Endurance Specialty (ENH) 10-Q 2016 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

ý Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the period ended June 30, 2016,

or

¨ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file number 1-31599

ENDURANCE SPECIALTY HOLDINGS LTD.

(Exact Name of Registrant as Specified in Its Charter)

Bermuda	98-0392908
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Waterloo House

100 Pitts Bay Road

Pembroke HM 08, Bermuda

(Address of principal executive offices,

including postal code)

Registrant's Telephone Number, Including Area Code: (441) 278-0400

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of "accelerated filer", "large accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	ý	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Description of Class	Common Shares Outstanding as of August 4, 2016
Ordinary Shares - $1.00 par value	67,579,012

INDEX

	Page
Cautionary Statement Regarding Forward-Looking Statements	2
Part I. FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at June 30, 2016 (unaudited) and December 31, 2015	4
Unaudited Condensed Consolidated Statements of Income and Comprehensive Income for the Three and Six Months Ended June 30, 2016 and 2015	5
Unaudited Condensed Consolidated Statements of Changes in Shareholders' Equity for the Six Months Ended June 30, 2016 and 2015	6
Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015	7
Notes to the Unaudited Condensed Consolidated Financial Statements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	45
Item 3. Quantitative and Qualitative Disclosures about Market Risk	66
Item 4. Controls and Procedures	66
Part II. OTHER INFORMATION
Item 1. Legal Proceedings	67
Item 1A. Risk Factors	67
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	67
Item 3. Defaults Upon Senior Securities	67
Item 4. Mine Safety Disclosures	67
Item 5. Other Information	68
Item 6. Exhibits	68
SIGNATURES	69

1

Cautionary Statement Regarding Forward-Looking Statements

Some of the statements under "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Quarterly Report on Form 10-Q may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"). The PSLRA provides a "safe harbor" for forward-looking statements. These forward-looking statements reflect our current views with respect to us specifically and the insurance and reinsurance business generally, investments, capital markets and the general economic environments in which we operate. 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 for purposes of the PSLRA or otherwise.

All forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause actual results to differ materially from those indicated in such statements. We believe that these factors include, but are not limited to, the following:

• the effects of competitors' pricing policies, and of changes in laws and regulations on competition, industry consolidation and development of competing financial products;

• greater frequency or severity of claims and loss activity, including as a result of natural or man-made catastrophic events or as a result of changing climate conditions, than our underwriting, reserving or investment practices have anticipated;

• changes in market conditions in the agriculture industry, which may vary depending upon demand for agricultural products, weather, commodity prices, natural disasters, technological advances in agricultural practices, changes in U.S. and foreign legislation and policies related to agricultural products and producers;

• termination of or changes in the terms of the U.S. multiple peril crop insurance program and termination or changes to the U.S. farm bill, including modifications to the Standard Reinsurance Agreement put in place by the Risk Management Agency of the U.S. Department of Agriculture;

• decreased demand for property and casualty insurance or reinsurance or increased competition due to an increase in capacity of property and casualty insurers and reinsurers;

• changes in the availability, cost or quality of reinsurance or retrocessional coverage;

• the inability to renew business previously underwritten or acquired;

• the inability to obtain or maintain financial strength or claims-paying ratings by one or more of our subsidiaries;

• our ability to effectively integrate acquired operations and to continue to expand our business;

• uncertainties in our reserving process, including the potential for adverse development of our loss reserves or failure of our loss limitation methods;

• the ability of the counterparty institutions with which we conduct business to continue to meet their obligations to us;

• the failure or delay of the Florida Hurricane Catastrophe Fund or private market participants in Florida to promptly pay claims, particularly following a large windstorm or of multiple smaller storms;

• our continued ability to comply with applicable financial standards and restrictive covenants, the breach of which could trigger significant collateral or prepayment obligations;

• Endurance Specialty Holdings Ltd. ("Endurance Holdings") or Endurance Specialty Insurance Ltd. ("Endurance Bermuda") becomes subject to income taxes in jurisdictions outside of Bermuda;

• changes in tax regulations or laws applicable to us, our subsidiaries, brokers or customers;

• state, federal and foreign regulations that impede our ability to charge adequate rates and efficiently allocate capital;

• changes in insurance regulations in the U.S. or other jurisdictions in which we operate, including the implementation of Solvency II by the European Commission;

• the impact of the United Kingdom's June 2016 referendum on European Union membership and the potential withdrawal of the United Kingdom from the European Union;

• reduced acceptance of our existing or new products and services;

2

• loss of business provided by any one of a few brokers on whom we depend for a large portion of our revenue, and our exposure to the credit risk of our brokers;

• actions by our competitors, many of which are larger or have greater financial resources than we do;

• assessments by states for high risk or otherwise uninsured individuals;

• the impact of acts of terrorism and acts of war;

• the effects of terrorist related insurance legislation and laws;

• the inability to retain key personnel;

• political stability of Bermuda or other countries in which we operate;

• changes in the political environment of certain countries in which we operate or underwrite business;

• changes in accounting regulation, policies or practices;

• our investment performance;

• the valuation of our invested assets and the determination of impairments of those assets, if any;

• the breach of our investment guidelines or the inability of those guidelines to mitigate investment risk;

• the need for additional capital in the future which may not be available or only available on unfavorable terms;

• the ability to maintain the availability of our systems and safeguard the security of our data in the event of a disaster or other unanticipated event;

• changes in general economic conditions and/or industry specific conditions, including inflation or deflation, foreign currency exchange rates, interest rates, and other factors;

• risks relating to our acquisition of Montpelier Re Holdings Ltd., including risks that our future financial performance may differ from projections; and

• risks that we may not be able to effectively manage our expanded operations.

The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in Endurance Holdings' Annual Report on Form 10-K for the fiscal year ended December 31, 2015, including the risk factors set forth in Item 1A. Risk Factors thereof. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

3

ENDURANCE SPECIALTY HOLDINGS LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of United States dollars, except share amounts)

	JUNE 30, 2016		DECEMBER 31, 2015
	(UNAUDITED)
ASSETS
Investments
Fixed maturity investments, trading at fair value (amortized cost: $2,108,611 and $1,611,079 at June 30, 2016 and December 31, 2015, respectively)	$	2,126,600	$	1,587,160
Fixed maturity investments, available for sale at fair value (amortized cost: $3,820,234 and $4,361,997 at June 30, 2016 and December 31, 2015, respectively)	3,892,479		4,359,019
Short-term investments, trading at fair value (amortized cost: $295,425 and $394,096 at June 30, 2016 and December 31, 2015, respectively)	295,442		394,111
Short-term investments, available for sale at fair value (amortized cost: $18,846 and $25,657 at June 30, 2016 and December 31, 2015, respectively)	18,849		25,685
Equity securities, trading at fair value (cost: $36,427 and $15,290 at June 30, 2016 and December 31, 2015, respectively)	36,332		15,229
Equity securities, available for sale at fair value (cost: $496,779 and $542,429 at June 30, 2016 and December 31, 2015, respectively)	506,010		513,585
Other investments	779,810		872,617
Total investments	7,655,522		7,767,406
Cash and cash equivalents	1,092,977		1,177,750
Premiums receivable, net	2,291,117		1,376,328
Insurance and reinsurance balances receivable	129,861		102,403
Deferred acquisition costs	363,406		255,501
Prepaid reinsurance premiums	885,892		498,574
Reinsurance recoverable on unpaid losses	1,105,617		907,944
Reinsurance recoverable on paid losses	348,219		288,026
Accrued investment income	30,299		30,213
Goodwill and intangible assets	511,649		553,960
Deferred tax asset	52,722		64,164
Net receivable on sales of investments	89,144		31,873
Other assets	275,242		187,383
Total assets	$	14,831,667	$	13,241,525
LIABILITIES
Reserve for losses and loss expenses	$	4,727,997	$	4,510,415
Reserve for unearned premiums	2,670,607		1,789,148
Deposit liabilities	12,573		13,674
Reinsurance balances payable	1,066,197		661,213
Debt	705,261		717,650
Net payable on purchases of investments	192,793		63,442
Deferred tax liability	15,817		17,315
Other liabilities	335,933		344,596
Total liabilities	9,727,178		8,117,453
Commitments and contingent liabilities
SHAREHOLDERS' EQUITY
Preferred shares, total liquidation preference $230,000 (2015 - $460,000)	9		9,209
Common shares, ordinary - 67,565,483 issued and outstanding (2015 - 66,797,991)	67,565		66,798
Additional paid-in capital	1,944,381		2,145,836
Accumulated other comprehensive income (loss)	19,949		(46,634		)
Retained earnings	2,812,734		2,681,053
Total shareholders' equity available to Endurance Holdings	4,844,638		4,856,262
Non-controlling interests	259,851		267,810
Total shareholders' equity	5,104,489		5,124,072
Total liabilities and shareholders' equity	$	14,831,667	$	13,241,525

See accompanying notes to unaudited condensed consolidated financial statements.

4

ENDURANCE SPECIALTY HOLDINGS LTD.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

AND COMPREHENSIVE INCOME

(In thousands of United States dollars, except share and per share amounts)

	THREE MONTHS ENDED    JUNE 30,						SIX MONTHS ENDED   JUNE 30,
	2016			2015			2016			2015
Revenues
Gross premiums written	$	1,136,930		$	861,184		$	2,748,607		$	2,162,616
Ceded premiums written	(419,162		)	(302,101		)	(1,091,997		)	(838,579		)
Net premiums written	717,768			559,083			1,656,610			1,324,037
Change in unearned premiums	(118,160		)	(100,948		)	(503,811		)	(476,043		)
Net premiums earned	599,608			458,135			1,152,799			847,994
Net investment income	43,977			32,252			55,158			74,113
Net realized and unrealized gains	6,347			9,680			20,134			27,869
Net impairment losses recognized in earnings	(9,841		)	(424		)	(10,464		)	(1,073		)
Other underwriting income (loss)	930			1,389			(1,514		)	3,795
Total revenues	641,021			501,032			1,216,113			952,698
Expenses
Net losses and loss expenses	376,112			239,122			619,440			411,058
Acquisition expenses	111,961			84,971			215,803			167,064
General and administrative expenses	55,079			54,965			127,304			109,855
Corporate expenses	11,830			12,634			23,601			24,902
Amortization of intangibles	20,943			1,579			42,317			3,178
Net foreign exchange (gains) losses	(32,751		)	12,981			(44,480		)	20,533
Interest expense	11,357			9,062			22,227			18,121
Total expenses	554,531			415,314			1,006,212			754,711
Income before income taxes	86,490			85,718			209,901			197,987
Income tax benefit (expense)	1,138			(1,512		)	2,371			(5,302		)
Net income	87,628			84,206			212,272			192,685
Net income attributable to non-controlling interests	(3,714		)	—			(12,777		)	—
Net income available to Endurance Holdings	83,914			84,206			199,495			192,685
Preferred dividends	(7,293		)	(8,188		)	(16,496		)	(16,376		)
Net income available to Endurance Holdings' common and participating common shareholders	$	76,621		$	76,018		$	182,999		$	176,309
Comprehensive income
Net income	$	87,628		$	84,206		$	212,272		$	192,685
Other comprehensive income (loss)
Net unrealized holding gains (losses) on investments arising during the period (net of other-than-temporary impairment losses recognized in other comprehensive income (loss), reclassification adjustment and applicable deferred income taxes of ($19,709) and $2,825 for the six months ended June 30, 2016 and 2015, respectively)	58,837			(66,979		)	116,595			(42,490		)
Foreign currency translation adjustments	(37,738		)	26,163			(50,056		)	2,705
Reclassification adjustment for net losses on derivative designated as cash flow hedge included in net income	22			22			44			44
Other comprehensive income (loss)	21,121			(40,794		)	66,583			(39,741		)
Comprehensive income	108,749			43,412			278,855			152,944
Comprehensive income attributable to non-controlling interests	(3,714		)	—			(12,777		)	—
Comprehensive income attributable to Endurance Holdings	$	105,035		$	43,412		$	266,078		$	152,944
Per share data
Basic earnings per common share	$	1.14		$	1.69		$	2.72		$	3.92
Diluted earnings per common share	$	1.14		$	1.68		$	2.72		$	3.91
Dividend per common share	$	0.38		$	0.35		$	0.76		$	0.70

See accompanying notes to unaudited condensed consolidated financial statements.

5

ENDURANCE SPECIALTY HOLDINGS LTD.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN

SHAREHOLDERS' EQUITY

(In thousands of United States dollars)

	SIX MONTHS ENDED   JUNE 30,
	2016			2015
Preferred shares
Balance, beginning of period	$	9,209		$	17,200
Redemption of Series B, non-cumulative preferred shares	(9,200		)	—
Balance, end of year	9			17,200
Common shares
Balance, beginning of period	66,798			44,765
Issuance of common shares, net of forfeitures	767			392
Balance, end of period	67,565			45,157
Additional paid-in capital
Balance, beginning of period	2,145,836			598,226
Issuance of common shares, net of forfeitures	9,411			569
Redemption of Series B, non-cumulative preferred shares	(219,741		)	—
Settlement of equity awards	(10,818		)	(6,092		)
Stock-based compensation expense	19,693			17,882
Balance, end of period	1,944,381			610,585
Accumulated other comprehensive income
Cumulative foreign currency translation adjustments:
Balance, beginning of period	(32,318		)	(7,628		)
Foreign currency translation adjustments	(50,056		)	2,705
Balance, end of period	(82,374		)	(4,923		)
Unrealized holding gains on investments, net of deferred taxes:
Balance, beginning of period	(12,638		)	86,100
Net unrealized holding gains (losses) arising during the period, net of other-than-temporary impairment losses and reclassification adjustment	116,595			(42,490		)
Balance, end of period	103,957			43,610
Accumulated derivative loss on cash flow hedging instruments:
Balance, beginning of period	(1,678		)	(1,766		)
Net change from current period hedging transactions, net of reclassification adjustment	44			44
Balance, end of period	(1,634		)	(1,722		)
Total accumulated other comprehensive income	19,949			36,965
Retained earnings
Balance, beginning of period	2,681,053			2,448,285
Net income	212,272			192,685
Net income attributable to non-controlling interests	(12,777		)	—
Dividends on preferred shares	(16,496		)	(16,376		)
Dividends on common shares	(51,318		)	(31,595		)
Balance, end of period	2,812,734			2,592,999
Total shareholders' equity available to Endurance Holdings	4,844,638			3,302,906
Non-controlling interests	259,851			—
Total shareholders' equity	$	5,104,489		$	3,302,906

See accompanying notes to unaudited condensed consolidated financial statements.

6

ENDURANCE SPECIALTY HOLDINGS LTD.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of United States dollars)

	SIX MONTHS ENDED   JUNE 30,
	2016			2015
Cash flows provided by operating activities
Net income	$	212,272		$	192,685
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of net premium on investments	19,545			23,090
Amortization of other intangibles and depreciation	53,005			12,695
Net realized and unrealized gains	(20,134		)	(27,869		)
Net impairment losses recognized in earnings	10,464			1,073
Deferred taxes	(9,765		)	5,041
Stock-based compensation expense	19,693			17,882
Equity in (losses) earnings of other investments	23,005			(15,958		)
Change in:
Premiums receivable, net	(914,789		)	(782,540		)
Insurance and reinsurance balances receivable	(27,458		)	14,052
Deferred acquisition costs	(107,905		)	(89,200		)
Prepaid reinsurance premiums	(387,318		)	(314,024		)
Reinsurance recoverable on unpaid losses	(197,673		)	(114,677		)
Reinsurance recoverable on paid losses	(60,193		)	61,004
Accrued investment income	(86		)	2,065
Other assets	(6,802		)	3,700
Reserve for losses and loss expenses	217,582			(13,334		)
Reserve for unearned premiums	881,459			792,414
Deposit liabilities	(1,101		)	(1,760		)
Reinsurance balances payable	404,984			256,746
Other liabilities	(74,268		)	404
Net cash flows provided by operating activities	34,517			23,489
Cash flows provided by (used in) investing activities
Proceeds from sales and maturities of trading investments	1,278,954			—
Proceeds from sales and maturities of available for sale investments	2,538,205			2,796,678
Proceeds from the redemption of other investments	111,174			36,523
Purchases of trading investments	(1,657,682		)	—
Purchases of available for sale investments	(1,977,827		)	(2,833,981		)
Purchases of other investments	(43,461		)	(102,979		)
Net settlements of other assets and other liabilities	(35,480		)	31,881
Purchases of fixed assets	(5,741		)	(15,048		)
Net cash paid upon subsidiary acquisition	(6		)	(68		)
Net cash flows provided by (used in) investing activities	208,136			(86,994		)
Cash flows used in financing activities
Issuance of common shares	8,934			817
Redemption of Series B, non-cumulative preferred shares	(230,000		)	—
Net distributions to non-controlling interests	(18,980		)	—
Settlement of equity awards	(10,818		)	(6,092		)
Offering and registration costs paid	(318		)	—
Proceeds from issuance of debt	537			728
Repayments of debt	(13,407		)	(435		)
Dividends on preferred shares	(16,496		)	(16,376		)
Dividends on common shares	(51,261		)	(31,543		)
Net cash flows used in financing activities	(331,809		)	(52,901		)
Effect of exchange rate changes on cash and cash equivalents	4,383			(6,424		)
Net decrease in cash and cash equivalents	(84,773		)	(122,830		)
Cash and cash equivalents, beginning of period	1,177,750			745,472
Cash and cash equivalents, end of period	$	1,092,977		$	622,642

See accompanying notes to unaudited condensed consolidated financial statements.

7

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

(Amounts in tables expressed in thousands of United States dollars, except

for ratios, share and per share amounts)

1. General

Endurance Specialty Holdings Ltd. ("Endurance Holdings" and together with its subsidiaries, the "Company") was organized as a Bermuda holding company on June 27, 2002. Endurance Holdings writes specialty lines of insurance and reinsurance on a global basis through its wholly-owned operating subsidiaries.

In addition, as part of its collateralized reinsurance and third party asset management operations, Endurance Holdings and Endurance Specialty Insurance Ltd. ("Endurance Bermuda") together own 33.3% of Blue Capital Reinsurance Holdings Ltd. ("BCRH"), and Endurance Bermuda owns 25.2% of Blue Capital Global Reinsurance Fund Limited ("BCGR").

BCRH is a Bermuda-based exempted limited liability holding company managed by Blue Capital Management Ltd. ("BCML"), a wholly-owned subsidiary of the Company. BCRH provides fully-collateralized property catastrophe reinsurance and invests in various insurance-linked securities through its wholly-owned Bermuda-based subsidiaries, Blue Capital Re. Ltd. ("Blue Capital Re") and Blue Capital Re ILS Ltd. ("Blue Capital Re ILS"). BCRH's shares are listed on the New York Stock Exchange and the Bermuda Stock Exchange.

BCGR is a closed-ended mutual fund incorporated in Bermuda and managed by BCML. BCGR serves as the feeder fund for the Blue Capital Global Reinsurance SA-I cell (the "BCGR Cell").  BCGR's shares are listed on the Specialist Fund Market of the London Stock Exchange and on the Bermuda Stock Exchange.

2. Summary of significant accounting policies

The accompanying consolidated financial statements have been prepared on the basis of accounting principles generally accepted in the United States ("U.S. GAAP") for interim financial information and with the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Results for the three and six months ended June 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. The consolidated financial statements include the accounts of Endurance Holdings, its wholly-owned subsidiaries, and BCRH and the BCGR Cell. All intercompany transactions and balances have been eliminated in consolidation. Management is required to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. Actual results could differ from those estimates. Among other matters, significant estimates and assumptions are used to record premiums written and ceded, to record the fair value of investments and to record reserves for losses and loss expenses and contingencies. Estimates and assumptions are periodically reviewed and the effects of revisions are recorded in the consolidated financial statements in the period that they are determined to be necessary.

The balance sheet at December 31, 2015 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2015 contained in Endurance Holdings' Annual Report on Form 10-K for the fiscal year ended December 31, 2015 (the "2015 Form 10-K").

Certain comparative information has been reclassified to conform to current year presentation.

There were no material changes in the Company's significant accounting and reporting policies subsequent to the filing of the 2015 Form 10-K.

In February 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-02, "Amendments to the Consolidation Analysis" ("ASU 2015-02"). Under ASU 2015-02, all legal entities are required to evaluate whether they should consolidate certain legal entities. ASU 2015-02 set forth amendments: (1) modifying the evaluation of whether limited partnerships and similar legal entities are variable interest entities ("VIEs") or voting interest entities; (2) eliminating the presumption that a general partner should consolidate a limited partnership; (3) affecting the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and (4) providing a scope exception from consolidation guidance for certain reporting entities. ASU 2015-02 became effective for public business entities for annual and interim periods beginning after December 15, 2015. Early adoption was permitted. The Company adopted ASU 2015-02 effective January 1, 2016 and it did not have a material impact on the Company's Unaudited Condensed Consolidated Financial Statements.

8

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - CONTINUED

(Amounts in tables expressed in thousands of United States dollars, except

for ratios, share and per share amounts)

2. Summary of significant accounting policies, cont'd.

In September 2015, the FASB issued ASU 2015-16, "Simplifying the Accounting for Measurement-Period Adjustments" ("ASU 2015-16"). ASU 2015-16 eliminates the requirement that an acquirer in a business combination account for measurement-period adjustments retrospectively. Instead, an acquirer will recognize a measurement-period adjustment during the period in which it determines the amount of the adjustment. ASU 2015-16 became effective for public business entities in interim and annual periods beginning after December 15, 2015. Early adoption was permitted. The Company adopted ASU 2015-16 effective January 1, 2016 and it did not have a material impact on the Company's Unaudited Condensed Consolidated Financial Statements.

In January 2016, the FASB issued ASU 2016-01, "Financial Instruments - Overall, Recognition and Measurement of Financial Assets and Financial Liabilities" ("ASU 2016-01"). ASU 2016-01 requires entities to measure certain equity investments at fair value and recognize any changes in fair value in net income unless the investments qualify for a practicability exception. For financial liabilities measured using the fair value option, entities will need to present any change in fair value caused by a change in instrument-specific credit risk separately in other comprehensive income. ASU 2016-01 also changes certain disclosure requirements and other aspects of current U.S. GAAP. ASU 2016-01 is effective for public business entities for annual and interim periods beginning after December 15, 2017. Early adoption is not permitted, except for certain provisions. ASU 2016-01 should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively. The Company is currently evaluating the impact of this guidance on its Unaudited Condensed Consolidated Financial Statements.

In February 2016, the FASB issued ASU 2016-02, "Leases" ("ASU 2016-02"). The objective of ASU 2016-02 is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 is effective for public business entities for annual and interim periods beginning after December 15, 2018. Early adoption is permitted. ASU 2016-02 must be applied using a modified retrospective approach. The Company is currently evaluating the impact of this guidance on its Unaudited Condensed Consolidated Financial Statements.

In March 2016, the FASB issued ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting" ("ASU 2016-09"). ASU 2016-09 will change how companies account for certain aspects of share-based payments to employees. Entities will be required to recognize the income tax effects of awards in the income statement when the awards vest or are settled. The guidance also changes employers' accounting for an employee's use of shares to satisfy the employer's statutory income tax withholding obligation, and accounting for forfeitures. ASU 2016-09 is effective for public business entities for annual and interim periods beginning after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the impact of this guidance on its Unaudited Condensed Consolidated Financial Statements.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses - Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"). ASU 2016-13 will change how companies measure credit losses for most financial assets and certain other instruments that aren't measured at fair value through net income. The standard will replace today's "incurred loss" approach with an "expected loss" model for instruments measured at amortized cost and require entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model. ASU 2016-13 is effective for public business entities for annual and interim periods beginning after December 15, 2019. Early adoption is permitted for all entities for annual periods beginning after December 15, 2018, and interim periods therein. The Company is currently evaluating the impact of this guidance on its Unaudited Condensed Consolidated Financial Statements.

9

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - CONTINUED

(Amounts in tables expressed in thousands of United States dollars, except

for ratios, share and per share amounts)

3. Investments

Net Investment Income

The components of net investment income for the three and six months ended June 30, 2016 and 2015 are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Fixed income investments	$	38,904		$	29,689		$	77,304		$	59,941
Equity investments	3,001			1,771			6,848			3,452
Other investments	5,252			3,570			(23,005		)	15,958
Cash and cash equivalents	604			679			1,651			1,593
	47,761			35,709			$	62,798		$	80,944
Investment expenses	(3,784		)	(3,457		)	(7,640		)	(6,831		)
Net investment income	$	43,977		$	32,252		$	55,158		$	74,113

Contractual maturities of the Company's fixed maturity and short-term investments are shown below as of June 30, 2016 and December 31, 2015. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	June 30, 2016				December 31, 2015
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due within one year	$	540,959	$	541,461	$	622,070	$	622,248
Due after one year through five years	1,907,495		1,936,574		2,005,456		1,995,502
Due after five years through ten years	727,906		747,343		683,147		676,932
Due after ten years	44,651		47,923		33,168		34,651
Residential mortgage-backed securities	1,343,837		1,376,822		1,301,083		1,311,373
Commercial mortgage-backed securities	789,314		800,960		817,570		812,886
Collateralized loan and debt obligations	405,438		397,042		419,795		405,128
Asset-backed securities	483,516		485,245		510,540		507,255
Total	$	6,243,116	$	6,333,370	$	6,392,829	$	6,365,975

10

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - CONTINUED

(Amounts in tables expressed in thousands of United States dollars, except

for ratios, share and per share amounts)

3. Investments, cont'd.

The following table summarizes the fair value of the fixed maturity investments, short-term investments and equity securities classified as trading at June 30, 2016 and December 31, 2015:

	June 30, 2016		December 31, 2015
Fixed maturity investments
U.S. government and agencies securities	$	379,470	$	319,674
U.S. state and municipal securities	5,233		5,559
Foreign government securities	105,014		49,861
Government guaranteed corporate securities	35,410		38,201
Corporate securities	817,194		532,192
Residential mortgage-backed securities	329,982		258,574
Commercial mortgage-backed securities	171,128		127,124
Collateralized loan and debt obligations(1)	91,024		103,219
Asset-backed securities	192,145		152,756
Total fixed maturity investments	2,126,600		1,587,160
Short-term investments	295,442		394,111
Total fixed income investments	$	2,422,042	$	1,981,271
Equity securities
Equity investments	$	42	$	48
Preferred equity investments	5,715		553
Short-term fixed income fund	30,575		14,628
Total equity securities	$	36,332	$	15,229

(1) Balances include amounts related to collateralized debt obligations held with total fair values of $17.0 million and $38.5 million at June 30, 2016 and December 31, 2015, respectively.

In addition to the Company's fixed maturity, short-term and equity securities, the Company invests in alternative funds and specialty funds. The Company's alternative funds and specialty funds are recorded on the Company's balance sheet as "other investments." At June 30, 2016 and December 31, 2015, the Company had invested, net of capital returned, a total of $687.6 million and $737.1 million, respectively, in other investments. At June 30, 2016 and December 31, 2015, the carrying value of other investments was $779.8 million and $872.6 million, respectively.

11

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - CONTINUED

(Amounts in tables expressed in thousands of United States dollars, except

for ratios, share and per share amounts)

3. Investments, cont'd.

The following table summarizes the composition, unfunded commitments and redemption restrictions of other investments as of June 30, 2016 and December 31, 2015:

June 30, 2016	Market Value		Unfunded Commitments		Ineligible for Redemption over next 12 months
Alternative funds
Hedge funds	$	600,016	$	—	$	43,304
Private investment funds	78,168		98,450		78,168
Other investment funds	29,256		—		29,282
Total alternative funds	707,440		98,450		150,754
Specialty funds
High yield loan funds	72,370		—		—
Total specialty funds	72,370		—		—
Total other investments	$	779,810	$	98,450	$	150,754

December 31, 2015	Market Value		Unfunded Commitments		Ineligible for Redemption in 2016
Alternative funds
Hedge funds	$	704,966	$	—	$	57,876
Private investment funds	80,690		102,070		80,690
Other investment funds	23,465		—		24,958
Total alternative funds	809,121		102,070		163,524
Specialty funds
High yield loan funds	63,496		30,000		—
Total specialty funds	63,496		30,000		—
Total other investments	$	872,617	$	132,070	$	163,524

Hedge funds – The redemption frequency of the hedge funds in which the Company invests range from monthly to biennially with notice periods from 30 to 180 days. Over one year, it is estimated that the Company can liquidate approximately 92.8% of its hedge fund portfolio, with the remainder over the following two years.

Private investment funds – The Company generally has no right to redeem its interest in any private investment funds in advance of dissolution of the applicable partnership. Instead, the nature of these investments is that distributions are received by the Company in connection with the liquidation of or distribution of earnings from the underlying assets of the applicable limited partnership. It is estimated that the majority of the underlying assets of the limited partnerships would liquidate over 5 to 10 years from inception of the limited partnership. A secondary market, with unpredictable liquidity, exists for limited partner interests in private equity funds.

Other investment funds – Other investment funds includes funds on deposit with Lloyd's of London ("Lloyd's"), which are restricted, and the Company's investment in BCGR, which represents the net asset or liability of the Company's investment in BCGR that has not been deployed into the BCGR cell.

High yield loan funds – There are generally no restrictions on the Company's right to redeem its interest in high yield loan funds with the exception of certain redemption frequency and notice requirements. The redemption frequency of these funds is monthly with notice periods from 30 to 60 days.

12

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - CONTINUED

(Amounts in tables expressed in thousands of United States dollars, except

for ratios, share and per share amounts)

3. Investments, cont'd.

Net Realized and Unrealized Gains

Realized gains and losses are recognized in earnings using the first in, first out method. The analysis of gross realized gains and losses, net unrealized gains on trading securities, and the change in the fair value of investment-related derivative financial instruments for the three and six months ended June 30, 2016 and 2015 is as follows: 

	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
Gross realized gains on investment sales	$	14,848		$	14,647		$	24,704		$	37,313
Gross realized losses on investment sales	(35,977		)	(5,058		)	(47,172		)	(9,954		)
Net unrealized gains on trading securities	27,280			—			42,076			—
Change in fair value of investment-related derivative financial instruments(1)	196			91			526			510
Net realized and unrealized gains	$	6,347		$	9,680		$	20,134		$	27,869

(1) For additional information on the Company's derivative financial instruments, see Note 7, Derivatives.

Unrealized Gains and Losses

The Company classifies some of its investments in fixed maturity investments, short-term investments and equity securities as available for sale. The amortized cost, fair value and related gross unrealized gains and losses on the Company's securities classified as available for sale at June 30, 2016 and December 31, 2015 are as follows:

June 30, 2016	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Fixed maturity investments
U.S. government and agencies securities	$	342,507	$	10,889	$	(13	)	$	353,383
U.S. state and municipal securities	21,744		492		(84		)	22,152
Foreign government securities	86,698		2,221		—			88,919
Government guaranteed corporate securities	11,682		365		—			12,047
Corporate securities	1,115,782		25,033		(627		)	1,140,188
Residential mortgage-backed securities	1,018,452		29,280		(892		)	1,046,840
Commercial mortgage-backed securities	621,501		12,568		(4,237		)	629,832
Collateralized loan and debt obligations(1)	309,571		754		(4,307		)	306,018
Asset-backed securities	292,297		1,892		(1,089		)	293,100
Total fixed maturity investments	3,820,234		83,494		(11,249		)	3,892,479
Short-term investments	18,846		3		—			18,849
Total fixed income investments	$	3,839,080	$	83,497	$	(11,249	)	$	3,911,328
Equity securities
Equity investments	$	358,911	$	10,842	$	(5,024	)	$	364,729
Emerging market debt funds	83,668		2,499		—			86,167
Convertible funds	46,331		—		(330		)	46,001
Preferred equity investments	7,741		1,542		(300		)	8,983
Short-term fixed income fund	128		2		—			130
Total equity securities	$	496,779	$	14,885	$	(5,654	)	$	506,010

(1) Balances include amounts related to collateralized debt obligations held with total fair values of $4.3 million.

13

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - CONTINUED

(Amounts in tables expressed in thousands of United States dollars, except

for ratios, share and per share amounts)

3. Investments, cont'd.

December 31, 2015	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Fixed maturity investments
U.S. government and agencies securities	$	499,386	$	2,561	$	(3,153	)	$	498,794
U.S. state and municipal securities	16,908		120		(181		)	16,847
Foreign government securities	110,893		803		(581		)	111,115
Government guaranteed corporate securities	19,248		311		(7		)	19,552
Corporate securities	1,323,276		5,698		(11,232		)	1,317,742
Residential mortgage-backed securities	1,041,540		16,400		(5,141		)	1,052,799
Commercial mortgage-backed securities	689,078		4,737		(8,053		)	685,762
Collateralized loan and debt obligations(1)	304,915		796		(3,802		)	301,909
Asset-backed securities	356,753		585		(2,839		)	354,499
Total fixed maturity investments	4,361,997		32,011		(34,989		)	4,359,019
Short-term investments	25,657		28		—			25,685
Total fixed income investments	$	4,387,654	$	32,039	$	(34,989	)	$	4,384,704
Equity securities
Equity investments	$	418,822	$	6,834	$	(31,875	)	$	393,781
Emerging market debt funds	61,874		—		(5,453		)	56,421
Convertible funds	46,331		—		(146		)	46,185
Preferred equity investments	15,275		1,946		(151		)	17,070
Short-term fixed income funds	127		1		—			128
Total equity securities	$	542,429	$	8,781	$	(37,625	)	$	513,585

(1) Balances include amounts related to collateralized debt obligations held with total fair values of $11.4 million.

14

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - CONTINUED

(Amounts in tables expressed in thousands of United States dollars, except

for ratios, share and per share amounts)

3. Investments, cont'd.

The following tables summarize, for all available for sale securities in an unrealized loss position at June 30, 2016 and December 31, 2015, the aggregate fair value and gross unrealized loss by length of time the security has continuously been in an unrealized loss position:

	Less than 12 months					12 months or greater					Total
June 30, 2016	Unrealized Losses(1)			Fair Value		Unrealized Losses(1)			Fair Value		Unrealized Losses(1)			Fair Value
Fixed maturity investments
U.S. government and agencies securities	$	(13	)	$	7,576	$	—		$	—	$	(13	)	$	7,576
U.S. state and municipal securities	(23		)	2,084		(61		)	2,278		(84		)	4,362
Corporate securities	(188		)	39,413		(439		)	43,111		(627		)	82,524
Residential mortgage-backed securities	(349		)	102,437		(543		)	69,509		(892		)	171,946
Commercial mortgage-backed securities	(2,368		)	169,839		(1,869		)	70,310		(4,237		)	240,149
Collateralized loan and debt obligations	(3,138		)	179,797		(1,169		)	79,801		(4,307		)	259,598
Asset-backed securities	(744		)	79,760		(345		)	21,254		(1,089		)	101,014
Total fixed income investments	$	(6,823	)	$	580,906	$	(4,426	)	$	286,263	$	(11,249	)	$	867,169
Equity securities
Equity investments	$	(5,022	)	$	83,431	$	(2	)	$	3	$	(5,024	)	$	83,434
Convertible funds	(330		)	46,001		—			—		(330		)	46,001
Preferred equity investments	(244		)	3,563		(56		)	745		(300		)	4,308
Total equity securities	$	(5,596	)	$	132,995	$	(58	)	$	748	$	(5,654	)	$	133,743

(1) Gross unrealized losses include unrealized losses on non-OTTI and non-credit OTTI securities recognized in accumulated other comprehensive income at June 30, 2016.

As of June 30, 2016, 598 available for sale securities were in an unrealized loss position aggregating $16.9 million. Of those, 223 securities with aggregated unrealized losses of $4.5 million had been in a continuous unrealized loss position for twelve months or greater.

15

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - CONTINUED

(Amounts in tables expressed in thousands of United States dollars, except

for ratios, share and per share amounts)

3. Investments, cont'd.

	Less than 12 months					12 months or greater					Total
December 31, 2015	Unrealized Losses(1)			Fair Value		Unrealized Losses(1)			Fair Value		Unrealized Losses(1)			Fair Value
Fixed maturity investments
U.S. government and agencies securities	$	(2,175	)	$	347,024	$	(978	)	$	16,669	$	(3,153	)	$	363,693
U.S. state and municipal securities	(96		)	9,662		(85		)	695		(181		)	10,357
Foreign government securities	(404		)	31,881		(177		)	3,966		(581		)	35,847
Government guaranteed corporate securities	(7		)	1,692		—			—		(7		)	1,692
Corporate securities	(9,222		)	830,349		(2,010		)	51,024		(11,232		)	881,373
Residential mortgage-backed securities	(3,378		)	365,082		(1,763		)	79,355		(5,141		)	444,437
Commercial mortgage-backed securities	(6,708		)	436,387		(1,345		)	42,246		(8,053		)	478,633
Collateralized loan and debt obligations	(3,107		)	224,520		(695		)	48,167		(3,802		)	272,687
Asset-backed securities	(2,624		)	311,814		(215		)	12,880		(2,839		)	324,694
Total fixed income investments	$	(27,721	)	$	2,558,411	$	(7,268	)	$	255,002	$	(34,989	)	$	2,813,413
Equity securities
Equity investments	$	(31,875	)	$	283,095	$	—		$	—	$	(31,875	)	$	283,095
Emerging market debt funds	—			—		(5,453		)	56,421		(5,453		)	56,421
Convertible funds	(146		)	46,185		—			—		(146		)	46,185
Preferred equity investments	(151		)	7,361		—			—		(151		)	7,361
Total equity securities	$	(32,172	)	$	336,641	$	(5,453	)	$	56,421	$	(37,625	)	$	393,062

(1) Gross unrealized losses include unrealized losses on non-OTTI and non-credit OTTI securities recognized in accumulated other comprehensive loss at December 31, 2015.

As of December 31, 2015, 1,310 available for sale securities were in an unrealized loss position aggregating $72.6 million. Of those, 158 securities with aggregated unrealized losses of $12.7 million had been in a continuous unrealized loss position for twelve months or greater.

16

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - CONTINUED

(Amounts in tables expressed in thousands of United States dollars, except

for ratios, share and per share amounts)

3. Investments, cont'd.

The decrease in gross unrealized losses on the Company's available for sale fixed income investments at June 30, 2016 compared to December 31, 2015 was primarily due to a decrease in interest rates during the six months ended June 30, 2016. At June 30, 2016, the Company did not have the intent to sell any of the remaining fixed income investments in an unrealized loss position and determined that it was unlikely that the Company would be required to sell those securities in an unrealized loss position. At June 30, 2016, the Company impaired certain equity securities that were in an unrealized loss position for more than twelve consecutive months and therefore recognized in earnings total other-than-temporary impairments of $9.8 million and $10.5 million for the three and six months ended June 30, 2016.

Other Investments

The Company is involved in the normal course of business with variable interest entities ("VIEs") as a passive investor in residential and commercial mortgage-backed securities and through its interests in various other investments that are structured as limited partnerships considered to be third party VIEs. The Company determines whether it is the primary beneficiary of an entity subject to consolidation based on a qualitative assessment of the VIE's capital structure, contractual terms, nature of the VIE's operations and purpose and the Company's relative exposure to the related risks of the VIE on the date it becomes initially involved in the VIE. The Company reassesses its VIE determination with respect to an entity on an ongoing basis. The Company determined that it was not the primary beneficiary for any of these investments as of June 30, 2016. The Company believes its exposure to loss with respect to these investments is generally limited to the investment carrying amounts reported in the Company's Condensed Consolidated Balance Sheets and any unfunded investment commitments.

Collateralized Reinsurance Entities

As of June 30, 2016, Endurance Holdings and Endurance Bermuda together owned 33.3% of BCRH's common shares. BCRH is considered a VIE under U.S. GAAP due to service agreements for investment management, underwriting and insurance management and administrative services between BCRH and BCML, and the economic penalty to terminate the service agreements by BCRH. The Company has determined that it is BCRH's primary beneficiary due to its ability to direct the activities of BCRH through BCML along with its economic interest in BCRH. As a result, the Company fully consolidates the assets, liabilities and operations of BCRH and its subsidiaries within its Unaudited Condensed Consolidated Financial Statements. The interests in BCRH and its subsidiaries that the Company fully consolidates that are attributable to third-party investors are reported within the Company's Unaudited Condensed Consolidated Financial Statements as non-controlling interests. BCRH's shareholder rights do not include redemption features within the control of the third party shareholders. The Company reassesses its VIE determination with respect to BCRH on an ongoing basis.

As of June 30, 2016, Endurance Bermuda owned 25.2% of BCGR's ordinary shares. BCGR is considered a "voting interest entity" under U.S. GAAP and, because the Company owns less than 50% of its outstanding ordinary shares, the Company does not consolidate BCGR's assets, liabilities or operations within its Unaudited Condensed Consolidated Financial Statements.  However, the BCGR Cell and Blue Water Re Ltd. ("Blue Water Re"), the Company's wholly-owned Bermuda-based special purpose insurance vehicle, are considered VIEs under U.S. GAAP due to service agreements for investment management, underwriting and insurance management and administrative services between Blue Water Re and BCML. The Company has determined that it is the primary beneficiary of these entities due to its ability to direct the activities of Blue Water Re and the BCGR Cell along with its economic interest in these entities. Therefore, as funds held in BCGR are invested in the BCGR Cell, and ultimately into Blue Water Re, they are included in the Company's Unaudited Condensed Consolidated Financial Statements. Conversely, as funds previously invested by BCGR and the BCGR Cell into Blue Water Re are returned to BCGR, they are no longer included in the Company's Unaudited Condensed Consolidated Financial Statements. The interests in the BCGR Cell and Blue Water Re that the Company fully consolidates that are attributable to third-party investors are reported within the Company's Unaudited Condensed Consolidated Financial Statements as non-controlling interests. BCGR's shareholder rights do not include redemption features within the control of the third party shareholders. The Company reassesses its VIE determinations with respect to the BCGR Cell and Blue Water Re on an ongoing basis.

17

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - CONTINUED

(Amounts in tables expressed in thousands of United States dollars, except

for ratios, share and per share amounts)

3. Investments, cont'd.

The following table summarizes the movements in the non-redeemable non-controlling interests balance during the three and six months ended June 30, 2016:

	Three Months Ended   June 30, 2016			Six Months Ended   June 30, 2016
Non-controlling interests, beginning of period	$	258,259		$	267,810
Income attributable to third-party investments in the BCGR Cell	2,409			8,150
Income attributable to third-party investments in BCRH	1,305			4,627
Net income attributable to non-controlling interests	3,714			12,777
Net preferred share redemptions attributable to third-party investments in the BCGR Cell(1)	(384		)	(10,007		)
Net investments attributable to third-parties in BCRH	17			33
Net change in third-party investments in non-controlling interests	(367		)	(9,974		)
Dividends declared by BCRH attributable to non-controlling interests	(1,755		)	(10,762		)
Non-controlling interests at June 30, 2016	$	259,851		$	259,851

(1) The redemption from the BCGR Cell during the six months ended June 30, 2016 was required to fund expenses, repay debt and fund dividends by BCGR.

4. Fair value measurement

The Company determines the fair value of its fixed maturity investments, short-term investments, equity securities, debt, and other assets and liabilities in accordance with current accounting guidance, which defines fair value and establishes a fair value hierarchy based on inputs to the various valuation techniques used for each fair value measurement. The Company determines the estimated fair value of each individual security utilizing the highest level inputs available. Valuation inputs by security type may include the following:

• Government and agencies fixed maturity securities – These securities are generally priced by pricing services or index providers. The pricing services or index providers may use current market trades for securities with similar quality, maturity and coupon. If no such trades are available, the pricing service typically uses analytical models which may incorporate option adjusted spreads, daily interest rate data and market/sector news. The Company generally classifies the fair values of government and agencies securities in Level 2. Current issue U.S. government securities are generally valued based on Level 1 inputs, which use the market approach valuation technique.

• Government guaranteed corporate fixed maturity securities – These securities are generally priced by pricing services or index providers. The pricing service or index providers may use current market trades for securities with similar quality, maturity and coupon. If no such trades are available, the pricing service typically uses analytical spread models which may incorporate inputs from the U.S. treasury curve or LIBOR. The Company generally classifies the fair values of its government guaranteed corporate securities in Level 2.

• Corporate fixed maturity securities – These securities are generally priced by pricing services or index providers. The pricing services or index providers typically use discounted cash flow models that incorporate benchmark curves for treasury, swap and high issuance credits. Credit spreads are developed from current market observations for like or similar securities. The Company generally classifies the fair values of its corporate securities in Level 2. The Company uses models that include unobservable inputs to price its corporate bank loan portfolio. As such, the fair values of the corporate bank loans are generally classified in Level 3.

• Equity securities – These securities are generally priced by pricing services or index providers. Depending on the type of underlying equity security or equity fund, the securities are priced by pricing services or index providers based on quoted market prices in active markets or through a discounted cash flow model that incorporates benchmark curves for treasury, swap and credits for like or similar securities. The Company generally classifies the fair values of its equity securities in Level 1 or 2.

18

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - CONTINUED

(Amounts in tables expressed in thousands of United States dollars, except

for ratios, share and per share amounts)

4. Fair value measurement, cont'd.

• Structured securities including agency and non-agency, residential and commercial mortgage-backed securities, asset-backed securities and collateralized loan and debt obligations – These securities are generally priced by broker/dealers. Broker/dealers may use current market trades for securities with similar qualities. If no such trades are available, inputs such as bid and offer, prepayment speeds, the U.S. treasury curve, swap curve and cash settlement may be used in a discounted cash flow model to determine the fair value of a security. The Company generally classifies the fair values of its structured securities in Level 2.

• Other assets and liabilities – A portion of other assets and liabilities are composed of a variety of derivative instruments used to enhance the efficiency of the investment portfolio and economically hedge certain risks. These instruments are generally priced by pricing services, broker/dealers and/or recent trading activity. The market value approach valuation technique is used to estimate the fair value for these derivatives based on significant observable market inputs. Certain derivative instruments are priced by pricing services based on quoted market prices in active markets. These derivative instruments are generally classified in Level 1. Other derivative instruments are priced using industry valuation models and are considered Level 2, as the inputs to the valuation model are based on observable market inputs. Also included in this line item are proprietary, non-exchange traded derivative-based risk management products primarily used to address weather and energy risks. The trading market for these weather and energy derivatives are generally linked to energy and agriculture commodities, weather and other natural phenomena. In instances where market prices are not available, the Company uses industry or internally developed valuation techniques such as spread option, Black Scholes, quanto and simulation modeling to determine fair value and classifies these in Level 3. These models may reference prices for similar instruments.

• Debt – Outstanding debt consists of the Company's 7.0% Senior Notes due July 15, 2034, the 4.7% Senior Notes due October 15, 2022 (together, the "Senior Notes") and the Trust Preferred Securities. The fair values of the Senior Notes were obtained from a third party pricing service and pricing was based on the spread above the risk-free yield curve. The fair values of the Trust Preferred Securities were based on the spread above the risk-free yield curve. These spreads are generally obtained from the new issue market, secondary trading and broker-dealer quotes. As these spreads and the yields for the risk-free yield curve are observable market inputs, the fair values of the Senior Notes and the Trust Preferred Securities are classified in Level 2.

The carrying values of cash and cash equivalents, accrued investment income, other investments, net receivable on sales of investments, net payable on purchases of investments, the amount outstanding under the BCRH Credit Agreement (as defined in Note 10) and other financial instruments not described above approximated their fair values at June 30, 2016 and December 31, 2015.

Transfers between levels are assumed to occur at the end of each period.

19

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - CONTINUED

(Amounts in tables expressed in thousands of United States dollars, except

for ratios, share and per share amounts)

4. Fair value measurement, cont'd.

The following table sets forth the Company's fixed maturity investments, equity securities, short-term investments, other assets and liabilities and debt categorized by the level within the hierarchy in which the fair value measurements fall at June 30, 2016:

	Fair Value Measurements at June 30, 2016
	Total at June 30, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Fixed maturity investments
U.S. government and agencies securities	$	732,853	$	12,492	$	720,361	$	—
U.S. state and municipal securities	27,385		—		27,385		—
Foreign government securities	193,933		—		193,933		—
Government guaranteed corporate securities	47,457		—		47,457		—
Corporate securities	1,957,382		—		1,850,126		107,256
Residential mortgage-backed securities	1,376,822		—		1,376,822		—
Commercial mortgage-backed securities	800,960		—		799,249		1,711
Collateralized loan and debt obligations	397,042		—		396,984		58
Asset-backed securities	485,245		—		485,245		—
Total fixed maturity investments	6,019,079		12,492		5,897,562		109,025
Equity securities
Equity investments	364,771		181,386		183,385		—
Emerging market debt funds	86,167		—		86,167		—
Convertible funds	46,001		—		46,001		—
Preferred equity investments	14,698		—		14,698		—
Short-term fixed income fund	30,705		30,705		—		—
Total equity securities	542,342		212,091		330,251		—
Short-term investments	314,291		—		314,291		—
Other assets (see Note 7)	148,370		930		113,083		34,357
Total assets	$	7,024,082	$	225,513	$	6,655,187	$	143,382
Liabilities
Other liabilities (see Note 7)	$	76,594	$	1,550	$	53,495	$	21,549
Debt	769,554		—		769,554		—
Total liabilities	$	846,148	$	1,550	$	823,049	$	21,549

During the three months ended June 30, 2016, $12.8 million of primarily corporate securities were transferred into Level 3 as no observable inputs were available. $0.5 million of collateralized loan and debt obligations were transferred out of Level 3 to Level 2 during the period.

During the three months ended June 30, 2015, $0.2 million of asset-backed securities were transferred into Level 3 as no observable inputs were available, and $4.9 million of primarily asset-backed securities were transferred out of Level 3 to Level 2 during the period as market activity for these securities increased and observable inputs became available.

During the six months ended June 30, 2016, $16.5 million of primarily corporate securities were transferred into Level 3 as no observable inputs were available. $5.5 million of primarily corporate securities were transferred out of Level 3 to Level 2 during the period.

20

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - CONTINUED

(Amounts in tables expressed in thousands of United States dollars, except

for ratios, share and per share amounts)

4. Fair value measurement, cont'd.

During the six months ended June 30, 2015, $2.0 million of collateralized debt and loan obligations and asset-backed securities were transferred into Level 3 as no observable inputs were available, and $9.2 million of primarily asset-backed and commercial mortgage-backed securities were transferred out of Level 3 to Level 2 during the period as market activity for these securities increased and observable inputs became available.

The following table sets forth the Company's fixed maturity investments, equity securities, short-term investments, other assets and liabilities and debt categorized by the level within the hierarchy in which the fair value measurements fall at December 31, 2015:

	Fair Value Measurements at December 31, 2015
	Total at December 31, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Fixed maturity investments
U.S. government and agencies securities	$	818,468	$	37,741	$	780,727	$	—
U.S. state and municipal securities	22,406		—		22,406		—
Foreign government securities	160,976		—		160,976		—
Government guaranteed corporate securities	57,753		—		57,753		—
Corporate securities	1,849,934		—		1,739,002		110,932
Residential mortgage-backed securities	1,311,373		—		1,311,373		—
Commercial mortgage-backed securities	812,886		—		812,174		712
Collateralized loan and debt obligations	405,128		—		404,319		809
Asset-backed securities	507,255		—		507,255		—
Total fixed maturity investments	5,946,179		37,741		5,795,985		112,453
Equity securities
Equity investments	393,829		260,330		133,499		—
Emerging market debt funds	56,421		—		56,421		—
Convertible funds	46,185		—		46,185		—
Preferred equity investments	17,623		—		17,623		—
Short-term fixed income fund	14,756		14,756		—		—
Total equity securities	528,814		275,086		253,728		—
Short-term investments	419,796		—		419,796		—
Other assets (see Note 7)	68,892		4		27,385		41,503
Total assets	$	6,963,681	$	312,831	$	6,496,894	$	153,956
Liabilities
Other liabilities (see Note 7)	$	46,088	$	—	$	4,059	$	42,029
Debt	737,974		—		737,974		—
Total liabilities	$	784,062	$	—	$	742,033	$	42,029

Level 3 assets represented 2.0% and 2.2% of the Company's total available for sale and trading investments and derivative instruments at June 30, 2016 and December 31, 2015, respectively. Level 3 securities are primarily comprised of corporate securities, commercial mortgage-backed securities, collateralized loan and debt obligations, and weather derivatives. There were no material changes in the Company's valuation techniques for the six months ended June 30, 2016.

21

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - CONTINUED

(Amounts in tables expressed in thousands of United States dollars, except

for ratios, share and per share amounts)

4. Fair value measurement, cont'd.

Other assets and other liabilities measured at fair value at June 30, 2016 include assets of $35.3 million (December 31, 2015 - $41.5 million) and liabilities of $23.1 million (December 31, 2015 - $42.0 million) related to proprietary, non-exchange traded derivative-based risk management products used in the Company's weather risk management business, and hedging and trading activities related to these risks. In instances where market prices are not available, the Company may use industry or internally developed valuation techniques such as historical analysis and simulation modeling to determine fair value and are considered Level 3.

Observable and unobservable inputs to these valuation techniques vary by contract requirements and commodity type, are validated using market-based or independently sourced parameters where applicable and may typically include the following:

•Observable inputs: contract price, notional, option strike, term to expiry, interest rate, contractual limits;

•Unobservable inputs: correlation; and

•Both observable and unobservable: forward commodity price, forward weather curve.

The Company's weather curves are determined by taking the average payouts for each transaction within its portfolio utilizing de-trended historical weather measurements. The Company's commodity curves are determined using historical market data scaled to currently observed market prices. The range of each unobservable input could vary based on the specific commodity, including, but not limited to natural gas, electricity, crude, liquids, temperature or precipitation. Due to the diversity of the portfolio, the range of unobservable inputs could be wide-spread as reflected in the below table on quantitative information.

If a trade has one or more significant valuation inputs that are unobservable, such trades are initially valued at the transaction price, which is considered to be the best initial estimate of fair value. Subsequent to the initial valuation, the Company updates market observable inputs to reflect observable market changes. The unobservable inputs are validated at each reporting period and are only changed when corroborated by evidence such as similar market transactions, third-party pricing services and/or broker or dealer quotations or other empirical market data.

Changes in any or all of the unobservable inputs listed above may contribute positively or negatively to the overall portfolio fair value depending upon the underlying position. In general, movements in weather curves are the largest contributing factor that impacts fair value.

22

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - CONTINUED

(Amounts in tables expressed in thousands of United States dollars, except

for ratios, share and per share amounts)

4. Fair value measurement, cont'd.

Below is a summary of quantitative information regarding the significant unobservable inputs used in determining the fair value of the net weather and energy related derivative assets and liabilities classified in Level 3 that are measured at fair value on a recurring basis at June 30, 2016 and December 31, 2015:

	June 30, 2016
	Fair Value (Level 3)		Valuation Techniques	Unobservable Inputs	Range
					Low			High
	(Fair value in U.S. dollars in thousands)
Net weather and energy related derivative assets	$	12,808	Historical  Analysis and Simulation	Correlation	0			1
				Temperature	-15F			115F
				Composite weather variable	-25 deg.			45 deg.
				Rainfall	0"			2"
				Windspeed	0.01 m/s			25 m/s
				Wave height	0 m			25 m
				Commodity curve	$	(1,000	)	$	14,200

	December 31, 2015
	Fair Value (Level 3)		Valuation Techniques	Unobservable Inputs	Range
					Low		High
	(Fair value in U.S. dollars in thousands)
Net weather and energy related derivative liabilities	$	526	Historical  Analysis and Simulation	Correlation	0		1
				Temperature	-15F		115F
				Composite weather variable	-25 deg.		45 deg.
				Rainfall	0"		2"
				Windspeed	0.01 m/s		25 m/s
				Snowfall	0"		18"
				Cyclone (category)	0		5
				Commodity curve	$	—	$	13,000

23

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - CONTINUED

(Amounts in tables expressed in thousands of United States dollars, except

for ratios, share and per share amounts)

4. Fair value measurement, cont'd.

The following tables present a reconciliation of the beginning and ending balances for all assets and liabilities measured at fair value on a recurring basis using Level 3 inputs during the three months ended June 30, 2016 and 2015:

	Three Months Ended June 30, 2016
	Fixed maturity investments			Other assets			Total assets			Other liabilities
Level 3, beginning of period	$	108,801		$	29,971		$	138,772		$	(30,419	)
Total realized and unrealized gains included in earnings	1,133			—			1,133			—
Total realized and unrealized losses included in earnings	(300		)	—			(300		)	—
Total income included in other underwriting income (loss)	—			(226		)	(226		)	5,492
Total loss included in other underwriting income (loss)	—			(3,864		)	(3,864		)	804
Change in unrealized gains included in other comprehensive income (loss)	94			—			94			—
Change in unrealized losses included in other comprehensive income (loss)	(260		)	—			(260		)	—
Purchases	1,003			—			1,003			—
Issues	—			10,894			10,894			(14,652		)
Sales	(13,800		)	—			(13,800		)	—
Settlements	—			(2,418		)	(2,418		)	17,226
Transfers into Level 3	12,836			—			12,836			—
Transfers out of Level 3	(482		)	—			(482		)	—
Level 3, end of period	$	109,025		$	34,357		$	143,382		$	(21,549	)
	Three Months Ended June 30, 2015
	Fixed maturity investments			Other assets			Total assets			Other liabilities
Level 3, beginning of period	$	9,500		$	15,223		$	24,723		$	(17,385	)
Total realized and unrealized losses included in earnings	(2		)	—			(2		)	—
Total income included in other underwriting income (loss)	—			3,499			3,499			7,806
Total loss included in other underwriting income (loss)	—			(4,152		)	(4,152		)	(3,691		)
Change in unrealized gains included in other comprehensive income (loss)	18			—			18			—
Change in unrealized losses included in other comprehensive income (loss)	(64		)	—			(64		)	—
Issues	—			9,121			9,121			(12,324		)
Sales	(96		)	—			(96		)	—
Settlements	—			—			—			3,410
Transfers into Level 3	237			—			237			—
Transfers out of Level 3	(4,886		)	—			(4,886		)	—
Level 3, end of period	$	4,707		$	23,691		$	28,398		$	(22,184	)

24

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - CONTINUED

(Amounts in tables expressed in thousands of United States dollars, except

for ratios, share and per share amounts)

4. Fair value measurement, cont'd.

The following tables present a reconciliation of the beginning and ending balances for all assets and liabilities measured at fair value on a recurring basis using Level 3 inputs during the six months ended June 30, 2016 and 2015:

	Six Months Ended June 30, 2016
	Fixed maturity investments			Other assets			Total assets			Other liabilities
Level 3, beginning of period	$	112,453		$	41,503		$	153,956		$	(42,029	)
Total realized and unrealized gains included in earnings	2,316			—			2,316			—
Total realized and unrealized losses included in earnings	(2,347		)	—			(2,347		)	—
Total income included in other underwriting income (loss)	—			3,548			3,548			11,119
Total loss included in other underwriting income (loss)	—			(7,782		)	(7,782		)	(5,356		)
Change in unrealized gains included in other comprehensive income (loss)	324			—			324			—
Change in unrealized losses included in other comprehensive income (loss)	(75		)	—			(75		)	—
Purchases	1,674			—			1,674			—
Issues	—			13,586			13,586			(18,745		)
Sales	(16,269		)	—			(16,269		)	—
Settlements	—			(16,498		)	(16,498		)	33,462
Transfers in to Level 3	16,465			—			16,465			—
Transfers out of Level 3	(5,516		)	—			(5,516		)	—
Level 3, end of period	$	109,025		$	34,357		$	143,382		$	(21,549	)
	Six Months Ended June 30, 2015
	Fixed maturity investments			Other assets			Total assets			Other liabilities
Level 3, beginning of period	$	12,290		$	25,615		$	37,905		$	(35,366	)
Total realized and unrealized gains included in earnings	113			—			113			—
Total realized and unrealized losses included in earnings	(11		)	—			(11		)	—
Total income included in other underwriting income (loss)	—			5,595			5,595			20,865
Total loss included in other underwriting income (loss)	—			(12,994		)	(12,994		)	(7,220		)
Change in unrealized gains included in other comprehensive income (loss)	24			—			24			—
Change in unrealized losses included in other comprehensive income (loss)	(193		)	—			(193		)	—
Purchases	—			—			—			—
Issues	—			12,333			12,333			(18,748		)
Sales	(310		)	—			(310		)	—
Settlements	—			(6,858		)	(6,858		)	18,285
Transfers in to Level 3	1,970			—			1,970			—
Transfers out of Level 3	(9,176		)	—			(9,176		)	—
Level 3, end of period	$	4,707		$	23,691		$	28,398		$	(22,184	)

25

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - CONTINUED

(Amounts in tables expressed in thousands of United States dollars, except

for ratios, share and per share amounts)

5.     Earnings per share

The two-class method utilized by the Company is an earnings allocation formula that determines earnings per share for the holders of Endurance Holdings' ordinary shares (also referred to as "common shares") and participating common shares, which includes unvested restricted shares and restricted share units that receive cash dividends, according to dividends declared and participation rights in undistributed earnings. Net income available to Endurance Holdings common and participating common shareholders is reduced by the amount of dividends declared in the current period and by the contractual amount of dividends that must be paid for the current period related to the Company's common and participating common shares. Any remaining undistributed earnings are allocated to the common and participating common shareholders to the extent that each security may share in earnings as if all of the earnings for the period had been distributed. In periods of loss, no losses are allocated to participating common shareholders. Instead, all such losses are allocated solely to the common shareholders.

Basic earnings per common share are calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding. The weighted average number of common shares excludes any dilutive effect of outstanding options and convertible securities such as unvested restricted shares and restricted share units.

Diluted earnings per common share are based on the weighted average number of common shares and assumes the exercise of all dilutive stock options and the vesting or conversion of all convertible securities such as unvested restricted shares using the two-class method described above.

The following table sets forth the computation of basic and diluted earnings per common share for the three and six months ended June 30, 2016 and 2015:

	Three Months Ended   June 30,						Six Months Ended   June 30,
	2016			2015			2016			2015
Numerator:
Net income available to common and participating common shareholders	$	76,621		$	76,018		$	182,999		$	176,309
Less amount allocated to participating common shareholders(1)	(1,634		)	(2,273		)	(4,008		)	(5,237		)
Net income allocated to common shareholders	$	74,987		$	73,745		$	178,991		$	171,072
Denominator:
Weighted average shares - basic	65,965,153			43,736,541			65,786,270			43,640,052
Share equivalents:
Options	61,739			150,384			61,267			148,204
Restricted shares	30,319			9,796			27,734			4,370
Weighted average shares - diluted	66,057,211			43,896,721			65,875,271			43,792,626
Basic earnings per common share	$	1.14		$	1.69		$	2.72		$	3.92
Diluted earnings per common share	$	1.14		$	1.68		$	2.72		$	3.91

(1) Represents earnings attributable to holders of unvested restricted shares and restricted share units issued under the Company's equity compensation plan that are considered participating. In periods of loss, no losses are allocated to participating common shareholders (unvested restricted shares and restricted share units).

26

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - CONTINUED

(Amounts in tables expressed in thousands of United States dollars, except

for ratios, share and per share amounts)

5.     Earnings per share, cont'd.

Endurance Holdings declared a dividend of $0.395830 per Series B preferred share and $396.8750 per Series C preferred share on May 19, 2016 (2015 - Series A: $0.484375, Series B: $0.468750, Series C - Nil). The Series C preferred share dividend was paid on June 15, 2016 to shareholders of record on June 1, 2016. Endurance Holdings also declared a dividend of $0.38 per common share on May 19, 2016 (2015 - $0.35). The dividend was paid on June 30, 2016 to shareholders of record on June 15, 2016.

On June 1, 2016, Endurance Holdings redeemed all 9,200,000 of its Series B preferred shares. The Series B preferred shares were redeemed at a redemption price of $25.00 per share together with a dividend of $0.395830 per share.

	Three Months Ended   June 30,				Six Months Ended   June 30,
	2016		2015		2016		2015
Dividends declared per Series A preferred share	$	—	$	0.484375	$	—	$	0.968750
Dividends declared per Series B preferred share	$	0.395830	$	0.468750	$	0.864580	$	0.937500
Dividends declared per Series C preferred share	$	396.8750	$	—	$	886.3542	$	—
Dividends declared per common share	$	0.38	$	0.35	$	0.76	$	0.70

6. Accumulated other comprehensive income

The following tables present the changes in accumulated other comprehensive income balances by component for the three months ended June 30, 2016 and 2015:

	For the Three Months Ended June 30, 2016
	Losses on cash flow hedges			Unrealized gains (losses) on available for sale securities		Foreign currency translation adjustments			Total
Beginning balance	$	(1,656	)	$	45,120	$	(44,636	)	$	(1,172	)
Other comprehensive income (loss) before reclassifications	—			36,429		(37,738		)	(1,309		)
Amounts reclassified from accumulated other comprehensive income(1)	22			22,408		—			22,430
Net current period other comprehensive income (loss)	22			58,837		(37,738		)	21,121
Ending balance	$	(1,634	)	$	103,957	$	(82,374	)	$	19,949

(1)All amounts are net of tax.

	For the Three Months Ended June 30, 2015
	Losses on cash flow hedges			Unrealized gains (losses) on available for sale securities			Foreign currency translation adjustments			Total
Beginning balance	$	(1,744	)	110,589			$	(31,086	)	$	77,759
Other comprehensive income (loss) before reclassifications	—			(57,671		)	26,163			(31,508		)
Amounts reclassified from accumulated other comprehensive income(1)	22			(9,308		)	—			(9,286		)
Net current period other comprehensive income (loss)	22			(66,979		)	26,163			(40,794		)
Ending balance	$	(1,722	)	$	43,610		$	(4,923	)	$	36,965

(1)All amounts are net of tax.

6. Accumulated other comprehensive income, cont'd.

27

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - CONTINUED

(Amounts in tables expressed in thousands of United States dollars, except

for ratios, share and per share amounts)

The following tables present the changes in accumulated other comprehensive income balances by component for the six months ended June 30, 2016 and 2015:

	For the Six Months Ended June 30, 2016
	Losses on cash flow hedges			Unrealized gains (losses) on available for sale securities			Foreign currency translation adjustments			Total
Beginning balance	$	(1,678	)	$	(12,638	)	$	(32,318	)	$	(46,634	)
Other comprehensive income (loss) before reclassifications	—			91,923			(50,056		)	41,867
Amounts reclassified from accumulated other comprehensive income(1)	44			24,672			—			24,716
Net current period other comprehensive income (loss)	44			116,595			(50,056		)	66,583
Ending balance	$	(1,634	)	$	103,957		$	(82,374	)	$	19,949

(1)All amounts are net of tax.

	For the Six Months Ended June 30, 2015
	Losses on cash flow hedges			Unrealized gains (losses) on available for sale securities			Foreign currency translation adjustments			Total
Beginning balance	$	(1,766	)	$	86,100		$	(7,628	)	$	76,706
Other comprehensive income (loss) before reclassifications	—			(16,937		)	2,705			(14,232		)
Amounts reclassified from accumulated other comprehensive income(1)	44			(25,553		)	—			(25,509		)
Net current period other comprehensive income (loss)	44			(42,490		)	2,705			(39,741		)
Ending balance	$	(1,722	)	$	43,610		$	(4,923	)	$	36,965

(1)All amounts are net of tax.

28

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - CONTINUED

(Amounts in tables expressed in thousands of United States dollars, except

for ratios, share and per share amounts)

6. Accumulated other comprehensive income, cont'd.

The following tables present the significant items reclassified out of accumulated other comprehensive income during the three months ended June 30, 2016 and 2015:

Three Months Ended June 30, 2016
Details about accumulated other comprehensive income components	Amount reclassified from accumulated other comprehensive income			Affected line item in the Unaudited Condensed Consolidated Statements of Income and Comprehensive Income
Losses on cash flow hedges - Debt	$	22		Interest expense
	22			Total before income taxes
	—			Income tax expense
	$	22		Total net of income taxes
Unrealized losses on available for sale securities	$	12,219		Net realized and unrealized gains
	9,841			Net impairment losses recognized in earnings
	22,060			Total before income taxes
	348			Income tax expense
	$	22,408		Total net of income taxes
Three Months Ended June 30, 2015
Details about accumulated other comprehensive income components	Amount reclassified from accumulated other comprehensive income			Affected line item in the Unaudited Condensed Consolidated Statements of Income and Comprehensive Income
Losses on cash flow hedges - Debt	$	22		Interest expense
	22			Total before income taxes
	—			Income tax expense
	$	22		Total net of income taxes
Unrealized gains on available for sale securities	$	(9,589	)	Net realized and unrealized gains
	424			Net impairment losses recognized in earnings
	(9,165		)	Total before income taxes
	(143		)	Income tax benefit
	$	(9,308	)	Total net of income taxes

29

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - CONTINUED

(Amounts in tables expressed in thousands of United States dollars, except

for ratios, share and per share amounts)

6. Accumulated other comprehensive income, cont'd.

The following tables present the significant items reclassified out of accumulated other comprehensive income during the six months ended June 30, 2016 and 2015:

Six Months Ended June 30, 2016
Details about accumulated other comprehensive income components	Amount reclassified from accumulated other comprehensive income			Affected line item in the Condensed Consolidated Statements of Income and Comprehensive Income
Losses on cash flow hedges - Debt	$	44		Interest expense
	44			Total before income taxes
	—			Income tax expense
	$	44		Total net of income taxes
Unrealized losses on available for sale securities	$	14,096		Net realized and unrealized gains
	10,464			Net impairment losses recognized in earnings
	24,560			Total before income taxes
	112			Income tax expense
	$	24,672		Total net of income taxes
Six Months Ended June 30, 2015
Details about accumulated other comprehensive income components	Amount reclassified from accumulated other comprehensive income			Affected line item in the Condensed Consolidated Statements of Income and Comprehensive Income
Losses on cash flow hedges - Debt	$	44		Interest expense
	44			Total before income taxes
	—			Income tax expense
	$	44		Total net of income taxes
Unrealized gains on available for sale securities	$	(27,359	)	Net realized and unrealized gains
	1,073			Net impairment losses recognized in earnings
	(26,286		)	Total before income taxes
	733			Income tax expense
	$	(25,553	)	Total net of income taxes

30

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - CONTINUED

(Amounts in tables expressed in thousands of United States dollars, except

for ratios, share and per share amounts)

7. Derivatives

The Company regularly transacts in certain derivative-based weather risk management products primarily to address weather and energy risks on behalf of third parties. The markets for these derivatives are generally linked to energy and agriculture commodities, weather and other natural phenomena. Generally, the Company's current portfolio of such derivative contracts is of short duration and such contracts are predominantly seasonal in nature. The Company also invests a portion of its investments with third party investment managers with investment guidelines that permit the use of derivative instruments. The Company may enter derivative transactions directly or as part of strategies employed by its external investment managers.

The Company's derivative instruments are recorded in the Condensed Consolidated Balance Sheets at fair value, with changes in fair value and gains and losses recognized in net realized and unrealized gains, net foreign exchange (gains) losses and other underwriting income (loss) in the Unaudited Condensed Consolidated Statements of Income and Comprehensive Income.

The Company's derivatives are not designated as hedges under current accounting guidance.

The Company's objectives for holding these derivatives are as follows:

Interest Rate Futures, Swaps, Swaptions and Options - to manage exposure to interest rate risk, which can include increasing or decreasing its exposure to this risk through modification of the portfolio composition and duration.

Industry Loss Warranty ("ILW") Swaps - to manage underwriting risk. The Company has entered into ILW swap contracts which provide reinsurance-like protection to the Company for specific loss events associated with certain lines of its business. The Company has also sold ILW protection, which provides reinsurance-like protection to third parties for specific loss events.

Foreign Exchange Forwards, Futures and Options - as part of overall currency risk management and investment strategies.

Credit Default Swaps - to manage market exposures. The Company may assume or economically hedge credit risk through credit default swaps to replicate or hedge investment positions. The original term of these credit default swaps is generally five years or less.

To-Be-Announced Mortgage-backed Securities ("TBAs") - to enhance investment performance and as part of overall investment strategy. TBAs represent commitments to purchase or sell a future issuance of agency mortgage-backed securities. For the period between purchase of a TBA and issuance of the underlying securities, the Company’s position is accounted for as a derivative.

Energy and Weather Contracts – to address weather and energy risks. The Company may purchase or sell contracts with financial settlements based on the performance of an index linked to a quantifiable weather element, such as temperature, precipitation, snowfall or windspeed, and structures with multiple risk triggers indexed to a quantifiable weather element and a weather sensitive commodity price, such as temperature and electrical power or natural gas. Generally, the Company's current portfolio of energy and weather derivative contracts is of comparably short duration and such contracts are predominantly seasonal in nature.

LIBOR Swap – to establish future net cash flows in connection with the Trust Preferred Securities for the five-year period beginning March 30, 2012 as if these securities bore interest at a fixed rate of 4.905%.

Loss Development Cover – as part of the sale of Montpelier U.S. Insurance Company ("MUSIC") to Selective Insurance Group, Inc. ("Selective"), Montpelier Reinsurance Ltd. ("Montpelier Re", now Endurance Bermuda) entered into a loss development cover with MUSIC which ensures that MUSIC's reserve for losses and loss expenses relating to retained business written on or prior to December 31, 2011 remains adequate. Under the loss development cover, any future adverse development associated with such retained reserves will be protected by Endurance Bermuda and any future favorable development associated with such retained reserves will benefit Endurance Bermuda.

31

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - CONTINUED

(Amounts in tables expressed in thousands of United States dollars, except

for ratios, share and per share amounts)

7. Derivatives, cont'd.

The fair values and the related notional values of derivatives at June 30, 2016 and December 31, 2015 are shown below.

	June 30, 2016				December 31, 2015
	Fair Value		Notional Principal Amount		Fair Value		Notional Principal Amount
Derivatives recorded in other assets
Foreign exchange forward contracts	$	643	$	32,735	$	425	$	38,818
Credit default swaps	135		4,999		36		4,225
Interest rate swaptions	—		125,500		—		—
ILWs	3,906		20,000		—		—
TBAs	108,399		103,300		26,924		25,700
Energy and weather contracts	35,287		92,211		41,507		70,388
Total recorded in other assets	$	148,370			$	68,892
Derivatives recorded in other liabilities
Foreign exchange forward contracts	$	770	$	31,116	$	372	$	30,400
Credit default swaps	174		5,166		276		7,800
Interest rate swaps	70		42,000		7		42,000
Interest rate futures	—		—		8		54,488
ILWs	1,346		14,209		259		19,500
LIBOR swap	345		100,000		233		100,000
TBAs	47,431		45,200		—		—
Loss development cover	3,359		23,807		2,904		22,322
Energy and weather contracts	23,099		144,186		42,029		148,325
Total recorded in other liabilities	$	76,594			$	46,088
Net derivative asset	$	71,776			$	22,804

At June 30, 2016, the Company's derivative assets of $148.4 million (December 31, 2015 - $68.9 million) and liabilities of $76.6 million (December 31, 2015 - $46.1 million) are subject to master netting agreements, which provide for the ability to settle the derivative asset and liability with each counterparty on a net basis. Interest rate futures are not subject to master netting agreements. At June 30, 2016 and December 31, 2015, the Company's derivative instruments were recorded on a gross basis in the Condensed Consolidated Balance Sheets.

At June 30, 2016, the Company held no reverse repurchase agreements. At December 31, 2015, the Company held $30.0 million reverse repurchase agreements. These agreements were fully collateralized, were generally outstanding for a short period of time and were presented as part of cash and cash equivalents in the Condensed Consolidated Balance Sheets. The required collateral for these agreements was either cash or U.S. treasury securities at a minimum rate of 102% of the principal amount. Upon maturity, the Company received the principal and interest income.

32

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - CONTINUED

(Amounts in tables expressed in thousands of United States dollars, except

for ratios, share and per share amounts)

7. Derivatives, cont'd.

The gains and losses on the Unaudited Condensed Consolidated Statements of Income and Comprehensive Income for derivatives for the three and six months ended June 30, 2016 and 2015 were as follows:

	Three Months Ended   June 30,						Six Months Ended   June 30,
	2016			2015			2016			2015
Total gains (losses) included in net foreign exchange (gains) losses from foreign exchange forward contracts	$	37		$	(343	)	$	(501	)	$	1,126
Interest rate futures	55			(27		)	(227		)	95
Credit default swaps	(112		)	9			(82		)	9
Interest rate swaps	3			320			(48		)	(235		)
Interest rate swaptions	(14		)	—			(27		)	28
ILWs	(244		)	—			60			—
LIBOR swap	32			—			(112		)	—
TBAs	476			(211		)	962			613
Total gains included in net realized and unrealized gains	196			91			526			510
Energy and weather contracts	2,037			3,258			1,322			6,042
Loss development cover	(619		)	—			(1,486		)	—
Total gains (losses) included in other underwriting income (loss)	1,418			3,258			(164		)	6,042
Total gains (losses) from derivatives	$	1,651		$	3,006		$	(139	)	$	7,678

8. Stock-based employee compensation and other stock plans

The Company has a stock-based employee compensation plan, which provides the Company with the ability to grant options to purchase the Company's ordinary shares, share appreciation rights, restricted shares, restricted share units, share bonuses and other equity incentive awards to key employees.

No options were granted or expired during the quarters and six months ended June 30, 2016 and 2015. During the quarter and six months ended June 30, 2016, 160,000 (2015 - nil) options were exercised. During the quarter and six months ended June 30, 2016, 160,000 (2015 - 160,000) options vested. The total intrinsic value of options exercised during the quarter and six months ended June 30, 2016 was $3.2 million. The Company received proceeds of $7.7 million from the exercise of options during the quarter and six months ended June 30, 2016. The Company issued new ordinary shares in connection with the exercise of the above options. For the quarter ended June 30, 2016, compensation costs recognized in earnings for all options totaled $0.2 million (2015 - $0.5 million). For the six months ended June 30, 2016, compensation costs recognized in earnings for all options totaled $0.5 million (2015 - $1.0 million). At June 30, 2016, compensation costs not yet recognized related to unvested stock options was $0.5 million (2015 - $1.6 million).

During the quarter ended June 30, 2016, the Company granted an aggregate of 53,795 (2015 – 31,690) restricted shares and restricted share units. The restricted shares and restricted share units granted had weighted average grant date fair values of $3.5 million (2015 - $2.0 million). During the quarter ended June 30, 2016, the aggregate fair value of restricted shares and restricted share units that vested was $8.2 million (2015 - $7.8 million). For the quarter ended June 30, 2016, compensation costs recognized in earnings for all restricted shares and restricted share units were $9.4 million (2015 - $7.6 million). At June 30, 2016, compensation costs not yet recognized related to unvested restricted shares and restricted share units was $41.2 million (2015 - $34.0 million).

33

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - CONTINUED

(Amounts in tables expressed in thousands of United States dollars, except

for ratios, share and per share amounts)

8. Stock-based employee compensation and other stock plans, cont'd.

During the six months ended June 30, 2016, the Company granted an aggregate of 613,967 (2015 – 504,352) restricted shares and restricted share units. The restricted shares and restricted share units granted had weighted average grant date fair values of $36.9 million (2015 - $30.0 million). During the six months ended June 30, 2016, the aggregate fair value of restricted shares and restricted share units that vested was $41.2 million (2015 - $21.6 million). For the six months ended June 30, 2016, compensation costs recognized in earnings for all restricted shares and restricted share units were $19.2 million (2015 - $16.9 million).

Employee Share Purchase Plan

The Company also has an Employee Share Purchase Plan ("ESPP") under which employees of Endurance Holdings and certain of its subsidiaries may purchase the Company's ordinary shares. For the three and six months ended June 30, 2016, total expenses related to the Company's ESPP were approximately $116,000 (2015 - $79,000) and $216,000 (2015 - $144,000), respectively.

9. Segment reporting

The determination of the Company's business segments is based on how the Company monitors the performance of its underwriting operations. The Company has two reportable business segments, Insurance and Reinsurance, which are comprised of the following lines of business:

Insurance segment lines of business

•Agriculture

•Casualty and other specialty

•Professional lines

•Property, marine/energy and aviation

Reinsurance segment lines of business

•Catastrophe

•Property

•Casualty

•Professional lines

•Specialty

Management measures Insurance and Reinsurance segment results on the basis of the combined ratio, which is obtained by dividing the sum of the net losses and loss expenses, acquisition expenses and general and administrative expenses by net premiums earned. When purchased within a single line of business, ceded reinsurance and recoveries are accounted for within that line of business. When purchased across multiple lines of business, ceded reinsurance and recoveries are allocated to the lines of business in proportion to the related risks assumed. The Company does not manage its assets by segment; accordingly, investment income and total assets are not allocated to the individual business segments. General and administrative expenses incurred by the segments are allocated directly. Remaining general and administrative expenses not incurred by the segments are classified as corporate expenses and are not allocated to the individual business segments. Ceded reinsurance and recoveries are recorded within the business segment to which they apply.

34

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - CONTINUED

(Amounts in tables expressed in thousands of United States dollars, except

for ratios, share and per share amounts)

9. Segment reporting, cont'd.

The following table provides a summary of segment revenues and results for the three months ended June 30, 2016 and the reserve for losses and loss expenses as of June 30, 2016:

	Three Months Ended June 30, 2016
	Insurance			Reinsurance			Total
Revenues
Gross premiums written	$	593,706		$	543,224		$	1,136,930
Ceded premiums written	(354,104		)	(65,058		)	(419,162		)
Net premiums written	239,602			478,166			717,768
Net premiums earned	253,784			345,824			599,608
Other underwriting income	—			930			930
	253,784			346,754			600,538
Expenses
Net losses and loss expenses	173,858			202,254			376,112
Acquisition expenses	32,868			79,093			111,961
General and administrative expenses	29,825			25,254			55,079
	236,551			306,601			543,152
Underwriting income	$	17,233		$	40,153		57,386
Net investment income							43,977
Corporate expenses							(11,830		)
Net foreign exchange gains							32,751
Net realized and unrealized gains							6,347
Net impairment losses recognized in earnings							(9,841		)
Amortization of intangibles							(20,943		)
Interest expense							(11,357		)
Income before income taxes							$	86,490
Net loss ratio	68.4		%	58.5		%	62.7		%
Acquisition expense ratio	13.0		%	22.9		%	18.7		%
General and administrative expense ratio	11.8		%	7.3		%	11.2		%	(1)
Combined ratio	93.2		%	88.7		%	92.6		%
Reserve for losses and loss expenses	$	2,642,594		$	2,085,403		$	4,727,997

(1) Total general and administrative expense ratio includes general and administrative expenses and corporate expenses.

35

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - CONTINUED

(Amounts in tables expressed in thousands of United States dollars, except

for ratios, share and per share amounts)

9. Segment reporting, cont'd.

The following table provides a summary of segment revenues and results for the three months ended June 30, 2015 and the reserve for losses and loss expenses as of June 30, 2015:

	Three Months Ended June 30, 2015
	Insurance			Reinsurance			Total
Revenues
Gross premiums written	$	468,866		$	392,318		$	861,184
Ceded premiums written	(278,567		)	(23,534		)	(302,101		)
Net premiums written	190,299			368,784			559,083
Net premiums earned	201,460			256,675			458,135
Other underwriting income	—			1,389			1,389
	201,460			258,064			459,524
Expenses
Net losses and loss expenses	145,483			93,639			239,122
Acquisition expenses	17,702			67,269			84,971
General and administrative expenses	28,567			26,398			54,965
	191,752			187,306			379,058
Underwriting income	$	9,708		$	70,758		80,466
Net investment income							32,252
Corporate expenses							(12,634		)
Net foreign exchange losses							(12,981		)
Net realized and unrealized gains							9,680
Net impairment losses recognized in earnings							(424		)
Amortization of intangibles							(1,579		)
Interest expense							(9,062		)
Income before income taxes							$	85,718
Net loss ratio	72.2		%	36.5		%	52.2		%
Acquisition expense ratio	8.8		%	26.2		%	18.5		%
General and administrative expense ratio	14.2		%	10.3		%	14.8		%	(1)
Combined ratio	95.2		%	73.0		%	85.5		%
Reserve for losses and loss expenses	$	2,157,769		$	1,675,756		$	3,833,525

(1) Total general and administrative expense ratio includes general and administrative expenses and corporate expenses.

36

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - CONTINUED

(Amounts in tables expressed in thousands of United States dollars, except

for ratios, share and per share amounts)

9. Segment reporting, cont'd.

The following table provides gross and net premiums written by line of business for the three months ended June 30, 2016 and 2015:

	Gross premiums written		Net premiums written			Gross premiums written		Net premiums written
Business Segment	2016		2016			2015		2015
Insurance
Agriculture	$	66,922	$	(2,962	)	$	112,012	$	22,677
Casualty and other specialty	178,081		77,965			146,056		65,302
Professional lines	122,679		51,204			96,736		43,443
Property, marine/energy and aviation	226,024		113,395			114,062		58,877
Total Insurance	593,706		239,602			468,866		190,299
Reinsurance
Catastrophe	236,995		197,681			139,833		122,305
Property	30,646		31,304			30,560		30,118
Casualty	82,263		80,921			48,132		48,132
Professional lines	135,638		135,031			134,241		134,241
Specialty	57,682		33,229			39,552		33,988
Total Reinsurance	543,224		478,166			392,318		368,784
Total	$	1,136,930	$	717,768		$	861,184	$	559,083

37

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - CONTINUED

(Amounts in tables expressed in thousands of United States dollars, except

for ratios, share and per share amounts)

9. Segment reporting, cont'd.

The following table provides a summary of the segment revenues and results for the six months ended June 30, 2016:

	Six Months Ended June 30, 2016
	Insurance			Reinsurance			Total
Revenues
Gross premiums written	$	1,428,823		$	1,319,784		$	2,748,607
Ceded premiums written	(818,277		)	(273,720		)	(1,091,997		)
Net premiums written	610,546			1,046,064			1,656,610
Net premiums earned	473,353			679,446			1,152,799
Other underwriting loss	—			(1,514		)	(1,514		)
	473,353			677,932			1,151,285
Expenses
Net losses and loss expenses	301,661			317,779			619,440
Acquisition expenses	63,226			152,577			215,803
General and administrative expenses	68,254			59,050			127,304
	433,141			529,406			962,547
Underwriting income	$	40,212		$	148,526		188,738
Net investment income							55,158
Corporate expenses							(23,601		)
Net foreign exchange gains							44,480
Net realized and unrealized gains							20,134
Net impairment losses recognized in earnings							(10,464		)
Amortization of intangibles							(42,317		)
Interest expense							(22,227		)
Income before income taxes							$	209,901
Net loss ratio	63.7		%	46.7		%	53.7		%
Acquisition expense ratio	13.4		%	22.5		%	18.7		%
General and administrative expense ratio	14.4		%	8.7		%	13.1		%	(1)
Combined ratio	91.5		%	77.9		%	85.5		%

(1) Total general and administrative expense ratio includes general and administrative expenses and corporate expenses.

38

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - CONTINUED

(Amounts in tables expressed in thousands of United States dollars, except

for ratios, share and per share amounts)

9. Segment reporting, cont'd.

The following table provides a summary of the segment revenues and results for the six months ended June 30, 2015:

	Six Months Ended June 30, 2015
	Insurance			Reinsurance			Total
Revenues
Gross premiums written	$	1,205,084		$	957,532		$	2,162,616
Ceded premiums written	(710,746		)	(127,833		)	(838,579		)
Net premiums written	494,338			829,699			1,324,037
Net premiums earned	337,324			510,670			847,994
Other underwriting income	—			3,795			3,795
	337,324			514,465			851,789
Expenses
Net losses and loss expenses	219,995			191,063			411,058
Acquisition expenses	33,585			133,479			167,064
General and administrative expenses	57,409			52,446			109,855
	310,989			376,988			687,977
Underwriting income	$	26,335		$	137,477		163,812
Net investment income							74,113
Corporate expenses							(24,902		)
Net foreign exchange losses							(20,533		)
Net realized and unrealized gains							27,869
Net impairment losses recognized in earnings							(1,073		)
Amortization of intangibles							(3,178		)
Interest expense							(18,121		)
Income before income taxes							$	197,987
Net loss ratio	65.2		%	37.4		%	48.5		%
Acquisition expense ratio	10.0		%	26.1		%	19.7		%
General and administrative expense ratio	17.0		%	10.3		%	15.9		%	(1)
Combined ratio	92.2		%	73.8		%	84.1		%

(1) Total general and administrative expense ratio includes general and administrative expenses and corporate expenses.

39

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - CONTINUED

(Amounts in tables expressed in thousands of United States dollars, except

for ratios, share and per share amounts)

9. Segment reporting, cont'd.

The following table provides gross and net premiums written by line of business for the six months ended June 30, 2016 and 2015:

	Gross premiums written		Net premiums written		Gross premiums written		Net premiums written
Business Segment	2016		2016		2015		2015
Insurance
Agriculture	$	563,138	$	205,665	$	628,928	$	225,137
Casualty and other specialty	316,336		141,462		246,738		110,360
Professional lines	200,094		94,538		151,496		67,674
Property, marine/energy and aviation	349,255		168,881		177,922		91,167
Total Insurance	1,428,823		610,546		1,205,084		494,338
Reinsurance
Catastrophe	437,825		286,549		264,240		175,765
Property	187,112		181,360		156,260		153,567
Casualty	180,983		179,640		106,230		106,230
Professional lines	184,187		183,251		178,098		178,098
Specialty	329,677		215,264		252,704		216,039
Total Reinsurance	1,319,784		1,046,064		957,532		829,699
Total	$	2,748,607	$	1,656,610	$	2,162,616	$	1,324,037

10. Commitments and contingencies

Concentrations of credit risk. The Company's reinsurance recoverables on paid and unpaid losses at June 30, 2016 and December 31, 2015 amounted to $1,453.8 million and $1,196.0 million, respectively. At June 30, 2016, substantially all reinsurance recoverables on paid and unpaid losses were due from the U.S. government or from reinsurers rated A- or better by A.M. Best Company, Inc. or Standard & Poor's Corporation. At June 30, 2016 and December 31, 2015, the Company held collateral of $464.3 million and $321.5 million, respectively, related to its ceded reinsurance agreements.

Major production sources. The following table shows the percentage of gross premiums written generated through the Company's largest brokers for the six months ended June 30, 2016 and 2015, respectively:

Broker	2016		2015
Marsh & McLennan Companies, Inc.	21.9	%	26.6	%
Aon Benfield	14.5	%	16.2	%
Willis Companies	9.4	%	10.5	%
Total of largest brokers	45.8	%	53.3	%

Letters of credit. As of June 30, 2016, the Company had issued letters of credit of $283.8 million (December 31, 2015 – $341.6 million) under its credit facilities and letter of credit reimbursement agreements in favor of certain ceding companies to collateralize obligations.

Investment commitments. As of June 30, 2016 and December 31, 2015, the Company had pledged cash and cash equivalents and fixed maturity investments of $114.5 million and $108.9 million, respectively, in favor of certain ceding companies to collateralize obligations. As of June 30, 2016 and December 31, 2015, the Company had also pledged $327.6 million and $383.3 million of its cash and fixed maturity investments as required to meet collateral obligations for $283.8 million and $341.6 million, respectively, in letters of credit outstanding under its credit facilities and letter of credit reimbursement agreements. In addition, as of June 30, 2016 and December 31, 2015, cash and fixed maturity investments with fair values of $211.4 million and $208.3 million were on deposit with U.S. state regulators, respectively.

40

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - CONTINUED

(Amounts in tables expressed in thousands of United States dollars, except

for ratios, share and per share amounts)

10. Commitments and contingencies, cont'd.

The Company is subject to certain commitments with respect to other investments at June 30, 2016 and December 31, 2015. See Note 3, Investments.

Investment assets held in trust. Blue Water Re and Blue Water Re II do not operate with a financial strength rating and, instead, fully collateralize their reinsurance obligations through cash and cash equivalents held in trust funds established by Blue Water Re and Blue Water Re II (the "Blue Water Trusts") for the benefit of ceding companies. As of June 30, 2016, the fair value of the assets held in the Blue Water Trusts was $429.8 million (December 31, 2015 - $438.9 million), which met the minimum value required on that date.

As of June 30, 2016, Blue Capital Re had pledged $183.8 million (December 31, 2015 - $195.3 million) of its cash and cash equivalents to trust accounts established for the benefit of Blue Water Re.

Blue Capital Re ILS fully collateralizes its insurance-linked security obligations through cash and cash equivalents held in trust funds established by Blue Capital Re ILS (the "Blue Capital Re ILS Trusts") for the benefit of third parties. As of June 30, 2016, the fair value of the assets held in the Blue Capital Re ILS Trusts was $3.4 million (December 31, 2015 - $5.2 million), which met the minimum value required on that date.

During 2015, Endurance Bermuda established a multi-beneficiary reinsurance trust (the "Endurance Reinsurance Trust") domiciled in Delaware. The Endurance Reinsurance Trust was established as a means of providing statutory credit to Endurance Bermuda's U.S. cedants. As of June 30, 2016, the fair value of the investments held in the Endurance Reinsurance Trust exceeded $770.5 million (December 31, 2015 - $94.1 million), the minimum value required on that date.

During 2015, Endurance Bermuda also established a second multi-beneficiary reinsurance trust domiciled in Delaware as a means of providing statutory credit to Endurance Bermuda's U.S. cedants in connection with a reduction in collateral requirements in certain states (the "Reduced Collateral Trust"). As of June 30, 2016, the fair value of the assets held in the Reduced Collateral Trust exceeded $18.7 million (December 31, 2015 - $10.8 million), the minimum value required on that date.

Endurance Bermuda is party to a reinsurance trust (the "MUSIC Trust"). The MUSIC Trust was established as a means of providing statutory credit to MUSIC in support of the business retained in connection with the 2011 sale by Montpelier of MUSIC to Selective. As of June 30, 2016, the fair value of the assets held in the MUSIC Trust was $22.0 million (December 31, 2015 - $21.3 million).

Endurance Bermuda was party to a multi-beneficiary Reinsurance Trust originally established by Montpelier Re (the "Montpelier Reinsurance Trust") domiciled in New York. The Montpelier Reinsurance Trust was established as a means of providing statutory credit to Montpelier Re's U.S. cedants. Endurance Bermuda was also party to a multi-beneficiary reinsurance trust originally established by Montpelier Re (the "FL Trust") in connection with a reduction in its Florida collateral requirements. On April 25, 2016, the Montpelier Reinsurance Trust and the FL Trust were dissolved.

Endurance Bermuda is party to a Lloyd's Deposit Trust Deed (the "Lloyd's Capital Trust") in order to meet Endurance Corporate Capital Limited ("ECCL")'s ongoing funds at Lloyd's ("FAL") requirements. The minimum value of cash and investments held by the Lloyd’s Capital Trust is subject to approval by Lloyd's and is based on ECCL's Solvency Capital Requirement, which is used to determine the required amount of FAL. As of June 30, 2016, the fair value of cash and investments held in the Lloyd's Capital Trust was $280.6 million (December 31, 2015 - $276.8 million), which met the minimum value required on that date.

Premiums received by Syndicate 5151 are required to be received into the Lloyd's Premiums Trust Funds (the "Premiums Trust Funds"). Under the Premiums Trust Funds' deeds, assets may only be used for the payment of claims and valid expenses for a stated period of time. As of June 30, 2016, the fair value of all assets held in the Premiums Trust Funds was $207.3 million (December 31, 2015 - $231.9 million).

41

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - CONTINUED

(Amounts in tables expressed in thousands of United States dollars, except

for ratios, share and per share amounts)

10. Commitments and contingencies, cont'd.

The Company's investment assets held in trust appear on the Company's Condensed Consolidated Balance Sheets as cash and cash equivalents, fixed maturity investments and accrued investment income, as appropriate.

Lloyd's New Central Fund. The Lloyd's New Central Fund is available to satisfy claims if a member of Lloyd's is unable to meet its obligations to policyholders. The Lloyd's New Central Fund is funded by an annual levy imposed on members, which is determined annually by Lloyd's as a percentage of each member's gross written premiums (0.35% with respect to 2016). In addition, the Council of Lloyd's has power to call on members to make an additional contribution to the Lloyd's New Central Fund of up to 3.0% of their underwriting capacity each year should it decide that such additional contributions are necessary. The Company currently estimates that its 2016 obligation to the Lloyd's New Central Fund will be approximately $1.1 million and accrues for this obligation ratably throughout the year on a quarterly basis.

Lloyd's also imposes other charges on its members and the syndicates on which they participate, including an annual subscription charge (0.45% of gross written premiums with respect to 2016) and an overseas business charge, levied as a percentage of gross international premiums (defined as business outside the U.K. and the Channel Islands), with the percentage depending on the type of business written. Lloyd's also has power to impose additional charges under Lloyd's Powers of Charging Byelaw. The Company currently estimates that its 2016 obligation to Lloyd's for such charges will be approximately $1.5 million and accrues for this obligation ratably throughout the year on a quarterly basis.

BCRH Credit Agreement. Upon closing of the acquisition of Montpelier on July 31, 2015, the Company became a guarantor of the BCRH 364-day unsecured credit agreement (the "BCRH Credit Agreement"), which permitted BCRH to borrow up to $20.0 million on a revolving basis for working capital and general corporate purposes. The Company was entitled to receive an annual guarantee fee from BCRH equal to 0.125% of the facility's total capacity (the "BCRH Guarantee Agreement"). The BCRH Credit Agreement and the BCRH Guarantee Agreement expired on April 29, 2016.

As of June 30, 2016, BCRH had no outstanding borrowings under the BCRH Credit Agreement (December 31, 2015 - $13.0 million). With respect to BCRH's outstanding borrowings at December 31, 2015, $4.0 million was repaid on February 2, 2016 and was subject to an annual interest rate of 1.33%, $5.0 million was repaid on February 22, 2016 and was subject to an annual interest rate of 1.48%, and $4.0 million was repaid on March 11, 2016 and was subject to an annual interest rate of 1.51%.

On May 6, 2016, the Company, through a wholly-owned subsidiary, entered into a credit facility agreement with BCRH (the "BCRH Credit Facility"). The BCRH Credit Facility provides BCRH with an unsecured $20.0 million revolving credit facility for working capital and general corporate purposes and expires on September 30, 2018. Borrowings under the BCRH Credit Facility bear interest, set at the time of the borrowing, at a rate equal to the applicable LIBOR rate plus 150 basis points.  The BCRH Credit Facility contains covenants that limit BCRH's ability, among other things, to grant liens on its assets, sell assets, merge or consolidate, or incur debt.  If BCRH fails to comply with any of these covenants, the Company could terminate the BCRH Credit Facility and exercise remedies against BCRH. In addition, in the event of a default in the performance of any of the agreements or covenants under certain management agreements with BCML by BCRH, the Company has the right to terminate the BCRH Credit Facility. As of June 30, 2016, BCRH had no outstanding borrowings under the BCRH Credit Facility.

BCGR Credit Agreement. Upon closing of the acquisition of Montpelier on July 31, 2015, the Company became a guarantor of the BCGR 364-day unsecured credit agreement (the "BCGR Credit Agreement"), which permitted BCGR to borrow up to $20.0 million on a revolving basis for working capital and general corporate purposes. The Company was entitled to receive an annual guarantee fee from BCGR equal to 0.125% of the facility's total capacity (the "BCGR Guarantee Agreement"). The BCGR Credit Agreement and the BCGR Guarantee Agreement expired on May 12, 2016.

As of June 30, 2016, BCGR had no outstanding borrowings under the BCGR Credit Agreement (December 31, 2015 - $6.0 million). With respect to BCGR's outstanding borrowing at December 31, 2015, $3.0 million was repaid on February 1, 2016 and was subject to an annual interest rate of 1.54%, and $3.0 million was repaid on February 12, 2016 and was subject to an annual interest rate of 1.51%.

42

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - CONTINUED

(Amounts in tables expressed in thousands of United States dollars, except

for ratios, share and per share amounts)

10. Commitments and contingencies, cont'd.

On May 6, 2016, the Company, through a wholly-owned subsidiary, entered into a credit facility agreement with BCGR (the "BCGR Credit Facility"). The BCGR Credit Facility provides BCGR with an unsecured $20.0 million revolving credit facility for working capital and general corporate purposes and expires on September 30, 2018. Borrowings under the BCGR Credit Facility bear interest, set at the time of the borrowing, at a rate equal to the applicable LIBOR rate plus 150 basis points.  The BCGR Credit Facility contains covenants that limit BCGR's ability, among other things, to grant liens on its assets, sell assets, merge or consolidate, or incur debt.  If BCGR fails to comply with any of these covenants, the Company could terminate the BCGR Credit Facility and exercise remedies against BCGR. In addition, in the event of a default in the performance of any of the agreements or covenants under certain management agreements with BCML by BCGR, the Company has the right to terminate the BCGR Credit Facility. As of June 30, 2016, BCGR had no outstanding borrowings under the BCGR Credit Facility.

Reinsurance commitments. In the ordinary course of business, the Company periodically enters into reinsurance agreements that include terms that could require the Company to collateralize certain of its obligations.

Employment agreements. The Company has entered into employment agreements with certain officers that provide for equity incentive awards, executive benefits and severance payments under certain circumstances.

Operating leases. The Company leases office space and office equipment under operating leases. Future minimum lease commitments at June 30, 2016 are as follows:

Twelve months ended June 30,	Amount
2017	$	16,162
2018	16,411
2019	15,503
2020	15,173
2021	13,981
2022 and thereafter	20,503
	$	97,733

Total net lease expense under operating leases for the six months ended June 30, 2016 was $6.6 million (2015 – $6.4 million).

Legal proceedings. The Company is party to various legal proceedings generally arising in the normal course of its business. While any proceeding contains an element of uncertainty, the Company does not believe that the eventual outcome of any litigation or arbitration proceeding to which it is presently a party could have a material adverse effect on its financial condition or business. Pursuant to the Company's insurance and reinsurance agreements, disputes are generally required to be settled by arbitration.

11.     Debt and financing arrangements

Credit Facility

On March 23, 2016, the Company and certain designated subsidiaries of the Company entered into a $450.0 million five-year letter of credit facility with JPMorgan Chase Bank, N.A. ("JPMorgan") as administrative agent (the "Credit Facility"). Upon entering into the Credit Facility, the Company terminated its existing $700.0 million credit agreement, dated April 19, 2012, with JPMorgan as administrative agent. As of June 30, 2016, there were letters of credit outstanding under the Credit Facility of $272.9 million (December 31, 2015 – $329.9 million). The Credit Facility does not provide for revolving or term loans.

The Credit Facility is collateralized on a several basis by each entity incurring such obligation by cash and securities deposited into collateral accounts from time to time with Deutsche Bank Trust Company Americas as collateral agent. So long as there is no default under the terms of the Credit Facility, the Company may request that the size of the Credit Facility be increased by $100.0 million, but no participating lender is obligated to increase its commitments under the Credit Facility.

43

ENDURANCE SPECIALTY HOLDINGS LTD.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS - CONTINUED

(Amounts in tables expressed in thousands of United States dollars, except

for ratios, share and per share amounts)

11.     Debt and financing arrangements, cont'd.

The Company is required to pay a fee of 0.40% per annum on the daily stated amount of outstanding letters of credit issued under the Credit Facility. In addition, the Credit Facility requires the Company to pay to the lenders a commitment fee in the amount of 0.125% per annum on the average daily amount of the unused commitments of the lenders. The Credit Facility permits a lender, if requested and in its discretion, to issue a letter of credit pursuant to which it fronts for the other lenders. For such letters of credit, such fronting lenders may receive certain fronting fees from the Company.

The Credit Facility requires the Company's compliance with certain customary restrictive covenants, including a financial covenant that the Company maintain a leverage ratio of no greater than 0.35:1.00 at any time. In addition, each of the Company's regulated insurance subsidiaries that has a claims paying rating from A.M. Best must maintain a rating of at least B++ at all times.

The Credit Facility also contains customary event of default provisions, including failure to pay any unpaid drawing under a letter of credit under the Credit Facility or interest thereon and failure to pay any fee under the Credit Facility, insolvency events of the Company or any of its subsidiaries (other than certain immaterial subsidiaries), a change in control of the Company, a breach of the representations or covenants in the Credit Facility or the security documents relating thereto and certain defaults by the Company or its subsidiaries under other indebtedness. In the case of an event of default that occurs as a result of an insolvency event of the Company or one of its designated subsidiary borrowers, the commitments of the lenders will automatically terminate and the repayment of outstanding obligations will be automatically accelerated. Upon the occurrence of any other event of default under the Credit Facility, the lenders can terminate their commitments under the Credit Facility, require repayment of any outstanding obligations under the Credit Facility, give notice of non-extension of any outstanding letters of credit in accordance with their terms, require the delivery of cash collateral for outstanding letters of credit and foreclose on any collateral held by the lenders (or any agent on their behalf) under the Credit Facility.

44

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion and analysis of the financial condition and results of operations for the three and six months ended June 30, 2016 of Endurance Specialty Holdings Ltd. ("Endurance Holdings") and its wholly-owned subsidiaries (collectively, the "Company"). This discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and related notes contained in this Quarterly Report on Form 10-Q (this "Form 10-Q") as well as the audited consolidated financial statements and related notes for the fiscal year ended December 31, 2015, the discussions of critical accounting policies and the qualitative and quantitative disclosure about market risk contained in Endurance Holdings' Annual Report on Form 10-K for the fiscal year ended December 31, 2015 (the "2015 Form 10-K").

Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-Q, including information with respect to the Company's plans and strategy for its business, includes forward-looking statements that involve risk and uncertainties. Please see the section "Cautionary Statement Regarding Forward-Looking Statements" for more information on factors that could cause actual results to differ materially from the results described in or implied by any forward-looking statements contained in this discussion and analysis. You should review the "Risk Factors" set forth in the 2015 Form 10-K and this Form 10-Q for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained herein.

Overview

Endurance Holdings was organized as a Bermuda holding company on June 27, 2002 and writes specialty lines of property and casualty insurance and reinsurance on a global basis through its operating subsidiaries. The Company seeks to create a portfolio of specialty lines of business that are profitable and have limited correlation with one another. The Company's portfolio of specialty lines of business is organized into two business segments, Insurance and Reinsurance.    

In the Insurance segment, the Company writes agriculture, casualty and other specialty, professional lines, and property, marine/energy and aviation insurance. In the Reinsurance segment, the Company writes catastrophe, property, casualty, professional lines and specialty reinsurance.

The Company's Insurance and Reinsurance segments both include property related coverages, which provide insurance or reinsurance of an insurable interest in tangible property for property loss, damage or loss of use. In addition, the Company's Insurance and Reinsurance segments include various casualty insurance and reinsurance coverages, which are primarily concerned with the losses caused by injuries to third parties, i.e., not the insured, or to property owned by third parties and the legal liability imposed on the insured resulting from such injuries.         

As part of its collateralized reinsurance and third party asset management operations, Endurance Holdings and Endurance Specialty Insurance Ltd. ("Endurance Bermuda") together own 33.3% of Blue Capital Reinsurance Holdings Ltd. ("BCRH"), and Endurance Bermuda owns 25.2% of Blue Capital Global Reinsurance Fund Limited ("BCGR").

BCRH is a Bermuda-based exempted limited liability holding company managed by a subsidiary of the Company. BCRH provides fully-collateralized property catastrophe reinsurance and invests in various insurance-linked securities through its wholly-owned Bermuda-based subsidiaries, Blue Capital Re. Ltd. and Blue Capital Re ILS Ltd. Blue Capital Re Ltd. is a Class 3A insurer licensed under the Bermuda Insurance Act. BCRH's shares are listed on the New York Stock Exchange and the Bermuda Stock Exchange.

BCGR is a closed-ended mutual fund incorporated in Bermuda and managed by a subsidiary of the Company. BCGR serves as the feeder fund for the Blue Capital Global Reinsurance SA-I cell.  BCGR's shares are listed on the Specialist Fund Market of the London Stock Exchange and on the Bermuda Stock Exchange.

Application of Critical Accounting Estimates

The Company's unaudited condensed consolidated financial statements are based on the selection of accounting policies and application of significant accounting estimates which require management to make significant estimates and assumptions. The Company believes that some of the more critical judgments in the areas of accounting estimates and assumptions that affect its financial condition and results of operations are related to the recognition of premiums written and ceded, reserves for losses and loss expenses, other-than-temporary impairments within the investment portfolio and fair value measurements of certain portions of the investment portfolio. There were no material changes in the application of the Company's critical accounting estimates. Management has discussed the application of these critical accounting estimates with the Company's Board of Directors and the Audit Committee of the Board of Directors. For a detailed discussion of the Company's critical accounting estimates, please refer to the 2015 Form 10-K and the Notes to the Unaudited Condensed Consolidated Financial Statements in this Form 10-Q.

45

Consolidated Results of Operations – For the Three Months Ended June 30, 2016 and 2015

Results of operations for the three months ended June 30, 2016 and 2015 were as follows:

	Three Months Ended   June 30,
	2016			2015			Change(1)
	(U.S. dollars in thousands, except for ratios)
Revenues
Gross premiums written	$	1,136,930		$	861,184		32.0	%
Ceded premiums written	(419,162		)	(302,101		)	38.7	%
Net premiums written	717,768			559,083			28.4	%
Net premiums earned	599,608			458,135			30.9	%
Net investment income	43,977			32,252			36.4	%
Net realized and unrealized gains	6,347			9,680			(34.4	)%
Net impairment losses recognized in earnings	(9,841		)	(424		)	NM(2)
Other underwriting income	930			1,389			(33.0	)%
Total revenues	641,021			501,032			27.9	%
Expenses
Net losses and loss expenses	376,112			239,122			57.3	%
Acquisition expenses	111,961			84,971			31.8	%
General and administrative expenses	55,079			54,965			0.2	%
Corporate expenses	11,830			12,634			(6.4	)%
Amortization of intangibles	20,943			1,579			NM(2)
Net foreign exchange (gains) losses	(32,751		)	12,981			NM(2)
Interest expense	11,357			9,062			25.3	%
Income tax (benefit) expense	(1,138		)	1,512			NM(2)
Net income	87,628			84,206			4.1	%
Net income attributable to non-controlling interests	(3,714		)	—			NM(2)
Preferred dividends	(7,293		)	(8,188		)	(10.9	)%
Net income available to Endurance Holdings' common and participating common shareholders	$	76,621		$	76,018		0.8	%
Net loss ratio	62.7		%	52.2		%	10.5
Acquisition expense ratio	18.7		%	18.5		%	0.2
General and administrative expense ratio(3)	11.2		%	14.8		%	(3.6	)
Combined ratio	92.6		%	85.5		%	7.1

(1) With respect to ratios, changes show increase or decrease in percentage points.

(2) Not meaningful.

(3) General and administrative expense ratio includes general and administrative expenses and corporate expenses.

46

Premiums

Gross premiums written in the three months ended June 30, 2016 were $1,136.9 million, an increase of $275.7 million, or 32.0%, compared to the same period in 2015. Net premiums written in the three months ended June 30, 2016 were $717.8 million, an increase of $158.7 million, or 28.4% compared to the same period in 2015. The increase in gross premiums written were driven by the following factors:

• An increase in the property, marine/energy and aviation and professional lines of business in the Insurance segment due primarily to business generated by new underwriting teams added over the last twelve months in the U.S. and the U.K. and new business resulting from the acquisition of Montpelier Re Holdings Ltd. ("Montpelier");

• An increase in the casualty and other specialty line of business in the Insurance segment, including excess casualty and primary casualty coverages, due to the expansion of the Company's Insurance segment underwriting personnel over the past three years and new business resulting from the acquisition of Montpelier;

• A decline in the agriculture line of business in the Insurance segment due to lower commodity prices and the timing of premiums written;

• An increase in the catastrophe line of business in the Reinsurance segment due to new business resulting from the acquisition of Montpelier, partially offset by non-renewal of policies that no longer met profitability targets and declines in renewal rates;

• An increase in the casualty line of business in the Reinsurance segment due to new business written in the U.S. and new business resulting from the acquisition of Montpelier, partially offset by non-renewal of policies that no longer met profitability targets; and

• An increase in the specialty line of business in the Reinsurance segment due to new agriculture, marine and aerospace business written and increased renewals, partially offset by a decrease in surety business written.

Ceded premiums written increased during the quarter ended June 30, 2016 as compared to the same period in 2015. In the Insurance segment, increased gross premiums written resulted in increased ceded premiums under the whole account quota share treaty covering the entire Insurance segment's business, combined with additional purchases of facultative and excess of loss reinsurance in the property, marine/energy and aviation line of business. In the agriculture line of business in the Insurance segment, quota share and excess of loss reinsurance coverage was recorded in the second quarter of 2016, which resulted in timing differences as similar reinsurance coverage was recorded in the first quarter of 2015. In the Reinsurance segment, ceded premiums written increased due to additional quota share and excess of loss retrocessional coverage purchased on the catastrophe and specialty lines of business.

Net premiums earned for the three months ended June 30, 2016 were $599.6 million, an increase of $141.5 million, or 30.9%, from the second quarter of 2015 due to the increase in gross premiums written and the earning of premiums acquired, partially offset by increased ceded premiums.         

Net Investment Income

The Company's net investment income of $44.0 million increased by 36.4%, or $11.7 million, for the quarter ended June 30, 2016 as compared to the same period in 2015. This increase resulted primarily from the Company's equity securities and fixed income investments, which consist of fixed maturity and short-term investments. Net investment income generated from the Company's equity securities and fixed income investments increased by $10.4 million for the three months ended June 30, 2016 compared to the same period in 2015 due to a larger investment base following the acquisition of Montpelier. Net investment income during the second quarter of 2016 included net mark to market gains of $5.3 million on other investments, which is comprised of alternative funds and specialty funds, as compared to mark to market gains of $3.6 million in the second quarter of 2015. Investment expenses, including investment management fees, for the three months ended June 30, 2016 were $3.8 million compared to $3.5 million for the same period in 2015.    

During the second quarter of 2016, the yield on the benchmark three year U.S. Treasury bond fluctuated within a 39 basis point range, with a high of 1.08% and a low of 0.69%. Trading activity in the Company's trading and available for sale portfolios during the second quarter included reductions in U.S. government agencies securities, equity securities, residential and commercial mortgage-backed securities, collateralized obligations and foreign government securities, and increased allocations to short-term investments, corporate securities and asset-backed securities. The duration of fixed income investments decreased to 2.57 years at June 30, 2016 from 2.74 years at December 31, 2015.

47

Net Realized and Unrealized Gains

The Company's investment portfolio is actively managed to generate attractive economic returns and income. Movements in financial markets and interest rates influence the timing and recognition of net realized investment gains and losses as the portfolio is adjusted and rebalanced. Proceeds from sales and maturities of investments classified as trading and available for sale during the three months ended June 30, 2016 were $2,099.0 million compared to $1,241.1 million during the same period a year ago. Net realized and unrealized gains decreased during the three months ended June 30, 2016 compared to the same period in 2015 due to realized losses incurred due to the repositioning the Company's portfolio of equity securities in the current quarter, partially offset by the inclusion of net unrealized gains on trading securities in the current period.

Gross realized investment gains and losses, net unrealized gains on trading securities and the change in the fair value of investment-related derivative financial instruments for the three months ended June 30, 2016 and 2015 were as follows:

	Three Months Ended   June 30,
	2016			2015
	(U.S. dollars in thousands)
Gross realized gains on investment sales	$	14,848		$	14,647
Gross realized losses on investment sales	(35,977		)	(5,058		)
Net unrealized gains on trading securities	27,280			—
Change in fair value of investment-related derivative financial instruments	196			91
Net realized and unrealized gains	$	6,347		$	9,680

Net Foreign Exchange (Gains) Losses

For the three months ended June 30, 2016, the Company re-measured its monetary assets and liabilities denominated in foreign currencies, which resulted in a net foreign exchange gain of $32.8 million compared to a net foreign exchange loss of $13.0 million for the same period of 2015. The current period net foreign exchange gain resulted from the British Sterling weakening against the U.S. dollar and other key currencies during the period resulting in the upward revaluation of net asset positions in those currencies. In the prior year, the net foreign exchange loss resulted partly from sales of invested assets that yielded realized foreign exchange losses recognized in net income, which had previously been recognized as unrealized foreign exchange losses in other comprehensive income (loss). Foreign exchange losses in the prior period also resulted from the impact of the U.S. dollar strengthening against the Japanese Yen and weakening against other key currencies as applied against the Company's net exposures during the three months ended June 30, 2015.

Net Losses and Loss Expenses

The Company's net loss ratio for the three months ended June 30, 2016 increased compared to the same period in 2015 due primarily to an increase in catastrophe losses incurred in the current quarter.

The following table shows the net losses after adjustment for reinstatement premiums recorded by the Company in connection with current calendar year catastrophes for the three months ended June 30, 2016 and 2015.

Three Months Ended June 30, 2016					Three Months Ended June 30, 2015
Event Date	Event	Loss			Event Date	Event	Loss
(U.S. dollars in millions)
April 2016	Convective storms in the United States	$	19.0		April 2015	Windstorms in the United States	$	7.4
April 2016	Earthquake in Japan	7.7			May 2015	Windstorms in the United States	3.6
May 2016	Wildfires in Canada	42.8				Other loss events in 2015	0.1
May 2016	Convective storms in Germany	4.1
	Other loss events in 2016	1.8
Total impact on net losses and loss expenses		75.4			Total impact on net losses and loss expenses		11.1
Less: reinstatement premiums		(11.1		)	Less: reinstatement premiums		(1.2		)
Net losses after adjustment for reinstatement premiums		$	64.3		Net losses after adjustment for reinstatement premiums		$	9.9

48

For the three months ended June 30, 2016, natural catastrophe related losses added 11.6 percentage points to the Company's net loss ratio after adjustment for reinstatement premiums compared to 2.3 percentage points in the same period for 2015.

Favorable prior year loss reserve development was $58.6 million for the second quarter of 2016, which decreased the net loss ratio by 9.8 percentage points, compared to $58.8 million during the same period in 2015, which decreased the net loss ratio by 12.8 percentage points. In the second quarter of 2016, prior year loss reserves emerged favorably across the agriculture, casualty and other specialty, and property, marine/energy and aviation lines of business in the Insurance segment, and all lines of business in the Reinsurance segment.

The Company participates in lines of business where claims may not be reported for many years. Accordingly, management does not believe that reported claims are the only valid means for estimating ultimate obligations. Ultimate losses and loss expenses may differ materially from the amounts recorded in the Company's unaudited consolidated financial statements. These estimates are reviewed regularly and, as experience develops and new information becomes known, the reserves are adjusted as necessary. Reserve adjustments, if any, are recorded in earnings in the period in which they are determined. The overall loss reserves were established by the Company's actuaries and reflect management's best estimate of ultimate losses. See "Reserve for Losses and Loss Expenses" below for further discussion.

Acquisition Expenses

The acquisition expense ratio for the three months ended June 30, 2016 was higher than the same period in 2015 primarily due to growth in net earned premiums in the property, marine/energy and aviation, casualty and other specialty and professional lines of business in the Insurance segment, which incur a higher than average net acquisition expense rate, and a decline in earned premiums in the agriculture line of business in the Insurance segment, which incur a lower than average net acquisition expense rate. This increase was partially offset by the addition of earned premiums resulting from the Company's acquisition of Montpelier, which had no associated acquisition costs as these were written off upon the closing of the acquisition in accordance with applicable accounting guidance.

General and Administrative Expenses and Corporate Expenses

The Company's general and administrative expense ratio for the second quarter of 2016 decreased by 3.6 percentage points compared to the same period in 2015 primarily due to increased net earned premiums for the current quarter. General and administrative and corporate expenses increased for the current quarter compared to the same period in 2015 due to an increase in personnel costs associated with the addition of new underwriting teams and additional employees from the Company's acquisition of Montpelier, offset by increased ceding commission reimbursements as a result of increased ceded premiums. At June 30, 2016, the Company had a total of 1,193 employees compared to 1,019 employees at June 30, 2015.

Amortization of Intangible Assets

The Company's amortization of intangibles for the second quarter of 2016 increased by $19.4 million compared to the same period in 2015 primarily due to $293.2 million of intangible assets recognized in the purchase of Montpelier that are being amortized over their related useful lives.

Income Tax (Benefit) Expense

The Company recorded an income tax benefit for the quarter ended June 30, 2016 of $1.1 million compared to income tax expense of $1.5 million for the quarter ended June 30, 2015. The income tax benefit in 2016 resulted from changes in the deferred tax valuation allowance recorded at the Company's subsidiaries located in United States taxable jurisdictions.

Net Income

The Company generated net income of $87.6 million in the three months ended June 30, 2016 compared to net income of $84.2 million in the same period of 2015. The increase in net income in the current period primarily resulted from increased net premiums earned, increased net foreign exchange gains and increased net investment income, partially offset by increased net losses and loss expenses, acquisition expenses, impairment losses and amortization expense.

Net Income Attributable to Non-controlling Interests

The Company's net income attributable to non-controlling interests was $3.7 million in the three months ended June 30, 2016 compared to Nil in the same period of 2015. At June 30, 2016, Endurance Holdings and Endurance Bermuda together owned 33.3% of BCRH's common shares and Endurance Bermuda owned 25.2% of BCGR's ordinary shares. Net income attributable to non-controlling interests relates to the share of the Company's net income attributable to the BCRH common shares and BCGR ordinary shares that are not owned by the Company.

49

Consolidated Results of Operations – For the Six Months Ended June 30, 2016 and 2015

Results of operations for the six months ended June 30, 2016 and 2015 were as follows:

	Six Months Ended June 30,
	2016			2015			Change(1)
	(U.S. dollars in thousands, except for ratios)
Revenues
Gross premiums written	$	2,748,607		$	2,162,616		27.1	%
Ceded premiums written	(1,091,997		)	(838,579		)	30.2	%
Net premiums written	1,656,610			1,324,037			25.1	%
Net premiums earned	1,152,799			847,994			35.9	%
Net investment income	55,158			74,113			(25.6	)%
Net realized and unrealized gains	20,134			27,869			(27.8	)%
Net impairment losses recognized in earnings	(10,464		)	(1,073		)	NM(2)
Other underwriting (loss) income	(1,514		)	3,795			NM(2)
Total revenues	1,216,113			952,698			27.6	%
Expenses
Losses and loss expenses	619,440			411,058			50.7	%
Acquisition expenses	215,803			167,064			29.2	%
General and administrative expenses	127,304			109,855			15.9	%
Corporate expenses	23,601			24,902			(5.2	)%
Amortization of intangibles	42,317			3,178			NM(2)
Net foreign exchange (gains) losses	(44,480		)	20,533			NM(2)
Interest expense	22,227			18,121			22.7	%
Income tax (benefit) expense	(2,371		)	5,302			NM(2)
Net income	212,272			192,685			10.2	%
Net income attributable to non-controlling interests	(12,777		)	—			NM(2)
Preferred dividends	(16,496		)	(16,376		)	0.7	%
Net income available to Endurance Holdings' common and participating common shareholders	$	182,999		$	176,309		3.8	%
Net loss ratio	53.7		%	48.5		%	5.2
Acquisition expense ratio	18.7		%	19.7		%	(1.0	)
General and administrative expense ratio(3)	13.1		%	15.9		%	(2.8	)
Combined ratio	85.5		%	84.1		%	1.4

(1) With respect to ratios, changes show increase or decrease in percentage points.

(2) Not meaningful.

(3) General and administrative expense ratio includes general and administrative expenses and corporate expenses.

Premiums

Gross premiums written in the six months ended June 30, 2016 were $2,748.6 million, an increase of $586.0 million, or 27.1%, compared to the same period in 2015. Net premiums written in the six months ended June 30, 2016 were $1,656.6 million, an increase of $332.6 million, or 25.1%, compared to the same period in 2015. The increase in gross premiums written were driven by the following factors:

• An increase in the property, marine/energy and aviation and professional lines of business in the Insurance segment due primarily to business generated by new underwriting teams added over the last twelve months in the U.S. and the U.K. and new business resulting from the acquisition of Montpelier;

• An increase in the casualty and other specialty line of business in the Insurance segment, including excess casualty and primary casualty coverages, due to the expansion of the Company's Insurance segment underwriting personnel over the past three years and new business resulting from the acquisition of Montpelier;

50

• A decline in the agriculture line of business in the Insurance segment due to lower commodity prices;

• An increase in the catastrophe line of business in the Reinsurance segment due to new business resulting from the acquisition of Montpelier, partially offset by non-renewal of policies that no longer met profitability targets and declines in renewal rates;

• An increase in the casualty line of business in the Reinsurance segment due to new business written in the U.S. and the U.K. and new business resulting from the acquisition of Montpelier, partially offset by non-renewal of policies that no longer met profitability targets;

• An increase in the property line of business in the Reinsurance segment due to new business resulting from the acquisition of Montpelier; and

• An increase in the specialty line of business in the Reinsurance segment due to new business written and increased renewals, partially offset by a decrease in surety business written.

Ceded premiums written increased during the six months ended June 30, 2016 as compared to the same period in 2015. In the Insurance segment, increased gross premiums written resulted in increased ceded premiums under the whole account quota share treaty covering the entire Insurance segment's business, combined with additional purchases of facultative and excess of loss reinsurance in the property, marine/energy and aviation line of business. In the Reinsurance segment, ceded premiums written increased due to increased purchases of aggregate excess of loss retrocessional protection within the catastrophe line of business, and additional quota share and excess of loss retrocessional coverage purchased on the specialty line of business.

Net premiums earned for the six months ended June 30, 2016 were $1,152.8 million, an increase of $304.8 million, or 35.9%, from the six months ended June 30, 2015 principally due to the increase in gross premiums written and earning of premiums acquired, partially offset by increased ceded premiums.

Net Investment Income

The Company's net investment income of $55.2 million decreased by 25.6%, or $19.0 million, for the six months ended June 30, 2016 as compared to the same period in 2015. This decline resulted primarily from mark to market losses on other investments, comprised of alternative funds and specialty funds, during the six months ended June 30, 2016. Net investment income during the first six months of 2016 included net mark to market losses of $23.0 million on other investments as compared to mark to market gains of $16.0 million in the first six months of 2015. Net investment income generated from the Company's equity securities and fixed income investments, which consist of fixed maturity investments and short-term investments, increased by $20.8 million for the six months ended June 30, 2016 compared to the same period in 2015 due to a larger investment base following the acquisition of Montpelier. Investment expenses, including investment management fees, for the six months ended June 30, 2016 were $7.6 million compared to $6.8 million for the same period in 2015.

During the six months ended June 30, 2016, the yield on the benchmark three year U.S. Treasury bond fluctuated within a 61 basis point range, with a high of 1.30% and a low of 0.69%. Trading activity in the Company's trading and available for sale portfolios for the six months ended June 30, 2016 included reductions in short-term investments, U.S. government agencies securities, asset-backed securities, commercial mortgage-backed securities and government and agency guaranteed corporate securities, and increased allocations to corporate securities, residential mortgage-backed securities, foreign government securities and equity securities.

Net Realized and Unrealized Gains

The Company's investment portfolio is actively managed on a fair value basis to generate attractive economic returns and income. Movements in financial markets and interest rates influence the timing and recognition of net realized investment gains and losses as the portfolio is adjusted and rebalanced. Proceeds from sales of investments classified as trading and available for sale during the six months ended June 30, 2016 were $3,817.2 million compared to $2,796.7 million during the same period a year ago. Net realized investment gains decreased during the six months ended June 30, 2016 compared to the same period in 2015 due to realized losses incurred due to the repositioning the Company's portfolio of equity securities in the current period, partially offset by the inclusion of net unrealized gains on trading securities in the current period.

51

Gross realized investment gains and losses, net unrealized gains on trading securities and the change in the fair value of investment-related derivative financial instruments for the six months ended June 30, 2016 and 2015 were as follows:

	Six Months Ended June 30,
	2016			2015
	(U.S. dollars in thousands)
Gross realized gains on investment sales	$	24,704		$	37,313
Gross realized losses on investment sales	(47,172		)	(9,954		)
Net unrealized gains on trading securities	42,076			—
Change in fair value of investment-related derivative financial instruments	526			510
Net realized and unrealized gains	$	20,134		$	27,869

Net Foreign Exchange (Gains) Losses

For the six months ended June 30, 2016, the Company remeasured its monetary assets and liabilities denominated in foreign currencies, which resulted in net foreign exchange gains of $44.5 million compared to net foreign exchange losses of $20.5 million for the same period in 2015. The net foreign exchange gains in the six months ended June 30, 2016 resulted from the British Sterling weakening against the U.S. dollar and other key currencies during the period resulting in the upward revaluation of net asset positions in those currencies. Additionally, sales of invested assets yielded realized foreign exchange losses recognized in net income that had previously been recognized as unrealized foreign exchange losses in other comprehensive (loss) income. In the prior year, the net foreign exchange loss resulted principally from a decrease in the value of net asset positions in key foreign currencies as the U.S. dollar strengthened generally in the six months ended June 30, 2015. Additionally, sales of invested assets yielded realized foreign exchange losses recognized in net income which had previously been recognized as unrealized foreign exchange losses in other comprehensive income (loss).

Net Losses and Loss Expenses

The Company's net loss ratio for the six months ended June 30, 2016 increased compared to the same period in 2015 due primarily to an increase in catastrophe losses incurred in 2016.

The following table shows the net losses after adjustment for reinstatement premiums recorded by the Company in connection with current calendar year catastrophes for the six months ended June 30, 2016 and 2015.

Six Months Ended June 30, 2016					Six Months Ended June 30, 2015
Event Date	Event	Loss			Event Date	Event	Loss
(U.S. dollars in millions)
February 2016	Earthquake in Taiwan	$	6.3		February 2015	Winter storm in the United States	$	7.4
April 2016	Convective storms in the United States	19.0			April 2015	Windstorms in the United States	7.4
April 2016	Earthquake in Japan	7.7			May 2015	Windstorms in the United States	3.6
May 2016	Wildfires in Canada	42.8
May 2016	Convective storms in Germany	4.1
Total impact on net losses and loss expenses		79.9			Total impact on net losses and loss expenses		18.4
Less: reinstatement premiums		(11.2		)	Less: reinstatement premiums		(1.4		)
Net losses after adjustment for reinstatement premiums		$	68.7		Net losses after adjustment for reinstatement premiums		$	17.0

For the six months ended June 30, 2016, catastrophe related losses added 6.4 percentage points to the Company's net loss ratio after adjustment for reinstatement premiums compared to 2.1 percentage points in the same period in 2015.

Favorable loss reserve development was recorded in the current period on all lines of business in the Reinsurance segment and the agriculture, casualty and other specialty and property, marine/energy and aviation lines of business in the Insurance segment. Favorable prior year loss reserve development was $119.7 million for the six months ended June 30, 2016, which decreased the net loss ratio by 10.4 percentage points, as compared to $116.0 million for the same period in 2015, which decreased the net loss ratio by 13.7 percentage points. Favorable reserve development in the six months ended June 30, 2016 was higher than the six months ended June 30, 2015 in the Insurance segment due primarily to lower than expected reported losses in the casualty and other specialty and agriculture lines of business. Favorable reserve development in

52

the six months ended June 30, 2016 was lower than the six months ended June 30, 2015 in the Reinsurance segment due primarily to higher than expected reported losses in the casualty and property lines of business.

The Company participates in lines of business in which claims may not be reported for many years. Accordingly, management does not believe that reported claims are the only valid means for estimating ultimate obligations. Ultimate losses and loss expenses may differ materially from the amounts recorded in the Company's consolidated financial statements. These estimates are reviewed regularly and, as experience develops and new information becomes known, the reserves are adjusted as necessary. Reserve adjustments, if any, are recorded in earnings in the period in which they are determined. The overall loss reserves were established by the Company's actuaries and reflect management's best estimate of ultimate losses. See "Reserve for Losses and Loss Expenses" below for further discussion.

Acquisition Expenses

The acquisition expense ratio for the six months ended June 30, 2016 was lower than the same period in 2015 primarily due to the addition of earned premiums from the Company's acquisition of Montpelier, which had no associated acquisition costs. This decrease was partially offset by growth in net premiums earned in the casualty and other specialty, property, marine/energy and aviation and professional lines of business in the Insurance segment, which incur a higher than average net acquisition expense rate, and a decline in net premiums earned in the agriculture line of business in the Insurance segment, which incurs a lower than average net acquisition expense rate.

General and Administrative Expenses and Corporate Expenses

The Company's general and administrative expense ratio for the six months ended June 30, 2016 decreased by 2.8% percentage points compared to the same period in 2015 primarily due to increased net earned premiums for the current period. General and administrative and corporate expenses increased for the six months ended June 30, 2016 compared to the same period in 2015 due to an increase in personnel costs associated with the addition of new underwriting teams and additional employees from the Company's acquisition of Montpelier. This increase was partially offset by increased ceding commission reimbursements as a result of additional purchases of reinsurance.

Income Tax (Benefit) Expense

The Company recorded an income tax benefit for the six months ended June 30, 2016 of $2.4 million compared to an income tax expense of $5.3 million for the same period in 2015. The tax benefit in 2016 resulted from changes in the deferred tax valuation allowance recorded at the Company's subsidiaries located in United States taxable jurisdictions.

Net Income

The Company generated net income of $212.3 million for the six months ended June 30, 2016 compared to net income of $192.7 million in the same period of 2015. The increase in net income was primarily due to increased net premiums earned and increased net foreign exchange gains, partially offset by increased net losses and loss expenses, acquisition expenses, general and administrative expenses, lower net investment income, higher amortization expense and higher impairment losses.

Net Income Attributable to Non-controlling Interests

The Company's net income attributable to non-controlling interest was $12.8 million in the six months ended June 30, 2016 compared to Nil in the same period of 2015. At June 30, 2016, the Company owned 33.3% of BCRH's common shares and 25.2% of BCGR's ordinary shares. Net income attributable to non-controlling interests relates to the share of the Company's net income attributable to the BCRH common shares and BCGR ordinary shares that are not owned by the Company.

Reserve for Losses and Loss Expenses

As of June 30, 2016, the Company had accrued losses and loss expense reserves of $4.7 billion (December 31, 2015 - $4.5 billion). This amount represents management's best estimate of the ultimate liability for payment of losses and loss expenses related to loss events. During the six months ended June 30, 2016 and 2015, the Company's net paid losses and loss expenses were $594.4 million and $527.2 million, respectively.

As more fully described under "Reserving Process" in the Company's Management's Discussion and Analysis of Financial Condition and Results of Operations in the 2015 Form 10-K, the Company incorporates a variety of actuarial methods and judgments in its reserving process. Two key inputs in the various actuarial methods employed by the Company are initial expected loss ratios and expected loss reporting patterns. These key inputs impact the potential variability in the estimate of the reserve for losses and loss expenses and are applicable to each of the Company's business segments. The Company's loss and loss expense reserves consider and reflect, in part, deviations resulting from differences between expected loss and actual loss reporting as well as judgments relating to the weights applied to the reserve levels indicated by the actuarial methods.

53

Expected loss reporting patterns are based upon internal and external historical data and assumptions regarding claims reporting trends over a period of time that extends beyond the Company's own operating history.

Differences between actual reported losses and expected losses are anticipated to occur in any individual period and such deviations may influence future initial expected loss ratios and/or expected loss reporting patterns as the recent actual experience becomes part of the historical data utilized as part of the ongoing reserve estimation process. The Company has demonstrated the impact of changes in the speed of the loss reporting patterns, as well as changes in the expected loss ratios, within the tables under the heading "Potential Variability in Reserves for Losses and Loss Expenses" in the Company's Management's Discussion and Analysis of Financial Condition and Results of Operations in the 2015 Form 10-K.

Losses and loss expenses for the three and six months ended June 30, 2016 are summarized as follows:

	Incurred related to:
Three Months Ended June 30, 2016	Current year		Prior years			Total incurred losses
	(U.S. dollars in thousands)
Insurance:
Agriculture	$	65,122	$	(1,292	)	$	63,830
Casualty and other specialty	49,572		(15,045		)	34,527
Professional lines	26,760		357			27,117
Property, marine/energy and aviation	56,621		(8,237		)	48,384
Total Insurance	198,075		(24,217		)	173,858
Reinsurance:
Catastrophe	73,236		(7,344		)	65,892
Property	47,020		(414		)	46,606
Casualty	37,079		(6,163		)	30,916
Professional lines	32,621		(12,333		)	20,288
Specialty	46,716		(8,164		)	38,552
Total Reinsurance	236,672		(34,418		)	202,254
Totals	$	434,747	$	(58,635	)	$	376,112

	Incurred related to:
Six Months Ended June 30, 2016	Current year		Prior years			Total incurred losses
	(U.S. dollars in thousands)
Insurance:
Agriculture	$	96,438	$	(14,557	)	$	81,881
Casualty and other specialty	94,896		(22,183		)	72,713
Professional lines	52,224		170			52,394
Property, marine/energy and aviation	105,496		(10,823		)	94,673
Total Insurance	349,054		(47,393		)	301,661
Reinsurance:
Catastrophe	79,109		(22,809		)	56,300
Property	89,872		(3,979		)	85,893
Casualty	64,547		(11,837		)	52,710
Professional lines	70,831		(15,952		)	54,879
Specialty	85,771		(17,774		)	67,997
Total Reinsurance	390,130		(72,351		)	317,779
Totals	$	739,184	$	(119,744	)	$	619,440

Losses and loss expenses for the three and six months ended June 30, 2016 included $58.6 million and $119.7 million in favorable development of reserves relating to prior accident years, respectively. The favorable loss reserve development experienced during the three and six months ended June 30, 2016 benefited the Company's reported net loss ratios by approximately 9.8 and 10.4 percentage points, respectively. This net reduction in estimated losses for prior accident years reflects lower than expected claims emergence for the three and six months ended June 30, 2016 in the agriculture, casualty and other specialty and property, marine/energy and aviation lines of business within the Insurance segment, and all lines of business within the Reinsurance segment.

54

For the three and six months ended June 30, 2016, the Company did not materially alter the key inputs utilized to establish reserve for losses and loss expenses (initial expected loss ratios and loss reporting patterns) related to prior years for the insurance and reinsurance segments as the variances in reported losses for those segments were within the range of possible results anticipated by the Company.

Losses and loss expenses for the three and six months ended June 30, 2015 are summarized as follows:

	Incurred related to:
Three Months Ended June 30, 2015	Current year		Prior years			Total incurred losses
	(U.S. dollars in thousands)
Insurance:
Agriculture	$	87,131	$	(1,547	)	$	85,584
Casualty and other specialty	32,482		(16,663		)	15,819
Professional lines	17,611		(119		)	17,492
Property, marine/energy and aviation	26,834		(246		)	26,588
Total Insurance	164,058		(18,575		)	145,483
Reinsurance:
Catastrophe	16,434		(13,385		)	3,049
Property	31,903		(579		)	31,324
Casualty	24,504		(12,739		)	11,765
Professional lines	30,100		(6,212		)	23,888
Specialty	30,959		(7,346		)	23,613
Total Reinsurance	133,900		(40,261		)	93,639
Totals	$	297,958	$	(58,836	)	$	239,122

	Incurred related to:
Six Months Ended June 30, 2015	Current year		Prior years			Total incurred losses
	(U.S. dollars in thousands)
Insurance:
Agriculture	$	121,696	$	(1,155	)	$	120,541
Casualty and other specialty	59,885		(35,373		)	24,512
Professional lines	34,976		(239		)	34,737
Property, marine/energy and aviation	42,709		(2,504		)	40,205
Total Insurance	259,266		(39,271		)	219,995
Reinsurance:
Catastrophe	27,701		(15,621		)	12,080
Property	69,651		(9,016		)	60,635
Casualty	53,819		(19,166		)	34,653
Professional lines	56,888		(17,335		)	39,553
Specialty	59,727		(15,585		)	44,142
Total Reinsurance	267,786		(76,723		)	191,063
Totals	$	527,052	$	(115,994	)	$	411,058

Losses and loss expenses for the three and six months ended June 30, 2015 included $58.8 million and $116.0 million in favorable development of reserves relating to prior accident years, respectively. The favorable loss reserve development experienced during the three and six months ended June 30, 2015 benefited the Company's reported net loss ratio by approximately 12.8 and 13.7 percentage points, respectively. This net reduction in estimated losses for prior accident years reflects lower than expected claims emergence for the three and six months ended June 30, 2015 in all lines of business within the Insurance and Reinsurance segments.

For the three and six months ended June 30, 2015, the Company did not materially alter the two key inputs utilized to establish its reserve for losses and loss expenses (initial expected loss ratios and loss reporting patterns) for business related to prior years for the insurance and reinsurance segments as the variances in reported losses for those segments were within the range of possible results anticipated by the Company.

55

Insurance

Agriculture. For the three and six months ended June 30, 2016, the Company recorded favorable loss emergence due to lower than anticipated multi-peril crop insurance claims settlements for the 2015 crop year. For the three and six months ended June 30, 2015, the Company recorded modest favorable loss emergence due to lower than anticipated crop hail insurance claims settlements for the 2014 crop year.

Casualty and other specialty. For the three and six months ended June 30, 2016, the Company recorded favorable loss emergence within this line of business primarily due to lower than expected claims activity, particularly within the Bermuda healthcare and excess casualty businesses, which was partially offset by unfavorable development on the Company's U.S. based small commercial casualty business. For the three and six months ended June 30, 2015, the Company recorded favorable loss emergence within this line of business primarily due to lower than expected claims activity, particularly within the Bermuda excess casualty business.

Professional lines. For the three and six months ended June 30, 2016 and 2015, the Company's professional lines insurance booked ultimate losses for prior years were relatively stable.

Property, marine/energy and aviation. For the three and six months ended June 30, 2016, the favorable loss emergence within the property, marine/energy and aviation line of business was primarily due to lower than expected reported claims emergence within the property line of business, particularly for business written in the Company's Lloyd's operation. For the three and six months ended June 30, 2015, the favorable loss emergence within the property, marine/energy and aviation line of business was primarily due to lower than expected claims activity.

Reinsurance

Catastrophe. For the three and six months ended June 30, 2016 and 2015, the Company recorded favorable loss emergence within this line of business primarily due to lower than expected claims activity.

Property. For the three and six months ended June 30, 2016 and 2015, the Company recorded modest favorable loss emergence in the property line of business primarily due to lower than expected claims activity within the property treaty business, as lower than expected claims activity in the U.S. offset greater than expected claims activity in Europe.

Casualty. For the three and six months ended June 30, 2016 and 2015, the Company recorded favorable loss emergence within this line of business primarily due to lower than expected claims activity.

Professional lines. For the three and six months ended June 30, 2016 and 2015, the Company recorded favorable loss emergence within this line of business primarily due to lower than expected directors and officers liability claims emergence in prior accident years.

Specialty. For the three and six months ended June 30, 2016, the Company recorded favorable loss emergence within this line of business primarily due to lower than expected claims activity within the marine, aerospace and political risk businesses. For the three and six months ended June 30, 2015, the Company recorded favorable loss emergence within this line of business primarily due to lower than expected claims activity in the Company's aerospace business.

56

The total reserves for losses and loss expenses recorded on the Company's balance sheet were comprised of the following at June 30, 2016:

	Case Reserves		IBNR Reserves		Reserve for losses and loss expenses
	(U.S. dollars in thousands)
Insurance:
Agriculture	$	187,249	$	115,043	$	302,292
Casualty and other specialty	279,262		1,051,196		1,330,458
Professional lines	139,615		498,430		638,045
Property, marine/energy and aviation	245,045		126,754		371,799
Total Insurance	851,171		1,791,423		2,642,594
Reinsurance:
Catastrophe	142,088		94,568		236,656
Property	244,972		103,264		348,236
Casualty	240,143		512,548		752,691
Professional lines	76,359		312,237		388,596
Specialty	144,471		214,753		359,224
Total Reinsurance	848,033		1,237,370		2,085,403
Totals	$	1,699,204	$	3,028,793	$	4,727,997

The total reserves for losses and loss expenses recorded on the Company's balance sheet were comprised of the following at December 31, 2015:

	Case Reserves		IBNR Reserves		Reserve for losses and loss expenses
	(U.S. dollars in thousands)
Insurance:
Agriculture	$	226,753	$	57,799	$	284,552
Casualty and other specialty	271,234		1,020,193		1,291,427
Professional lines	116,920		464,638		581,558
Property, marine/energy and aviation	226,894		122,930		349,824
Total Insurance	841,801		1,665,560		2,507,361
Reinsurance:
Catastrophe	109,374		89,734		199,108
Property	229,283		112,026		341,309
Casualty	244,445		529,786		774,231
Professional lines	70,301		285,692		355,993
Specialty	142,217		190,196		332,413
Total Reinsurance	795,620		1,207,434		2,003,054
Totals	$	1,637,421	$	2,872,994	$	4,510,415

Underwriting Results by Business Segments

The determination of the Company's business segments is based on the manner in which management monitors the performance of the Company's underwriting operations. As a result, we report two business segments – Insurance and Reinsurance.

Management measures the Company's results on the basis of the combined ratio, which is obtained by dividing the sum of the losses and loss expenses, acquisition expenses and general and administrative expenses by net premiums earned. The Company's historic combined ratios may not be indicative of future underwriting performance. When purchased within a single line of business, ceded reinsurance and recoveries are accounted for within that line of business. When purchased across multiple lines of business, ceded reinsurance and recoveries are allocated to the lines of business in proportion to the related risks assumed. The Company does not manage its assets by business segment; accordingly, investment income and total assets are not allocated to the individual business segments. General and administrative expenses incurred by the business segments are allocated directly. Remaining general and administrative expenses not incurred by the business segments are classified as corporate expenses and are not allocated to the individual business segments. Ceded reinsurance and recoveries are recorded within the business segment to which they apply.

57

Insurance

The following table summarizes the underwriting results and associated ratios for the Company's Insurance segment for the three and six months ended June 30, 2016 and 2015.

	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
	(U.S. dollars in thousands, except for ratios)
Revenues
Gross premiums written	$	593,706		$	468,866		$	1,428,823		$	1,205,084
Ceded premiums written	(354,104		)	(278,567		)	(818,277		)	(710,746		)
Net premiums written	239,602			190,299			610,546			494,338
Net premiums earned	253,784			201,460			473,353			337,324
Expenses
Losses and loss expenses	173,858			145,483			301,661			219,995
Acquisition expenses	32,868			17,702			63,226			33,585
General and administrative expenses	29,825			28,567			68,254			57,409
	236,551			191,752			433,141			310,989
Underwriting income	$	17,233		$	9,708		$	40,212		$	26,335
Net loss ratio	68.4		%	72.2		%	63.7		%	65.2		%
Acquisition expense ratio	13.0		%	8.8		%	13.4		%	10.0		%
General and administrative expense ratio	11.8		%	14.2		%	14.4		%	17.0		%
Combined ratio	93.2		%	95.2		%	91.5		%	92.2		%

Premiums. Gross premiums written for the three and six months ended June 30, 2016 in the Insurance segment increased by 26.6% and 18.6% over the same period in 2015. Gross and net premiums written for each line of business in the Insurance segment were as follows:

	Three Months Ended June 30,
	2016					2015
	Gross Premiums Written		Net  Premiums Written			Gross Premiums Written		Net  Premiums Written
	(U.S. dollars in thousands)
Agriculture	$	66,922	$	(2,962	)	$	112,012	$	22,677
Casualty and other specialty	178,081		77,965			146,056		65,302
Professional lines	122,679		51,204			96,736		43,443
Property, marine/energy and aviation	226,024		113,395			114,062		58,877
Total	$	593,706	$	239,602		$	468,866	$	190,299

	Six Months Ended June 30,
	2016				2015
	Gross Premiums Written		Net Premiums Written		Gross Premiums Written		Net Premiums Written
	(U.S. dollars in thousands)
Agriculture	$	563,138	$	205,665	$	628,928	$	225,137
Casualty and other specialty	316,336		141,462		246,738		110,360
Professional lines	200,094		94,538		151,496		67,674
Property, marine/energy and aviation	349,255		168,881		177,922		91,167
Total	$	1,428,823	$	610,546	$	1,205,084	$	494,338

The movements in the gross premiums written in the Insurance segment for the three and six months ended June 30, 2016 compared to the same periods in 2015 were primarily due to the following factors:

• An increase in gross premiums written in the property, marine/energy and aviation and professional lines of business due primarily to business generated by new underwriting teams added over the last twelve months in the U.S. and the U.K. and new business resulting from the acquisition of Montpelier;

58

• An increase in gross premiums written in the casualty and other specialty line of business, including excess casualty and primary casualty coverages, due to the expansion of the Company's Insurance segment underwriting personnel over the past three years and new business resulting from the acquisition of Montpelier; and

• A decline in gross premiums written in the agriculture line of business due to lower commodity prices.

Ceded premiums written increased during the three and six months ended June 30, 2016 as compared to the same period in 2015. Increased gross premiums written resulted in increased ceded premiums under the whole account quota share treaty covering the entire Insurance segment's business, combined with additional purchases of facultative and excess of loss reinsurance in the property, marine/energy and aviation line of business. In the agriculture line of business, quota share and excess of loss coverage was recorded in the second quarter of 2016 while similar coverages were recorded in the first quarter of 2015.

Net premiums earned by the Company in the Insurance segment increased in the three and six months ended June 30, 2016 compared to the same periods in 2015. The increase was a result of growth in gross premiums written partially offset by increased ceded premiums across the segment.

Losses and Loss Expenses. The net loss ratios in the Company's Insurance segment decreased by 3.8 and 1.5 percentage points for the three and six months ended June 30, 2016, respectively, compared to the same periods in 2015. The decrease in the net loss ratios for the three and six months ended June 30, 2016 was primarily due to a decrease in the current year accident loss ratio within the agriculture line of business due to improved crop results in the current periods. The net loss ratios for the property, marine/energy and aviation line of business decreased in the current periods as the same period in 2015 included two large energy losses, which impacted the net loss ratios in the three and six months ended June 30, 2015.

During the three and six months ended June 30, 2016, the Company's previously estimated losses and loss expense reserve for the Insurance segment for prior accident years was reduced by $24.2 million and $47.4 million, respectively, which decreased the net loss ratio by 9.5 and 10.0 percentage points, respectively, as compared to a reduction of $18.6 million and $39.3 million, respectively, that decreased the net loss ratios by 9.2 and 11.6 percentage points, respectively, for the three and six months ended June 30, 2015. Higher levels of favorable loss development in the three and six months ended June 30, 2016 compared to 2015 was experienced mainly in the agriculture line of business, with the property, marine/energy and aviation line of business experiencing lower favorable loss development.

Acquisition Expenses. The acquisition expense ratios in the Insurance segment in the three and six months ended June 30, 2016 increased compared to the same periods in 2015 primarily due to growth in net earned premiums in the property, marine/energy and aviation, casualty and other specialty and professional lines of business, which incur a higher than average net acquisition expense rate, and a decline in the proportion of net earned premiums attributable to the agriculture line of business, which incurs a lower than average net acquisition expense rate.

General and Administrative Expenses. The decrease in the general and administrative expense ratios in the Insurance segment in the three and six months ended June 30, 2016 compared to the same periods in 2015 was due to increased net earned premiums for the current periods. General and administrative expenses increased for the current quarter and six months ended June 30, 2016 compared to the same periods in 2015 due to an increase in personnel costs associated with the addition of new underwriting teams and additional employees from the Company's acquisition of Montpelier over the past year, partially offset by increased ceding commission reimbursements as a result of additional purchases of reinsurance.

59

Reinsurance

The following table summarizes the underwriting results and associated ratios for the Company's Reinsurance business segment for the three and six months ended June 30, 2016 and 2015.

	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015
	(U.S. dollars in thousands, except for ratios)
Revenues
Gross premiums written	$	543,224		$	392,318		$	1,319,784		$	957,532
Ceded premiums written	(65,058		)	(23,534		)	(273,720		)	(127,833		)
Net premiums written	478,166			368,784			1,046,064			829,699
Net premiums earned	345,824			256,675			679,446			510,670
Other underwriting income (loss)	930			1,389			(1,514		)	3,795
	346,754			258,064			677,932			514,465
Expenses
Losses and loss expenses	202,254			93,639			317,779			191,063
Acquisition expenses	79,093			67,269			152,577			133,479
General and administrative expenses	25,254			26,398			59,050			52,446
	306,601			187,306			529,406			376,988
Underwriting income	$	40,153		$	70,758		$	148,526		$	137,477
Net loss ratio	58.5		%	36.5		%	46.7		%	37.4		%
Acquisition expense ratio	22.9		%	26.2		%	22.5		%	26.1		%
General and administrative expense ratio	7.3		%	10.3		%	8.7		%	10.3		%
Combined ratio	88.7		%	73.0		%	77.9		%	73.8		%

Premiums. In the three and six months ended June 30, 2016, net premiums written in the Reinsurance segment increased by 29.7% and 26.1% over the same periods in 2015. Gross and net premiums written for each line of business in the Reinsurance segment for the three and six months ended June 30, 2016 and 2015 were as follows:

	Three Months Ended June 30,
	2016				2015
	Gross Premiums Written		Net Premiums Written		Gross Premiums Written		Net Premiums Written
	(U.S. dollars in thousands)
Catastrophe	$	236,995	$	197,681	$	139,833	$	122,305
Property	30,646		31,304		30,560		30,118
Casualty	82,263		80,921		48,132		48,132
Professional lines	135,638		135,031		134,241		134,241
Specialty	57,682		33,229		39,552		33,988
Total	$	543,224	$	478,166	$	392,318	$	368,784

	Six Months Ended June 30,
	2016				2015
	Gross Premiums Written		Net Premiums Written		Gross Premiums Written		Net Premiums Written
	(U.S. dollars in thousands)
Catastrophe	$	437,825	$	286,549	$	264,240	$	175,765
Property	187,112		181,360		156,260		153,567
Casualty	180,983		179,640		106,230		106,230
Professional lines	184,187		183,251		178,098		178,098
Specialty	329,677		215,264		252,704		216,039
Total	$	1,319,784	$	1,046,064	$	957,532	$	829,699

60

The movements in gross premiums written in the Reinsurance segment for the three and six months ended June 30, 2016 compared to the same periods in 2015 were primarily due to the following factors:

• An increase in gross premiums written in the catastrophe and property lines of business due to new business resulting from the acquisition of Montpelier, partially offset by non-renewal of policies that no longer met profitability targets and declines in rates;

• An increase in gross premiums written in the specialty line of business due to new business written and increased renewals, partially offset by a decrease in surety business written; and

• An increase in gross premiums written in the casualty line of business due to new business written in the U.S. and the U.K. and new business resulting from the acquisition of Montpelier, partially offset by non-renewal of policies that no longer met profitability targets.

        Ceded premiums written increased in the three and six months ended June 30, 2016 as compared to the same periods in 2015. Ceded premiums written increased due to increased purchases of quota share and aggregate excess of loss retrocessional protection within the catastrophe line of business, and additional quota share and excess of loss coverage purchased on the specialty line of business during the current periods.

Net premiums earned by the Company in the Reinsurance segment for the three and six months ended June 30, 2016 increased compared to net premiums earned during the same periods in 2015 due to the increase in gross premiums written and the earning of premiums acquired, partially offset by increased ceded premiums.

Other Underwriting Income (Loss). Other underwriting income (loss) decreased for the three and six months ended June 30, 2016. The decrease in other underwriting income (loss) for the three and six months was primarily due to decreased income from the Company's weather derivative products for the periods and the cost of the adverse loss development cover.

Losses and Loss Expenses. The net loss ratios in the Company's Reinsurance segment for the three and six months ended June 30, 2016 increased compared to the same periods in 2015. The increase in the net loss ratios was primarily due to an increase in catastrophe losses.

The following tables show the net losses after adjustment for reinstatement premiums recorded by the Company in the Reinsurance segment in connection with current calendar year catastrophes for the three and six months ended June 30, 2016 and 2015.

Three Months Ended June 30, 2016					Three Months Ended June 30, 2015
Event Date	Event	Loss			Event Date	Event	Loss
(U.S. dollars in millions)
April 2016	Convective storms in the United States	$	17.9		April 2015	Windstorms in the United States	$	7.1
April 2016	Earthquake in Japan	5.5			May 2015	Windstorms in the United States	2.4
May 2016	Wildfires in Canada	41.7				Other loss events in 2015	0.1
May 2016	Convective storms in Germany	4.1
	Other loss events in 2016	1.8
Total impact on net losses and loss expenses		71.0			Total impact on net losses and loss expenses		9.6
Less: reinstatement premiums		(11.1		)	Less: reinstatement premiums		(1.0		)
Net losses after adjustment for reinstatement premiums		$	59.9		Net losses after adjustment for reinstatement premiums		$	8.6

61

Six Months Ended June 30, 2016					Six Months Ended June 30, 2015
Event Date	Event	Loss			Event Date	Event	Loss
(U.S. dollars in millions)
February 2016	Earthquake in Taiwan	$	6.3		February 2015	Winter storm in the United States	$	3.0
April 2016	Convective storms in the United States	17.9			April 2015	Windstorms in the United States	7.1
April 2016	Earthquake in Japan	5.5			May 2015	Windstorms in the United States	2.4
May 2016	Wildfires in Canada	41.7
May 2016	Convective storms in Germany	4.1
Total impact on net losses and loss expenses		75.5			Total impact on net losses and loss expenses		12.5
Less: reinstatement premiums		(11.2		)	Less: reinstatement premiums		(1.2		)
Net losses after adjustment for reinstatement premiums		$	64.3		Net losses after adjustment for reinstatement premiums		$	11.3

The net losses from catastrophes added 19.2 and 10.4 percentage points to the Reinsurance segment's net loss ratios for the three and six months ended June 30, 2016, respectively. The net losses from catastrophes added 3.6 and 2.4 percentage points, respectively, to the Reinsurance segment's net loss ratios for the three and six months ended June 30, 2015.

The Company recorded $34.4 million and $72.4 million of favorable prior year loss reserve development in the three and six months ended June 30, 2016, respectively, which benefited the net loss ratios by 10.0 and 10.6 percentage points, respectively, compared to $40.3 million and $76.7 million in the three and six months ended June 30, 2015, respectively, which benefited the net loss ratios by 15.7 and 15.0 percentage points, respectively. Favorable reserve development in the three and six months ended June 30, 2016 was lower than the same periods in 2015 primarily in the casualty line of business.

Acquisition Expenses. The Company's acquisition expense ratios in the Reinsurance segment for the three and six months ended June 30, 2016 were lower than in the same periods in 2015 primarily due to the addition of earned premiums from the Company's acquisition of Montpelier, which had no associated acquisition costs.

General and Administrative Expenses. The general and administrative expense ratios in the Reinsurance segment for the three and six months ended June 30, 2016 decreased compared to the same periods in 2015 due to increased net earned premiums for the quarter. General and administrative expenses were consistent for the three months ended June 30, 2016 compared to the same period in 2015, and increased for the six months ended June 30, 2016 compared to the same period in 2015 due to the addition of new underwriting teams and additional employees from the Company's acquisition of Montpelier.

Liquidity and Capital Resources

Endurance Holdings is a holding company that does not have any significant operations or assets other than its ownership of the shares of its direct and indirect subsidiaries. Endurance Holdings relies primarily on dividends and other permitted distributions from its subsidiaries to pay its operating expenses, interest on debt and dividends, if any, on its ordinary shares, and its 6.35% Non-Cumulative Preferred Shares, Series C ("Series C Preferred Shares"). There are restrictions on the payment of dividends by the Company's operating subsidiaries to Endurance Holdings, which are described in more detail below.

Ability of Subsidiaries to Pay Dividends. The ability of Endurance Bermuda to pay dividends is dependent on its ability to meet the requirements of applicable Bermuda law and regulations. Under Bermuda law, Endurance Bermuda may not declare or pay a dividend if there are reasonable grounds for believing that Endurance Bermuda is, or would after the payment be, unable to pay its liabilities as they become due, or the realizable value of Endurance Bermuda's assets would thereby be less than the aggregate of its liabilities and its issued share capital and share premium accounts. Further, Endurance Bermuda, as a regulated insurance company in Bermuda, is subject to additional regulatory restrictions on the payment of dividends or distributions. As of June 30, 2016, Endurance Bermuda could pay a dividend or return additional paid-in capital totaling approximately $758.6 million (December 31, 2015 – $1,034.4 million) without prior regulatory approval based upon the Bermuda insurance and corporate regulations. In addition, in 2011, Endurance Holdings loaned Endurance Bermuda $200.0 million, which remains outstanding and is callable on demand.

Each of the Company's U.S. operating subsidiaries, except American Agri-Business Insurance Company ("American Agri-Business") is subject to regulation by the State of Delaware Department of Insurance. American Agri-Business is subject to regulation by the Texas Department of Insurance. Dividends for each U.S. operating subsidiary are limited to the greater of 10% of policyholders' surplus or statutory net income, excluding realized capital gains. In addition, dividends may only be declared or distributed out of earned surplus. At December 31, 2015, none of the Company's U.S. operating subsidiaries, except American Agri-Business, had earned surplus; therefore, these companies are precluded from

62

declaring or distributing dividends at June 30, 2016 without the prior approval of the applicable insurance regulator. At June 30, 2016, American Agri-Business could pay dividends of $3.5 million with notice to the Texas Department of Insurance. In addition, any dividends paid by Endurance American, Endurance American Specialty and Endurance Risk Solutions would be subject to the dividend limitation of their respective parent insurance companies.

Under the jurisdiction of the United Kingdom's Prudential Regulation Authority ("PRA") and the Financial Conduct Authority ("FCA"), Endurance Worldwide Insurance Limited ("Endurance U.K.") must maintain a margin of solvency at all times, which is determined based on the type and amount of insurance business written. The PRA regulatory requirements impose no explicit restrictions on Endurance U.K.'s ability to pay a dividend, but Endurance U.K. would have to notify the PRA 28 days prior to any proposed dividend payment. Dividends may only be distributed from profits available for distributions. At June 30, 2016, Endurance U.K. did not have retained profits available for distributions.

Endurance Corporate Capital Limited, Syndicate 5151 and Endurance at Lloyd's Limited ("Endurance at Lloyd's") are subject to oversight by the Council of Lloyd's. Endurance at Lloyd's is also subject to regulation by the PRA and the FCA. Underwriting capacity of a member of Lloyd's must be supported by providing a deposit in the form of cash, securities or letters of credit, which are referred to as Funds at Lloyd's ("FAL"). This amount is determined by Lloyd's and is based on Syndicate 5151's solvency and capital requirement as calculated through its internal model. In addition, if the FAL are not sufficient to cover all losses, the Lloyd's Central Fund provides an additional level of security for policyholders. At June 30, 2016, the FAL requirement set by Lloyd's for Syndicate 5151 was $230.2 million (December 31, 2015 - $215.2 million) based on its business plan, approved in December 2015. Actual FAL posted for Syndicate 5151 at June 30, 2016 was $280.6 million (December 31, 2015 - $276.8 million). At June 30, 2016, Endurance Corporate Capital Limited did not have assets available for distribution.

Cash and Invested Assets. The Company's aggregate invested assets, including fixed maturity investments, short-term investments, equity securities, other investments, cash and cash equivalents and pending securities transactions, as of June 30, 2016 totaled $8.6 billion compared to aggregate invested assets of $8.9 billion as of December 31, 2015.

At June 30, 2016, the Company's available for sale investments had gross unrealized gains of $98.4 million and gross unrealized losses of $16.9 million compared to gross unrealized gains of $40.8 million and gross unrealized losses of $72.6 million at December 31, 2015. The decrease in gross unrealized losses on the Company's available for sale investments at June 30, 2016 compared to December 31, 2015 was primarily due to a decrease in interest rates. The Company did not have the intent to sell any of its fixed income investments in an unrealized loss position and determined that it was unlikely that the Company would be required to sell securities in an unrealized loss position at June 30, 2016. At June 30, 2016, the Company impaired certain equity securities that were in an unrealized loss position for more than twelve consecutive months and therefore recognized in earnings total other-than-temporary impairments of $9.8 million and $10.5 million for the three and six months ended June 30, 2016.

The Company's aggregate direct exposure to the indebtedness and equity securities of those countries whose currency is the Euro or whose sovereign debt rating is below AAA (except the U.S.) was $857.7 million at June 30, 2016, compared to $820.1 million at December 31, 2015.

Cash Flows

	Six Months Ended June 30,
	2016			2015
	(U.S. dollars in thousands)
Net cash flows provided by operating activities	$	34,517		$	23,489
Net cash flows provided by (used in) investing activities	208,136			(86,994		)
Net cash flows used in financing activities	(331,809		)	(52,901		)
Effect of exchange rate changes on cash and cash equivalents	4,383			(6,424		)
Net decrease in cash and cash equivalents	(84,773		)	(122,830		)
Cash and cash equivalents, beginning of period	1,177,750			745,472
Cash and cash equivalents, end of period	$	1,092,977		$	622,642

Cash flows provided by operating activities in the six months ended June 30, 2016 improved compared to the same period in 2015 as growth in cash inflows from premium collections and lower levels of gross loss payments were partially offset by lower ceded loss collections.

Investing activity cash flows reflect the Company's active management of its investment portfolio to generate attractive economic returns and income. Movements in financial markets and interest rates influence the timing of investment sales and purchases. The increase in cash flows provided by (used in) investing activities in 2016 principally reflected the increased investment asset base due to the acquisition of Montpelier.

63

The cash flows used in financing activities in the six months ended June 30, 2016 were higher than in the same period in 2015 as a result of the repayment of the Series B preferred shares, higher dividends paid and debt repayments and increased net distributions to non-controlling interest.

Foreign exchange rate changes had a positive impact on the cash balances of the Company in the six months ended June 30, 2016 as the British Sterling weakened against most key currencies in the period resulting in an increase in the reported value of holdings in those currencies in the accounts of the Company's U.K. subsidiary. Additionally, the Japanese Yen strengthened significantly in the period resulting in the upward revaluation of Yen holdings across the Company's subsidiaries. Foreign exchange rate changes in the six months ended June 30, 2015 had a negative impact on the cash balances of the Company as the U.S. dollar strengthened against most key currencies in the period resulting in a decline in the reported value of holdings in those currencies.

As of June 30, 2016 and December 31, 2015, the Company had pledged cash and cash equivalents and fixed maturity investments of $114.5 million and $108.9 million, respectively, in favor of certain ceding companies to collateralize obligations. As of June 30, 2016 and December 31, 2015, the Company had also pledged $327.6 million and $383.3 million of its cash and fixed maturity investments to meet collateral obligations for $283.8 million and $341.6 million, respectively, in letters of credit outstanding under its Credit Facility (as defined below) and LOC Agreements (as defined below). In addition, at June 30, 2016 and December 31, 2015, cash and fixed maturity investments with fair values of $211.4 million and $208.3 million were on deposit with U.S. state regulators, respectively.

Credit Facilities. On March 23, 2016, the Company and certain designated subsidiaries of the Company entered into a $450.0 million five-year letter of credit facility with JPMorgan Chase Bank, N.A. ("JPMorgan") as administrative agent ("Credit Facility"). Upon entering into the Credit Facility, the Company terminated its existing $700.0 million credit agreement, dated April 19, 2012, with JPMorgan as administrative agent. As of June 30, 2016, there were letters of credit outstanding under the Credit Facility of $272.9 million (December 31, 2015 – $329.9 million). The Credit Facility does not provide for revolving or term loans.

The Credit Facility is collateralized on a several basis by each entity incurring such obligation by cash and securities deposited into collateral accounts from time to time with Deutsche Bank Trust Company Americas as collateral agent. So long as the Company is not in default under the terms of the Credit Facility, the Company may request that the size of the Credit Facility be increased by $100.0 million, but no participating lender is obligated to increase its commitments under the Credit Facility.

The Company is required to pay a fee of 0.40% per annum on the daily stated amount of outstanding letters of credit issued under the Credit Facility. In addition, the Credit Facility requires the Company to pay to the lenders a commitment fee in the amount of 0.125% per annum on the average daily amount of the unused commitments of the lenders. The Credit Facility permits a lender, if requested and in its discretion, to issue a letter of credit pursuant to which it fronts for the other lenders. For such letters of credit, such fronting lenders may receive certain fronting fees from the Company.

The Credit Facility requires the Company's compliance with certain customary restrictive covenants, including a financial covenant that the Company maintain a leverage ratio of no greater than 0.35:1.00 at any time. In addition, each of the Company's regulated insurance subsidiaries that has a claims paying rating from A.M. Best must maintain a rating of at least B++ at all times.

The Credit Facility also contains customary event of default provisions, including failure to pay any unpaid drawing under a letter of credit under the Credit Facility or interest thereon and failure to pay any fee under the Credit Facility, insolvency events of the Company or any of its subsidiaries (other than certain immaterial subsidiaries), a change in control of the Company, a breach of the representations or covenants in the Credit Facility or the security documents relating thereto and certain defaults by the Company or its subsidiaries under other indebtedness. In the case of an event of default that occurs as a result of an insolvency event of the Company or one of its designated subsidiary borrowers, the commitments of the lenders will automatically terminate and the repayment of outstanding obligations will be automatically accelerated. Upon the occurrence of any other event of default under the Credit Facility, the lenders can terminate their commitments under the Credit Facility, require repayment of any outstanding obligations under the Credit Facility, give notice of non-extension of any outstanding letters of credit in accordance with their terms, require the delivery of cash collateral for outstanding letters of credit and foreclose on any collateral held by the lenders (or any agent on their behalf) under the Credit Facility.

The Company is party to certain uncommitted letter of credit reimbursement agreements ("LOC Agreements") that allow for the issuance of letters of credit in a variety of currencies, including U.S. dollars. The fees paid under the LOC Agreements depend on the amount of the outstanding letters of credit and vary from 0.30% to 0.45% on the principal amount of letters of credit outstanding to a fee negotiated at the time of issuance of the individual letters of credit. The total amount of letters of credit outstanding under the LOC Agreements as of June 30, 2016 was $10.9 million (December 31, 2015 - $11.7 million).

64

BCRH Credit Agreement. Upon closing of the acquisition of Montpelier on July 31, 2015, the Company became a guarantor of the BCRH 364-day unsecured credit agreement (the "BCRH Credit Agreement"), which permitted BCRH to borrow up to $20.0 million on a revolving basis for working capital and general corporate purposes. The Company was entitled to receive an annual guarantee fee from BCRH equal to 0.125% of the facility's total capacity. The BCRH Credit Agreement and the related guarantee of the Company expired on April 29, 2016.

As of June 30, 2016, BCRH had no outstanding borrowings under the BCRH Credit Agreement (December 31, 2015 - $13.0 million). With respect to BCRH's outstanding borrowings at December 31, 2015, $4.0 million was repaid on February 2, 2016 and was subject to an annual interest rate of 1.33%, $5.0 million was repaid on February 22, 2016 and was subject to an annual interest rate of 1.48%, and $4.0 million was repaid on March 11, 2016 and was subject to an annual interest rate of 1.51%.

On May 6, 2016, the Company entered into a credit facility agreement with BCRH (the "BCRH Credit Facility"). The BCRH Credit Facility provides BCRH with an unsecured $20.0 million revolving credit facility for working capital and general corporate purposes and expires on September 30, 2018. Borrowings under the BCRH Credit Facility bears interest, set at the time of the borrowing, at a rate equal to the applicable LIBOR rate plus 150 basis points.  The BCRH Credit Facility contains covenants that limit BCRH's ability, among other things, to grant liens on its assets, sell assets, merge or consolidate, or incur debt. If BCRH fails to comply with any these covenants, the Company could revoke the BCRH Credit Facility and exercise remedies against BCRH. In addition, in the event of a default in the performance of any of the agreements or covenants under certain management agreements with BCML by BCRH, the Company has the right to terminate the BCRH Credit Facility.

BCGR Credit Agreement. Upon closing of the acquisition of Montpelier on July 31, 2015, the Company became a guarantor of BCGR 364-day unsecured credit agreement (the "BCGR Credit Agreement"), which permits BCGR to borrow up to $20.0 million on a revolving basis for working capital and general corporate purposes. The Company is entitled to receive an annual guarantee fee from BCGR equal to 0.125% of the facility's total capacity. The BCGR Credit Agreement and the related guarantee of the Company expired on May 12, 2016.

As of June 30, 2016, BCGR had no outstanding borrowings under the BCGR Credit Agreement (December 31, 2015 - $6.0 million). With respect to BCGR's outstanding borrowing at December 31, 2015, $3.0 million was repaid on February 1, 2016 and was subject to an annual interest rate of 1.54%, and $3.0 million was repaid on February 12, 2016 and was subject to an annual interest rate of 1.51%.        

On May 6, 2016, the Company, through a wholly-owned subsidiary, entered into a credit facility agreement with BCGR (the "BCGR Credit Facility"). The BCGR Credit Facility provides BCGR with an unsecured $20.0 million revolving credit facility for working capital and general corporate purposes and expires on September 30, 2018. Borrowings under the BCGR Credit Facility bear interest, set at the time of the borrowing, at a rate equal to the applicable LIBOR rate plus 150 basis points.  The BCGR Credit Facility contains covenants that limit BCGR's ability, among other things, to grant liens on its assets, sell assets, merge or consolidate, or incur debt.  If BCGR fails to comply with any of these covenants, the Company could terminate the BCGR Credit Facility and exercise remedies against BCGR. In addition, in the event of a default in the performance of any of the agreements or covenants under certain management agreements with BCML by BCGR, the Company has the right to terminate the BCGR Credit Facility.

On June 1, 2016, Endurance redeemed all 9,200,000 shares outstanding of its 7.5% Non-Cumulative Preferred Shares, Series B (the "Series B Preferred Shares") at a redemption price of $25.00 per share plus unpaid dividends.

Historically, the operating subsidiaries of the Company have generated sufficient cash flows to meet all of their obligations. Because of the inherent volatility of the business written by the Company, the seasonality in the timing of payments by ceding companies, the irregular timing of loss payments, the impact of a change in interest rates on the Company's investment returns as well as seasonality in coupon payment dates for fixed maturity investments, cash flows from the Company's operating activities may vary significantly between periods. The Company expects to generate positive operating cash flows through 2016, absent the occurrence of additional significant loss events. In the event that paid losses accelerate beyond the ability to fund such payments from operating cash flows, the Company would use its cash balances available, liquidate a portion of its investment portfolio, or arrange for additional financing. There can be no assurance that the Company will be successful in executing these strategies.

Off-Balance Sheet Arrangements

Certain of our ongoing obligations to Selective Insurance Group, Inc. in connection with the sale of Montpelier U.S. Insurance Company and the Company's previous guarantee of BCGR's obligations under the BCGR Credit Agreement constitute off-balance sheet arrangements. Excluding these specific transactions, as of June 30, 2016, we were not party to any off-balance sheet arrangements, as defined by Item 303(a)(4) of Regulation S-K, to which an entity unconsolidated with us is a party that management believes is reasonably likely to have a current or future effect on our financial condition,

65

revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that we believe is material to investors.

Currency and Foreign Exchange

The Company's functional currencies are U.S. dollars for its U.S., Bermuda and Lloyd's operations (including Endurance at Lloyd's, Syndicate 5151 and Endurance Corporate Capital Limited from January 1, 2016 forward), and British Sterling for Endurance U.K. The reporting currency for all operations is U.S. dollars. The Company maintains a portion of its investments and liabilities in currencies other than the U.S. dollar. The Company has made a significant investment in the capitalization of Endurance U.K. and Endurance Corporate Capital Limited, which are subject to the PRA's rules concerning the matching of the currency of its assets to the currency of its liabilities. Depending on the profile of Endurance U.K.'s and Syndicate 5151's liabilities, Endurance U.K. and Endurance Corporate Capital Limited may be required to hold some of their respective assets in currencies corresponding to the currencies of its liabilities. The Company may, from time to time, experience gains or losses resulting from fluctuations in the values of foreign currencies, which could have a material adverse effect on the Company's results of operations.

Assets and liabilities of foreign operations whose functional currency is not the U.S. dollar are translated at exchange rates in effect at the balance sheet date. Revenues and expenses of such foreign operations are translated at average exchange rates during the year. The effect of the translation adjustments for foreign operations is included in accumulated other comprehensive income (loss).

Other monetary assets and liabilities denominated in foreign currencies are revalued at the exchange rates in effect at the balance sheet date with the resulting foreign exchange gains and losses included in earnings. Revenues and expenses denominated in foreign currencies are translated at the prevailing exchange rate on the transaction date.

Effects of Inflation

The effects of inflation could cause the severity of claims to rise in the future. The Company's estimates for losses and loss expenses include assumptions about future payments for settlement of claims and claims handling expenses, such as medical treatments and litigation costs. To the extent inflation causes these costs to increase above reserves established for these claims, the Company will be required to increase the reserve for losses and loss expenses with a corresponding reduction in its earnings in the period in which the deficiency is identified. In addition, inflation could lead to higher interest rates causing the current unrealized gain position on the Company's fixed income portfolio to decrease or become an unrealized loss position. In response, the Company may choose to hold its fixed income investments to maturity, which would result in the unrealized gains or losses largely amortizing through net investment income.

Item 3.     Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in market risk from the information provided under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations - Quantitative and Qualitative Information about Market Risk" included in the Company's 2015 Form 10-K.

Item 4.     Controls and Procedures

a)    Disclosure Controls and Procedures. The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.

(b)    Internal Control Over Financial Reporting. There have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the Company's second fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

66

PART II

OTHER INFORMATION

Item 1.     Legal Proceedings

We are party to various legal proceedings generally arising in the normal course of our business. While any proceeding contains an element of uncertainty, we do not believe that the eventual outcome of any litigation or arbitration proceeding to which we are presently a party could have a material adverse effect on our financial condition or business. Pursuant to our insurance and reinsurance agreements, disputes are generally required to be finally settled by arbitration.

Item 1A. Risk Factors

Before investing in any of our securities, you should carefully consider the risk factors and all other information set forth in our 2015 Annual Report on Form 10-K, as supplemented by the following risk factor and other information in this Form 10-Q. These risks could materially affect our business, results of operations or financial condition and cause the trading price of our securities to decline. You could lose all or part of your investment. The heading used in this section is solely to aid the reader as to a general category of risk related to investing in the Company. The risk factor listed may apply to more than one category or to the Company generally. Accordingly, the heading used in this section should not be construed as limiting in any manner the general applicability of any of the risk factors included in this section.

The referendum vote by the United Kingdom in favor of leaving the European Union could adversely affect our business.

The United Kingdom held a referendum on June 23, 2016, in which a majority voted for the United Kingdom's withdrawal from the European Union. As a result of this vote, negotiations are expected to commence to determine the terms of the United Kingdom's withdrawal from the European Union, as well as its relationship with the European Union going forward ("Brexit"). Brexit has caused and may continue to cause significant volatility in global stock markets and currency exchange rates, which could increase the volatility of, or reduce, the Company's investment results in particular periods or over time. Higher levels of political and market turmoil could persist until some clarity emerges around the United Kingdom's exit process from the European Union and the impact of Brexit on the economies of the other European countries. The geopolitical impacts of Brexit are unknown and may adversely affect long-term European and global economic growth and forecasts, which could adversely impact the demand for the Company's insurance and reinsurance products. Brexit could also lead to legal uncertainty and differing laws and regulations between the United Kingdom and the European Union, and could impair or adversely affect the ability of the Company's United Kingdom operating subsidiaries to transact business in the European Union. In addition, these uncertainties could affect the operations, strategic position or results of brokers, insurers or reinsurers with whom the Company does business. Any of these potential effects of Brexit, and others we cannot anticipate, could adversely affect our business, results of operations or financial condition.

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

ISSUER PURCHASES OF EQUITY SECURITIES
Period	(a) Total Number of Shares Purchased(1)	(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or  Programs(1) (2)	(d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs(1) (2)
April 1, 2016 - April 30, 2016	—	$	—	—	5,000,000
May 1, 2016 - May 31, 2016	—	$	—	—	5,000,000
June 1, 2016 - June 30, 2016	—	$	—	—	5,000,000
Total	—	$	—	—	5,000,000

(1) Ordinary shares or share equivalents.

(2) At its meeting on February 25, 2016, the Board of Directors of the Company authorized the repurchase of up to a total of 5,000,000 ordinary shares and share equivalents through February 28, 2018, superseding all previous authorizations.

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable

67

Item 5.     Other Information

None

Item 6. Exhibits

(a) The following sets forth those exhibits filed pursuant to Item 601 of Regulation S-K:

Exhibit Number	Description
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act.
32	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Balance Sheets as at June 30, 2016 (unaudited) and December 31, 2015; (ii) the Unaudited Condensed Consolidated Statements of Income and Comprehensive Income for the three and six months ended June 30, 2016 and 2015; (iii) the Unaudited Condensed Consolidated Statements of Changes in Shareholders' Equity for the six months ended June 30, 2016 and 2015; (iv) the Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015; and (v) the Notes to the Unaudited Condensed Consolidated Financial Statements.

68

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

			ENDURANCE SPECIALTY HOLDINGS LTD.
Date:	August 8, 2016	By:	/s/ John R. Charman
			John R. Charman
			Chief Executive Officer
Date:	August 8, 2016	By:	/s/ Michael J. McGuire
			Michael J. McGuire
			Chief Financial Officer (Principal Financial Officer)

69