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Endurance Reports Third Quarter 2013 Financial Results

PEMBROKE, Bermuda - November 4, 2013 - Endurance Specialty Holdings Ltd. (NYSE:ENH) today reported net income available to common shareholders of $75.2 million and $1.70 per diluted common share for the third quarter of 2013 versus net income of $31.9 million and $0.74 per diluted common share for the third quarter of 2012.  
For the nine months ended September 30, 2013, Endurance reported net income available to common shareholders of $220.2 million and $5.04 per diluted common share versus net income of $170.6 million and $3.94 per diluted common share for the nine months ended September 30, 2012.  Book value per diluted share was $54.33 at September 30, 2013, an increase of 4.6% from June 30, 2013 and up 2.7% from December 31, 2012.

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

  • Net premiums written of $395.3 million, a decline of 23.1% compared to the same period in 2012; 

  • Combined ratio of 87.7%, which included 8.7 percentage points of favorable prior year loss reserve development and 3.7 percentage points of catastrophe losses from 2013 events; 

  • Net investment income of $38.1 million, a decrease of $7.8 million from the same period in 2012;  

  • Operating income, which excludes after-tax realized investment losses and foreign exchange losses, of $83.9 million and $1.89 per diluted common share; and 

  • Operating return on average common equity for the quarter of 3.6% or 14.2% on an annualized basis. 

Operating highlights for the nine months ended September 30, 2013 were as follows:

  • Net premiums written of $1,768.9 million, a decline of 3.9% over the same period in 2012; 

  • Combined ratio of 89.3%, which included 10.6 percentage points of favorable prior year loss reserve development and 4.5 percentage points of current year catastrophe losses; 

  • Net investment income of $119.9 million, a decrease of $14.9 million over the same period in 2012;  

  • Operating income, which excludes after-tax realized investment gains and foreign exchange losses, of $221.0 million and $5.06 per diluted common share; and 

  • Operating return on average common equity for the first nine months of the year of 9.4%, or 12.6% on an annualized basis. 

John R. Charman, Chairman and Chief Executive Officer, commented, "Endurance had a good quarter, both financially and strategically.  Financially, our strong operating results were driven by improved underwriting performance and positive investment returns.  Strategically, we have made significant progress driving substantial improvements in our underwriting capabilities, streamlining our operations and enhancing our positioning in the global market.  These strategies are accelerating.  We continue to attract market leading talent and these new high quality growth initiatives combined with our more streamlined operations significantly improves our ability to transform Endurance into a world class underwriting organization with industry leading profitability." 

Insurance Segment

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

  • Net premiums written of $224.3 million, an increase of 1.4% from the third quarter of 2012; 

  • Combined ratio of 96.9%, an improvement of 24.1 percentage points from the third quarter of 2012; and 

  • Favorable prior year loss reserve development of 2.1 percentage points during the current period, compared to 6.2 percentage points of favorable prior year loss reserve development in the third quarter of 2012. 

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

  • Net premiums written of $820.5 million, a decrease of 1.8% from the same period in 2012; 

  • Combined ratio of 99.4%, an improvement of 8.3 percentage points from the same period in 2012; and 

  • Favorable prior year loss reserve development of 4.1 percentage points during the current period, compared to 5.5 percentage points of favorable prior year loss reserve development in the same period in 2012. 

Net premiums written in the Insurance segment increased $3.1 million for the third quarter compared to the same period in 2012.  Increases within the agriculture and casualty and other specialty lines of business were partially offset by declines in the professional and property lines of business.  Within the agriculture line of business, net premiums written increased due to growth in spring crop policy counts and were partially offset by lower premiums from fall crops that were impacted by lower commodity prices compared to third quarter 2012.  The increase in casualty and other specialty lines of business was predominantly driven by the addition of new underwriting teams in ocean and inland marine and within excess casualty.  The decline in net premiums written in the professional line of business resulted from the termination of a program relationship in late 2012.  The decline in property net premiums written reflects the nonrenewal of certain working layer property catastrophe contracts in order to improve the risk characteristics of the portfolio.  For the nine months ended September 30, 2013, net premiums written declined $15.2 million as a decline in professional insurance was partially offset by growth in agriculture, property and casualty and other specialty lines of business.

The improvement in the Insurance segment combined ratio for the quarter ended September 30, 2013 compared to the same period in 2012 was primarily driven by lower net loss and acquisition expense ratios, partially offset by a higher general and administrative expense ratio.  The biggest driver of the improvement in the net loss ratio resulted from a better crop year in the agriculture insurance line of business as 2012 was impacted by a severe drought.  Also impacting the current quarter's net loss ratio was improved accident year loss ratios in the property and casualty and other specialty lines of business that were partially offset by lower levels of prior period favorable reserve development.  The general and administrative expense ratio was higher in the current quarter due to a greater level of corporate expenses related to severance costs, higher expenses associated with recently added underwriting teams and larger variable compensation expense accruals reflecting  the Company's higher current year profitability.  For the nine months ended September 30, 2013, the combined ratio was 8.3 percentage points lower than the same period a year ago as lower net loss and acquisition expense ratios were partially offset by a higher general and administrative ratio.

Reinsurance Segment

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

  • Net premiums written of $171.0 million, a decrease of 41.6% from the third quarter of 2012; 

  • Combined ratio of 77.4%, an increase of 0.6 percentage points from the third quarter of 2012;  

  • Favorable prior year loss reserve development of 16.0 percentage points compared to 14.2 percentage points of favorable prior year loss reserve development in the third quarter of 2012; and 

  • Net catastrophe losses from 2013 events of $18.1 million or 7.8 percentage points on the combined ratio compared to net catastrophe losses of $13.2 million or 5.3 points in the third quarter of 2012. 

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

  • Net premiums written of $948.3 million, a decrease of 5.7% from the same period in 2012; 

  • Combined ratio of 80.4%, an improvement of 5.2 percentage points from the same period in 2012; 

  • Favorable prior year loss reserve development of 16.4 percentage points during the current period, compared to 6.9 percentage points of favorable prior year loss reserve development in the same period in 2012; and 

  • Net catastrophe losses from 2013 events of $65.5 million or 8.7 percentage points on the combined ratio compared to net catastrophe losses of $49.6 million or 6.6 points in the first nine months of 2012. 

The $121.8 million decrease in net premiums written within the Reinsurance segment during the third quarter of 2013 compared to the third quarter of 2012 resulted primarily from declines in property, catastrophe and casualty reinsurance lines.  The $67.2 million decline in property premiums in the current quarter compared to a year ago reflected a reduced participation on a few large contracts where pricing and terms were not adequate.  The $23.9 million reduction in catastrophe premiums reflected the purchase of peak zone retrocessional coverage, which reduced net premiums written.  Casualty premiums declined $24.1 million as the Company non-renewed business that no longer met profitability targets and a smaller level of premium adjustments were realized in the current quarter compared to a year ago.  For the nine months ended September 30, 2013, net premiums written decreased $57.5 million due to declines within the property and catastrophe lines of business, partially offset by modest increases in the casualty and other specialty lines of business.

The combined ratio in the Reinsurance segment for the third quarter of 2013 increased modestly compared to the same period in 2012, predominantly due to a higher general and administrative expense ratio, partially offset by a lower net loss ratio.  The net loss ratio in the third quarter of 2013 benefited from $41.9 million, or 16.0 percentage points, of favorable prior year loss reserve development, compared to $38.2 million, or 14.2 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 current quarter's combined ratio also included 7.8 percentage points of catastrophe losses mainly related to hail storms in Germany, while the third quarter of 2012 included 5.3 percentage points of catastrophe losses relating to Hurricane Isaac and a number of small loss events.  The higher general and administrative expenses were predominantly due to greater allocated corporate expenses related to severance costs from the reduction in senior executives previously announced and larger variable compensation expense accruals reflecting the Company's higher current year profitability.

For the first nine months of 2013, the Reinsurance segment reported a combined ratio of 80.4% compared to 85.6% for the same period in 2012 principally due to a lower net loss ratio that included a greater level of favorable prior year loss reserve development, partially offset by a higher general and administrative expense ratio.

Investments

Endurance's net investment income for the quarter and nine months ended September 30, 2013 was $38.1 million and $119.9 million, a decrease of $7.8 million and $14.9 million, respectively, compared to the same periods in 2012.  The total return of Endurance's investment portfolio was 1.32% and 0.68% for the quarter and nine months ended September 30, 2013, respectively, compared to 1.75% and 4.08% for the quarter and nine months ended September 30, 2012, respectively.  Investment income generated from Endurance's available for sale investments declined by $6.1 million and $19.6 million for the three and nine months ended September 30, 2013, respectively, compared to the same periods in 2012 due to lower reinvestment rates during 2013 and the short duration of Endurance's fixed maturity portfolio.  During the third quarter and nine months ended September 30, 2013, Endurance's net investment income included gains of $13.2 million and $43.1 million, respectively, on its alternative investment funds and high yield loan funds, which are included in other investments, as compared to gains of $15.1 million and $38.1 million in the third quarter and first nine months of 2012, respectively.  The ending book yield on Endurance's fixed maturity investments at September 30, 2013 was 2.28%, down from 2.38% at September 30, 2012.

At September 30, 2013, Endurance's fixed maturity portfolio, which comprises 86.4% of Endurance's investments, had an average credit quality of AA and a duration of 3.10 years.  Endurance's fixed maturity portfolio was in a net unrealized gain position of $59.7 million at September 30, 2013, a decrease of $82.0 million from December 31, 2012.  Endurance recorded net realized investment losses, net of impairment losses recognized in earnings, of $6.8 million and gains of $8.4 million during the third quarter and first nine months of 2013 compared to net realized investment gains of $10.0 million and $29.5 million during the third quarter and first nine months of 2012.  

Endurance ended the third quarter of 2013 with cash and invested assets of $6.4 billion, which represents a 3.2% decrease from December 31, 2012.  Net operating cash outflow was $(16.6) million for the nine months ended September 30, 2013 versus $211.4 million inflow for the same period in 2012.  The decline year over year was primarily due to the payment of claims related to prior years and a shift in settlement dates for agriculture insurance related receivables from the U.S. Federal Government.  

Capitalization and Shareholders' Equity

At September 30, 2013, Endurance's shareholders' equity was $2.84 billion or $54.33 per diluted common share versus $2.71 billion or $52.88 per diluted common share at December 31, 2012.  For the quarter and nine months ended September 30, 2013, Endurance declared and paid common dividends of $0.32 and $0.96 per share, respectively.  During the nine months ended September 30, 2013, the Company repurchased 318,252 common shares at an average cost of $45.83 per share.  Total share repurchases amounted to $14.6 million for the nine months ended September 30, 2013.  No common shares were repurchased during the third quarter of 2013.

Earnings Call

Endurance will host a conference call on November 5, 2013 at 8:30 a.m. Eastern time to discuss its financial results.  The conference call can be accessed via telephone by dialing (888) 219-1420 or (913) 312-0420 (international) and entering pass code: 9454891.  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 19, 2013 by dialing (888) 203-1112 or (719) 457-0820 (international) and entering the pass code: 9454891.

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 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)
September 30, December 31,
2013  2012 
Assets
Cash and cash equivalents $  789,999  $  1,124,019 
Fixed maturity investments, available for sale, at fair value  4,800,838   4,868,150 
Short-term investments, available for sale, at fair value  11,599   42,230 
Equity securities, available for sale, at fair value  262,866   86,997 
Other investments  594,156   517,546 
Premiums receivable, net  1,006,227   601,952 
Insurance and reinsurance balances receivable  123,777   105,663 
Deferred acquisition costs  197,048   168,252 
Prepaid reinsurance premiums  263,499   166,702 
Reinsurance recoverable on unpaid losses  513,080   691,783 
Reinsurance recoverable on paid losses  428,300   83,159 
Accrued investment income  21,783   27,166 
Goodwill and intangible assets  167,000   172,000 
Deferred tax asset  50,148   43,501 
Net receivable on sales of investments  124,236   9,144 
Other assets  192,104   86,708 
Total Assets $  9,546,660  $  8,794,972 
Liabilities
Reserve for losses and loss expenses $  4,052,102  $  4,240,876 
Reserve for unearned premiums  1,314,687   965,244 
Deposit liabilities  17,577   22,220 
Reinsurance balances payable  347,048   110,843 
Debt  527,506   527,339 
Net payable on purchases of investments  224,473   81,469 
Other liabilities  224,257   136,384 
Total Liabilities  6,707,650   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
44,249,622 issued and outstanding (2012 - 43,116,394)  44,250   43,116 
Additional paid-in capital  560,204   527,915 
Accumulated other comprehensive income  69,457   152,463 
Retained earnings  2,147,899   1,969,903 
Total Shareholders' Equity  2,839,010   2,710,597 
Total Liabilities and Shareholders' Equity $  9,546,660  $  8,794,972 
Book Value per Common Share
Dilutive common shares outstanding  44,337,727   43,130,075 
Diluted book value per common share [a] $  54.33  $  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 Nine Months Ended
September 30, September 30, September 30, September 30,
2013  2012  2013  2012 
Revenues
Gross premiums written $  544,363  $  621,255  $  2,294,435  $  2,286,980 
Net premiums written $  395,333  $  514,080  $  1,768,869  $  1,841,549 
Change in unearned premiums  158,212   37,792   (251,872)  (358,702)
Net premiums earned  553,545   551,872   1,516,997   1,482,847 
Other underwriting (loss) income  (943)  (1,347)  694   (1,663)
Net investment income  38,097   45,882   119,870   134,723 
Net realized and unrealized (losses) gains  (6,640)  10,097   9,967   30,258 
Total other-than-temporary impairment losses  (190)  (126)  (1,575)  (274)
Portion of loss recognized in other comprehensive income (loss)  -   (5)  -   (483)
Net impairment losses recognized in earnings  (190)  (131)  (1,575)  (757)
Total revenues  583,869   606,373   1,645,953   1,645,408 
Expenses
Net losses and loss expenses  339,036   407,523   917,064   1,016,187 
Acquisition expenses  78,775   88,782   222,279   229,399 
General and administrative expenses  67,470   52,715   215,307   181,365 
Amortization of intangibles  1,652   2,434   5,378   7,988 
Net foreign exchange losses (gains)  2,201   3,774   8,496   (14,699)
Interest expense  9,048   9,041   27,138   27,132 
Total expenses  498,182   564,269   1,395,662   1,447,372 
Income before income taxes  85,687   42,104   250,291   198,036 
Income tax expense  (2,271)  (1,986)  (5,557)  (2,893)
Net income  83,416   40,118   244,734   195,143 
Preferred dividends  (8,188)  (8,188)  (24,564)  (24,564)
Net income available to common and participating common shareholders $  75,228  $  31,930  $  220,170  $  170,579 
Per share data
Basic earnings per common share $  1.70  $  0.74  $  5.04  $  3.94 
Diluted earnings per common share $  1.70  $  0.74  $  5.04  $  3.94 



ENDURANCE SPECIALTY HOLDINGS LTD.
RESULTS BY SEGMENT
(in thousands of United States dollars, except ratios)
For the quarter ended September 30, 2013
Insurance Reinsurance Reported Totals
Revenues
Gross premiums written $  344,819  $  199,544  $  544,363 
Ceded premiums written  (120,481)  (28,549)  (149,030)
Net premiums written  224,338   170,995   395,333 
Net premiums earned  291,477   262,068   553,545 
Other underwriting loss  -   (943)  (943)
Total underwriting revenues  291,477   261,125   552,602 
Expenses
Net losses and loss expenses  228,409   110,627   339,036 
Acquisition expenses  18,440   60,335   78,775 
General and administrative expenses  35,641   31,829   67,470 
 282,490   202,791   485,281 
Underwriting income $  8,987  $  58,334  $  67,321 
Net loss ratio 78.4  % 42.3  % 61.3  %
Acquisition expense ratio 6.3  % 23.0  % 14.2  %
General and administrative expense ratio 12.2  % 12.1  % 12.2  %
Combined ratio 96.9  % 77.4  % 87.7  %



ENDURANCE SPECIALTY HOLDINGS LTD.
RESULTS BY SEGMENT
(in thousands of United States dollars, except ratios)
For the quarter ended September 30, 2012
Insurance Reinsurance Reported Totals
Revenues
Gross premiums written $  324,808  $  296,447  $  621,255 
Ceded premiums written  (103,543)  (3,632)  (107,175)
Net premiums written  221,265   292,815   514,080 
Net premiums earned  283,273   268,599   551,872 
Other underwriting (loss) income  (1,384)  37   (1,347)
Total underwriting revenues  281,889   268,636   550,525 
Expenses
Net losses and loss expenses  288,750   118,773   407,523 
Acquisition expenses  24,506   64,276   88,782 
General and administrative expenses  29,409   23,306   52,715 
 342,665   206,355   549,020 
Underwriting (loss) income $  (60,776) $  62,281  $  1,505 
Net loss ratio 101.9  % 44.2  % 73.8  %
Acquisition expense ratio 8.7  % 23.9  % 16.1  %
General and administrative expense ratio 10.4  % 8.7  % 9.6  %
Combined ratio 121.0  % 76.8  % 99.5  %



ENDURANCE SPECIALTY HOLDINGS LTD.
RESULTS BY SEGMENT
(in thousands of United States dollars, except ratios)
For the nine months ended September 30, 2013
Insurance Reinsurance Reported Totals
Revenues
Gross premiums written $  1,274,703  $  1,019,732  $  2,294,435 
Ceded premiums written  (454,169)  (71,397)  (525,566)
Net premiums written  820,534   948,335   1,768,869 
Net premiums earned  710,507   806,490   1,516,997 
Other underwriting income  -   694   694 
Total underwriting revenues  710,507   807,184   1,517,691 
Expenses
Net losses and loss expenses  543,717   373,347   917,064 
Acquisition expenses  48,024   174,255   222,279 
General and administrative expenses  114,792   100,515   215,307 
 706,533   648,117   1,354,650 
Underwriting income $  3,974  $  159,067  $  163,041 
Net loss ratio 76.4  % 46.3  % 60.4  %
Acquisition expense ratio 6.8  % 21.6  % 14.7  %
General and administrative expense ratio 16.2  % 12.5  % 14.2  %
Combined ratio 99.4  % 80.4  % 89.3  %



ENDURANCE SPECIALTY HOLDINGS LTD.
RESULTS BY SEGMENT
(in thousands of United States dollars, except ratios)
For the nine months ended September 30, 2012
Insurance Reinsurance Reported Totals
Revenues
Gross premiums written $  1,252,814  $  1,034,166  $  2,286,980 
Ceded premiums written  (417,109)  (28,322)  (445,431)
Net premiums written  835,705   1,005,844   1,841,549 
Net premiums earned  710,988   771,859   1,482,847 
Other underwriting (loss) income  (2,684)  1,021   (1,663)
Total underwriting revenues  708,304   772,880   1,481,184 
Expenses
Net losses and loss expenses  610,956   405,231   1,016,187 
Acquisition expenses  58,265   171,134   229,399 
General and administrative expenses  96,663   84,702   181,365 
 765,884   661,067   1,426,951 
Underwriting (loss) income $  (57,580) $  111,813  $  54,233 
Net loss ratio 85.9  % 52.4  % 68.5  %
Acquisition expense ratio 8.2  % 22.2  % 15.5  %
General and administrative expense ratio 13.6  % 11.0  % 12.2  %
Combined ratio 107.7  % 85.6  % 96.2  %



ENDURANCE SPECIALTY HOLDINGS LTD.
CONSOLIDATED FINANCIAL RATIOS
As Reported
For the quarter ended September 30,
Insurance Reinsurance Total
2013  2012  2013  2012  2013  2012 
Net loss ratio 78.4  % 101.9  % 42.3  % 44.2  % 61.3  % 73.8  %
Acquisition expense ratio 6.3  % 8.7  % 23.0  % 23.9  % 14.2  % 16.1  %
General and administrative expense ratio 12.2  % 10.4  % 12.1  % 8.7  % 12.2  % 9.6  %
Combined ratio 96.9  % 121.0  % 77.4  % 76.8  % 87.7  % 99.5  %
Effect of Prior Year Net Loss Reserve Development
Favorable / (Unfavorable)
For the quarter ended September 30,
Insurance Reinsurance Total
2013  2012  2013  2012  2013  2012 
Net loss ratio 2.1  % 6.2  % 16.0  % 14.2  % 8.7  % 10.1  %
Net of Prior Year Net Loss Reserve Development
For the quarter ended September 30,
Insurance Reinsurance Total
2013  2012  2013  2012  2013  2012 
Net loss ratio 80.5  % 108.1  % 58.3  % 58.4  % 70.0  % 83.9  %
Acquisition expense ratio 6.3  % 8.7  % 23.0  % 23.9  % 14.2  % 16.1  %
General and administrative expense ratio 12.2  % 10.4  % 12.1  % 8.7  % 12.2  % 9.6  %
Combined ratio 99.0  % 127.2  % 93.4  % 91.0  % 96.4  % 109.6  %
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
2013  2012  2013  2012  2013  2012 
Net loss ratio 76.4  % 85.9  % 46.3  % 52.4  % 60.4  % 68.5  %
Acquisition expense ratio 6.8  % 8.2  % 21.6  % 22.2  % 14.7  % 15.5  %
General and administrative expense ratio 16.2  % 13.6  % 12.5  % 11.0  % 14.2  % 12.2  %
Combined ratio 99.4  % 107.7  % 80.4  % 85.6  % 89.3  % 96.2  %
Effect of Prior Year Net Loss Reserve Development
Favorable / (Unfavorable)
For the nine months ended September 30,
Insurance Reinsurance Total
2013  2012  2013  2012  2013  2012 
Net loss ratio 4.1  % 5.5  % 16.4  % 6.9  % 10.6  % 6.2  %
Net of Prior Year Net Loss Reserve Development
For the nine months ended September 30,
Insurance Reinsurance Total
2013  2012  2013  2012  2013  2012 
Net loss ratio 80.5  % 91.4  % 62.7  % 59.3  % 71.0  % 74.7  %
Acquisition expense ratio 6.8  % 8.2  % 21.6  % 22.2  % 14.7  % 15.5  %
General and administrative expense ratio 16.2  % 13.6  % 12.5  % 11.0  % 14.2  % 12.2  %
Combined ratio 103.5  % 113.2  % 96.8  % 92.5  % 99.9  % 102.4  %
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, 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 September 30, 2013 and 2012:
Quarter Ended September 30, 2013 Quarter Ended September 30, 2012
Gross Premiums Written Net Premiums Written Gross Premiums Written Net Premiums Written
Insurance
Agriculture $  200,062  $  120,617  $  171,826  $  106,180 
Casualty and other specialty  95,862   72,431   90,873   66,686 
Professional lines  34,221   20,972   43,209   34,804 
Property  14,674   10,318   18,900   13,595 
Subtotal Insurance $  344,819  $  224,338  $  324,808  $  221,265 
                 
Reinsurance
Catastrophe $  38,676  $  12,551  $  38,871  $  36,484 
Property  91,653   90,528   157,742   157,742 
Casualty  53,691   53,690   77,781   77,781 
Other specialty  15,524   14,226   22,053   20,808 
Subtotal Reinsurance $  199,544  $  170,995  $  296,447  $  292,815 
Total $  544,363  $  395,333  $  621,255  $  514,080 



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 nine months ended September 30, 2013 and 2012:
Nine Months Ended Nine Months Ended
September 30, 2013 September 30, 2012
Gross Premiums Written Net Premiums Written Gross Premiums Written Net Premiums Written
Insurance
Agriculture $  896,169  $  546,284  $  838,932  $  528,349 
Casualty and other specialty  239,943   179,065   236,383   173,097 
Professional lines  93,481   62,963   130,573   107,841 
Property  45,110   32,222   46,926   26,418 
Subtotal Insurance $  1,274,703  $  820,534  $  1,252,814  $  835,705 
                 
Reinsurance
Catastrophe $  341,973  $  281,990  $  354,275  $  329,067 
Property  288,448   283,455   318,514   318,521 
Casualty  272,602   271,174   258,352   257,113 
Other specialty  116,709   111,716   103,025   101,143 
Subtotal Reinsurance $  1,019,732  $  948,335  $  1,034,166  $  1,005,844 
Total $  2,294,435  $  1,768,869  $  2,286,980  $  1,841,549 



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 nine months ended September 30, 2013 and 2012:
Quarter Ended Nine Months Ended
September 30, September 30,
2013  2012  2013  2012 
Net income $  83,416  $  40,118  $  244,734  $  195,143 
Add (less) after-tax items:
Net foreign exchange losses (gains)  2,395   3,767   8,645   (12,857)
Net realized and unrealized losses (gains)  6,056   (9,691)  (9,371)  (27,708)
Net impairment losses recognized in earnings  190   131   1,541   737 
Operating income before preferred dividends $  92,057  $  34,325  $  245,549  $  155,315 
Preferred dividends  (8,188)  (8,188)  (24,564)  (24,564)
Operating income allocated to common and
participating common shareholders $  83,869  $  26,137  $  220,985  $  130,751 
Operating income allocated to common shareholders
under the two-class method $  81,643  $  25,733  $  216,225  $  128,583 
Weighted average diluted common  43,100,139   42,657,906   42,720,431   42,594,293 
Operating income per diluted common share [b] $  1.89  $  0.60  $  5.06  $  3.02 
Average common equity [a] $  2,357,532  $  2,349,058  $  2,344,804  $  2,281,020 
Operating return on average common equity 3.6  % 1.1  % 9.4  % 5.7  %
Annualized operating return on average common equity 14.2  % 4.5  % 12.6  % 7.6  %
Net income $  83,416  $  40,118  $  244,734  $  195,143 
Preferred dividends  (8,188)  (8,188)  (24,564)  (24,564)
Net income available to common and participating
common shareholders $  75,228  $  31,930  $  220,170  $  170,579 
Net income available to common shareholders under
the two-class method $  73,231  $  31,436  $  215,428  $  167,751 
Net income per diluted common share $  1.70  $  0.74  $  5.04  $  3.94 
Return on average common equity, Net income  3.2  %  1.4  %  9.4  %  7.5  %
Annualized return on average common equity, Net income  12.8  %  5.4  %  12.5  %  10.0  %
[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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