Exhibit 99.2
[LOGO]
Endurance
Endurance Specialty Holdings Ltd.
INVESTOR FINANCIAL SUPPLEMENT
THIRD QUARTER 2004
Endurance Specialty Holdings Ltd.
Wellesley House, 90 Pitts Bay Rd.
Pembroke HM 08, Bermuda
Massa B. Cressall
Strategic Planning and Investor Relations
Phone: (441) 278-0988
Fax: (441) 278-0493
email: mcressall@endurance.bm
This report is for information purposes only. It should be read in conjunction
with other documents filed by Endurance Specialty Holdings Ltd. pursuant to the
Securities Act of 1933 and the Securities Exchange Act of 1934.
Financial Supplement Table of Contents
Page
i. Basis of Presentation i
ii. Organizational Chart of Executive Management ii
iii. Organizational Chart of Corporate Structure iii
I. Financial Highlights 1
II. Consolidated Financial Statements
a. Consolidated Statements of Income 2
b. Consolidated Balance Sheets 3
c. Segment Data Distribution 4
d. Consolidated Segment Data 5
III. Other Financial Information
a. Unrealized Gains and Operating Cash Flow 7
b. Return on Equity Analysis 8
c. ROE Component Analysis - Operating and Investment Leverage 9
d. Investment Portfolio Information 10
IV. Loss Reserve Analysis
a. Activity in Reserve for Losses and Loss Expenses 11
b. Analysis of Unpaid Losses and Loss Expense 12
V. Share Analysis
a. Dilutive Shares Outstanding 13
b. Earnings Per Share Analysis -- As Reported 14
c. Dilutive Shares Sensitivity Analysis 15
d. Book Value Per Share Analysis 16
VI. Regulation G 17
Application of the Safe Harbor of the Private Securities Litigation Reform Act
of 1995:
Some of the statements in this financial supplement may include forward-looking
statements which reflect our current views with respect to future events and
financial performance. Such statements may include forward-looking statements
both with respect to us in general and the insurance and reinsurance sectors
specifically, both as to underwriting and investment matters. Statements which
include the words "expect," "intend," "plan," "believe," "project,"
"anticipate," "seek," "will," and similar statements of a future or
forward-looking nature identify forward-looking statements in this financial
supplement for purposes of the U.S. federal securities laws or otherwise. We
intend these forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements in the Private Securities Litigation
Reform Act of 1995. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only to the date on which they are made.
We undertake no obligation to publicly update or review any forward looking
statement, when as a result of new information, future developments or
otherwise.
All forward-looking statements address matters that involve risks and
uncertainties. Accordingly, there are or may be important factors that could
cause actual results to differ from those indicated in the forward-looking
statements. These factors include, but are not limited to, competition, possible
terrorism or the outbreak of war, the frequency or severity of unpredictable
catastrophic events, changes in demand for insurance or reinsurance, rating
agency actions, uncertainties in our reserving process, a change in our tax
status, acceptance of our products, the availability of reinsurance or
retrocessional coverage, retention of key personnel, political conditions,
changes in accounting policies, changes in general economic conditions and other
factors described in our Annual Report on Form 10-K for the year ended December
31, 2003.
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ENDURANCE SPECIALTY HOLDINGS LTD.
BASIS OF PRESENTATION
DEFINITIONS AND PRESENTATION
o All financial information contained herein is unaudited, except December
31, 2003 and December 31, 2002 full year balance sheet and income
statement data.
o Unless otherwise noted, all data is in thousands, except for per share,
percentage and ratio information.
o As used in this financial supplement, "common shares" refers to our
ordinary shares and class A shares, collectively.
o Endurance Specialty Holdings Ltd., along with others in the industry, uses
underwriting ratios as measures of performance. The loss ratio is the
ratio of claims and claims adjustment expense to earned premiums. The
acquisition expense ratio is the ratio of underwriting expenses
(commissions, taxes, licenses and fees, as well as other underwriting
expenses) to earned premiums. The general and administrative expense ratio
is the ratio of general and administrative expenses to earned premiums.
The combined ratio is the sum of the loss ratio, the acquisition expense
ratio and the general and administrative expense ratio. These ratios are
relative measurements that describe for every $100 of net premiums earned
or written, the cost of losses and expenses, respectively. The combined
ratio presents the total cost per $100 of earned premium. A combined ratio
below 100% demonstrates underwriting profit; a combined ratio above 100%
demonstrates underwriting loss.
o GAAP combined ratios differ from statutory combined ratios primarily due
to the deferral of certain third party acquisition expenses for GAAP
reporting purposes and the use of net premiums earned rather than net
premiums written in the denominator when calculating the acquisition
expense and the general & administrative expense ratios.
o NM - Not meaningful; NA - Not Applicable; LTM - Latest twelve months.
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i
ENDURANCE SPECIALTY HOLDINGS LTD.
ORGANIZATION CHART
Endurance Specialty Holdings Ltd.
Chairman, President and Chief Executive Officer - Kenneth LeStrange
Chief Financial Officer - James Kroner Chief Actuary and
Chief Risk Officer - David Cash General Counsel - John Del Col
[THE FOLLOWING WAS REPRESENTED BY A FLOW CHART IN THE PRINTED MATERIAL.]
Endurance Reinsurance Endurance Specialty Endurance Endurance Worldwide Endurance Insurance
Corporation of America Insurance Ltd. Services Limited Insurance Limited Operations
(Principal Operation - (Principal Operation - (Principal Operation - (Principal Operation -
New York) Bermuda) New York) London)
President - President - Chairman, Underwriting Chief Executive Officer - President -
William Jewett Thomas Bell Committee - Mark Boucher Michael Fujii
Steven Carlsen
President -
John O'Connor
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ENDURANCE SPECIALTY HOLDINGS LTD.
CORPORATE ORGANIZATION CHART
[THE FOLLOWING WAS REPRESENTED BY A FLOW CHART IN THE PRINTED MATERIAL.]
Endurance Specialty
Holdings Ltd.
(Bermuda)
Endurance Specialty Endurance
Insurance Ltd. Services Limited
(Bermuda) (U.K.)
Endurance U.S. Holdings Endurance
Corp. Worldwide Holdings
(U.S.) Limited (U.K.)
Endurance Reinsurance Endurance Worldwide
Corporation of America Insurance Limited
(U.S.) (U.K.)
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ENDURANCE SPECIALTY HOLDINGS LTD.
CONSOLIDATED FINANCIAL HIGHLIGHTS
QUARTER ENDED NINE MONTHS ENDED Previous
SEPTEMBER 30, SEPTEMBER 30, Previous Year to
----------------------- ----------------------- Quarter Date
2004 2003 2004 2003 Change Change
---------- ---------- ---------- ---------- ------ ------
HIGHLIGHTS Net income $ 26,848 $ 56,543 $ 242,476 $ 174,535 (52.5)% 38.9%
Operating income [a] 23,712 55,245 240,006 161,414 (57.1)% 48.7%
Gross premiums written and acquired 367,865 325,070 1,439,157 1,339,841 13.2% 7.4%
Net premiums earned 409,487 335,830 1,221,300 817,949 21.9% 49.3%
Total assets 4,927,303 3,363,148 4,927,303 3,363,148 46.5% 46.5%
Total shareholders' equity 1,770,824 1,564,646 1,770,824 1,564,646 13.2% 13.2%
- -----------------------------------------------------------------------------------------------------------------------------------
PER SHARE Basic earnings per share
AND SHARES DATA Net income (as reported) $ 0.43 $ 0.88 $ 3.84 $ 2.79 (50.7)% 37.6%
Operating income (as reported) [a] $ 0.38 $ 0.86 $ 3.80 $ 2.58 (55.4)% 47.3%
Diluted earnings per share
Net income (as reported) $ 0.40 $ 0.83 $ 3.58 $ 2.68 (51.6)% 33.7%
Operating income (as reported) [a] $ 0.36 $ 0.81 $ 3.54 $ 2.48 (56.2)% 43.1%
As Reported Weighted average common shares outstanding 62,043 64,414 63,149 62,557 (3.7)% 0.9%
Weighted average common shares outstanding
and dilutive potential common shares 66,476 67,795 67,708 65,166 (1.9)% 3.9%
Book Value Book value [b] $ 28.61 $ 24.43 $ 28.61 $ 24.43 17.1% 17.1%
Per Share Diluted book value (treasury stock
method) [b] $ 26.69 $ 23.19 $ 26.69 $ 23.19 15.1% 15.1%
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS ROAE, net income [c] 1.5% 3.6% 14.2% 12.5% (2.1)% 1.7%
ROAE, operating income [a] [c] 1.4% 3.5% 14.1% 11.6% (2.2)% 2.4%
Annualized ROAE, net income [c] 6.1% 14.5% 18.9% 16.7% (8.4)% 2.2%
Annualized ROAE, operating income [a] [c] 5.4% 14.2% 18.7% 15.5% (8.8)% 3.3%
Annualized investment yield 3.8% 3.3% 3.7% 3.3% 0.4% 0.3%
Loss ratio 75.3% 59.2% 58.9% 57.3% 16.1% 1.6%
GAAP Acquisition expense ratio 19.8% 20.7% 20.4% 19.7% (0.9)% 0.7%
General and administrative expense ratio 7.9% 8.6% 7.9% 8.7% (0.7)% (0.8)%
---------- ---------- ---------- ---------- ------ ------
Combined ratio 103.0% 88.5% 87.2% 85.7% 14.5% 1.5%
STAT Acquisition expense ratio 19.2% 19.7% 19.8% 20.9% (0.5)% (1.1)%
General and administrative expense ratio 9.1% 8.9% 6.8% 5.3% 0.2% 1.5%
---------- ---------- ---------- ---------- ------ ------
Combined ratio 103.6% 87.8% 85.5% 83.5% 15.8% 2.0%
---------- ----------
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[a] Operating income represents after-tax operational results excluding, as
applicable, after-tax net realized capital gains or losses and after-tax
net foreign exchange gains or losses. Please see page 14 for a
reconciliation to net income.
[b] For detailed calculations please refer to page 16.
[c] Average equity is calculated as the arithmetic average of the beginning
and ending equity balances for the stated periods.
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ENDURANCE SPECIALTY HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF INCOME
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- --------------------------- YEAR ENDED
2004 2003 2004 2003 DEC. 31, 2003
--------- --------- ----------- ----------- -------------
UNDERWRITING REVENUES
Gross premiums written and acquired $ 367,865 $ 325,070 $ 1,439,157 $ 1,339,841 $ 1,601,997
Premiums ceded (10,165) (665) (13,851) (3,033) (4,153)
--------- --------- ----------- ----------- -----------
Net premiums written and acquired 357,700 324,405 1,425,306 1,336,808 1,597,844
Change in unearned premiums 51,787 11,425 (204,006) (518,859) (423,897)
--------- --------- ----------- ----------- -----------
Net premiums earned $ 409,487 $ 335,830 $ 1,221,300 $ 817,949 $ 1,173,947
--------- --------- ----------- ----------- -----------
UNDERWRITING EXPENSES
Losses and loss expenses $ 308,255 $ 198,665 $ 719,472 $ 468,341 $ 663,696
Acquisition expenses 81,147 69,382 249,332 161,423 230,549
General and administrative expenses 32,533 28,905 96,837 71,448 100,657
--------- --------- ----------- ----------- -----------
Total underwriting expenses 421,935 296,952 1,065,641 701,212 994,902
--------- --------- ----------- ----------- -----------
Underwriting income ($ 12,448) $ 38,878 $ 155,659 $ 116,737 $ 179,045
--------- --------- ----------- ----------- -----------
OTHER OPERATING REVENUE/EXPENSES
Net investment income $ 30,978 $ 18,736 $ 84,597 $ 49,758 $ 71,010
Interest expense (3,771) (1,013) (5,433) (3,393) (4,238)
Amortization of intangibles (882) (944) (2,770) (2,294) (3,237)
--------- --------- ----------- ----------- -----------
Total other operating revenue/expenses $ 26,325 $ 16,779 $ 76,394 $ 44,071 $ 63,535
--------- --------- ----------- ----------- -----------
INCOME BEFORE OTHER ITEMS 13,877 55,657 232,053 160,808 242,580
OTHER
Net foreign exchange (losses) gains $ 3,089 $ 2,123 ($ 2,949) $ 6,717 $ 9,883
Net realized (losses) gains on investments 814 (932) 5,376 6,985 5,718
Income tax (expense) benefit 9,068 (305) 7,996 25 5,256
--------- --------- ----------- ----------- -----------
NET INCOME $ 26,848 $ 56,543 $ 242,476 $ 174,535 $ 263,437
========= ========= =========== =========== ===========
KEY RATIOS/PER SHARE DATA
Loss ratio 75.3% 59.2% 58.9% 57.3% 56.5%
Acquisition expense ratio 19.8% 20.7% 20.4% 19.7% 19.6%
General and administrative expense ratio 7.9% 8.6% 7.9% 8.7% 8.6%
--------- --------- ----------- ----------- -----------
Combined ratio 103.0% 88.5% 87.2% 85.7% 84.7%
========= ========= =========== =========== ===========
Weighted average basic shares outstanding 62,043 64,414 63,149 62,557 62,933
Weighted average dilutive shares outstanding 66,476 67,795 67,708 65,166 65,900
Basic EPS $ 0.43 $ 0.88 $ 3.84 $ 2.79 $ 4.19
Diluted EPS $ 0.40 $ 0.83 $ 3.58 $ 2.68 $ 4.00
ROAE [a] 1.5% 3.6% 14.2% 12.5% 18.4%
[a] Average equity is calculated as the arithmetic average of the beginning
and ending equity balances for the stated periods.
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ENDURANCE SPECIALTY HOLDINGS LTD.
CONSOLIDATED BALANCE SHEETS
SEPT. 30, 2004 DEC. 31, 2003
-------------- -------------
ASSETS
Cash and cash equivalents $ 358,785 $ 150,923
Fixed maturity investments available for sale 3,210,428 2,523,309
Investments in other ventures, under equity method 78,608 --
Premiums receivable, net 647,427 518,539
Deferred acquisition costs 217,078 183,387
Securities lending collateral 284,450 --
Prepaid reinsurance premiums 7,057 2,335
Losses recoverable 22,627 1,442
Accrued investment income 27,787 20,434
Intangible assets 31,405 32,407
Other assets 41,651 26,188
---------- ----------
TOTAL ASSETS $4,927,303 $3,458,964
========== ==========
LIABILITIES
Reserve for losses and loss expenses $1,448,962 $ 833,158
Reserve for unearned premiums 1,033,341 824,685
Reinsurance balances payable 25,517 23,977
Securities lending payable 284,450 --
Long term debt 247,775 103,029
Net payable for investments purchased 76,375 --
Other liabilities 40,059 29,300
---------- ----------
TOTAL LIABILITIES $3,156,479 $1,814,149
---------- ----------
SHAREHOLDERS' EQUITY
Common shares
61,680,352 issued and outstanding (2003 - 63,912,000) $ 61,680 $ 63,912
Additional paid-in capital 1,123,280 1,189,570
Accumulated other comprehensive income 35,846 46,068
Retained earnings 550,018 345,265
---------- ----------
TOTAL SHAREHOLDERS' EQUITY $1,770,824 $1,644,815
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,927,303 $3,458,964
========== ==========
Book value per share $ 28.61 $ 25.68
Diluted book value per share (treasury stock method) $ 26.69 $ 24.03
RATIOS
Debt-to-capital 12.3% 5.9%
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ENDURANCE SPECIALTY HOLDINGS LTD.
SEGMENT DISTRIBUTION
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
Gross Premiums Written = $1,439 million
- --------------------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED BY PIE CHARTS IN THE PRINTED MATERIAL]
Source of Business
Property 45%
Casualty 46%
Other Specialty 9%
Type of Business
Reinsurance 77%
Insurance 23%
Broker Distribution
Willis 9%
Aon 35%
Marsh 28%
Benfield 9%
Other 19%
- --------------------------------------------------------------------------------
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ENDURANCE SPECIALTY HOLDINGS LTD.
CONSOLIDATED SEGMENT DATA
FOR THE QUARTER ENDED SEPTEMBER 30, 2004
Aerospace
and
Property Per Property Casualty Property Casualty Other
Risk Treaty Catastrophe Treaty Individual Individual Specialty Total
Reinsurance Reinsurance Reinsurance Risk Risk Lines Company
------------ ----------- ----------- ---------- ---------- ---------- ----------
UNDERWRITING REVENUES
Gross premiums written $ 33,964 $ 38,413 $ 164,495 $ 25,467 $ 59,993 $ 45,533 $ 367,865
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net premiums written $ 28,796 $ 35,476 $ 164,468 $ 23,930 $ 59,993 $ 45,037 $ 357,700
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net premiums earned $ 106,583 $ 65,079 $ 94,904 $ 26,953 $ 61,406 $ 54,562 $ 409,487
---------- ---------- ---------- ---------- ---------- ---------- ----------
UNDERWRITING EXPENSES
Losses and loss expenses $ 105,486 $ 41,885 $ 62,007 $ 16,975 $ 40,547 $ 41,355 $ 308,255
Acquisition expenses 31,558 7,248 21,748 3,105 5,831 11,657 81,147
General and administrative
expenses 5,545 4,651 10,273 2,761 5,501 3,802 32,533
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total expenses 142,589 53,784 94,028 22,841 51,879 56,814 421,935
---------- ---------- ---------- ---------- ---------- ---------- ----------
UNDERWRITING INCOME (LOSS) ($ 36,006) $ 11,295 $ 876 $ 4,112 $ 9,527 ($ 2,252) ($ 12,448)
========== ========== ========== ========== ========== ========== ==========
GAAP RATIOS
Loss ratio 99.0% 64.4% 65.3% 63.0% 66.0% 75.8% 75.3%
Acquisition expense ratio 29.6% 11.1% 22.9% 11.5% 9.5% 21.4% 19.8%
General and administrative
expense ratio 5.2% 7.1% 10.8% 10.2% 9.0% 7.0% 7.9%
---------- ---------- ---------- ---------- ---------- ---------- ----------
Combined ratio 133.8% 82.6% 99.0% 84.7% 84.5% 104.2% 103.0%
========== ========== ========== ========== ========== ========== ==========
STATUTORY RATIOS
Loss ratio 99.0% 64.4% 65.3% 63.0% 66.0% 75.8% 75.3%
Acquisition expense ratio 7.1% 12.0% 27.9% 11.3% 6.4% 21.8% 19.2%
General and administrative
expense ratio 19.3% 13.1% 6.2% 11.5% 9.2% 8.4% 9.1%
---------- ---------- ---------- ---------- ---------- ---------- ----------
Combined ratio 125.4% 89.5% 99.4% 85.8% 81.6% 106.0% 103.6%
========== ========== ========== ========== ========== ========== ==========
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ENDURANCE SPECIALTY HOLDINGS LTD.
CONSOLIDATED SEGMENT DATA
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
Aerospace
and
Property Per Property Casualty Property Casualty Other
Risk Treaty Catastrophe Treaty Individual Individual Specialty Total
Reinsurance Reinsurance Reinsurance Risk Risk Lines Company
------------ ----------- ----------- ---------- ---------- ---------- ----------
UNDERWRITING REVENUES
Gross premiums written $ 332,628 $ 230,885 $ 404,341 $ 85,454 $ 194,499 $ 191,350 $1,439,157
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net premiums written $ 327,460 $ 227,948 $ 401,536 $ 83,349 $ 194,159 $ 190,854 $1,425,306
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net premiums earned $ 336,593 $ 175,259 $ 290,191 $ 74,266 $ 175,675 $ 169,316 $1,221,300
---------- ---------- ---------- ---------- ---------- ---------- ----------
UNDERWRITING EXPENSES
Losses and loss expenses $ 224,917 $ 48,297 $ 185,141 $ 33,946 $ 114,445 $ 112,726 $ 719,472
Acquisition expenses 91,918 20,357 74,008 8,850 18,155 36,044 249,332
General and administrative expenses 21,322 15,667 25,432 8,027 15,435 10,954 96,837
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total expenses 338,157 84,321 284,581 50,823 148,035 159,724 1,065,641
---------- ---------- ---------- ---------- ---------- ---------- ----------
UNDERWRITING INCOME (LOSS) ($ 1,564) $ 90,938 $ 5,610 $ 23,443 $ 27,640 $ 9,592 $ 155,659
========== ========== ========== ========== ========== ========== ==========
GAAP RATIOS
Loss ratio 66.8% 27.6% 63.8% 45.7% 65.1% 66.6% 58.9%
Acquisition expense ratio 27.3% 11.6% 25.5% 11.9% 10.3% 21.3% 20.4%
General and administrative expense ratio 6.3% 8.9% 8.8% 10.8% 8.8% 6.5% 7.9%
---------- ---------- ---------- ---------- ---------- ---------- ----------
Combined ratio 100.4% 48.1% 98.1% 68.4% 84.2% 94.4% 87.2%
========== ========== ========== ========== ========== ========== ==========
STATUTORY RATIOS
Loss ratio 66.8% 27.6% 63.8% 45.7% 65.1% 66.6% 58.9%
Acquisition expense ratio 25.0% 12.8% 26.0% 11.9% 9.6% 20.4% 19.8%
General and administrative expense ratio 6.5% 6.9% 6.3% 9.6% 7.9% 5.7% 6.8%
---------- ---------- ---------- ---------- ---------- ---------- ----------
Combined ratio 98.3% 47.3% 96.1% 67.2% 82.6% 92.7% 85.5%
========== ========== ========== ========== ========== ========== ==========
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ENDURANCE SPECIALTY HOLDINGS LTD.
PERIOD END UNREALIZED GAINS AND QUARTERLY OPERATING CASH FLOW
3Q 2003 4Q 2003 1Q 2004 2Q 2004 3Q 2004
-------- -------- -------- --------- --------
Unrealized holding gains (losses) on investments, period end $ 39,616 $ 26,230 $ 47,176 ($ 21,374) $ 15,908
Operating cash flow $286,765 $269,127 $269,756 $ 319,167 $306,683
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ENDURANCE SPECIALTY HOLDINGS LTD.
RETURN ON EQUITY ANALYSIS
NINE MONTHS
ENDED
SEPT. 30, 2004
---------------
Average equity [a] $ 1,707,820
Net premiums earned $ 1,221,300
Combined ratio 87.2%
Operating margin 12.8%
Premium leverage 0.72x
---------------
Implied ROAE from underwriting activity 9.1%
---------------
Average invested assets at amortized cost $ 3,088,712
Investment leverage 1.81x
Year to date investment income yield, pretax 2.7389%
---------------
Implied ROAE from investment activity 5.0%
---------------
---------------
Implied Pre-tax Operating ROAE, for period 14.1%
---------------
---------------
Implied Pre-tax Operating ROAE, annualized 18.7%
===============
[a] Average equity is calculated as the arithmetic average of the beginning
and ending equity balances for the stated periods.
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ENDURANCE SPECIALTY HOLDINGS LTD.
ANNUALIZED OPERATING LEVERAGE & INVESTMENT LEVERAGE
Year Ended
3Q 2003 4Q 2003 1Q 2004 2Q 2004 3Q 2004 Dec. 31, 2003
---------- ---------- ---------- ---------- ---------- -------------
Average equity $1,556,224 $1,604,731 $1,703,959 $1,747,187 $1,751,048 $1,431,158
Net premiums earned $ 335,830 $ 355,998 $ 415,826 $ 395,987 $ 409,487 $1,173,947
Operating leverage 0.22x 0.22x 0.24x 0.23x 0.23x 0.82x
----------------------------------------------------------------------------
Annualized operating leverage 0.86x 0.89x 0.98x 0.91x 0.94x 0.82x
----------------------------------------------------------------------------
Avg. invested assets at amortized cost $2,277,742 $2,490,349 $2,781,759 $3,010,450 $3,343,785 $2,124,518
----------------------------------------------------------------------------
Investment leverage 1.46x 1.55x 1.63x 1.72x 1.91x 1.48x
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ENDURANCE SPECIALTY HOLDINGS LTD.
INVESTMENT PORTFOLIO
AS OF SEPTEMBER 30, 2004
Type of Investment Fair Value Percentage
---------- ----------
Cash and equivalents $ 282,410 7.9%
U.S. government and agencies 830,297 23.2%
Corporate securities 608,342 17.0%
Foreign government 188,386 5.3%
Municipals 140,723 3.9%
Asset-backed securities 359,700 10.1%
Mortgage-backed securities 1,082,980 30.3%
Investments in other ventures 78,608 2.2%
---------- ----------
Total $3,571,446 100.0%
========== ==========
Ratings Fair Value Percentage
---------- ----------
U.S. Government and government agencies $ 830,297 23.2%
AAA/Aaa 2,088,588 58.5%
AA/Aa 175,245 4.9%
A/A 398,708 11.2%
BBB and below -- --
Investments in other ventures/Not rated 78,608 2.2%
---------- ----------
Total $3,571,446 100.0%
========== ==========
Performance Sept. 30, 2004
--------------
Annualized yield, year to date [a] 3.65%
Duration [b] 2.91
Quarter Ended Quarter Ended Quarter Ended
Investment Income March 31, 2004 June 30, 2004 Sept. 30, 2004
-------------- ------------- --------------
Taxable net investment income $24,449 $28,200 $30,025
Tax-exempt net investment income 226 744 953
------- ------- -------
Total net investment income $24,675 $28,944 $30,978
======= ======= =======
Note: Cash, cash equivalents and short terms are shown net of investments
pending settlement.
[a] Annualized yield excludes realized and unrealized gains and losses on
fixed maturity investments
[b] Duration excludes investments in other ventures
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ENDURANCE SPECIALTY HOLDINGS LTD.
ACTIVITY IN RESERVE FOR LOSSES AND LOSS EXPENSES
QUARTER QUARTER QUARTER QUARTER QUARTER
ENDED ENDED ENDED ENDED ENDED
SEPT. 30, 2003 DEC. 31, 2003 MARCH 31, 2004 JUNE 30, 2004 SEPT. 30, 2004
-------------- ------------- -------------- ------------- --------------
Incurred related to:
Current year $ 210,143 $ 203,881 $ 241,381 $ 229,900 $ 359,187
Prior years (11,478) (8,526) (19,372) (40,692) (50,932)
--------- --------- --------- --------- ---------
Total incurred 198,665 195,355 222,009 189,208 308,255
--------- --------- --------- --------- ---------
Paid related to:
Current year (8,131) (29,315) (2,752) (11,027) (28,056)
Prior years (10,473) (10,091) (32,819) (27,076) (21,801)
--------- --------- --------- --------- ---------
Total paid (18,604) (39,406) (35,571) (38,103) (49,857)
--------- --------- --------- --------- ---------
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ENDURANCE SPECIALTY HOLDINGS LTD.
ANALYSIS OF UNPAID LOSSES AND LOSS EXPENSE
Aerospace
and
Property Per Property Casualty Property Casualty Other
Risk Treaty Catastrophe Treaty Individual Individual Specialty Total
Reinsurance Reinsurance Reinsurance Risk Risk Lines Company
----------- ----------- ----------- ---------- ---------- --------- ----------
AT SEPTEMBER 30, 2004
Case reserves $117,585 $ 19,473 $ 59,650 $20,998 $ 5,000 $ 60,641 $ 283,347
Total reserves 358,961 103,188 406,780 66,541 266,909 246,583 1,448,962
------------------------------------------------------------------------------------------------
Case reserves / Total reserves 32.8% 18.9% 14.7% 31.6% 1.9% 24.6% 19.6%
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ENDURANCE SPECIALTY HOLDINGS LTD.
DILUTIVE SHARES FOR EPS CALCULATION
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ---------------------
2004 2003 2004 2003
------- ------- ------- -------
DILUTIVE SHARES Quarterly average market price per share $ 33.24 $ 29.66 $ 33.94 $ 26.81
OUTSTANDING:
AS REPORTED Basic weighted average common shares outstanding 62,043 64,414 63,149 62,557
Add: weighted ave. unvested restricted share units 202 1 159 --
Weighted average exercise price per share -- -- -- --
Proceeds from unrecognized restricted share unit expense $ 4,905 -- $ 4,905 --
Less: restricted share units bought back via treasury method (148) -- (145) --
Add: weighted ave. dilutive warrants outstanding 7,243 7,243 7,243 7,243
Weighted average exercise price per share $ 19.08 $ 19.80 $ 19.08 $ 19.80
Less: warrants bought back via treasury method (4,157) (4,835) (4,072) (5,350)
Add: weighted ave. dilutive options outstanding 3,240 3,404 3,373 3,393
Weighted average exercise price per share $ 19.36 $ 19.90 $ 19.53 $ 19.86
Proceeds from unrecognized option expense $ 1,979 $ 4,366 $ 1,979 $ 4,366
Less: options bought back via treasury method (1,946) (2,431) (2,000) (2,677)
------- ------- ------- -------
Weighted average dilutive shares outstanding 66,476 67,795 67,708 65,166
======= ======= ======= =======
Note: Warrants and options that are anti-dilutive are not included in the
calculation of diluted shares outstanding. Restricted share units are
included in the calculation of basic and diluted weighted shares
outstanding. The treasury stock method assumes that the proceeds received
from the exercise of options or warrants will be used to repurchase the
Company's common shares at the average market price during the period of
calculation. SFAS No. 123 also requires that any unrecognized stock based
compensation expense that will be recorded in future periods be included
as proceeds for purposes of the treasury stock repurchases.
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ENDURANCE SPECIALTY HOLDINGS LTD.
OPERATING INCOME RECONCILIATION
EARNINGS PER SHARE INFORMATION - AS REPORTED, GAAP
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- -----------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
Net income $ 26,848 $ 56,543 $ 242,476 $ 174,535
Add (Less) after-tax items:
Net foreign exchange losses (gains) (2,522) (1,882) 2,586 (6,306)
Net realized (gains) losses on investments 614) 584 (5,056) (6,815)
----------- ----------- ----------- -----------
Operating income $ 23,712 $ 55,245 $ 240,006 $ 161,414
=========== =========== =========== ===========
Weighted average common shares outstanding
Basic 62,043 64,414 63,149 62,557
Dilutive 66,476 67,795 67,708 65,166
Basic per share data
Net income $ 0.43 $ 0.88 $ 3.84 $ 2.79
Add (Less) after-tax items:
Net foreign exchange losses (gains) (0.04) (0.03) 0.04 (0.10)
Net realized (gains) losses on investments (0.01) 0.01 (0.08) (0.11)
----------- ----------- ----------- -----------
Operating income $ 0.38 $ 0.86 $ 3.80 $ 2.58
=========== =========== =========== ===========
Diluted per share data
Net income $ 0.40 $ 0.83 $ 3.58 $ 2.68
Add (Less) after-tax items:
Net foreign exchange losses (gains) (0.04) (0.03) 0.04 (0.10)
Net realized (gains) losses on investments (0.01) 0.01 (0.07) (0.10)
----------- ----------- ----------- -----------
Operating income $ 0.36 $ 0.81 $ 3.54 $ 2.48
=========== =========== =========== ===========
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ENDURANCE SPECIALTY HOLDINGS LTD.
DILUTIVE SHARES SENSITIVITY ANALYSIS
DILUTIVE SHARES OUSTANDING
- ------------------------------------------------------------------------------------------------------------------------------------
Market Price per Share
- ------------------------------------------------------------------------------------------------------------------------------------
$ 30.00 $ 31.00 $ 32.00 $ 33.00 $ 34.00 $ 35.00 $ 37.00 $ 39.00 $ 41.00 $ 43.00 $ 45.00
- ------------------------------------------------------------------------------------------------------------------------------------
65,897 66,112 66,314 66,504 66,683 66,852 67,162 67,440 67,691 67,918 68,125
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ENDURANCE SPECIALTY HOLDINGS LTD.
BOOK VALUE PER SHARE
SEPTEMBER 30,
----------------------------
2004 2003 DEC. 31, 2003
---------- ---------- -------------
DILUTIVE SHARES Price per share at period end $ 32.15 $ 29.20 $ 33.55
OUTSTANDING:
AS-IF CONVERTED [a] Basic common shares outstanding [b] 61,897 64,046 64,047
Add: unvested restricted share units 219 6 11
Add: dilutive warrants outstanding 7,243 7,243 7,243
Weighted average exercise price per share $ 19.08 $ 19.80 $ 19.68
Add: dilutive options outstanding 3,224 3,378 3,437
Weighted average exercise price per share $ 19.36 $ 19.90 $ 19.95
Book Value $1,770,824 $1,564,646 $1,644,815
Add: proceeds from converted warrants 138,194 143,409 142,540
Add: proceeds from converted options 62,402 67,229 68,578
---------- ---------- ----------
Pro forma book value $1,971,421 $1,775,284 $1,855,933
Dilutive shares outstanding 72,583 74,673 74,737
--------------------------------------------------------------------------------------------------------------
Basic book value per share $ 28.61 $ 24.43 $ 25.68
Diluted book value per share $ 27.16 $ 23.77 $ 24.83
--------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
DILUTIVE SHARES Price per share at period end $ 32.15 $ 29.20 $ 33.55
OUTSTANDING:
TREASURY STOCK Basic common shares outstanding [b] 61,897 64,046 64,047
METHOD
Add: unvested restricted share units 219 6 11
Add: dilutive warrants outstanding 7,243 7,243 7,243
Weighted average exercise price per share $ 19.08 $ 19.80 $ 19.68
Less: warrants bought back via treasury method (4,298) (4,911) (4,249)
Add: dilutive options outstanding 3,224 3,378 3,437
Weighted average exercise price per share $ 19.36 $ 19.90 $ 19.95
Less: options bought back via treasury method (1,941) (2,302) (2,044)
---------- ---------- ----------
Dilutive shares outstanding 66,344 67,459 68,445
--------------------------------------------------------------------------------------------------------------
Basic book value per share $ 28.61 $ 24.43 $ 25.68
Diluted book value per share $ 26.69 $ 23.19 $ 24.03
--------------------------------------------------------------------------------------------------------------
[a] The as-if converted method assumes that the proceeds received upon
exercise of options and warrants will be retained by the Company and the
resulting common shares from exercise will remain outstanding.
[b] Basic common shares include vested restricted share units.
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16
ENDURANCE SPECIALTY HOLDINGS LTD.
REGULATION G
In presenting the Company's results, management has included and discussed
certain non-GAAP measures. Management believes that these non-GAAP measures,
which may be defined differently by other companies, better explain the
Company's results of operations in a manner that allows for a more complete
understanding of the underlying trends in the Company's business. However, these
measures should not be viewed as a substitute for those determined in accordance
with GAAP.
Operating income is an internal performance measure used by the Company in the
management of its operations. Operating income represents after-tax operational
results excluding, as applicable, after-tax net realized capital gains or losses
and after-tax net foreign exchange gains or losses because the amount of these
gains or losses is heavily influenced by, and fluctuates in part, according to
the availability of market opportunities. The Company believes these amounts are
largely independent of its business and underwriting process and including them
distorts the analysis of trends in its operations. In addition to presenting net
income determined in accordance with GAAP, the Company believes that showing
operating income enables investors, analysts, rating agencies and other users of
its financial information to more easily analyze the Company's results of
operations in a manner similar to how management analyzes the Company's
underlying business performance. Operating income should not be viewed as a
substitute for GAAP net income. Please see page 14 for a reconciliation of
operating income to net income.
Return on Equity (ROE) is comprised using the average equity calculated as the
arithmetic average of the beginning and ending equity balances for stated
periods. The Company presents ROE as a measure that it is commonly recognized as
a standard of performance by investors, analysts, rating agencies and other
users of its financial information.
Investment yield is provided by the Company's investment managers and is
calculated by dividing net investment income by average invested assets at
amortized cost. The Company utilizes and presents the investment yield in order
to better disclose the performance of the Company's investments and to show the
components of the Company's ROE.
The Company has included diluted book value per share because it takes into
account the effect of dilutive securities; therefore, the Company believes it is
a better measure of calculating shareholder returns than book value per share.
Please see page 16 for a reconciliation of diluted book value per share to basic
book value per share.
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