Exhibit 99.2

 

Endurance Specialty Holdings Ltd.

INVESTOR FINANCIAL SUPPLEMENT

FOURTH QUARTER 2013

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Endurance Specialty Holdings Ltd.

Wellesley House, 90 Pitts Bay Rd.

Pembroke HM 08, Bermuda

Investor Relations

Phone: (441) 278-0988

Fax: (441) 278-0493

email: investorrelations@endurance.bm

This report is for information purposes only. It should be read in conjunction with other documents filed by Endurance Specialty Holdings Ltd. pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934.

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Financial Supplement Table of Contents

 

		Page
i. Basis of Presentation			i
I. Consolidated Financial Highlights			1
II. Consolidated Financial Statements
a. Consolidated Statements of Income (Loss) - Quarterly			2
b. Consolidated Statements of Income (Loss) - YTD			3
c. Consolidated Balance Sheets			4
III. Other Financial Information
a. Probable Maximum Loss by Zone and Peril			5
b. Segment Distribution			6
c. Consolidated Segment Data			7
d. Return on Equity Analysis			19
e. ROE Component Analysis - Annualized Premium and Investment Leverage			20
f. Investment Portfolio Information			21
g. Largest Twenty-Five Corporate Holdings			22
IV. Loss Reserve Analysis
a. Activity in Reserve for Losses and Loss Expenses			23
b. Prior Year Reserve Development by Segment			24
c. Prior Year Reserve Development by Line of Business			25
d. Analysis of Unpaid Losses and Loss Expenses			26
V. Shareholder Return Analysis
a. Shareholder Return Analysis			27
b. Weighted Average Dilutive Shares Outstanding			28
c. Earnings (Losses) per Share - Two Class Method			29
d. Operating Income (Loss) Reconciliation - Two Class Method			30
e. Book Value Per Share Analysis			31
VI. Regulation G			32

Application of the Safe Harbor of the Private Securities Litigation Reform Act of 1995:

Some of the statements in this financial supplement 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 financial supplement for purposes of the U.S. federal securities laws or otherwise. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the Private Securities Litigation Reform Act of 1995.

All forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or may be important factors that could cause actual results to differ from those indicated in the forward-looking statements. These factors include, but are not limited to, the effects of competitors’ pricing policies, greater frequency or severity of claims and loss activity, changes in market conditions in the agriculture insurance industry, termination of or changes in the terms of the U.S. multiple peril crop insurance program, a decreased demand for property and casualty insurance or reinsurance, changes in the availability, cost or quality of reinsurance or retrocessional coverage, our inability to renew business previously underwritten or acquired, our inability to maintain our applicable financial strength ratings, our inability to effectively integrate acquired operations, uncertainties in our reserving process, changes to our tax status, changes in insurance regulations, reduced acceptance of our existing or new products and services, a loss of business from and credit risk related to our broker counterparties, assessments for high risk or otherwise uninsured individuals, possible terrorism or the outbreak of war, a loss of key personnel, political conditions, changes in insurance regulation, changes in accounting policies, our investment performance, the valuation of our invested assets, a breach of our investment guidelines, the unavailability of capital in the future, developments in the world’s financial and capital markets and our access to such markets, government intervention in the insurance and reinsurance industry, illiquidity in the credit markets, changes in general economic conditions and other factors described in our Annual Report on Form 10-K for the year ended December 31, 2012.

Forward-looking statements speak only as of the date on which they are made, and we undertake no obligation publicly to update or revise any forward looking statement, whether as a result of new information, future developments or otherwise.

 

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ENDURANCE SPECIALTY HOLDINGS LTD.

BASIS OF PRESENTATION

DEFINITIONS AND PRESENTATION

 

•

All financial information contained herein is unaudited, except the balance sheet and/or income statement data for the years ended December 31, 2012 and 2011 which was derived from the Company’s audited financial statements.

 

•

Unless otherwise noted, all data is in thousands, except for per share, percentage and ratio information.

 

•

As used in this financial supplement, “common shares” refers to our ordinary shares.

 

•

Endurance Specialty Holdings Ltd., along with others in the industry, uses underwriting ratios as measures of performance. The loss ratio is the ratio of claims and claims adjustment expense to earned premiums. The acquisition expense ratio is the ratio of underwriting expenses (commissions, taxes, licenses and fees, as well as other underwriting expenses) to earned premiums. The general and administrative expense ratio is the ratio of general and administrative expenses to earned premiums. The combined ratio is the sum of the loss ratio, the acquisition expense ratio and the general and administrative expense ratio. These ratios are relative measurements that describe for every $100 of net premiums earned, the cost of losses and expenses, respectively. The combined ratio presents the total cost per $100 of earned premium. A combined ratio below 100% demonstrates underwriting profit; a combined ratio above 100% demonstrates underwriting loss.

 

•

NM - Not meaningful.

 

		i

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ENDURANCE SPECIALTY HOLDINGS LTD.

CONSOLIDATED FINANCIAL HIGHLIGHTS

 

						QUARTER ENDED DECEMBER 31,								FOR THE YEAR ENDED DECEMBER 31,								Previous Quarter Change				Previous Year to Date Change
						2013				2012				2013				2012
HIGHLIGHTS				Net income (loss)		$	67,181			($	32,627	)		$	311,915			$	162,516				NM				91.9	%
				Net income (loss) available (attributable) to common and participating common shareholders			58,995				(40,813	)			279,165				129,766				NM				115.1	%
				Net income (loss) allocated to common shareholders			57,367				(41,019	)			272,721				127,653				NM				113.6	%
				Operating income (loss) [a]			68,107				(68,258	)			313,771				87,045				NM				260.5	%
				Operating income (loss) available (attributable) to common and participating common shareholders [a]			59,921				(76,444	)			281,021				54,295				NM				417.6	%
				Operating income (loss) allocated to common shareholders [a]			58,267				(76,650	)			274,534				53,411				NM				414.0	%
				Operating cash flow			174,498				61,385				157,924				272,834				184.3	%			(42.1	)%
				Net investment income			46,346				38,603				166,216				173,326				20.1	%			(4.1	)%
				Gross premiums written			370,809				262,046				2,665,244				2,549,026				41.5	%			4.6	%
				Net premiums written			280,064				187,946				2,048,933				2,029,495				49.0	%			1.0	%
				Net premiums earned			499,487				531,053				2,016,484				2,013,900				(5.9	)%			0.1	%
				Total assets			8,978,122				8,794,972				8,978,122				8,794,972				2.1	%			2.1	%
				Total shareholders’ equity			2,886,549				2,710,597				2,886,549				2,710,597				6.5	%			6.5	%
PER SHARE AND SHARES DATA				Basic and diluted earnings (losses) per common share
				Net income (loss) (as reported)		$	1.33			($	0.96	)		$	6.37			$	3.00				NM				112.3	%
				Operating income (loss) (as reported) [a]		$	1.35			($	1.80	)		$	6.41			$	1.25				NM				412.8	%
As Reported				Weighted average common shares outstanding			43,108				42,604				42,818				42,568				1.2	%			0.6	%
				Weighted average common shares outstanding and dilutive potential common shares [e]			43,120				42,604				42,818				42,602				1.2	%			0.5	%
				Common dividends paid per share		$	0.32			$	0.31			$	1.28			$	1.24				3.2	%			3.2	%
Book Value Per				Book value [b]		$	56.99			$	53.75			$	56.99			$	53.75				6.0	%			6.0	%
Common Share				Diluted book value (treasury stock method) [b]		$	55.18			$	52.88			$	55.18			$	52.88				4.3	%			4.3	%
FINANCIAL RATIOS				Return on average common equity (ROAE), net income (loss) [c]			2.4	%			(1.8	)%			11.8	%			5.8	%			4.2				6.0
				ROAE, operating income (loss) [a] [c]			2.5	%			(3.3	)%			11.9	%			2.4	%			5.8				9.5
				Return on beg. common equity (ROBE), net income (loss) [d]			2.4	%			(1.7	)%			12.2	%			5.9	%			4.1				6.3
				ROBE, operating income (loss) [a] [d]			2.5	%			(3.2	)%			12.3	%			2.5	%			5.7				9.8
				Annualized ROAE, net income (loss) [c]			9.7	%			(7.0	)%			11.8	%			5.8	%			16.7				6.0
				Annualized ROAE, operating income (loss) [a] [c]			9.9	%			(13.1	)%			11.9	%			2.4	%			23.0				9.5
				Annualized ROBE, net income (loss) [d]			9.8	%			(6.9	)%			12.2	%			5.9	%			16.7				6.3
				Annualized ROBE, operating income (loss) [a] [d]			9.9	%			(12.8	)%			12.3	%			2.5	%			22.7				9.8
				Annualized investment yield			3.0	%			2.8	%			2.6	%			2.8	%			0.2				(0.2	)
GAAP				Loss ratio			60.7	%			95.1	%			60.5	%			75.5	%			(34.4	)			(15.0	)
				Acquisition expense ratio			16.4	%			13.9	%			15.1	%			15.1	%			2.5				0.0
				General and administrative expense ratio			15.9	%			10.2	%			14.6	%			11.7	%			5.7				2.9
				Combined ratio			93.0	%			119.2	%			90.2	%			102.3	%			(26.2	)			(12.1	)

 

[a]	Operating income (loss) 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. Please see page 30 for a reconciliation to net income (loss).

[b]	For detailed calculations, please refer to page 31.

[c]	Average common equity is calculated as the arithmetic average of the beginning and ending common equity balances for the stated periods, which excludes the $430 million liquidation value of the preferred shares.

[d]	Beginning common equity for the stated periods excludes the $430 million liquidation value of the preferred shares.

[e]	Options that are anti-dilutive are not included in the calculation of diluted shares outstanding. Options are anti-dilutive for earnings per share in any period in which there is a net loss and the anti-dilution is reflected as additional treasury method repurchases.

 

		1

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ENDURANCE SPECIALTY HOLDINGS LTD.

CONSOLIDATED STATEMENTS OF INCOME (LOSS) - QUARTERLY

 

		QUARTERS ENDED
		DEC. 31, 2013				SEPT. 30, 2013				JUNE 30, 2013				MAR. 31, 2013				DEC. 31, 2012				DEC. 31, 2011
UNDERWRITING REVENUES
Gross premiums written		$	370,809			$	544,363			$	572,710			$	1,177,362			$	262,046			$	262,966
Premiums ceded			(90,745	)			(149,030	)			(108,089	)			(268,447	)			(74,100	)			(75,102	)
Net premiums written		$	280,064			$	395,333			$	464,621			$	908,915			$	187,946			$	187,864
Change in unearned premiums			219,423				158,212				78,714				(488,798	)			343,107				312,625
Net premiums earned		$	499,487			$	553,545			$	543,335			$	420,117			$	531,053			$	500,489
Other underwriting (loss) income			(2,740	)			(943	)			888				749				(520	)			(1,425	)
Total underwriting revenues		$	496,747			$	552,602			$	544,223			$	420,866			$	530,533			$	499,064
UNDERWRITING EXPENSES
Net losses and loss expenses		$	302,620			$	339,036			$	359,058			$	218,970			$	504,808			$	412,152
Acquisition expenses			82,151				78,775				71,868				71,636				73,780				77,157
General and administrative expenses			79,599				67,470				81,359				66,478				54,324				73,731
Total underwriting expenses		$	464,370			$	485,281			$	512,285			$	357,084			$	632,912			$	563,040
Underwriting income (loss)		$	32,377			$	67,321			$	31,938			$	63,782			($	102,379	)		($	63,976	)
OTHER OPERATING REVENUE
Net investment income		$	46,346			$	38,097			$	32,468			$	49,305			$	38,603			$	40,594
Interest expense			(9,050	)			(9,048	)			(9,052	)			(9,038	)			(9,042	)			(9,088	)
Amortization of intangibles			(1,634	)			(1,652	)			(1,625	)			(2,101	)			(2,359	)			(2,413	)
Total other operating revenue		$	35,662			$	27,397			$	21,791			$	38,166			$	27,202			$	29,093
INCOME (LOSS) BEFORE OTHER ITEMS		$	68,039			$	94,718			$	53,729			$	101,948			($	75,177	)		($	34,883	)
OTHER
Net foreign exchange (losses) gains		($	5,718	)		($	2,201	)		($	3,368	)		($	2,927	)		$	1,212			($	233	)
Net realized and unrealized investment gains (losses)			5,197				(6,640	)			10,372				6,235				41,881				5,331
Total other-than-temporary impairment losses			(41	)			(190	)			(579	)			(806	)			(90	)			(751	)
Portion of loss recognised in other comprehensive (loss) income			—				—				—				—				—				50
Net impairment losses recognised in earnings (losses)			(41	)			(190	)			(579	)			(806	)			(90	)			(701	)
Income tax (expense) benefit			(296	)			(2,271	)			865				(4,151	)			(453	)			3,110
NET INCOME (LOSS)		$	67,181			$	83,416			$	61,019			$	100,299			($	32,627	)		($	27,376	)
Preferred dividends			(8,186	)			(8,188	)			(8,188	)			(8,188	)			(8,186	)			(8,187	)
NET INCOME (LOSS) AVAILABLE (ATTRIBUTABLE) TO COMMON AND PARTICIPATING COMMON SHAREHOLDERS		$	58,995			$	75,228			$	52,831			$	92,111			($	40,813	)		($	35,563	)
KEY RATIOS/PER SHARE DATA
Loss ratio			60.7	%			61.3	%			66.1	%			52.1	%			95.1	%			82.4	%
Acquisition expense ratio			16.4	%			14.2	%			13.2	%			17.1	%			13.9	%			15.4	%
General and administrative expense ratio			15.9	%			12.2	%			15.0	%			15.8	%			10.2	%			14.7	%
Combined ratio			93.0	%			87.7	%			94.3	%			85.0	%			119.2	%			112.5	%
Basic earnings (losses) per common share		$	1.33			$	1.70			$	1.21			$	2.14			($	0.96	)		($	0.88	)
Diluted earnings (losses) per common share [b]		$	1.33			$	1.70			$	1.21			$	2.13			($	0.96	)		($	0.88	)
ROAE, net income (loss) [a]			2.4	%			3.2	%			2.3	%			4.0	%			(1.8	)%			(1.6	)%

 

[a]	Average common equity is calculated as the arithmetic average of the beginning and ending common equity balances for the stated periods, which excludes the liquidation value of the preferred shares of $430 million.

[b]	Warrants and options that are anti-dilutive are not included in the calculation of diluted shares outstanding. Warrants and options are anti-dilutive for earnings per share in any period in which there is a net loss and the anti-dilution is reflected as additional treasury method repurchases.

 

		2

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ENDURANCE SPECIALTY HOLDINGS LTD.

CONSOLIDATED STATEMENTS OF INCOME (LOSS) - YTD

 

		YEAR ENDED
		DEC. 31, 2013				DEC. 31, 2012				DEC. 31, 2011
UNDERWRITING REVENUES
Gross premiums written		$	2,665,244			$	2,549,026			$	2,467,114
Premiums ceded			(616,311	)			(519,531	)			(487,293	)
Net premiums written		$	2,048,933			$	2,029,495			$	1,979,821
Change in unearned premiums			(32,449	)			(15,595	)			(48,428	)
Net premiums earned		$	2,016,484			$	2,013,900			$	1,931,393
Other underwriting loss			(2,046	)			(2,183	)			(3,547	)
Total underwriting revenues		$	2,014,438			$	2,011,717			$	1,927,846
UNDERWRITING EXPENSES
Net losses and loss expenses		$	1,219,684			$	1,520,995			$	1,632,666
Acquisition expenses			304,430				303,179				282,911
General and administrative expenses			294,906				235,689				264,152
Total underwriting expenses		$	1,819,020			$	2,059,863			$	2,179,729
Underwriting income (loss)		$	195,418			($	48,146	)		($	251,883	)
OTHER OPERATING REVENUE
Net investment income		$	166,216			$	173,326			$	147,037
Interest expense			(36,188	)			(36,174	)			(36,254	)
Amortization of intangibles			(7,012	)			(10,347	)			(11,213	)
Total other operating revenue		$	123,016			$	126,805			$	99,570
INCOME (LOSS) BEFORE OTHER ITEMS		$	318,434			$	78,659			($	152,313	)
OTHER
Net foreign exchange (losses) gains		($	14,214	)		$	15,911			$	7,422
Net realized and unrealized investment gains			15,164				72,139				31,671
Total other-than-temporary impairment losses			(1,616	)			(364	)			(2,659	)
Portion of loss recognised in other comprehensive (loss) income			—				(483	)			(861	)
Net impairment losses recognised in earnings (losses)			(1,616	)			(847	)			(3,520	)
Income tax (expense) benefit			(5,853	)			(3,346	)			23,006
NET INCOME (LOSS)		$	311,915			$	162,516			($	93,734	)
Preferred dividends			(32,750	)			(32,750	)			(24,125	)
NET INCOME (LOSS) AVAILABLE (ATTRIBUTABLE) TO COMMON AND PARTICIPATING COMMON SHAREHOLDERS		$	279,165			$	129,766			($	117,859	)
KEY RATIOS/PER SHARE DATA
Loss ratio			60.5	%			75.5	%			84.6	%
Acquisition expense ratio			15.1	%			15.1	%			14.6	%
General and administrative expense ratio			14.6	%			11.7	%			13.7	%
Combined ratio			90.2	%			102.3	%			112.9	%
Basic earnings (losses) per common share		$	6.37			$	3.00			($	2.95	)
Diluted earnings (losses) per common share [b]		$	6.37			$	3.00			($	2.95	)
ROAE, net income (loss) [a]			11.8	%			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 periods, which excludes the liquidation value of the preferred shares of $430 million.

[b]	Warrants and options that are anti-dilutive are not included in the calculation of diluted shares outstanding. Warrants and options are anti-dilutive for earnings per share in any period in which there is a net loss and the anti-dilution is reflected as additional treasury method repurchases.

 

		3

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ENDURANCE SPECIALTY HOLDINGS LTD.

CONSOLIDATED BALANCE SHEETS

 

		DEC. 31, 2013				SEPT. 30, 2013				JUNE 30, 2013				MAR. 31, 2013				DEC. 31, 2012
ASSETS
Cash and cash equivalents		$	845,851			$	789,999			$	942,062			$	857,187			$	1,124,019
Fixed maturity investments available for sale, at fair value			4,840,251				4,800,838				4,755,091				5,008,753				4,868,150
Short term investments available for sale, at fair value			35,028				11,599				15,382				1,400				42,230
Equity securities available for sale, at fair value			252,466				262,866				232,919				188,927				86,997
Other investments			617,478				594,156				569,393				554,715				517,546
Premiums receivable, net			669,198				1,006,227				1,271,818				1,193,578				601,952
Insurance and reinsurance balances receivable			127,722				123,777				111,405				106,222				105,663
Deferred acquisition costs			186,027				197,048				210,740				212,953				168,252
Prepaid reinsurance premiums			187,209				263,499				292,911				340,066				166,702
Reinsurance recoverable on unpaid losses			593,755				513,080				594,020				588,576				691,783
Reinsurance recoverable on paid losses			164,220				428,300				101,753				11,891				83,159
Accrued investment income			24,104				21,783				25,404				24,865				27,166
Goodwill and intangible assets			165,378				167,000				168,621				169,899				172,000
Deferred tax assets			51,703				50,148				52,240				41,505				43,501
Receivable on pending investment sales			54,910				124,236				78,243				35,608				9,144
Other assets			162,822				192,104				128,446				95,336				86,708
TOTAL ASSETS		$	8,978,122			$	9,546,660			$	9,550,448			$	9,431,481			$	8,794,972
LIABILITIES
Reserve for losses and loss expenses			4,002,259				4,052,102				4,145,581			$	4,026,536			$	4,240,876
Reserve for unearned premiums			1,018,851				1,314,687				1,500,253				1,625,883				965,244
Deposit liabilities			19,458				17,577				17,785				22,533				22,220
Reinsurance balances payable			181,061				347,048				262,582				203,048				110,843
Debt			527,478				527,506				527,401				527,421				527,339
Payable on pending investment purchases			129,047				224,473				181,060				111,969				81,469
Other liabilities			213,419				224,257				179,732				147,841				136,384
TOTAL LIABILITIES		$	6,091,573			$	6,707,650			$	6,814,394			$	6,665,231			$	6,084,375
SHAREHOLDERS’ EQUITY
Preferred shares
Series A, non-cumulative		$	8,000			$	8,000			$	8,000			$	8,000			$	8,000
Series B, non-cumulative			9,200				9,200				9,200				9,200				9,200
Common shares			44,369				44,250				44,331				43,169				43,116
Additional paid-in capital			569,116				560,204				556,255				520,257				527,915
Accumulated other comprehensive income			62,731				69,457				31,438				137,439				152,463
Retained earnings			2,193,133				2,147,899				2,086,830				2,048,185				1,969,903
TOTAL SHAREHOLDERS’ EQUITY		$	2,886,549			$	2,839,010			$	2,736,054			$	2,766,250			$	2,710,597
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	8,978,122			$	9,546,660			$	9,550,448			$	9,431,481			$	8,794,972
Book value per common share		$	56.99			$	55.89			$	53.51			$	55.10			$	53.75
Diluted book value per common share (treasury stock method)		$	55.18			$	54.33			$	51.95			$	54.10			$	52.88
RATIOS
Debt-to-capital			15.5	%			15.7	%			16.2	%			16.0	%			16.3	%

 

		4

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ENDURANCE SPECIALTY HOLDINGS LTD.

Probable Maximum Loss by Zone and Peril

(in millions of dollars)

Largest 1 in 100 year PML as of January 1, 2014 is equal to 11.0% of Shareholders’ Equity as of December 31, 2013.

 

				Estimated Occurrence Net Loss as of January 1, 2014																				Jan. 1, 2013				Jan. 1, 2012
Zone		Peril		10 Year Return Period				25 Year Return Period				50 Year Return Period				100 Year Return Period				250 Year Return Period				100 Year Return Period				100 Year Return Period
United States		Hurricane		$	135			$	191			$	237			$	293			$	357			$	429			$	574
Europe		Windstorm			92				173				233				317				428				346				384
California		Earthquake			42				155				199				238				326				395				409
Japan		Windstorm			32				102				140				144				154				201				317
Northwest U.S.		Earthquake			—				5				32				95				192				154				206
Japan		Earthquake			9				45				81				109				142				111				189
United States		Tornado/Hail			37				56				72				88				114				86				123
Australia		Earthquake			1				6				27				86				138				88				73
New Zealand		Earthquake			1				4				10				24				55				24				29
Australia		Windstorm			3				11				29				52				96				53				48
New Madrid		Earthquake			—				—				—				9				69				10				12

The net loss estimates by zone above represent estimated losses related to our property, catastrophe and other specialty lines of business, based upon our catastrophe models and assumptions regarding the location, size, magnitude, and frequency of the catastrophe events utilized to determine the above estimates. The net loss estimates are presented on an occurrence basis, before income tax and net of reinsurance recoveries and reinstatement premiums, if applicable. Return period refers to the frequency with which the related size of a catastrophic event is expected to occur.

Actual realized catastrophic losses could differ materially from our net loss estimates and our net loss estimates should not be considered as representative of the actual losses that we may incur in connection with any particular catastrophic event. The net loss estimates above rely significantly on computer models created to simulate the effect of catastrophes on insured properties based upon data emanating from past catastrophic events. Since comprehensive data collection regarding insured losses from catastrophe events is a relatively recent development in the insurance industry, the data upon which catastrophe models is based is limited, which has the potential to introduce inaccuracies into estimates of losses from catastrophic events, in particular those that occur infrequently. In addition, catastrophe models are significantly influenced by management’s assumptions regarding event characteristics, construction of insured property and the cost and duration of rebuilding after the catastrophe. Lastly, changes in Endurance’s underwriting portfolio risk control mechanisms and other factors, either before or after the date of the above net loss estimates, may also cause actual results to vary considerably from the net loss estimates above. For a listing of risks related to Endurance and its future performance, please see “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012.

 

		5

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ENDURANCE SPECIALTY HOLDINGS LTD.

SEGMENT DISTRIBUTION

FOR THE YEAR ENDED DECEMBER 31, 2013

Net Premiums Written = $2,048.9 million

 

 

[a]	Other specialty includes the agriculture line in the Insurance segment and the other specialty line in the Reinsurance segment.

 

		6

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ENDURANCE SPECIALTY HOLDINGS LTD.

CONSOLIDATED SEGMENT DATA

 

		FOR THE QUARTERS ENDED
		DEC. 31, 2013												DEC. 31, 2012
		Insurance				Reinsurance				Totals				Insurance				Reinsurance				Totals
UNDERWRITING REVENUES
Gross premiums written		$	200,726			$	170,083			$	370,809			$	177,116			$	84,930			$	262,046
Net premiums written		$	111,976			$	168,088			$	280,064			$	106,652			$	81,294			$	187,946
Net premiums earned		$	235,967			$	263,520			$	499,487			$	244,101			$	286,952			$	531,053
Other underwriting loss			—				(2,740	)			(2,740	)			—				(520	)			(520	)
Total underwriting revenues		$	235,967			$	260,780			$	496,747			$	244,101			$	286,432			$	530,533
UNDERWRITING EXPENSES
Net losses and loss expenses		$	230,708			$	71,912			$	302,620			$	244,985			$	259,823			$	504,808
Acquisition expenses			16,754				65,397				82,151				17,332				56,448				73,780
General and administrative expenses			42,804				36,795				79,599				28,445				25,879				54,324
Total expenses		$	290,266			$	174,104			$	464,370			$	290,762			$	342,150			$	632,912
UNDERWRITING (LOSS) INCOME		($	54,299	)		$	86,676			$	32,377			($	46,661	)		($	55,718	)		($	102,379	)
GAAP RATIOS
Loss ratio			97.8	%			27.3	%			60.7	%			100.3	%			90.5	%			95.1	%
Acquisition expense ratio			7.1	%			24.8	%			16.4	%			7.1	%			19.7	%			13.9	%
General and administrative expense ratio			18.1	%			14.0	%			15.9	%			11.7	%			9.0	%			10.2	%
Combined ratio AS REPORTED			123.0	%			66.1	%			93.0	%			119.1	%			119.2	%			119.2	%
Effect of favorable prior accident year reserve development			2.0	%			21.3	%			12.2	%			3.0	%			7.2	%			5.3	%
Combined ratio net of prior accident year reserve development			125.0	%			87.4	%			105.2	%			122.1	%			126.4	%			124.5	%

 

		7

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ENDURANCE SPECIALTY HOLDINGS LTD.

INSURANCE SEGMENT DATA

 

		FOR THE QUARTERS ENDED
		DEC. 31, 2013				SEPT. 30, 2013				JUNE 30, 2013				MAR. 31, 2013				DEC. 31, 2012				DEC. 31, 2011
UNDERWRITING REVENUES
Gross premiums written		$	200,726			$	344,819			$	276,941			$	652,943			$	177,116			$	167,766
Net premiums written		$	111,976			$	224,338			$	191,502			$	404,694			$	106,652			$	96,478
Net premiums earned		$	235,967			$	291,477			$	267,878			$	151,152			$	244,101			$	251,101
Other underwriting loss			—				—				—				—				—				(493	)
Total underwriting revenues		$	235,967			$	291,477			$	267,878			$	151,152			$	244,101			$	250,608
UNDERWRITING EXPENSES
Net losses and loss expenses		$	230,708			$	228,409			$	215,844			$	99,464			$	244,985			$	214,681
Acquisition expenses			16,754				18,440				14,968				14,616				17,332				20,388
General and administrative expenses			42,804				35,641				43,524				35,627				28,445				43,754
Total expenses		$	290,266			$	282,490			$	274,336			$	149,707			$	290,762			$	278,823
UNDERWRITING (LOSS) INCOME		($	54,299	)		$	8,987			($	6,458	)		$	1,445			($	46,661	)		($	28,215	)
GAAP RATIOS
Loss ratio			97.8	%			78.4	%			80.6	%			65.7	%			100.3	%			85.5	%
Acquisition expense ratio			7.1	%			6.3	%			5.6	%			9.7	%			7.1	%			8.1	%
General and administrative expense ratio			18.1	%			12.2	%			16.2	%			23.6	%			11.7	%			17.4	%
Combined ratio AS REPORTED			123.0	%			96.9	%			102.4	%			99.0	%			119.1	%			111.0	%
Effect of favorable prior accident year reserve development			2.0	%			2.1	%			2.1	%			11.4	%			3.0	%			0.2	%
Combined ratio net of prior accident year reserve development			125.0	%			99.0	%			104.5	%			110.4	%			122.1	%			111.2	%

 

		8

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ENDURANCE SPECIALTY HOLDINGS LTD.

REINSURANCE SEGMENT DATA

 

		FOR THE QUARTERS ENDED
		DEC. 31, 2013				SEPT. 30, 2013				JUNE 30, 2013				MAR. 31, 2013				DEC. 31, 2012				DEC. 31, 2011
UNDERWRITING REVENUES
Gross premiums written		$	170,083			$	199,544			$	295,769			$	524,419			$	84,930			$	95,200
Net premiums written		$	168,088			$	170,995			$	273,119			$	504,221			$	81,294			$	91,386
Net premiums earned		$	263,520			$	262,068			$	275,457			$	268,965			$	286,952			$	249,388
Other underwriting (loss) income			(2,740	)			(943	)			888				749				(520	)			(932	)
Total underwriting revenues		$	260,780			$	261,125			$	276,345			$	269,714			$	286,432			$	248,456
UNDERWRITING EXPENSES
Net losses and loss expenses		$	71,912			$	110,627			$	143,214			$	119,506			$	259,823			$	197,471
Acquisition expenses			65,397				60,335				56,900				57,020				56,448				56,769
General and administrative expenses			36,795				31,829				37,835				30,851				25,879				29,977
Total expenses		$	174,104			$	202,791			$	237,949			$	207,377			$	342,150			$	284,217
UNDERWRITING INCOME (LOSS)		$	86,676			$	58,334			$	38,396			$	62,337			($	55,718	)		($	35,761	)
GAAP RATIOS
Loss ratio			27.3	%			42.3	%			52.0	%			44.4	%			90.5	%			79.2	%
Acquisition expense ratio			24.8	%			23.0	%			20.7	%			21.2	%			19.7	%			22.8	%
General and administrative expense ratio			14.0	%			12.1	%			13.7	%			11.5	%			9.0	%			12.0	%
Combined ratio AS REPORTED			66.1	%			77.4	%			86.4	%			77.1	%			119.2	%			114.0	%
Effect of favorable prior accident year reserve development			21.3	%			16.0	%			20.8	%			12.4	%			7.2	%			16.6	%
Combined ratio net of prior accident year reserve development			87.4	%			93.4	%			107.2	%			89.5	%			126.4	%			130.6	%

 

		9

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ENDURANCE SPECIALTY HOLDINGS LTD.

SEGMENT GROSS PREMIUMS WRITTEN BY LINE OF BUSINESS

 

		FOR THE QUARTERS ENDED
		DEC. 31, 2013				SEPT. 30, 2013				JUNE 30, 2013				MAR. 31, 2013				DEC. 31, 2012				DEC. 31, 2011
INSURANCE SEGMENT
Agriculture		$	58,220			$	200,062			$	131,633			$	564,474			$	64,798			$	46,260
Casualty and other specialty			76,666				95,862				87,614				56,467				59,942				57,727
Professional lines			55,056				34,221				38,296				20,964				39,242				45,110
Property			10,784				14,674				19,398				11,038				13,134				18,669
TOTAL INSURANCE		$	200,726			$	344,819			$	276,941			$	652,943			$	177,116			$	167,766
REINSURANCE SEGMENT
Catastrophe		$	13,778			$	38,676			$	155,431			$	147,866			$	24,112			$	15,250
Property			9,358				91,653				48,384				148,411				31,065				15,087
Casualty			30,066				28,021				54,681				139,395				16,112				49,298
Professional lines			113,089				25,670				12,528				12,307				8,849				9,933
Other specialty			3,792				15,524				24,745				76,440				4,792				5,632
TOTAL REINSURANCE		$	170,083			$	199,544			$	295,769			$	524,419			$	84,930			$	95,200
REPORTED TOTALS		$	370,809			$	544,363			$	572,710			$	1,177,362			$	262,046			$	262,966

 

		10

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ENDURANCE SPECIALTY HOLDINGS LTD.

SEGMENT NET PREMIUMS WRITTEN BY LINE OF BUSINESS

 

		FOR THE QUARTERS ENDED
		DEC. 31, 2013				SEPT. 30, 2013				JUNE 30, 2013				MAR. 31, 2013				DEC. 31, 2012				DEC. 31, 2011
INSURANCE SEGMENT
Agriculture		$	24,454			$	120,617			$	84,537			$	341,130			$	25,413			$	9,121
Casualty and other specialty			50,022				72,431				63,373				43,261				43,683				40,287
Professional lines			32,138				20,972				27,788				14,203				30,044				38,402
Property			5,362				10,318				15,804				6,100				7,512				8,668
TOTAL INSURANCE		$	111,976			$	224,338			$	191,502			$	404,694			$	106,652			$	96,478
REINSURANCE SEGMENT
Catastrophe		$	12,270			$	12,551			$	138,041			$	131,398			$	22,073			$	14,753
Property			9,417				90,528				44,516				148,411				31,065				15,087
Casualty			29,661				28,020				54,683				137,966				16,111				49,301
Professional lines			113,089				25,670				12,528				12,307				8,849				9,933
Other specialty			3,651				14,226				23,351				74,139				3,196				2,312
TOTAL REINSURANCE		$	168,088			$	170,995			$	273,119			$	504,221			$	81,294			$	91,386
REPORTED TOTALS		$	280,064			$	395,333			$	464,621			$	908,915			$	187,946			$	187,864

 

		11

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ENDURANCE SPECIALTY HOLDINGS LTD.

SEGMENT NET PREMIUMS EARNED BY LINE OF BUSINESS

 

		FOR THE QUARTERS ENDED
		DEC. 31, 2013				SEPT. 30, 2013				JUNE 30, 2013				MAR. 31, 2013				DEC. 31, 2012				DEC. 31, 2011
INSURANCE SEGMENT
Agriculture		$	143,876			$	200,739			$	172,492			$	56,431			$	142,851			$	146,068
Casualty and other specialty			57,905				55,929				55,872				54,123				55,425				50,718
Professional lines			25,816				24,220				27,757				30,924				35,530				37,580
Property			8,370				10,589				11,757				9,674				10,295				16,735
TOTAL INSURANCE		$	235,967			$	291,477			$	267,878			$	151,152			$	244,101			$	251,101
REINSURANCE SEGMENT
Catastrophe		$	66,026			$	67,778			$	86,560			$	84,795			$	95,050			$	82,197
Property			87,032				88,195				90,934				86,555				92,757				67,911
Casualty			58,184				63,920				56,413				56,766				60,017				56,820
Professional lines			24,793				15,181				13,691				14,304				13,894				17,018
Other specialty			27,485				26,994				27,859				26,545				25,234				25,442
TOTAL REINSURANCE		$	263,520			$	262,068			$	275,457			$	268,965			$	286,952			$	249,388
REPORTED TOTALS		$	499,487			$	553,545			$	543,335			$	420,117			$	531,053			$	500,489

 

		12

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ENDURANCE SPECIALTY HOLDINGS LTD.

CONSOLIDATED SEGMENT DATA

 

		FOR THE YEARS ENDED
		DEC. 31, 2013												DEC. 31, 2012
		Insurance				Reinsurance				Totals				Insurance				Reinsurance				Totals
UNDERWRITING REVENUES
Gross premiums written		$	1,475,429			$	1,189,815			$	2,665,244			$	1,429,930			$	1,119,096			$	2,549,026
Net premiums written		$	932,510			$	1,116,423			$	2,048,933			$	942,357			$	1,087,138			$	2,029,495
Net premiums earned		$	946,474			$	1,070,010			$	2,016,484			$	955,089			$	1,058,811			$	2,013,900
Other underwriting (loss) income			—				(2,046	)			(2,046	)			(2,684	)			501				(2,183	)
Total underwriting revenues		$	946,474			$	1,067,964			$	2,014,438			$	952,405			$	1,059,312			$	2,011,717
UNDERWRITING EXPENSES
Losses and loss expenses		$	774,425			$	445,259			$	1,219,684			$	855,941			$	665,054			$	1,520,995
Acquisition expenses			64,778				239,652				304,430				75,597				227,582				303,179
General and administrative expenses			157,596				137,310				294,906				125,108				110,581				235,689
Total expenses		$	996,799			$	822,221			$	1,819,020			$	1,056,646			$	1,003,217			$	2,059,863
UNDERWRITING (LOSS) INCOME		($	50,325	)		$	245,743			$	195,418			($	104,241	)		$	56,095			($	48,146	)
GAAP RATIOS
Loss ratio			81.8	%			41.6	%			60.5	%			89.6	%			62.8	%			75.5	%
Acquisition expense ratio			6.8	%			22.4	%			15.1	%			7.9	%			21.5	%			15.1	%
General and administrative expense ratio			16.7	%			12.8	%			14.6	%			13.1	%			10.4	%			11.7	%
Combined ratio AS REPORTED			105.3	%			76.8	%			90.2	%			110.6	%			94.7	%			102.3	%
Effect of favorable prior accident year reserve development			3.6	%			17.6	%			11.0	%			4.8	%			7.0	%			6.0	%
Combined ratio net of prior accident year reserve development			108.9	%			94.4	%			101.2	%			115.4	%			101.7	%			108.3	%

 

		13

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ENDURANCE SPECIALTY HOLDINGS LTD.

INSURANCE SEGMENT DATA

 

		FOR THE YEARS ENDED
		DEC. 31, 2013				DEC. 31, 2012				DEC. 31, 2011
UNDERWRITING REVENUES
Gross premiums written		$	1,475,429			$	1,429,930			$	1,469,798
Net premiums written		$	932,510			$	942,357			$	1,005,490
Net premiums earned		$	946,474			$	955,089			$	981,592
Other underwriting loss			—				(2,684	)			(3,368	)
Total underwriting revenues		$	946,474			$	952,405			$	978,224
UNDERWRITING EXPENSES
Losses and loss expenses		$	774,425			$	855,941			$	765,119
Acquisition expenses			64,778				75,597				71,295
General and administrative expenses			157,596				125,108				146,115
Total expenses		$	996,799			$	1,056,646			$	982,529
UNDERWRITING LOSS		($	50,325	)		($	104,241	)		($	4,305	)
GAAP RATIOS
Loss ratio			81.8	%			89.6	%			77.9	%
Acquisition expense ratio			6.8	%			7.9	%			7.3	%
General and administrative expense ratio			16.7	%			13.1	%			14.9	%
Combined ratio AS REPORTED			105.3	%			110.6	%			100.1	%
Effect of favorable prior accident year reserve development			3.6	%			4.8	%			7.2	%
Combined ratio net of prior accident year reserve development			108.9	%			115.4	%			107.3	%

 

		14

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ENDURANCE SPECIALTY HOLDINGS LTD.

REINSURANCE SEGMENT DATA

 

		FOR THE YEARS ENDED
		DEC. 31, 2013				DEC. 31, 2012				DEC. 31, 2011
UNDERWRITING REVENUES
Gross premiums written		$	1,189,815			$	1,119,096			$	997,316
Net premiums written		$	1,116,423			$	1,087,138			$	974,331
Net premiums earned		$	1,070,010			$	1,058,811			$	949,801
Other underwriting (loss) income			(2,046	)			501				(179	)
Total underwriting revenues		$	1,067,964			$	1,059,312			$	949,622
UNDERWRITING EXPENSES
Losses and loss expenses		$	445,259			$	665,054			$	867,547
Acquisition expenses			239,652				227,582				211,616
General and administrative expenses			137,310				110,581				118,037
Total expenses		$	822,221			$	1,003,217			$	1,197,200
UNDERWRITING INCOME (LOSS)		$	245,743			$	56,095			($	247,578	)
GAAP RATIOS
Loss ratio			41.6	%			62.8	%			91.3	%
Acquisition expense ratio			22.4	%			21.5	%			22.3	%
General and administrative expense ratio			12.8	%			10.4	%			12.4	%
Combined ratio AS REPORTED			76.8	%			94.7	%			126.0	%
Effect of favorable prior accident year reserve development			17.6	%			7.0	%			11.5	%
Combined ratio net of prior accident year reserve development			94.4	%			101.7	%			137.5	%

 

		15

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ENDURANCE SPECIALTY HOLDINGS LTD.

SEGMENT GROSS PREMIUMS WRITTEN BY LINE OF BUSINESS

 

		FOR THE YEARS ENDED
		DEC. 31, 2013				DEC. 31, 2012				DEC. 31, 2011
INSURANCE SEGMENT
Agriculture		$	954,389			$	903,730			$	901,746
Casualty and other specialty			316,609				296,325				289,421
Professional lines			148,537				169,815				169,319
Property			55,894				60,060				109,312
TOTAL INSURANCE		$	1,475,429			$	1,429,930			$	1,469,798
REINSURANCE SEGMENT
Catastrophe		$	355,751			$	378,387			$	346,021
Property			297,806				349,579				266,562
Casualty			252,163				224,237				217,584
Professional lines			163,594				59,076				59,911
Other specialty			120,501				107,817				107,238
TOTAL REINSURANCE		$	1,189,815			$	1,119,096			$	997,316
REPORTED TOTALS		$	2,665,244			$	2,549,026			$	2,467,114

 

		16

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ENDURANCE SPECIALTY HOLDINGS LTD.

SEGMENT NET PREMIUMS WRITTEN BY LINE OF BUSINESS

 

		FOR THE YEARS ENDED
		DEC. 31, 2013				DEC. 31, 2012				DEC. 31, 2011
INSURANCE SEGMENT
Agriculture		$	570,738			$	553,762			$	586,659
Casualty and other specialty			229,087				216,780				215,939
Professional lines			95,101				137,885				137,962
Property			37,584				33,930				64,930
TOTAL INSURANCE		$	932,510			$	942,357			$	1,005,490
REINSURANCE SEGMENT
Catastrophe		$	294,260			$	351,140			$	329,081
Property			292,872				349,586				266,562
Casualty			250,330				222,997				216,786
Professional lines			163,594				59,076				59,911
Other specialty			115,367				104,339				101,991
TOTAL REINSURANCE		$	1,116,423			$	1,087,138			$	974,331
REPORTED TOTALS		$	2,048,933			$	2,029,495			$	1,979,821

 

		17

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ENDURANCE SPECIALTY HOLDINGS LTD.

SEGMENT NET PREMIUMS EARNED BY LINE OF BUSINESS

 

		FOR THE YEARS ENDED
		DEC. 31, 2013				DEC. 31, 2012				DEC. 31, 2011
INSURANCE SEGMENT
Agriculture		$	573,538			$	548,800			$	564,658
Casualty and other specialty			223,829				215,476				201,518
Professional lines			108,717				141,710				145,886
Property			40,390				49,103				69,530
TOTAL INSURANCE		$	946,474			$	955,089			$	981,592
REINSURANCE SEGMENT
Catastrophe		$	305,159			$	344,704			$	326,674
Property			352,716				306,499				241,525
Casualty			235,283				237,725				206,385
Professional lines			67,969				62,622				71,729
Other specialty			108,883				107,261				103,488
TOTAL REINSURANCE		$	1,070,010			$	1,058,811			$	949,801
REPORTED TOTALS		$	2,016,484			$	2,013,900			$	1,931,393

 

		18

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ENDURANCE SPECIALTY HOLDINGS LTD.

RETURN ON EQUITY ANALYSIS

 

		FOR THE YEAR ENDED DEC. 31, 2013
Average common equity [a]		$	2,368,573
Net premiums earned		$	2,016,484
Combined ratio			90.2	%
Operating margin			9.8	%
Premium leverage			0.85x
Implied ROAE from underwriting activity			8.3	%
Average cash and invested assets at amortized cost		$	6,447,941
Investment leverage			2.72x
Year to date investment income yield, pretax			2.6	%
Implied ROAE from investment activity			7.1	%
Financing Costs [b]			(2.9	)%
Implied Pre-tax Operating ROAE, for period [c]			12.5	%

 

[a]	Average common equity is calculated as the arithmetic average of the beginning and ending common equity balances for the stated periods, which excludes the liquidation value of the preferred shares (liquidation value of $430 million).

[b]	Financing costs include interest expense and preferred dividends.

[c]

Implied pre-tax Operating ROAE considers only the main components of the Company’s return on equity — underwriting and investment returns. As such, it differs from operating ROE primarily due to the exclusion of tax on underwriting, financing and investment activities and the tax-effected impact of amortization expense.

 

		19

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ENDURANCE SPECIALTY HOLDINGS LTD.

ANNUALIZED PREMIUM & INVESTMENT LEVERAGE

 

		FOR THE QUARTERS ENDED																YEARS ENDED DECEMBER 31,
		DEC. 31, 2013				SEPT. 30, 2013				JUNE 30, 2013				MAR. 31, 2013				2013				2012
Average common equity [a]		$	2,432,780			$	2,357,532			$	2,321,152			$	2,308,424			$	2,368,573			$	2,230,881
Net premiums earned		$	499,487			$	553,545			$	543,335			$	420,117			$	2,016,484			$	2,013,900
Premium leverage			0.21x				0.23x				0.23x				0.18x				0.85x				0.90x
Annualized premium leverage			0.84x				0.92x				0.92x				0.72x				0.85x				0.90x
Average cash and invested assets at amortized cost		$	6,385,251			$	6,340,454			$	6,389,569			$	6,411,315			$	6,447,941			$	6,303,881
Investment leverage			2.62x				2.69x				2.75x				2.78x				2.72x				2.83x

 

[a]	Average common equity is calculated as the arithmetic average of the beginning and ending common equity balances for the stated periods, which excludes the liquidation value of the preferred shares outstanding at the beginning and end of each period.

 

		20

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ENDURANCE SPECIALTY HOLDINGS LTD.

INVESTMENT PORTFOLIO

AS OF DECEMBER 31, 2013 AND DECEMBER 31, 2012

 

		December 31, 2013								December 31, 2012
Type of Investment		Fair Value				Percentage				Fair Value				Percentage
Cash and equivalents [a]		$	771,714				11.8	%		$	1,051,694				16.0	%
Short-term investments			35,028				0.5	%			42,230				0.6	%
Fixed maturity investments
U.S. government and government agencies notes			769,343				11.8	%			737,535				11.2	%
Government and agency guaranteed corporates			35,145				0.5	%			64,464				1.0	%
U.S. government agency residential mortgage-backed securities			1,132,720				17.5	%			1,197,788				18.2	%
U.S. government agency commercial mortgage-backed securities			49,431				0.8	%			25,684				0.4	%
Municipals			26,854				0.4	%			38,894				0.6	%
Foreign government			182,647				2.8	%			109,337				1.7	%
Corporate securities			1,227,299				18.9	%			1,373,671				20.9	%
Non-agency residential mortgage-backed securities			55,120				0.8	%			82,791				1.3	%
Non-agency commercial mortgage-backed securities			903,456				13.9	%			755,695				11.6	%
Asset-backed securities			458,236				7.0	%			482,291				7.3	%
Equity securities
Equity investments			174,669				2.7	%			66,309				0.9	%
Emerging market debt fund			60,844				0.9	%			10,576				0.2	%
Preferred equity investments			8,223				0.1	%			10,112				0.2	%
Short-term fixed income fund			8,730				0.1	%			—				—
Other investments [b]			617,478				9.5	%			517,546				7.9	%
Total		$	6,516,937				100.0	%		$	6,566,617				100.0	%
Ratings [c]		Fair Value				Percentage				Fair Value				Percentage
U.S. government and government agencies notes		$	769,343				15.7	%		$	737,535				15.0	%
AAA/Aaa			972,820				20.0	%			993,277				20.2	%
AA/Aa			1,787,443				36.6	%			1,821,250				37.1	%
A/A			895,549				18.4	%			993,307				20.2	%
BBB			363,722				7.5	%			219,017				4.5	%
Below BBB			66,791				1.4	%			143,198				2.9	%
Not Rated			19,611				0.4	%			2,796				0.1	%
Total		$	4,875,279				100.0	%		$	4,910,380				100.0	%
Performance						December 31, 2013								December 31, 2012
Yield [d]							2.6	%							2.8	%
Duration in years [e]							3.11								2.49

 

Investment Income		Year Ended Dec. 31, 2013				Quarter Ended Dec. 31, 2013				Quarter Ended Sept. 30, 2013				Quarter Ended June 30, 2013				Quarter Ended Mar. 31, 2013				Year Ended Dec. 31, 2012
Cash and available for sale securities		$	101,895			$	25,108			$	24,853			$	25,688			$	26,246			$	124,267
Other investments			64,321				21,238				13,244				6,780				23,059				49,059
Total net investment income		$	166,216			$	46,346			$	38,097			$	32,468			$	49,305			$	173,326

 

Note:		[a]		Cash and equivalents, including operating cash, are shown net of investments pending settlement.
		[b]		Other investments includes investments in alternative and specialty funds.
		[c]		Excludes cash and equivalents, equity securities and other investments.
		[d]		Earned yield for the twelve months ending 12/31/13 and twelve months ending 12/31/12 excludes realized and unrealized gains and losses on fixed maturity investments.
		[e]		Duration excludes equity securities, other investments and operating cash.

 

		21

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ENDURANCE SPECIALTY HOLDINGS LTD.

LARGEST TWENTY-FIVE CORPORATE HOLDINGS

AS OF DECEMBER 31, 2013

 

		December 31, 2013
ISSUER (1) (2) (3)		Amortized Cost				Fair Value				Unrealized Gain (Loss)				Credit Quality (4)
BANK OF AMERICA CORP		$	48,536			$	48,781			$	245			A-
JPMORGAN CHASE & CO			44,284				44,447				163			A
MORGAN STANLEY			42,085				42,878				793			A-
CITIGROUP INC			39,933				40,249				316			A-
GOLDMAN SACHS GROUP INC/THE			39,412				39,795				383			A-
VERIZON COMMUNICATIONS INC			26,657				27,609				952			BBB+
GENERAL ELECTRIC CO			24,584				24,567				(17	)		AA+
COMCAST CORPORATION			24,025				24,402				377			A-
MITSUBISHI UFJ FINANCIAL GROUP INC			22,204				22,425				221			A+
WELLS FARGO & COMPANY			21,767				21,857				90			A+
AMERICAN EXPRESS COMPANY			20,752				20,709				(43	)		A-
AT&T INC			19,065				19,121				56			A-
FORD MOTOR COMPANY			17,700				17,897				197			BBB-
BB& T CORP			17,209				17,140				(69	)		A-
NEW YORK LIFE INSURANCE COMPANY			16,413				16,602				189			AA+
US BANCORP			16,114				16,442				328			A+
NATIONAL GRID PLC			14,660				15,964				1,304			A-
ORACLE CORPORATION			14,703				14,491				(212	)		A+
CAPITAL ONE FINANCIAL CORPORATION			13,291				13,204				(87	)		BBB
ANHEUSER-BUSCH INVEB SA/NV			13,117				13,010				(107	)		A
MERCK & CO INC			12,066				11,997				(69	)		AA
PRINCIPAL FINANCIAL GROUP INC			11,928				11,991				63			A+
METLIFE INC			11,592				11,420				(172	)		A-
INTERNATIONAL BUSINESS MACHINES CORP			11,282				11,370				88			AA-
BP PLC			11,068				10,906				(162	)		A

 

(1)	Corporate issuers exclude government-backed, government-sponsored enterprises, covered bonds and cash and cash equivalents.

(2)	Credit exposures represent only direct exposure to fixed maturities and short term investments of the parent issuer and its major subsidiaries.

(3)	Includes preferred equity securities.

(4)	Represents weighted average credit quality of underlying issues.

 

		22

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ENDURANCE SPECIALTY HOLDINGS LTD.

ACTIVITY IN RESERVE FOR LOSSES AND LOSS EXPENSES

 

		THREE MONTHS ENDED DEC. 31, 2013												YEAR ENDED DEC. 31, 2013
		GROSS				RECOVERIES				NET				GROSS				RECOVERIES				NET
Reserve for losses and loss expenses
Balance, beginning of period		$	4,052,102			($	513,080	)		$	3,539,022			$	4,240,876			($	691,783	)		$	3,549,093
Incurred related to:
Current year			495,517				(132,038	)			363,479				2,121,194				(679,118	)			1,442,076
Prior years			(67,806	)			6,947				(60,859	)			(218,277	)			(4,115	)			(222,392	)
Total Incurred			427,711				(125,091	)			302,620				1,902,917				(683,233	)			1,219,684
Paid related to:
Current year			(297,972	)			38,683				(259,289	)			(926,218	)			402,208				(524,010	)
Prior years			(182,678	)			5,775				(176,903	)			(1,217,380	)			379,298				(838,082	)
Total Paid			(480,650	)			44,458				(436,192	)			(2,143,598	)			781,506				(1,362,092	)
Foreign currency translation			3,096				(42	)			3,054				2,064				(245	)			1,819
Balance, end of period		$	4,002,259			($	593,755	)		$	3,408,504			$	4,002,259			($	593,755	)		$	3,408,504

 

		23

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ENDURANCE SPECIALTY HOLDINGS LTD.

PRIOR YEAR RESERVE DEVELOPMENT BY SEGMENT

(FAVORABLE) ADVERSE PRIOR ACCIDENT YEAR DEVELOPMENT DURING THE YEAR ENDED DEC. 31, 2013

 

		Insurance				Reinsurance				Total Company
Incurred related to prior years
Quarter ended March 31, 2013		($	17,295	)		($	33,373	)		($	50,668	)
Quarter ended June 30, 2013			(5,625	)			(57,180	)			(62,805	)
Quarter ended September 30, 2013			(6,210	)			(41,850	)			(48,060	)
Quarter ended December 31, 2013			(4,773	)			(56,086	)			(60,859	)
Year ended December 31, 2013		($	33,903	)		($	188,489	)		($	222,392	)

(FAVORABLE) ADVERSE PRIOR ACCIDENT YEAR DEVELOPMENT DURING THE YEAR ENDED DEC. 31, 2012

 

		Insurance				Reinsurance				Total Company
Incurred related to prior years
Quarter ended March 31, 2012		($	7,847	)		($	9,054	)		($	16,901	)
Quarter ended June 30, 2012			(13,633	)			(5,919	)			(19,552	)
Quarter ended September 30, 2012			(17,439	)			(38,203	)			(55,642	)
Quarter ended December 31, 2012			(7,267	)			(20,795	)			(28,062	)
Year ended December 31, 2012		($	46,186	)		($	73,971	)		($	120,157	)

(FAVORABLE) ADVERSE PRIOR ACCIDENT YEAR DEVELOPMENT DURING THE YEAR ENDED DEC. 31, 2011

 

		Insurance				Reinsurance				Total Company
Incurred related to prior years
Quarter ended March 31, 2011		($	34,612	)		($	14,093	)		($	48,705	)
Quarter ended June 30, 2011			(23,190	)			(21,591	)			(44,781	)
Quarter ended September 30, 2011			(12,411	)			(32,002	)			(44,413	)
Quarter ended December 31, 2011			(566	)			(41,513	)			(42,079	)
Year ended December 31, 2011		($	70,779	)		($	109,199	)		($	179,978	)

 

		24

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ENDURANCE SPECIALTY HOLDINGS LTD.

PRIOR YEAR RESERVE DEVELOPMENT BY LINE OF BUSINESS

(FAVORABLE) ADVERSE PRIOR ACCIDENT YEAR DEVELOPMENT

 

		FOR THE QUARTERS ENDED																FOR THE YEAR ENDED				FOR THE YEAR ENDED
		DEC. 31, 2013				SEPT. 30, 2013				JUNE 30, 2013				MAR. 31, 2013				DEC. 31, 2013				DEC. 31, 2012
INSURANCE SEGMENT
Agriculture		($	15	)		($	616	)		($	233	)		($	4,733	)		($	5,597	)		($	9,304	)
Casualty and other specialty			(1,183	)			(4,263	)			(4,976	)			(4,942	)			(15,364	)			(15,098	)
Professional lines			(2,891	)			(427	)			1,672				667				(979	)			(8,647	)
Property			(684	)			(904	)			(2,088	)			(8,287	)			(11,963	)			(13,137	)
TOTAL INSURANCE			(4,773	)			(6,210	)			(5,625	)			(17,295	)			(33,903	)			(46,186	)
REINSURANCE SEGMENT
Catastrophe			(13,602	)			(9,234	)			(26,439	)			(11,911	)		($	61,186	)		($	30,414	)
Property			(11,217	)			(21,107	)			(23,444	)			(1,626	)			(57,394	)			270
Casualty			(9,590	)			(1,640	)			(900	)			(8,240	)			(20,370	)			(18,909	)
Professional lines			(2,735	)			(4,558	)			(996	)			(5,658	)			(13,947	)			(56	)
Other specialty			(18,942	)			(5,311	)			(5,401	)			(5,938	)			(35,592	)			(24,862	)
TOTAL REINSURANCE			(56,086	)			(41,850	)			(57,180	)			(33,373	)			(188,489	)			(73,971	)
REPORTED TOTALS		($	60,859	)		($	48,060	)		($	62,805	)		($	50,668	)		($	222,392	)		($	120,157	)

 

		25

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ENDURANCE SPECIALTY HOLDINGS LTD.

ANALYSIS OF UNPAID LOSSES AND LOSS EXPENSES

 

																						Reinsurance																								Reported
		Insurance																																												Totals
		Agriculture				Casualty and other specialty				Professional lines				Property				Subtotal				Catastrophe				Property				Casualty				Professional lines				Other specialty				Subtotal				Total
AT DEC. 31, 2013
Case reserves		$	257,939			$	316,170			$	110,880			$	23,410			$	708,399			$	167,152			$	196,715			$	244,300			$	65,353			$	96,801			$	770,321			$	1,478,720
Total reserves		$	342,368			$	1,276,300			$	501,755			$	38,467			$	2,158,890			$	265,626			$	323,798			$	798,589			$	215,235			$	240,121			$	1,843,369			$	4,002,259
Case reserves / Total reserves			75.3	%			24.8	%			22.1	%			60.9	%			32.8	%			62.9	%			60.8	%			30.6	%			30.4	%			40.3	%			41.8	%			36.9	%
IBNR / Total reserves			24.7	%			75.2	%			77.9	%			39.1	%			67.2	%			37.1	%			39.2	%			69.4	%			69.6	%			59.7	%			58.2	%			63.1	%
AT SEPT. 30, 2013
Case reserves		$	279,916			$	309,162			$	131,741			$	24,337			$	745,156			$	164,615			$	201,127			$	238,235			$	67,671			$	100,272			$	771,920			$	1,517,076
Total reserves		$	310,092			$	1,271,903			$	525,084			$	39,057			$	2,146,136			$	290,357			$	355,104			$	789,962			$	213,916			$	256,627			$	1,905,966			$	4,052,102
Case reserves / Total reserves			90.3	%			24.3	%			25.1	%			62.3	%			34.7	%			56.7	%			56.6	%			30.2	%			31.6	%			39.1	%			40.5	%			37.4	%
IBNR / Total reserves			9.7	%			75.7	%			74.9	%			37.7	%			65.3	%			43.3	%			43.4	%			69.8	%			68.4	%			60.9	%			59.5	%			62.6	%
AT JUNE 30, 2013
Case reserves		$	271,424			$	331,791			$	127,378			$	25,667			$	756,260			$	140,909			$	221,468			$	229,103			$	70,091			$	96,262			$	757,833			$	1,514,093
Total reserves		$	415,026			$	1,274,263			$	513,875			$	39,730			$	2,242,894			$	294,752			$	375,388			$	770,535			$	215,216			$	246,796			$	1,902,687			$	4,145,581
Case reserves / Total reserves			65.4	%			26.0	%			24.8	%			64.6	%			33.7	%			47.8	%			59.0	%			29.7	%			32.6	%			39.0	%			39.8	%			36.5	%
IBNR / Total reserves			34.6	%			74.0	%			75.2	%			35.4	%			66.3	%			52.2	%			41.0	%			70.3	%			67.4	%			61.0	%			60.2	%			63.5	%
AT MAR. 31, 2013
Case reserves		$	171,382			$	327,726			$	127,426			$	27,993			$	654,527			$	173,606			$	249,203			$	221,471			$	68,928			$	101,862			$	815,070			$	1,469,597
Total reserves		$	307,140			$	1,252,914			$	517,849			$	42,962			$	2,120,865			$	288,537			$	394,088			$	761,000			$	214,821			$	247,225			$	1,905,671			$	4,026,536
Case reserves / Total reserves			55.8	%			26.2	%			24.6	%			65.2	%			30.9	%			60.2	%			63.2	%			29.1	%			32.1	%			41.2	%			42.8	%			36.5	%
IBNR / Total reserves			44.2	%			73.8	%			75.4	%			34.8	%			69.1	%			39.8	%			36.8	%			70.9	%			67.9	%			58.8	%			57.2	%			63.5	%
AT DEC. 31, 2012
Case reserves		$	392,457			$	308,611			$	110,441			$	54,196			$	865,705			$	201,105			$	281,681			$	221,327			$	75,167			$	119,261			$	898,541			$	1,764,246
Total reserves		$	464,043			$	1,252,900			$	497,260			$	72,849			$	2,287,052			$	298,328			$	415,460			$	755,932			$	220,544			$	263,560			$	1,953,824			$	4,240,876
Case reserves / Total reserves			84.6	%			24.6	%			22.2	%			74.4	%			37.9	%			67.4	%			67.8	%			29.3	%			34.1	%			45.3	%			46.0	%			41.6	%
IBNR / Total reserves			15.4	%			75.4	%			77.8	%			25.6	%			62.1	%			32.6	%			32.2	%			70.7	%			65.9	%			54.7	%			54.0	%			58.4	%

 

		26

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ENDURANCE SPECIALTY HOLDINGS LTD.

SHAREHOLDER RETURN ANALYSIS

 

		YEARS ENDED DECEMBER 31,												INCEPTION TO DEC. 31, 2013
		2013				2012				2011
Income (Loss) and Return on Equity:
Net income (loss) available (attributable) to common and participating common shareholders		$	279,165			$	129,766			($	117,859	)		$	2,750,312
Operating income (loss) available (attributable) to common and participating common shareholders			281,021				54,295				(152,303	)			2,671,627
Average Shareholders’ equity [a]			2,368,573				2,230,881				2,414,659				2,026,780
Net income (loss) return on average equity			11.8	%			5.8	%			(4.9	)%			11.3	% [c]
Operating return on average equity			11.9	%			2.4	%			(6.3	)%			11.0	% [c]
Book value and dividends per share:
Dilutive book value per common share (treasury stock method)		$	55.18			$	52.88			$	50.56			$	55.18
Dividends paid per share			1.28				1.24				1.20				10.85
Change in diluted book value per common share			4.3	%			4.6	%			(4.1	)%			15.4	% [c]
Total return to common shareholders [b]			6.8	%			7.0	%			(1.9	)%			20.1	% [c]

 

[a]	Excludes the $430 million liquidation value of the preferred shares.

[b]	Total return to common shareholders is calculated as the change in diluted book value per common share plus dividends paid divided by beginning diluted book value per share.

[c]	Represents average non-compounded annual returns since December 31, 2001.

 

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ENDURANCE SPECIALTY HOLDINGS LTD.

DILUTIVE SHARES FOR EPS CALCULATION - TWO CLASS METHOD

 

						QUARTERS ENDED								YEARS ENDED
						DEC. 31,								DEC. 31,
						2013				2012				2013				2012
DILUTIVE SHARES				Average market price per share		$	55.76			$	39.76			$	50.34			$	38.10
OUTSTANDING: AS
REPORTED				Basic weighted average common shares outstanding [a]			43,108				42,604				42,818				42,568
				Add: weighted avg. unvested restricted share units			—				2				1				3
				Weighted average exercise price per share			—				—				—				—
				Proceeds from unrecognized restricted share unit expense		$	3			$	22			$	3			$	22
				Less: restricted share units bought back via treasury method			—				(2	)			(1	)			(1	)
				Add: weighted avg. dilutive options outstanding			815				64				495				88
				Weighted average exercise price per share		$	47.94			$	26.23			$	47.55			$	24.37
				Proceeds from unrecognized option expense		$	5,687				—			$	5,687				—
				Less: options bought back via treasury method			(803	)			(64	)			(495	)			(56	)
				Weighted average dilutive shares outstanding [b]			43,120				42,604				42,818				42,602

 

Notes:		[a]		Excludes unvested restricted shares outstanding which are considered participating securities under the two-class method for calculation of EPS.
		[b]		Options that are anti-dilutive are not included in the calculation of diluted shares outstanding. Options are anti-dilutive for earnings per share in any period in which there is a net loss and the anti-dilution is reflected in the calculations above as additional treasury method repurchases.

 

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ENDURANCE SPECIALTY HOLDINGS LTD.

EARNINGS (LOSSES) PER SHARE INFORMATION - TWO CLASS METHOD

 

		QUARTERS ENDED DEC. 31,								YEARS ENDED DEC. 31,
		2013				2012				2013				2012
Net income (loss)		$	67,181			($	32,627	)		$	311,915			$	162,516
Less preferred dividends			(8,186	)			(8,186	)			(32,750	)			(32,750	)
Net income (loss) available (attributable) to common and participating common shareholders		$	58,995			($	40,813	)		$	279,165			$	129,766
Less amount allocated to participating common shareholders [a]			(1,628	)			(206	)			(6,444	)			(2,113	)
Net income (loss) allocated to common shareholders		$	57,367			($	41,019	)		$	272,721			$	127,653
Denominator:
Weighted average shares - basic			43,108				42,604				42,818				42,568
Share Equivalents
Options			12				—				—				32
Restricted share units			—				—				—				2
Weighted average shares - diluted			43,120				42,604				42,818				42,602
Basic earnings (losses) per common share		$	1.33			($	0.96	)		$	6.37			$	3.00
Diluted earnings (losses) per common share [b]		$	1.33			($	0.96	)		$	6.37			$	3.00

 

[a]

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 (losses) per share under the two-class method. In periods of loss, no losses are allocated to participating common shareholders.

[b]	Represents diluted earnings (losses) per share calculated under the two-class method which was the lower of the two-class method and the treasury stock method.

 

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ENDURANCE SPECIALTY HOLDINGS LTD.

OPERATING INCOME (LOSS) RECONCILIATION

EARNINGS (LOSSES) PER SHARE INFORMATION - TWO CLASS METHOD

 

		Two-Class Method								Two-Class Method
		QUARTERS ENDED DEC. 31,								YEARS ENDED DEC. 31,
		2013				2012				2013				2012
Net income (loss)		$	67,181			($	32,627	)		$	311,915			$	162,516
Add (less) after-tax items:
Net foreign exchange losses (gains)			5,708				(1,220	)			14,352				(14,077	)
Net realized and unrealized investment gains			(4,808	)			(34,500	)			(14,064	)			(62,208	)
Net impairment losses recognized in earnings (losses)			26				89				1,568				814
Operating income (loss) before preferred dividends		$	68,107			($	68,258	)		$	313,771			$	87,045
Preferred dividends			(8,186	)			(8,186	)			(32,750	)			(32,750	)
Operating income (loss) available (attributable) to common and participating common shareholders		$	59,921			($	76,444	)		$	281,021			$	54,295
Less amount allocated to participating common shareholders [a]			(1,654	)			(206	)			(6,487	)			(884	)
Operating income (loss) allocated to common shareholders		$	58,267			($	76,650	)		$	274,534			$	53,411
Weighted average common shares outstanding
Basic			43,108				42,604				42,818				42,568
Dilutive			43,120				42,604				42,818				42,602
Basic per common share data
Net income (loss) allocated to common shareholders		$	1.33			($	0.96	)		$	6.37			$	3.00
Add (less) after-tax items:
Net foreign exchange losses (gains)			0.13				(0.03	)			0.33				(0.32	)
Net realized and unrealized investment gains			(0.11	)			(0.81	)			(0.33	)			(1.45	)
Net impairment losses recognized in earnings (losses)			—				—				0.04				0.02
Operating income (loss) allocated to common shareholders		$	1.35			($	1.80	)		$	6.41			$	1.25
Diluted per common share data
Net income (loss) allocated to common shareholders		$	1.33			($	0.96	)		$	6.37			$	3.00
Add (less) after-tax items:
Net foreign exchange losses (gains)			0.13				(0.03	)			0.33				(0.32	)
Net realized and unrealized investment gains			(0.11	)			(0.81	)			(0.33	)			(1.45	)
Net impairment losses recognized in earnings (losses)			—				—				0.04				0.02
Operating income (loss) allocated to common shareholders [b]		$	1.35			($	1.80	)		$	6.41			$	1.25

 

[a]

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.

[b]	Represents diluted earnings per share calculated under the two-class method which was the lower of the two-class method and the treasury stock method.

 

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ENDURANCE SPECIALTY HOLDINGS LTD.

BOOK VALUE PER SHARE

 

						DEC. 31,
						2013				2012
DILUTIVE COMMON				Price per share at period end		$	58.67			$	39.69
SHARES OUTSTANDING:
AS-IF CONVERTED [a]				Basic common shares outstanding			43,108				42,432
				Add: unvested restricted shares and restricted share units			1,261				686
				Add: dilutive options outstanding			815				40
				Weighted average exercise price per share		$	47.94			$	27.76
				Book Value [b]		$	2,456,549			$	2,280,597
				Add: proceeds from converted options			39,071				1,110
				Pro forma book value		$	2,495,620			$	2,281,707
				Dilutive shares outstanding			45,184				43,158
				Basic book value per common share		$	56.99			$	53.75
				Diluted book value per common share		$	55.23			$	52.87
DILUTIVE COMMON				Price per share at period end		$	58.67			$	39.69
SHARES OUTSTANDING:
TREASURY STOCK				Basic common shares outstanding			43,108				42,432
METHOD
				Add: unvested restricted shares and restricted share units			1,261				686
				Add: dilutive options outstanding			815				40
				Weighted average exercise price per share		$	47.94			$	27.76
				Less: options bought back via treasury method			(666	)			(28	)
				Dilutive shares outstanding			44,518				43,130
				Basic book value per common share		$	56.99			$	53.75
				Diluted book value per common share		$	55.18			$	52.88

 

[a]	The as-if converted method assumes that the proceeds received upon exercise of options will be retained by the Company and the resulting common shares from exercise will remain outstanding

[b]	Excludes the $430 million liquidation value of the preferred shares.

 

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ENDURANCE SPECIALTY HOLDINGS LTD.

REGULATION G

In presenting the Company’s results, management has included and discussed certain non-GAAP measures. Management believes that these non-GAAP measures, which may be defined differently by other companies, better explain the Company’s results of operations in a manner that allows for a more complete understanding of the underlying trends in the Company’s business. However, these measures should not be viewed as a substitute for those determined in accordance with GAAP.

Operating income (loss) is an internal performance measure used by the Company in the management of its operations. Operating income (loss) 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. The Company 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 (loss) determined in accordance with GAAP, the Company believes that showing operating income (loss) enables investors, analysts, rating agencies and other users of its financial information to more easily analyze the Company’s results of operations in a manner similar to how management analyzes the Company’s underlying business performance. Operating income (loss) should not be viewed as a substitute for GAAP net income (loss). Please see page 30 for a reconciliation of operating income (loss) to net income (loss).

Return on Average Equity (ROAE) is comprised using the average common equity calculated as the arithmetic average of the beginning and ending common equity balances for stated periods. Return on Beginning Equity (ROBE) is comprised using the beginning common equity for stated periods. The Company presents various measures of Return on Equity that are commonly recognized as a standard of performance by investors, analysts, rating agencies and other users of its financial information.

Investment yield is provided by the Company’s investment managers and is calculated by dividing net investment income by average invested assets at amortized cost. The Company utilizes and presents the investment yield in order to better disclose the performance of the Company’s investments and to show the components of the Company’s ROE.

The Company has included diluted book value per common share because it takes into account the effect of dilutive securities; therefore, the Company believes it is a better measure of calculating shareholder returns than book value per common share. Please see page 31 for a reconciliation of diluted book value per common share to basic book value per common share.

 

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