Endurance Reports Second Quarter Net Income of $58.6 Million and Growth in Diluted Book Value Per Share of 4.1%

PEMBROKE, Bermuda, July 27, 2010 (GLOBE NEWSWIRE) -- Endurance Specialty Holdings Ltd. (NYSE:ENH) today reported net income of $58.6 million and $0.97 per diluted common share for the second quarter of 2010 versus net income of $149.1 million and $2.42 per diluted common share in the second quarter of 2009. Driven by a combination of earnings and an improvement in unrealized investment gains, book value per diluted share was $47.78 at June 30, 2010, an increase of 4.1% for the quarter.

For the six months ended June 30, 2010, net income was $114.4 million and $1.88 per diluted common share versus net income of $227.4 million and $3.65 per diluted common share for the six months ended June 30, 2009. Year to date, book value per diluted share increased 7.1% as a result of earnings and improvements in unrealized investment gains.

Operating highlights for the quarter ended June 30, 2010 were as follows:

• Net premiums written of $450.8 million, a decrease of 6.1% over the same period in 2009;
• Combined ratio of 91.0%, which included 6.5 percentage points of favorable prior year loss reserve development;
• Net investment income of $33.4 million, a decrease of $55.5 million over the same period in 2009;
• Operating income, which excludes after-tax realized investment gains and losses and foreign exchange gains and losses, of $57.7 million and $0.96 per diluted common share;
• Operating return on average common equity for the quarter of 2.0%, or 8.2% on an annualized basis; and
• Book value of $47.78 per diluted common share, up 4.1% from March 31, 2010.

Operating highlights for the six months ended June 30, 2010 were as follows:

• Net premiums written of $1,153.7 million, an increase of 8.5% over the same period in 2009;
• Combined ratio of 93.8%, which included 8.3 percentage points of favorable prior year loss reserve development;
• Net investment income of $89.8 million, a decrease of $63.6 million over the same period in 2009;
• Operating income, which excludes after-tax realized investment gains and losses and foreign exchange gains and losses, of $117.9 million and $1.94 per diluted common share;
• Operating return on average common equity for the first half of the year of 4.2%, or 8.4% on an annualized basis; and
• Book value of $47.78 per diluted common share, up 7.1% from December 31, 2009.

David Cash, Chief Executive Officer, commented, "Endurance generated solid financial results during a quarter characterized by challenging underwriting and investing conditions. Our diluted book value per common share increased by $1.89 to $47.78 per share during the quarter, a return of 4.7% including dividends paid. Our U.S. insurance operations, including our crop insurance business, was a strong contributor to our overall results. Outside our underwriting operations, we experienced a fifth consecutive quarter of strong total returns on our investment portfolio, generating $80 million of combined net investment income and realized and unrealized gains on our portfolio, a strong achievement in an investing environment that remains volatile."

Insurance Segment

Operating highlights for Endurance's Insurance segment for the quarter ended June 30, 2010 were as follows:

• Net premiums written of $195.0 million, an increase of 26.8% from the second quarter of 2009;
• Combined ratio of 94.1%, an improvement of 0.8 percentage points from the second quarter of 2009; and
• Favorable prior year loss reserve development of 3.6 percentage points during the current period, compared to 8.9 percentage points of favorable prior year loss reserve development in the second quarter of 2009.

Operating highlights for Endurance's Insurance segment for the six months ended June 30, 2010 were as follows:

• Net premiums written of $543.9 million, an increase of 14.2% from the same period in 2009;
• Combined ratio of 93.2%, an increase of 2.8 percentage points from the same period in 2009; and
• Favorable prior year loss reserve development of 6.9 percentage points during the current period, compared to 14.0 percentage points of favorable prior year loss reserve development in the same period in 2009.

For the second quarter and first six months of 2010, net premiums written in the Insurance segment have increased due to higher retentions in the Company's agriculture and U.S. property and casualty lines of business, partially offset by a reduction in premiums from exiting the workers' compensation line of business in February 2009. Within the agriculture line of business, the Company purchased less third party reinsurance and, due to improved growing conditions compared to a year ago, reduced cessions to the Federal Crop Insurance Corporation, leading to increased net premiums. Beginning in the second quarter of 2009, Endurance also reduced reinsurance purchases on its U.S. property and casualty insurance lines of business as the U.S. insurance operations have matured. 

The improvement in the Insurance segment combined ratio in the second quarter of 2010 compared to 2009 resulted from a decrease in the acquisition expense ratio partially offset by an increase in the net loss and general and administrative expense ratios.   The current quarter combined ratio benefitted from 3.6 points of favorable loss reserve development compared to 8.9 points of favorable development in the second quarter of 2009. Favorable development in the current quarter was driven by the short tail and other lines of business.

The Insurance segment  combined ratio increased in the first half of 2010 compared to the same period in 2009 primarily from an increase in the net loss ratio, which was driven predominantly by lower levels of favorable prior year loss reserve development recorded during the current period, partially offset by improved current accident year results in the agriculture and property lines of business. Endurance recorded less favorable loss reserve development in the first six months of 2010 compared to the same period in 2009 across all lines of insurance business. 

Reinsurance Segment

Operating highlights for Endurance's Reinsurance segment for the quarter ended June 30, 2010 were as follows:

• Net premiums written of $255.8 million, a decrease of 21.6% from the second quarter of 2009;
• Combined ratio of 87.9%, an increase of 3.8 percentage points from the second quarter of 2009; and
• Favorable prior year loss reserve development of 9.4 percentage points during the current period, compared to 7.7 percentage points of favorable prior year loss reserve development in the second quarter of 2009.

Operating highlights for Endurance's Reinsurance segment for the six months ended June 30, 2010 were as follows:

• Net premiums written of $609.8 million, an increase of 3.9% from the same period in 2009;
• Combined ratio of 94.3%, an increase of 3.1 percentage points from the same period in 2009; and
• Favorable prior year loss reserve development of 9.4 percentage points during the current period, compared to 4.6 percentage points of favorable prior year loss reserve development in the same period in 2009.

The decline in net premiums written in the Reinsurance segment in the second quarter of 2010 resulted primarily from the catastrophe, casualty and property lines of business. Within the catastrophe line of business, lower premiums reflected pricing declines and the Company's choice to reduce the limits it deployed during mid-year renewals. Casualty net premiums written declined 32.2% in the current quarter, as one large contract renewal was delayed from the second quarter to the third quarter, as well as from the non-renewal of several contracts that no longer met our return requirements. Within the property line of business, premiums declined due to the absence of favorable premium adjustments compared to the second quarter of 2009. In the first six months of 2010 net premiums written increased 3.9% over the same period in 2009 driven by the strong renewals experienced in the first quarter of 2010.

The Reinsurance segment's combined ratio in the second quarter of 2010 increased 3.8 points as a result of a higher net loss ratio from catastrophe losses related to European flooding and from a higher level of smaller regional industry catastrophe events occurring in the United States during the second quarter.   The current period's loss ratio benefitted from 9.4 percentage points of favorable loss reserve development compared to 7.7 percentage points in the second quarter of 2009.

For the first six months of 2010, the Reinsurance segment reported a combined ratio of 94.3% compared to 91.2% for the same period in 2009. The increase in the combined ratio was largely attributable to a greater frequency of catastrophe events in 2010, including the Chilean earthquake and Windstorm Xynthia that generated net losses of approximately $63.0 million in the first half of 2010.

Investments

Endurance's net investment income for the quarter ended June 30, 2010 was $33.4 million, a decrease of 62.5% or $55.5 million as compared to the same period in 2009 and $89.8 million for the six months ended June 30, 2010, a decrease of 41.4% or $63.6 million as compared to the same period in 2009.  During the second quarter and six months ended June 30, 2010, Endurance's net investment income included mark to market losses of $7.0 million and gains of $10.0 million, respectively, on its alternative investments and high yield loan funds included in other investments, as compared to gains of $40.5 million and $51.0 million in the second quarter and first six months of 2009, respectively. Investment income generated from Endurance's fixed maturity investments decreased by $6.6 million and $19.6 million for the three and six months ended June 30, 2010 compared to the same periods in 2009 due to lower reinvestment rates during the current periods and the short duration of the portfolio. The ending book yield on Endurance's fixed maturity investments at June 30, 2010 was 3.22%, down from 3.29% at December 31, 2009. 

Endurance's fixed income investments, which comprise approximately 93.7% of Endurance's investments as of June 30, 2010, maintained an average credit quality of AA+ as of June 30, 2010.   Endurance recorded net realized gains on investment sales of $2.7 million during the second quarter and $6.2 million of net realized gains for the first six months of 2010 compared to net realized investment losses of $1.5 million and net realized investment gains of $1.7 million during the same periods in 2009. 

Endurance ended the second quarter of 2010 with cash and invested assets of $6.2 billion, which represents a 3.6 % increase from December 31, 2009. Net operating cash flow was $216.2 million for the six months ended June 30, 2010 versus $225.8 million for the same period in 2009. 

Capitalization and Shareholders' Equity

At June 30, 2010, Endurance's shareholders' equity was $2.8 billion or $47.78 per diluted common share versus $2.8 billion or $44.61 per diluted common share at December 31, 2009. During the three months ended June 30, 2010, Endurance repurchased 1,876,153 of its common shares and share equivalents for an aggregate repurchase price of $69.4 million.  Year-to-date, Endurance has repurchased 3,210,806 shares and share equivalents in private and open market transactions for an aggregate repurchase price of $117.8 million.

Earnings Call

Endurance will host a conference call on July 28, 2010 at 9:30 a.m. Eastern time to discuss its financial results. The conference call can be accessed via telephone by dialing (866) 416-5346 (toll-free) or (913) 312-1411 (international) and entering pass code: 7761408. 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 August 11, 2010 by dialing (888) 203-1112 (toll-free) or (719) 457-0820 (international) and entering the pass code: 7761408. 

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 second quarter of 2010 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 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, 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 principal operating subsidiaries.  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, the effects of competitors' pricing policies, greater frequency or severity of claims and loss activity, changes in market conditions in the agriculture insurance industry, termination of or changes in the terms of the U.S. multiple peril crop insurance program, a decreased demand for property and casualty insurance or reinsurance, changes in the availability, cost or quality of reinsurance or retrocessional coverage, our inability to renew business previously underwritten or acquired, our inability to maintain our applicable financial strength ratings, our inability to effectively integrate acquired operations, uncertainties in our reserving process, changes to our tax status, changes in insurance regulations, reduced acceptance of our existing or new products and services, a loss of business from and credit risk related to our broker counterparties, assessments for high risk or otherwise uninsured individuals, possible terrorism or the outbreak of war, a loss of key personnel, political conditions, changes in insurance regulation, changes in accounting policies, our investment performance, the valuation of our invested assets, a breach of our investment guidelines, the unavailability of capital in the future, developments in the world's financial and capital markets and our access to such markets, government intervention in the insurance and reinsurance industry, illiquidity in the credit markets, changes in general economic conditions and other factors described in our Annual Report on Form 10-K for the year ended December 31, 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.

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.