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Endurance Reports Second Quarter 2014 Financial Results

PEMBROKE, Bermuda - August 4, 2014 - Endurance Specialty Holdings Ltd. (NYSE:ENH) today reported net income available to common shareholders of $75.0 million and $1.68 per diluted common share for the second quarter of 2014 versus net income of $52.8 million and $1.21 per diluted common share for the second quarter of 2013. 

For the six months ended June 30, 2014, Endurance reported net income available to common shareholders of $171.3 million and $3.84 per diluted common share versus net income of $144.9 million and $3.34 per diluted common share for the six months ended June 30, 2013.  Book value per diluted share was $60.00 at June 30, 2014, an increase of 4.3% from March 31, 2014 and up 8.7% from December 31, 2013.

Operating highlights for the quarter ended June 30, 2014 were as follows:

  • Gross premiums written of $689.4 million, an increase of 20.4% compared to the same period in 2013;
  • Net premiums written of $511.4 million, an increase of 10.1% compared to the same period in 2013;
  • Combined ratio of 88.1%, which included 11.3 percentage points of favorable prior year loss reserve development, 5.6 percentage points of catastrophe losses from 2014 events and 2.5 percentage points of expenses related to the proposed acquisition of Aspen Insurance Holdings Limited ("Aspen");
  • Net investment income of $39.3 million, an increase of $6.8 million from the same period in 2013;
  • Operating income, which excludes after-tax realized investment gains and foreign exchange losses, of $71.9 million and $1.61 per diluted common share;
  • Operating return on average common equity for the quarter of 2.7% or 10.9% on an annualized basis; and
  • Excluding $12.8 million of expenses related to the proposed acquisition of Aspen, operating income of $84.7 million and $1.90 per diluted common share and operating return on average common equity of 3.2% for the quarter or 12.9% on an annualized basis.

Operating highlights for the six months ended June 30, 2014 were as follows:

  • Gross premiums written of $1,846.9 million, an increase of 5.5% over the same period in 2013;
  • Net premiums written of $1,310.1 million, a decline of 4.6% over the same period in 2013;
  • Combined ratio of 85.0%, which included 11.9 percentage points of favorable prior year loss reserve development, 3.3 percentage points of current year catastrophe losses and 1.5 percentage points of expenses related the proposed acquisition of Aspen;
  • Net investment income of $80.3 million, a decrease of $1.5 million over the same period in 2013;
  • Operating income, which excludes after-tax realized investment gains and foreign exchange losses, of $166.3 million and $3.73 per diluted common share;
  • Operating return on average common equity for the first six months of the year of 6.5%, or 12.9% on an annualized basis; and
  • Excluding $13.7 million of expenses related to the proposed acquisition of Aspen, operating income of $180.0 million and $4.04 per diluted common share and operating return on average common equity of 7.0% for the first six months of 2014 or 14.0% on an annualized basis.

John R. Charman, Chairman and Chief Executive Officer, commented, "I am very proud to report that Endurance has generated another solid quarter of financial results, demonstrating not only continuing profitable premium growth and  broadly improved loss ratios across our expanded global businesses, but importantly strong growth in our book value per share. The transformation of Endurance that we began just over a year ago is clearly visible in our overall operating and financial performance. With the core of our global underwriting leadership team now firmly in place and coordinating well, I believe that these positive, strategic improvements will continue to translate into stronger, more consistent performance in the future."

Insurance Segment

Operating highlights for Endurance's Insurance segment for the quarter ended June 30, 2014 were as follows:

  • Gross premiums written of $321.5 million, an increase of 16.1% from the second quarter of 2013;
  • Net premiums written of $179.0 million, a decrease of 6.5% from the second quarter of 2013; and
  • Combined ratio of 97.0%, which included 10.1 percentage points of favorable prior year loss reserve development and 2.3 percentage points of expenses related to the proposed acquisition of Aspen.

Operating highlights for Endurance's Insurance segment for the six months ended June 30, 2014 were as follows:

  • Gross premiums written of $973.8 million, an increase of 4.7% from the same period in 2013;
  • Net premiums written of $522.1 million, a decrease of 12.4% from the same period in 2013; and
  • Combined ratio of 97.8%, which included favorable prior year loss reserve development of 9.3 percentage points and 1.5 percentage points of expenses related to the proposed acquisition of Aspen.

Gross premiums written in the Insurance segment increased $44.6 million and $43.9 million for the quarter and six months ended June 30, 2014 compared to the same periods in 2013.  Significant growth from our expanded underwriting capabilities within professional lines and casualty and other specialty lines of business, as well as a 5% increase in our agriculture insurance policy counts was partially offset by commodity price driven declines in our agriculture insurance line of business.  Net premiums written declined $12.5 million and $74.1 million for the quarter and six months ended June 30, 2014, compared to the same periods in 2013 as we strategically increased our purchases of reinsurance, including a 10% global whole account quota share as well as stop loss protection for the agriculture insurance business.  These increased reinsurance purchases improve the risk reward characteristics of our retained insurance portfolio and help mitigate the impact of the increasingly competitive market conditions we are facing.

The 5.4 percentage point improvement in the Insurance segment combined ratio for the quarter ended June 30, 2014 compared to the same period in 2013 was driven by a lower net loss ratio, partially offset by higher acquisition and general and administrative expense ratios.  The accident year net loss ratio in the second quarter of 2014 improved by 4.1 percentage points compared to a year ago driven by the talent expansion, portfolio rebalancing and improved risk selection implemented over the last 18 months.  The general and administrative expense ratio increased in the second quarter compared to the same period a year ago reflecting a smaller earned premium base, higher corporate allocations, which included $5.1 million or 2.3 percentage points of expenses related the proposed acquisition of Aspen, and strategic investments within our Insurance segment.  For the six months ended June 30, 2014, the combined ratio was 3.4 percentage points lower than the same period a year ago as a lower net loss ratio was partially offset by higher acquisition and general and administrative expense ratios.

Reinsurance Segment

Operating highlights for Endurance's Reinsurance segment for the quarter ended June 30, 2014 were as follows:

  • Gross premiums written of $367.9 million, an increase of 24.4% from the second quarter of 2013;
  • Net premiums written of $332.4 million, an increase of 21.7% from the second quarter of 2013; and
  • Combined ratio of 80.7%, which included favorable prior year loss reserve development of 12.2 percentage points, net catastrophe losses from 2014 events of $26.5 million or 10.4 percentage points and 2.7 percentage points of expenses related to the proposed acquisition of Aspen.

Operating highlights for Endurance's Reinsurance segment for the six months ended June 30, 2014 were as follows:

  • Gross premiums written of $873.1 million, an increase of 6.5% from the same period in 2013;
  • Net premiums written of $788.1 million, an increase of 1.4% from the same period in 2013; and
  • Combined ratio of 76.1%, which included favorable prior year loss reserve development of 13.7 percentage points, net catastrophe losses from 2014 events of $28.6 million or 5.7 percentage points and 1.5 percentage points of expenses related to the proposed acquisition of Aspen.

Gross premiums written in the Reinsurance segment increased $72.1 million and $53.0 million for the quarter and six months ended June 30, 2014 compared to the same periods in 2013.  For the second quarter 2014, the growth was driven by increases within specialty and professional lines, partially offset by declines within the property and casualty lines of business.  The professional lines second quarter 2014 gross premiums written grew $71.6 million from a year ago primarily as a result of a large quota share contract that was extended and to a lesser extent from several new quota share contracts written.  Within the specialty line of business, growth was generated by new underwriters within the energy, agriculture and surety businesses.  The declines within the property and casualty lines of business were due to the continued non-renewal and re-underwriting of business that no longer met our profitability targets.  For the quarter and six months ended June 30, 2014, net premium growth was impacted by increased proportional and aggregate excess of loss retrocessional purchases in the Company's catastrophe portfolio.  These strategic retrocessional purchases improve the risk and reward characteristics of our net reinsurance portfolio and help mitigate the impact of the increasingly competitive market conditions we are facing. 

The combined ratio in the Reinsurance segment for the second quarter of 2014 improved by 5.7 percentage points compared to the same period in 2013, predominantly due to a lower net loss ratio that was partially offset by higher acquisition and general and administrative expense ratios.  The accident year loss ratio in the current quarter improved 18.9 percentage points from a year ago due to a lower level of catastrophe losses and an increase in higher margin specialty business generated by our expanded specialty underwriting teams that replaced lower margin non-renewed property and casualty business.  The current quarter's net loss ratio included 10.9 percentage points of catastrophe losses mainly related to European Windstorm Ela and various tornadoes occurring in the United States, while the second quarter of 2013 included 18.8 percentage points of catastrophe losses relating to flooding in Canada and Europe and various tornadoes occurring in the United States.  The net loss ratio in the second quarter of 2014 benefited from $32.2 million, or 12.2 percentage points, of favorable prior year loss reserve development, compared to $57.2 million, or 20.8 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 as losses have developed better than original estimates.  The increase in the acquisition expense ratio was due to reduced premiums written in the catastrophe line of business, which have a lower related acquisition expense, and a greater level of premiums being derived from professional and specialty lines, which maintain higher acquisition expenses.  The higher general and administrative expenses for the second quarter of 2014 were predominantly due to greater allocated corporate expenses, which included $7.0 million or 2.7 percentage points of expenses related the proposed acquisition of Aspen, and continued strategic investments within our global specialty reinsurance operations.

For the first six months of 2014, the Reinsurance segment reported a combined ratio of 76.1% compared to 81.8% for the same period in 2013 principally due to a lower net loss ratio partially offset by higher acquisition and general and administrative expense ratios.

Investments

Endurance's net investment income for the quarter and six months ended June 30, 2014 was $39.3 million and $80.3 million, an increase of $6.8 million and a decrease of $1.5 million, respectively, compared to the same periods in 2013.  The total return of Endurance's investment portfolio was 1.52% and 2.78% for the quarter and six months ended June 30, 2014, respectively, compared to (1.22%) and (0.62%) for the quarter and six months ended June 30, 2013, respectively.  Investment income generated from Endurance's available for sale investments increased by $3.0 million and $3.8 million for the three and six months ended June 30, 2014, respectively, compared to the same periods in 2013 due to an increase in the available for sale investment base.  During the second quarter and six months ended June 30, 2014, Endurance's net investment income included gains of $10.8 million and $24.3 million, respectively, on its alternative investment funds and high yield loan funds, which are included in other investments, as compared to gains of $6.8 million and $29.8 million in the second quarter and first six months of 2013, respectively.  The ending book yield on Endurance's fixed maturity investments at June 30, 2014 was 2.15%, unchanged from June 30, 2013.

At June 30, 2014, Endurance's fixed maturity portfolio, which comprises 87.3% of Endurance's investments, had an average credit quality of AA- and a duration of 2.88 years.  Endurance's fixed maturity portfolio was in a net unrealized gain position of $107.0 million at June 30, 2014, an increase of $61.0 million from December 31, 2013.  Endurance recorded net realized investment gains net of impairments of $3.2 million and $8.0 million during the second quarter and first six months of 2014 compared to net realized investment gains of $9.8 million and $15.2 million during the second quarter and first six months of 2013. 

Endurance ended the second quarter of 2014 with cash and invested assets of $6.5 billion, which represents a 0.8% increase from December 31, 2013.  Net operating cash flow was $19.7 million for the six months ended June 30, 2014 versus $42.7 million for the same period in 2013.  The decrease in net operating cash flows was driven by higher ceded premiums and general expenditure outflows, partially offset by lower gross loss payments.

Capitalization and Shareholders' Equity

At June 30, 2014, Endurance's shareholders' equity was $3.12 billion or $60.00 per diluted common share versus $2.89 billion or $55.18 per diluted common share at December 31, 2013.  For the quarter and six months ended June 30, 2014, Endurance declared and paid common dividends of $0.34 and $0.68 per share, respectively. 

Earnings Call

Endurance will host a conference call on August 5, 2014 at 8:30 a.m. Eastern time to discuss its financial results.  The conference call can be accessed via telephone by dialing (888) 523-1225 or (719) 325-2393 (international) and entering pass code: 2379226.  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 19, 2014 by dialing (888) 203-1112 or (719) 457-0820 (international) and entering the pass code: 2379226.

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 2014 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, professional lines and 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 Waterloo House, 100 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, and Endurance may make related oral 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," "would," "expect," "intend," "plan," "believe," "project," "target," "anticipate," "seek," "will," "deliver," 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 materially 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, 2013 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2014.

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,
2014  2013 
Assets
Cash and cash equivalents $  801,028  $  845,851 
Fixed maturity investments, available for sale, at fair value  4,993,099   4,823,964 
Short-term investments, available for sale, at fair value  24,564   35,028 
Equity securities, available for sale, at fair value  287,642   252,466 
Other investments  648,642   617,478 
Premiums receivable, net  1,380,858   669,198 
Insurance and reinsurance balances receivable  134,750   127,722 
Deferred acquisition costs  257,262   186,027 
Prepaid reinsurance premiums  424,133   187,209 
Reinsurance recoverable on unpaid losses  606,140   593,755 
Reinsurance recoverable on paid losses  145,694   164,220 
Accrued investment income  26,385   24,104 
Goodwill and intangible assets  162,178   165,378 
Deferred tax asset  45,782   51,703 
Net receivable on sales of investments  67,578   54,910 
Other assets  172,912   179,109 
Total Assets $  10,178,647  $  8,978,122 
Liabilities
Reserve for losses and loss expenses $  3,963,393  $  4,002,259 
Reserve for unearned premiums  1,689,819   1,018,851 
Deposit liabilities  21,987   19,458 
Reinsurance balances payable  378,295   181,061 
Debt  527,714   527,478 
Net payable on purchases of investments  272,696   129,047 
Other liabilities  209,068   213,419 
Total Liabilities  7,062,972   6,091,573 
Shareholders' Equity
Preferred shares
Series A, non-cumulative - 8,000,000 issued and outstanding (2013 - 8,000,000)  8,000   8,000 
Series B, non-cumulative - 9,200,000 issued and outstanding (2013 - 9,200,000)  9,200   9,200 
Common shares
44,705,758 issued and outstanding (2013 - 44,368,742)  44,706   44,369 
Additional paid-in capital  583,691   569,116 
Accumulated other comprehensive income  136,038   62,731 
Retained earnings  2,334,040   2,193,133 
Total Shareholders' Equity  3,115,675   2,886,549 
Total Liabilities and Shareholders' Equity $  10,178,647  $  8,978,122 
Book Value per Common Share
Dilutive common shares outstanding  44,758,326   44,518,210 
Diluted book value per common share [a] $  60.00  $  55.18 
Note: All financial information contained herein is unaudited, except the balance sheet data for the year ended December 31, 2013, 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,
2014  2013  2014  2013 
Revenues
Gross premiums written $  689,425  $  572,710  $  1,846,940  $  1,750,072 
Net premiums written $  511,427  $  464,621  $  1,310,132  $  1,373,536 
Change in unearned premiums  (29,889)  78,714   (432,328)  (410,084)
Net premiums earned  481,538   543,335   877,804   963,452 
Other underwriting (loss) income  (4,824)  888   (6,062)  1,637 
Net investment income  39,302   32,468   80,292   81,773 
Net realized and unrealized investment gains  3,411   10,372   8,283   16,607 
Total other-than-temporary impairment losses  (198)  (579)  (309)  (1,385)
Portion of loss recognized in other comprehensive income (loss)  -   -   -   - 
Net impairment losses recognized in earnings  (198)  (579)  (309)  (1,385)
Total revenues  519,229   586,484   960,008   1,062,084 
Expenses
Net losses and loss expenses  259,196   359,058   436,092   578,028 
Acquisition expenses  78,601   71,868   150,758   143,504 
General and administrative expenses [a]  86,455   81,359   159,661   147,837 
Amortization of intangibles  1,623   1,625   3,240   3,726 
Net foreign exchange losses  319   3,368   3,283   6,295 
Interest expense [b]  9,732   9,052   18,783   18,090 
Total expenses  435,926   526,330   771,817   897,480 
Income before income taxes  83,303   60,154   188,191   164,604 
Income tax (expense) benefit  (140)  865   (548)  (3,286)
Net income  83,163   61,019   187,643   161,318 
Preferred dividends  (8,188)  (8,188)  (16,376)  (16,376)
Net income available to common and participating common shareholders [c] $  74,975  $  52,831  $  171,267  $  144,942 
Per share data
Basic earnings per common share $  1.68  $  1.21  $  3.84  $  3.34 
Diluted earnings per common share $  1.68  $  1.21  $  3.84  $  3.34 

[a] Includes $12,121 and $13,057 of general and administrative expenses for the quarter and six months ended June 30, 2014, respectively, incurred in relation to the Company' proposed acquisition of Aspen.

[b] Includes $679 of interest expenses for the quarter and six months ended June 30, 2014 incurred in relation to the Company' proposed acquisition of Aspen.

[c] Adding back the $12,800 and $13,736 of expenses incurred in relation to the Company' proposed acquisition of Aspen for the quarter and six months ended June 30, 2014, respectively, net income available to common and participating common shareholders would increase to $87,775 and $185,003, respectively, or $1.97 and $4.15, respectively, per diluted common share.  See reconciliation on page 17.

ENDURANCE SPECIALTY HOLDINGS LTD.
RESULTS BY SEGMENT
(in thousands of United States dollars, except ratios)
For the quarter ended June 30, 2014
Insurance Reinsurance Reported Totals
Revenues
Gross premiums written $  321,526  $  367,899  $  689,425 
Ceded premiums written  (142,488)  (35,510)  (177,998)
Net premiums written  179,038   332,389   511,427 
Net premiums earned  218,563   262,975   481,538 
Other underwriting loss  -   (4,824)  (4,824)
Total underwriting revenues  218,563   258,151   476,714 
Expenses
Net losses and loss expenses  149,567   109,629   259,196 
Acquisition expenses  15,128   63,473   78,601 
General and administrative expenses  47,237   39,218   86,455 
 211,932   212,320   424,252 
Underwriting income $  6,631  $  45,831  $  52,462 
Net loss ratio 68.5  % 41.7  % 53.8  %
Acquisition expense ratio 6.9  % 24.1  % 16.3  %
General and administrative expense ratio 21.6  % 14.9  % 18.0  %
Combined ratio 97.0  % 80.7  % 88.1  %




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 six months ended June 30, 2014
Insurance Reinsurance Reported Totals
Revenues
Gross premiums written $  973,802  $  873,138  $  1,846,940 
Ceded premiums written  (451,737)  (85,071)  (536,808)
Net premiums written  522,065   788,067   1,310,132 
Net premiums earned  362,584   515,220   877,804 
Other underwriting loss  -   (6,062)  (6,062)
Total underwriting revenues  362,584   509,158   871,742 
Expenses
Net losses and loss expenses  238,100   197,992   436,092 
Acquisition expenses  27,389   123,369   150,758 
General and administrative expenses  88,973   70,688   159,661 
 354,462   392,049   746,511 
Underwriting income $  8,122  $  117,109  $  125,231 
Net loss ratio 65.7  % 38.5  % 49.6  %
Acquisition expense ratio 7.6  % 23.9  % 17.2  %
General and administrative expense ratio 24.5  % 13.7  % 18.2  %
Combined ratio 97.8  % 76.1  % 85.0  %




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.
CONSOLIDATED FINANCIAL RATIOS
As Reported
For the quarter ended June 30,
Insurance Reinsurance Total
2014  2013  2014  2013  2014  2013 
Net loss ratio 68.5  % 80.6  % 41.7  % 52.0  % 53.8  % 66.1  %
Acquisition expense ratio 6.9  % 5.6  % 24.1  % 20.7  % 16.3  % 13.2  %
General and administrative expense ratio 21.6  % 16.2  % 14.9  % 13.7  % 18.0  % 15.0  %
Combined ratio 97.0  % 102.4  % 80.7  % 86.4  % 88.1  % 94.3  %
Effect of Prior Year Net Loss Reserve Development
Favorable / (Unfavorable)
For the quarter ended June 30,
Insurance Reinsurance Total
2014  2013  2014  2013  2014  2013 
Net loss ratio 10.1  % 2.1  % 12.2  % 20.8  % 11.3  % 11.6  %
Net of Prior Year Net Loss Reserve Development
For the quarter ended June 30,
Insurance Reinsurance Total
2014  2013  2014  2013  2014  2013 
Net loss ratio 78.6  % 82.7  % 53.9  % 72.8  % 65.1  % 77.7  %
Acquisition expense ratio 6.9  % 5.6  % 24.1  % 20.7  % 16.3  % 13.2  %
General and administrative expense ratio 21.6  % 16.2  % 14.9  % 13.7  % 18.0  % 15.0  %
Combined ratio 107.1  % 104.5  % 92.9  % 107.2  % 99.4  % 105.9  %
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
2014  2013  2014  2013  2014  2013 
Net loss ratio 65.7  % 75.2  % 38.5  % 48.3  % 49.6  % 60.0  %
Acquisition expense ratio 7.6  % 7.1  % 23.9  % 20.9  % 17.2  % 14.9  %
General and administrative expense ratio 24.5  % 18.9  % 13.7  % 12.6  % 18.2  % 15.3  %
Combined ratio 97.8  % 101.2  % 76.1  % 81.8  % 85.0  % 90.2  %
Effect of Prior Year Net Loss Reserve Development
Favorable / (Unfavorable)
For the six months ended June 30,
Insurance Reinsurance Total
2014  2013  2014  2013  2014  2013 
Net loss ratio 9.3  % 5.5  % 13.7  % 16.6  % 11.9  % 11.8  %
Net of Prior Year Net Loss Reserve Development
For the six months ended June 30,
Insurance Reinsurance Total
2014  2013  2014  2013  2014  2013 
Net loss ratio 75.0  % 80.7  % 52.2  % 64.9  % 61.5  % 71.8  %
Acquisition expense ratio 7.6  % 7.1  % 23.9  % 20.9  % 17.2  % 14.9  %
General and administrative expense ratio 24.5  % 18.9  % 13.7  % 12.6  % 18.2  % 15.3  %
Combined ratio 107.1  % 106.7  % 89.8  % 98.4  % 96.9  % 102.0  %
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, 2014 and 2013:
Quarter Ended June 30, 2014 Quarter Ended June 30, 2013
Gross Premiums Written Net Premiums Written Gross Premiums Written Net Premiums Written
Insurance
Agriculture $  80,540  $  45,826  $  131,633  $  84,537 
Casualty and other specialty  146,728   89,765   87,614   63,373 
Professional lines  74,650   29,846   38,296   27,788 
Property  19,608   13,601   19,398   15,804 
Subtotal Insurance $  321,526  $  179,038  $  276,941  $  191,502 
                 
Reinsurance
Catastrophe $  158,372  $  123,411  $  155,431  $  138,041 
Property  42,887   42,886   48,384   44,516 
Casualty  30,875   30,868   54,417   54,419 
Professional lines  84,117   84,117   12,528   12,528 
Specialty  51,648   51,107   25,009   23,615 
Subtotal Reinsurance $  367,899  $  332,389  $  295,769  $  273,119 
Total $  689,425  $  511,427  $  572,710  $  464,621 




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, 2014 and 2013:
Six Months Ended Six Months Ended
June 30, 2014 June 30, 2013
Gross Premiums Written Net Premiums Written Gross Premiums Written Net Premiums Written
Insurance
Agriculture $  608,434  $  327,471  $  696,107  $  425,667 
Casualty and other specialty  221,623   131,486   144,081   106,634 
Professional lines  113,430   44,416   59,260   41,991 
Property  30,315   18,692   30,436   21,904 
Subtotal Insurance $  973,802  $  522,065  $  929,884  $  596,196 
                 
Reinsurance
Catastrophe $  285,020  $  202,374  $  303,297  $  269,439 
Property  209,300   209,208   196,795   192,927 
Casualty  115,857   114,260   183,809   182,382 
Professional lines  109,736   109,736   24,835   24,835 
Specialty  153,225   152,489   111,452   107,757 
Subtotal Reinsurance $  873,138  $  788,067  $  820,188  $  777,340 
Total $  1,846,940  $  1,310,132  $  1,750,072  $  1,373,536 



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 basic or 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 basic or 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, 2014 and 2013:
Quarter Ended Six Months Ended
June 30, June 30,
2014  2013  2014  2013 
Net income $  83,163  $  61,019  $  187,643  $  161,318 
Add (less) after-tax items:
Net foreign exchange losses  305   3,341   3,277   6,250 
Net realized and unrealized gains  (3,559)  (9,435)  (8,563)  (15,427)
Net impairment losses recognized in earnings  198   579   309   1,351 
Operating income before preferred dividends $  80,107  $  55,504  $  182,666  $  153,492 
Preferred dividends  (8,188)  (8,188)  (16,376)  (16,376)
Operating income allocated to common and
participating common shareholders $  71,919  $  47,316  $  166,290  $  137,116 
Operating income allocated to common shareholders
under the two-class method $  69,797  $  46,302  $  161,447  $  134,519 
Weighted average diluted common  43,350,911   42,621,530   43,265,626   42,527,365 
Operating income per diluted common share [b] $  1.61  $  1.09  $  3.73  $  3.16 
Average common equity [a] $  2,628,392  $  2,321,152  $  2,571,112  $  2,293,326 
Operating return on average common equity 2.7  % 2.0  % 6.5  % 6.0  %
Annualized operating return on average common equity 10.9  % 8.2  % 12.9  % 12.0  %
Net income $  83,163  $  61,019  $  187,643  $  161,318 
Preferred dividends  (8,188)  (8,188)  (16,376)  (16,376)
Net income available to common and participating
common shareholders $  74,975  $  52,831  $  171,267  $  144,942 
Net income allocated to common shareholders under
the two-class method $  72,763  $  51,699  $  166,279  $  142,197 
Net income per diluted common share $  1.68  $  1.21  $  3.84  $  3.34 
Return on average common equity, Net income  2.9  %  2.3  %  6.7  %  6.3  %
Annualized return on average common equity, Net income  11.4  %  9.1  %  13.3  %  12.6  %
[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.
[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.




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 available to common and participating common shareholders, net income per basic or diluted common share, net income allocated to common shareholders under the two-class method and annualized return on average common equity to net income, operating income available to common and participating common shareholders, operating income per basic or diluted common share, operating income allocated to common shareholders under the two-class method and annualized operating return on average common equity excluding expenses incurred related to the proposed acquisition of Aspen (all non-GAAP measures) for the three and six months ended June 30, 2014:
Quarter Ended June 30, 2014 Six Months Ended June 30, 2014
As Reported Expenses
Incurred
Related to the Proposed Acquisition of Aspen [a]
Excluding Expenses
Incurred
Related to the Proposed Acquisition of Aspen
As Reported Expenses
Incurred
Related to the Proposed Acquisition of Aspen [a]
Excluding Expenses
Incurred
Related to the Proposed Acquisition of Aspen
Net income available to common and     
  participating common shareholders  $  74,975  $  12,800  $  87,775  $ 171,267 $    13,736 $  185,003
  Less amount allocated to participating       
  common shareholders
(2,212) (377) (2,589) (4,988) (400) (5,388)
Net income allocated to common  
  Shareholders [b]
$ 72,763 $  12,423  $ 85,186 $ 166,279 $    13,336 $  179,615
Net income per diluted common share [c] $ 1.68 $  0.29  $ 1.97 $ 3.84 $        0.31 $        4.15
Return on average common equity, Net         
  income [d]
2.9% 0.4% 3.3% 6.7% 0.5% 7.2%
Annualized return on average common equity, Net income [d] 11.4%  2.0%  13.4% 13.3% 1.1% 14.4%
Operating income available to common and     $  71,919  $  12,800  $  84,719  $ 166,290 $    13,736 $  180,026
  participating common shareholders 
  Less amount allocated to participating       
  common shareholders [b]
(2,122) (377) (2,499) (4,843) (400) (5,243)
Operating income allocated to common  
  shareholders
$ 69,797 $  12,423  $ 82,220 $ 161,447 $    13,336 $  174,783
Operating income per diluted common
  share [c]
$ 1.61 $  0.29  $ 1.90 $       3.73 $        0.31 $        4.04
Return on average common equity,
  Operating income [d]
2.7% 0.5% 3.2% 6.5% 0.5% 7.0%
Annualized return on average common equity, Operating income [d] 10.9%  2.0%  12.9% 12.9% 1.1% 14.0%
[a] The Company incurred $12,121 and $679 of general and administrative expenses and interest expense, respectively, in relation to the Company's proposed acquisition of Aspen for the quarter ended June 30, 2014. For the six months ended June 30, 2014, the Company incurred $13,057 and $679 of general and administrative expenses and interest expense, respectively, in relation to the Company's proposed acquisition of Aspen.
[b] Represents earnings and dividends allocated to holders of unvested restricted shares issued under the Company's stock compensation plans that are considered participating securities related to the calculation of earnings per share under the two-class method.  In periods of loss, no losses are allocated to participating common shareholders.
[c] 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.
[d] 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.

Net income available to common and participating common shareholders, excluding expenses incurred related to the proposed acquisition of Aspen, or net income per basic or diluted common share, excluding expenses incurred related to the proposed acquisition of Aspen, reflect the current period impact of those costs incurred by the Company and reflects the results of operations similar to how management analyses the Company's underlying business performance.  Net income available to common and participating common shareholders, excluding expenses incurred related to the proposed acquisition of Aspen or net income per basic or diluted common share, excluding expenses incurred related to the proposed acquisition of Aspen, should not be viewed as a substitute for GAAP net income available to common and participating common shareholders, or basic or diluted earnings per common share, respectively.

Operating income and operating income per basic or 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. 

Operating income available to common and participating common shareholders, excluding expenses incurred related to the proposed acquisition of Aspen, or net operating per basic or diluted common share, excluding expenses incurred related to the proposed acquisition of Aspen, reflect the current period impact of those costs incurred by the Company and reflects the results of operations similar to how management analyses the Company's underlying business performance.  Operating income available to common and participating common shareholders, excluding expenses incurred related to the proposed acquisition of Aspen or net operating per basic or diluted common share, excluding expenses incurred related to the proposed acquisition of Aspen, should not be viewed as a substitute for GAAP net income available to common and participating common shareholders, or basic or diluted earnings per 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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