updated 10/29/2010 2:15:31 AM ET 2010-10-29T06:15:31

PEMBROKE, Bermuda, Oct. 28, 2010 (GLOBE NEWSWIRE) -- Endurance Specialty Holdings Ltd. (NYSE:ENH) today reported net income of $139.1 million and $2.51 per diluted common share for the third quarter of 2010 versus net income of $153.8 million and $2.51 per diluted common share in the third quarter of 2009.

For the nine months ended September 30, 2010, net income was $253.5 million and $4.33 per diluted common share versus net income of $381.3 million and $6.15 per diluted common share for the nine months ended September 30, 2009.

Operating highlights for the quarter ended September 30, 2010 were as follows:

  • Net premiums written of $451.9 million, an increase of 13.9% over the same period in 2009;
  • Combined ratio of 83.7%, which included 7.5 percentage points of favorable prior year loss reserve development;
  • Net investment income of $53.7 million, a decrease of $17.9 million over the same period in 2009;
  • Operating income, which excludes after-tax realized investment gains and losses and foreign exchange gains and losses, of $119.4 million and $2.14 per diluted common share;
  • Operating return on average common equity for the quarter of 4.3%, or 17.2% on an annualized basis; and
  • Book value of $51.83 per diluted common share, up 8.5% from June 30, 2010.

Operating highlights for the nine months ended September 30, 2010 were as follows:

  • Net premiums written of $1,605.6 million, an increase of 10.0% over the same period in 2009;
  • Combined ratio of 90.1%, which included 8.0 percentage points of favorable prior year loss reserve development;
  • Net investment income of $143.5 million, a decrease of $81.5 million over the same period in 2009;
  • Operating income, which excludes after-tax realized investment gains and losses and foreign exchange gains and losses, of $237.3 million and $4.04 per diluted common share;
  • Operating return on average common equity for the first nine months of the year of 8.5%, or 11.3% on an annualized basis; and
  • Book value of $51.83 per diluted common share, up 16.2% from December 31, 2009.

David Cash, Chief Executive Officer, commented, "Endurance generated strong returns in the quarter in spite of historically low investment yields and strong competitive forces in many of the underwriting markets in which we operate. During the quarter, we found a number of good opportunities in which to deploy our capital, including the expansion and diversification of our international catastrophe reinsurance portfolio through a renewal rights transaction. Our agriculture insurance line of business continues to outperform our expectations, generating improved margins on a growing premium base. In addition, we repurchased nearly three million shares of our common stock at a significant discount to book value."

Insurance Segment

Operating highlights for Endurance's Insurance segment for the quarter ended September 30, 2010 were as follows:

  • Net premiums written of $204.3 million, an increase of 16.3% from the third quarter of 2009;
  • Combined ratio of 90.1%, an improvement of 8.6 percentage points from the third quarter of 2009; and
  • Favorable prior year loss reserve development of 3.9 percentage points during the current period, compared to 6.1 percentage points of favorable prior year loss reserve development in the third quarter of 2009.

Operating highlights for Endurance's Insurance segment for the nine months ended September 30, 2010 were as follows:

  • Net premiums written of $748.2 million, an increase of 14.8% from the same period in 2009;
  • Combined ratio of 92.0%, an improvement of 1.4 percentage points from the same period in 2009; and
  • Favorable prior year loss reserve development of 5.7 percentage points during the current period, compared to 11.2 percentage points of favorable prior year loss reserve development in the same period in 2009.

Net premiums written increased in the Insurance segment for the current period compared to the same period in 2009, driven by increases in the agriculture, property and healthcare lines of business. Increased premiums in the agriculture line of business resulted from growth in policies in force and higher wheat commodity prices in the United States. Within the property line of business, gross premiums were flat during the current quarter compared to a year ago but net retentions were higher, due to changes to our third party reinsurance program implemented in 2009. The healthcare line of business experienced modest growth in the quarter, as we were able to identify and underwrite several new accounts. For the nine months ended September 30, 2010, net written premiums increased 14.8% compared to a year ago as growth in agriculture, casualty and property premiums was partially offset by a decline in professional lines premiums.

The improvement in the Insurance segment combined ratio in the third quarter of 2010 compared to 2009 was driven by lower general and administrative expense, lower net loss and lower acquisition expense ratios. The agriculture line of business generated stronger margins in the current quarter compared to the same period a year ago due to favorable crop growing conditions. The current quarter loss ratio was also impacted by a current quarter casualty net loss of $9.8 million or 4.0 percentage points. The net loss ratio in the current quarter benefitted from 3.9 percentage points of favorable loss development compared to 6.1 percentage points of favorable loss development during the same period a year ago.

For the nine months ended September 30, 2010, the Insurance segment combined ratio improved 1.4 percentage points compared to the same period in 2009. The improved combined ratio was due to lower general and administrative and acquisition expenses, partially offset by lower levels of favorable prior year loss reserve development compared to a year ago. Favorable loss reserve development emerged in both the third quarter and first nine months of 2010 across each of the short tail, long tail and other lines of business in the Insurance segment, as claims did not develop as originally estimated. 

Reinsurance Segment

Operating highlights for Endurance's Reinsurance segment for the quarter ended September 30, 2010 were as follows:

  • Net premiums written of $247.6 million, an increase of 12.0% from the third quarter of 2009;
  • Combined ratio of 76.9%, an increase of 19.5 percentage points from the third quarter of 2009; and
  • Favorable prior year loss reserve development of 11.3 percentage points during the current period, compared to 10.3 percentage points of favorable prior year loss reserve development in the third quarter of 2009.

Operating highlights for Endurance's Reinsurance segment for the nine months ended September 30, 2010 were as follows:

  • Net premiums written of $857.4 million, an increase of 6.2% from the same period in 2009;
  • Combined ratio of 88.5%, an increase of 8.4 percentage points from the same period in 2009; and
  • Favorable prior year loss reserve development of 10.1 percentage points during the current period, compared to 6.4 percentage points of favorable prior year loss reserve development in the same period in 2009.

The increase in net premiums written in the Reinsurance segment during the third quarter of 2010 resulted from an increase in the catastrophe, casualty and surety and other lines of business. Within the catastrophe line of business, the increase in premiums from the same period a year ago resulted from business acquired from Glacier Re in a renewal rights transaction completed during the third quarter. Casualty premiums increased in the current quarter as a large contract historically renewed in the second quarter was renewed in the third quarter this year. Within the surety and other line of business, premium growth was driven by the addition of new business in the current quarter. The growth in the Reinsurance segment's premiums was partially offset by declines in the Reinsurance segment's property and aerospace and marine lines of business, as certain contracts within these lines have been non-renewed due to competitive conditions. For the nine months ended September 30, 2010, net premiums written increased 6.2% compared to a year ago as growth in casualty, property and surety and other specialty premiums was partially offset by a modest decline in catastrophe premiums.

The combined ratios in the Reinsurance segment for the current periods increased from the same periods a year ago due to higher loss ratios, as the Company experienced a greater frequency of large loss events during 2010. During the third quarter of 2010, the Company incurred $11.6 million of net losses related to the earthquake in New Zealand. In the first nine months of 2010, the Company also incurred net losses of approximately $63 million related to the earthquake in Chile and European Windstorm Xynthia. Partially offsetting the increase in the net loss ratios in the current periods was the recognition of greater favorable prior year loss reserve development compared to the same periods in 2009. 

The Company's acquisition expense ratios increased modestly in the current periods compared to the same periods in 2009, while the Company's general and administrative expense ratios declined in the current periods largely due to an increase in earned premiums.

Investments

Endurance's net investment income declined 25.0% or $17.9 million in the quarter ended September 30, 2010 and 36.2% or $81.5 million in the nine months ended September 30, 2010, as compared to the same periods in 2009. During the third quarter and nine months ended September 30, 2010, Endurance's net investment income included gains of $13.8 million and $23.8 million on its alternative investments and high yield loan funds, which are included in other investments, as compared to gains of $30.4 million and $81.3 million in the third quarter and first nine months of 2009. Investment income generated from Endurance's fixed maturity investments decreased by $19.4 million for the nine months ended September 30, 2010 compared to the same period in 2009 due to lower reinvestment rates during the current period and a higher allocation of investments to cash, cash equivalents and short duration securities, partially offset by higher average portfolio balances. As a result, the ending book yield on Endurance's fixed maturity investments at September 30, 2010 was 3.08%, down from 3.29% at December 31, 2009.

At September 30, 2010, Endurance's fixed income investments, which comprise approximately 93.7% of Endurance's investments, maintained an average credit quality of AA. Endurance's fixed maturity portfolio was in an unrealized gain position of $190.2 million at September 30, 2010, an improvement of $55.1 million in the third quarter and $151.9 million in the first nine months of 2010. Endurance recorded net realized gains on investment sales of $9.0 million and $15.2 million during the third quarter and first nine months of 2010 compared to net realized gains on investment sales of $1.4 million and $3.1 million during the same periods in 2009. 

Endurance ended the third quarter of 2010 with cash and invested assets of $6.3 billion, which represents a 6.2% increase from December 31, 2009. Net operating cash flow was $390.6 million for the nine months ended September 30, 2010 versus $431.2 million for the same period in 2009. 

Capitalization and Shareholders' Equity

At September 30, 2010, Endurance's shareholders' equity was $2.9 billion or $51.83 per diluted common share versus $2.8 billion or $44.61 per diluted common share at December 31, 2009. During the three months ended September 30, 2010, Endurance repurchased 2,977,477 of its ordinary shares for an aggregate repurchase price of $112.8 million. For the nine months ended September 30, 2010, Endurance has repurchased 6,188,253 shares and share equivalents for an aggregate repurchase price of $230.5 million.

Earnings Call

Endurance will host a conference call on October 29, 2010 at 8:30 a.m. Eastern time to discuss its financial results. The conference call can be accessed via telephone by dialing (866) 416-5346 or (913) 312-1411 (international) and entering pass code: 2246686. 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 12, 2010 by dialing (888) 203-1112 or (719) 457-0820 (international) and entering the pass code: 2246686. 

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 2009 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 dilutive common share, operating income allocated to common shareholders and 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 property, casualty, healthcare liability, agriculture, workers' compensation, professional lines of insurance and property, catastrophe, casualty, agriculture, marine, aerospace, and surety 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, 2009.

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.

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