Endurance Reports Record 2009 Net Income of $536.1 Million and $8.69 Per Diluted Common Share

PEMBROKE, Bermuda, Feb. 17, 2010 (GLOBE NEWSWIRE) -- Endurance Specialty Holdings Ltd. (NYSE:ENH) today reported net income of $154.8 million and $2.56 per diluted common share for the fourth quarter of 2009 versus net income of $16.9 million and $0.22 per diluted common share for the fourth quarter of 2008. 

For the year ended December 31, 2009, net income was a record $536.1 million and $8.69 per diluted common share versus net income of $98.6 million and $1.31 per diluted common share for the year ended December 31, 2008.

Operating highlights for the quarter ended December 31, 2009 were as follows:

• Net premiums written of $146.4 million, a decrease of 18.7% over the same period in 2008;
• Combined ratio of 74.8%, which included 10.5 percentage points of favorable prior year loss reserve development;
• Net investment income of $59.3 million, an increase of $63.9 million over the same period in 2008;
• Operating income, which excludes after-tax realized investment gains and losses and foreign exchange gains and losses, of $153.7 million and $2.54 per diluted common share; and
• Operating return on average common equity for the quarter of 5.9%, or 23.5% on an annualized basis.

Operating highlights for the year ended December 31, 2009 were as follows:

• Net premiums written of $1,606.1 million, a decrease of 10.0% over 2008;
• Combined ratio of 84.0%, which included 9.2 percentage points of favorable prior year loss reserve development;
• Net investment income of $284.2 million, an increase of $154.0 million over 2008;
• Operating income, which excludes after-tax realized investment gains and losses and foreign exchange gains and losses, of $520.7 million and $8.43 per diluted common share;
• Operating return on average common equity for the year of 22.0%; and
• Book value of $44.61 per diluted common share, up 34.9% from December 31, 2008.

Kenneth J. LeStrange, Chairman, President and Chief Executive Officer, commented, "Our excellent results in the fourth quarter capped a record year for Endurance. Solid underwriting results, strong performance from our investment portfolio and disciplined capital management contributed to outstanding results and growth in book value per share in 2009. We begin 2010 with an exceptionally strong balance sheet and excellent strategic position that should enable Endurance to continue to deliver on our commitments to our shareholders, clients and employees."

Insurance Segment

Operating highlights for Endurance's Insurance segment for the quarter ended December 31, 2009 were as follows:

• Net premiums written of $88.4 million, a decrease of 37.5% from the fourth quarter of 2008;
• Combined ratio of 87.2%, an improvement of 6.4 percentage points from the fourth quarter of 2008; and
• Favorable prior year loss reserve development of 11.2 percentage points during the current period, compared to 10.3 percentage points of favorable prior year loss reserve development in the fourth quarter of 2008.

Operating highlights for Endurance's Insurance segment for the year ended December 31, 2009 were as follows:

• Net premiums written of $740.3 million, a decrease of 24.5% from the prior year;
• Combined ratio of 92.0%, an improvement of 4.6 percentage points from 2008; and
• Favorable prior year loss reserve development of 11.2 percentage points during the current period, compared to 7.7 percentage points of favorable prior year loss reserve development in 2008.

Net premiums written in the Insurance segment decreased for the current periods compared to the same periods in 2008, largely driven by the strategic decisions to exit the California workers' compensation and U.K. property insurance lines in early 2009. The workers' compensation and U.K. property lines contributed $51.6 million in the fourth quarter and $254.5 million in the full year of 2008 compared to nil in the fourth quarter of 2009 and $9.2 million in the full year of 2009. Outside of these discontinued lines of business, 2009 net premiums written were relatively flat for the fourth quarter and modestly higher for the full year compared to 2008. The increase in full year net premiums written, excluding the discontinued lines, was predominantly driven by growth in professional lines, where our underwriters were able to capitalize on opportunities created by disruption at several of our larger peer companies and from the launch of a small risk environmental insurance program in late 2008. Partially offsetting this growth was a decline in agriculture premiums resulting from lower commodity prices. 

The improvement in the Insurance segment combined ratio in the fourth quarter of 2009 compared to 2008 was driven by lower loss and acquisition expense ratios, partially offset by a higher general and administrative expense ratio. The 2009 fourth quarter net loss ratio improved by 8.6 percentage points primarily due to the absence of midwestern flood and commodity price losses in the agriculture line that occurred in 2008. The net loss ratio was also positively impacted by increased favorable prior year loss reserve development and lower earned premiums in our recently exited workers' compensation line of business that had higher net loss ratios. The 2009 fourth quarter general and administrative expense ratio increased 4.2 percentage points due to reduced earned premiums, lower third party commissions and expense reimbursement offsets in the agriculture line of business and higher incentive compensation expenses reflecting significantly improved company wide profitability compared to 2008. 

For the year ended December 31, 2009, the Insurance segment combined ratio improved compared to the same period in 2008 due to increased levels of favorable prior year loss reserve development partially offset by higher general and administrative expenses. Favorable prior year loss reserve development emerged in both the fourth quarter and for the year ended 2009 across most lines of business as claims did not develop as originally estimated.

Reinsurance Segment

Operating highlights for Endurance's Reinsurance segment for the quarter ended December 31, 2009 were as follows:

• Net premiums written of $58.0 million, an increase of 50.2% from the fourth quarter of 2008;
• Combined ratio of 63.1%, an improvement of 8.1 percentage points from the fourth quarter of 2008; and
• Favorable prior year loss reserve development of 9.7 percentage points during the current period, compared to 8.5 percentage points of favorable prior year loss reserve development in the fourth quarter of 2008.

Operating highlights for Endurance's Reinsurance segment for the year ended December 31, 2009 were as follows:

• Net premiums written of $865.7 million, an increase of 7.7% from 2008;
• Combined ratio of 75.9%, an improvement of 14.3 percentage points from the prior year; and
• Favorable prior year loss reserve development of 7.3 percentage points during the current period, compared to 10.1 percentage points of favorable prior year loss reserve development in 2008.

The increase in net premiums written in the Reinsurance segment during the fourth quarter of 2009 resulted primarily from growth in the casualty line of business and an absence of the downward premium adjustments that occurred in the fourth quarter of 2008. Partially offsetting this growth were reduced favorable premium adjustments in other lines year over year and the non-renewal of contracts that no longer met the Company's pricing and underwriting requirements. For the full year 2009, net premiums written increased 7.7% from growth in new business written primarily in the casualty and property lines, which was partially offset by declines in net premiums written in the aerospace and marine as well as in surety and other specialty lines as a result of the non-renewal of contracts that no longer met the Company's pricing and underwriting requirements.

The combined ratios in the Reinsurance segment for the quarter and year ended December 31, 2009 improved from the same periods a year ago due to the absence of significant catastrophe events and favorable claims trends. Partially offsetting the decrease in the net loss ratio for the year ended December 31, 2009 was less favorable prior year loss reserve development compared to the same period in 2008 and higher general and administrative expenses, driven predominantly by higher incentive compensation expenses reflecting significantly improved profitability from a year ago.

Investments

Endurance's net investment income increased $63.9 million for the quarter ended December 31, 2009 and $154.0 million for the year ended December 31, 2009 as compared to the same periods in 2008. During the fourth quarter and year ended December 31, 2009, Endurance's net investment income included gains of $16.8 million and $98.1 million on its alternative investments and high yield loan funds included in other investments, as compared to losses of $62.2 million and $111.6 million in the fourth quarter and year ended 2008. Investment income generated from Endurance's fixed maturity investments declined by $12.6 million and $49.9 million for the three months and year ended December 31, 2009 compared to the same periods in 2008. The decrease in investment income from fixed maturity investments resulted from lower reinvestment rates during 2009, driven by lower market yields and a shorter portfolio duration, as the Company actively allocated a larger portion of its investments to cash, cash equivalents and short duration securities during a portion of 2009. For the same reasons, the ending book yield on Endurance's fixed maturity investments at December 31, 2009 was 3.29%, down from 4.45% at December 31, 2008.

At December 31, 2009, Endurance's fixed maturity portfolio, which comprises 83.5% of Endurance's investments, had an average credit quality of AA+. Endurance's fixed maturity portfolio was in an unrealized gain position of $38.9 million at December 31, 2009, an improvement of $173.0 million from December 31, 2008 (an improvement of $206.2 million from December 31, 2008 after adjusting for a change in accounting policy related to the recognition and presentation of other-than-temporary impairments which Endurance adopted in the second quarter of 2009).  Endurance recorded net realized gains (losses) on investment sales, including impairment losses recognized in earnings, of $2.2 million and ($13.9) million during the fourth quarter and full year of 2009 compared to net realized investment losses of $11.8 million and $57.4 million during the same periods in 2008.

Endurance ended the fourth quarter of 2009 with cash and invested assets of $6.0 billion, which represents an 11.5% increase from December 31, 2008. Net operating cash flow was $457.3 million for the year ended December 31, 2009 versus $479.4 million for the year ended December 31, 2008. 

Capitalization and Shareholders' Equity

At December 31, 2009, Endurance's shareholders' equity was $2.8 billion or $44.61 per diluted common share versus $2.2 billion or $33.06 per diluted common share at December 31, 2008. During the three months ended December 31, 2009, Endurance repurchased 1.7 million of its common shares and share equivalents for an aggregate repurchase price of $63.8 million. For the full year of 2009, Endurance repurchased 3.5 million common shares and share equivalents for an aggregate repurchase price of $116.2 million and an average price of $32.87 which is 74% of our book value per share at December 31, 2009.

Earnings Call

Endurance will host a conference call on February 18, 2010 at 8:30 a.m. Eastern time to discuss its financial results. The conference call can be accessed via telephone by dialing (866) 416-5346 or (913) 312-1411 (international) and entering pass code: 8000245. 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 March 4, 2010 by dialing (888) 203-1112 or (719) 457-0820 (international) and entering the pass code: 8000245.

The public may access a live broadcast of the conference call at the "Investors" section of Endurance's website, www.endurance.bm. Following the live broadcast, an archived version will continue to be available on Endurance's website.

A copy of Endurance's financial supplement for the fourth 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 dilutive common share, operating income allocated to common shareholders and the combined ratio excluding prior year net loss reserve development 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 and professional lines of insurance and property, catastrophe, casualty, agriculture, aerospace and marine, 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 & Poor's. 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 "should," "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 as amended on May 8, 2009.

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.

GROSS AND NET PREMIUMS WRITTEN BY SEGMENT

(in thousands of United States dollars)

The following tables show Endurance's gross and net premiums written for the quarters and years ended December 31, 2009 and 2008: 

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 and years ended December 31, 2009 and 2008:

[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.