PEMBROKE, Bermuda, May 6, 2009 (GLOBE NEWSWIRE) -- Endurance Specialty Holdings Ltd. (NYSE:ENH) today reported net income of $78.3 million and $1.24 per diluted common share for the first quarter of 2009 versus net income of $77.8 million and $1.13 per diluted common share in the first quarter of 2008.
Operating highlights for the quarter ended March 31, 2009 were as follows:
* Gross premiums written of $783.3 million, a decrease of 9.8% over the same period in 2008; * Net premiums written of $582.9 million, a decrease of 9.0% from the first quarter of 2008; * Combined ratio of 92.2%, which included 10.4 percentage points of favorable prior year loss reserve development; * Net investment income of $64.6 million, an increase of 37.7% over the same period in 2008; * Operating income, which excludes after-tax realized investment gains and losses and foreign exchange gains and losses, of $88.2 million and $1.40 per diluted common share; * Operating return on average common equity for the quarter of 4.2%, or 16.6% on an annualized basis; and * Book value of $34.34 per diluted common share, up 3.9% from December 31, 2008.
Kenneth J. LeStrange, Chairman and Chief Executive Officer, commented, "Endurance produced strong underwriting and investment results this quarter in the face of continued turbulence in the underwriting and investment markets. We saw improving conditions in some areas such as catastrophe exposed property insurance and reinsurance lines, aviation and some large account casualty insurance while other segments of the market, such as middle market casualty insurance and casualty reinsurance showed continued signs of competition, albeit at a moderating pace. Looking forward, our efforts over the past several years to expand our underwriting capabilities and distribution relationships has positioned us well to take advantage of potential opportunities across a broad spectrum of insurance and reinsurance lines of business."
Operating Results
The 9.0% decrease in net premiums written in the three months ended March 31, 2009 over the same period in 2008 resulted primarily from declines in workers' compensation premiums written in the Insurance segment as well as declines in the agriculture, marine and surety and other specialty lines of the Reinsurance segment. The decline in net premiums written was partially offset by growth in premiums written within the Insurance segment's property, casualty, healthcare liability and professional lines and the Reinsurance segment's catastrophe, property and casualty lines of business. Net premiums earned for the first quarter increased by $6.2 million or 1.7% from the same period in 2008 principally due to the continued earning of property and agriculture insurance premiums written in prior periods, partially offset by declines in current premiums written.
During the three months ended March 31, 2009, the Company recorded $39.3 million of favorable prior year loss reserve development compared to $41.0 million during the first quarter of 2008. For the first quarter of 2009, favorable prior year loss reserve development arose across all lines within the Insurance segment and the short tail and other lines of the Reinsurance segment.
For the three months ended March 31, 2009, the Company's operating results were favorably impacted by a $17.7 million increase in net investment income compared to the same period in 2008. For the three months ended March 31, 2009, net investment income included mark to market gains of $10.5 million on the Company's alternative investments and high yield loan funds compared to mark to market reductions of $16.1 million for the same period in 2008. Partially offsetting this increase in net investment income was a decline in income generated by the Company's fixed maturity investments of $5.3 million or 9.1% for the first quarter of 2009 compared with the same period in 2008 due to lower investment yields.
Insurance Segment
Net premiums written in Endurance's Insurance segment for the three months ended March 31, 2009 were $322.4 million compared to $356.1 million for the same period in 2008. This decline was driven by reductions in workers' compensation premiums as a result of the Company's exit from the California workers' compensation market in the first quarter of 2009. The decrease in net premiums written in this line of business was partially offset by growth in net premiums written in the property, casualty, healthcare liability and professional lines of business in the first quarter of 2009 as compared to the first quarter of 2008. Earned premiums increased in the current period compared to 2008 due to the continued earning of premiums written in prior periods.
Endurance's Insurance segment combined ratio was 84.9% in the three months ended March 31, 2009 versus a combined ratio of 104.0% for the same period in 2008. The decrease in the combined ratio the first quarter of 2009 compared to the same period in 2008 was driven predominantly by higher levels of favorable prior year loss reserve development during the current quarter. The Insurance segment's combined ratio benefited from favorable prior year loss reserve development of $36.8 million, or 20.4 percentage points, compared to favorable prior year loss reserve development of $3.7 million, or 2.2 percentage points, for the same quarter a year ago. More favorable loss reserve development emerged in the first quarter of 2009 in all of the Insurance lines as claims have not materialized as originally estimated. Partially offsetting the decline in the net loss ratio for the current quarter was an increase in the general and administrative expense ratio compared to the same period in 2008. This increase resulted from additional direct general and administrative expenses recorded in the Company's agriculture line as a result of strategic employee additions to meet increased policy counts and claims servicing requirements and the reduction in third party commissions and expense reimbursement offsets, due to decreases in the U.S. Federal crop insurance administrative and operating reimbursements.
Reinsurance Segment
Net premiums written in Endurance's Reinsurance segment for the three months ended March 31, 2009 were $260.5 million, a decrease of 8.5% from the $284.6 million of net premiums written in the same period in 2008. The decline in net premiums written in the Reinsurance segment was primarily due to declines in the marine, agriculture and surety and other specialty business lines, due to non-renewals of contracts that no longer met the Company's pricing and underwriting requirements.
For the quarter ended March 31, 2009, the Reinsurance segment's combined ratio was 98.8% versus 68.3% during the same period of 2008. This increase resulted from the recognition of less favorable prior year loss reserve development for the first quarter of 2009 as compared to 2008. The Reinsurance segment recorded $2.5 million or 1.3 percentage points of favorable prior year loss reserve development in the first quarter of 2009 compared to $37.2 million or 18.2 percentage points for the same period in 2008. Prior year favorable loss reserve development was recorded in the short tail and other lines of the Reinsurance segment in the current quarter with the most significant decrease in favorable loss reserve development recorded in the short tail lines of business in the first quarter of 2009 compared to 2008. In addition, the Company recorded a higher level of attritional loss reserves in the current quarter to reflect the potential for increased claims from a number of smaller industry catastrophe events.
The increase in the net loss ratio for the first quarter of 2009 was partially offset by a decline in the acquisition expense ratio in the current quarter compared to the same period in 2008 generally due to lower profit commissions in the property line from increased loss estimates. Growth in the general and administrative expense ratio in the current period was primarily due to a decline in earned premiums from the same period in 2008.
Investments
Endurance's net investment income of $64.6 million increased 37.7% or $17.7 million for the quarter ended March 31, 2009 as compared to the same period in 2008. During the first quarter of 2009, the Company's net investment income included mark to market gains of $10.5 million on its alternative investments and high yield funds, included in other investments, as compared to losses of $16.1 million in the first quarter of 2008. Investment income generated from the Company's fixed maturity investments decreased $5.3 million from the same period in 2008 due to lower reinvestment rates during the current quarter and a higher allocation to cash and cash equivalents and shorter duration securities. The ending book yield on the Company's fixed maturity investments at March 31, 2009 was 4.18%, down from 4.45% at December 31, 2008 as a result of modest trading activity and lower reinvestment rates during the quarter.
Endurance's fixed maturity portfolio, which comprises approximately 90% of the Company's investments as of March 31, 2009, maintained an average credit quality of AAA as of March 31, 2009. During the first quarter of 2009, the Company recorded net realized investment losses of $8.9 million, driven by $12.1 million of losses from other-than-temporary impairments, which were partially offset by $3.2 million of net realized gains on sales of investments. Endurance continues to record its fixed maturity investments at fair value, with differences between amortized cost and fair value reflected as a component of other comprehensive loss provided such differences are not deemed to be other than temporary. The total return of the Company's investment portfolio, including all invested cash and cash equivalents, fixed maturity securities, short term investments, preferred equity securities and other investments, net of investment fees, was 0.95% for the quarter ended March 31, 2009.
Endurance ended the first quarter of 2009 with cash and invested assets of $5.5 billion, an increase of approximately 2% from December 31, 2008. During the quarter, Endurance reinvested cash and cash equivalents into high quality, short duration government guaranteed corporate securities, which increased by $485.2 million at March 31, 2009 from December 31, 2008. Net operating cash flow was $128.3 million for the three months ended March 31, 2009 versus $142.7 million for the same period in 2008.
Capitalization and Shareholders' Equity
At March 31, 2009, Endurance's GAAP shareholders' equity was $2.3 billion or $34.34 per diluted common share versus $2.2 billion or $33.06 per diluted common share at December 31, 2008. During the quarter ended March 31, 2009, Endurance repurchased 399,796 of its common shares and share equivalents in private and open market transactions for an aggregate repurchase price of $9.1 million.
Earnings Call
Endurance will host a conference call on May 7, 2009 at 8:30 a.m. Eastern time to discuss its financial results. The conference call can be accessed via telephone by dialing (877) 672-9216 or (706) 634-9637 (international). Those who intend to participate in the conference call should register at least ten minutes in advance to ensure access to the call. A telephone replay of the conference call will be available through May 21, 2009 by dialing (800) 642-1687 or (706) 645-9291 (international) and entering the pass code: 68800375.
The public may access a live broadcast of the conference call at the "Investors" section of Endurance's website, www.endurance.bm.
A copy of Endurance's financial supplement for the first quarter of 2009 will be available on Endurance's website at www.endurance.bm shortly after the release of earnings.
Operating income, operating return on average common equity, operating income per diluted common share and operating income allocated to common shareholders are non-GAAP measures. Reconciliations of these measures to the appropriate GAAP measures are included in the attached tables.
About Endurance Specialty Holdings
Endurance Specialty Holdings Ltd. is a global specialty provider of property and casualty insurance and reinsurance. Through its operating subsidiaries, Endurance writes property, casualty, healthcare liability, agriculture, workers' compensation, professional lines of insurance and property, catastrophe, casualty, agriculture, marine, aerospace, and surety and other specialty lines of reinsurance. We maintain excellent financial strength as evidenced by the ratings of A (Excellent) from A.M. Best (XV size category) and A (Strong) from Standard and Poor's on our operating subsidiaries (other than American Agri-Business Insurance Company) and A- (Excellent) from A.M. Best for American Agri-Business Insurance Company. Endurance's headquarters are located at Wellesley House, 90 Pitts Bay Road, Pembroke HM 08, Bermuda and its mailing address is Endurance Specialty Holdings Ltd., Suite No. 784, No. 48 Par-la-Ville Road, Hamilton HM 11, Bermuda. For more information about Endurance, please visit www.endurance.bm.
Safe Harbor for Forward-Looking Statements
Some of the statements in this press release may include forward-looking statements which reflect our current views with respect to future events and financial performance. Such statements may include forward-looking statements both with respect to us in general and the insurance and reinsurance sectors specifically, both as to underwriting and investment matters. Statements which include the words "expect," "intend," "plan," "believe," "project," "anticipate," "seek," "will," and similar statements of a future or forward-looking nature identify forward-looking statements in this press release for purposes of the U.S. federal securities laws or otherwise. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the Private Securities Litigation Reform Act of 1995.
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, developments in the world's financial and capital markets that could adversely affect the performance of Endurance's investment portfolio or access to capital, changes in the composition of Endurance's investment portfolio, competition, possible terrorism or the outbreak of war, the frequency or severity of unpredictable catastrophic events, changes in demand for insurance or reinsurance, rating agency actions, uncertainties in our reserving process, a change in our tax status, acceptance of our products, the availability of reinsurance or retrocessional coverage, retention of key personnel, political conditions, the impact of current regulatory investigations, changes in accounting policies, changes in general economic conditions and other factors described in our Annual Report on Form 10-K for the year ended December 31, 2008.
Forward-looking statements speak only as of the date on which they are made, and we undertake no obligation publicly to update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.
ENDURANCE SPECIALTY HOLDINGS LTD.
CONSOLIDATED BALANCE SHEETS
(in thousands of United States dollars,
except share and per share amounts)
March 31, December 31,
2009 2008
------------ ------------
Assets
Cash and cash equivalents $ 893,022 $ 1,061,994
Fixed maturity investments available
for sale, at fair value 4,125,770 3,875,137
Short term investments, available for
sale, at fair value 140,175 111,333
Preferred equity securities, available
for sale, at fair value 16,770 25,360
Other investments 285,853 284,263
Premiums receivable, net 1,017,619 609,387
Deferred acquisition costs 157,670 160,870
Securities lending collateral 120,321 112,940
Prepaid reinsurance premiums 282,981 149,591
Losses recoverable 345,978 557,834
Accrued investment income 24,509 30,872
Goodwill and intangible assets 198,447 200,791
Deferred tax assets 32,685 20,691
Receivable on pending investment sales 97,072 3,104
Other assets 58,547 68,303
------------ ------------
Total Assets $ 7,797,419 $ 7,272,470
============ ============
Liabilities
Reserve for losses and loss expenses $ 3,154,374 $ 3,235,456
Reserve for unearned premiums 1,222,792 885,488
Net deposit liabilities 54,712 58,622
Securities lending payable 122,800 115,603
Reinsurance balances payable 347,494 233,561
Debt 447,370 447,468
Payable on pending investment purchases 113,007 9
Other liabilities 81,330 88,980
------------ ------------
Total Liabilities 5,543,879 5,065,187
------------ ------------
Shareholders' Equity
Preferred shares
Series A, non-cumulative - 8,000,000
issued and outstanding (2008 -
8,000,000) 8,000 8,000
Common shares
57,473,048 issued and outstanding
(2008 - 57,203,454) 57,473 57,203
Additional paid-in capital 1,022,773 1,029,363
Accumulated other comprehensive loss (140,139) (132,665)
Retained earnings 1,305,433 1,245,382
------------ ------------
Total Shareholders' Equity 2,253,540 2,207,283
------------ ------------
Total Liabilities and Shareholders' Equity $ 7,797,419 $ 7,272,470
============ ============
Book Value per Common Share
Dilutive common shares outstanding 59,803,006 60,718,312
Diluted book value per common share(a) $ 34.34 $ 33.06
============ ============
Note: All financial information contained herein is unaudited,
except the balance sheet data for the year ended December 31,
2008, which was derived from Endurance's audited financial
statements.
(a) Excludes the $200 million liquidation value of the preferred
shares.
ENDURANCE SPECIALTY HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands of United States dollars,
except share and per share amounts)
Quarter Ended
--------------------
March 31, March 31,
2009 2008
--------- ---------
Revenues
Gross premiums written $ 783,306 $ 868,591
========= =========
Net premiums written 582,915 640,787
Change in unearned premiums (204,640) (268,744)
--------- ---------
Net premiums earned 378,275 372,043
Other underwriting income (loss) 3,597 (740)
Net investment income 64,550 46,878
Net realized losses on investments (8,885) (11,484)
--------- ---------
Total revenues 437,537 406,697
--------- ---------
Expenses
Losses and loss expenses 220,136 189,502
Acquisition expenses 68,274 74,374
General and administrative expenses 60,257 50,044
Amortization of intangibles 2,588 2,688
Net foreign exchange (gains) losses (62) 3,107
Interest expense 7,555 7,534
--------- ---------
Total expenses 358,748 327,249
--------- ---------
Income before income taxes 78,789 79,448
Income tax expense 492 1,637
--------- ---------
Net income $ 78,297 $ 77,811
Preferred dividends (3,875) (3,875)
--------- ---------
Net income available to common and
participating common shareholders $ 74,422 $ 73,936
========= =========
Per share data
Basic earnings per common share(1) $ 1.30 $ 1.23
========= =========
Diluted earnings per common share(1) $ 1.24 $ 1.13
========= =========
Note: All financial information contained herein is unaudited, except
the balance sheet data for the year ended December 31, 2008, which
was derived from the Company's audited financial statements.
(1) Effective January 1, 2009, the Company adopted Emerging Issues
Task Force Issue No. 03-6-1, "Participating Securities and the Two-
Class Method" ("EITF 03-6-1"), which requires basic and diluted
earnings per share to be calculated under the two-class method if
there are participating securities. Participating securities include
unvested share-based payment awards that contain nonforfeitable
rights to dividends or dividend equivalents. The Company's unvested
restricted shares issued under its stock compensation plans receive
nonforfeitable cash dividends and thus are participating securities
as defined by EITF 03-6-1.
The two-class method is an income allocation approach to the calculation of earnings per share. Net income available to common and participating common shareholders has been allocated between common and participating shareholders based on their receipt of declared or paid dividends with the remaining amount allocated based on the common and participating shareholders proportional number of shares outstanding. The weighted average number of common and common equivalent shares outstanding excludes participating securities. Basic and Diluted earnings per common share are calculated by dividing net income allocated to common shareholders by the weighted average number of common shares outstanding and weighted average common and common equivalent shares outstanding, respectively. The impact of changing from the treasury stock method to the two-class method of calculating earnings per share resulted in a decrease of $0.02 on basic earnings per common share and $0.01 on diluted earnings per common share for the three months ended March 31, 2009. Amounts for the period ended March 31, 2008 have been restated to reflect this change, which resulted in a decrease of $0.03 on basic earnings per common share and $0.02 on diluted earnings per common share.
ENDURANCE SPECIALTY HOLDINGS LTD.
RESULTS BY SEGMENT
(in thousands of United States dollars)
For quarter ended March 31, 2009
-----------------------------------------------------
Deposit
Deposit Adjusted
Re- Account- Re- Reported
Insurance insurance ing(1) insurance Totals
-----------------------------------------------------
Revenues
Gross
premiums
written $ 522,214 $ 263,378 $ (2,286) $ 261,092 $ 783,306
Ceded
premiums
written (199,784) (607) -- (607) (200,391)
--------- --------- --------- --------- ---------
Net premiums
written 322,430 262,771 (2,286) 260,485 582,915
--------- --------- --------- --------- ---------
Net premiums
earned 180,674 198,475 (874) 197,601 378,275
Other
underwriting
income 2,959 -- 638 638 3,597
--------- --------- --------- --------- ---------
183,633 198,475 (236) 198,239 381,872
--------- --------- --------- --------- ---------
Expenses
Net losses
and loss
expenses 98,804 121,422 (90) 121,332 220,136
Acquisition
expenses 24,841 42,940 493 43,433 68,274
General and
administrative
expenses 29,759 30,498 -- 30,498 60,257
--------- --------- --------- --------- ---------
153,404 194,860 403 195,263 348,667
--------- --------- --------- --------- ---------
Underwriting
income (loss) $ 30,229 $ 3,615 $ (639) $ 2,976 $ 33,205
========= ========= ========= ========= =========
Net loss ratio 54.7% 61.2% 61.4% 58.2%
Acquisition
expense ratio 13.7% 21.6% 22.0% 18.1%
General and
administrative
expense
ratio 16.5% 15.4% 15.4% 15.9%
--------- --------- --------- ---------
Combined ratio 84.9% 98.2% 98.8% 92.2%
========= ========= ========= =========
(1) Reconciles the Company's underwriting results by segment
to the Company's financial statement presentation.
ENDURANCE SPECIALTY HOLDINGS LTD.
RESULTS BY SEGMENT
(in thousands of United States dollars)
For quarter ended March 31, 2008
-----------------------------------------------------
Deposit
Deposit Adjusted
Re- Account- Re- Reported
Insurance insurance ing(1) insurance Totals
-----------------------------------------------------
Revenues
Gross premiums
written $ 585,134 $ 285,478 $ (2,021) $ 283,457 $ 868,591
Ceded premiums
written (228,993) 1,189 -- 1,189 (227,804)
--------- --------- --------- --------- ---------
Net premiums
written 356,141 286,667 (2,021) 284,646 640,787
--------- --------- --------- --------- ---------
Net premiums
earned 167,982 205,735 (1,674) 204,061 372,043
Other
underwriting
loss -- -- (740) (740) (740)
--------- --------- --------- --------- ---------
167,982 205,735 (2,414) 203,321 371,303
--------- --------- --------- --------- ---------
Expenses
Net losses
and loss
expenses 130,950 61,202 (2,650) 58,552 189,502
Acquisition
expenses 23,117 51,157 100 51,257 74,374
General and
administrative
expenses 20,561 29,483 -- 29,483 50,044
--------- --------- --------- --------- ---------
174,628 141,842 (2,550) 139,292 313,920
--------- --------- --------- --------- ---------
Underwriting
(loss) income $ (6,646) $ 63,893 $ 136 $ 64,029 $ 57,383
========= ========= ========= ========= =========
Net loss ratio 78.0% 29.7% 28.7% 50.9%
Acquisition
expense ratio 13.8% 24.9% 25.1% 20.0%
General and
administrative
expense
ratio 12.2% 14.3% 14.5% 13.5%
--------- --------- --------- ---------
Combined ratio 104.0% 68.9% 68.3% 84.4%
========= ========= ========= =========
(1) Reconciles the Company's underwriting results by segment to
the Company's financial statement presentation.
ENDURANCE SPECIALTY HOLDINGS LTD.
CONSOLIDATED FINANCIAL RATIOS
As Reported
----------------------------------------------
For the quarter ended March 31
----------------------------------------------
Insurance Reinsurance Total
-------------- -------------- --------------
2009 2008 2009 2008 2009 2008
Loss ratio 54.7% 78.0% 61.4% 28.7% 58.2% 50.9%
Acquisition
expense ratio 13.7% 13.8% 22.0% 25.1% 18.1% 20.0%
General and
administrative
expense ratio 16.5% 12.2% 15.4% 14.5% 15.9% 13.5%
------ ------ ------ ------ ------ ------
Combined ratio 84.9% 104.0% 98.8% 68.3% 92.2% 84.4%
====== ====== ====== ====== ====== ======
Effect of Prior Year Net Loss Reserve Development
Favorable / (Unfavorable)
----------------------------------------------
For the quarter ended March 31
----------------------------------------------
Insurance Reinsurance Total
-------------- -------------- --------------
2009 2008 2009 2008 2009 2008
Loss ratio 20.4% 2.2% 1.3% 18.2% 10.4% 11.0%
====== ====== ====== ====== ====== =====
Net of Prior Year Net Loss Reserve Development
----------------------------------------------
For the quarter ended March 31
----------------------------------------------
Insurance Reinsurance Total
-------------- -------------- --------------
2009 2008 2009 2008 2009 2008
Loss ratio 75.1% 80.2% 62.7% 46.9% 68.6% 61.9%
Acquisition
expense ratio 13.7% 13.8% 22.0% 25.1% 18.1% 20.0%
General and
administrative
expense ratio 16.5% 12.2% 15.4% 14.5% 15.9% 13.5%
------ ------ ------ ------ ------ ------
Combined ratio 105.3% 106.2% 100.1% 86.5% 102.6% 95.4%
====== ====== ====== ====== ====== ======
ENDURANCE SPECIALTY HOLDINGS LTD.
RECONCILIATION
TOTAL PREMIUMS WRITTEN BY SEGMENT
(in thousands of United States dollars)
The following table shows Endurance's gross and net premiums written for the quarters ended March 31, 2009 and 2008:
Quarter Ended Quarter Ended
March 31, 2009 March 31, 2008
------------------ ------------------
Gross Net Gross Net
Premiums Premiums Premiums Premiums
Written Written Written Written
------------------ ------------------
Insurance
Property $ 27,751 $ 17,487 $ 31,183 $ 15,003
Casualty 30,624 17,880 25,124 15,113
Healthcare liability 19,713 17,209 16,492 16,492
Workers' compensation 30,579 16,929 83,480 75,906
Agriculture 378,410 223,303 413,419 222,400
Professional lines 35,137 29,622 15,436 11,227
-------- -------- -------- --------
Subtotal Insurance $522,214 $322,430 $585,134 $356,141
-------- -------- -------- --------
Reinsurance
Casualty $ 75,392 $ 75,168 $ 68,965 $ 70,167
Property 34,788 34,788 34,619 34,591
Catastrophe 109,448 109,448 105,234 105,156
Agriculture 4,859 4,859 10,911 10,911
Aerospace and Marine 12,227 12,132 36,536 36,626
Surety and other specialty 24,378 24,090 27,192 27,195
-------- -------- -------- --------
Subtotal Reinsurance $261,092 $260,485 $283,457 $284,646
-------- -------- -------- --------
Total $783,306 $582,915 $868,591 $640,787
======== ======== ======== ========
ENDURANCE SPECIALTY HOLDINGS LTD.
RECONCILIATIONS
(in thousands of United States dollars, except share and per share
amounts)
The following is a reconciliation of Endurance's net income, net income per diluted common share, net income allocated to common shareholders under the two-class method and annualized return on average common equity to operating income, operating income per diluted common share, operating income allocated to common shareholders under the two-class method and operating return on average common equity (all non-GAAP measures) for the quarters ended March 31, 2009 and 2008:
Quarter Ended
--------------------------
March 31, March 31,
2009 2008
------------ ------------
Net income $ 78,297 $ 77,811
Add (Less) after-tax items:
Net foreign exchange gains (49) (10)
Net realized losses on
investments 9,948 11,726
------------ ------------
Operating income before preferred
dividends $ 88,196 $ 89,527
Preferred dividends (3,875) (3,875)
------------ ------------
Operating income available to common
and participating common shareholders $ 84,321 $ 85,652
============ ============
Operating income allocated to
common shareholders under the
two-class method $ 82,753 $ 84,145
============ ============
Weighted average dilutive
common shares 59,007,221 64,173,506
============ ============
Operating income per diluted
common share $ 1.40 $ 1.31
============ ============
Average common equity (a) $ 2,030,412 $ 2,325,217
Operating return on average
common equity 4.2% 3.7%
------------ ------------
Annualized operating return on
average common equity 16.6% 14.7%
============ ============
Net income $ 78,297 $ 77,811
Preferred dividends (3,875) (3,875)
------------ ------------
Net income available to common and
participating common shareholders $ 74,422 $ 73,936
============ ============
Net income allocated to common
shareholders under the
two-class method $ 73,037 $ 72,632
============ ============
Net income per diluted common share $ 1.24 $ 1.13
============ ============
Return on average common equity,
Net income 3.7% 3.2%
============ ============
Annualized return on average
common equity, Net income 14.7% 12.7%
============ ============
(a) Average common equity is calculated as the arithmetic average of
the beginning and ending common equity balances for the stated period,
which excludes the $200 million liquidation value of the preferred
shares.
Operating income and operating income per diluted common share are internal performance measures used by Endurance in the management of its operations. Operating income allocated to common shareholders (excludes unvested restricted shares outstanding which are considered participating) per diluted common share represents operating income divided by weighted average dilutive common shares, which has been calculated in accordance with the two-class method under U.S. GAAP. 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. Endurance 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 and net income per dilutive common share determined in accordance with the two-class method under GAAP, Endurance believes that showing operating income and operating income per dilutive common share enables investors, analysts, rating agencies and other users of its financial information to more easily analyze Endurance's results of operations in a manner similar to how management analyzes Endurance's underlying business performance. Operating income and operating income per dilutive common share should not be viewed as substitutes for GAAP net income and net income per dilutive common share, respectively.
Endurance presents return on equity as a measure that is commonly recognized as a standard of performance by investors, analysts, rating agencies and other users of its financial information.