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Endurance Reports Second Quarter 2013 Financial Results

PEMBROKE, Bermuda - August 5, 2013 - Endurance Specialty Holdings Ltd. (NYSE:ENH) today reported net income available to common shareholders of $52.8 million and $1.21 per diluted common share for the second quarter of 2013 versus net income of $64.3 million and $1.48 per diluted common share for the second quarter of 2012.  

For the six months ended June 30, 2013, Endurance reported net income available to common shareholders of $144.9 million and $3.34 per diluted common share versus net income of $138.6 million and $3.20 per diluted common share for the six months ended June 30, 2012.  Book value per diluted share was $51.95 at June 30, 2013, a decline of 1.8% from year end 2012.

Operating highlights for the quarter ended June 30, 2013 were as follows:

  • Net premiums written of $464.6 million, a decrease of 4.1% compared to the same period in 2012; 

  • Combined ratio of 94.3%, which included 11.6 percentage points of favorable prior year loss reserve development and 8.9 percentage points of catastrophe losses from 2013 events; 

  • Net investment income of $32.5 million, an increase of $0.7 million from the same period in 2012;  

  • Operating income, which excludes after-tax realized investment gains and foreign exchange losses and gains, of $47.3 million and $1.09 per diluted common share; and 

  • Operating return on average common equity for the quarter of 2.0% or 8.2% on an annualized basis. 

Operating highlights for the six months ended June 30, 2013 were as follows:

  • Net premiums written of $1,373.5 million, an increase of 3.5% over the same period in 2012; 

  • Combined ratio of 90.2%, which included 11.8 percentage points of favorable prior year loss reserve development and 5.0 percentage points of current year catastrophe losses; 

  • Net investment income of $81.8 million, a decrease of $7.1 million over the same period in 2012;  

  • Operating income, which excludes after-tax realized investment gains and foreign exchange gains, of $137.1 million and $3.16 per diluted common share; and 

  • Operating return on average common equity for the first six months of the year of 6.0%, or 12.0% on an annualized basis. 

John R. Charman, Chairman and Chief Executive Officer, commented, "Endurance generated positive operating results in the second quarter against a backdrop of volatile investment markets, numerous catastrophe loss events and an increasingly competitive reinsurance market.  We have immediately refocused our global underwriting and are now adopting a very controlled, coordinated, disciplined and profit driven approach.  As rates have declined we have deliberately reduced our exposures.  I am absolutely committed to Endurance becoming a leading low expense, medium volatility but very high performance insurance and reinsurance international carrier."

"During the past month, I have streamlined our Executive leadership team as well as completely restructured and reduced the overly inflated size of our organization.  The substantial savings arising will be used to fund the very necessary build out of our global underwriting operations. To protect our shareholders earnings, we have had to cut hard and deeply from our own resources in order to finance our future growth. Importantly, we already have a great pipeline of very high quality market leading underwriters who will join us over the next twelve months.  Market conditions on both sides of the balance sheet will remain challenging over the next few years and with that scenario in mind, I will continue to relentlessly drive substantial improvements, effectiveness and cost efficiency throughout our organization. As well as planning a pan-Asia joint venture strategy, our new, revitalised specialty Insurance operations in the US, Bermuda and London will lead the oncoming Endurance revolution."

Insurance Segment

Operating highlights for Endurance's Insurance segment for the quarter ended June 30, 2013 were as follows:

  • Net premiums written of $191.5 million, an increase of 2.6% from the second quarter of 2012; 

  • Combined ratio of 102.4%, an increase of 5.1 percentage points from the second quarter of 2012; and 

  • Favorable prior year loss reserve development of 2.1 percentage points during the current period, compared to 5.1 percentage points of favorable prior year loss reserve development in the second quarter of 2012. 

Operating highlights for Endurance's Insurance segment for the six months ended June 30, 2013 were as follows:

  • Net premiums written of $596.2 million, a decrease of 3.0% from the same period in 2012; 

  • Combined ratio of 101.2%, an increase of 2.3 percentage points from the same period in 2012; and 

  • Favorable prior year loss reserve development of 5.5 percentage points during the current period, compared to 5.0 percentage points of favorable prior year loss reserve development in the same period in 2012. 

Net premiums written in the Insurance segment increased $4.8 million for the second quarter and declined $18.2 million for the six months ended June 30, 2013, compared to the same periods in 2012.  Increases within the agriculture and property lines of business were offset by a decline in the professional line of business.  Within the agriculture line of business, net premiums written increased from new business, which was partially offset by higher cessions to the U.S. Government and third parties.  The increase in property net premiums written reflects a combination of new business and higher retentions.  The decline in net premiums written in the professional line of business resulted from the termination of a program relationship in late 2012 that was partially offset by new business.      

The increase in the Insurance segment combined ratio for the quarter ended June 30, 2013 compared to the same period in 2012 was primarily driven by higher net loss and general and administrative expense ratios.  The net loss ratio increased as a result of a more difficult start to the crop year with challenging winter wheat harvests and a higher level of prevented planting claims, which increased the initial expected loss ratio in the agriculture insurance line of business.  Also impacting the current quarter's loss ratio was lower levels of prior period favorable reserve development, offset by improved loss ratios in the non-agriculture lines of business.  The general and administrative expense ratio was higher in the current quarter due to a greater level of allocated corporate expenses related to the CEO transition and higher expenses associated with recently added underwriting teams.  For the six months ended June 30, 2013, the combined ratio was 2.3 percentage points higher than the same period a year ago as a higher general and administrative expense ratio was partially offset by a lower acquisition expense ratio.

Reinsurance Segment

Operating highlights for Endurance's Reinsurance segment for the quarter ended June 30, 2013 were as follows:

  • Net premiums written of $273.1 million, a decrease of 8.3% from the second quarter of 2012; 

  • Combined ratio of 86.4%, an improvement of 1.2 percentage points from the second quarter of 2012;  

  • Favorable prior year loss reserve development of 20.8 percentage points compared to 2.3 percentage points of favorable prior year loss reserve development in the second quarter of 2012; and 

  • Net catastrophe losses from 2013 events of $47.4 million or 18.0 percentage points on the combined ratio compared to net catastrophe losses of $14.4 million or 5.6 points in the second quarter of 2012. 

Operating highlights for Endurance's Reinsurance segment for the six months ended June 30, 2013 were as follows:

  • Net premiums written of $777.3 million, an increase of 9.0% from the same period in 2012; 

  • Combined ratio of 81.8%, an improvement of 8.6 percentage points from the same period in 2012; 

  • Favorable prior year loss reserve development of 16.6 percentage points during the current period, compared to 3.0 percentage points of favorable prior year loss reserve development in the same period in 2012; and 

  • Net catastrophe losses from 2013 events of $47.4 million or 9.0 percentage points on the combined ratio compared to net catastrophe losses of $36.9 million or 7.5 points in the first six months of 2012. 

The $24.6 million decrease in net premiums written within the Reinsurance segment during the second quarter of 2013 compared to the second quarter of 2012 resulted primarily from decreases in catastrophe and property lines of business, partially offset by an increase within the casualty line of business.  The decline in catastrophe premiums in the current quarter reflects the impact of lower pricing and a more competitive market in which the Company chose to reduce limits deployed in Florida.  The property line of business also declined in the current quarter as the Company non-renewed business and reduced line sizes where price weakening led to profitability being below target levels.  Growth in the casualty line of business in the second quarter of 2013 compared to a year ago was primarily driven by a single new treaty written in the quarter.  For the six months ended June 30, 2013, net premiums written increased $64.3 million due to increases within the property, casualty and other specialty lines, partially offset by a decline in catastrophe premiums.

The combined ratio in the Reinsurance segment for the second quarter of 2013 improved compared to the same period in 2012, predominantly due to a lower net loss ratio, partially offset by a higher general and administrative expense ratio.  The net loss ratio in the second quarter of 2013 benefited from $57.2 million, or 20.8 percentage points, of favorable prior year loss reserve development, compared to $5.9 million, or 2.3 percentage points, for the same period a year ago.  The favorable development in the current quarter was predominantly driven by short tail lines of business and includes a reduction in estimated reserves for losses related to prior year catastrophes.  The current quarter's combined ratio included 18.0 percentage points of catastrophe losses related to flooding in Canada and Europe and various tornadoes occurring in the United States, while the second quarter 2012 included 5.6 percentage points of catastrophe losses.  The higher general and administrative expenses were predominantly linked to higher allocated corporate expenses related to costs associated with the CEO transition.

For the first six months of 2013, the Reinsurance segment reported a combined ratio of 81.8% compared to 90.4% for the same period in 2012 principally due to a lower loss ratio that included a greater level of favorable prior year loss reserve development, partially offset by a higher level of catastrophe losses.

Investments

Endurance's net investment income for the quarter and six months ended June 30, 2013 was $32.5 million and $81.8 million, an increase of $0.7 million and a decrease of $7.1 million, respectively, compared to the same periods in 2012.  The total return of Endurance's investment portfolio was (1.22%) and (0.62%) for the quarter and six months ended June 30, 2013, respectively, compared to 0.90% and 2.29% for the quarter and six months ended June 30, 2012, respectively.  Investment income generated from Endurance's available for sale investments declined by $6.0 million and $13.5 million for the three and six months ended June 30, 2013, respectively, compared to the same period in 2012 due to lower reinvestment rates during 2013 and the short duration of Endurance's fixed maturity portfolio.  During the second quarter and six months ended June 30, 2013, Endurance's net investment income included gains of $6.8 million and $29.8 million, respectively, on its alternative investment funds and high yield loan funds, which are included in other investments, as compared to losses of $0.1 million and gains of $23.1 million in the second quarter and first six months of 2012, respectively.  The ending book yield on Endurance's fixed maturity investments at June 30, 2013 was 2.15%, down from 2.57% at June 30, 2012.

At June 30, 2013, Endurance's fixed maturity portfolio, which comprises 87.2% of Endurance's investments, had an average credit quality of AA and a duration of 3.05 years.  Endurance's fixed maturity portfolio was in a net unrealized gain position of $30.6 million at June 30, 2013, a decrease of $111.1 million from December 31, 2012.  Endurance recorded net realized investment gains, net of impairment losses recognized in earnings, of $9.8 million and $15.2 million during the second quarter and first six months of 2013 compared to net realized investment gains of $14.6 million and $19.5 million during the second quarter and first six months of 2012.  

Endurance ended the second quarter of 2013 with cash and invested assets of $6.4 billion, which represents a 2.4% decrease from December 31, 2012.  Net operating cash flow was $42.7 million for the six months ended June 30, 2013 versus $70.3 million for the same period in 2012.  

Capitalization and Shareholders' Equity

At June 30, 2013, Endurance's shareholders' equity was $2.74 billion or $51.95 per diluted common share versus $2.71 billion or $52.88 per diluted common share at December 31, 2012.  For the quarter and six months ended June 30, 2013, Endurance declared and paid common dividends of $0.32 and $0.64 per share, respectively.  During the quarter and six months ended June 30, 2013, the Company repurchased 95,100 and 318,252 common shares at an average cost of $48.16 and $45.83, respectively.  Total share repurchases amounted to $4.6 million and $14.6 million, respectively, for the quarter and six months ended June 30, 2013.

Earnings Call

Endurance will host a conference call on August 6, 2013 at 8:30 a.m. Eastern time to discuss its financial results.  The conference call can be accessed via telephone by dialing (888) 778-8914 or (913) 905-3226 (international) and entering pass code: 4212284.  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 20, 2013 by dialing (888) 203-1112 or (719) 457-0820 (international) and entering the pass code: 4212284.

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 2013 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, 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 agriculture, casualty and other specialty, professional lines and property lines of insurance and catastrophe, property, casualty,  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, 2012.

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)
June 30, December 31,
2013  2012 
Assets
Cash and cash equivalents $  942,062  $  1,124,019 
Fixed maturity investments, available for sale, at fair value  4,755,091   4,868,150 
Short-term investments, available for sale, at fair value  15,382   42,230 
Equity securities, available for sale, at fair value  232,919   86,997 
Other investments  569,393   517,546 
Premiums receivable, net  1,271,818   601,952 
Insurance and reinsurance balances receivable  111,405   105,663 
Deferred acquisition costs  210,740   168,252 
Prepaid reinsurance premiums  292,911   166,702 
Reinsurance recoverable on unpaid losses  594,020   691,783 
Reinsurance recoverable on paid losses  101,753   83,159 
Accrued investment income  25,404   27,166 
Goodwill and intangible assets  168,621   172,000 
Deferred tax asset  52,240   43,501 
Net receivable on sales of investments  78,243   9,144 
Other assets  128,446   86,708 
Total Assets $  9,550,448  $  8,794,972 
Liabilities
Reserve for losses and loss expenses $  4,145,581  $  4,240,876 
Reserve for unearned premiums  1,500,253   965,244 
Deposit liabilities  17,785   22,220 
Reinsurance balances payable  262,582   110,843 
Debt  527,401   527,339 
Net payable on purchases of investments  181,060   81,469 
Other liabilities  179,732   136,384 
Total Liabilities  6,814,394   6,084,375 
Shareholders' Equity
Preferred shares
Series A, non-cumulative - 8,000,000 issued and outstanding (2012 - 8,000,000)  8,000   8,000 
Series B, non-cumulative - 9,200,000 issued and outstanding (2012 - 9,200,000)  9,200   9,200 
Common shares
44,331,379 issued and outstanding (2012 - 43,116,394)  44,331   43,116 
Additional paid-in capital  556,255   527,915 
Accumulated other comprehensive income  31,438   152,463 
Retained earnings  2,086,830   1,969,903 
Total Shareholders' Equity  2,736,054   2,710,597 
Total Liabilities and Shareholders' Equity $  9,550,448  $  8,794,972 
Book Value per Common Share
Dilutive common shares outstanding  44,387,395   43,130,075 
Diluted book value per common share [a] $  51.95  $  52.88 
Note: All financial information contained herein is unaudited, except the balance sheet data for the year ended December 31, 2012, which was derived from Endurance's audited financial statements.
[a] Excludes the $430 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 For the Six Months Ended
June 30, June 30, June 30, June 30,
2013  2012  2013  2012 
Revenues
Gross premiums written $  572,710  $  604,076  $  1,750,072  $  1,665,725 
Net premiums written $  464,621  $  484,413  $  1,373,536  $  1,327,469 
Change in unearned premiums  78,714   34,927   (410,084)  (396,494)
Net premiums earned  543,335   519,340   963,452   930,975 
Other underwriting income (loss)  888   19   1,637   (316)
Net investment income  32,468   31,766   81,773   88,841 
Net realized and unrealized gains  10,372   14,958   16,607   20,161 
Total other-than-temporary impairment losses  (579)  (148)  (1,385)  (148)
Portion of loss recognized in other comprehensive (loss) income  -   (259)  -   (478)
Net impairment losses recognized in earnings  (579)  (407)  (1,385)  (626)
Total revenues  586,484   565,676   1,062,084   1,039,035 
Expenses
Net losses and loss expenses  359,058   345,897   578,028   608,664 
Acquisition expenses  71,868   72,128   143,504   140,617 
General and administrative expenses  81,359   62,609   147,837   128,650 
Amortization of intangibles  1,625   2,777   3,726   5,554 
Net foreign exchange losses (gains)  3,368   (336)  6,295   (18,473)
Interest expense  9,052   9,044   18,090   18,091 
Total expenses  526,330   492,119   897,480   883,103 
Income before income taxes  60,154   73,557   164,604   155,932 
Income tax benefit (expense)  865   (1,074)  (3,286)  (907)
Net income  61,019   72,483   161,318   155,025 
Preferred dividends  (8,188)  (8,188)  (16,376)  (16,376)
Net income available to common and participating common shareholders $  52,831  $  64,295  $  144,942  $  138,649 
Per share data
Basic earnings per common share $  1.21  $  1.48  $  3.34  $  3.20 
Diluted earnings per common share $  1.21  $  1.48  $  3.34  $  3.20 



ENDURANCE SPECIALTY HOLDINGS LTD.
RESULTS BY SEGMENT
(in thousands of United States dollars, except ratios)
For the quarter ended June 30, 2013
Insurance Reinsurance Reported Totals
Revenues
Gross premiums written $  276,941  $  295,769  $  572,710 
Ceded premiums written  (85,439)  (22,650)  (108,089)
Net premiums written  191,502   273,119   464,621 
Net premiums earned  267,878   275,457   543,335 
Other underwriting income  -   888   888 
Total underwriting revenues  267,878   276,345   544,223 
Expenses
Net losses and loss expenses  215,844   143,214   359,058 
Acquisition expenses  14,968   56,900   71,868 
General and administrative expenses  43,524   37,835   81,359 
 274,336   237,949   512,285 
Underwriting (loss) income $  (6,458) $  38,396  $  31,938 
Net loss ratio 80.6  % 52.0  % 66.1  %
Acquisition expense ratio 5.6  % 20.7  % 13.2  %
General and administrative expense ratio 16.2  % 13.7  % 15.0  %
Combined ratio 102.4  % 86.4  % 94.3  %



ENDURANCE SPECIALTY HOLDINGS LTD.
RESULTS BY SEGMENT
(in thousands of United States dollars, except ratios)
For the quarter ended June 30, 2012
Insurance Reinsurance Reported Totals
Revenues
Gross premiums written $  292,659  $  311,417  $  604,076 
Ceded premiums written  (106,000)  (13,663)  (119,663)
Net premiums written  186,659   297,754   484,413 
Net premiums earned  266,085   253,255   519,340 
Other underwriting (loss) income  (1,300)  1,319   19 
Total underwriting revenues  264,785   254,574   519,359 
Expenses
Net losses and loss expenses  208,504   137,393   345,897 
Acquisition expenses  17,545   54,583   72,128 
General and administrative expenses  32,819   29,790   62,609 
 258,868   221,766   480,634 
Underwriting income $  5,917  $  32,808  $  38,725 
Net loss ratio 78.4  % 54.2  % 66.5  %
Acquisition expense ratio 6.6  % 21.6  % 13.9  %
General and administrative expense ratio 12.3  % 11.8  % 12.1  %
Combined ratio 97.3  % 87.6  % 92.5  %



ENDURANCE SPECIALTY HOLDINGS LTD.
RESULTS BY SEGMENT
(in thousands of United States dollars, except ratios)
For the six months ended June 30, 2013
Insurance Reinsurance Reported Totals
Revenues
Gross premiums written $  929,884  $  820,188  $  1,750,072 
Ceded premiums written  (333,688)  (42,848)  (376,536)
Net premiums written  596,196   777,340   1,373,536 
Net premiums earned  419,030   544,422   963,452 
Other underwriting income  -   1,637   1,637 
Total underwriting revenues  419,030   546,059   965,089 
Expenses
Net losses and loss expenses  315,308   262,720   578,028 
Acquisition expenses  29,584   113,920   143,504 
General and administrative expenses  79,151   68,686   147,837 
 424,043   445,326   869,369 
Underwriting (loss) income $  (5,013) $  100,733  $  95,720 
Net loss ratio 75.2  % 48.3  % 60.0  %
Acquisition expense ratio 7.1  % 20.9  % 14.9  %
General and administrative expense ratio 18.9  % 12.6  % 15.3  %
Combined ratio 101.2  % 81.8  % 90.2  %



ENDURANCE SPECIALTY HOLDINGS LTD.
RESULTS BY SEGMENT
(in thousands of United States dollars, except ratios)
For the six months ended June 30, 2012
Insurance Reinsurance Reported Totals
Revenues
Gross premiums written $  928,006  $  737,719  $  1,665,725 
Ceded premiums written  (313,566)  (24,690)  (338,256)
Net premiums written  614,440   713,029   1,327,469 
Net premiums earned  427,715   503,260   930,975 
Other underwriting (loss) income  (1,300)  984   (316)
Total underwriting revenues  426,415   504,244   930,659 
Expenses
Net losses and loss expenses  322,206   286,458   608,664 
Acquisition expenses  33,759   106,858   140,617 
General and administrative expenses  67,254   61,396   128,650 
 423,219   454,712   877,931 
Underwriting income $  3,196  $  49,532  $  52,728 
Net loss ratio 75.3  % 57.0  % 65.4  %
Acquisition expense ratio 7.9  % 21.2  % 15.1  %
General and administrative expense ratio 15.7  % 12.2  % 13.8  %
Combined ratio 98.9  % 90.4  % 94.3  %



ENDURANCE SPECIALTY HOLDINGS LTD.
CONSOLIDATED FINANCIAL RATIOS
As Reported
For the quarter ended June 30,
Insurance Reinsurance Total
2013  2012  2013  2012  2013  2012 
Net loss ratio 80.6  % 78.4  % 52.0  % 54.2  % 66.1  % 66.5  %
Acquisition expense ratio 5.6  % 6.6  % 20.7  % 21.6  % 13.2  % 13.9  %
General and administrative expense ratio 16.2  % 12.3  % 13.7  % 11.8  % 15.0  % 12.1  %
Combined ratio 102.4  % 97.3  % 86.4  % 87.6  % 94.3  % 92.5  %
Effect of Prior Year Net Loss Reserve Development
Favorable / (Unfavorable)
For the quarter ended June 30,
Insurance Reinsurance Total
2013  2012  2013  2012  2013  2012 
Net loss ratio 2.1  % 5.1  % 20.8  % 2.3  % 11.6  % 3.8  %
Net of Prior Year Net Loss Reserve Development
For the quarter ended June 30,
Insurance Reinsurance Total
2013  2012  2013  2012  2013  2012 
Net loss ratio 82.7  % 83.5  % 72.8  % 56.5  % 77.7  % 70.3  %
Acquisition expense ratio 5.6  % 6.6  % 20.7  % 21.6  % 13.2  % 13.9  %
General and administrative expense ratio 16.2  % 12.3  % 13.7  % 11.8  % 15.0  % 12.1  %
Combined ratio 104.5  % 102.4  % 107.2  % 89.9  % 105.9  % 96.3  %
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 six months ended June 30,
Insurance Reinsurance Total
2013  2012  2013  2012  2013  2012 
Net loss ratio 75.2  % 75.3  % 48.3  % 57.0  % 60.0  % 65.4  %
Acquisition expense ratio 7.1  % 7.9  % 20.9  % 21.2  % 14.9  % 15.1  %
General and administrative expense ratio 18.9  % 15.7  % 12.6  % 12.2  % 15.3  % 13.8  %
Combined ratio 101.2  % 98.9  % 81.8  % 90.4  % 90.2  % 94.3  %
Effect of Prior Year Net Loss Reserve Development
Favorable / (Unfavorable)
For the six months ended June 30,
Insurance Reinsurance Total
2013  2012  2013  2012  2013  2012 
Net loss ratio 5.5  % 5.0  % 16.6  % 3.0  % 11.8  % 3.9  %
Net of Prior Year Net Loss Reserve Development
For the six months ended June 30,
Insurance Reinsurance Total
2013  2012  2013  2012  2013  2012 
Net loss ratio 80.7  % 80.3  % 64.9  % 60.0  % 71.8  % 69.3  %
Acquisition expense ratio 7.1  % 7.9  % 20.9  % 21.2  % 14.9  % 15.1  %
General and administrative expense ratio 18.9  % 15.7  % 12.6  % 12.2  % 15.3  % 13.8  %
Combined ratio 106.7  % 103.9  % 98.4  % 93.4  % 102.0  % 98.2  %
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.
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 ended June 30, 2013 and 2012:
Quarter Ended June 30, 2013 Quarter Ended June 30, 2012
Gross Premiums Written Net Premiums Written Gross Premiums Written Net Premiums Written
Insurance
Agriculture $  131,633  $  84,537  $  133,439  $  67,249 
Casualty and other specialty  87,614   63,373   90,019   64,588 
Professional lines  38,296   27,788   51,019   42,832 
Property  19,398   15,804   18,182   11,990 
Subtotal Insurance $  276,941  $  191,502  $  292,659  $  186,659 
                 
Reinsurance
Catastrophe $  155,431  $  138,041  $  172,222  $  158,865 
Property  48,384   44,516   54,026   54,033 
Casualty  67,209   67,211   58,897   58,895 
Other specialty  24,745   23,351   26,272   25,961 
Subtotal Reinsurance $  295,769  $  273,119  $  311,417  $  297,754 
Total $  572,710  $  464,621  $  604,076  $  484,413 



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 six months ended June 30, 2013 and 2012:
Six Months Ended Six Months Ended
June 30, 2013 June 30, 2012
Gross Premiums Written Net Premiums Written Gross Premiums Written Net Premiums Written
Insurance
Agriculture $  696,107  $  425,667  $  667,106  $  422,169 
Casualty and other specialty  144,081   106,634   145,510   106,411 
Professional lines  59,260   41,991   87,364   73,037 
Property  30,436   21,904   28,026   12,823 
Subtotal Insurance $  929,884  $  596,196  $  928,006  $  614,440 
                 
Reinsurance
Catastrophe $  303,297  $  269,439  $  315,404  $  292,583 
Property  196,795   192,927   160,772   160,779 
Casualty  218,911   217,484   180,571   179,332 
Other specialty  101,185   97,490   80,972   80,335 
Subtotal Reinsurance $  820,188  $  777,340  $  737,719  $  713,029 
Total $  1,750,072  $  1,373,536  $  1,665,725  $  1,327,469 



ENDURANCE SPECIALTY HOLDINGS LTD.
RECONCILIATIONS
(in thousands of United States dollars, except share, per share amounts and ratios)
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 annualized operating return on average common equity (all non-GAAP measures) for the three and six months ended June 30, 2013 and 2012:
Quarter Ended Six Months Ended
June 30, June 30,
2013  2012  2013  2012 
Net income $  61,019  $  72,483  $  161,318  $  155,025 
Add (less) after-tax items:
Net foreign exchange losses (gains)  3,341   (365)  6,250   (16,625)
Net realized and unrealized gains  (9,435)  (13,050)  (15,427)  (18,018)
Net impairment losses recognized in earnings  579   387   1,351   606 
Operating income before preferred dividends $  55,504  $  59,455  $  153,492  $  120,988 
Preferred dividends  (8,188)  (8,188)  (16,376)  (16,376)
Operating income allocated to common and
participating common shareholders $  47,316  $  51,267  $  137,116  $  104,612 
Operating income allocated to common shareholders
under the two-class method $  46,302  $  50,402  $  134,519  $  102,818 
Weighted average diluted common  42,621,530   42,635,182   42,527,365   42,562,007 
Operating income per diluted common share [b] $  1.09  $  1.18  $  3.16  $  2.42 
Average common equity [a] $  2,321,152  $  2,285,890  $  2,293,326  $  2,249,204 
Operating return on average common equity 2.0  % 2.2  % 6.0  % 4.7  %
Annualized operating return on average common equity 8.2  % 9.0  % 12.0  % 9.3  %
Net income $  61,019  $  72,483  $  161,318  $  155,025 
Preferred dividends  (8,188)  (8,188)  (16,376)  (16,376)
Net income available to common and participating
common shareholders $  52,831  $  64,295  $  144,942  $  138,649 
Net income available to common shareholders under
the two-class method $  51,699  $  63,210  $  142,197  $  136,272 
Net income per diluted common share $  1.21  $  1.48  $  3.34  $  3.20 
Return on average common equity, Net income  2.3  %  2.8  %  6.3  %  6.2  %
Annualized return on average common equity, Net income  9.1  %  11.3  %  12.6  %  12.3  %
[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 $430 million liquidation value of the preferred shares (2012: $430 million)
[b] Represents diluted income per share calculated under the two-class method which was the lower of the treasury stock method and the two-class method.

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.

Contact:
Investor Relations
Phone: +1 441 278 0988
Email: investorrelations@endurance.bm

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