Exhibit 99.2

 

Endurance Specialty Holdings Ltd.

INVESTOR FINANCIAL SUPPLEMENT

SECOND QUARTER 2014

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Endurance Specialty Holdings Ltd.

Waterloo House, 100 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 - Quarterly			2
b. Consolidated Statements of Income - 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 per Share - Two Class Method			29
d. Operating Income Reconciliation - Two Class Method			30
e. Earnings per Share and Operating Income Reconciliation Excluding Proposed Acquisition Expenses			31
f. Book Value Per Share Analysis			32
VI. Regulation G			33

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

Some of the statements in this financial supplement may include and Endurance may make related oral forward-looking statements which reflect our current views with respect to future events and financial performance. Such statements may include forward-looking statements both with respect to us in general and the insurance and reinsurance sectors specifically, both as to underwriting and investment matters. Statements which include the words “should,” “would,” “expect,” “intend,” “plan,” “believe,” “project,” “target,” “anticipate,” “seek,” “will,” “deliver” and similar statements of a future or forward-looking nature identify forward-looking statements in this 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 materially from those indicated in the forward-looking statements. These factors include, but are not limited to, the effects of competitors’ pricing policies, greater frequency or severity of claims and loss activity, changes in market conditions in the agriculture insurance industry, termination of or changes in the terms of the U.S. multiple peril crop insurance program, a decreased demand for property and casualty insurance or reinsurance, changes in the availability, cost or quality of reinsurance or retrocessional coverage, our inability to renew business previously underwritten or acquired, our inability to maintain our applicable financial strength ratings, our inability to effectively integrate acquired operations, uncertainties in our reserving process, changes to our tax status, changes in insurance regulations, reduced acceptance of our existing or new products and services, a loss of business from and credit risk related to our broker counterparties, assessments for high risk or otherwise uninsured individuals, possible terrorism or the outbreak of war, a loss of key personnel, political conditions, changes in insurance regulation, changes in accounting policies, our investment performance, the valuation of our invested assets, a breach of our investment guidelines, the unavailability of capital in the future, developments in the world’s financial and capital markets and our access to such markets, government intervention in the insurance and reinsurance industry, illiquidity in the credit markets, changes in general economic conditions and other factors described in our Annual Report on Form 10-K for the year ended December 31, 2013 and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2014.

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

 

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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, 2013 and 2012 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 JUNE 30,								SIX MONTHS ENDED JUNE 30,								Previous Quarter Change
				2014				2013				2014				2013
HIGHLIGHTS		Net income		$	83,163			$	61,019			$	187,643			$	161,318				36.3	%
		Net income available to common and participating common shareholders			74,975				52,831				171,267				144,942				41.9	%
		Net income allocated to common shareholders			72,763				51,699				166,279				142,197				40.7	%
		Operating income [a]			80,107				55,504				182,666				153,492				44.3	%
		Operating income available to common and participating common shareholders [a]			71,919				47,316				166,290				137,116				52.0	%
		Operating income allocated to common shareholders [a]			69,797				46,302				161,447				134,519				50.7	%
		Operating cash flow			45,263				19,219				19,667				42,712				135.5	%
		Net investment income			39,302				32,468				80,292				81,773				21.0	%
		Gross premiums written			689,425				572,710				1,846,940				1,750,072				20.4	%
		Net premiums written			511,427				464,621				1,310,132				1,373,536				10.1	%
		Net premiums earned			481,538				543,335				877,804				963,452				(11.4	)%
		Total assets			10,178,647				9,550,448				10,178,647				9,550,448				6.6	%
		Total shareholders’ equity			3,115,675				2,736,054				3,115,675				2,736,054				13.9	%
PER SHARE AND SHARES DATA		Basic and diluted earnings per common share
		Net income (as reported)		$	1.68			$	1.21			$	3.84			$	3.34				38.8	%
		Operating income (as reported) [a]		$	1.61			$	1.09			$	3.73			$	3.16				47.7	%
As Reported		Weighted average common shares outstanding			43,351				42,621				43,265				42,527				1.7	%
		Weighted average common shares outstanding and dilutive potential common shares [e]			43,351				42,622				43,266				42,527				1.7	%
		Common dividends paid per share		$	0.34			$	0.32			$	0.68			$	0.64				6.3	%
Book Value Per Common Share		Book value [b]		$	61.80			$	53.51			$	61.80			$	53.51				15.5	%
		Diluted book value (treasury stock method) [b]		$	60.00			$	51.95			$	60.00			$	51.95				15.5	%
FINANCIAL RATIOS		Return on average common equity (ROAE), net income [c]			2.9	%			2.3	%			6.7	%			6.3	%			0.6
		ROAE, operating income [a] [c]			2.7	%			2.0	%			6.5	%			6.0	%			0.7
		Return on beg. common equity (ROBE), net income [d]			2.9	%			2.3	%			7.0	%			6.4	%			0.6
		ROBE, operating income [a] [d]			2.8	%			2.0	%			6.8	%			6.0	%			0.8
		Annualized ROAE, net income [c]			11.4	%			9.1	%			13.3	%			12.6	%			2.3
		Annualized ROAE, operating income [a] [c]			10.9	%			8.2	%			12.9	%			12.0	%			2.7
		Annualized ROBE, net income [d]			11.7	%			9.0	%			13.9	%			12.7	%			2.7
		Annualized ROBE, operating income [a] [d]			11.2	%			7.7	%			13.5	%			12.0	%			3.5
		Annualized investment yield			2.5	%			2.0	%			2.5	%			2.6	%			0.5
GAAP		Loss ratio			53.8	%			66.1	%			49.6	%			60.0	%			(12.3	)
		Acquisition expense ratio			16.3	%			13.2	%			17.2	%			14.9	%			3.1
		General and administrative expense ratio			18.0	%			15.0	%			18.2	%			15.3	%			3.0
		Combined ratio			88.1	%			94.3	%			85.0	%			90.2	%			(6.2	)

 

[a]	Operating income represents after-tax operational results excluding, as applicable, after-tax net realized capital gains or losses and after-tax net foreign exchange gains or losses. Please see page 30 for a reconciliation to net income.

[b]	For detailed calculations, please refer to page 32.

[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 - QUARTERLY

 

		QUARTERS ENDED
		JUNE 30, 2014				MAR. 31, 2014				DEC. 31, 2013				SEPT. 30, 2013				JUNE 30, 2013				JUNE 30, 2012
UNDERWRITING REVENUES
Gross premiums written		$	689,425			$	1,157,515			$	370,809			$	544,363			$	572,710			$	604,076
Premiums ceded			(177,998	)			(358,810	)			(90,745	)			(149,030	)			(108,089	)			(119,663	)
Net premiums written		$	511,427			$	798,705			$	280,064			$	395,333			$	464,621			$	484,413
Change in unearned premiums			(29,889	)			(402,439	)			219,423				158,212				78,714				34,927
Net premiums earned		$	481,538			$	396,266			$	499,487			$	553,545			$	543,335			$	519,340
Other underwriting (loss) income			(4,824	)			(1,238	)			(2,740	)			(943	)			888				19
Total underwriting revenues		$	476,714			$	395,028			$	496,747			$	552,602			$	544,223			$	519,359
UNDERWRITING EXPENSES
Net losses and loss expenses		$	259,196			$	176,896			$	302,620			$	339,036			$	359,058			$	345,897
Acquisition expenses			78,601				72,157				82,151				78,775				71,868				72,128
General and administrative expenses [c]			86,455				73,206				79,599				67,470				81,359				62,609
Total underwriting expenses		$	424,252			$	322,259			$	464,370			$	485,281			$	512,285			$	480,634
Underwriting income		$	52,462			$	72,769			$	32,377			$	67,321			$	31,938			$	38,725
OTHER OPERATING REVENUE
Net investment income		$	39,302			$	40,990			$	46,346			$	38,097			$	32,468			$	31,766
Interest expense [c]			(9,732	)			(9,051	)			(9,050	)			(9,048	)			(9,052	)			(9,044	)
Amortization of intangibles			(1,623	)			(1,617	)			(1,634	)			(1,652	)			(1,625	)			(2,777	)
Total other operating revenue		$	27,947			$	30,322			$	35,662			$	27,397			$	21,791			$	19,945
INCOME BEFORE OTHER ITEMS		$	80,409			$	103,091			$	68,039			$	94,718			$	53,729			$	58,670
OTHER
Net foreign exchange (losses) gains		($	319	)		($	2,964	)		($	5,718	)		($	2,201	)		($	3,368	)		$	336
Net realized and unrealized investment gains (losses)			3,411				4,872				5,197				(6,640	)			10,372				14,958
Total other-than-temporary impairment losses			(198	)			(111	)			(41	)			(190	)			(579	)			(148	)
Portion of loss recognised in other comprehensive income (loss)			—				—				—				—				—				(259	)
Net impairment losses recognised in earnings			(198	)			(111	)			(41	)			(190	)			(579	)			(407	)
Income tax (expense) benefit			(140	)			(408	)			(296	)			(2,271	)			865				(1,074	)
NET INCOME		$	83,163			$	104,480			$	67,181			$	83,416			$	61,019			$	72,483
Preferred dividends			(8,188	)			(8,188	)			(8,186	)			(8,188	)			(8,188	)			(8,188	)
NET INCOME AVAILABLE TO COMMON AND PARTICIPATING COMMON SHAREHOLDERS [d]		$	74,975			$	96,292			$	58,995			$	75,228			$	52,831			$	64,295
KEY RATIOS/PER SHARE DATA
Loss ratio			53.8	%			44.6	%			60.7	%			61.3	%			66.1	%			66.5	%
Acquisition expense ratio			16.3	%			18.2	%			16.4	%			14.2	%			13.2	%			13.9	%
General and administrative expense ratio			18.0	%			18.5	%			15.9	%			12.2	%			15.0	%			12.1	%
Combined ratio			88.1	%			81.3	%			93.0	%			87.7	%			94.3	%			92.5	%
Basic earnings per common share		$	1.68			$	2.17			$	1.33			$	1.70			$	1.21			$	1.48
Diluted earnings per common share [b] [d]		$	1.68			$	2.17			$	1.33			$	1.70			$	1.21			$	1.48
ROAE, net income [a]			2.9	%			3.8	%			2.4	%			3.2	%			2.3	%			2.8	%

 

[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.

[c]	The quarter ended June 30, 2014 includes $12.1 million and $0.7 million of general and administrative expenses and interest expense, respectively, incurred in relation to the Company’s proposed acquisition of Aspen Insurance Holdings Limited (“Aspen”).

[d]

For the quarter ended June 30, 2014, adding back the $12.8 million of expenses incurred related to the Company’s proposed acquisition of Aspen, net income available to common and participating common shareholders would increase to $87.8 million or $1.97 diluted earnings per common share. See reconcillation on page 31.

 

		2

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ENDURANCE SPECIALTY HOLDINGS LTD.

CONSOLIDATED STATEMENTS OF INCOME - PRIOR YEARS

 

		SIX MONTHS ENDED												YEAR ENDED
		JUNE 30, 2014				JUNE 30, 2013				JUNE 30, 2012				DEC. 31, 2013				DEC. 31, 2012
UNDERWRITING REVENUES
Gross premiums written		$	1,846,940			$	1,750,072			$	1,665,725			$	2,665,244			$	2,549,026
Premiums ceded			(536,808	)			(376,536	)			(338,256	)			(616,311	)			(519,531	)
Net premiums written		$	1,310,132			$	1,373,536			$	1,327,469			$	2,048,933			$	2,029,495
Change in unearned premiums			(432,328	)			(410,084	)			(396,494	)			(32,449	)			(15,595	)
Net premiums earned		$	877,804			$	963,452			$	930,975			$	2,016,484			$	2,013,900
Other underwriting (loss) income			(6,062	)			1,637				(316	)			(2,046	)			(2,183	)
Total underwriting revenues		$	871,742			$	965,089			$	930,659			$	2,014,438			$	2,011,717
UNDERWRITING EXPENSES
Net losses and loss expenses		$	436,092			$	578,028			$	608,664			$	1,219,684			$	1,520,995
Acquisition expenses			150,758				143,504				140,617				304,430				303,179
General and administrative expenses [c]			159,661				147,837				128,650				294,906				235,689
Total underwriting expenses		$	746,511			$	869,369			$	877,931			$	1,819,020			$	2,059,863
Underwriting income (loss)		$	125,231			$	95,720			$	52,728			$	195,418			($	48,146	)
OTHER OPERATING REVENUE
Net investment income		$	80,292			$	81,773			$	88,841			$	166,216			$	173,326
Interest expense [c]			(18,783	)			(18,090	)			(18,091	)			(36,188	)			(36,174	)
Amortization of intangibles			(3,240	)			(3,726	)			(5,554	)			(7,012	)			(10,347	)
Total other operating revenue		$	58,269			$	59,957			$	65,196			$	123,016			$	126,805
INCOME BEFORE OTHER ITEMS		$	183,500			$	155,677			$	117,924			$	318,434			$	78,659
OTHER
Net foreign exchange (losses) gains		($	3,283	)		($	6,295	)		$	18,473			($	14,214	)		$	15,911
Net realized and unrealized investment gains			8,283				16,607				20,161				15,164				72,139
Total other-than-temporary impairment losses			(309	)			(1,385	)			(148	)			(1,616	)			(364	)
Portion of loss recognised in other comprehensive income (loss)			—				—				(478	)			—				(483	)
Net impairment losses recognised in earnings			(309	)			(1,385	)			(626	)			(1,616	)			(847	)
Income tax expense			(548	)			(3,286	)			(907	)			(5,853	)			(3,346	)
NET INCOME		$	187,643			$	161,318			$	155,025			$	311,915			$	162,516
Preferred dividends			(16,376	)			(16,376	)			(16,376	)			(32,750	)			(32,750	)
NET INCOME AVAILABLE TO COMMON AND PARTICIPATING COMMON SHAREHOLDERS [d]		$	171,267			$	144,942			$	138,649			$	279,165			$	129,766
KEY RATIOS/PER SHARE DATA
Loss ratio			49.6	%			60.0	%			65.4	%			60.5	%			75.5	%
Acquisition expense ratio			17.2	%			14.9	%			15.1	%			15.1	%			15.1	%
General and administrative expense ratio			18.2	%			15.3	%			13.8	%			14.6	%			11.7	%
Combined ratio			85.0	%			90.2	%			94.3	%			90.2	%			102.3	%
Basic earnings per common share		$	3.84			$	3.34			$	3.20			$	6.37			$	3.00
Diluted earnings per common share [b] [d]		$	3.84			$	3.34			$	3.20			$	6.37			$	3.00
ROAE, net income [a]			6.7	%			6.3	%			6.2	%			11.8	%			5.8	%

 

[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.

[c]	The six months ended June 30, 2014, includes $13.0 million and $0.7 million of general and administrative expenses and interest expense, respectively, incurred in relation to the Company’s proposed acquisition of Aspen.

[d]

For the six months ended June 30, 2014, adding back the $13.7 million of expenses incurred related to the Company’s proposed acquisition of Aspen, net income available to common and participating common shareholders would increase to $185.0 million or $4.15 diluted earnings per common share. See reconciliation of page 31.

 

		3

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ENDURANCE SPECIALTY HOLDINGS LTD.

CONSOLIDATED BALANCE SHEETS

 

		JUNE 30, 2014				MAR. 31, 2014				DEC. 31, 2013				SEPT. 30, 2013				JUNE 30, 2013
ASSETS
Cash and cash equivalents		$	801,028			$	916,665			$	845,851			$	789,999			$	942,062
Fixed maturity investments available for sale, at fair value			4,993,099				4,794,445				4,823,964				4,800,838				4,755,091
Short term investments available for sale, at fair value			24,564				46,167				35,028				11,599				15,382
Equity securities available for sale, at fair value			287,642				271,530				252,466				262,866				232,919
Other investments			648,642				621,914				617,478				594,156				569,393
Premiums receivable, net			1,380,858				1,265,371				669,198				1,006,227				1,271,818
Insurance and reinsurance balances receivable			134,750				136,733				127,722				123,777				111,405
Deferred acquisition costs			257,262				231,167				186,027				197,048				210,740
Prepaid reinsurance premiums			424,133				443,498				187,209				263,499				292,911
Reinsurance recoverable on unpaid losses			606,140				534,335				593,755				513,080				594,020
Reinsurance recoverable on paid losses			145,694				59,784				164,220				428,300				101,753
Accrued investment income			26,385				23,161				24,104				21,783				25,404
Goodwill and intangible assets			162,178				163,761				165,378				167,000				168,621
Deferred tax assets			45,782				48,496				51,703				50,148				52,240
Receivable on pending investment sales			67,578				83,445				54,910				124,236				78,243
Other assets			172,912				154,310				179,109				192,104				128,446
TOTAL ASSETS		$	10,178,647			$	9,794,782			$	8,978,122			$	9,546,660			$	9,550,448
LIABILITIES
Reserve for losses and loss expenses			3,963,393				3,847,774				4,002,259				4,052,102				4,145,581
Reserve for unearned premiums			1,689,819				1,678,233				1,018,851				1,314,687				1,500,253
Deposit liabilities			21,987				18,684				19,458				17,577				17,785
Reinsurance balances payable			378,295				307,569				181,061				347,048				262,582
Debt			527,714				527,539				527,478				527,506				527,401
Payable on pending investment purchases			272,696				239,313				129,047				224,473				181,060
Other liabilities			209,068				174,561				213,419				224,257				179,732
TOTAL LIABILITIES		$	7,062,972			$	6,793,673			$	6,091,573			$	6,707,650			$	6,814,394
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			44,706				44,601				44,369				44,250				44,331
Additional paid-in capital			583,691				575,684				569,116				560,204				556,255
Accumulated other comprehensive income			136,038				89,359				62,731				69,457				31,438
Retained earnings			2,334,040				2,274,265				2,193,133				2,147,899				2,086,830
TOTAL SHAREHOLDERS’ EQUITY		$	3,115,675			$	3,001,109			$	2,886,549			$	2,839,010			$	2,736,054
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	10,178,647			$	9,794,782			$	8,978,122			$	9,546,660			$	9,550,448
Book value per common share		$	61.80			$	59.42			$	56.99			$	55.89			$	53.51
Diluted book value per common share (treasury stock method)		$	60.00			$	57.53			$	55.18			$	54.33			$	51.95
RATIOS
Debt-to-capital			14.5	%			15.0	%			15.5	%			15.7	%			16.2	%

 

		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 July 1, 2014 is equal to 11.1% of Shareholders’ Equity as of June 30, 2014.

 

				Estimated Occurrence Net Loss as of July 1, 2014																				July 1, 2013				July 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		$	123			$	176			$	232			$	284			$	362			$	350			$	468
Europe		Windstorm			98				202				276				345				422				331				344
California		Earthquake			36				147				205				250				329				284				412
Japan		Windstorm			33				100				140				158				175				230				247
Northwest U.S.		Earthquake			—				5				36				91				185				89				184
Japan		Earthquake			10				83				127				163				205				137				138
United States		Tornado/Hail			35				50				63				78				99				89				96
Australia		Earthquake			1				11				44				121				218				87				83
New Zealand		Earthquake			1				5				14				35				87				23				22
Australia		Windstorm			7				24				51				88				155				58				37
New Madrid		Earthquake			—				—				—				6				72				7				11

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, 2013.

 

		5

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ENDURANCE SPECIALTY HOLDINGS LTD.

SEGMENT DISTRIBUTION

FOR THE SIX MONTHS ENDED JUNE 30, 2014

Net Premiums Written = $1,310.1 million

 

 

Source of Business		Business Segments
Broker Distribution - Insurance		Broker Distribution - Reinsurance

 

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

 

		6

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ENDURANCE SPECIALTY HOLDINGS LTD.

CONSOLIDATED SEGMENT DATA

 

		FOR THE QUARTERS ENDED
		JUNE 30, 2014												JUNE 30, 2013
		Insurance				Reinsurance				Totals				Insurance				Reinsurance				Totals
UNDERWRITING REVENUES
Gross premiums written		$	321,526			$	367,899			$	689,425			$	276,941			$	295,769			$	572,710
Net premiums written		$	179,038			$	332,389			$	511,427			$	191,502			$	273,119			$	464,621
Net premiums earned		$	218,563			$	262,975			$	481,538			$	267,878			$	275,457			$	543,335
Other underwriting (loss) income			—				(4,824	)			(4,824	)			—				888				888
Total underwriting revenues		$	218,563			$	258,151			$	476,714			$	267,878			$	276,345			$	544,223
UNDERWRITING EXPENSES
Net losses and loss expenses		$	149,567			$	109,629			$	259,196			$	215,844			$	143,214			$	359,058
Acquisition expenses			15,128				63,473				78,601				14,968				56,900				71,868
General and administrative expenses			47,237				39,218				86,455				43,524				37,835				81,359
Total expenses		$	211,932			$	212,320			$	424,252			$	274,336			$	237,949			$	512,285
UNDERWRITING INCOME (LOSS)		$	6,631			$	45,831			$	52,462			($	6,458	)		$	38,396			$	31,938
GAAP RATIOS
Loss ratio			68.5	%			41.7	%			53.8	%			80.6	%			52.0	%			66.1	%
Acquisition expense ratio			6.9	%			24.1	%			16.3	%			5.6	%			20.7	%			13.2	%
General and administrative expense ratio			21.6	%			14.9	%			18.0	%			16.2	%			13.7	%			15.0	%
Combined ratio AS REPORTED			97.0	%			80.7	%			88.1	%			102.4	%			86.4	%			94.3	%
Effect of favorable prior accident year reserve development			10.1	%			12.2	%			11.3	%			2.1	%			20.8	%			11.6	%
Combined ratio net of prior accident year reserve development			107.1	%			92.9	%			99.4	%			104.5	%			107.2	%			105.9	%

 

		7

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ENDURANCE SPECIALTY HOLDINGS LTD.

INSURANCE SEGMENT DATA

 

		FOR THE QUARTERS ENDED
		JUNE 30, 2014				MAR. 31, 2014				DEC. 31, 2013				SEPT. 30, 2013				JUNE 30, 2013				JUNE 30, 2012
UNDERWRITING REVENUES
Gross premiums written		$	321,526			$	652,276			$	200,726			$	344,819			$	276,941			$	292,659
Net premiums written		$	179,038			$	343,027			$	111,976			$	224,338			$	191,502			$	186,659
Net premiums earned		$	218,563			$	144,021			$	235,967			$	291,477			$	267,878			$	266,085
Other underwriting loss			—				—				—				—				—				(1,300	)
Total underwriting revenues		$	218,563			$	144,021			$	235,967			$	291,477			$	267,878			$	264,785
UNDERWRITING EXPENSES
Net losses and loss expenses		$	149,567			$	88,533			$	230,708			$	228,409			$	215,844			$	208,504
Acquisition expenses			15,128				12,261				16,754				18,440				14,968				17,545
General and administrative expenses			47,237				41,736				42,804				35,641				43,524				32,819
Total expenses		$	211,932			$	142,530			$	290,266			$	282,490			$	274,336			$	258,868
UNDERWRITING INCOME (LOSS)		$	6,631			$	1,491			($	54,299	)		$	8,987			($	6,458	)		$	5,917
GAAP RATIOS
Loss ratio			68.5	%			61.5	%			97.8	%			78.4	%			80.6	%			78.4	%
Acquisition expense ratio			6.9	%			8.5	%			7.1	%			6.3	%			5.6	%			6.6	%
General and administrative expense ratio			21.6	%			29.0	%			18.1	%			12.2	%			16.2	%			12.3	%
Combined ratio AS REPORTED			97.0	%			99.0	%			123.0	%			96.9	%			102.4	%			97.3	%
Effect of favorable prior accident year reserve development			10.1	%			8.1	%			2.0	%			2.1	%			2.1	%			5.1	%
Combined ratio net of prior accident year reserve development			107.1	%			107.1	%			125.0	%			99.0	%			104.5	%			102.4	%

 

		8

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ENDURANCE SPECIALTY HOLDINGS LTD.

REINSURANCE SEGMENT DATA

 

		FOR THE QUARTERS ENDED
		JUNE 30, 2014				MAR. 31, 2014				DEC. 31, 2013				SEPT. 30, 2013				JUNE 30, 2013				JUNE 30, 2012
UNDERWRITING REVENUES
Gross premiums written		$	367,899			$	505,239			$	170,083			$	199,544			$	295,769			$	311,417
Net premiums written		$	332,389			$	455,678			$	168,088			$	170,995			$	273,119			$	297,754
Net premiums earned		$	262,975			$	252,245			$	263,520			$	262,068			$	275,457			$	253,255
Other underwriting (loss) income			(4,824	)			(1,238	)			(2,740	)			(943	)			888				1,319
Total underwriting revenues		$	258,151			$	251,007			$	260,780			$	261,125			$	276,345			$	254,574
UNDERWRITING EXPENSES
Net losses and loss expenses		$	109,629			$	88,363			$	71,912			$	110,627			$	143,214			$	137,393
Acquisition expenses			63,473				59,896				65,397				60,335				56,900				54,583
General and administrative expenses			39,218				31,470				36,795				31,829				37,835				29,790
Total expenses		$	212,320			$	179,729			$	174,104			$	202,791			$	237,949			$	221,766
UNDERWRITING INCOME		$	45,831			$	71,278			$	86,676			$	58,334			$	38,396			$	32,808
GAAP RATIOS
Loss ratio			41.7	%			35.0	%			27.3	%			42.3	%			52.0	%			54.2	%
Acquisition expense ratio			24.1	%			23.7	%			24.8	%			23.0	%			20.7	%			21.6	%
General and administrative expense ratio			14.9	%			12.6	%			14.0	%			12.1	%			13.7	%			11.8	%
Combined ratio AS REPORTED			80.7	%			71.3	%			66.1	%			77.4	%			86.4	%			87.6	%
Effect of favorable prior accident year reserve development			12.2	%			15.3	%			21.3	%			16.0	%			20.8	%			2.3	%
Combined ratio net of prior accident year reserve development			92.9	%			86.6	%			87.4	%			93.4	%			107.2	%			89.9	%

 

		9

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ENDURANCE SPECIALTY HOLDINGS LTD.

SEGMENT GROSS PREMIUMS WRITTEN BY LINE OF BUSINESS

 

		FOR THE QUARTERS ENDED
		JUNE 30, 2014				MAR. 31, 2014				DEC. 31, 2013				SEPT. 30, 2013				JUNE 30, 2013				JUNE 30, 2012
INSURANCE SEGMENT
Agriculture		$	80,540			$	527,894			$	58,220			$	200,062			$	131,633			$	133,439
Casualty and other specialty			146,728				74,895				76,666				95,862				87,614				90,019
Professional lines			74,650				38,780				55,056				34,221				38,296				51,019
Property			19,608				10,707				10,784				14,674				19,398				18,182
TOTAL INSURANCE		$	321,526			$	652,276			$	200,726			$	344,819			$	276,941			$	292,659
REINSURANCE SEGMENT
Catastrophe		$	158,372			$	126,648			$	13,778			$	38,676			$	155,431			$	172,222
Property			42,887				166,413				9,358				91,653				48,384				54,026
Casualty			30,875				84,982				29,900				27,649				54,417				45,729
Professional lines			84,117				25,619				113,089				25,670				12,528				12,785
Specialty			51,648				101,577				3,958				15,896				25,009				26,655
TOTAL REINSURANCE		$	367,899			$	505,239			$	170,083			$	199,544			$	295,769			$	311,417
REPORTED TOTALS		$	689,425			$	1,157,515			$	370,809			$	544,363			$	572,710			$	604,076

 

		10

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ENDURANCE SPECIALTY HOLDINGS LTD.

SEGMENT NET PREMIUMS WRITTEN BY LINE OF BUSINESS

 

		FOR THE QUARTERS ENDED
		JUNE 30, 2014				MAR. 31, 2014				DEC. 31, 2013				SEPT. 30, 2013				JUNE 30, 2013				JUNE 30, 2012
INSURANCE SEGMENT
Agriculture		$	45,826			$	281,645			$	24,454			$	120,617			$	84,537			$	67,249
Casualty and other specialty			89,765				41,721				50,022				72,431				63,373				64,588
Professional lines			29,846				14,570				32,138				20,972				27,788				42,832
Property			13,601				5,091				5,362				10,318				15,804				11,990
TOTAL INSURANCE		$	179,038			$	343,027			$	111,976			$	224,338			$	191,502			$	186,659
REINSURANCE SEGMENT
Catastrophe		$	123,411			$	78,963			$	12,270			$	12,551			$	138,041			$	158,865
Property			42,886				166,322				9,417				90,528				44,516				54,033
Casualty			30,868				83,392				29,495				27,648				54,419				45,728
Professional lines			84,117				25,619				113,089				25,670				12,528				12,784
Specialty			51,107				101,382				3,817				14,598				23,615				26,344
TOTAL REINSURANCE		$	332,389			$	455,678			$	168,088			$	170,995			$	273,119			$	297,754
REPORTED TOTALS		$	511,427			$	798,705			$	280,064			$	395,333			$	464,621			$	484,413

 

		11

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ENDURANCE SPECIALTY HOLDINGS LTD.

SEGMENT NET PREMIUMS EARNED BY LINE OF BUSINESS

 

		FOR THE QUARTERS ENDED
		JUNE 30, 2014				MAR. 31, 2014				DEC. 31, 2013				SEPT. 30, 2013				JUNE 30, 2013				JUNE 30, 2012
INSURANCE SEGMENT
Agriculture		$	127,421			$	56,313			$	143,876			$	200,739			$	172,492			$	162,703
Casualty and other specialty			57,828				54,470				57,905				55,929				55,872				53,757
Professional lines			24,219				24,341				25,816				24,220				27,757				36,719
Property			9,095				8,897				8,370				10,589				11,757				12,906
TOTAL INSURANCE		$	218,563			$	144,021			$	235,967			$	291,477			$	267,878			$	266,085
REINSURANCE SEGMENT
Catastrophe		$	65,705			$	62,926			$	66,026			$	67,778			$	86,560			$	81,334
Property			76,705				76,918				87,032				88,195				90,934				70,546
Casualty			50,102				48,254				61,218				61,244				53,814				57,752
Professional lines			36,325				33,194				24,793				15,181				13,691				13,111
Specialty			34,138				30,953				24,451				29,670				30,458				30,512
TOTAL REINSURANCE		$	262,975			$	252,245			$	263,520			$	262,068			$	275,457			$	253,255
REPORTED TOTALS		$	481,538			$	396,266			$	499,487			$	553,545			$	543,335			$	519,340

 

		12

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ENDURANCE SPECIALTY HOLDINGS LTD.

CONSOLIDATED SEGMENT DATA

 

		FOR THE SIX MONTHS ENDED
		JUNE 30, 2014												JUNE 30, 2013
		Insurance				Reinsurance				Totals				Insurance				Reinsurance				Totals
UNDERWRITING REVENUES
Gross premiums written		$	973,802			$	873,138			$	1,846,940			$	929,884			$	820,188			$	1,750,072
Net premiums written		$	522,065			$	788,067			$	1,310,132			$	596,196			$	777,340			$	1,373,536
Net premiums earned		$	362,584			$	515,220			$	877,804			$	419,030			$	544,422			$	963,452
Other underwriting (loss) income			—				(6,062	)			(6,062	)			—				1,637				1,637
Total underwriting revenues		$	362,584			$	509,158			$	871,742			$	419,030			$	546,059			$	965,089
UNDERWRITING EXPENSES
Losses and loss expenses		$	238,100			$	197,992			$	436,092			$	315,308			$	262,720			$	578,028
Acquisition expenses			27,389				123,369				150,758				29,584				113,920				143,504
General and administrative expenses			88,973				70,688				159,661				79,151				68,686				147,837
Total expenses		$	354,462			$	392,049			$	746,511			$	424,043			$	445,326			$	869,369
UNDERWRITING INCOME (LOSS)		$	8,122			$	117,109			$	125,231			($	5,013	)		$	100,733			$	95,720
GAAP RATIOS
Loss ratio			65.7	%			38.5	%			49.6	%			75.2	%			48.3	%			60.0	%
Acquisition expense ratio			7.6	%			23.9	%			17.2	%			7.1	%			20.9	%			14.9	%
General and administrative expense ratio			24.5	%			13.7	%			18.2	%			18.9	%			12.6	%			15.3	%
Combined ratio AS REPORTED			97.8	%			76.1	%			85.0	%			101.2	%			81.8	%			90.2	%
Effect of favorable prior accident year reserve development			9.3	%			13.7	%			11.9	%			5.5	%			16.6	%			11.8	%
Combined ratio net of prior accident year reserve development			107.1	%			89.8	%			96.9	%			106.7	%			98.4	%			102.0	%

 

		13

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ENDURANCE SPECIALTY HOLDINGS LTD.

INSURANCE SEGMENT DATA

 

		FOR THE SIX MONTHS ENDED												FOR THE YEARS ENDED
		JUNE 30, 2014				JUNE 30, 2013				JUNE 30, 2012				DEC. 31, 2013				DEC. 31, 2012
UNDERWRITING REVENUES
Gross premiums written		$	973,802			$	929,884			$	928,006			$	1,475,429			$	1,429,930
Net premiums written		$	522,065			$	596,196			$	614,440			$	932,510			$	942,357
Net premiums earned		$	362,584			$	419,030			$	427,715			$	946,474			$	955,089
Other underwriting loss			—				—				(1,300	)			—				(2,684	)
Total underwriting revenues		$	362,584			$	419,030			$	426,415			$	946,474			$	952,405
UNDERWRITING EXPENSES
Losses and loss expenses		$	238,100			$	315,308			$	322,206			$	774,425			$	855,941
Acquisition expenses			27,389				29,584				33,759				64,778				75,597
General and administrative expenses			88,973				79,151				67,254				157,596				125,108
Total expenses		$	354,462			$	424,043			$	423,219			$	996,799			$	1,056,646
UNDERWRITING INCOME (LOSS)		$	8,122			($	5,013	)		$	3,196			($	50,325	)		($	104,241	)
GAAP RATIOS
Loss ratio			65.7	%			75.2	%			75.3	%			81.8	%			89.6	%
Acquisition expense ratio			7.6	%			7.1	%			7.9	%			6.8	%			7.9	%
General and administrative expense ratio			24.5	%			18.9	%			15.7	%			16.7	%			13.1	%
Combined ratio AS REPORTED			97.8	%			101.2	%			98.9	%			105.3	%			110.6	%
Effect of favorable prior accident year reserve development			9.3	%			5.5	%			5.0	%			3.6	%			4.8	%
Combined ratio net of prior accident year reserve development			107.1	%			106.7	%			103.9	%			108.9	%			115.4	%

 

		14

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ENDURANCE SPECIALTY HOLDINGS LTD.

REINSURANCE SEGMENT DATA

 

		FOR THE SIX MONTHS ENDED												FOR THE YEARS ENDED
		JUNE 30, 2014				JUNE 30, 2013				JUNE 30, 2012				DEC. 31, 2013				DEC. 31, 2012
UNDERWRITING REVENUES
Gross premiums written		$	873,138			$	820,188			$	737,719			$	1,189,815			$	1,119,096
Net premiums written		$	788,067			$	777,340			$	713,029			$	1,116,423			$	1,087,138
Net premiums earned		$	515,220			$	544,422			$	503,260			$	1,070,010			$	1,058,811
Other underwriting (loss) income			(6,062	)			1,637				984				(2,046	)			501
Total underwriting revenues		$	509,158			$	546,059			$	504,244			$	1,067,964			$	1,059,312
UNDERWRITING EXPENSES
Losses and loss expenses		$	197,992			$	262,720			$	286,458			$	445,259			$	665,054
Acquisition expenses			123,369				113,920				106,858				239,652				227,582
General and administrative expenses			70,688				68,686				61,396				137,310				110,581
Total expenses		$	392,049			$	445,326			$	454,712			$	822,221			$	1,003,217
UNDERWRITING INCOME		$	117,109			$	100,733			$	49,532			$	245,743			$	56,095
GAAP RATIOS
Loss ratio			38.5	%			48.3	%			57.0	%			41.6	%			62.8	%
Acquisition expense ratio			23.9	%			20.9	%			21.2	%			22.4	%			21.5	%
General and administrative expense ratio			13.7	%			12.6	%			12.2	%			12.8	%			10.4	%
Combined ratio AS REPORTED			76.1	%			81.8	%			90.4	%			76.8	%			94.7	%
Effect of favorable prior accident year reserve development			13.7	%			16.6	%			3.0	%			17.6	%			7.0	%
Combined ratio net of prior accident year reserve development			89.8	%			98.4	%			93.4	%			94.4	%			101.7	%

 

		15

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ENDURANCE SPECIALTY HOLDINGS LTD.

SEGMENT GROSS PREMIUMS WRITTEN BY LINE OF BUSINESS

 

		FOR THE SIX MONTHS ENDED												FOR THE YEARS ENDED
		JUNE 30, 2014				JUNE 30, 2013				JUNE 30, 2012				DEC. 31, 2013				DEC. 31, 2012
INSURANCE SEGMENT
Agriculture		$	608,434			$	696,107			$	667,106			$	954,389			$	903,730
Casualty and other specialty			221,623				144,081				145,510				316,609				296,325
Professional lines			113,430				59,260				87,364				148,537				169,815
Property			30,315				30,436				28,026				55,894				60,060
TOTAL INSURANCE		$	973,802			$	929,884			$	928,006			$	1,475,429			$	1,429,930
REINSURANCE SEGMENT
Catastrophe		$	285,020			$	303,297			$	315,404			$	355,751			$	378,387
Property			209,300				196,795				160,772				297,806				349,579
Casualty			115,857				183,809				151,732				241,358				208,353
Professional lines			109,736				24,835				13,493				163,594				59,076
Specialty			153,225				111,452				96,318				131,306				123,701
TOTAL REINSURANCE		$	873,138			$	820,188			$	737,719			$	1,189,815			$	1,119,096
REPORTED TOTALS		$	1,846,940			$	1,750,072			$	1,665,725			$	2,665,244			$	2,549,026

 

		16

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ENDURANCE SPECIALTY HOLDINGS LTD.

SEGMENT NET PREMIUMS WRITTEN BY LINE OF BUSINESS

 

		FOR THE SIX MONTHS ENDED												FOR THE YEARS ENDED
		JUNE 30, 2014				JUNE 30, 2013				JUNE 30, 2012				DEC. 31, 2013				DEC. 31, 2012
INSURANCE SEGMENT
Agriculture		$	327,471			$	425,667			$	422,169			$	570,738			$	553,762
Casualty and other specialty			131,486				106,634				106,411				229,087				216,780
Professional lines			44,416				41,991				73,037				95,101				137,885
Property			18,692				21,904				12,823				37,584				33,930
TOTAL INSURANCE		$	522,065			$	596,196			$	614,440			$	932,510			$	942,357
REINSURANCE SEGMENT
Catastrophe		$	202,374			$	269,439			$	292,583			$	294,260			$	351,140
Property			209,208				192,927				160,779				292,872				349,586
Casualty			114,260				182,382				150,494				239,525				207,113
Professional lines			109,736				24,835				13,492				163,594				59,076
Specialty			152,489				107,757				95,681				126,172				120,223
TOTAL REINSURANCE		$	788,067			$	777,340			$	713,029			$	1,116,423			$	1,087,138
REPORTED TOTALS		$	1,310,132			$	1,373,536			$	1,327,469			$	2,048,933			$	2,029,495

 

		17

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ENDURANCE SPECIALTY HOLDINGS LTD.

SEGMENT NET PREMIUMS EARNED BY LINE OF BUSINESS

 

		FOR THE SIX MONTHS ENDED												FOR THE YEARS ENDED
		JUNE 30, 2014				JUNE 30, 2013				JUNE 30, 2012				DEC. 31, 2013				DEC. 31, 2012
INSURANCE SEGMENT
Agriculture		$	183,734			$	228,923			$	222,672			$	573,538			$	548,800
Casualty and other specialty			112,298				109,995				106,991				223,829				215,476
Professional lines			48,560				58,681				70,603				108,717				141,710
Property			17,992				21,431				27,449				40,390				49,103
TOTAL INSURANCE		$	362,584			$	419,030			$	427,715			$	946,474			$	955,089
REINSURANCE SEGMENT
Catastrophe		$	128,631			$	171,355			$	163,671			$	305,159			$	344,704
Property			153,623				177,489				138,924				352,716				306,499
Casualty			98,356				106,862				112,177				229,324				224,813
Professional lines			69,519				27,995				28,494				67,969				62,622
Specialty			65,091				60,721				59,994				114,842				120,173
TOTAL REINSURANCE		$	515,220			$	544,422			$	503,260			$	1,070,010			$	1,058,811
REPORTED TOTALS		$	877,804			$	963,452			$	930,975			$	2,016,484			$	2,013,900

 

		18

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ENDURANCE SPECIALTY HOLDINGS LTD.

RETURN ON EQUITY ANALYSIS

 

		FOR THE SIX MONTHS ENDED JUNE 30, 2014
Average common equity [a]		$	2,571,112
Net premiums earned		$	877,804
Combined ratio			85.0	%
Operating margin			15.0	%
Premium leverage			0.34x
Implied ROAE from underwriting activity			5.1	%
Average cash and invested assets at amortized cost		$	6,448,788
Investment leverage			2.51x
Year to date investment income yield, pretax			1.2	%
Implied ROAE from investment activity			3.0	%
Financing Costs [b]			(1.4	)%
Implied Pre-tax Operating ROAE, for period [c]			6.7	%
Implied Pre-tax Operating ROAE, annualized [c]			13.4	%

 

[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,
		JUNE 30, 2014				MAR. 31, 2014				DEC. 31, 2013				SEPT. 30, 2013				2013				2012
Average common equity [a]		$	2,628,392			$	2,513,829			$	2,432,780			$	2,357,532			$	2,368,573			$	2,230,881
Net premiums earned		$	481,538			$	396,266			$	499,487			$	553,545			$	2,016,484			$	2,013,900
Premium leverage			0.18x				0.16x				0.21x				0.23x				0.85x				0.90x
Annualized premium leverage			0.72x				0.64x				0.84x				0.92x				0.85x				0.90x
Average cash and invested assets at amortized cost		$	6,434,200			$	6,448,260			$	6,377,107			$	6,340,454			$	6,439,797			$	6,303,881
Investment leverage			2.45x				2.57x				2.62x				2.69x				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 JUNE 30, 2014 AND DECEMBER 31, 2013

 

		June 30, 2014								December 31, 2013
Type of Investment		Fair Value				Percentage				Fair Value				Percentage
Cash and equivalents [a]		$	595,910				9.1	%		$	771,714				11.9	%
Short-term investments			24,564				0.4	%			35,028				0.5	%
Fixed maturity investments
U.S. government and government agencies notes			564,120				8.6	%			769,343				11.8	%
Government and agency guaranteed corporates			52,987				0.8	%			35,145				0.5	%
U.S. government agency residential mortgage-backed securities			1,134,309				17.3	%			1,106,403				17.1	%
U.S. government agency commercial mortgage-backed securities			50,322				0.8	%			49,431				0.8	%
Municipals			32,712				0.5	%			26,854				0.4	%
Foreign government			231,686				3.5	%			182,647				2.8	%
Corporate securities			1,339,589				20.5	%			1,227,299				18.9	%
Non-agency residential mortgage-backed securities			91,366				1.4	%			80,788				1.2	%
Non-agency commercial mortgage-backed securities			916,909				14.0	%			898,246				13.9	%
Asset-backed securities			381,206				5.8	%			353,256				5.4	%
Collateralized loan and debt obligations			197,893				3.0	%			94,552				1.5	%
Equity securities
Equity investments			208,832				3.2	%			174,669				2.7	%
Emerging market debt fund			62,825				1.0	%			60,844				0.9	%
Preferred equity investments			9,754				0.1	%			8,223				0.1	%
Short-term fixed income fund			6,231				0.1	%			8,730				0.1	%
Other investments [b]			648,642				9.9	%			617,478				9.5	%
Total		$	6,549,857				100.0	%		$	6,500,650				100.0	%
Ratings [c]		Fair Value				Percentage				Fair Value				Percentage
U.S. government and government agencies notes		$	564,120				11.2	%		$	769,343				15.8	%
AAA/Aaa			1,137,895				22.7	%			972,820				20.0	%
AA/Aa			1,782,465				35.5	%			1,771,156				36.5	%
A/A			999,084				19.9	%			895,549				18.4	%
BBB			421,356				8.4	%			363,722				7.5	%
Below BBB			99,558				2.0	%			66,791				1.4	%
Not Rated			13,185				0.3	%			19,611				0.4	%
Total		$	5,017,663				100.0	%		$	4,858,992				100.0	%

 

Performance		June 30, 2014				December 31, 2013
Yield [d]			2.5	%			2.6	%
Duration in years [e]			2.88				3.11

 

Investment Income		Quarter Ended June 30, 2014				Quarter Ended Mar. 31, 2014				Quarter Ended Dec. 31, 2013				Quarter Ended Sept. 30, 2013				Quarter Ended June 30, 2013				Year Ended Dec. 31, 2013
Cash and available for sale securities		$	28,517			$	27,448			$	25,108			$	24,853			$	25,688			$	101,895
Other investments			10,785				13,542				21,238				13,244				6,780				64,321
Total net investment income		$	39,302			$	40,990			$	46,346			$	38,097			$	32,468			$	166,216

 

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 quarter ending June 30, 2014 and twelve months ending December 31, 2013 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 JUNE 30, 2014

 

		June 30, 2014
ISSUER (1) (2) (3)		Amortized Cost				Fair Value				Unrealized Gain (Loss)				Credit Quality (4)
MORGAN STANLEY		$	54,099			$	55,205			$	1,106			A-
BANK OF AMERICA CORP			52,039				52,577				538			A-
GOLDMAN SACHS GROUP INC/THE			41,870				42,588				718			A-
CITIGROUP INC			38,093				38,698				605			A-
JPMORGAN CHASE & CO			37,384				37,833				449			A
COMCAST CORPORATION			29,650				30,332				682			A-
GENERAL ELECTRIC CO			28,871				29,125				254			AA+
VERIZON COMMUNICATIONS INC			24,624				25,174				550			BBB+
AMERICAN EXPRESS COMPANY			24,618				24,727				109			A-
FORD MOTOR COMPANY			24,172				24,430				258			BBB-
MITSUBISHI UFJ FINANCIAL GROUP INC			22,108				22,399				291			A+
WELLS FARGO & COMPANY			20,676				20,796				120			A+
BB& T CORP			19,196				19,370				174			A-
AT&T INC			18,979				19,091				112			A-
NATIONAL GRID PLC			16,092				17,630				1,538			A-
NEW YORK LIFE INSURANCE COMPANY			16,683				16,900				217			AA+
BANCO SANTANDER SA			13,967				14,348				381			A
PRINCIPAL FINANCIAL GROUP INC			11,928				11,995				67			A+
PHILIP MORRIS INTERNATIONAL INC			11,764				11,951				187			A
BNP PARIBAS SA			11,798				11,803				5			A+
HSBC HOLDINGS PLC			11,578				11,717				139			A+
INTERNATIONAL BUSINESS MACHINES CORP			11,286				11,395				109			AA-
ROYAL BANK OF CANADA			11,278				11,351				73			AA+
BP PLC			11,072				11,122				50			A
ANHEUSER-BUSCH INVEB SA/NV			10,747				10,734				(13	)		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 JUNE 30, 2014												SIX MONTHS ENDED JUNE 30, 2014
		GROSS				RECOVERIES				NET				GROSS				RECOVERIES				NET
Reserve for losses and loss expenses
Balance, beginning of period		$	3,847,774			($	534,335	)		$	3,313,439			$	4,002,259			($	593,755	)		$	3,408,504
Incurred related to:
Current year			476,269				(162,872	)			313,397				829,563				(288,958	)			540,605
Prior years			(40,493	)			(13,708	)			(54,201	)			(87,519	)			(16,994	)			(104,513	)
Total Incurred			435,776				(176,580	)			259,196				742,044				(305,952	)			436,092
Paid related to:
Current year			(95,842	)			62,128				(33,714	)			(102,564	)			64,055				(38,509	)
Prior years			(229,156	)			42,718				(186,438	)			(688,244	)			229,538				(458,706	)
Total Paid			(324,998	)			104,846				(220,152	)			(790,808	)			293,593				(497,215	)
Foreign currency translation and other			4,841				(71	)			4,770				9,898				(26	)			9,872
Balance, end of period		$	3,963,393			($	606,140	)		$	3,357,253			$	3,963,393			($	606,140	)		$	3,357,253

 

		23

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ENDURANCE SPECIALTY HOLDINGS LTD.

PRIOR YEAR RESERVE DEVELOPMENT BY SEGMENT

(FAVORABLE) ADVERSE PRIOR ACCIDENT YEAR DEVELOPMENT DURING THE PERIOD ENDED JUNE 30, 2014

 

										Total
		Insurance				Reinsurance				Company
Incurred related to prior years
Quarter ended March 31, 2014		($	11,648	)		($	38,664	)		($	50,312	)
Quarter ended June 30, 2014			(22,048	)			(32,153	)			(54,201	)
Six months ended June 30, 2014		($	33,696	)		($	70,817	)		($	104,513	)

(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

 

										Total
		Insurance				Reinsurance				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	)

 

		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
		JUNE 30, 2014				MAR. 31, 2014				DEC. 31, 2013				SEPT. 30, 2013				JUNE 30, 2013				DEC. 31, 2013
INSURANCE SEGMENT
Agriculture		($	2,188	)		($	2,140	)		($	15	)		($	616	)		($	233	)		($	5,597	)
Casualty and other specialty			(11,350	)			(6,716	)			(1,183	)			(4,263	)			(4,976	)			(15,364	)
Professional lines			(3,991	)			(1,128	)			(2,891	)			(427	)			1,672				(979	)
Property			(4,519	)			(1,664	)			(684	)			(904	)			(2,088	)			(11,963	)
TOTAL INSURANCE			(22,048	)			(11,648	)			(4,773	)			(6,210	)			(5,625	)			(33,903	)
REINSURANCE SEGMENT
Catastrophe			(7,713	)			(7,761	)			(13,602	)			(9,234	)			(26,439	)		($	61,186	)
Property			(9,502	)			(14,757	)			(11,217	)			(21,107	)			(23,444	)			(57,394	)
Casualty			(2,821	)			(2,751	)			(9,590	)			(1,640	)			(900	)			(20,370	)
Professional lines			(2,551	)			(2,029	)			(2,735	)			(4,558	)			(996	)			(13,947	)
Specialty			(9,566	)			(11,366	)			(18,942	)			(5,311	)			(5,401	)			(35,592	)
TOTAL REINSURANCE			(32,153	)			(38,664	)			(56,086	)			(41,850	)			(57,180	)			(188,489	)
REPORTED TOTALS		($	54,201	)		($	50,312	)		($	60,859	)		($	48,060	)		($	62,805	)		($	222,392	)

 

		25

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ENDURANCE SPECIALTY HOLDINGS LTD.

ANALYSIS OF UNPAID LOSSES AND LOSS EXPENSES

 

		Insurance																				Reinsurance																								Reported Totals
		Agriculture				Casualty and other specialty				Professional lines				Property				Subtotal				Catastrophe				Property				Casualty				Professional lines				Specialty				Subtotal				Total
AT JUNE 30, 2014
Case reserves		$	213,720			$	349,230			$	96,271			$	18,138			$	677,359			$	151,530			$	183,619			$	252,827			$	62,612			$	88,683			$	739,271			$	1,416,630
Total reserves		$	335,172			$	1,294,919			$	481,541			$	32,289			$	2,143,921			$	246,809			$	298,901			$	802,621			$	236,771			$	234,370			$	1,819,472			$	3,963,393
Case reserves / Total reserves			63.8	%			27.0	%			20.0	%			56.2	%			31.6	%			61.4	%			61.4	%			31.5	%			26.4	%			37.8	%			40.6	%			35.7	%
IBNR / Total reserves			36.2	%			73.0	%			80.0	%			43.8	%			68.4	%			38.6	%			38.6	%			68.5	%			73.6	%			62.2	%			59.4	%			64.3	%
AT MAR. 31, 2014
Case reserves		$	66,471			$	320,049			$	113,911			$	23,553			$	523,984			$	155,088			$	180,130			$	241,452			$	60,856			$	98,289			$	735,815			$	1,259,799
Total reserves		$	199,656			$	1,284,231			$	501,131			$	38,801			$	2,023,819			$	255,949			$	308,471			$	768,394			$	226,711			$	264,430			$	1,823,955			$	3,847,774
Case reserves / Total reserves			33.3	%			24.9	%			22.7	%			60.7	%			25.9	%			60.6	%			58.4	%			31.4	%			26.8	%			37.2	%			40.3	%			32.7	%
IBNR / Total reserves			66.7	%			75.1	%			77.3	%			39.3	%			74.1	%			39.4	%			41.6	%			68.6	%			73.2	%			62.8	%			59.7	%			67.3	%
AT DEC. 31, 2013
Case reserves		$	257,939			$	316,170			$	110,880			$	23,410			$	708,399			$	167,152			$	196,715			$	239,385			$	65,353			$	101,716			$	770,321			$	1,478,720
Total reserves		$	342,368			$	1,276,300			$	501,755			$	38,467			$	2,158,890			$	265,626			$	323,798			$	769,067			$	215,235			$	269,643			$	1,843,369			$	4,002,259
Case reserves / Total reserves			75.3	%			24.8	%			22.1	%			60.9	%			32.8	%			62.9	%			60.8	%			31.1	%			30.4	%			37.7	%			41.8	%			36.9	%
IBNR / Total reserves			24.7	%			75.2	%			77.9	%			39.1	%			67.2	%			37.1	%			39.2	%			68.9	%			69.6	%			62.3	%			58.2	%			63.1	%
AT SEPT. 30, 2013
Case reserves		$	279,916			$	309,162			$	131,741			$	24,337			$	745,156			$	164,615			$	201,127			$	231,990			$	67,671			$	106,517			$	771,920			$	1,517,076
Total reserves		$	310,092			$	1,271,903			$	525,084			$	39,057			$	2,146,136			$	290,357			$	355,104			$	757,882			$	213,916			$	288,707			$	1,905,966			$	4,052,102
Case reserves / Total reserves			90.3	%			24.3	%			25.1	%			62.3	%			34.7	%			56.7	%			56.6	%			30.6	%			31.6	%			36.9	%			40.5	%			37.4	%
IBNR / Total reserves			9.7	%			75.7	%			74.9	%			37.7	%			65.3	%			43.3	%			43.4	%			69.4	%			68.4	%			63.1	%			59.5	%			62.6	%
AT JUNE 30, 2013
Case reserves		$	271,424			$	331,791			$	127,378			$	25,667			$	756,260			$	140,909			$	221,468			$	223,392			$	70,091			$	101,973			$	757,833			$	1,514,093
Total reserves		$	415,026			$	1,274,263			$	513,875			$	39,730			$	2,242,894			$	294,752			$	375,388			$	738,074			$	215,216			$	279,257			$	1,902,687			$	4,145,581
Case reserves / Total reserves			65.4	%			26.0	%			24.8	%			64.6	%			33.7	%			47.8	%			59.0	%			30.3	%			32.6	%			36.5	%			39.8	%			36.5	%
IBNR / Total reserves			34.6	%			74.0	%			75.2	%			35.4	%			66.3	%			52.2	%			41.0	%			69.7	%			67.4	%			63.5	%			60.2	%			63.5	%

 

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ENDURANCE SPECIALTY HOLDINGS LTD.

SHAREHOLDER RETURN ANALYSIS

 

		SIX MONTHS ENDED				YEARS ENDED DECEMBER 31,								INCEPTION TO
		JUNE 30, 2014				2013				2012				JUNE 30, 2014
Income and Return on Equity:
Net income available to common and participating common shareholders		$	171,267			$	279,165			$	129,766			$	2,921,579
Operating income available to common and participating common shareholders			166,290				281,021				54,295				2,838,203
Average Shareholders’ equity [a]			2,571,112				2,368,573				2,230,881				2,048,553
Net income return on average equity			6.7	%			11.8	%			5.8	%			11.4	%[c]
Operating return on average equity			6.5	%			11.9	%			2.4	%			11.1	%[c]
Book value and dividends per share:
Dilutive book value per common share (treasury stock method)		$	60.00			$	55.18			$	52.88			$	60.00
Dividends paid per share			0.68				1.28				1.24				11.53
Change in diluted book value per common share			8.7	%			4.3	%			4.6	%			16.8	%[c]
Total return to common shareholders [b]			10.0	%			6.8	%			7.0	%			21.5	%[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 JUNE 30,								SIX MONTHS ENDED JUNE 30,
				2014				2013				2014				2013
DILUTIVE SHARES		Average market price per share		$	51.99			$	49.35			$	52.56			$	46.72
OUTSTANDING: AS REPORTED		Basic weighted average common shares outstanding [a]			43,351				42,621				43,265				42,527
		Add: weighted avg. unvested restricted share units			—				1				—				1
		Weighted average exercise price per share			—				—				—				—
		Proceeds from unrecognized restricted share unit expense			—			$	9				—			$	9
		Less: restricted share units bought back via treasury method			—				—				—				(1	)
		Add: weighted avg. dilutive options outstanding			812				305				814				169
		Weighted average exercise price per share		$	47.99			$	47.49			$	47.96			$	45.63
		Proceeds from unrecognized option expense		$	3,730			$	7,814			$	3,730			$	7,814
		Less: options bought back via treasury method			(812	)			(305	)			(813	)			(169	)
		Weighted average dilutive shares outstanding [b]			43,351				42,622				43,266				42,527

 

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 PER SHARE INFORMATION - TWO CLASS METHOD

 

		QUARTERS ENDED JUNE 30,								SIX MONTHS ENDED JUNE 30,
		2014				2013				2014				2013
Net income		$	83,163			$	61,019			$	187,643			$	161,318
Less preferred dividends			(8,188	)			(8,188	)			(16,376	)			(16,376	)
Net income available to common and participating common shareholders		$	74,975			$	52,831			$	171,267			$	144,942
Less amount allocated to participating common shareholders [a]			(2,212	)			(1,132	)			(4,988	)			(2,745	)
Net income allocated to common shareholders		$	72,763			$	51,699			$	166,279			$	142,197
Denominator:
Weighted average shares - basic			43,351				42,621				43,265				42,527
Share Equivalents
Options			—				—				1				—
Restricted share units			—				1				—				—
Weighted average shares - diluted			43,351				42,622				43,266				42,527
Basic earnings per common share		$	1.68			$	1.21			$	3.84			$	3.34
Diluted earnings per common share [b]		$	1.68			$	1.21			$	3.84			$	3.34

 

[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.

OPERATING INCOME RECONCILIATION

EARNINGS PER SHARE INFORMATION - TWO CLASS METHOD

 

		Two-Class Method								Two-Class Method
		QUARTERS ENDED JUNE 30,								SIX MONTHS ENDED JUNE 30,
		2014				2013				2014				2013
Net income		$	83,163			$	61,019			$	187,643			$	161,318
Add (less) after-tax items:
Net foreign exchange losses			305				3,341				3,277				6,250
Net realized and unrealized investment gains			(3,559	)			(9,435	)			(8,563	)			(15,427	)
Net impairment losses recognized in earnings			198				579				309				1,351
Operating income before preferred dividends		$	80,107			$	55,504			$	182,666			$	153,492
Preferred dividends			(8,188	)			(8,188	)			(16,376	)			(16,376	)
Operating income available to common and participating common shareholders		$	71,919			$	47,316			$	166,290			$	137,116
Less amount allocated to participating common shareholders [a]			(2,122	)			(1,014	)			(4,843	)			(2,597	)
Operating income allocated to common shareholders		$	69,797			$	46,302			$	161,447			$	134,519
Weighted average common shares outstanding
Basic			43,351				42,621				43,265				42,527
Dilutive			43,351				42,622				43,266				42,527
Basic and diluted per common share data
Net income allocated to common shareholders		$	1.68			$	1.21			$	3.84			$	3.34
Add (less) after-tax items:
Net foreign exchange losses			0.01				0.08				0.08				0.15
Net realized and unrealized investment gains			(0.08	)			(0.21	)			(0.20	)			(0.36	)
Net impairment losses recognized in earnings			—				0.01				0.01				0.03
Operating income allocated to common shareholders [b]		$	1.61			$	1.09			$	3.73			$	3.16

 

[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.

NET INCOME AND OPERATING INCOME EXCLUDING EXPENSES

INCURRED RELATED TO THE PROPOSED ACQUISITION OF ASPEN

 

		QUARTER ENDED JUNE 30, 2014												SIX MONTHS ENDED JUNE 30, 2014
		As reported				Expenses Incurred Related to the Proposed Acquisition of Aspen [a]				Excluding expenses incurred related to the proposed acquisition of Aspen				As reported				Expenses Incurred Related to the Proposed Acquisition of Aspen [a]				Excluding expenses incurred related to the proposed acquisition of Aspen
Net income available to common and participating common shareholders		$	74,975			$	12,800			$	87,775			$	171,267			$	13,736			$	185,003
Less amount allocated to participating common shareholders [b]		($	2,212	)			(377	)		($	2,589	)		($	4,988	)			(400	)		($	5,388	)
Net income allocated to common shareholders		$	72,763			$	12,423			$	85,186			$	166,279			$	13,336			$	179,615
Basic and diluted earnings per common share [c]		$	1.68			$	0.29			$	1.97			$	3.84			$	0.31			$	4.15
ROAE, net income [d]			2.9	%			0.4	%			3.3	%			6.7	%			0.5	%			7.2	%
Annualized ROAE, net income [d]			11.4	%			2.0	%			13.4	%			13.3	%			1.1	%			14.4	%
Operating income available to common and participating common shareholders		$	71,919			$	12,800			$	84,719			$	166,290			$	13,736			$	180,026
Less amount allocated to participating common shareholders [b]			(2,122	)			(377	)			(2,499	)			(4,843	)			(400	)			(5,243	)
Operating income allocated to common shareholders		$	69,797			$	12,423			$	82,220			$	161,447			$	13,336			$	174,783
Basic and diluted operating income per common share [c]		$	1.61			$	0.29			$	1.90			$	3.73			$	0.31			$	4.04
ROAE, operating income [d]			2.7	%			0.5	%			3.2	%			6.5	%			0.5	%			7.0	%
Annualized ROAE, operating income [d]			10.9	%			2.0	%			12.9	%			12.9	%			1.1	%			14.0	%

 

[a]

The Company incurred $12.1 million and $0.7 million of general and administrative expenses and interest expense, respectively, in relation to the Company’s proposed acquisition of Aspen for the quarter ended June 30, 2014. For the six months ended June 30, 2014, the Company incurred $13.0 million and $0.7 million of general and administrative expenses and interest expense, respectively, in relation to the Company’s proposed acquisition of Aspen.

[b]

Represents earnings and dividends allocated to holders of unvested restricted shares issued under the Company’s stock compensation plans that are considered participating securities related to the calculation of earnings per share under the two-class method. In periods of loss, no losses are allocated to participating common shareholders.

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

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

 

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ENDURANCE SPECIALTY HOLDINGS LTD.

BOOK VALUE PER SHARE

 

				JUNE 30,								DEC. 31,
				2014				2013				2013
DILUTIVE COMMON		Price per share at period end		$	51.59			$	51.45			$	58.67
SHARES OUTSTANDING: AS-IF CONVERTED [a]		Basic common shares outstanding			43,456				43,094				43,108
		Add: unvested restricted shares and restricted share units			1,250				1,237				1,261
		Add: dilutive options outstanding			800				815				815
		Weighted average exercise price per share		$	48.20			$	47.94			$	47.94
		Book Value [b]		$	2,685,675			$	2,306,054			$	2,456,549
		Add: proceeds from converted options			38,560				39,071				39,071
		Pro forma book value		$	2,724,235			$	2,345,125			$	2,495,620
		Dilutive shares outstanding			45,506				45,146				45,184
		Basic book value per common share		$	61.80			$	53.51			$	56.99
		Diluted book value per common share		$	59.87			$	51.95			$	55.23
DILUTIVE COMMON		Price per share at period end		$	51.59			$	51.45			$	58.67
SHARES OUTSTANDING: TREASURY STOCK METHOD		Basic common shares outstanding			43,456				43,094				43,108
		Add: unvested restricted shares and restricted share units			1,250				1,237				1,261
		Add: dilutive options outstanding			800				815				815
		Weighted average exercise price per share		$	48.20			$	47.94			$	47.94
		Less: options bought back via treasury method			(747	)			(759	)			(666	)
		Dilutive shares outstanding			44,759				44,387				44,518
		Basic book value per common share		$	61.80			$	53.51			$	56.99
		Diluted book value per common share		$	60.00			$	51.95			$	55.18

 

[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.

 

		32

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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.

Net income available to common and participating common shareholders, excluding expenses incurred related to the proposed acquisition of Aspen Insurance Holdings Limited (“Aspen”), or net income per basic or diluted common share, excluding expenses incurred related to the proposed acquisition of Aspen, reflect the current period impact of these costs incurred by the Company and reflects the results of operations in a manner similar to that used by management to analyze the Company’s underlying business performance. Net income available to common and participating common shareholders, excluding expenses incurred related to the proposed acquisition of Aspen or net income per basic or diluted common share, excluding expenses incurred related to the proposed acquisition of Aspen, should not be viewed as a substitute for GAAP net income available to common and participating common shareholders, or basic or diluted earnings per common share, respectively. Please see page 31 for a reconciliation of net income available to common and participating common shareholders, excluding expenses incurred related to the proposed acquisition of Aspen to net income available to common and participating common shareholders.

Operating income is an internal performance measure used by the Company in the management of its operations. Operating income represents after-tax operational results excluding, as applicable, after-tax net realized capital gains or losses and after-tax net foreign exchange gains or losses because the amount of these gains or losses is heavily influenced by, and fluctuates in part, according to the availability of market opportunities. 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 determined in accordance with GAAP, the Company believes that showing operating income 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 to that used by management to analyze the Company’s underlying business performance. Operating income should not be viewed as a substitute for GAAP net income. Please see page 30 for a reconciliation of operating income to net income.

Operating income available to common and participating common shareholders, excluding expenses incurred related to the proposed acquisition of Aspen, or net operating per basic or diluted common share, excluding expenses incurred related to the proposed acquisition of Aspen, reflect the current period impact of these costs incurred by the Company and reflect the results of operations in a manner similar to that used by management to analyze the Company’s underlying business performance. Operating income available to common and participating common shareholders, excluding expenses incurred related to the proposed acquisition of Aspen or net operating per basic or diluted common share, excluding expenses incurred related to the proposed acquisition of Aspen, should not be viewed as a substitute for GAAP net income available to common and participating common shareholders, or basic or diluted earnings per common share, respectively. Please see page 31 for a reconciliation of operating income available to common and participating common shareholders, excluding expenses incurred related to the proposed acquisition of Aspen to net income available to common and participating common shareholders.

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 32 for a reconciliation of diluted book value per common share to basic book value per common share.

 

		33