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Endurance Reports Fourth Quarter 2012 Financial Results

PEMBROKE, Bermuda - February 7, 2013 - Endurance Specialty Holdings Ltd. (NYSE:ENH) today reported a net loss attributable to common shareholders of $40.8 million and $0.96 per diluted common share for the fourth quarter of 2012 compared to a net loss attributable to common shareholders of $35.6 million and $0.88 per diluted common share for the fourth quarter of 2011.  

For the year ended December 31, 2012, Endurance reported net income available to common shareholders of $129.8 million and $3.00 per diluted common share versus a net loss attributable to common shareholders of $117.9 million and $2.95 per diluted common share for the year ended December 31, 2011.  Book value per diluted share was $52.88 at December 31, 2012, an increase of 4.6% from year end 2011.

Operating highlights for the quarter ended December 31, 2012 were as follows:

  • Net premiums written of $187.9 million, unchanged compared to the same period in 2011; 

  • Combined ratio of 119.2%, which included 5.3 percentage points of favorable prior year loss reserve development and 30.1 percentage points of catastrophe losses from 2012 events; 

  • Net investment income of $38.6 million, a decrease of $2.0 million from the same period in 2011;  

  • An operating loss, which excludes after-tax realized investment gains and foreign exchange gains and losses, of $76.4 million and $1.80 per diluted common share; and 

  • An operating loss on average common equity for the quarter of 3.3%. 

Operating highlights for the year ended December 31, 2012 were as follows:

  • Net premiums written of $2,029.5 million, an increase of 2.5% over the same period in 2011; 

  • Combined ratio of 102.3%, which included 6.0 percentage points of favorable prior year loss reserve development and 10.4 percentage points of current year catastrophe losses; 

  • A $57.4 million net underwriting loss in our agriculture insurance line of business; 

  • Net investment income of $173.3 million, an increase of $26.3 million over the same period in 2011;  

  • Operating income, which excludes after-tax realized investment gains and foreign exchange gains and losses, of $54.3 million and $1.25 per diluted common share; and 

  • An operating return on average common equity of 2.4%. 

David Cash, Chief Executive Officer, commented, "2012 was a productive year for Endurance, as we were able to grow book value including dividends by 7%, while withstanding the impact of the severe drought in the Midwestern U.S. and Superstorm Sandy.  Strategically, I am pleased with the progress we made in 2012 as we grew many of our businesses, augmented our leadership and added specialty trade credit, surety, engineering and weather teams to our portfolio of specialty insurance and reinsurance businesses.  I believe the investment in our leadership and our specialty insurance and reinsurance capabilities position Endurance well for 2013 and the years ahead."

 

 

 

Insurance Segment

Operating highlights for Endurance's Insurance segment for the quarter ended December 31, 2012 were as follows:

  • Net premiums written of $106.7 million, an increase of 10.5% from the fourth quarter of 2011; 

  • Combined ratio of 119.1%, an increase of 8.1 percentage points from the fourth quarter of 2011; 

  • Favorable prior year loss reserve development of 3.0 percentage points during the current period, compared to 0.2 percentage points of favorable prior year loss reserve development in the fourth quarter of 2011;  

  • Net catastrophe losses from Superstorm Sandy of $35.1 million or 14.4 percentage points on the net loss ratio; and 

  • A net underwriting loss of $13.8 million in our agriculture business line due to the Midwest drought. 

Operating highlights for Endurance's Insurance segment for the year ended December 31, 2012 were as follows:

  • Net premiums written of $942.4 million, a decrease of 6.3% from the same period in 2011; 

  • Combined ratio of 110.6%, an increase of 10.5 percentage points from the same period in 2011;  

  • Favorable prior year loss reserve development of 4.8 percentage points during the current period, compared to 7.2 percentage points of favorable prior year loss reserve development in the same period in 2011; and 

  • A net underwriting loss of $57.4 million in our agriculture business line due to the Midwest drought. 

Net premiums written in the Insurance segment increased $10.2 million and decreased $63.1 million for the fourth quarter and year ended December 31, 2012, respectively, compared to the same periods in the prior year.  Within the fourth quarter of 2012, net premiums written increased as higher premiums in the agriculture and casualty and other specialty lines of business were partially offset by declines in the professional liability and property lines of business.  The premium growth in the agriculture line of business was predominantly driven by a shift in policy inception dates from the third quarter to the fourth quarter for certain agriculture insurance products.   The premium growth in the casualty and other specialty line of business in the fourth quarter of 2012 was due to new Bermuda excess lines and U.S. small contract policies.  The current quarter declines in the professional liability and property lines of business as compared to fourth quarter 2011 were predominantly the result of exiting businesses that were not meeting profitability targets.  For the full year 2012, net premiums written declined compared to the same period in 2011 as agriculture premiums were impacted by lower commodity prices and property premiums decreased due to the Company's decision to reallocate capital to lines of business with greater profit potential.

The increase in the Insurance segment combined ratios for the quarter and full year ended December 31, 2012 compared to the same period in 2011 was driven by higher net loss ratios partially offset by lower general and administrative expense ratios.  The net loss ratios for the quarter and twelve months ended December 31, 2012 increased primarily as a result of net losses from Superstorm Sandy in the property line and from net losses from the Midwest drought in the agriculture line.  The general and administrative expense ratios were lower in the current quarter and full year of 2012 compared to a year ago due to higher ceding commissions, higher expense reimbursements in the agriculture line, and lower general and administrative expenses.  

The Insurance segment's net loss ratio in the fourth quarter of 2012 benefited from $7.3 million, or 3.0 percentage points of favorable prior year loss reserve development, compared to $0.6 million, or 0.2 percentage points, for the same period a year ago. For the current quarter, the favorable development was driven predominantly by the casualty and other specialty lines of business.  For the year ended December 31, 2012, the net loss ratio benefited from 4.8 percentage points of favorable prior year loss reserve development compared to 7.2 percentage points during 2011.  The reduced level of favorable prior year loss reserve development for the full year 2012 compared to 2011 was driven predominantly by the agriculture line of business, as the development recognized in 2011 was impacted by the combination of a very strong 2010 crop year with a delayed harvest that extended claims settlements into 2011, compared to the 2011 crop year, which did not experience the same level of harvest delays or extension of claims settlements into 2012.  

Reinsurance Segment

Operating highlights for Endurance's Reinsurance segment for the quarter ended December 31, 2012 were as follows:

  • Net premiums written of $81.3 million, a decrease of 11.0% from the fourth quarter of 2011; 

  • Combined ratio of 119.2%, an increase of 5.2 percentage points from the fourth quarter of 2011;  

  • Favorable prior year loss reserve development of 7.2 percentage points compared to 16.6 percentage points of favorable prior year loss reserve development in the fourth quarter of 2011; and 

  • Net catastrophe losses from Superstorm Sandy of $123.7 million, or 45.5 percentage points on the net loss ratio, compared to net catastrophe losses of $109.9 million, or 44.5 percentage points in the fourth quarter of 2011. 

Operating highlights for Endurance's Reinsurance segment for the year ended December 31, 2012 were as follows:

  • Net premiums written of $1,087.1 million, an increase of 11.6% from the same period in 2011; 

  • Combined ratio of 94.7%, an improvement of 31.3 percentage points from the same period in 2011; 

  • Favorable prior year loss reserve development of 7.0 percentage points during the current period, compared to 11.5 percentage points of favorable prior year loss reserve development in the same period in 2011; and 

  • Net catastrophe losses from 2012 events of $171.4 million or 17.3 percentage points on the net loss ratio compared to net catastrophe losses of $457.1 million or 49.9 points in 2011. 

The $10.1 million decline in net premiums written within the Reinsurance segment during the fourth quarter of 2012 compared to the fourth quarter of 2011 resulted primarily from a decline in the casualty line of business partially offset by increases in the catastrophe and property lines of business.  The decline in casualty premiums resulted from the non-renewal of a large contract in the current quarter where profitability was not meeting company targets.  The increase in catastrophe premiums was largely due to reinstatement premiums related to Superstorm Sandy. The growth in property premiums was predominantly due to a large premium adjustment and new business writings.  For the full year 2012, net premiums grew across all the reinsurance lines from increases on renewals and new business written.

The combined ratio in the Reinsurance segment for the fourth quarter of 2012 increased compared to the same period in 2011, predominantly due to a higher net loss ratio, partially offset by lower acquisition and general and administrative expense ratios.  The Reinsurance segment's net loss ratio in the fourth quarter increased primarily due to lower levels of favorable prior year loss reserve development.  The current quarter's net loss ratio benefited from $20.8 million, or 7.2 percentage points, of favorable prior year loss reserve development, compared to $41.5 million, or 16.6 percentage points, for the same period a year ago with the decline largely attributable to short tail lines that have been impacted by a higher level of catastrophe activity.  The Reinsurance segment's acquisition and general and administrative expense ratios declined in the quarter and year ended December 31, 2012 compared to the same periods in 2011 due to higher levels of earned premiums in the catastrophe line, lower loss sensitive adjustments and from reduced general and administrative expenses.

For the full year 2012, the Reinsurance segment reported a combined ratio of 94.7% compared to 126.0% for the full year 2011.  The improvement in the combined ratio was largely attributable to an improvement in the net loss ratio as a result of the lower frequency and severity of catastrophe events in 2012 and lower general and administrative expenses, partially offset by lower levels of favorable prior year reserve development.

Investments

Endurance's net investment income for the quarter and year ended December 31, 2012 was $38.6 million and $173.3 million, a decrease of $2.0 million and an increase of $26.3 million, respectively, compared to the same periods in 2011.  The total return of Endurance's investment portfolio was 0.60% and 4.70% for the quarter and year ended December 31, 2012, respectively, compared to 0.88% and 3.50% for the quarter and year ended December 31, 2011, respectively.  Investment income generated from Endurance's fixed maturity investments decreased by $6.4 million and $24.7 million for the quarter and year ended December 31, 2012, respectively, compared to the same periods in 2011 due to lower reinvestment rates during 2012 and the short duration of Endurance's fixed maturity portfolio.  During the quarter and year ended December 31, 2012, Endurance's net investment income included gains of $11.0 million and $49.1 million, respectively, on its alternative investment funds and high yield loan funds, which are included in other investments, as compared to gains of $6.9 million and losses of $0.7 million in the quarter and year ended December 31, 2011, respectively.  The ending book yield on Endurance's fixed maturity investments at December 31, 2012 was 2.35%, down from 2.68% at December 31, 2011.

At December 31, 2012, Endurance's fixed maturity portfolio, which comprises 90.2% of Endurance's investments, had an average credit quality of AA and a duration of 2.49 years.  Endurance's fixed maturity portfolio was in a net unrealized gain position of $141.7 million at December 31, 2012, an improvement of $18.9 million from December 31, 2011.  Endurance recorded net realized investment gains, net of impairment losses recognized in earnings, of $41.8 million and $71.3 million during the quarter and year ended December 31, 2012 compared to net realized investment gains of $4.6 million and $28.2 million during the quarter and year ended December 31, 2011.  

Endurance ended the fourth quarter of 2012 with cash and invested assets of $6.6 billion, which represents a 4.1% increase from December 31, 2011.  Net operating cash flow was $272.8 million for the year ended December 31, 2012 versus $281.3 million for the same period in 2011.  

Capitalization and Shareholders' Equity

At December 31, 2012, Endurance's shareholders' equity was $2.71 billion or $52.88 per diluted common share versus $2.61 billion or $50.56 per diluted common share at December 31, 2011.  For the quarter and year ended December 31, 2012, Endurance declared and paid common dividends of $0.31 and $1.24 per share, respectively.  During the fourth quarter of 2012, the company repurchased 251,309 shares at an average cost of $39.81 for a total amount of repurchases of $10.0 million.

Earnings Call

Endurance will host a conference call on February 8, 2013 at 8:30 a.m. Eastern time to discuss its financial results.  The conference call can be accessed via telephone by dialing (888) 797-2982 or (913) 312-0721 (international) and entering pass code: 6703094.  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 February 22, 2013 by dialing (888) 203-1112 or (719) 457-0820 (international) and entering the pass code: 6703094.

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 fourth quarter of 2012 will be available on Endurance's website at www.endurance.bm shortly after the release of earnings.

Operating (loss) income, operating (loss) return on average common equity, operating (loss) income per diluted common share, operating (loss) income (attributable) 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, 2011.

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)
December 31, December 31,
2012  2011 
Assets
Cash and cash equivalents $  1,124,019  $  890,914 
Fixed maturity investments, available for sale, at fair value  4,868,150   4,831,966 
Short-term investments, available for sale, at fair value  42,230   67,802 
Equity securities, available for sale, at fair value  86,997   59,767 
Other investments  517,546   432,658 
Premiums receivable, net  601,952   544,017 
Insurance and reinsurance balances receivable  105,663   92,710 
Deferred acquisition costs  168,252   166,049 
Prepaid reinsurance premiums  166,702   149,670 
Losses recoverable  774,942   666,928 
Accrued investment income  27,166   29,708 
Goodwill and intangible assets  172,000   181,828 
Deferred tax asset  43,501   33,355 
Net receivable on sales of investments  9,144   77,821 
Other assets  86,708   67,422 
Total Assets $  8,794,972  $  8,292,615 
Liabilities
Reserve for losses and loss expenses $  4,240,876  $  3,824,224 
Reserve for unearned premiums  965,244   932,108 
Deposit liabilities  22,220   26,887 
Reinsurance balances payable  110,843   189,488 
Debt  527,339   528,118 
Net payable on purchases of investments  81,469   55,243 
Other liabilities  136,384   125,382 
Total Liabilities  6,084,375   5,681,450 
Shareholders' Equity
Preferred shares
Series A, non-cumulative - 8,000,000 issued and outstanding (2011 - 8,000,000)  8,000   8,000 
Series B, non-cumulative - 9,200,000 issued and outstanding (2011 - 9,200,000)  9,200   9,200 
Common shares
43,116,394 issued and outstanding (2011 - 43,086,834)  43,116   43,087 
Additional paid-in capital  527,915   526,910 
Accumulated other comprehensive income  152,463   130,392 
Retained earnings  1,969,903   1,893,576 
Total Shareholders' Equity  2,710,597   2,611,165 
Total Liabilities and Shareholders' Equity $  8,794,972  $  8,292,615 
Book Value per Common Share
Dilutive common shares outstanding  43,130,075   43,142,277 
Diluted book value per common share [a] $  52.88  $  50.56 
Note: All financial information contained herein is unaudited, except the balance sheet data for the year ended December 31, 2011, which was derived from Endurance's audited financial statements.
[a] Excludes the $430 million liquidation value of the preferred shares (2011 - $430 million).

ENDURANCE SPECIALTY HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF (LOSS) INCOME
(In thousands of United States dollars, except share and per share amounts)
Quarter Ended For the Year Ended
December 31, December 31, December 31, December 31,
2012  2011  2012  2011 
Revenues
Gross premiums written $  262,046  $  262,966  $  2,549,026  $  2,467,114 
Net premiums written $  187,946  $  187,864  $  2,029,495  $  1,979,821 
Change in unearned premiums  343,107   312,625   (15,595)  (48,428)
Net premiums earned  531,053   500,489   2,013,900   1,931,393 
Other underwriting loss  (520)  (1,425)  (2,183)  (3,547)
Net investment income  38,603   40,594   173,326   147,037 
Net realized and unrealized gains  41,881   5,331   72,139   31,671 
Total other-than-temporary impairment losses  (90)  (751)  (364)  (2,659)
Portion of loss recognized in other comprehensive (loss) income  -   50   (483)  (861)
Net impairment losses recognized in (losses) earnings  (90)  (701)  (847)  (3,520)
Total revenues  610,927   544,288   2,256,335   2,103,034 
Expenses
Net losses and loss expenses  504,808   412,152   1,520,995   1,632,666 
Acquisition expenses  73,780   77,157   303,179   282,911 
General and administrative expenses  54,324   73,731   235,689   264,152 
Amortization of intangibles  2,359   2,413   10,347   11,213 
Net foreign exchange (gains) losses  (1,212)  233   (15,911)  (7,422)
Interest expense  9,042   9,088   36,174   36,254 
Total expenses  643,101   574,774   2,090,473   2,219,774 
(Loss) income before income taxes  (32,174)  (30,486)  165,862   (116,740)
Income tax (expense) benefit  (453)  3,110   (3,346)  23,006 
Net (loss) income  (32,627)  (27,376)  162,516   (93,734)
Preferred dividends  (8,186)  (8,187)  (32,750)  (24,125)
Net (loss) income (attributable) available to common and participating common shareholders $  (40,813) $  (35,563) $  129,766  $  (117,859)
Per share data
Basic (losses) earnings per common share $  (0.96) $  (0.88) $  3.00  $  (2.95)
Diluted (losses) earnings per common share $  (0.96) $  (0.88) $  3.00  $  (2.95)

ENDURANCE SPECIALTY HOLDINGS LTD.
RESULTS BY SEGMENT
(in thousands of United States dollars, except ratios)
For the quarter ended December 31, 2012
Insurance Reinsurance Reported Totals
Revenues
Gross premiums written $  177,116  $  84,930  $  262,046 
Ceded premiums written  (70,464)  (3,636)  (74,100)
Net premiums written  106,652   81,294   187,946 
Net premiums earned  244,101   286,952   531,053 
Other underwriting loss  -   (520)  (520)
Total underwriting revenues  244,101   286,432   530,533 
Expenses
Net losses and loss expenses  244,985   259,823   504,808 
Acquisition expenses  17,332   56,448   73,780 
General and administrative expenses  28,445   25,879   54,324 
 290,762   342,150   632,912 
Underwriting loss $  (46,661) $  (55,718) $  (102,379)
Net loss ratio 100.3  % 90.5  % 95.1  %
Acquisition expense ratio 7.1  % 19.7  % 13.9  %
General and administrative expense ratio 11.7  % 9.0  % 10.2  %
Combined ratio 119.1  % 119.2  % 119.2  %

ENDURANCE SPECIALTY HOLDINGS LTD.
RESULTS BY SEGMENT
(in thousands of United States dollars, except ratios)
For the quarter ended December 31, 2011
Insurance Reinsurance Reported Totals
Revenues
Gross premiums written $  167,766  $  95,200  $  262,966 
Ceded premiums written  (71,288)  (3,814)  (75,102)
Net premiums written  96,478   91,386   187,864 
Net premiums earned  251,101   249,388   500,489 
Other underwriting loss  (493)  (932)  (1,425)
Total underwriting revenues  250,608   248,456   499,064 
Expenses
Net losses and loss expenses  214,681   197,471   412,152 
Acquisition expenses  20,388   56,769   77,157 
General and administrative expenses  43,754   29,977   73,731 
 278,823   284,217   563,040 
Underwriting loss $  (28,215) $  (35,761) $  (63,976)
Net loss ratio 85.5  % 79.2  % 82.4  %
Acquisition expense ratio 8.1  % 22.8  % 15.4  %
General and administrative expense ratio 17.4  % 12.0  % 14.7  %
Combined ratio 111.0  % 114.0  % 112.5  %

ENDURANCE SPECIALTY HOLDINGS LTD.
RESULTS BY SEGMENT
(in thousands of United States dollars, except ratios)
For the year ended December 31, 2012
Insurance Reinsurance Reported Totals
Revenues
Gross premiums written $  1,429,930  $  1,119,096  $  2,549,026 
Ceded premiums written  (487,573)  (31,958)  (519,531)
Net premiums written  942,357   1,087,138   2,029,495 
Net premiums earned  955,089   1,058,811   2,013,900 
Other underwriting (loss) income  (2,684)  501   (2,183)
Total underwriting revenues  952,405   1,059,312   2,011,717 
Expenses
Net losses and loss expenses  855,941   665,054   1,520,995 
Acquisition expenses  75,597   227,582   303,179 
General and administrative expenses  125,108   110,581   235,689 
 1,056,646   1,003,217   2,059,863 
Underwriting (loss) income $  (104,241) $  56,095  $  (48,146)
Net loss ratio 89.6  % 62.8  % 75.5  %
Acquisition expense ratio 7.9  % 21.5  % 15.1  %
General and administrative expense ratio 13.1  % 10.4  % 11.7  %
Combined ratio 110.6  % 94.7  % 102.3  %

ENDURANCE SPECIALTY HOLDINGS LTD.
RESULTS BY SEGMENT
(in thousands of United States dollars, except ratios)
For the year ended December 31, 2011
Insurance Reinsurance Reported Totals
Revenues
Gross premiums written $  1,469,798  $  997,316  $  2,467,114 
Ceded premiums written  (464,308)  (22,985)  (487,293)
Net premiums written  1,005,490   974,331   1,979,821 
Net premiums earned  981,592   949,801   1,931,393 
Other underwriting loss  (3,368)  (179)  (3,547)
Total underwriting revenues  978,224   949,622   1,927,846 
Expenses
Net losses and loss expenses  765,119   867,547   1,632,666 
Acquisition expenses  71,295   211,616   282,911 
General and administrative expenses  146,115   118,037   264,152 
 982,529   1,197,200   2,179,729 
Underwriting loss $  (4,305) $  (247,578) $  (251,883)
Net loss ratio 77.9  % 91.3  % 84.6  %
Acquisition expense ratio 7.3  % 22.3  % 14.6  %
General and administrative expense ratio 14.9  % 12.4  % 13.7  %
Combined ratio 100.1  % 126.0  % 112.9  %

ENDURANCE SPECIALTY HOLDINGS LTD.
CONSOLIDATED FINANCIAL RATIOS
As Reported
For the quarter ended December 31,
Insurance Reinsurance Total
2012  2011  2012  2011  2012  2011 
Net loss ratio 100.3  % 85.5  % 90.5  % 79.2  % 95.1  % 82.4  %
Acquisition expense ratio 7.1  % 8.1  % 19.7  % 22.8  % 13.9  % 15.4  %
General and administrative expense ratio 11.7  % 17.4  % 9.0  % 12.0  % 10.2  % 14.7  %
Combined ratio 119.1  % 111.0  % 119.2  % 114.0  % 119.2  % 112.5  %
Effect of Prior Year Net Loss Reserve Development
Favorable / (Unfavorable)
For the quarter ended December 31,
Insurance Reinsurance Total
2012  2011  2012  2011  2012  2011 
Net loss ratio 3.0  % 0.2  % 7.2  % 16.6  % 5.3  % 8.4  %
Net of Prior Year Net Loss Reserve Development
For the quarter ended December 31,
Insurance Reinsurance Total
2012  2011  2012  2011  2012  2011 
Net loss ratio 103.3  % 85.7  % 97.7  % 95.8  % 100.4  % 90.8  %
Acquisition expense ratio 7.1  % 8.1  % 19.7  % 22.8  % 13.9  % 15.4  %
General and administrative expense ratio 11.7  % 17.4  % 9.0  % 12.0  % 10.2  % 14.7  %
Combined ratio 122.1  % 111.2  % 126.4  % 130.6  % 124.5  % 120.9  %
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 year ended December 31,
Insurance Reinsurance Total
2012  2011  2012  2011  2012  2011 
Net loss ratio 89.6  % 77.9  % 62.8  % 91.3  % 75.5  % 84.6  %
Acquisition expense ratio 7.9  % 7.3  % 21.5  % 22.3  % 15.1  % 14.6  %
General and administrative expense ratio 13.1  % 14.9  % 10.4  % 12.4  % 11.7  % 13.7  %
Combined ratio 110.6  % 100.1  % 94.7  % 126.0  % 102.3  % 112.9  %
Effect of Prior Year Net Loss Reserve Development
Favorable / (Unfavorable)
For the year ended December 31,
Insurance Reinsurance Total
2012  2011  2012  2011  2012  2011 
Net loss ratio 4.8  % 7.2  % 7.0  % 11.5  % 6.0  % 9.3  %
Net of Prior Year Net Loss Reserve Development
For the year ended December 31,
Insurance Reinsurance Total
2012  2011  2012  2011  2012  2011 
Net loss ratio 94.4  % 85.1  % 69.8  % 102.8  % 81.5  % 93.9  %
Acquisition expense ratio 7.9  % 7.3  % 21.5  % 22.3  % 15.1  % 14.6  %
General and administrative expense ratio 13.1  % 14.9  % 10.4  % 12.4  % 11.7  % 13.7  %
Combined ratio 115.4  % 107.3  % 101.7  % 137.5  % 108.3  % 122.2  %
The combined ratio is the sum of the loss, acquisition expense and general and administrative expense ratios.  Endurance presents the combined ratio as a measure that is commonly recognized as a standard of performance by investors, analysts, rating agencies and other users of its financial information.  The combined ratio, excluding prior year net loss reserve development, enables investors, analysts, rating agencies and other users of its financial information to more easily analyze Endurance's results of underwriting activities in a manner similar to how management analyzes Endurance's underlying business performance.  The combined ratio, net of prior year net loss reserve development, should not be viewed as a substitute for the combined ratio.  

ENDURANCE SPECIALTY HOLDINGS LTD.
GROSS AND NET PREMIUMS WRITTEN BY SEGMENT
(in thousands of United States dollars)
The following tables show Endurance's gross and net premiums written for the quarters ended December 31, 2012 and 2011:
Quarter Ended December 31, 2012 Quarter Ended December 31, 2011
Gross Premiums Written Net Premiums Written Gross Premiums Written Net Premiums Written
Insurance
Agriculture $  64,798  $  25,413  $  46,260  $  9,121 
Casualty and other specialty  59,942   43,683   57,727   40,287 
Professional lines  39,242   30,044   45,110   38,402 
Property  13,134   7,512   18,669   8,668 
Subtotal Insurance $  177,116  $  106,652  $  167,766  $  96,478 
                 
Reinsurance
Catastrophe $  24,112  $  22,073  $  15,250  $  14,753 
Property  31,065   31,065   15,087   15,087 
Casualty  24,961   24,960   59,231   59,234 
Other specialty  4,792   3,196   5,632   2,312 
Subtotal Reinsurance $  84,930  $  81,294  $  95,200  $  91,386 
Total $  262,046  $  187,946  $  262,966  $  187,864 

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 years ended December 31, 2012 and 2011:
Year Ended December 31, 2012 Year Ended December 31, 2011
Gross Premiums Written Net Premiums Written Gross Premiums Written Net Premiums Written
Insurance
Agriculture $  903,730  $  553,762  $  901,746  $  586,659 
Casualty and other specialty  296,325   216,780   289,421   215,939 
Professional lines  169,815   137,885   169,319   137,962 
Property  60,060   33,930   109,312   64,930 
Subtotal Insurance $  1,429,930  $  942,357  $  1,469,798  $  1,005,490 
                 
Reinsurance
Catastrophe $  378,387  $  351,140  $  346,023  $  329,081 
Property  349,579   349,586   266,562   266,562 
Casualty  283,313   282,073   277,495   276,697 
Other specialty  107,817   104,339   107,236   101,991 
Subtotal Reinsurance $  1,119,096  $  1,087,138  $  997,316  $  974,331 
Total $  2,549,026  $  2,029,495  $  2,467,114  $  1,979,821 

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 (loss) income, net (loss) income per diluted common share, net (loss) income allocated to common shareholders under the two-class method and annualized return on average common equity to operating (loss) income, operating (loss) income per diluted common share, operating (loss) income allocated
to common shareholders under the two-class method and annualized operating return on average common equity (all non-GAAP measures) for the quarters and years ended December 31, 2012 and 2011:
Quarter Ended Year Ended
December 31, December 31,
2012  2011  2012  2011 
Net (loss) income $  (32,627) $  (27,376) $  162,516  $  (93,734)
(Less) add after-tax items:
Net foreign exchange (gains) losses  (1,220)  208   (14,077)  (7,614)
Net realized and unrealized gains  (34,500)  (4,836)  (62,208)  (30,350)
Net impairment losses recognized in (losses) earnings  89   701   814   3,520 
Operating (loss) income before preferred dividends $  (68,258) $  (31,303) $  87,045  $  (128,178)
Preferred dividends  (8,186)  (8,187)  (32,750)  (24,125)
Operating (loss) income (attributable) allocated to
common and participating common shareholders $  (76,444) $  (39,490) $  54,295  $  (152,303)
Operating (loss) income (attributable) allocated to
common shareholders under the two-class method $  (76,650) $  (39,711) $  53,411  $  (153,264)
Weighted average diluted common  42,603,831   40,641,211   42,601,835   40,214,979 
Operating (loss) income per diluted common share [b] $  (1.80) $  (0.98) $  1.25  $  (3.81)
Average common equity [a] $  2,330,736  $  2,193,558  $  2,230,881  $  2,414,659 
Operating return on average common equity (3.3) % (1.8) % 2.4  % (6.3) %
Annualized operating return on average common equity (13.1) % (7.2) % 2.4  % (6.3) %
Net (loss) income $  (32,627) $  (27,376) $  162,516  $  (93,734)
Preferred dividends  (8,186)  (8,187)  (32,750)  (24,125)
Net (loss) income (attributable) available to common and
participating common shareholders $  (40,813) $  (35,563) $  129,766  $  (117,859)
Net (loss) income (attributable) available to common
shareholders under the two-class method $  (41,019) $  (35,784) $  127,653  $  (118,820)
Net (loss) income per diluted common share $  (0.96) $  (0.88) $  3.00  $  (2.95)
(Loss) return on average common equity, Net
(loss) income  (1.8) %  (1.6) %  5.8  %  (4.9) %
Annualized (loss) return on average common equity, Net
(loss) income  (7.0) %  (6.5) %  5.8  %  (4.9) %
[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 (2011: $430 million; 2010: $200 million)
[b] Represents diluted losses per share calculated under the two-class method which was the lower of the treasury stock method and the two-class method.

Operating (loss) income and operating (loss) income per diluted common share are internal performance measures used by Endurance in the management of its operations.  Operating (loss) income (attributable) allocated to common shareholders (excludes unvested restricted shares outstanding which are considered participating) per diluted common share represents operating (loss) income divided by weighted average dilutive common shares, which has been calculated in accordance with the two-class method under U.S. GAAP.  Operating (loss) 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 (loss) income and net (loss) income per dilutive common share determined in accordance with the two-class method under GAAP, Endurance believes that showing operating (loss) income and operating (loss) 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 (loss) income and operating (loss) income per dilutive common share should not be viewed as substitutes for GAAP net (loss) income and net (loss) 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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