Net Loss For Endurance Speciality
Endurance Specialty Holdings Ltd. yesterday [Feb. 9] reported a net loss of $27.4 million and $0.88 per diluted common share for the fourth quarter of 2011 versus net income of $111.2 million and $2.09 per diluted common share for the fourth quarter of 2010.
For the year ended December 31, 2011, the net loss was $93.7 million and $2.95 per diluted common share versus net income of $364.7 million and $6.38 per diluted common share for the year ended December 31, 2010.
Operating highlights for the quarter ended December 31, 2011 were as follows:
- Net premiums written of $187.9 million, an increase of 18.8% over the same period in 2010;
- Combined ratio of 112.5%, which included 8.4 percentage points of
- favorable prior year loss reserve development and 22.0 percentage points of catastrophe losses from 2011 events;
- Net investment income of $40.6 million, a decrease of $16.3 million from the same period in 2010;
- An operating loss, which excludes after-tax realized investment gains and losses and foreign exchange gains and losses, of $31.3 million and $0.98 per diluted common share;
- – An operating loss on average common equity for the quarter of 1.8%; and
- Book value of $50.56 per diluted common share, down 2.1% from September 30, 2011.
Operating highlights for the year ended December 31, 2011 were as follows:
- Net premiums written of $1,979.8 million, an increase of 12.3% over 2010;
- Combined ratio of 112.9%, which included 9.3 percentage points of favorable prior year loss reserve development and 24.5 percentage points of catastrophe losses from 2011 events;
- Net investment income of $147.0 million, a decrease of $53.3 million over the same period in 2010;
- An operating loss, which excludes after-tax realized investment gains and losses and foreign exchange gains and losses, of $128.2 million and $3.81 per diluted common share;
- An operating loss on average common equity of 6.3%; and
- Book value of $50.56 per diluted common share, down 4.1% from December 31, 2010.
David Cash, Chief Executive Officer, commented, “While 2011 was a challenging year with global industry catastrophe losses in excess of $100 billion, Endurance is well positioned to benefit from the improving underwriting conditions we are beginning to see in many of our businesses. I am pleased with the improved pricing we were able to achieve in our reinsurance portfolio at January 1, particularly in our catastrophe lines, and our insurance business is also starting to see positive pricing momentum in a number of places.”
Insurance Segment
Operating highlights for Endurance’s Insurance segment for the quarter ended December 31, 2011 were as follows:
- Net premiums written of $96.5 million, an increase of 18.2% from the fourth quarter of 2010;
- Combined ratio of 111.0%, an increase of 24.3 percentage points from the fourth quarter of 2010; and
- Favorable prior year loss reserve development of 0.2 percentage points during the current period, compared to 5.6 percentage points of favorable prior year loss reserve development in the fourth quarter of 2010.
Operating highlights for Endurance’s Insurance segment for the year ended December 31, 2011 were as follows:
- Net premiums written of $1,005.5 million, an increase of 21.2% from the prior year;
- Combined ratio of 100.1%, an increase of 9.5 percentage points from 2010; and
- Favorable prior year loss reserve development of 7.2 percentage points during the current period, compared to 5.7 percentage points of favorable prior year loss reserve development in 2010.
The increase in net written premiums of $14.8 million in the Insurance segment in the fourth quarter of 2011 compared to the fourth quarter of 2010 resulted predominantly from increased business written within the agriculture, professional lines and casualty lines of business partially offset by modest reductions in the property and healthcare liability lines of business.
For the year ended December 31, 2011, net written premiums increased $175.6 million compared to a year ago, principally due to growth within the agriculture and casualty lines, partially offset by declines in the professional, property and healthcare liability lines of business. For both the fourth quarter of 2011 and the full year 2011, growth in the agriculture line was driven by higher commodity prices compared to a year ago, while growth in the casualty line occurred in our contract binding authority business which was added in late 2010.
The decline in net premiums written in the professional and healthcare liability lines for the full year 2011 was driven by increased competition, as contracts which did not meet Endurance’s return requirements were non-renewed.
The increase in the Insurance segment combined ratio in the current quarter compared to a year ago was largely driven by increased net loss and acquisition expense ratios, partially offset by a lower general and administrative expense ratio.
The increase in the net loss ratio largely reflects higher losses within the agriculture line of business due to adverse growing conditions compared to a year ago.
Also impacting the current quarter net loss ratio were higher losses from the property line of business caused principally by two large fire claims.
The decline in the general and administrative expense ratio for the fourth quarter of 2011 was due to lower variable incentive compensation compared to a year ago, partially offset by larger expenses related to write downs on leasehold improvements and expenses related to staffing changes made in the fourth quarter of 2011.
For the full year 2011 compared to a year ago, the combined ratio increased due to a higher net loss ratio, partially offset by modestly lower acquisition and general and administrative expense ratios.
The net loss ratio for the full year was higher than a year ago predominantly due to higher losses in the agriculture line of business stemming from adverse growing conditions, as well as losses within the property line of business related to Hurricane Irene. Partially offsetting the higher level of losses was a larger amount of favorable prior year loss reserve development, predominantly driven by improved 2010 results in the agriculture line of business.
Reinsurance Segment
Operating highlights for Endurance’s Reinsurance segment for the quarter ended December 31, 2011 were as follows:
- Net premiums written of $91.4 million, an increase of 19.5% from the fourth quarter of 2010;
- Combined ratio of 114.0%, an increase of 31.2 percentage points from the fourth quarter of 2010; and
- Favorable prior year loss reserve development of 16.6 percentage points during the fourth quarter of 2011, compared to 4.9 percentage points of favorable prior year loss reserve development in the fourth quarter of 2010; and
- Net catastrophe losses from 2011 events of $109.9 million or 43.8 percentage points on the combined ratio.
Operating highlights for Endurance’s Reinsurance segment for the year ended December 31, 2011 were as follows:
- Net premiums written of $974.3 million, an increase of 4.3% from 2010;
- Combined ratio of 126.0%, an increase of 39.1 percentage points from the prior year;
- Favorable prior year loss reserve development of 11.5 percentage points during the current period, compared to 8.7 percentage points of favorable prior year loss reserve development in 2010; and
- Net catastrophe losses from 2011 events of $457.1 million or 49.2
- percentage points on the combined ratio.
The $14.9 million increase in net premiums written in the Reinsurance segment during the fourth quarter of 2011 over the fourth quarter of 2010 resulted primarily from growth in the casualty, property and surety and other specialty lines of business.
Partially offsetting this growth were declines in net premiums written within the catastrophe and aerospace and marine lines of business. The largest change in net premiums written in the current quarter compared to fourth quarter 2010 was experienced in the casualty line of business due to favorable premium adjustments and increased participation on a renewing contract in 2011.
For full year 2011, net premiums written increased $40.5 million compared to full year 2010 driven by growth across the catastrophe, property and the aerospace and marines lines of business, partially offset by declines in casualty and surety and other specialty lines.
The combined ratios in the Reinsurance segment for the quarter and year ended December 31, 2011 increased compared to the same periods in 2010 due to higher net loss ratios.
The higher net loss ratios resulted from a greater frequency of large loss events during 2011, including the earthquakes in New Zealand and Japan and the Queensland floods in Australia during the first quarter, spring tornadoes in the United States in the second quarter, Hurricane Irene, the Danish flood, Texas brushfires and multiple storms in the Midwest in the third quarter and the Thailand flood in the fourth quarter [pictured below].
Partially offsetting the increase in the net loss ratios in the current periods was the recognition of greater favorable prior year loss reserve development within the short and long tail lines of business compared to the same periods in 2010, as claims within those lines of business did not emerge as anticipated.
Investments
Endurance’s net investment income decreased 28.6% or $16.3 million for the quarter ended December 31, 2011 and 26.6% or $53.3 million for the year ended December 31, 2011 compared to the same periods in 2010. During the fourth quarter and year ended December 31, 2011, Endurance’s net investment income included mark to market gains of $6.9 million and losses of $0.7 million, respectively, on its alternative investment funds and high yield loan funds which are included in other investments, as compared to gains of $16.4 million and $40.3 million in the fourth quarter and year ended December 31, 2010.
Investment income generated from Endurance’s available for sale investments declined by $7.4 million and $13.9 million for the quarter and year ended December 31, 2011 compared to the same periods in 2010. This decrease resulted from lower reinvestment rates during 2011 and the short duration of Endurance’s fixed maturity portfolio.
The ending book yield on Endurance’s fixed maturity investments at December 31, 2011 was 2.68%, down from 3.13% at December 31, 2010.
At December 31, 2011, Endurance’s fixed maturity portfolio, which comprises 90.5% of Endurance’s investments, had an average credit quality of AA and a duration of 2.39 years.
Endurance’s fixed maturity portfolio was in an unrealized gain position of $161.6 million at December 31, 2011, an improvement of $13.2 million from December 31, 2010. Endurance recorded net realized gains on investment sales, including impairment losses recognized in earnings, of $4.6 million and $28.2 million during the fourth quarter and year ended December 31, 2011 compared to net realized investment gains of $6.6 million and $18.5 million during the same periods in 2010.
Endurance ended the fourth quarter of 2011 with cash and invested assets of $6.3 billion, which represents a 1.9% increase from December 31, 2010. Net operating cash flow was $281.3 million for the year ended December 31, 2011 versus $407.2 million for the year ended December 31, 2010.
Capitalization and Shareholders’ Equity
At December 31, 2011, Endurance’s shareholders’ equity was $2.61 billion or $50.56 per diluted common share versus $2.85 billion or $52.74 per diluted common share at December 31, 2010.
For the quarter and year ended December 31, 2011, Endurance declared and paid dividends of $0.30 and $1.20 per share, respectively. During 2011, Endurance repurchased 7.6 million of its common shares for $340.8 million and issued 9.2 million perpetual preferred shares for net proceeds of $224.0 million.
Endurance Specialty Holdings Ltd. is a global specialty provider of property and casualty insurance and reinsurance.
Through its operating subsidiaries, Endurance writes property, casualty, healthcare liability, agriculture, professional lines and surety and other specialty lines of insurance and property, catastrophe, casualty, agriculture, marine, aerospace, and surety and other specialty lines of reinsurance.
Endurance’s headquarters are located at Wellesley House on Pitts Bay Road in Pembroke.
