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Endurance Reports Third Quarter 2014 Financial Results

Endurance Reports Third Quarter 2014 Financial Results

PEMBROKE, Bermuda - November 3, 2014 - Endurance Specialty Holdings Ltd. (NYSE:ENH) today reported net income available to common shareholders of $68.0 million and $1.52 per diluted common share for the third quarter of 2014 versus net income of $75.2 million and $1.70 per diluted common share for the third quarter of 2013. 

For the nine months ended September 30, 2014, Endurance reported net income available to common shareholders of $239.3 million and $5.36 per diluted common share versus net income of $220.2 million and $5.04 per diluted common share for the nine months ended September 30, 2013.  Book value per diluted share was $59.98 at September 30, 2014, up 8.7% from December 31, 2013.

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

  • Gross premiums written of $626.1 million, an increase of 15.0% compared to the same period in 2013;
  • Net premiums written of $390.1 million, a decline of 1.3% compared to the same period in 2013;
  • Combined ratio of 90.2%, which included 11.7 percentage points of favorable prior year loss reserve development, 2.4 percentage points of hail losses in the Agriculture line and 2.2 percentage points of property catastrophe losses from 2014 events;
  • Net investment income of $25.4 million, a decrease of $12.7 million from the same period in 2013;
  • Operating income, excluding $6.4 million of expenses related to the proposed acquisition of Aspen Insurance Holdings Limited ("Aspen"), of $65.5 million and $1.46 per diluted common share; and
  • Operating return on average common equity for the quarter, excluding expenses related to the proposed acquisition of Aspen, of 2.4% or 9.8% on an annualized basis.

Operating highlights for the nine months ended September 30, 2014 were as follows:

  • Gross premiums written of $2,473.1 million, an increase of 7.8% over the same period in 2013;
  • Net premiums written of $1,700.2 million, a decline of 3.9% over the same period in 2013;
  • Combined ratio of 87.0%, which included 11.8 percentage points of favorable prior year loss reserve development, 3.0 percentage points of current year catastrophe losses, and 1.1 percentage points of expenses related the proposed acquisition of Aspen;
  • Net investment income of $105.6 million, a decrease of $14.2 million over the same period in 2013;
  • Operating income, excluding $20.1 million of expenses related to the proposed acquisition of Aspen, of $245.6 million and $5.50 per diluted common share; and
  • Operating return on average common equity for the first nine months of the year, excluding expenses related to the proposed acquisition of Aspen, of 9.5%, or 12.7% on an annualized basis.

John R. Charman, Chairman and Chief Executive Officer, commented, "During the third quarter, we continued to make strong progress in the transformation of Endurance.  Despite the significant and increasing competition throughout the global insurance and reinsurance industry that we had anticipated, we have meaningfully improved the underwriting quality across our lines of business.  The core of our underwriting talent is now largely in place and our market leading teams of underwriters are successfully growing attractive sustainable new specialty business for Endurance based on their relevance and their value to their longstanding client and distribution partner relationships.  The risk/reward characteristics of our underwriting portfolios have been substantially improved with reduced catastrophe exposures, a more diverse and better balanced underwriting portfolio backstopped by very strong reinsurance protection across our businesses. Despite the quarter's headwinds from hail storm losses within our otherwise profitable agriculture insurance business coupled with some volatility within our investment portfolio, I am very comfortable with the underlying performance improvements and direction of Endurance, especially when taking into account the earnings lag that naturally occurs following a major transformation."

Insurance Segment

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

  • Gross premiums written of $420.3 million, an increase of 21.9% from the third quarter of 2013;
  • Net premiums written of $197.6 million, a decrease of 11.9% from the third quarter of 2013; and
  • Combined ratio of 103.2%, which included 8.0 percentage points of favorable prior year loss reserve development and 4.8 percentage points of hail losses in the agriculture line of business.

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

  • Gross premiums written of $1,394.1 million, an increase of 9.4% from the same period in 2013;
  • Net premiums written of $719.7 million, a decrease of 12.3% from the same period in 2013; and
  • Combined ratio of 100.0%, which included favorable prior year loss reserve development of 8.8 percentage points, 2.0 percentage points of hail losses in the agriculture line of business and 1.0 percentage point of general and administrative expenses related to the proposed acquisition of Aspen.

Gross premiums written in the Insurance segment increased $75.5 million and $119.4 million for the quarter and nine months ended September 30, 2014 compared to the same periods in 2013 as our expanded global underwriting capabilities within professional lines, casualty and other, and property lines of business continued to generate strong premium growth.  Partially offsetting this growth was a reduction in agriculture insurance premiums driven by commodity price declines.  Net premiums written declined $26.7 million and $100.8 million for the quarter and nine months ended September 30, 2014, compared to the same periods in 2013 as greater levels of reinsurance were purchased, including increased quota share protection for both individual lines of business and across the entire portfolio and increased excess of loss reinsurance protection for the agriculture insurance business.

The 6.3 percentage point increase in the Insurance segment combined ratio for the quarter ended September 30, 2014 compared to the same period in 2013 was driven by higher acquisition and general and administrative expenses and a lower earned premium base partially offset by a lower net loss ratio.  The third quarter increase in general and administrative expenses was due to higher corporate expenses, which included higher performance based incentive compensation expenses, and strategic investments in underwriting personnel within our Insurance segment.  The reduction in the net loss ratio was driven by increased favorable development of prior year reserves partially offset by a higher current accident year loss ratio.  The five point increase in the current accident year loss ratio for the current quarter was driven by our agriculture line of business, as our hail business generated an underwriting loss and represented a larger percentage of our overall agriculture line of business.  In addition, the net loss ratio of our multi-peril crop business was impacted by increased expenditures for excess of loss reinsurance coverage without expected recoveries.  The increase in the current accident year loss ratio for the current quarter in our agriculture line of business was offset in part by continued improvements in the accident year loss ratios of our other insurance business lines. For the nine months ended September 30, 2014, the combined ratio was 0.6 percentage points higher than the same period a year ago, as higher acquisition and general and administrative expense ratios were partially offset by a lower net loss ratio.

Reinsurance Segment

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

  • Gross premiums written of $205.8 million, an increase of 3.1% from the third quarter of 2013;
  • Net premiums written of $192.5 million, an increase of 12.6% from the third quarter of 2013; and
  • Combined ratio of 77.6%, which included favorable prior year loss reserve development of 15.4 percentage points and net catastrophe losses from 2014 events of $12.2 million or 4.5 percentage points.

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

  • Gross premiums written of $1,078.9 million, an increase of 5.8% from the same period in 2013;
  • Net premiums written of $980.5 million, an increase of 3.4% from the same period in 2013; and
  • Combined ratio of 76.6%, which included favorable prior year loss reserve development of 14.3 percentage points, net catastrophe losses from 2014 events of $40.8 million or 5.3 percentage points and 1.1 percentage points of expenses related to the proposed acquisition of Aspen.

Gross premiums written in the Reinsurance segment increased $6.2 million and $59.2 million for the quarter and nine months ended September 30, 2014 compared to the same periods in 2013.  For the third quarter of 2014, the growth was driven by increases within the specialty and catastrophe lines of business, partially offset by declines within the property, casualty and professional lines of business.  Gross premiums written in the specialty lines of business grew $24.0 million for the current quarter compared to a year ago due to new business generated by our recently expanded international agriculture, marine and trade credit and surety teams.  Catastrophe gross premiums written increased $8.5 million in the current quarter compared to a year ago as we increased our share of select contracts at renewal, which more than offset contracts that were non-renewed due to margins no longer meeting our return targets.  For the quarter and nine months ended September 30, 2014, net premium growth was impacted by proportional and aggregate excess of loss retrocessional purchases in the Company's catastrophe portfolio.  Retrocessional purchases in 2014 were for aggregate global protection with ceded premiums spread over multiple quarters compared to the retrocessional coverage purchased in 2013 that related only to U.S. wind exposures and was purchased predominately in the third quarter of 2013.

The combined ratio in the Reinsurance segment for the third quarter of 2014 increased by 0.2 percentage points compared to the same period in 2013, predominantly due to higher acquisition and general and administrative expense ratios, partially offset by a lower net loss ratio.  The increase in the acquisition expense ratio was due to reduced premiums written in short tail lines of business, which have lower related acquisition expenses, and a greater level of premiums written within the specialty lines, which maintain higher acquisition expenses.  The higher general and administrative expenses for the third quarter of 2014 resulted primarily from greater allocated corporate expenses, which included higher performance based incentive compensation expenses and continued strategic investments within our global specialty reinsurance operations.

The current Reinsurance segment accident year loss ratio for the three months ended September 30, 2014 improved 7.1 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 global underwriting teams.  The current quarter's net loss ratio included 4.7 percentage points of catastrophe losses mainly related to increased estimated losses from prior 2014 events, while the third quarter of 2013 included 8.0 percentage points of catastrophe losses mainly related to hail storms in Germany.  The net loss ratio in the third quarter of 2014 benefited from $40.2 million, or 15.4 percentage points, of favorable prior year loss reserve development, compared to $41.9 million, or 16.0 percentage points, for the same period a year ago.  The favorable development in both periods was predominantly driven by short tail lines of business as losses have developed better than originally estimated. 

For the first nine months of 2014, the Reinsurance segment reported a combined ratio of 76.6% compared to 80.4% 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 nine months ended September 30, 2014 was $25.4 million and $105.6 million, a decrease of $12.7 million and $14.2 million, respectively, compared to the same periods in 2013.  The total return of Endurance's investment portfolio was (0.39)% and 2.38% for the quarter and nine months ended September 30, 2014, respectively, compared to 1.32% and 0.68% for the quarter and nine months ended September 30, 2013, respectively.  Investment income generated from Endurance's available for sale investments increased by $2.1 million and $5.9 million for the three and nine months ended September 30, 2014, respectively, compared to the same periods in 2013 due to an increase in the available for sale investment base.  During the third quarter and nine months ended September 30, 2014, Endurance's net investment income included losses of $1.8 million and gains of $22.5 million, respectively, on its alternative investment funds and high yield loan funds, which are included in other investments, as compared to gains of $13.2 million and $43.1 million in the third quarter and the first nine months of 2013, respectively.  The ending book yield on Endurance's fixed maturity investments at September 30, 2014 was 2.22%, down from 2.28% at September 30, 2013.

At September 30, 2014, Endurance's fixed maturity portfolio, which comprises 86.3% of Endurance's investments, had an average credit quality of AA- and a duration of 2.77 years.  Endurance's fixed maturity portfolio was in a net unrealized gain position of $72.6 million at September 30, 2014, an increase of $26.7 million from December 31, 2013.  Endurance recorded net realized investment gains, net of impairments, of $9.7 million and $17.7 million during the third quarter and first nine months of 2014 compared to net realized investment losses of $6.8 million and gains of $8.4 million during the third quarter and first nine months of 2013. 

Endurance ended the third quarter of 2014 with cash and invested assets of $6.5 billion, which represents a 0.6% decrease from December 31, 2013.  Net operating cash inflow was $52.2 million for the nine months ended September 30, 2014 versus an outflow of $16.6 million for the same period in 2013.

Capitalization and Shareholders' Equity

At September 30, 2014, Endurance's shareholders' equity was $3.12 billion or $59.98 per diluted common share versus $2.89 billion or $55.18 per diluted common share at December 31, 2013.  For the quarter and nine months ended September 30, 2014, Endurance declared and paid common dividends of $0.34 and $1.02 per share, respectively. 

Earnings Call

Endurance will host a conference call on November 4, 2014 at 8:30 a.m. Eastern time to discuss its financial results.  The conference call can be accessed via telephone by dialing (888) 455-2263 or (719) 457-2689 (international) and entering pass code: 2853372.  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 18, 2014 by dialing (888) 203-1112 or (719) 457-0820 (international) and entering the pass code: 2853372.

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 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 June 30, 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)

      September 30,   December 31,
      2014     2013  
Assets          
Cash and cash equivalents $ 805,716     $ 845,851  
Fixed maturity investments, available for sale, at fair value 4,871,420     4,823,964  
Short-term investments, available for sale, at fair value 11,844     35,028  
Equity securities, available for sale, at fair value 267,728     252,466  
Other investments 658,678     617,478  
Premiums receivable, net 1,452,228     669,198  
Insurance and reinsurance balances receivable 123,432     127,722  
Deferred acquisition costs 246,437     186,027  
Prepaid reinsurance premiums 414,013     187,209  
Reinsurance recoverable on unpaid losses 566,329     593,755  
Reinsurance recoverable on paid losses 165,592     164,220  
Accrued investment income 23,652     24,104  
Goodwill and intangible assets 160,560     165,378  
Deferred tax asset 53,403     51,703  
Net receivable on sales of investments 84,699     54,910  
Other assets 240,087     179,109  
Total Assets $ 10,145,818     $ 8,978,122  
               
Liabilities          
Reserve for losses and loss expenses $ 3,897,483     $ 4,002,259  
Reserve for unearned premiums 1,552,168     1,018,851  
Deposit liabilities 17,521     19,458  
Reinsurance balances payable 482,093     181,061  
Debt 527,732     527,478  
Net payable on purchases of investments 238,038     129,047  
Other liabilities 310,329     213,419  
Total Liabilities 7,025,364     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          
  44,751,174 issued and outstanding (2013 - 44,368,742) 44,751     44,369  
Additional paid-in capital 590,330     569,116  
Accumulated other comprehensive income 81,299     62,731  
Retained earnings 2,386,874     2,193,133  
Total Shareholders' Equity 3,120,454     2,886,549  
               
Total Liabilities and Shareholders' Equity $ 10,145,818     $ 8,978,122  
               
Book Value per Common Share          
Dilutive common shares outstanding 44,852,370     44,518,210  
Diluted book value per common share [a] $ 59.98     $ 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)

    Three Months Ended   Nine Months Ended
    September 30,   September 30,   September 30,   September 30,
    2014     2013     2014     2013  
Revenues                      
Gross premiums written $ 626,110     $ 544,363     $ 2,473,050     $ 2,294,435  
                         
Net premiums written $ 390,106     $ 395,333     $ 1,700,238     $ 1,768,869  
Change in unearned premiums 124,789     158,212     (307,539 )   (251,872 )
                         
Net premiums earned 514,895     553,545     1,392,699     1,516,997  
Other underwriting income (loss) 2,123     (943 )   (3,939 )   694  
Net investment income 25,357     38,097     105,649     119,870  
Net realized and unrealized investment gains (losses) 9,788     (6,640 )   18,071     9,967  
                         
  Total other-than-temporary impairment losses (102 )   (190 )   (411 )   (1,575 )
  Portion of loss recognized in other comprehensive (loss) income -     -     -     -  
Net impairment losses recognized in earnings (102)   (190 )   (411 )   (1,575 )
                         
Total revenues 552,061     583,869     1,512,069     1,645,953  
                         
Expenses                      
Net losses and loss expenses 290,269     339,036     726,361     917,064  
Acquisition expenses 93,392     78,775     244,150     222,279  
General and administrative expenses [a] 80,915     67,470     240,576     215,307  
Amortization of intangibles 1,623     1,652     4,863     5,378  
Net foreign exchange losses 783     2,201     4,066     8,496  
Interest expense [b] 13,127     9,048     31,910     27,138  
Total expenses 480,109     498,182     1,251,926     1,395,662  
                         
Income before income taxes 71,952     85,687     260,143     250,291  
Income tax benefit (expense) 4,282     (2,271 )   3,734     (5,557 )
Net income 76,234     83,416     263,877     244,734  
                         
Preferred dividends (8,188 )   (8,188 )   (24,564 )   (24,564 )
                         
Net income available to common and participating common shareholders [c] $ 68,046     $ 75,228     $ 239,313     $ 220,170  
                       
Per share data                      
Basic earnings per common share $ 1.52     $ 1.70     $ 5.36     $ 5.04  
Diluted earnings per common share $ 1.52     $ 1.70     $ 5.36     $ 5.04  

[a] Includes $2.3 million and $15.3 million of general and administrative expenses for the quarter and nine months ended September 30, 2014, respectively, incurred in relation to the Company's proposed acquisition of Aspen.
[b] Includes $4.1 million and $4.8 million of interest expenses for the quarter and nine months ended September 30, 2014, respectively, incurred in relation to the Company's proposed acquisition of Aspen.
[c] Adding back the $6.4 million and $20.1 million of expenses incurred in relation to the Company's proposed acquisition of Aspen for the quarter and nine months ended September 30, 2014, respectively, net income available to common and participating common shareholders would increase to $74.4 million and $259.4 million, respectively, or $1.66 and $5.81, respectively, per diluted common share.  See reconciliation on page 18.



ENDURANCE SPECIALTY HOLDINGS LTD.
RESULTS BY SEGMENT
(in thousands of United States dollars, except ratios)

      Three Months Ended September 30, 2014
      Insurance   Reinsurance   Reported Totals
                     
  Revenues                  
  Gross premiums written   $ 420,343     $ 205,767     $ 626,110  
  Ceded premiums written   (222,704 )   (13,300 )   (236,004 )
  Net premiums written   197,639     192,467     390,106  
  Net premiums earned   253,583     261,312     514,895  
  Other underwriting income   -     2,123     2,123  
  Total underwriting revenues   253,583     263,435     517,018  
                     
  Expenses                  
  Net losses and loss expenses   196,677     93,592     290,269  
  Acquisition expenses   20,170     73,222     93,392  
  General and administrative expenses   44,957     35,958     80,915  
      261,804     202,772     464,576  
  Underwriting (loss) income   $ (8,221 )   $ 60,663     $ 52,442  
                     
  Net loss ratio   77.5 %   35.8 %   56.4 %
  Acquisition expense ratio   8.0 %   28.0 %   18.1 %
  General and administrative expense ratio   17.7 %   13.8 %   15.7 %
  Combined ratio   103.2 %   77.6 %   90.2 %

ENDURANCE SPECIALTY HOLDINGS LTD.
RESULTS BY SEGMENT
(in thousands of United States dollars, except ratios)

      Three Months 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)

      Nine Months Ended September 30, 2014
      Insurance   Reinsurance   Reported Totals
                     
  Revenues                  
  Gross premiums written   $ 1,394,145     $ 1,078,905     $ 2,473,050  
  Ceded premiums written   (674,441 )   (98,371 )   (772,812 )
  Net premiums written   719,704     980,534     1,700,238  
  Net premiums earned   616,167     776,532     1,392,699  
  Other underwriting loss   -     (3,939 )   (3,939 )
  Total underwriting revenues   616,167     772,593     1,388,760  
                     
  Expenses                  
  Net losses and loss expenses   434,777     291,584     726,361  
  Acquisition expenses   47,559     196,591     244,150  
  General and administrative expenses   133,930     106,646     240,576  
      616,266     594,821     1,211,087  
  Underwriting (loss) income   $ (99 )   $ 177,772     $ 177,673  
                     
  Net loss ratio   70.6 %   37.6 %   52.2 %
  Acquisition expense ratio   7.7 %   25.3 %   17.5 %
  General and administrative expense ratio   21.7 %   13.7 %   17.3 %
  Combined ratio   100.0 %   76.6 %   87.0 %

ENDURANCE SPECIALTY HOLDINGS LTD.
RESULTS BY SEGMENT
(in thousands of United States dollars, except ratios)

      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.
CONSOLIDATED FINANCIAL RATIOS

As Reported                                    
                                         
        Three Months Ended September 30,
        Insurance   Reinsurance   Total
        2014     2013     2014     2013     2014     2013  
                                         
  Net loss ratio   77.5 %   78.4 %   35.8 %   42.3 %   56.4 %   61.3 %
  Acquisition expense ratio   8.0 %   6.3 %   28.0 %   23.0 %   18.1 %   14.2 %
  General and administrative expense ratio   17.7 %   12.2 %   13.8 %   12.1 %   15.7 %   12.2 %
  Combined ratio   103.2 %   96.9 %   77.6 %   77.4 %   90.2 %   87.7 %
                                         
Effect of Prior Year Net Loss Reserve Development                              
                                         
Favorable / (Unfavorable)                                    
                                         
        Three Months Ended September 30,
        Insurance   Reinsurance   Total
        2014     2013     2014     2013     2014     2013  
                                         
  Net loss ratio   8.0 %   2.1 %   15.4 %   16.0 %   11.7 %   8.7 %
                                         
Net of Prior Year Net Loss Reserve Development                              
                                         
        Three Months Ended September 30,
        Insurance   Reinsurance   Total
        2014     2013     2014     2013     2014     2013  
                                         
  Net loss ratio   85.5 %   80.5 %   51.2 %   58.3 %   68.1 %   70.0 %
  Acquisition expense ratio   8.0 %   6.3 %   28.0 %   23.0 %   18.1 %   14.2 %
  General and administrative expense ratio   17.7 %   12.2 %   13.8 %   12.1 %   15.7 %   12.2 %
  Combined ratio   111.2 %   99.0 %   93.0 %   93.4 %   101.9 %   96.4 %
                                         
  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.
CONSOLIDATED FINANCIAL RATIOS

As Reported                                    
                                         
        Nine Months Ended September 30,
        Insurance   Reinsurance   Total
        2014     2013     2014     2013     2014     2013  
                                         
  Net loss ratio   70.6 %   76.4 %   37.6 %   46.3 %   52.2 %   60.4 %
  Acquisition expense ratio   7.7 %   6.8 %   25.3 %   21.6 %   17.5 %   14.7 %
  General and administrative expense ratio   21.7 %   16.2 %   13.7 %   12.5 %   17.3 %   14.2 %
  Combined ratio   100.0 %   99.4 %   76.6 %   80.4 %   87.0 %   89.3 %
                                         
Effect of Prior Year Net Loss Reserve Development                              
                                         
Favorable / (Unfavorable)                                    
                                         
        Nine Months Ended September 30,
        Insurance   Reinsurance   Total
        2014     2013     2014     2013     2014     2013  
                                         
  Net loss ratio   8.8 %   4.1 %   14.3 %   16.4 %   11.8 %   10.6 %
                                         
Net of Prior Year Net Loss Reserve Development                              
                                         
        Nine Months Ended September 30,
        Insurance   Reinsurance   Total
        2014     2013     2014     2013     2014     2013  
                                         
  Net loss ratio   79.4 %   80.5 %   51.9 %   62.7 %   64.0 %   71.0 %
  Acquisition expense ratio   7.7 %   6.8 %   25.3 %   21.6 %   17.5 %   14.7 %
  General and administrative expense ratio   21.7 %   16.2 %   13.7 %   12.5 %   17.3 %   14.2 %
  Combined ratio   108.8 %   103.5 %   90.9 %   96.8 %   98.8 %   99.9 %
                                         
  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.
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 three months ended September 30, 2014 and 2013:

    Three Months Ended   Three Months Ended
    September 30, 2014   September 30, 2013
    Gross Premiums Written   Net Premiums Written   Gross Premiums Written   Net Premiums Written
Insurance                      
  Agriculture $ 188,011     $ 103,536     $ 200,062     $ 120,617  
  Casualty and other specialty 144,706     58,390     95,862     72,431  
  Professional lines 62,631     20,216     34,221     20,972  
  Property 24,995     15,497     14,674     10,318  
  Subtotal Insurance $ 420,343     $ 197,639     $ 344,819     $ 224,338  
                         
Reinsurance                      
  Catastrophe $ 47,173     $ 41,157     38,676     12,551  
  Property 73,807     73,807     91,653     90,528  
  Casualty 23,409     23,409     27,649     27,648  
  Professional lines 21,520     21,520     25,670     25,670  
  Specialty 39,858     32,574     15,896     14,598  
  Subtotal Reinsurance $ 205,767     $ 192,467     $ 199,544     $ 170,995  
                         
Total $ 626,110     $ 390,106     $ 544,363     $ 395,333  

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, 2014 and 2013:

    Nine Months Ended   Nine Months Ended
    September 30, 2014   September 30, 2013
    Gross Premiums Written   Net Premiums Written   Gross Premiums Written   Net Premiums Written
Insurance                      
  Agriculture $ 796,445     $ 431,007     $ 896,169     $ 546,284  
  Casualty and other specialty 366,329     189,876     239,943     179,065  
  Professional lines 176,061     64,632     93,481     62,963  
  Property 55,310     34,189     45,110     32,222  
  Subtotal Insurance $ 1,394,145     $ 719,704     $ 1,274,703     $ 820,534  
                         
Reinsurance                      
  Catastrophe $ 332,193     $ 243,531     $ 341,973     $ 281,990  
  Property 283,107     283,015     288,448     283,455  
  Casualty 139,266     137,669     211,458     210,030  
  Professional lines 131,256     131,256     50,505     50,505  
  Specialty 193,083     185,063     127,348     122,355  
  Subtotal Reinsurance $ 1,078,905     $ 980,534     $ 1,019,732     $ 948,335  
                         
Total $ 2,473,050     $ 1,700,238     $ 2,294,435     $ 1,768,869  




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 nine months ended September 30, 2014 and 2013:

    Three Months Ended   Nine Months Ended
    September 30,   September 30,
    2014     2013     2014     2013  
Net income $ 76,234     $ 83,416     $ 263,877     $ 244,734  
Add (less) after-tax items:                      
  Net foreign exchange losses 641     2,395     3,918     8,645  
  Net realized and unrealized (losses) gains (9,593 )   6,056     (18,156 )   (9,371 )
  Net impairment losses recognized in earnings 102     190     411     1,541  
Operating income before preferred dividends $ 67,384     $ 92,057     $ 250,050     $ 245,549  
  Preferred dividends (8,188 )   (8,188 )   (24,564 )   (24,564 )
Operating income allocated to common and                      
  participating common shareholders $ 59,196     $ 83,869     $ 225,486     $ 220,985  
                         
Operating income allocated to common                      
  shareholders under the two-class method $ 57,517     $ 81,643     $ 218,978     $ 216,225  
                         
Weighted average diluted common shares 43,510,416     43,100,139     43,355,793     42,720,431  
                         
Operating income per diluted common share [b] $ 1.32     $ 1.89     $ 5.05     $ 5.06  
                         
Average common equity [a] $ 2,688,065     $ 2,357,532     $ 2,573,502     $ 2,344,804  
                         
Operating return on average common equity 2.2 %   3.6 %   8.8 %   9.4 %
                         
Annualized operating return on average common equity 8.8 %   14.2 %   11.7 %   12.6 %
                         
Net income $ 76,234     $ 83,416     $ 263,877     $ 244,734  
  Preferred dividends (8,188 )   (8,188 )   (24,564 )   (24,564 )
Net income available to common and                      
  participating common shareholders $ 68,046     $ 75,228     $ 239,313     $ 220,170  
                         
Net income allocated to common shareholders                      
  under the two-class method $ 66,116     $ 73,231     $ 232,406     $ 215,428  
                         
Net income per diluted common share [b] $ 1.52     $ 1.70     $ 5.36     $ 5.04  
                         
Return on average common equity, Net income 2.5 %   3.2 %   9.3 %   9.4 %
                       
Annualized return on average common equity, Net income 10.1 %   12.8 %   12.4 %   12.5 %

[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 nine months ended September 30, 2014:

    Three Months Ended   Nine Months Ended
    September 30, 2014   September 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
$ 68,046     $ 6,353     $ 74,399     $ 239,313     $ 20,089     $ 259,402  
  Less amount allocated to participating common shareholders [b] (1,930 )   (180 )   (2,110 )   (6,907 )   (579 )   (7,486 )
Net income allocated to common
  shareholders
$ 66,116     $ 6,173     $ 72,289     $ 232,406     $ 19,510     $ 251,916  
                                   
Net income per diluted common share [c] $ 1.52     $ 0.14     $ 1.66     $ 5.36     $ 0.45     $ 5.81  
                                   
Return on average common equity, 
  Net income [d]
2.5 %   0.3 %   2.8 %   9.3 %   0.8 %   10.1 %
                                   
Annualized return on average common   
  equity, Net income [d]
10.1 %   1.0 %   11.1 %   12.4 %   1.0 %  

 
13.4 %
                                   
Operating income available to common
  and participating common shareholders
$ 59,196     $ 6,353     $ 65,549     $ 225,486     $ 20,089     $ 245,575  
  Less amount allocated to participating common shareholders [b] (1,679 )   (180 )   (1,859 )   (6,508 )   (579 )   (7,087 )
Operating income allocated to common
  shareholders
$ 57,517     $ 6,173     $ 63,690     $ 218,978     $ 19,510     $ 238,488  
                                   
Operating income per diluted common 
  share [c]
$ 1.32     $ 0.14     $ 1.46     $ 5.05     $ 0.45     $ 5.50  
                                   
Return on average common equity, 
  Operating income [d]
2.2 %   0.2 %   2.4 %   8.8 %   0.7 %   9.5 %
                                   
Annualized return on average common 
  equity, Operating income [d]
8.8 %   1.0 %   9.8 %   11.7 %   1.0 %   12.7 %

[a] The Company incurred $2.3 million and $4.1 million of general and administrative expenses and interest expense, respectively, in relation to the Company's proposed acquisition of Aspen for the three months ended September 30, 2014. For the nine months ended September 30, 2014, the Company incurred $15.3 million and $4.8 million 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 in a manner similar to that used by management to analyse 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 that used by management to analyze the Company'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 in a manner similar to that used by management to analyse 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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HUG#1868044