Endurance Specialty (ENH) 8-K Results of Operations and Financial Condition

Exhibit 99.2

Endurance Specialty Holdings Ltd.

INVESTOR FINANCIAL SUPPLEMENT

SECOND QUARTER 2005

 
Endurance Specialty Holdings Ltd.
Wellesley House, 90 Pitts Bay Rd.
Pembroke HM 08, Bermuda

Massa B. Cressall
Assistant VP, Strategy and Planning
Phone: (441) 278-0988
Fax: (441) 278-0493
email: mcressall@endurance.bm
 

This report is for information purposes only. It should be read in conjunction with other documents filed by Endurance Specialty Holdings Ltd. pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934.

Financial Supplement Table of Contents

	Page
i. Basis of Presentation	i
ii. Organizational Chart of Executive Management	ii
iii. Organizational Chart of Corporate Structure	ii
I. Financial Highlights	1
II. Consolidated Financial Statements
a. Consolidated Statements of Income	2
b. Consolidated Balance Sheets	3
c. Segment Distribution	4
d. Consolidated Segment Data	5
e. Deposit Accounting Adjustment Impacts on Segment Data	7
III. Other Financial Information
a. Return on Equity Analysis	9
b. ROE Component Analysis - Operating and Investment Leverage	10
c. Investment Portfolio Information	11
d. Unrealized Gains and Operating Cash Flow	12
IV. Loss Reserve Analysis
a. Activity in Reserve for Losses and Loss Expenses	13
b. Analysis of Unpaid Losses and Loss Expense	14
V. Share Analysis
a. Weighted Average Dilutive Shares Outstanding	15
b. Operating Income Reconciliation	16
c. Dilutive Shares Sensitivity Analysis	17
d. Book Value Per Share Analysis	18
e. Growth in Book Value Per Share Analysis	19
VI. Regulation G	20

Application of the Safe Harbor of the Private Securities Litigation Reform Act of 1995:

Some of the statements in this financial supplement 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 financial supplement 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. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only to the date on which they are made. We undertake no obligation to publicly update or review any forward looking statement, when as a result of new information, future developments or otherwise.

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, 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, 2004.

ENDURANCE SPECIALTY HOLDINGS LTD.
BASIS OF PRESENTATION

DEFINITIONS AND PRESENTATION

• All financial information contained herein is unaudited, except the balance sheet and income statement data for the years ended December 31, 2004 and December 31, 2003, which was derived from the Company’s audited financial statements.

• Unless otherwise noted, all data is in thousands, except for per share, percentage and ratio information.

• As used in this financial supplement, “common shares” refers to our ordinary shares and class A shares, collectively.

• Endurance Specialty Holdings Ltd., along with others in the industry, uses underwriting ratios as measures of performance. The loss ratio is the ratio of claims and claims adjustment expense to earned premiums. The acquisition expense ratio is the ratio of underwriting expenses (commissions, taxes, licenses and fees, as well as other underwriting expenses) to earned premiums. The general and administrative expense ratio is the ratio of general and administrative expenses to earned premiums. The combined ratio is the sum of the loss ratio, the acquisition expense ratio and the general and administrative expense ratio. These ratios are relative measurements that describe for every $100 of net premiums earned or written, the cost of losses and expenses, respectively. The combined ratio presents the total cost per $100 of earned premium. A combined ratio below 100% demonstrates underwriting profit; a combined ratio above 100% demonstrates underwriting loss.

• GAAP combined ratios differ from statutory combined ratios primarily due to the deferral of certain third party acquisition expenses for GAAP reporting purposes and the use of net premiums earned rather than net premiums written in the denominator when calculating the acquisition expense and the general & administrative expense ratios.

• NM — Not meaningful; NA — Not Applicable; LTM — Latest twelve months.

i

ENDURANCE SPECIALTY HOLDINGS LTD.
ORGANIZATION CHART

ii

ENDURANCE SPECIALTY HOLDINGS LTD.

CORPORATE ORGANIZATION CHART

iii

ENDURANCE SPECIALTY HOLDINGS LTD.
CONSOLIDATED FINANCIAL HIGHLIGHTS

		QUARTER ENDED JUNE 30,						SIX MONTHS ENDED JUNE 30,						Previous Quarter Change		Previous Year to Date Change
		2005			2004			2005			2004
HIGHLIGHTS	Net income	$	110,017		$	114,756		$	206,276		$	215,628		(4.1	)%	(4.3	)%
	Operating income [a]		111,787			117,885			214,459			216,571		(5.2	)%	(1.0	)%
	Gross premiums written		403,189			350,661			1,105,680			1,071,292		15.0	%	3.2	%
	Net premiums earned		437,921			395,987			875,519			811,813		10.6	%	7.8	%
	Total assets		5,809,713			4,421,619			5,809,713			4,421,619		31.4	%	31.4	%
	Total shareholders’ equity		1,987,125			1,731,271			1,987,125			1,731,271		14.8	%	14.8	%
PER SHARE	Basic earnings per share
AND SHARES DATA	Net income (as reported)	$	1.81		$	1.81		$	3.38		$	3.38		0.1	%	(0.0	)%
	Operating income (as reported) [a]	$	1.84		$	1.86		$	3.52		$	3.40		(0.9	)%	3.5	%
	Diluted earnings per share
	Net income (as reported)	$	1.67		$	1.69		$	3.11		$	3.16		(1.4	)%	(1.5	)%
	Operating income (as reported) [a]	$	1.69		$	1.74		$	3.24		$	3.17		(2.5	)%	2.0	%
As Reported	Weighted average common shares outstanding		60,632			63,334			60,960			63,709		(4.3	)%	(4.3	)%
	Weighted average common shares outstanding
	and dilutive potential common shares		66,063			67,919			66,276			68,244		(2.7	)%	(2.9	)%
Book Value	Book value [b]	$	33.01		$	27.83		$	33.01		$	27.83		18.6	%	18.6	%
Per Share	Diluted book value (treasury stock method) [b]	$	30.01		$	25.81		$	30.01		$	25.81		16.3	%	16.3	%
FINANCIAL RATIOS	Return on average equity (ROAE), net income [c]		5.7	%		6.6	%		10.7	%		12.8	%	(0.9	)%	(2.1	)%
	ROAE, operating income [a] [c]		5.8	%		6.7	%		11.1	%		12.8	%	(1.0	)%	(1.7	)%
	Return on beginning equity (ROBE), net income		5.8	%		6.5	%		11.1	%		13.1	%	(0.7	)%	(2.0	)%
	ROBE, operating income [a]		5.9	%		6.7	%		11.5	%		13.2	%	(0.7	)%	(1.7	)%
	Annualized ROAE, net income [c]		22.7	%		26.3	%		21.4	%		25.5	%	(3.5	)%	(4.1	)%
	Annualized ROAE, operating income [a] [c]		23.1	%		27.0	%		22.3	%		25.7	%	(3.9	)%	(3.4	)%
	Annualized ROBE, net income		23.4	%		26.0	%		22.2	%		26.2	%	(2.7	)%	(4.1	)%
	Annualized ROBE, operating income [a]		23.8	%		26.7	%		23.0	%		26.3	%	(3.0	)%	(3.3	)%
	Annualized investment yield		3.8	%		3.9	%		3.8	%		3.8	%	(0.1	)%	0.0	%
	Loss ratio		52.3	%		47.8	%		54.8	%		50.7	%	4.5	%	4.1	%
GAAP	Acquisition expense ratio		20.4	%		20.9	%		20.1	%		20.7	%	(0.5	)%	(0.6	)%
	General and administrative expense ratio		9.2	%		8.2	%		8.4	%		7.9	%	1.0	%	0.5	%
	Combined ratio		81.9	%		76.9	%		83.3	%		79.3	%	5.0	%	4.0	%
STAT	Acquisition expense ratio		19.5	%		20.2	%		18.9	%		20.1	%	(0.7	)%	(1.2	)%
	General and administrative expense ratio		10.2	%		9.3	%		6.8	%		6.0	%	0.9	%	0.8	%
	Combined ratio		82.0	%		77.3	%		80.5	%		76.8	%	4.7	%	3.7	%

[a] 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. Please see page 16 for a reconciliation to net income.

[b] For detailed calculations please refer to page 18.

[c] Average equity is calculated as the arithmetic average of the beginning and ending equity balances for the stated periods.

1

ENDURANCE SPECIALTY HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF INCOME

	QUARTER ENDED JUNE 30,						SIX MONTHS ENDED JUNE 30,						YEAR ENDED DEC. 31, 2004
	2005			2004			2005			2004
UNDERWRITING REVENUES
Gross premiums written	$	403,189		$	350,661		$	1,105,680		$	1,071,292		$	1,711,357
Premiums ceded		(8,599	)		(62	)		(11,912	)		(3,686	)		(14,337	)
Net premiums written		394,590			350,599			1,093,768			1,067,606			1,697,020
Change in unearned premiums		43,331			45,388			(218,249	)		(255,793	)		(64,420	)
Net premiums earned	$	437,921		$	395,987		$	875,519		$	811,813		$	1,632,600
Other underwriting (losses) income		(145	)		—			26			—			—
Total underwriting revenues	$	437,776		$	395,987		$	875,545		$	811,813		$	1,632,600
UNDERWRITING EXPENSES
Losses and loss expenses	$	228,916		$	189,208		$	479,975		$	411,217		$	937,330
Acquisition expenses		89,334			82,667			176,109			168,185			329,784
General and administrative expenses		40,432			32,537			73,978			64,304			133,725
Total underwriting expenses		358,682			304,412			730,062			643,706			1,400,839
Underwriting income	$	79,094		$	91,575		$	145,483		$	168,107		$	231,761
OTHER OPERATING REVENUE/EXPENSES
Net investment income	$	39,696		$	28,944		$	79,707		$	53,619		$	122,059
Interest expense		(5,612	)		(834	)		(11,083	)		(1,662	)		(9,959	)
Amortization of intangibles		(1,158	)		(944	)		(2,378	)		(1,888	)		(3,990	)
Total other operating revenue/expenses	$	32,926		$	27,166		$	66,246		$	50,069		$	108,110
INCOME BEFORE OTHER ITEMS		112,020			118,741			211,729			218,176			339,871
OTHER
Net foreign exchange (losses)		($1,742	)		($2,879	)		($4,163	)		($6,038	)		($214	)
Net realized (losses) gains on investments		592			(614	)		(3,861	)		4,562			6,130
Income tax benefit (expense)		(853	)		(492	)		2,571			(1,072	)		9,797
NET INCOME	$	110,017		$	114,756		$	206,276		$	215,628		$	355,584
KEY RATIOS/PER SHARE DATA
Loss ratio		52.3	%		47.8	%		54.8	%		50.7	%		57.4	%
Acquisition expense ratio		20.4	%		20.9	%		20.1	%		20.7	%		20.2	%
General and administrative expense ratio		9.2	%		8.2	%		8.4	%		7.9	%		8.2	%
Combined ratio		81.9	%		76.9	%		83.3	%		79.3	%		85.8	%
Weighted average basic shares outstanding		60,632			63,334			60,960			63,709			62,781
Weighted average dilutive shares outstanding		66,063			67,919			66,276			68,244			67,283
Basic EPS	$	1.81		$	1.81		$	3.38		$	3.38		$	5.66
Diluted EPS	$	1.67		$	1.69		$	3.11		$	3.16		$	5.28
ROAE [a]		5.7	%		6.6	%		10.7	%		12.8	%		20.3	%

[a] Average equity is calculated as the arithmetic average of the beginning and ending equity balances for the stated periods.

2

ENDURANCE SPECIALTY HOLDINGS LTD.
CONSOLIDATED BALANCE SHEETS

	JUNE 30, 2005			DEC. 31, 2004
ASSETS
Cash and cash equivalents	$	457,285		$	271,143
Fixed maturity investments available for sale, at fair value		3,736,645			3,578,174
Investments in other ventures, under equity method		108,703			91,036
Premiums receivable, net		779,112			545,352
Deferred acquisition costs		225,647			195,419
Securities lending collateral		340,166			407,527
Prepaid reinsurance premiums		9,772			5,248
Losses recoverable		13,909			12,203
Accrued investment income		30,251			28,378
Intangible assets		51,272			47,107
Other assets		56,951			44,251
TOTAL ASSETS	$	5,809,713		$	5,225,838
LIABILITIES
Reserve for losses and loss expenses	$	1,823,541		$	1,549,661
Reserve for unearned premiums		1,109,880			897,605
Deposit liabilities		56,341			—
Reinsurance balances payable		56,400			70,507
Securities lending payable		340,166			407,527
Debt		391,291			391,280
Other liabilities		44,969			46,803
TOTAL LIABILITIES	$	3,822,588		$	3,363,383
SHAREHOLDERS’ EQUITY
Common shares
59,925 issued and outstanding (2004 - 61,255)	$	59,925		$	61,255
Additional paid-in capital		1,070,015			1,111,633
Accumulated other comprehensive income		31,433			39,473
Retained earnings		825,752			650,094
TOTAL SHAREHOLDERS’ EQUITY	$	1,987,125		$	1,862,455
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	5,809,713		$	5,225,838
Book value per share	$	33.01		$	30.30
Diluted book value per share (treasury stock method)	$	30.01		$	27.91
RATIOS
Debt-to-capital		16.5	%		17.4	%

3

ENDURANCE SPECIALTY HOLDINGS LTD.
SEGMENT DISTRIBUTION

FOR THE SIX MONTHS ENDED JUNE 30, 2005

[a] Prior to deposit accounting adjustments.

4

ENDURANCE SPECIALTY HOLDINGS LTD.
CONSOLIDATED SEGMENT DATA
FOR THE QUARTER ENDED JUNE 30, 2005

	Property Per Risk Treaty Reinsurance			Property Catastrophe Reinsurance			Casualty Treaty Reinsurance			Property Individual Risk			Casualty Individual Risk			Aerospace and Other Specialty Lines			Total Company Sub-total			Deposit Accounting Adjustment [a]			Reported Totals
UNDERWRITING REVENUES
Gross premiums written	$	99,342		$	67,574		$	31,750		$	35,932		$	105,079		$	64,747		$	404,424			($1,235	)	$	403,189
Net premiums written	$	99,268		$	67,574		$	31,048		$	32,410		$	103,520		$	62,005		$	395,825			($1,235	)	$	394,590
Net premiums earned	$	114,487		$	61,926		$	106,317		$	26,318		$	63,642		$	79,154		$	451,844			($13,923	)	$	437,921
Other underwriting income		—			—			—			—			—			—			—			(145	)		(145	)
Total underwriting revenues	$	114,487		$	61,926		$	106,317		$	26,318		$	63,642		$	79,154		$	451,844			($14,068	)	$	437,776
UNDERWRITING EXPENSES
Losses and loss expenses	$	62,996		$	6,536		$	79,398		$	7,958		$	40,233		$	40,425		$	237,546			($8,630	)	$	228,916
Acquisition expenses		31,981			8,593			29,996			2,977			3,325			16,764			93,636			(4,302	)		89,334
General and administrative expenses		8,599			5,877			7,840			3,585			7,659			6,872			40,432			—			40,432
Total expenses		103,576			21,006			117,234			14,520			51,217			64,061			371,614			(12,932	)		358,682
UNDERWRITING INCOME (LOSS)	$	10,911		$	40,920			($ 10,917	)	$	11,798		$	12,425		$	15,093		$	80,230			($1,136	)	$	79,094
GAAP RATIOS
Loss ratio		55.0	%		10.6	%		74.7	%		30.2	%		63.2	%		51.1	%		52.6	%		62.0	%		52.3	%
Acquisition expense ratio		27.9	%		13.9	%		28.2	%		11.3	%		5.2	%		21.2	%		20.7	%		30.9	%		20.4	%
General and administrative expense ratio		7.5	%		9.5	%		7.4	%		13.6	%		12.0	%		8.7	%		8.9	%		—			9.2	%
Combined ratio		90.4	%		34.0	%		110.3	%		55.1	%		80.4	%		81.0	%		82.2	%		92.9	%		81.9	%
STATUTORY RATIOS
Loss ratio		55.0	%		10.6	%		74.7	%		30.2	%		63.2	%		51.1	%		52.6	%		62.0	%		52.3	%
Acquisition expense ratio		28.5	%		14.6	%		37.0	%		8.7	%		6.2	%		29.3	%		19.5	%		—			19.5	%
General and administrative expense ratio		8.7	%		8.7	%		25.3	%		11.1	%		7.4	%		11.1	%		10.2	%		—			10.2	%
Combined ratio		92.2	%		33.9	%		137.0	%		50.0	%		76.8	%		91.5	%		82.3	%		62.0	%		82.0	%

[a] For internal management reporting purposes, underwriting results by segment are presented on the basis of applying reinsurance accounting to all reinsurance contracts written. However, for financial statement presentation purposes, management determined that certain reinsurance contracts written during the period were more appropriately accounted for under the deposit method of accounting specified by AICPA SOP 98-7 whereby net premiums due on such contracts were recorded as deposit liabilities. The adjustment herein reconciles the Company’s underwriting results by segment to the Company’s financial statement presentation.

5

ENDURANCE SPECIALTY HOLDINGS LTD.
CONSOLIDATED SEGMENT DATA
FOR THE SIX MONTHS ENDED JUNE 30, 2005

	Property Per Risk Treaty Reinsurance			Property Catastrophe Reinsurance			Casualty Treaty Reinsurance			Property Individual Risk			Casualty Individual Risk			Aerospace and Other Specialty Lines			Total Company Sub-total			Deposit Accounting Adjustment [a]			Reported Totals
UNDERWRITING REVENUES
Gross premiums written	$	270,632		$	178,264		$	283,293		$	59,306		$	152,769		$	248,273		$	1,192,537			($86,857	)	$	1,105,680
Net premiums written	$	270,558		$	178,264		$	280,831		$	55,560		$	151,300		$	244,112		$	1,180,625			($86,857	)	$	1,093,768
Net premiums earned	$	233,072		$	120,825		$	224,362		$	53,514		$	124,106		$	144,220		$	900,099			($24,580	)	$	875,519
Other underwriting income		—			—			—			—			—			—			—			26			26
Total underwriting revenues	$	233,072		$	120,825		$	224,362		$	53,514		$	124,106		$	144,220		$	900,099			($24,554	)	$	875,545
UNDERWRITING EXPENSES
Losses and loss expenses	$	107,526		$	17,306		$	158,535		$	47,290		$	77,684		$	86,140		$	494,481			($14,506	)	$	479,975
Acquisition expenses		64,404			15,889			59,750			6,447			7,949			29,684			184,123			(8,014	)		176,109
General and administrative expenses		15,214			10,683			17,145			5,809			10,752			14,375			73,978			—			73,978
Total expenses		187,144			43,878			235,430			59,546			96,385			130,199			752,582			(22,520	)		730,062
UNDERWRITING INCOME (LOSS)	$	45,928		$	76,947			($ 11,068	)		($ 6,032	)	$	27,721		$	14,021		$	147,517			($2,034	)	$	145,483
GAAP RATIOS
Loss ratio		46.1	%		14.3	%		70.7	%		88.4	%		62.6	%		59.7	%		54.9	%		59.1	%		54.8	%
Acquisition expense ratio		27.6	%		13.2	%		26.6	%		12.0	%		6.4	%		20.6	%		20.5	%		32.6	%		20.1	%
General and administrative expense ratio		6.5	%		8.8	%		7.6	%		10.9	%		8.7	%		10.0	%		8.2	%		—			8.4	%
Combined ratio		80.2	%		36.3	%		104.9	%		111.3	%		77.7	%		90.3	%		83.6	%		91.7	%		83.3	%
STATUTORY RATIOS
Loss ratio		46.1	%		14.3	%		70.7	%		88.4	%		62.6	%		59.7	%		54.9	%		59.0	%		54.8	%
Acquisition expense ratio		25.9	%		12.5	%		27.4	%		9.9	%		4.8	%		21.7	%		19.9	%		32.6	%		18.9	%
General and administrative expense ratio		5.6	%		6.0	%		6.1	%		10.5	%		7.1	%		5.9	%		6.3	%		—			6.8	%
Combined ratio		77.6	%		32.8	%		104.2	%		108.8	%		74.5	%		87.3	%		81.1	%		91.6	%		80.5	%

[a] For internal management reporting purposes, underwriting results by segment are presented on the basis of applying reinsurance accounting to all reinsurance contracts written. However, for financial statement presentation purposes, management determined that certain reinsurance contracts written during the period were more appropriately accounted for under the deposit method of accounting specified by AICPA SOP 98-7 whereby net premiums due on such contracts were recorded as deposit liabilities. The adjustment herein reconciles the Company’s underwriting results by segment to the Company’s financial statement presentation.

6

ENDURANCE SPECIALTY HOLDINGS LTD.
DEPOSIT ACCOUNTING ADJUSTMENT IMPACTS ON SEGMENT DATA
FOR THE QUARTER ENDED JUNE 30, 2005

INCLUDING DEPOSIT ACCOUNTING ADJUSTMENTS

	Property Per Risk Treaty Reinsurance			Property Catastrophe Reinsurance			Casualty Treaty Reinsurance			Property Individual Risk			Casualty Individual Risk			Aerospace and Other Specialty Lines			Total Company
UNDERWRITING REVENUES
Gross premiums written	$	97,981		$	67,574		$	31,750		$	35,932		$	105,079		$	64,873		$	403,189
Net premiums written	$	97,907		$	67,574		$	31,048		$	32,410		$	103,520		$	62,131		$	394,590
Net premiums earned	$	105,911		$	61,927		$	101,336		$	26,317		$	63,642		$	78,788		$	437,921
Other underwriting income		(373	)		—			173			—			—			55			(145	)
Total underwriting revenues		105,538			61,927			101,509			26,317			63,642			78,843			437,776
UNDERWRITING EXPENSES
Losses and loss expenses	$	57,513		$	6,536		$	76,398		$	7,958		$	40,233		$	40,278		$	228,916
Acquisition expenses		29,663			8,593			28,093			2,977			3,325			16,683			89,334
General and administrative expenses		8,598			5,877			7,841			3,585			7,659			6,872			40,432
Total expenses		95,774			21,006			112,332			14,520			51,217			63,833			358,682
UNDERWRITING INCOME (LOSS)	$	9,764		$	40,921			($10,823	)	$	11,797		$	12,425		$	15,010		$	79,094
GAAP RATIOS
Loss ratio		54.3	%		10.6	%		75.4	%		30.2	%		63.2	%		51.1	%		52.3	%
Acquisition expense ratio		28.0	%		13.9	%		27.7	%		11.3	%		5.2	%		21.2	%		20.4	%
General and administrative expense ratio		8.1	%		9.5	%		7.7	%		13.6	%		12.0	%		8.7	%		9.2	%
Combined ratio		90.4	%		34.0	%		110.8	%		55.1	%		80.4	%		81.0	%		81.9	%
EXCLUDING DEPOSIT ACCOUNTING ADJUSTMENTS
	Property Per Risk Treaty Reinsurance			Property Catastrophe Reinsurance			Casualty Treaty Reinsurance			Property Individual Risk			Casualty Individual Risk			Aerospace and Other Specialty Lines			Total Company
UNDERWRITING REVENUES
Gross premiums written	$	99,342		$	67,574		$	31,750		$	35,932		$	105,079		$	64,747		$	404,424
Net premiums written	$	99,268		$	67,574		$	31,048		$	32,410		$	103,520		$	62,005		$	395,825
Net premiums earned	$	114,487		$	61,926		$	106,317		$	26,318		$	63,642		$	79,154		$	451,844
UNDERWRITING EXPENSES
Losses and loss expenses	$	62,996		$	6,536		$	79,398		$	7,958		$	40,233		$	40,425		$	237,546
Acquisition expenses		31,981			8,593			29,996			2,977			3,325			16,764			93,636
General and administrative expenses		8,599			5,877			7,840			3,585			7,659			6,872			40,432
Total expenses		103,576			21,006			117,234			14,520			51,217			64,061			371,614
UNDERWRITING INCOME (LOSS)	$	10,911		$	40,920			($10,917	)	$	11,798		$	12,425		$	15,093		$	80,230
GAAP RATIOS
Loss ratio		55.0	%		10.6	%		74.7	%		30.2	%		63.2	%		51.1	%		52.6	%
Acquisition expense ratio		27.9	%		13.9	%		28.2	%		11.3	%		5.2	%		21.2	%		20.7	%
General and administrative expense ratio		7.5	%		9.5	%		7.4	%		13.6	%		12.0	%		8.7	%		8.9	%
Combined ratio		90.4	%		34.0	%		110.3	%		55.1	%		80.4	%		81.0	%		82.2	%

7

ENDURANCE SPECIALTY HOLDINGS LTD.
DEPOSIT ACCOUNTING ADJUSTMENT IMPACTS ON SEGMENT DATA
FOR THE SIX MONTHS ENDED JUNE 30, 2005

INCLUDING DEPOSIT ACCOUNTING ADJUSTMENTS

	Property Per Risk Treaty Reinsurance			Property Catastrophe Reinsurance			Casualty Treaty Reinsurance			Property Individual Risk			Casualty Individual Risk			Aerospace and Other Specialty Lines			Total Company
UNDERWRITING REVENUES
Gross premiums written	$	234,413		$	178,264		$	236,211		$	59,306		$	152,769		$	244,717		$	1,105,680
Net premiums written	$	234,339		$	178,264		$	233,749		$	55,560		$	151,300		$	240,556		$	1,093,768
Net premiums earned	$	216,672		$	120,825		$	216,701		$	53,514		$	124,106		$	143,701		$	875,519
Other underwriting income		(233	)		—			191			—			—			68			26
Total underwriting revenues		216,439			120,825			216,892			53,514			124,106			143,769			875,545
UNDERWRITING EXPENSES
Losses and loss expenses	$	97,734		$	17,306		$	154,037		$	47,290		$	77,684		$	85,924		$	479,975
Acquisition expenses		59,635			15,889			56,645			6,447			7,949			29,544			176,109
General and administrative expenses		15,214			10,683			17,145			5,809			10,752			14,375			73,978
Total expenses		172,583			43,878			227,827			59,546			96,385			129,843			730,062
UNDERWRITING INCOME (LOSS)	$	43,856		$	76,947			($10,935	)		($6,032	)	$	27,721		$	13,926		$	145,484
GAAP RATIOS
Loss ratio		45.1	%		14.3	%		71.1	%		88.4	%		62.6	%		59.8	%		54.8	%
Acquisition expense ratio		27.5	%		13.2	%		26.1	%		12.0	%		6.4	%		20.6	%		20.1	%
General and administrative expense ratio		7.0	%		8.8	%		7.9	%		10.9	%		8.7	%		10.0	%		8.4	%
Combined ratio		79.6	%		36.3	%		105.1	%		111.3	%		77.7	%		90.4	%		83.3	%
EXCLUDING DEPOSIT ACCOUNTING ADJUSTMENTS
	Property Per Risk Treaty Reinsurance			Property Catastrophe Reinsurance			Casualty Treaty Reinsurance			Property Individual Risk			Casualty Individual Risk			Aerospace and Other Specialty Lines			Total Company
UNDERWRITING REVENUES
Gross premiums written	$	270,632		$	178,264		$	283,293		$	59,306		$	152,769		$	248,273		$	1,192,537
Net premiums written	$	270,558		$	178,264		$	280,831		$	55,560		$	151,300		$	244,112		$	1,180,625
Net premiums earned	$	233,072		$	120,825		$	224,362		$	53,514		$	124,106		$	144,220		$	900,099
UNDERWRITING EXPENSES
Losses and loss expenses	$	107,526		$	17,306		$	158,535		$	47,290		$	77,684		$	86,140		$	494,481
Acquisition expenses		64,404			15,889			59,750			6,447			7,949			29,684			184,123
General and administrative expenses		15,214			10,683			17,145			5,809			10,752			14,375			73,978
Total expenses		187,144			43,878			235,430			59,546			96,385			130,199			752,582
UNDERWRITING INCOME (LOSS)	$	45,928		$	76,947			($11,068	)		($6,032	)	$	27,721		$	14,021		$	147,517
GAAP RATIOS
Loss ratio		46.1	%		14.3	%		70.7	%		88.4	%		62.6	%		59.7	%		54.9	%
Acquisition expense ratio		27.6	%		13.2	%		26.6	%		12.0	%		6.4	%		20.6	%		20.5	%
General and administrative expense ratio		6.5	%		8.8	%		7.6	%		10.9	%		8.7	%		10.0	%		8.2	%
Combined ratio		80.2	%		36.3	%		104.9	%		111.3	%		77.7	%		90.3	%		83.6	%

8

ENDURANCE SPECIALTY HOLDINGS LTD.
RETURN ON EQUITY ANALYSIS

	SIX MONTHS ENDED JUNE 30, 2005
Average equity [a]	$	1,924,790
Net premiums earned	$	875,519
Combined ratio		83.3	%
Operating margin		16.7	%
Premium leverage		0.45x
Implied ROAE from underwriting activity		7.6	%
Average invested assets at amortized cost	$	4,110,391
Investment leverage		2.14x
Year to date investment income yield, pretax		1.9	%
Implied ROAE from investment activity		4.1	%
Implied Pre-tax Operating ROAE, for period		11.7	%
Implied Pre-tax Operating ROAE, annualized		23.5	%

[a] Average equity is calculated as the arithmetic average of the beginning and ending equity balances for the stated periods.

9

ENDURANCE SPECIALTY HOLDINGS LTD.
ANNUALIZED OPERATING & INVESTMENT LEVERAGE

	2Q 2004			3Q 2004			4Q 2004			1Q 2005			2Q 2005			Year Ended December 31,
																2004			2003
Average equity	$	1,747,187		$	1,751,048		$	1,816,640		$	1,872,548		$	1,934,883		$	1,753,635		$	1,431,158
Net premiums earned	$	395,987		$	409,487		$	411,300		$	437,598		$	437,921		$	1,632,600		$	1,173,947
Operating leverage		0.23	x		0.23	x		0.23	x		0.23	x		0.23	x		0.93	x		0.82	x
Annualized operating leverage		0.91	x		0.94	x		0.91	x		0.93	x		0.91	x		0.93	x		0.82	x
Avg. invested assets at amortized cost	$	3,010,450		$	3,343,785		$	3,744,102		$	4,009,987		$	4,187,712		$	3,277,276		$	2,124,518
Investment leverage		1.72	x		1.91	x		2.06	x		2.14	x		2.16	x		1.87	x		1.48	x

10

ENDURANCE SPECIALTY HOLDINGS LTD.
INVESTMENT PORTFOLIO
AS OF JUNE 30, 2005

Type of Investment	Fair Value		Percentage
Cash and equivalents	$	457,285		10.6	%
U.S. government and agencies		743,125		17.3	%
Corporate securities		672,966		15.6	%
Foreign government		205,276		4.8	%
Municipals		153,527		3.6	%
Asset-backed securities		485,671		11.3	%
Mortgage-backed securities		1,476,080		34.3	%
Investments in other ventures		108,703		2.5	%
Total	$	4,302,633		100.0	%
Ratings	Fair Value		Percentage
U.S. Government and agencies	$	743,125		17.3	%
AAA/Aaa		2,836,912		65.9	%
AA/Aa		218,042		5.1	%
A/A		395,851		9.2	%
BBB and below		—		—
Investments in other ventures/Not rated		108,703		2.5	%
Total	$	4,302,633		100.0	%
Performance			June 30, 2005
Annualized yield, year to date [a]				3.9	%
Duration [b]				2.42
Investment Income	Quarter Ended Mar. 31, 2005		Quarter Ended June 30, 2005
Income from investments in other ventures	$	3,749	$	168
Total net investment income	$	40,011	$	39,696

Note:  Cash, cash equivalents and short terms are shown net of investments pending settlement.

[a]  Annualized yield excludes realized and unrealized gains and losses on fixed maturity investments

[b]  Duration excludes investments in other ventures

11

ENDURANCE SPECIALTY HOLDINGS LTD.
PERIOD END UNREALIZED GAINS AND QUARTERLY OPERATING CASH FLOW

	3Q 2004		4Q 2004		1Q 2005			2Q 2005
Unrealized holding gains (losses) on investments, period end	$	16,091	$	7,687		($31,797	)	$	14,519
Operating cash flow	$	306,683	$	263,020	$	220,080		$	252,105

12

ENDURANCE SPECIALTY HOLDINGS LTD.
ACTIVITY IN RESERVE FOR LOSSES AND LOSS EXPENSES

	QUARTER ENDED SEPT. 30, 2004			QUARTER ENDED DEC. 31, 2004			QUARTER ENDED MARCH 31, 2005			QUARTER ENDED JUNE 30, 2005
Incurred related to:
Current year	$	359,187		$	243,542		$	297,060		$	256,664
Prior years		(50,932	)		(25,684	)		(46,001	)		(27,748	)
Total incurred		308,255			217,858			251,059			228,916
Paid related to:
Current year		(28,056	)		(76,606	)		($ 3,021	)		($ 14,025	)
Prior years		(21,801	)		(36,557	)		(86,769	)		(94,706	)
Total paid		(49,857	)		(113,163	)		(89,790	)		(108,731	)

13

ENDURANCE SPECIALTY HOLDINGS LTD.
ANALYSIS OF UNPAID LOSSES AND LOSS EXPENSE

	Property Per Risk Treaty Reinsurance			Property Catastrophe Reinsurance			Casualty Treaty Reinsurance			Property Individual Risk			Casualty Individual Risk			Aerospace and Other Specialty Lines			Total Company			Deposit Accounting Adjustment [a]			Reported Totals
AT JUNE 30, 2005
Case reserves	$	189,142		$	33,722		$	130,560		$	52,511		$	8,866		$	89,633		$	504,434			($2,377	)	$	502,057
Total reserves		391,239			60,699			606,885			95,659			377,968			304,684			1,837,134			(13,593	)	$	1,823,541
Case reserves / Total reserves		48.3	%		55.6	%		21.5	%		54.9	%		2.3	%		29.4	%		27.5	%		17.5	%		27.5	%
IBNR / Total reserves		51.7	%		44.4	%		78.5	%		45.1	%		97.7	%		70.6	%		72.5	%		82.5	%		72.5	%

[a] For internal management reporting purposes, underwriting results by segment are presented on the basis of applying reinsurance accounting to all reinsurance contracts written. However, for financial statement presentation purposes, management determined that certain reinsurance contracts written during the period were more appropriately accounted for under the deposit method of accounting specified by AICPA SOP 98-7 whereby net premiums due on such contracts were recorded as deposit liabilities. The adjustment herein reconciles the Company’s underwriting results by segment to the Company’s financial statement presentation.

14

ENDURANCE SPECIALTY HOLDINGS LTD.
DILUTIVE SHARES FOR EPS CALCULATION

		QUARTER ENDED JUNE 30,						SIX MONTHS ENDED JUNE 30,
		2005			2004			2005			2004
DILUTIVE SHARES	Average market price per share	$	36.86		$	34.37		$	36.06		$	34.29
OUTSTANDING:
AS REPORTED	Basic weighted average common shares outstanding		60,632			63,334			60,960			63,709
	Add: weighted ave. unvested restricted share units		593			200			592			137
	Weighted average exercise price per share		—			—			—			—
	Proceeds from unrecognized restricted share unit expense	$	14,000		$	5,169		$	14,000			5,169
	Less: restricted share units bought back via treasury method		(380	)		(150	)		(388	)		(137	)
	Add: weighted ave. dilutive warrants outstanding		7,202			7,243			7,202			7,243
	Weighted average exercise price per share	$	18.37		$	19.29		$	18.37		$	19.29
	Less: warrants bought back via treasury method		(3,590	)		(4,065	)		(3,669	)		(4,075	)
	Add: weighted ave. dilutive options outstanding		3,205			3,390			3,225			3,409
	Weighted average exercise price per share	$	18.14		$	19.75		$	18.14		$	19.68
	Proceeds from unrecognized option expense	$	815		$	2,888		$	815		$	2,888
	Less: options bought back via treasury method		(1,599	)		(2,032	)		(1,645	)		(2,041	)
	Weighted average dilutive shares outstanding		66,063			67,919			66,276			68,244

Note: Warrants and options that are anti-dilutive are not included in the calculation of diluted shares outstanding. Restricted share units are included in the calculation of basic and diluted weighted shares outstanding. The treasury stock method assumes that the proceeds received from the exercise of options or warrants will be used to repurchase the Company’s common shares at the average market price during the period of calculation. SFAS No. 123 also requires that any unrecognized stock based compensation expense that will be recorded in future periods be included as proceeds for purposes of the treasury stock repurchases.

15

ENDURANCE SPECIALTY HOLDINGS LTD.
OPERATING INCOME RECONCILIATION
EARNINGS PER SHARE INFORMATION - AS REPORTED, GAAP

	QUARTER ENDED JUNE 30,					SIX MONTHS ENDED JUNE 30,
	2005			2004		2005		2004
Net income	$	110,017		$	114,756	$	206,276	$	215,628
Add (Less) after-tax items:
Net foreign exchange losses		2,201			2,693		4,492		5,109
Net realized losses (gains) on investments		(431	)		436		3,691		(4,166	)
Operating income	$	111,787		$	117,885	$	214,459	$	216,571
Weighted average common shares outstanding
Basic		60,632			63,334		60,960		63,709
Dilutive		66,063			67,919		66,276		68,244
Basic per share data
Net income	$	1.81		$	1.81	$	3.38	$	3.38
Add (Less) after-tax items:
Net foreign exchange (gains) losses		0.04			0.04		0.07		0.08
Net realized (gains) losses on investments		(0.01	)		0.01		0.06		(0.07	)
Operating income	$	1.84		$	1.86	$	3.52	$	3.40
Diluted per share data
Net income	$	1.67		$	1.69	$	3.11	$	3.16
Add (Less) after-tax items:
Net foreign exchange (gains) losses		0.03			0.04		0.07		0.07
Net realized (gains) losses on investments		(0.01	)		0.01		0.06		(0.06	)
Operating income	$	1.69		$	1.74	$	3.24	$	3.17

16

ENDURANCE SPECIALTY HOLDINGS LTD.
DILUTIVE SHARES SENSITIVITY ANALYSIS

DILUTIVE SHARES OUSTANDING
Market Price per Share
$35.00	$36.00	$37.00	$38.00	$39.00	$40.00	$41.00	$42.00	$43.00	$44.00	$45.00
65,819	65,970	66,112	66,248	66,376	66,498	66,613	66,724	66,829	66,929	67,025

17

ENDURANCE SPECIALTY HOLDINGS LTD.
BOOK VALUE PER SHARE

		JUNE 30,						DEC. 31, 2004
		2005			2004
DILUTIVE SHARES	Price per share at period end	$	37.82		$	34.80		$	34.20
OUTSTANDING:
AS-IF CONVERTED [a]	Basic common shares outstanding [b]		60,205			62,206			61,473
	Add: unvested restricted share units		656			203			596
	Add: dilutive warrants outstanding		7,202			7,243			7,202
	Weighted average exercise price per share	$	18.37		$	19.29		$	18.87
	Add: dilutive options outstanding		3,184			3,344			3,204
	Weighted average exercise price per share	$	18.12		$	19.83		$	18.91
	Book Value	$	1,987,125		$	1,731,271		$	1,862,455
	Add: proceeds from converted warrants		132,307			139,715			135,908
	Add: proceeds from converted options		57,702			66,304			60,582
	Pro forma book value	$	2,177,134		$	1,937,290		$	2,058,945
	Dilutive shares outstanding		71,248			72,996			72,475
	Basic book value per share	$	33.01		$	27.83		$	30.30
	Diluted book value per share	$	30.56		$	26.54		$	28.41
DILUTIVE SHARES	Price per share at period end	$	37.82		$	34.80		$	34.20
OUTSTANDING:
TREASURY STOCK	Basic common shares outstanding [b]		60,205			62,206			61,473
METHOD
	Add: unvested restricted share units		656			203			596
	Add: dilutive warrants outstanding		7,202			7,243			7,202
	Weighted average exercise price per share	$	18.37		$	19.29		$	18.87
	Less: warrants bought back via treasury method		(3,498	)		(4,015	)		(3,974	)
	Add: dilutive options outstanding		3,184			3,344			3,204
	Weighted average exercise price per share	$	18.12		$	19.83		$	18.91
	Less: options bought back via treasury method		(1,526	)		(1,905	)		(1,771	)
	Dilutive shares outstanding		66,224			67,076			66,729
	Basic book value per share	$	33.01		$	27.83		$	30.30
	Diluted book value per share	$	30.01		$	25.81		$	27.91

[a] The as-if converted method assumes that the proceeds received upon exercise of options and warrants will be retained by the Company and the resulting common shares from exercise will remain outstanding.

[b] Basic common shares include vested restricted share units.

18

ENDURANCE SPECIALTY HOLDINGS LTD.
GROWTH IN BOOK VALUE PER SHARE

	SIX MONTHS ENDED JUNE 30, 2005			YEAR ENDED DECEMBER 31,
				2004			2003			2002
Net Income	$	206,276		$	355,584		$	263,437		$	102,066
Dividends Paid		(30,180	)		(50,346	)		(20,505	)		—
Shareholders’ Equity		1,987,125			1,862,455			1,644,815			1,217,500
Return on Beginning Equity		11.1	%		21.6	%		21.6	%
Dividend Payout Ratio [a]		1.6	%		3.1	%		1.7	%
Dilutive Shares Outstanding		66,224			66,729			68,445			56,017
Diluted Book Value Per Share	$	30.01		$	27.91		$	24.03		$	21.73
(treasury stock method)
Growth in Diluted Book Value Per Share		7.5	%		16.1	%		10.6	%
Total Return to Shareholders [b]		9.1	%		19.2	%		12.3	%

[a] Dividend Payout Ratio is calculated as dividends paid divided by beginning shareholders’ equity.

[b] Total return to shareholders is calculated as the sum of Growth in Diluted Book Value Per Share and the Dividend Payout Ratio.

19

ENDURANCE SPECIALTY HOLDINGS LTD.
REGULATION G

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. Please see page 16 for a reconciliation of operating income to net income.

Return on Equity (ROE) is comprised using the average equity calculated as the arithmetic average of the beginning and ending equity balances for stated periods. The Company presents ROE 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.

Investment yield is provided by the Company’s investment managers and is calculated by dividing net investment income by average invested assets at amortized cost. The Company utilizes and presents the investment yield in order to better disclose the performance of the Company’s investments and to show the components of the Company’s ROE.

The Company has included diluted book value per share because it takes into account the effect of dilutive securities; therefore, the Company believes it is a better measure of calculating shareholder returns than book value per share. Please see page 18 for a reconciliation of diluted book value per share to basic book value per share.

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