Exhibit 99.1
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Endurance Specialty Holdings Ltd.
3rd Quarter, 2004
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Forward Looking Statements
Statements contained in this presentation that are not based on current or
historical fact are forward-looking in nature. Such forward-looking statements
are based on current plans, estimates and expectations and are made pursuant to
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
are based on known and unknown risks, assumptions, uncertainties and other
factors. The Company's actual results, performance, or achievements may differ
materially from any future results, performance, or achievements expressed or
implied by such forward-looking statements. The Company undertakes no obligation
to publicly update or revise any forward-looking statement.
[LOGO] Endurance
Overview
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[LOGO] Endurance
What We Have Achieved
o Established one of the leading insurance/reinsurance markets in the
industry in less than three years
- Bermuda-based insurance products
- Global reinsurance
- Property insurance U.K./Europe
o Management team with strong execution skills
- Understands the key drivers of financial performance
- Demonstrated ability to build profitable lines of business
- Strong transaction and capital management experience
o Delivering strong returns on equity and increases in shareholder value
- Generated a return on equity of 17% in 2003 and 26% in the first
half of 2004
- Grew book value by 17% in 2003 and 8% in the first half of 2004
- Positioned to generate 15%+ growth in book value throughout the P&C
cycle
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What We Have Achieved (cont'd)
o Exceeded all financial objectives in 2003 and in first half of 2004
FY 2003 1st Half 2004
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- Gross premiums $1.6 billion $1.1 billion
- Assets $3.5 billion $4.4 billion
- Shareholders' equity $1.6 billion $1.7 billion
- Net income $263 million $216 million
- Earnings beat estimates by 54% 45%
o Developed strong, technical, underwriting based culture
o Built strong systems, controls, and infrastructure
o Successfully executed two acquisitions
o Implemented value-enhancing capital management initiatives
o One of handful of companies to be upgraded by A.M. Best in 2003
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Proven track record of significant
shareholder value creation
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Our Value Creation Levers
o Specialist underwriting driven culture built around deep infrastructure,
intellectual capital and technical skills
- "Stock Picking versus Index Tracking"
o Portfolio approach achieves capital efficiency and lower volatility of
results
o Scaleable systems
o Proactively allocate capital by line of business to maximize return
through changing market conditions
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Focus on profit, not revenue
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Underwriting & Strategy
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[LOGO] Endurance
Underwriting Philosophy
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o Strategy
- Identify business segments with sufficient opportunities to apply
expertise
- Only underwrite those risks that are susceptible to underwriting and
actuarial analysis
- Reallocate capital as different businesses become relatively less
attractive
o Culture
- Understand the risk correlations within each segment and across
portfolio to determine required margins
- Identify risks within each segment that meet return thresholds
- Apply technical resources at the front end to evaluate and select
business
o Control
- Focus on target returns, not premiums
- Monitor underwriting decisions on a live basis
- Monitor emergence of results to corroborate assumptions
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Philosophy that is disciplined, consistent
and embraced by underwriting teams
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The Platforms and Business Lines
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- ---------------------------------- -------------------------------- --------------------------------------
Endurance Specialty Endurance Reinsurance Endurance Worldwide
Insurance Ltd. Corporation of America Insurance Limited
(Bermuda) (U.S.) (U.K.)
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Severity Driven Risks Frequency Driven Risks Non-U.S. Risks
o Property-Cat & Per Risk Treaty o Property Reinsurance o Non-North American Property Treaty
o Severity Driven Casualty Treaty o Casualty Reinsurance o European Direct Property
o Excess Casualty ---------------------------------
o Underwriters: 28 -------------------------------------
o Professional Liability / E&O o Underwriters: 21
o Actuaries and Cat modelers: 10
o Healthcare o Actuaries and Cat modelers: 4
o Total Staff: 95
o Aviation o Total Staff: 47
o North American Direct Property
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o Underwriters: 37
o Actuaries and Cat modelers: 17
o Total Staff: 121
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[THE FOLLOWING TABLE WAS REPRESENTED BY PIE CHARTS IN THE PRINTED MATERIAL]
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Risk Exposure: 1st Half 2004 GPW = $1,071M Lines of Business: 1st Half 2004 GPW = $1,071M
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Property 51% Reinsurance 77%
Casualty 40% Insurance 23%
Other Specialty 9%
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Underwriting - Summary Results
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($ in thousands) Property Property Casualty Aerospace
Per Risk Property Individual Casualty Individual and Other
Treaty Catastrophe Risk Treaty Risk Specialty Total
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1st Half 2004 Underwriting Results
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Gross Written Premiums $298,663 $192,473 $59,987 $239,846 $134,506 $145,817 $1,071,292
Net Earned Premiums $230,011 $110,179 $47,313 $195,287 $114,269 $114,754 $ 811,813
Unearned Prem. Reserves $346,002 $127,525 $63,447 $273,506 $126,408 $145,208 $1,082,096
GAAP Combined Ratio 85.0% 27.7% 59.1% 97.7% 84.2% 89.7% 79.3%
Stat. Combined Ratio 84.0% 24.5% 56.9% 94.1% 83.1% 87.1% 76.8%
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2003 Underwriting Results
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Gross Written Premiums $469,290 $183,594 $85,863 $390,265 $214,392 $258,593 $1,601,997
Net Earned Premiums $296,551 $174,158 $65,408 $284,843 $173,266 $179,721 $1,173,947
GAAP Combined Ratio 93.9% 38.5% 58.6% 97.5% 89.1% 99.5% 84.7%
Stat. Combined Ratio 91.2% 37.7% 56.7% 95.7% 87.8% 98.2% 83.5%
2002 Underwriting Results
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Gross Written Premiums $168,054 $178,120 $62,934 $203,566 $106,903 $ 79,183 $ 798,760
Net Earned Premiums $ 59,453 $114,823 $33,907 $ 84,355 $ 44,292 $ 32,659 $ 369,489
GAAP Combined Ratio 102.1% 61.7% 60.8% 106.0% 100.8% 98.8% 86.2%
Stat. Combined Ratio 92.3% 59.5% 56.3% 98.6% 92.1% 90.3% 80.8%
[LOGO] Endurance
Price Monitoring
Review of Expected Underwriting Ratios by Quarter
Direct - Property
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL]
Underwriting Ratio
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U/W Ratio - U/W Ratio -
Price Price
Monitor Monitor
Quarter of Inception [Actual] [Smoothed]
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Q1-02 53% 45%
Q2-02 48% 48%
Q3-02 51% 51%
Q4-02 58% 54%
Q1-03 64% 58%
Q2-03 70% 61%
Q3-03 67% 64%
Q4-03 73% 67%
Q1-04 75% 70%
Review of Expected Underwriting Ratios by Quarter
Direct - Excess Casualty
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL]
Underwriting Ratio
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U/W Ratio - U/W Ratio -
Price Price
Monitor Monitor
Quarter of Inception [Actual] [Smoothed]
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Q1-02 79% 88%
Q2-02 100% 84%
Q3-02 75% 81%
Q4-02 103% 78%
Q1-03 47% 75%
Q2-03 77% 72%
Q3-03 59% 69%
Q4-03 86% 66%
Q1-04 41% 63%
[LOGO] Endurance
Risk Exposures
SEC Segment & Subs. Distribution
1st Half 2004 Premiums = $1,071 mm
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Property Per Risk 28%
Property Cat 18%
Casualty Treaty 22%
Property Indivi. Risk 6%
Casualty Indivi. Risk 12%
Aero & Other Specialty 14%
Bermuda 50%
U.S. 39%
U.K. 11%
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Major Lines & Distribution
1st Half 2004 Premiums = $1,071 mm
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Property Risk Per Treaty 28%
Property Cat 18%
Casualty /WC Cat 4%
D&O/E&O 2%
Personal Auto 2%
Other Casualty 14%
Prop Indi. Risk 6%
Aeros. 11%
XGL 4%
Prof. Lines 3%
HPL 5%
Other 3%
Aon 33%
Marsh 27%
Willis 9%
Benfield 11%
Other 20%
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Risk Review - Portfolio Expected Risk Curve
Endurance - Underwriting Income Profile
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In-Force Portfolio as of July 1, 2004
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
Expected
Result
U/W Ratio
U/W Ratio 81.2%
U/W Ratio U/W Ratio U/W Ratio U/W Ratio U/W Ratio 94.8%
141.2% 131.4% 120.7% 114.5% 105.4% $325 M
1-in-10 Profit
1-in-500 1-in-250 1-in-100 1-in-50 1-in-25 Year
Year Year Year Year Year $92 M
$736 M $559 M $365 M $255 M $94 M Profit
Loss Loss Loss Loss Loss
Underwriting Income - Amounts in Millions of USD
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Financial Review
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Summary Financial Performance
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($ in thousands)
Year Ended Year Ended % Six months ended
Income Statement December 31, 2002 December 31, 2003 Change June 30, 2004
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Gross Written Premiums $ 798,760 $1,601,997 101% $1,071,292
Net Earned Premiums 369,489 1,173,947 218 811,813
Operating income 93,024 247,938 167 216,571
Combined Ratio 86.2% 84.7% 79.3%
Operating ROAE 7.8% 17.3% 12.8%
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Balance Sheet
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Total Investments and Cash $1,663,249 $2,674,232 61% $3,124,158
Reserve for Losses & Loss Exp. 200,840 833,158 315 1,170,296
Reserve for Unearned Prem. 403,305 824,685 105 1,082,096
Total Shareholders' Equity 1,217,500 1,644,815 35 1,731,271
Debt / Total Capitalization 13.6% 5.9% 5.6%
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Optimizing Operating Leverage
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Annualized Quarterly Operating Leverage (a)
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[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL.]
2Q 2003 0.78x
3Q 2003 0.86x
4Q 2003 0.89x
1Q 2004 0.98x
2Q 2004 0.91x
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Quarterly Investment Leverage (b)
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[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL.]
2Q 2003 1.34x
3Q 2003 1.46x
4Q 2003 1.55x
1Q 2004 1.63x
2Q 2004 1.72x
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(a) Operating leverage is calculated by dividing quarterly net premiums earned
by quarterly average equity.
(b) Investment leverage is calculated by dividing quarterly average invested
assets by quarterly average equity.
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Achieving Our Targets
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2004 ROE Component Build-Up Operating Assumptions
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15.5% 17.5% <------ Mid to High Teens Returns
5.5% 5.5% <------ 1.5:1.0 Investment Leverage at 3.70% yield
10.0% 12.0% <------ 1.0:1.0 Operating Leverage
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90.0% 88.0%
Combined Combined
Ratio Ratio
Unlevered Return on Capital
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Capital Management Strategy
o Executed several value enhancing transactions
- $100 million Zurich stock and warrant buyback at $17.50 per share
- $20 million share repurchase of TIAA-CREF at $27.06 per share
- $65 million share repurchase of Lightyear at $31.78 per share
- 2 million share repurchase authorization
o Significant financial flexibility with $850 million credit facility and
$250 million senior notes offering
o Understand levers of capital optimization
- Currently holding AAA level RBC
- 12.6% debt to capital versus 15% to 20% target
- All capital utilization measured against returning capital
o Return of capital analysis conducted with two to three year payback
- Analysis favors dividends when stock trades above 1.3x to 1.4x book
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Significant Acquisition Experience
o Strategy
- Accelerated strategic development in property cat and US reinsurance
- High degree of selectivity. 300+ acquisition opportunities
- Heavy upfront due diligence
- No legacy issues
o Fully integrated within 30 days both people and systems
o Financially attractive
- LaSalle property cat portfolio, 24% accretive to 2002 EPS
- Hart Re portfolio acquisition, 12% accretive to 2003 EPS
o Minimal use of outside advisors
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Conclusion
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[LOGO] Endurance
Conclusion
o Exceeded all strategic and financial objectives
o Built strong, technical, underwriting based culture that is focused on
profit, not revenue
o Created robust controls, systems, and infrastructure
o Value enhancement through capital management and enhancing acquisitions
o Committed to generating 15%+ growth in book value throughout the cycle
o Demonstrated ability to create significant shareholder value with
significant future upside
[LOGO] Endurance