PEMBROKE, Bermuda, Oct. 29, 2009 (GLOBE NEWSWIRE) -- Endurance Specialty Holdings Ltd. (NYSE:ENH) today reported net income of $153.8 million and $2.51 per diluted common share for the third quarter of 2009 versus a net loss of $99.4 million and $1.79 per diluted common share in the third quarter of 2008.
For the nine months ended September 30, 2009, net income was $381.3 million and $6.15 per diluted common share versus net income of $81.8 million and $1.09 per diluted common share for the nine months ended September 30, 2008.
Operating highlights for the quarter ended September 30, 2009 were as follows:
* Net premiums written of $396.7 million, a decrease of 19.7% over the same period in 2008; * Combined ratio of 79.5%, which included 8.1 percentage points of favorable prior year loss reserve development; * Net investment income of $71.6 million, an increase of $44.1 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 $148.1 million and $2.41 per diluted common share; and * Operating return on average common equity for the quarter of 6.0%, or 24.1% on an annualized basis.
Operating highlights for the nine months ended September 30, 2009 were as follows:
* Net premiums written of $1,459.6 million, a decrease of 9.0% over the same period in 2008; * Combined ratio of 86.9%, which included 8.9 percentage points of favorable prior year loss reserve development; * Net investment income of $224.9 million, an increase of $90.2 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 $367.0 million and $5.91 per diluted common share; * Operating return on average common equity for the first nine months of the year of 15.7%, or 21.0% on an annualized basis; and * Book value of $42.09 per diluted common share, up 27.3% from December 31, 2008.
Kenneth J. LeStrange, Chairman and Chief Executive Officer, commented, "I am extremely pleased that Endurance has delivered another quarter of excellent operating results and robust growth in book value per share. Our strong results highlight the quality of our underwriting and investment activities and careful and conscientious risk management practices. Although market conditions remain competitive, we are committed to maintaining our underwriting discipline and we are well positioned strategically and financially to capitalize on attractive underwriting opportunities."
Insurance Segment
Operating highlights for Endurance's Insurance segment for the quarter ended September 30, 2009 were as follows:
* Net premiums written of $175.7 million, a decrease of 29.3% from the third quarter of 2008; * Combined ratio of 98.7%, an increase of 6.1 percentage points from the third quarter of 2008; and * Favorable prior year loss reserve development of 6.1 percentage points during the current period, compared to 6.4 percentage points of favorable prior year loss reserve development in the third quarter of 2008.
Operating highlights for Endurance's Insurance segment for the nine months ended September 30, 2009 were as follows:
* Net premiums written of $651.9 million, a decrease of 22.3% from the same period in 2008; * Combined ratio of 93.4%, an improvement of 4.2 percentage points from the same period in 2008; and * Favorable prior year loss reserve development of 11.2 percentage points during the current period, compared to 6.8 percentage points of favorable prior year loss reserve development in the same period in 2008.
Net premiums written declined in the Insurance segment for the current periods compared to the same periods in 2008, driven by reductions in the workers' compensation, property and agriculture lines. The reduction in the workers' compensation and property net premiums written was due to the Company's strategic exit from the California workers' compensation and U.K. property insurance markets in the first quarter of 2009. In the third quarter and first nine months of 2008, these lines contributed $43.4 million and $202.9 million of net written premiums, respectively. The reduction in agriculture net premiums written was a result of lower commodity prices compared to a year ago. Partially offsetting these declines was modest growth in net premiums written in the professional, casualty and healthcare lines of business in the three months ended September 30, 2009 compared to the same period last year, which resulted from expanded underwriting capabilities and increased market penetration.
The increase in the Insurance segment combined ratio in the third quarter of 2009 compared to 2008 was driven by higher general and administrative expense and net loss ratios. The general and administrative expense ratio increased 4.0 percentage points partly as a result of reductions in net earned premiums and third party commissions and expense reimbursement offsets, primarily in the agriculture line. In addition, the Company continued in the third quarter of 2009 to make strategic employee additions in its agriculture and other U.S. specialty insurance operations. The net loss ratio increased by 2.1 percentage points primarily due to higher provisions for losses incurred but not reported in the 2009 accident year in the Company's recently exited California workers' compensation line, reflecting the Company's cautious view of industry trends and potential claim cost changes.
For the nine months ended September 30, 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. Favorable loss reserve development emerged in both the third quarter and first nine months of 2009 across each of the short tailed, long tailed and other lines of business in the Insurance segment as claims did not develop as originally estimated.
Reinsurance Segment
Operating highlights for Endurance's Reinsurance segment for the quarter ended September 30, 2009 were as follows:
* Net premiums written of $221.0 million, a decrease of 10.0% from the third quarter of 2008; * Combined ratio of 57.4%, an improvement of 77.8 percentage points from the third quarter of 2008; and * Favorable prior year loss reserve development of 10.3 percentage points during the current period, compared to 0.5 percentage points of favorable prior year loss reserve development in the third quarter of 2008.
Operating highlights for Endurance's Reinsurance segment for the nine months ended September 30, 2009 were as follows:
* Net premiums written of $807.7 million, an increase of 5.6% from the same period in 2008; * Combined ratio of 80.1%, an improvement of 15.7 percentage points from the same period in 2008; and * Favorable prior year loss reserve development of 6.4 percentage points during the current period, compared to 10.6 percentage points of favorable prior year loss reserve development in the same period in 2008.
The decrease in net premiums written in the Reinsurance segment during the third quarter of 2009 resulted primarily from the absence of reinstatement premiums in the catastrophe line of business which were recorded in the third quarter of 2008 as a result of Hurricanes Ike and Gustav. This decline was partially offset by an increase in net premiums written in the Reinsurance segment's casualty line, which was primarily driven by favorable prior period premium adjustments. The remaining lines of business within the Reinsurance segment posted modest net premium changes from a year ago.
The combined ratios in the Reinsurance segment for the current periods decreased from the same periods a year ago due to the absence of catastrophe events and favorable claims trends. Partially offsetting the decrease in the net loss ratio in the nine months ended September 30, 2009 was the recognition of less favorable prior year loss reserve development compared to the same period in 2008.
The decrease in the net loss ratio for the third quarter of 2009 was partially offset by increases in the current period's acquisition expense ratio compared to the same period in 2008 primarily due to higher profit commissions in the property line. The general and administrative expense ratio also increased in the current period largely due to lower net earned premiums year over year.
Investments
Endurance's net investment income increased 161.1% or $44.1 million for the quarter ended September 30, 2009 and 66.9% or $90.2 million for the nine months ended September 30, 2009 as compared to the same periods in 2008. During the third quarter and nine months ended September 30, 2009, Endurance's net investment income included gains of $30.4 million and $81.3 million on its alternative investments and high yield loan funds included in other investments, as compared to losses of $32.8 million and $49.4 million in the third quarter and first nine months of 2008. Investment income generated from Endurance's fixed maturity investments decreased by $19.1 million and $37.3 million for the three and nine months ended September 30, 2009 compared to the same periods in 2008 due to lower reinvestment rates during the current periods and a higher allocation of investments to cash, cash equivalents and short duration securities. For the same reasons, the ending book yield on Endurance's fixed maturity investments at September 30, 2009 was 3.35%, down from 4.45% at December 31, 2008.
At September 30, 2009, Endurance's fixed maturity portfolio, which comprises approximately 94.0% of Endurance's investments, maintained an average credit quality of AAA. Endurance's fixed maturity portfolio was in an unrealized gain position of $39.2 million at September 30, 2009, an improvement of $120.3 million in the third quarter and $199.1 million in the first nine months of 2009 (an improvement of $174.0 million in the first nine months of 2009 after adjusting for a change in accounting policy related to the recognition and presentation of other-than-temporary impairments ("OTTI") which Endurance adopted in the second quarter of 2009). Endurance recorded net realized gains on investment sales of $1.4 million and $3.1 million during the third quarter and first nine months of 2009 compared to net realized investment losses of $7.6 million and $4.5 million during the same periods in 2008.
Endurance recorded $0.5 million of OTTI on its debt securities in the third quarter of 2009. All of the OTTI recorded by Endurance in the third quarter of 2009 was determined to relate to specific credit events and recorded in earnings.
Endurance ended the third quarter of 2009 with cash and invested assets of $6.2 billion, which represents a 15.2% increase from December 31, 2008. Net operating cash flow was $431.2 million for the nine months ended September 30, 2009 versus $457.7 million for the same period in 2008.
Capitalization and Shareholders' Equity
At September 30, 2009, Endurance's shareholders' equity was $2.7 billion or $42.09 per diluted common share versus $2.2 billion or $33.06 per diluted common share at December 31, 2008. During the three months ended September 30, 2009, Endurance repurchased 792,698 of its common shares and share equivalents in private and open market transactions for an aggregate repurchase price of $26.6 million. Year-to-date, Endurance has repurchased 1.8 million shares and share equivalents in private and open market transactions for an aggregate repurchase price of $52.4 million.
Earnings Call
Endurance will host a conference call on October 30, 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) and entering pass code: 68800643. 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 November 13, 2009 by dialing (800) 642-1687 or (706) 645-9291 (international) and entering the pass code: 68800643.
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 third quarter of 2009 will be available on Endurance's website at www.endurance.bm shortly after the release of earnings.
Operating income (loss), operating return on average common equity, operating income (loss) per dilutive common share, operating income (loss) 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 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 "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. CONSOLIDATED BALANCE SHEETS (in thousands of United States dollars, except share and per share amounts) September 30, December 31, 2009 2008 ------------- ------------- Assets Cash and cash equivalents $ 614,437 $ 1,061,994 Fixed maturity investments, available for sale, at fair value 4,494,429 3,875,137 Short term investments, available for sale, at fair value 712,618 111,333 Preferred equity securities, available for sale, at fair value 15,535 25,360 Other investments 335,498 284,263 Premiums receivable, net 828,316 609,387 Deferred acquisition costs 181,018 160,870 Securities lending collateral 113,499 112,940 Prepaid reinsurance premiums 169,097 149,591 Losses recoverable 454,972 557,834 Accrued investment income 27,826 30,872 Goodwill and intangible assets 194,033 200,791 Deferred tax assets 16,142 20,691 Receivable on pending investment sales 326,133 3,104 Other assets 73,728 68,303 ------------- ------------- Total Assets $ 8,557,281 $ 7,272,470 ============= ============= Liabilities Reserve for losses and loss expenses $ 3,241,244 $ 3,235,456 Reserve for unearned premiums 1,127,834 885,488 Net deposit liabilities 47,338 58,622 Securities lending payable 113,717 115,603 Reinsurance balances payable 263,170 233,561 Debt 447,485 447,468 Payable on pending investment purchases 504,587 9 Other liabilities 103,556 88,980 ------------- ------------- Total Liabilities 5,848,931 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 56,716,431 issued and outstanding (2008 - 57,203,454) 56,716 57,203 Additional paid-in capital 986,701 1,029,363 Accumulated other comprehensive income (loss) 51,541 (132,665) Retained earnings 1,605,392 1,245,382 ------------- ------------- Total Shareholders' Equity 2,708,350 2,207,283 ------------- ------------- Total Liabilities and Shareholders' Equity $ 8,557,281 $ 7,272,470 ============= ============= Book Value per Common Share Dilutive common shares outstanding 59,599,192 60,718,312 Diluted book value per common share(a) $ 42.09 $ 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 (LOSS) (in thousands of United States dollars, except share and per share amounts) For the Quarter Ended Nine Months Ended ----------- ---------- ---------- ---------- Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2009 2008 2009 2008 ---------- ---------- ---------- ---------- Revenues Gross premiums written $ 469,622 $ 624,144 $1,812,083 $2,010,798 ========== ========== ========== ========== Net premiums written $ 396,666 $ 494,023 $1,459,608 $1,604,195 Change in unearned premiums 30,088 15,606 (220,359) (269,438) ---------- ---------- ---------- ---------- Net premiums earned 426,754 509,629 1,239,249 1,334,757 Other underwriting income (loss) 5 (2,712) 4,198 (1,519) Net investment income 71,559 27,410 224,943 134,770 Net realized gains (losses) on investment sales 1,396 (7,574) 3,137 (4,527) Total other-than- temporary impairment losses (497) (22,495) (50,432) (41,039) Portion of loss recognized in accumulated other comprehensive income -- -- 31,165 -- ---------- ---------- ---------- ---------- Net impairment losses recognized in earnings(1) (497) (22,495) (19,267) (41,039) ---------- ---------- ---------- ---------- Total revenues 499,217 504,258 1,452,260 1,422,442 ---------- ---------- ---------- ---------- Expenses Losses and loss expenses 211,683 445,501 702,635 910,328 Acquisition expenses 63,026 70,598 195,150 220,608 General and adminis- trative expenses 64,436 57,771 179,222 160,308 Amortization of intangibles 2,588 2,588 7,764 7,913 Net foreign exchange (gains) losses (2,963) 15,477 (30,748) 12,963 Interest expense 7,540 7,535 22,633 22,603 ---------- ---------- ---------- ---------- Total expenses 346,310 599,470 1,076,656 1,334,723 ---------- ---------- ---------- ---------- Income (loss) before income taxes 152,907 (95,212) 375,604 87,719 Income tax benefit (expense) 935 (4,180) 5,675 (5,962) ---------- ---------- ---------- ---------- Net income (loss) 153,842 (99,392) 381,279 81,757 Preferred dividends (3,875) (3,875) (11,625) (11,625) ---------- ---------- ---------- ---------- Net income (loss) available to common and participating common shareholders $ 149,967 $ (103,267) $ 369,654 $ 70,132 ========== ========== ========== ========== Per share data Basic earnings (loss) per common share(2) $ 2.63 $ (1.76) $ 6.46 $ 1.18 ========== ========== ========== ========== Diluted earnings (loss) per common share(2) $ 2.51 $ (1.79) $ 6.15 $ 1.09 ========== ========== ========== ========== (1) Effective April 1, 2009, the Company adopted new accounting guidance related to the recognition and presentation of other- than-temporary impairments, which required the Company to identify whether an investment was in an unrealized loss position due to credit or non-credit related factors. Only credit related impairments are recognized in earnings. (2) Effective January 1, 2009, the Company adopted new accounting guidance related to the calculation of earnings per share 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 the guidance. Amounts for the periods ended September 30, 2008 have been restated to reflect this change. For more information on the guidance and its effect on the Company's financial statements, please refer to our most recently filed Quarterly Report on Form 10-Q. ENDURANCE SPECIALTY HOLDINGS LTD. RESULTS BY SEGMENT (in thousands of United States dollars) For the quarter ended September 30, 2009 --------------------------------------------------------- Total Company Deposit Reported Insurance Reinsurance Subtotal Accounting(1) Totals --------- ----------- -------- ------------- -------- Revenues Gross premiums written $248,673 $220,460 $469,133 $ 489 $469,622 Ceded premiums written (72,987) 31 (72,956) -- (72,956) --------- ----------- -------- ------------- -------- Net premiums written 175,686 220,491 396,177 489 396,666 --------- ----------- -------- ------------- -------- Net premiums earned 228,290 198,527 426,817 (63) 426,754 Other under- writing income 382 -- 382 (377) 5 --------- ----------- -------- ------------- -------- Total under- writing revenues 228,672 198,527 427,199 (440) 426,759 --------- ----------- -------- ------------- -------- Expenses Net losses and loss expenses 168,861 43,714 212,575 (892) 211,683 Acquisition expenses 20,409 42,388 62,797 229 63,026 General and adminis- trative expenses 36,015 28,421 64,436 -- 64,436 --------- ----------- -------- ------------- -------- 225,285 114,523 339,808 (663) 339,145 --------- ----------- -------- ------------- -------- Under- writing income $ 3,387 $ 84,004 $ 87,391 $ 223 $ 87,614 ========= =========== ======== ============= ======== Net loss ratio 74.0% 22.0% 49.8% 49.6% Acquisition expense ratio 8.9% 21.4% 14.7% 14.8% General and adminis- trative expense ratio 15.8% 14.3% 15.1% 15.1% --------- ----------- -------- -------- Combined ratio 98.7% 57.7% 79.6% 79.5% ========= =========== ======== ======== (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 the quarter ended September 30, 2008 -------------------------------------------------------- Total Company Deposit Reported Insurance Reinsurance Subtotal Accounting(1) Totals --------- ----------- --------- ------------- --------- Revenues Gross premiums written $ 372,936 $ 251,228 $ 624,164 $ (20) $ 624,144 Ceded premiums written (124,335) (5,786) (130,121) -- (130,121) --------- ----------- --------- ------------- --------- Net premiums written 248,601 245,442 494,043 (20) 494,023 --------- ----------- --------- ------------- --------- Net premiums earned 270,298 240,975 511,273 (1,644) 509,629 Other under- writing loss -- -- -- (2,712) (2,712) --------- ----------- --------- ------------- --------- Total under- writing revenues 270,298 240,975 511,273 (4,356) 506,917 --------- ----------- --------- ------------- --------- Expenses Net losses and loss expenses 194,477 257,512 451,989 (6,488) 445,501 Acquisition expenses 24,065 44,528 68,593 2,005 70,598 General and adminis- trative expenses 31,675 26,096 57,771 -- 57,771 --------- ----------- --------- ------------- --------- 250,217 328,136 578,353 (4,483) 573,870 --------- ----------- --------- ------------- --------- Under- writing income (loss) $ 20,081 $ (87,161) $ (67,080) $ 127 $ (66,953) ========= =========== ========= ============= ========= Net loss ratio 71.9% 106.9% 88.4% 87.4% Acquisition expense ratio 8.9% 18.5% 13.4% 13.8% General and adminis- trative expense ratio 11.8% 10.8% 11.3% 11.4% --------- ----------- --------- --------- Combined ratio 92.6% 136.2% 113.1% 112.6% ========= =========== ========= ========= (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 the nine months ended September 30, 2009 ---------------------------------------------------------- Total Company Deposit Reported Insurance Reinsurance Subtotal Accounting(1) Totals ---------- ----------- ---------- ------------- ---------- Revenues Gross premiums written $1,001,679 $812,431 $1,814,110 $ (2,027) $1,812,083 Ceded premiums written (349,801) (2,674) (352,475) -- (352,475) ---------- ----------- ---------- ------------- ---------- Net premiums written 651,878 809,757 1,461,635 (2,027) 1,459,608 ---------- ----------- ---------- ------------- ---------- Net premiums earned 632,552 608,455 1,241,007 (1,758) 1,239,249 Other under- writing income 3,444 -- 3,444 754 4,198 ---------- ----------- ---------- ------------- ---------- Total under- writing revenues 635,996 608,455 1,244,451 (1,004) 1,243,447 ---------- ----------- ---------- ------------- ---------- Expenses Net losses and loss expenses 433,711 270,980 704,691 (2,056) 702,635 Acquisition expenses 66,105 127,956 194,061 1,089 195,150 General and adminis- trative expenses 90,953 88,269 179,222 -- 179,222 ---------- ----------- ---------- ------------- ---------- 590,769 487,205 1,077,974 (967) 1,077,007 ---------- ----------- ---------- ------------- ---------- Under- writing income (loss) $ 45,227 $ 121,250 $ 166,477 $ (37) $ 166,440 ========== =========== ========== ============= ========== Net loss ratio 68.6% 44.6% 56.8% 56.7% Acquisition expense ratio 10.4% 21.0% 15.6% 15.7% General and adminis- trative expense ratio 14.4% 14.5% 14.5% 14.5% ---------- ----------- ---------- ---------- Combined ratio 93.4% 80.1% 86.9% 86.9% ========== =========== ========== ========== (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 the nine months ended September 30, 2008 ---------------------------------------------------------- Total Company Deposit Reported Insurance Reinsurance Subtotal Accounting(1) Totals ---------- ----------- ---------- ------------- ---------- Revenues Gross premiums written $1,230,043 $ 783,092 $2,013,135 $(2,337) $2,010,798 Ceded premiums written (390,911) (15,692) (406,603) -- (406,603) ---------- ----------- ---------- ------------- ---------- Net premiums written 839,132 767,400 1,606,532 (2,337) 1,604,195 ---------- ----------- ---------- ------------- ---------- Net premiums earned 683,662 656,712 1,340,374 (5,617) 1,334,757 Other under- writing loss -- -- -- (1,519) (1,519) ---------- ----------- ---------- ------------- ---------- Total under- writing revenues 683,662 656,712 1,340,374 (7,136) 1,333,238 ---------- ----------- ---------- ------------- ---------- Expenses Net losses and loss expenses 513,598 405,451 919,049 (8,721) 910,328 Acquisition expenses 76,182 143,184 219,366 1,242 220,608 General and adminis- trative expenses 77,308 83,000 160,308 -- 160,308 ---------- ----------- ---------- ------------- ---------- 667,088 631,635 1,298,723 (7,479) 1,291,244 ---------- ----------- ---------- ------------- ---------- Under- writing income $ 16,574 $ 25,077 $ 41,651 $ 343 $ 41,994 ========== =========== ========== ============= ========== Net loss ratio 75.1% 61.7% 68.6% 68.2% Acquisition expense ratio 11.2% 21.8% 16.4% 16.5% General and adminis- trative expense ratio 11.3% 12.7% 11.9% 12.0% ---------- ----------- ---------- ---------- Combined ratio 97.6% 96.2% 96.9% 96.7% ========== =========== ========== ========== (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 September 30 ----------------------------------------- Insurance Reinsurance Total ------------- ------------- ------------- 2009 2008 2009 2008 2009 2008 Net loss ratio 74.0% 71.9% 21.6% 104.9% 49.6% 87.4% Acquisition expense ratio 8.9% 8.9% 21.5% 19.4% 14.8% 13.8% General and administrative expense ratio 15.8% 11.8% 14.3% 10.9% 15.1% 11.4% ------ ------ ------ ------ ------ ------ Combined ratio 98.7% 92.6% 57.4% 135.2% 79.5% 112.6% ====== ====== ====== ====== ====== ====== Effect of Prior Year Net Loss Reserve Development Favorable / (Unfavorable) ----------------------------------------- For the quarter ended September 30 ----------------------------------------- Insurance Reinsurance Total ------------- ------------- ------------- 2009 2008 2009 2008 2009 2008 Net loss ratio 6.1% 6.4% 10.3% 0.5% 8.1% 3.6% ====== ====== ====== ====== ====== ====== Net of Prior Year Net Loss Reserve Development ----------------------------------------- For the quarter ended September 30 ----------------------------------------- Insurance Reinsurance Total ------------- ------------- ------------- 2009 2008 2009 2008 2009 2008 Net loss ratio 80.1% 78.3% 31.9% 105.4% 57.7% 91.0% Acquisition expense ratio 8.9% 8.9% 21.5% 19.4% 14.8% 13.8% General and administrative expense ratio 15.8% 11.8% 14.3% 10.9% 15.1% 11.4% ------ ------ ------ ------ ------ ------ Combined ratio 104.8% 99.0% 67.7% 135.7% 87.6% 116.2% ====== ====== ====== ====== ====== ====== The combined ratio is the sum of the loss, acquisition expense and general and administrative expense ratios. Endurance presents the combined ratio as a measure that is commonly recognized as a standard of performance by investors, analysts, rating agencies and other users of its financial information. The combined ratio, excluding prior year net loss reserve development, enables investors, analysts, rating agencies and other users of its financial information to more easily analyze Endurance's results of underwriting activities in a manner similar to how management analyzes Endurance's underlying business performance. The combined ratio, net of prior year net loss reserve development, should not be viewed as a substitute for the combined ratio. ENDURANCE SPECIALTY HOLDINGS LTD. CONSOLIDATED FINANCIAL RATIOS As Reported ----------------------------------------- For the nine months ended September 30 ----------------------------------------- Insurance Reinsurance Total ------------- ------------- ------------- 2009 2008 2009 2008 2009 2008 Net loss ratio 68.6% 75.1% 44.3% 60.9% 56.7% 68.2% Acquisition expense ratio 10.4% 11.2% 21.3% 22.2% 15.7% 16.5% General and administrative expense ratio 14.4% 11.3% 14.5% 12.7% 14.5% 12.0% ------ ------ ------ ------ ------ ------ Combined ratio 93.4% 97.6% 80.1% 95.8% 86.9% 96.7% ====== ====== ====== ====== ====== ====== Effect of Prior Year Net Loss Reserve Development Favorable / (Unfavorable) ----------------------------------------- For the nine months ended September 30 ----------------------------------------- Insurance Reinsurance Total ------------- ------------- ------------- 2009 2008 2009 2008 2009 2008 Net loss ratio 11.2% 6.8% 6.4% 10.6% 8.9% 8.7% ====== ====== ====== ====== ====== ====== Net of Prior Year Net Loss Reserve Development ----------------------------------------- For the nine months ended September 30 ----------------------------------------- Insurance Reinsurance Total ------------- ------------- ------------- 2009 2008 2009 2008 2009 2008 Net loss ratio 79.8% 81.9% 50.7% 71.5% 65.6% 76.9% Acquisition expense ratio 10.4% 11.2% 21.3% 22.2% 15.7% 16.5% General and administrative expense ratio 14.4% 11.3% 14.5% 12.7% 14.5% 12.0% ------ ------ ------ ------ ------ ------ Combined ratio 104.6% 104.4% 86.5% 106.4% 95.8% 105.4% ====== ====== ====== ====== ===== ====== The combined ratio is the sum of the loss, acquisition expense and general and administrative expense ratios. Endurance presents the combined ratio as a measure that is commonly recognized as a standard of performance by investors, analysts, rating agencies and other users of its financial information. The combined ratio, excluding prior year net loss reserve development, enables investors, analysts, rating agencies and other users of its financial information to more easily analyze Endurance's results of underwriting activities in a manner similar to how management analyzes Endurance's underlying business performance. The combined ratio, excluding prior year net loss reserve development, should not be viewed as a substitute for the combined ratio. ENDURANCE SPECIALTY HOLDINGS LTD. RECONCILIATION 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 nine months ended September 30, 2009 and 2008: Quarter Ended Quarter Ended September 30, 2009 September 30, 2008 ------------------ ------------------ Gross Net Gross Net Premiums Premiums Premiums Premiums Written Written Written Written ------------------ ------------------ Insurance Property $ 30,307 $ 13,467 $ 35,574 $ 20,901 Casualty 39,671 25,025 29,196 18,141 Healthcare liability 30,390 29,075 28,010 27,636 Workers' compensation (2,384) (2,291) 41,709 37,685 Agriculture 104,021 71,767 195,852 109,159 Professional lines 46,668 38,643 42,595 35,079 -------- -------- -------- -------- Subtotal Insurance $248,673 $175,686 $372,936 $248,601 -------- -------- -------- -------- Reinsurance Casualty $ 61,394 $ 61,387 $ 53,914 $ 53,912 Property 115,342 115,342 113,080 113,081 Catastrophe 31,637 31,637 65,825 60,699 Agriculture 1,014 1,014 3,452 3,769 Aerospace and Marine 7,185 7,170 9,814 8,838 Surety and other specialty 4,377 4,430 5,123 5,123 -------- -------- -------- -------- Subtotal Reinsurance $220,949 $220,980 $251,208 $245,422 -------- -------- -------- -------- Total $469,622 $396,666 $624,144 $494,023 ======== ======== ======== ======== ENDURANCE SPECIALTY HOLDINGS LTD. RECONCILIATION GROSS AND NET PREMIUMS WRITTEN BY SEGMENT (in thousands of United States dollars) Nine Months Ended Nine Months Ended September 30, 2009 September 30, 2008 ---------------------- ---------------------- Gross Net Gross Net Premiums Premiums Premiums Premiums Written Written Written Written ---------------------- ---------------------- Insurance Property $ 98,142 $ 53,079 $ 119,116 $ 72,545 Casualty 120,900 71,196 93,058 68,207 Healthcare liability 73,305 69,155 69,987 69,297 Workers' compensation 26,782 12,030 195,076 177,072 Agriculture 538,666 323,783 660,193 375,752 Professional lines 143,884 122,635 92,613 76,259 ---------- ---------- ---------- ---------- Subtotal Insurance $1,001,679 $ 651,878 $1,230,043 $ 839,132 ---------- ---------- ---------- ---------- Reinsurance Casualty $ 220,599 $ 220,361 $ 159,136 $ 160,365 Property 205,375 205,375 182,302 182,275 Catastrophe 289,465 289,465 301,277 288,085 Agriculture 8,790 8,790 20,185 19,868 Aerospace and Marine 42,980 40,840 70,600 67,381 Surety and other Specialty 43,195 42,899 47,255 47,089 ---------- ---------- ---------- ---------- Subtotal Reinsurance $ 810,404 $ 807,730 $ 780,755 $ 765,063 ---------- ---------- ---------- ---------- Total $1,812,083 $1,459,608 $2,010,798 $1,604,195 ========== ========== ========== ========== 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 (loss) per diluted common share, net income (loss) allocated to common shareholders under the two-class method and annualized return on average common equity to operating income (loss), operating income (loss) per diluted common share, operating income (loss) allocated to common shareholders under the two-class method and operating return on average common equity (all non-GAAP measures) for the quarters and nine months ended September 30, 2009 and 2008: Quarter Ended Nine Months Ended September 30, September 30, ---------------------- ---------------------- 2009 2008 2009 2008 ---------- ---------- ---------- ---------- Net income (loss) $ 153,842 $ (99,392) $ 381,279 $ 81,757 (Less) Add after-tax items: Net foreign exchange (gains) losses (3,634) 15,400 (30,488) 12,798 Net realized (gains) losses on investment sales (2,641) 5,439 (3,019) 2,417 Net impairment losses recognized in earnings 497 22,495 19,267 41,039 ---------- ---------- ---------- ---------- Operating income (loss) before preferred dividends $ 148,064 $ (56,058) $ 367,039 $ 138,011 Preferred dividends (3,875) (3,875) (11,625) (11,625) ---------- ---------- ---------- ---------- Operating income (loss) available (attributable) to common and participating common shareholders $ 144,189 $ (59,933) $ 355,414 $ 126,386 ========== ========== ========== ========== Operating income (loss) allocated to common shareholders under the two-class method $ 141,764 $ (58,739) $ 349,005 $ 123,934 ========== ========== ========== ========== Weighted average dilutive common shares 58,781,987 57,569,606 59,019,716 63,025,068 ========== ========== ========== ========== Operating income (loss) per diluted common share $ 2.41 $ (1.04)(b) $ 5.91 $ 1.97 ========== ========== ========== ========== Average common equity(a) $2,391,974 $2,201,306 $2,257,817 $2,190,488 Operating return on average common equity 6.0% (2.7%) 15.7% 5.8% ---------- ---------- ---------- ---------- Annualized operating return on average common equity 24.1% (10.9%) 21.0% 7.7% ========== ========== ========== ========== Net income (loss) $ 153,842 $ (99,392) $ 381,279 $ 81,757 Preferred dividends (3,875) (3,875) (11,625) (11,625) ---------- ---------- ---------- ---------- Net income (loss) available (attributable) to common and participating common shareholders $ 149,967 $ (103,267) $ 369,654 $ 70,132 ---------- ---------- ---------- ---------- Net income (loss) allocated to common shareholders under the two-class method $ 147,446 $ (101,210) $ 362,989 $ 68,742 ========== ========== ========== ========== Net income (loss) per diluted common share $ 2.51 $ (1.79)(b) $ 6.15 $ 1.09 ========== ========== ========== ========== Return on average common equity, Net income (loss) 6.3% (4.7%) 16.4% 3.2% ========== ========== ============ ========== Annualized return on average common equity,Net income (loss) 25.1% (18.8%) 21.8% 4.3% ========== ========== ========== ========== (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. (b) Represents diluted losses per share calculated under the Treasury Stock method which was the lower of the Treasury Stock method and the Two-class method based on operating loss and net loss attributable to common and participating common shareholders and weighted average dilutive common shares respectively. Operating income (loss) and operating income (loss) per diluted common share are internal performance measures used by Endurance in the management of its operations. Operating income (loss) allocated to common shareholders (excludes unvested restricted shares outstanding which are considered participating) per diluted common share represents operating income (loss) divided by weighted average dilutive common shares, which has been calculated in accordance with the two-class method under U.S. GAAP. Operating income (loss) 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 (loss) and net income (loss) per dilutive common share determined in accordance with the two-class method under GAAP, Endurance believes that showing operating income (loss) and operating income (loss) 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 (loss) and operating income (loss) per dilutive common share should not be viewed as substitutes for GAAP net income (loss) and net income (loss) 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.