Endurance Specialty Holdings Reports Record Fourth Quarter Net Income of $198.8 Million and Record Full Year Return on Average Common Equity of 25.6%.

PEMBROKE, Bermuda -- Endurance Specialty Holdings Ltd. (NYSE:ENH), today reported net income of $198.8 million and $2.70 per diluted common share for the fourth quarter of 2006 versus a net loss of ($49.8) million and ($0.80) per diluted common share in the fourth quarter of 2005.

For the year ended December 31, 2006, net income was $498.1 million and $6.73 per diluted common share versus a net loss of ($220.5) million and ($3.60) per diluted common share for the year ended December 31, 2005. Net income for the years ended December 31, 2006 and 2005 included favorable prior year loss reserve development of $57.7 million and $162.5 million, respectively.

Operating highlights for the quarter ended December 31, 2006 are as follows:

* Total premiums written of $297.9 million, which include gross premiums written and deposit premiums, increased 39.3% over the same period in 2005. Excluding 2005 reinstatement premiums of $11.6 million related to Hurricanes Katrina, Rita and Wilma, total premiums written increased 47.3% from the fourth quarter of 2005;

* Total ceded premiums of $42.3 million versus $15.7 million in the fourth quarter of 2005;

* Total net premiums written, including net premiums written and deposit premiums, increased 29.0% over the fourth quarter of 2005;

* Combined ratio, excluding 6.6 percentage points of favorable prior year loss reserve development, was 72.1%;

* Net investment income of $72.0 million increased 35.9% over the same period in 2005;

* Operating income, which excludes after-tax realized investment gains and losses and foreign exchange gains and losses, was $193.6 million and $2.62 per diluted common share; and

* Operating return on average common equity for the quarter was 9.7%.

Operating highlights for the year ended December 31, 2006 are as follows:

* Total premiums written of $1,948.6 million, which include gross premiums written and deposit premiums, increased 7.5% over the same period in 2005. Excluding 2005 reinstatement premiums of $46.1 million related to Hurricanes Katrina, Rita and Wilma, total premiums written increased 10.3% from 2005;

* Total ceded premiums of $204.1 million versus $49.5 million over the same period in 2005;

* Total net premiums written, including net premiums written and deposit premiums, decreased 1.0% over the same period in 2005;

* Combined ratio, excluding 3.5 percentage points of favorable prior year loss reserve development, was 85.0%;

* Net investment income increased 42.7% to $257.4 million over the year ended December 31, 2005;

* Operating income, which excludes after-tax realized investment gains and losses and foreign exchange gains and losses, was $500.9 million and $6.76 per diluted common share; and

* Operating return on average common equity was 25.7%.

Kenneth J. LeStrange, Chairman and Chief Executive Officer, commented, "I am extremely pleased with the record earnings that Endurance achieved both for the fourth quarter and for the full year of 2006. In addition to posting record earnings this year, we took significant steps to further expand and balance our book of business through growth in our specialty lines and we significantly reduced our catastrophe risk profile - accomplishments we believe will serve us well in 2007 and beyond."

"During 2006, Endurance established two new global leadership roles within the Company to lead our Reinsurance and Insurance business segments. I am pleased to announce that William Jewett has been appointed the President and Chief Executive Officer of our reinsurance business and will be responsible for strategy, profitability and underwriting results for our reinsurance business worldwide. This appointment compliments our earlier appointment in 2006 of Michael Fujii to lead our global insurance business. Mr. Fujii has now assumed additional responsibilities in this business segment as the President and Chief Executive Officer. In addition, as part of our management realignment, Dan Izard has been appointed Chief Operating Officer of Endurance, assuming global responsibility for operating effectiveness and shared services for all of our subsidiaries. I believe the management changes we have implemented will improve our ability to coordinate our activities across the geographies in which we operate and enhance our ability to achieve our strategic objectives."

Operating Results

The increase in total premiums written by Endurance in the fourth quarter of 2006 and the full year of 2006 was driven by new business written within its Insurance business segment. Total premiums written in the Reinsurance business segment in the fourth quarter and the full year of 2006 remained consistent with 2005.

Endurance's combined ratio was 65.5% in the fourth quarter of 2006 versus 122.0% for the fourth quarter of 2005. The current quarter combined ratio was favorably impacted by the low level of catastrophe losses throughout 2006 and from $26.7 million of favorable prior year loss reserve development, which emanated from both the Insurance and Reinsurance business segments. Similar to the fourth quarter, the combined ratio for the full year 2006 declined by 42.0 percentage points and reflected the absence of catastrophic activity as compared to 2005.

Insurance business segment

Gross premiums written in Endurance's Insurance business segment for the fourth quarter and full year of 2006 were $180.6 million and $576.7 million, compared to $98.4 million and $421.4 million in the same periods in 2005. This growth in gross premiums written for the Insurance business segment resulted from continued development of the U.S. insurance operations and from the successful execution of our workers' compensation strategy. These efforts collectively added $85.2 million of additional gross premiums written in the fourth quarter and $224.9 million during the full year of 2006 compared to the same periods in 2005. Within the U.S. based insurance operations of Endurance's Insurance business segment, new business was written across all lines of business with the property lines of business benefiting from strong pricing on catastrophe-exposed risks.

The combined ratio was 105.6% for the Insurance business segment in the fourth quarter of 2006 versus a 70.6% combined ratio in the fourth quarter of 2005. In the fourth quarter of 2006, the combined ratio for the Insurance business segment was adversely impacted by several large fire related losses in its international property insurance business. In addition, the Insurance business segment recorded favorable prior year loss reserve development of $7.5 million and $29.3 million for the fourth quarters of 2006 and 2005, respectively, and $54.4 million and $58.0 million for the full years of 2006 and 2005, respectively. The fourth quarter and full year of 2006 prior period development were primarily due to favorable claims emergence in long tail lines of business for all prior accident years. The combined ratio in the Insurance business segment for the full year of 2006 was 89.9%, a decline of 21.9 percentage points from that experienced in 2005. The current year combined ratio benefited from the absence of significant catastrophic losses compared to the record industry losses experienced in 2005. Growth in acquisition and general and administrative expenses for the fourth quarter and the full year of 2006 compared to the same periods in 2005 were directly related to growth within Endurance's U.S. insurance operations.

Reinsurance business segment

Total premiums written in Endurance's Reinsurance business segment for the fourth quarter of 2006 were only slightly higher than 2005, which included $11.6 million of reinstatement premiums related to Hurricanes Katrina, Rita and Wilma. In the fourth quarter of 2006, the Reinsurance business segment experienced increases in the aerospace line of business due to adjusted premiums on certain contracts, while the remaining lines of business within the Reinsurance business segment were relatively consistent with the same period in 2005. Total premiums in the Reinsurance business segment for all of 2006 increased by a modest 2.0%, compared to total premiums recorded in 2005, excluding reinstatement premiums of $46.1 million recorded in 2005. During 2006, Endurance continued to focus on the development of lines of business in its Reinsurance segment with limited correlation with the Company's property exposures, resulting in growth in its agriculture line of business. In addition, the Reinsurance business segment benefited from strong pricing in catastrophe exposed lines of business while reducing aggregate exposures. Overall growth in 2006 total premiums written was partially offset by an intentional reduction by Endurance in its large property and marine businesses and the termination of a large aviation contract at the end of 2005.

In the fourth quarter of 2006, the Reinsurance segment's combined ratio was 56.0% versus 136.4% in the fourth quarter of 2005, and 81.5% for the 2006 year, a decline of 44.0 percentage points from that experienced for the full year in 2005. The current quarter and full year combined ratios benefited from the absence of significant catastrophic losses throughout 2006 compared to 2005. In addition, the Reinsurance business segment recorded favorable prior year loss reserve development of $22.2 million and $35.6 million for the fourth quarters of 2006 and 2005, respectively, and $5.0 million and $104.5 million for the full years of 2006 and 2005, respectively. Fourth quarter prior year development in both 2006 and 2005 was primarily related to lower than expected claims emergence in short tail property lines of business. The favorable prior year reserve development in the full year of 2006 was primarily due to lower than expected claims emergence in long tail lines and other specialty lines across all prior accident years, offset by adverse development within the short tail property lines, primarily in the 2005 accident year.

Investments

Endurance's 35.9% increase in net investment income in the fourth quarter of 2006 and 42.7% increase for the full year of 2006 was due to a combination of higher portfolio yields, growth in the Company's invested assets and strong alternative investment performance. Endurance ended the year with cash and invested assets of $5.5 billion, an increase of 9.1% from December 31, 2005. Net operating cash flow was $135.0 million for the current quarter versus $69.4 million for the fourth quarter of 2005 and $674.9 million for the current year versus $797.8 million for the year ended December 31, 2005.

Capitalization and Shareholders' Equity 

At December 31, 2006, Endurance's GAAP shareholders' equity was $2.3 billion or $28.87 per diluted common share versus $1.9 billion or $23.17 per diluted common share at December 31, 2005. At quarter end, total capitalization was $2.7 billion compared to $2.3 billion at December 31, 2005.

Subsequent Event

Windstorm Kryill struck Northern and Central Europe on January 18, 2007. Based on a review of in-force contracts and preliminary loss information from clients, Endurance initially estimates that its net losses from Windstorm Kryill after reinsurance, reinstatement premiums and tax benefits, are expected to be between $30 and $40 million. Due to the limited claims data at this time, Endurance's losses from Windstorm Kyrill may ultimately differ materially from our preliminary estimated losses. Losses incurred by Endurance from Windstorm Kyrill will be recorded in the first quarter of 2007.

Endurance will host a conference call on Thursday, February 8, 2007 at 8:30 a.m. Eastern time to discuss its financial results. The conference call can be accessed via telephone by dialing [phone] (toll-free) or [phone] (international). Those who intend to participate in the conference call should register at least ten minutes in advance to ensure access to the call. A telephone replay of the conference call will be available through February 22, 2007 by dialing [phone] (toll-free) or [phone] (international) and entering the pass code: 4767099.

The public may access a live broadcast of the conference call at the "Investors" section of Endurance's website, www.endurance.bm.

A copy of Endurance's financial supplement for the fourth quarter of 2006 will be available on Endurance's website at www.endurance.bm shortly after the release of earnings.

Operating income, operating return on average common equity, operating income per dilutive common share and total premiums written are non-GAAP measures. Reconciliations of these measures to the appropriate GAAP measures are included in the attached tables.

About Endurance Specialty Holdings

Endurance Specialty Holdings Ltd. is a global provider of property and casualty insurance and reinsurance. Through its operating subsidiaries, Endurance writes property, casualty, healthcare liability, workers' compensation and professional lines of insurance and property, catastrophe, casualty, agriculture, marine, aerospace, and surety and other specialty lines of reinsurance. Endurance's operating subsidiaries have been assigned a group rating of A (stable outlook) from Standard & Poor's, A- (positive outlook) (Excellent) from A.M. Best and A2 by Moody's. Endurance's headquarters are located at Wellesley House, 90 Pitts Bay Road, Pembroke HM 08, Bermuda and its mailing address is Endurance Specialty Holdings Ltd., Suite No. 784, No. 48 Par-la-Ville Road, Hamilton HM 11, Bermuda. For more information about Endurance, please visit http://www.endurance.bm.

Safe Harbor for Forward-Looking Statements 

Some of the statements in this press release may include forward-looking statements which reflect our current views with respect to future events and financial performance. Such statements may include forward-looking statements both with respect to us in general and the insurance and reinsurance sectors specifically, both as to underwriting and investment matters. Statements which include the words "expect," "intend," "plan," "believe," "project," "anticipate," "seek," "will," and similar statements of a future or forward-looking nature identify forward-looking statements in this press release for purposes of the U.S. federal securities laws or otherwise. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the Private Securities Litigation Reform Act of 1995.

All forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or may be important factors that could cause actual results to differ from those indicated in the forward-looking statements. These factors include, but are not limited to, competition, possible terrorism or the outbreak of war, the frequency or severity of unpredictable catastrophic events, changes in demand for insurance or reinsurance, rating agency actions, uncertainties in our reserving process, a change in our tax status, acceptance of our products, the availability of reinsurance or retrocessional coverage, retention of key personnel, political conditions, the impact of current regulatory investigations, changes in accounting policies, changes in general economic conditions and other factors described in our Annual Report on Form 10-K for the year ended December 31, 2005.

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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The combined ratio is the sum of the loss, acquisition expense and general and administrative expense ratios. Endurance presents the combined ratio as a measure that is commonly recognized as a standard of performance by investors, analysts, rating agencies and other users of its financial information. The combined ratio, excluding prior year net loss reserve development, enables investors, analysts, rating agencies and other users of its financial information to more easily analyze Endurance's results of underwriting activities in a manner similar to how management analyzes Endurance's underlying business performance. The combined ratio, excluding prior year net loss reserve development should not be viewed as a substitute for the combined ratio.

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Total premiums written including gross premiums written and deposit premiums is a non-GAAP internal performance measure used by Endurance in the management of its operations. Total premiums written represents gross 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 total premiums written enables investors, analysts, rating agencies and other users of its financial information to more easily analyze Endurance's results of underwriting activities in a manner similar to how management analyzes Endurance's underlying business performance. Total premiums written should not be viewed as a substitute for gross premiums written determined in accordance with GAAP.

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