors, analysts, rating agencies and other users of its financial information to more easily analyze the Company’s results of operations in a manner similar to how management analyzes the Company’s underlying business performance. Operating income should not be viewed as a substitute for GAAP net income.
The Company presents return on equity as a measure that it is commonly recognized as a standard of performance by investors, analysts, rating agencies and other users of its financial information.
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