Endurance Specialty Holdings Reports Second Quarter 2006 Net Income of $64.1 Million and First Half 2006 Annualized ROE of 19.2%.PEMBROKE Pembroke, town, Canada Pembroke (pĕm`brōk), town (1991 pop. 13,997), SE Ont., Canada, NW of Ottawa, on the Ottawa River. It is a lumbering center and also has steel and electric-products factories. , Bermuda Bermuda (bûrmy  `də), British dependency (2005 est. pop. 65,400), 21 sq mi (53 sq km), comprising some 150 coral rocks, islets, and islands (of which some 20 are inhabited), in the -- Endurance EnduranceSee also Longevity. Atalanta feminine name denotes power of endurance. [Gk. Myth.: Jobes, 148] Boston marathon famous 26-mile race held annually for long-distance runners. [Am. Pop. Culture: Misc. Specialty A contract under seal. A specialty is a written document that has been sealed and delivered and is given as security for the payment of a specifically indicated debt. Holdings Ltd. (NYSE NYSE See: New York Stock Exchange :ENH ENH Enhancement ENH Evanston Northwestern Healthcare (Illinois) ENH Evanston-Northwestern Hospital ) today reported net income of $64.1 million and $0.85 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. common share for the second quarter of 2006 versus net income of $110.0 million and $1.67 per diluted common share in the second quarter of 2005. For the six months ended June June: see month. 30, 2006, net income was $171.1 million and $2.29 per diluted common share versus net income of $206.3 million and $3.11 per diluted common share for the first half of 2005. Net income for the six months ended June 30, 2006 and 2005 includes net favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. loss reserve development of $21.0 million and $73.7 million, respectively. Operating highlights for the quarter ended June 30, 2006 are as follows: --Total premiums written, including gross premiums written When a non-life insurance company closes a contract to provide insurance against loss, the revenues (premiums) expected to be received over the life of the contract are called gross premiums written. of $451.3 million and deposit premiums of $46.1 million, increased 23.0% to $497.4 million over the same period in 2005; --Operating income, which excludes after-tax af·ter-tax also af·ter·tax adj. Relating to or being that which remains after payment, especially of income taxes: after-tax profits. realized investment gains and losses and foreign exchange gains and losses, was $62.2 million and $0.82 per diluted common share; --Annualized operating return on average common equity was 13.5%; --Net investment income increased 51.3% to $59.2 million over the same period in 2005; and the --Combined ratio, excluding 5.3 points of prior year net adverse loss reserve development primarily related to Hurricanes Katrina KATRINA Keeping All the Resources in New Orleans Alive KATRINA Krewe Aiding Trash Removal In the New Orleans Area , Rita and Wilma, was 91.5%. Operating highlights for the six months ended June 30, 2006 are as follows: --Total premiums written, including gross premiums written of $1,022.6 million and deposit premiums of $145.3 million, decreased 2.1% to $1,167.9 million over the first half of 2005; --Operating income, which excludes after-tax realized investment gains and losses and foreign exchange gains and losses, was $170.1 million and $2.28 per diluted common share; --Annualized operating return on average common equity was 19.1%; --Net investment income increased 52.6% to $119.7 million over the first half of 2005; and the --Combined ratio, excluding 2.5 points of net favorable prior year loss reserve development, was 93.3%. Kenneth J. LeStrange, Chairman and Chief Executive Officer, commented, "While Endurance's second quarter results were impacted negatively by prudent adjustments to our loss reserves based upon recent claims activity in connection with Hurricanes Katrina, Rita and Wilma, our underlying businesses remain strong. Endurance saw significant improvements in the U.S. property catastrophe Catastrophe, from the Greek Καταστροφή (katastrephein), literally means "to turn" (strephein) "downwards" (kata-). insurance and reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. markets this quarter, and we expect to see the benefits from these market improvements through the remainder of this year." The increase in gross premiums written by Endurance in the second quarter of 2006 compared to the second quarter of 2005 was largely due to price increases on catastrophe exposed lines in the Property Catastrophe Reinsurance and Property Individual Risk segments and from continued growth in our specialty and treaty casualty reinsurance lines. This growth in gross premiums written was partially offset by reductions in our Property Per Risk Treaty Reinsurance segment as Endurance did not renew several underperforming accounts. Endurance's combined ratio was 96.8% in the second quarter of 2006 versus 81.9% for the second quarter of 2005. The combined ratio was impacted by $21.6 million in net unfavorable prior year loss reserve development in the second quarter of 2006 compared to $27.7 million of net favorable loss reserve development in the second quarter of 2005. This net adverse loss reserve development was due to greater than expected reported losses from Hurricanes Katrina, Rita and Wilma (the "2005 Hurricanes"), as well as increases to incurred but not reported Incurred but not reported (IBNR) is a term in common use in general insurance. When a policy of general insurance is written it will typically cover a 12 month period from inception of the policy. loss reserves in relation to the 2005 Hurricanes, which resulted in an $84.0 million increase to Endurance's estimated ultimate loss from the 2005 Hurricanes. This increase was partially offset by $62.4 million of other favorable loss reserve development in Endurance's 2005 and prior loss reserves. The changes in Endurance's loss reserves in the second quarter impacted Endurance's Property Catastrophe Reinsurance, Property Per Risk Treaty Reinsurance and Aerospace and Other Specialty Lines segments. In addition, during the quarter, Endurance's Property Individual Risk segment incurred a loss of approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $19 million from a large industrial fire. Endurance's 51.3% increase in net investment income in the second quarter of 2006 was due to a combination of higher interest rates, increases in invested assets and positive performance in our alternative investment portfolio. Endurance's alternative investments added $4.6 million to investment income in the second quarter of 2006, a 9.9% return on investment on an annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. basis, versus alternative investment income of $0.2 million in the second quarter of 2005. At June 30, 2006, Endurance's GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. was $1.9 billion or $24.24 per diluted common share versus $1.9 billion or $23.17 per diluted common share at December December: see month. 31, 2005. At quarter end, total capitalization Total capitalization The total long-term debt and all types of equity of a company that constitutes its capital structure. total capitalization See capitalization. was $2.4 billion compared to $2.3 billion at December 31, 2005. Endurance's total assets were $6.9 billion and cash and invested assets were $5.2 billion, an increase of 8.1% and 4.9% respectively from December 31, 2005. Net operating cash flow Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. was $204.4 million for the quarter versus $252.1 million for the quarter ended June 30, 2005. Endurance will host a conference call on Thursday Thursday: see week. , July July: see month. 27, 2006 at 8:30 AM Eastern to discuss its financial results. The conference call can be accessed via telephone by dialing (800) 819-9193 (toll-free) or (913) 981-4911 (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 August 10, 2006 by dialing (888) 203-1112 (toll-free) or (719) 457-0820 (international) and entering the pass code: 6074722. 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 second quarter of 2006 will be available on Endurance's website at www.endurance.bm shortly after the release of earnings. Operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. , operating return on average common equity, operating income per dilutive common share and total premiums written, including gross premiums written and deposit premiums 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 An operating subsidiary is a business term frequently used within the United States railroad industry. In the case of a railroad, it refers to a company that is a subsidiary but operates with its own identity and rolling stock. , Endurance writes property per risk treaty reinsurance, property catastrophe reinsurance, casualty treaty reinsurance, property individual risks, casualty individual risks, and other specialty lines. Endurance's operating subsidiaries have been assigned as·sign tr.v. as·signed, as·sign·ing, as·signs 1. To set apart for a particular purpose; designate: assigned a day for the inspection. 2. a group rating of A- (Excellent) from A.M. Best, A2 by Moody's Moody's Corporation (NYSE: MCO) is the holding company for Moody's Investors Service which performs financial research and analysis on commercial and government entities. The company also ranks the credit-worthiness of borrowers using a standardized ratings scale. and A- from Standard & Poor's. Endurance's headquarters are located at Wellesley Wellesley, town (1990 pop. 26,615), Norfolk co., E Mass., a residential suburb SW of Boston; settled 1660, inc. 1881. Its many educational institutions include several private preparatory schools, Babson College, and Wellesley College. 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 Hamilton, city, Bermuda Hamilton, city (1990 est. pop. 3,100), capital of Bermuda, on Bermuda Island. It is a port at the head of Great Sound, a huge lagoon and deepwater harbor protected by coral reefs. HM 11, Bermuda. For more information about Endurance, please visit www.endurance.bm. Safe Harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. for Forward-Looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. 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 Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. 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 for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. 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 The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and 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 terrorism, the threat or use of violence, often against the civilian population, to achieve political or social ends, to intimidate opponents, or to publicize grievances. or the outbreak outbreak see epidemic. 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 reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. investigations, changes in accounting policies, changes in general economic conditions and other factors described in our Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 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.
ENDURANCE SPECIALTY HOLDINGS LTD.
CONSOLIDATED BALANCE SHEETS
(in thousands of United States dollars,
except share and per share amounts)
June 30, December 31,
2006 2005
------------ ------------
Assets
Cash and cash equivalents $669,583 $468,015
Fixed maturity investments available for
sale, at fair value 4,323,661 4,323,339
Investments in other ventures, under equity
method 204,272 161,883
Premiums receivable, net 827,239 575,109
Deferred acquisition costs 175,717 166,720
Securities lending collateral 371,407 408,663
Prepaid reinsurance premiums 56,194 27,132
Losses recoverable 27,452 17,248
Accrued investment income 36,740 33,734
Intangible assets 71,436 65,633
Deferred tax assets 66,545 69,360
Other assets 35,540 35,701
------------ ------------
Total Assets $6,865,786 $6,352,537
============ ============
Liabilities
Reserve for losses and loss expenses $2,782,803 $2,603,590
Reserve for unearned premiums 967,844 803,629
Net deposit liabilities 173,527 92,523
Securities lending payable 371,407 408,663
Reinsurance balances payable 122,829 85,281
Debt 447,131 447,092
Other liabilities 63,710 39,216
------------ ------------
Total Liabilities 4,929,251 4,479,994
------------ ------------
Shareholders' Equity
Common shares
66,096 issued and outstanding
(2005 - 66,139) 66,096 66,139
Preferred shares
Series A, non-cumulative - 8,000 issued
and outstanding (2005 - 8,000) 8,000 8,000
Additional paid-in capital 1,450,435 1,453,722
Accumulated other comprehensive loss (82,087) (19,672)
Retained earnings 494,091 364,354
------------ ------------
Total Shareholders' Equity 1,936,535 1,872,543
------------ ------------
Total Liabilities and Shareholders' Equity $6,865,786 $6,352,537
============ ============
Book Value per Common Share
Dilutive common shares outstanding 71,642,908 72,173,426
Diluted book value per common share(a) $24.24 $23.17
============ ============
Note: All financial information contained herein is unaudited, except
the balance sheet data for the year ended December 31, 2005, which
was derived from Endurance's audited financial statements.
(a) Excludes the $200 million liquidation value of the preferred
shares.
ENDURANCE SPECIALTY HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands of United States dollars,
except share and per share amounts)
Quarter Ended Six Months Ended
----------------------- -----------------------
June 30, June 30, June 30, June 30,
2006 2005 2006 2005
----------- ----------- ----------- -----------
Revenues
Gross premiums written $451,253 $403,189 $1,022,634 $1,105,680
=========== =========== =========== ===========
Net premiums written $408,678 $394,590 $951,687 $1,093,768
Change in unearned
premiums (2,000) 43,331 (124,803) (218,249)
----------- ----------- ----------- -----------
Net premiums earned 406,678 437,921 826,884 875,519
Other underwriting
(loss) income (1,992) 418 1,509 1,289
Net investment income 59,209 39,133 119,683 78,444
Net realized (losses)
gains on sales of
investments (8,729) 592 (12,059) (3,861)
----------- ----------- ----------- -----------
Total revenues 455,166 478,064 936,017 951,391
----------- ----------- ----------- -----------
Expenses
Losses and loss
expenses 269,445 228,916 508,177 479,975
Acquisition expenses 76,758 89,334 150,529 176,109
General and
administrative
expenses 47,425 40,432 91,723 73,978
Amortization of
intangibles 1,158 1,158 2,316 2,378
Net foreign exchange
(gains) losses (11,997) 1,742 (14,883) 4,163
Interest expense 7,459 5,612 14,985 11,083
----------- ----------- ----------- -----------
Total expenses 390,248 367,194 752,847 747,686
----------- ----------- ----------- -----------
Income before income
taxes 64,918 110,870 183,170 203,705
Income tax (expense)
benefit (868) (853) (12,084) 2,571
----------- ----------- ----------- -----------
Net income $64,050 $110,017 $171,086 $206,276
Preferred dividends (3,875) - (7,750) -
----------- ----------- ----------- -----------
Net income available to
common shareholders $60,175 $110,017 $163,336 $206,276
=========== =========== =========== ===========
Per share data
Weighted average number
of common and common
equivalent shares
outstanding:
Basic 66,397,742 60,631,594 66,421,265 60,959,737
Diluted 71,109,361 66,063,355 71,243,145 66,276,048
Basic earnings per
common share $0.91 $1.81 $2.46 $3.38
=========== =========== =========== ===========
Diluted earnings per
common share $0.85 $1.67 $2.29 $3.11
=========== =========== =========== ===========
Note: All financial information contained herein is unaudited, except
the balance sheet data for the year ended December 31, 2005, which
was derived from the Company's audited financial statements.
ENDURANCE SPECIALTY HOLDINGS LTD.
CONSOLIDATED FINANCIAL RATIOS
As Reported
Quarter Ended Six Months Ended
----------------- -----------------
June 30, June 30, June 30, June 30,
2006 2005 2006 2005
-------- -------- -------- --------
Loss ratio 66.3% 52.3% 61.5% 54.8%
Acquisition expense ratio 18.9% 20.4% 18.2% 20.1%
General and administrative expense
ratio 11.6% 9.2% 11.1% 8.5%
-------- -------- -------- --------
Combined ratio 96.8% 81.9% 90.8% 83.4%
======== ======== ======== ========
Effect of Prior Year Net Loss Reserve Development
Quarter Ended Six Months Ended
----------------- -----------------
June 30, June 30, June 30, June 30,
Favorable/(Unfavorable) 2006 2005 2006 2005
-------- -------- -------- --------
Loss ratio (5.3)% 6.3% 2.5% 8.4%
======== ======== ======== ========
Net of Prior Year Net Loss Reserve Development
Quarter Ended Six Months Ended
----------------- -----------------
June 30, June 30, June 30, June 30,
2006 2005 2006 2005
-------- -------- -------- --------
Loss ratio 61.0% 58.6% 64.0% 63.2%
Acquisition expense ratio 18.9% 20.4% 18.2% 20.1%
General and administrative expense
ratio 11.6% 9.2% 11.1% 8.5%
-------- -------- -------- --------
Combined ratio, excluding prior
year net loss reserve
development 91.5% 88.2% 93.3% 91.8%
======== ======== ======== ========
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.
ENDURANCE SPECIALTY HOLDINGS LTD.
RECONCILIATION
TOTAL PREMIUMS WRITTEN BY SEGMENT
(in thousands of United States dollars)
The following is a reconciliation of Endurance's total premiums
written including gross premiums written and deposit premiums (a
non-GAAP measure) to gross premiums written for the quarter and six
months ended June 30, 2006 and 2005:
Quarter Ended June 30, 2006
---------------------------------
Gross Total
Premiums Deposit Premiums
Written Premiums Written
---------------------------------
Property Per Risk Treaty
Reinsurance $44,779 $5,219 $49,998
Property Catastrophe
Reinsurance 100,526 - 100,526
Casualty Treaty Reinsurance 46,189 33,237 79,426
Property Individual Risk 52,590 - 52,590
Casualty Individual Risk 106,633 - 106,633
Aerospace and Other Specialty
Lines 100,536 7,656 108,192
----------- --------- -----------
Total $451,253 $46,112 $497,365
=========== ========= ===========
Quarter Ended June 30, 2005
---------------------------------
Gross Total
Premiums Deposit Premiums
Written Premiums Written
---------------------------------
Property Per Risk Treaty
Reinsurance $97,981 $1,361 $99,342
Property Catastrophe
Reinsurance 67,574 - 67,574
Casualty Treaty Reinsurance 31,750 - 31,750
Property Individual Risk 35,932 - 35,932
Casualty Individual Risk 105,079 - 105,079
Aerospace and Other Specialty
Lines 64,873 (126) 64,747
----------- --------- -----------
Total $403,189 $1,235 $404,424
=========== ========= ===========
Six Months Ended June 30, 2006
---------------------------------
Gross Total
Premiums Deposit Premiums
Written Premiums Written
---------------------------------
Property Per Risk Treaty
Reinsurance $143,602 $28,876 $172,478
Property Catastrophe
Reinsurance 201,330 - 201,330
Casualty Treaty Reinsurance 183,583 101,312 284,895
Property Individual Risk 81,164 - 81,164
Casualty Individual Risk 158,216 - 158,216
Aerospace and Other Specialty
Lines 254,739 15,073 269,812
----------- --------- -----------
Total $1,022,634 $145,261 $1,167,895
=========== ========= ===========
Six Months Ended June 30, 2005
---------------------------------
Gross Total
Premiums Deposit Premiums
Written Premiums Written
---------------------------------
Property Per Risk Treaty
Reinsurance $234,413 $36,219 $270,632
Property Catastrophe
Reinsurance 178,264 - 178,264
Casualty Treaty Reinsurance 236,211 47,082 283,293
Property Individual Risk 59,306 - 59,306
Casualty Individual Risk 152,769 - 152,769
Aerospace and Other Specialty
Lines 244,717 3,556 248,273
----------- --------- -----------
Total $1,105,680 $86,857 $1,192,537
=========== ========= ===========
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.
ENDURANCE SPECIALTY HOLDINGS LTD.
RECONCILIATION
OPERATING INCOME AND OPERATING INCOME PER DILUTIVE COMMON SHARE
(in thousands of United States dollars,
except share and per share amounts)
The following is a reconciliation of Endurance's net income and net
income per diluted common share to operating income, operating income
per diluted common share and annualized operating return on average
common equity (all non-GAAP measures) for the quarter and six months
ended June 30, 2006 and 2005:
Quarter Ended Six Months Ended
----------------------- -----------------------
June 30, June 30, June 30, June 30,
2006 2005 2006 2005
----------- ----------- ----------- -----------
Net income $64,050 $110,017 $171,086 $206,276
Add (Less) after-tax
items:
Net foreign exchange
(gains) losses (8,962) 2,201 (11,101) 4,492
Net realized losses
(gains) on
investments 7,107 (431) 10,131 3,691
----------- ----------- ----------- -----------
Operating income before
preferred dividends $62,195 $111,787 $170,116 $214,459
Preferred dividends (3,875) - (7,750) -
----------- ----------- ----------- -----------
Operating income
available to common
shareholders $58,320 $111,787 $162,366 $214,459
=========== =========== =========== ===========
Weighted average
dilutive common
shares 71,109,361 66,063,355 71,243,145 66,276,048
=========== =========== =========== ===========
Diluted per common
share data
Net Income $0.90 $1.67 $2.40 $3.11
Preferred dividends (0.05) - 0.11 -
----------- ----------- ----------- -----------
Net income available to
common shareholders 0.85 1.67 2.29 3.11
Add (Less) after-tax
items:
Net foreign exchange
(gains) losses (0.13) 0.03 (0.15) 0.07
Net realized losses
(gains) on
investments 0.10 (0.01) 0.14 0.06
----------- ----------- ----------- -----------
Operating income
available to common
shareholders $0.82 $1.69 $2.28 $3.24
=========== =========== =========== ===========
Average common
equity (a) $1,730,262 $1,934,883 $1,704,539 $1,924,790
Operating return on
average common equity 3.4% 5.8% 9.5% 11.1%
----------- ----------- ----------- -----------
Annualized operating
return on average
common equity 13.5% 23.1% 19.1% 22.3%
=========== =========== =========== ===========
(a) Average common equity is calculated as the arithmetic average of
the beginning and ending common equity balances for the stated period,
which excludes the $200 million liquidation value of the preferred
shares.
Operating income and operating income per diluted common share are
internal performance measures used by Endurance in the management of
its operations. Operating income per diluted common share represents
operating income divided by weighted average dilutive common shares.
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. Endurance
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 and net
income per dilutive common share determined in accordance with GAAP,
Endurance believes that showing operating income and operating income
per dilutive common share enables investors, analysts, rating agencies
and other users of its financial information to more easily analyze
Endurance's results of operations in a manner similar to how
management analyzes Endurance's underlying business performance.
Operating income and operating income per dilutive common share should
not be viewed as substitutes for GAAP net income and net income per
dilutive common share, respectively.
Endurance presents return on equity as a measure that is commonly
recognized as a standard of performance by investors, analysts, rating
agencies and other users of its financial information.
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