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8-K - FORM 8-K - ENDURANCE SPECIALTY HOLDINGS LTD | d898672d8k.htm |
EX-99.2 - EX-99.2 - ENDURANCE SPECIALTY HOLDINGS LTD | d898672dex992.htm |
Exhibit 99.1
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Endurance: Acquisition of Montpelier Re Investor Presentation
March 31, 2015
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Forward Looking Statements and Regulation G Disclaimer
Cautionary Note Regarding Forward Looking Statements
Some of the statements in this presentation 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. These statements may also include assumptions about our proposed acquisition of Montpelier (including its benefits, results, effects and timing). Statements which include the words should, would, expect, intend, plan, believe, project, anticipate, seek, will, and similar statements of a future or forward-looking nature identify forward-looking statements in this presentation 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 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 worlds 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, 2014.
Additionally, the proposed transaction is subject to risks and uncertainties, including: (A) that Endurance and Montpelier may be unable to complete the proposed transaction because, among other reasons, conditions to the closing of the proposed transaction may not be satisfied or waived; (B) uncertainty as to the timing of completion of the proposed transaction; (C) uncertainty as to the actual premium of the Endurance share component of the proposal that will be realized by Montpelier shareholders in connection with the transaction; (D) uncertainty as to the long-term value of Endurance ordinary shares; (E) failure to realize the anticipated benefits and synergies from the proposed transaction, including as a result of failure or delay in integrating Montpeliers businesses into Endurance; (F) the risk that regulatory or other approvals required for the transaction are not obtained or are obtained subject to conditions that are not anticipated; (G) the inability to retain key personnel; (H) any changes in general economic and/or industry specific conditions; and (I) the outcome of any legal proceedings to the extent initiated against Endurance, Montpelier and others following the announcement of the proposed transaction, as well as Endurance and Montpelier managements response to any of the aforementioned factors.
The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included herein and elsewhere, including the risk factors included in Endurances most recent report on Form 10-K and the risk factors included in Montpeliers most recent report on Form 10-K and other documents of Endurance and
Montpelier on file with the Securities and Exchange Commission (SEC). Any forward-looking statements made in this presentation are qualified by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by Endurance will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, Endurance or its business or operations. Except as required by law, the parties undertake no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.
Additional Information about the Proposed Transaction and Where to Find It
The issuance of Endurance ordinary shares to Montpelier shareholders in the merger will be submitted to shareholders of Endurance for their consideration. The proposed merger will be submitted to shareholders of Montpelier for their consideration. This presentation is not a solicitation of any vote or approval and is not a substitute for the joint proxy statement/prospectus or any other documents which Endurance or Montpelier may send to their respective shareholders in connection with the proposed merger.
This presentation does not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction. No offering of securities shall be made except by means of a proxy statement/prospectus meeting the requirements of the Securities Act of 1933, as amended.
ENDURANCE AND MONTPELIER SHAREHOLDERS ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS FOR THE PROPOSED MERGER WHEN IT IS FILED, AND ANY AMENDMENT OR
SUPPLEMENT THERETO THAT MAY BE FILED, WITH THE SEC BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. All such documents, when filed, are available free of charge at the SECs website (www.sec.gov) or by directing a request to Endurance at the Investor Relations contact on the next page.
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Forward Looking Statements and Regulation G Disclaimer
(contd)
Participants in the Solicitation
Endurance and Montpelier and their directors and executive officers are deemed to be participants in any solicitation of Endurance and Montpelier shareholders in connection with the proposed merger. Information about Endurances directors and executive officers is available in Endurances Definitive Proxy Statement, dated April 9, 2014, for its 2014 Annual General Meeting of shareholders and Form 8-K, dated November 26, 2014. Information about Montpeliers directors and executive officers is available in Montpeliers Definitive Proxy Statement, dated March 26, 2014, for its 2014
Annual General Meeting of shareholders and Form 8-K, dated May 15, 2014.
Additional Information
All references in this presentation to $ refer to United States dollars. The contents of any website referenced in this presentation are not incorporated by reference herein.
Regulation G Disclaimer
In this presentation, 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 proposed transaction in a manner that allows for a more complete understanding. However, these measures should not be viewed as a substitute for those determined in accordance with GAAP. For a complete description of non-GAAP measures and reconciliations, please review the Investor Financial Supplement on our web site at www.endurance.bm.
The combined ratio is the sum of the loss, acquisition expense and general and administrative expense ratios. Endurance presents the combined ratio as a measure that is commonly recognized as a standard of performance by investors, analysts, rating agencies and other users of its financial information. The combined ratio, excluding prior year net loss reserve development, enables investors, analysts, rating agencies and other users of its financial information to more easily analyze Endurances results of underwriting activities in a manner similar to how management analyzes Endurances underlying business performance. The combined ratio, excluding prior year net loss reserve development, should not be viewed as a substitute for the combined ratio.
Net premiums written is a non-GAAP internal performance measure used by Endurance in the management of its operations. Net premiums written represents net premiums written and deposit premiums, which are premiums on contracts that are deemed as either transferring only significant timing risk or transferring only significant underwriting risk and thus are required to be accounted for under GAAP as deposits. Endurance believes these amounts are significant to its business and underwriting process and excluding them distorts the analysis of its premium trends. In addition to presenting gross premiums written determined in accordance with GAAP, Endurance believes that net premiums written enables investors, analysts, rating agencies and other users of its financial information to more easily analyze Endurances results of underwriting activities in a manner similar to how management analyzes Endurances underlying business performance. Net premiums written should not be viewed as a substitute for gross premiums written determined in accordance with GAAP.
Return on Equity (ROE) is comprised using the average common equity calculated as the arithmetic average of the beginning and ending common equity balances 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.
Contact Information
Endurance Specialty Holdings Ltd. Investor Relations Phone: +1 441 278 0988 Email: investorrelations@endurance.bm
Media Relations
Mark Semer and Thomas Davies Kekst and Company Phone: 212 521 4802/4873
Email: mark-semer@kekst.com and tom-davies@kekst.com
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Key Transaction Terms
Transaction Endurance to acquire all of the common shares of Montpelier in a cash and stock acquisition
$1.8 billion transaction equity value ($40.24 per share) (1)
Value
1.21x Montpelier fully converted book value per common share as of 12/31/14
Consideration mix of approximately 25% cash to Montpelier shareholders and 75% stock(1) , including on a per
share basis:
Consideration Mix $9.89 per share special pre-closing dividend of cash, and
0.472 Endurance shares (fixed exchange ratio)
$450 million aggregate cash consideration, funded by special pre-closing dividend by Montpelier
Financing
$1.4 billion of newly issued Endurance shares (1)
Pro Forma Endurance 68% by existing Endurance shareholders
Ownership (1) 32% by existing Montpelier shareholders
Current Endurance management to remain in place
Management and Board
Increase Endurances Board of Directors at closing to include 3 current Montpelier Directors
Regulatory approvals and other customary closing conditions
Approval of Montpelier and Endurance shareholders
Approvals and Timing Funds affiliated with Charlesbank Capital Partners have agreed to vote their Montpelier common share
stake in favor of the proposed transaction
Expected closing in third quarter of 2015
Preferred Share Montpelier preferred shares will be redeemed prior to Montpelier shareholder meeting at $26, or $156
Redemption million in aggregate, plus declared and unpaid dividends, if any, to the date of redemption
Notes
1. Figures based on Endurance closing share price of $64.30 as of 3/30/2015 and 45.5MM fully-diluted Montpelier common shares
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Transaction Highlights
Transaction creates an enterprise with over $3.6 billion (1) of annual gross premiums written
Increased Scale and
Market Presence Increased size allows organization to better capitalize on distribution relationships and more effectively
compete across all market conditions
Good-sized and scalable Lloyds platform expands distribution and product capabilities and provides
access to new markets to further accelerate Endurances London market insurance growth strategy
Diversified Platform Addition of established third party capital management franchise (Blue Capital) expands market
Across Products and presence, enhances capital flexibility and provides stable source of income
Geographies
Montpeliers attractive property catastrophe business complements existing reinsurance portfolio
Insurance to remain above 50% of the combined diversified portfolio (1)
Meaningful transaction synergies, including more than $60 million of annual run-rate cost savings
Expected to be immediately accretive to EPS and ROE, excluding non-recurring integration and
Financially Attractive transaction costs
Neutral to book value per share and modestly dilutive to tangible book value per share
Potential for enhanced capital management over time
With common shareholders equity of $4.1 billion (2) and total capital of $5.5 billion (2), the combined
Stronger Balance company will have a substantially improved financial profile
Sheet and Capital
Position Larger, stronger balance sheet better positions combined company to pursue growth, withstand
volatility and manage capital
Montpelier maintains high quality business in lines where Endurance has significant underwriting and
Manageable management expertise
Integration Risk Similar corporate cultures and view of risk
Straightforward corporate and organizational structure
Notes
1. Based on 2014 figures
2. Figures as of 12/31/14, pro forma for transaction. Based on Endurance closing share price of $64.30 as of 3/30/2015. Shareholders equity and total capital exclude non-controlling interests
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Transaction Provides Increased Scale and Stronger Balance
Sheet
2014 Gross Premiums Written of Common Shareholders Equity of Peer
Peer Companies Companies (12/31/14)
$Bn $Bn
XL + CGL 14.1 XL + CGL (2) 11.9
PRE + AXS 10.6 PRE + AXS (2) 11.0
RE 5.7 Y 7.5
Y 5.1 RE 7.5
ACGL 4.8 ACGL 5.8
ENH + MRH 3.6 RNR (2) 4.2
AWH 2.9 ENH + MRH (3) 4.1
AHL 2.9 AWH 3.8
ENH 2.9 VR 3.6
VR 2.4 AHL 2.9
RNR (1) 2.1 ENH 2.8
AGII 1.9 AGII 1.6
MRH 0.7 MRH 1.5
0 4 8 12 16 0 4 8 12 16
Notes
1. Pro forma for Platinum acquisition
2. As of 12/31/2014, XL, PRE + AXS and RNR common shareholders equity shown pro forma for stock issued in connection with transactions based on publicly filed pro forma financial disclosure
3. As of 12/31/2014, pro forma for the acquisition of MRH, does not include impact of purchase accounting adjustments or transaction expenses
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Combined Business Well Diversified Across Business Lines and Platforms
Meaningfully greater scale in reinsurance with premiums up ~35%
Overall business mix remains balanced, with over 50% insurance
Endurance (1) Montpelier (1) (2) Combined
Reinsurance: 41% Insurance: 59% Reinsurance: 73% Insurance: 27% Reinsurance: 47% Insurance: 53%
$1.2Bn $1.7Bn $0.5Bn $0.2Bn $1.7Bn $1.9Bn
Other Collateralized
Collateralized Insurance Re
Other Insurance Re 4% Other 2%
Reinsurance 59% 11% Lloyds
Reinsurance
29% Insurance
Other 27%
23%
Reinsurance
18%
+ = Insurance
48%
Property Property
Catastrophe Lloyds Catastrophe
Reinsurance Property Reinsurance Reinsurance
12% Catastrophe 14% 16%
Reinsurance Lloyds Lloyds
30% Reinsurance Insurance
3% 5%
GPW: $2.9Bn GPW: $0.7Bn GPW: $3.6Bn
Notes
1. Based on full year 2014 gross premiums written
2. Montpelier insurance includes Property and Specialty Individual Risk; reinsurance includes Property Catastrophe Treaty, Property Specialty Treaty, and Other Specialty Treaty
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Transaction Adds Important New Strategic Capabilities to
Endurance
Montpelier Overview Benefits to Endurance
Profitable, diversified syndicate focused
Accelerates Endurances London market
on specialty insurance opportunities
growth plans
Lloyds Focus on non-cat exposed products
Provides good-sized and scalable Lloyds
complementary to other Endurance
platform
businesses
Leading insurance-linked securities Fee revenue generates stable source of
manager with $625 million total 3rd party income and enhances ROE profile
AUM(1)
Creates capability to offer clients
Blue Capital Two publicly traded vehicles, BCGR (LSE) collateralized paper via Blue Capital
and BCRH (NYSE), represent permanent
capital and expand Endurances sources Increases retrocessional opportunities
of capital for Endurances existing business
Notes
1. As of 1/1/2015
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Financially Compelling Transaction
Transaction economics are highly attractive for Endurance shareholders
Key Financial Drivers
More than $60MM of annual run-rate cost savings
Modest premium reduction from re-underwriting
Enhanced financial flexibility from generation of excess capital
Summary of Financial Impact to Endurance
EPS (1) Immediately accretive to EPS
ROE (1) Accretive vs. standalone Endurance ROE
Neutral to book value per share
Book Value Per Share Modest initial dilution to tangible book value per share
Notes
1. Excluding non-recurring integration and transaction costs
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Enhanced Balance Sheet Strength
Endurance Montpelier Pro Forma (1)
Cash and Invested Assets $6.7Bn $3.2Bn $9.3Bn
Total Assets $9.6Bn $3.6Bn $13.0Bn
Common Equity $2.8Bn $1.5Bn $4.1Bn
Total Capital $3.7Bn $2.1Bn $5.5Bn
Debt / Total Capital 14.2% 19.8% 17.0%
(Debt + Preferred) / Total Capital 25.8% 27.1% 24.8%
Book Value per Share $61.33 $33.19 $62.20
Notes
1. As of 12/31/2014, pro forma for transaction, excluding purchase accounting adjustments and transaction expenses; based on Endurance closing share price of $64.30 as of 3/30/2015 and 45.5MM fully-diluted Montpelier common shares. Pro forma includes redemption of $150MM Montpelier preferred shares and related $6MM charge, plus declared and unpaid dividends, if any, to the date of redemption
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Conclusion
Transaction is financially attractive to Endurance shareholders and provides compelling value to Montpeliers shareholders
Transaction provides important new strategic capabilities to Endurance with increased scale and market presence
Combined balance sheet and capital position is significantly enhanced with increased financial flexibility and capital management opportunities
Manageable integration risk with similar cultures, compatible underwriting portfolios and straightforward corporate and organizational structure
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