Endurance Reports $92.1 Million Q1 Net Income; 85% Combined Ratio

Bermuda-based Endurance Specialty Holdings Ltd. reported net income available to common shareholders of $92.1 million and $2.13 per diluted common share for the first quarter of 2013, compared to net income of $74.4 million and $1.72 per diluted common share for the first quarter of 2012.

The bulletin noted the following “operating highlights” for the quarter:
— Net premiums written of $908.9 million, an increase of 7.8 percent over the same period in 2012;
— Combined ratio of 85.0 percent, which included 12.1 percentage points of favorable prior year loss reserve development;
— Net investment income of $49.3 million, a decrease of $7.8 million from the same period in 2012;
— Operating income, which excludes after-tax realized investment gains and losses and foreign exchange gains and losses, of $89.8 million and $2.08 per diluted common share;
— An operating return on average common equity for the quarter of 3.9 percent or 15.6 percent on an annualized basis; and
— Fully diluted book value per share of $54.10 as of March 31, 2013, an increase of 2.3 percent from year end 2012 and up 2.9 percent when adjusting for dividends paid during the first quarter.

CEO David Cash commented: “We had an excellent start to the year with strong financial performance and solid progress in the ongoing development of our businesses. Net premiums written increased as a result of a successful January 1st renewal season in our reinsurance segment as we saw the benefit from our international expansion and the addition of specialty underwriting teams hired in 2012. Strategically, momentum is accelerating as we have attracted several new leaders and teams to our global insurance and reinsurance operations.”

The earnings report gave the following operating highlights for the company’s insurance segment in the first quarter:
— Net premiums written of $404.7 million, a decrease of 5.4 percent from the first quarter of 2012;
— Combined ratio of 99.0 percent, an improvement of 2.7 percentage points from the first quarter of 2012; and
— Favorable prior year loss reserve development of 11.4 percentage points during the current period, compared to 4.9 percentage points of favorable prior year loss reserve development in the first quarter of 2012.

“Net premiums written in the Insurance segment decreased $23.1 million for the first quarter of 2013 compared to the same period in the prior year primarily due to declines in agriculture and professional lines premiums,” the report continued.

“Within the agriculture line of business, net premiums written declined 3.9 percent compared to a year ago as a result of the cession of more premiums to the U.S. Government and third parties. Estimated policy count growth in excess of 9 percent in agriculture over the first quarter of 2012 was more than offset by reduced premium retentions in this line of business. The current quarter also reflects the decline in net premiums written in our professional line of business as a result of exiting a program relationship in late 2012.

“The improvement in the Insurance segment combined ratio for the quarter ended March 31, 2013 compared to the same period in 2012 was predominantly driven by a lower net loss ratio, partially offset by a higher general and administrative expense ratio. The net loss ratio in the first quarter of 2013 benefited from $17.3 million, or 11.4 percentage points, of favorable prior year loss reserve development, compared to $7.8 million, or 4.9 percentage points, for the same period a year ago.

“Partially offsetting this improvement in the net loss ratio was an increase in the current year net loss ratio in the professional and agriculture lines of business. The general and administrative expense ratio was higher in the current quarter due to a smaller earned premium base and strategic investments being made to our U.S. specialty insurance operations.”

In its reinsurance segment Endurance reported the following operating highlights for the period:
— Net premiums written of $504.2 million, an increase of 21.4 percent from the first quarter of 2012;
— Combined ratio of 77.1 percent, an improvement of 16.1 percentage points from the first quarter of 2012; and
— Favorable prior year loss reserve development of 12.4 percentage points compared to 3.6 percentage points of favorable prior year loss reserve development in the first quarter of 2012.

“The $88.9 million increase in net premiums written within the Reinsurance segment during the first quarter of 2013 over the first quarter of 2012 resulted primarily from increases within the property, casualty and other specialty lines of business,” said the earnings report. “The current quarter increase was generated by the property line of business, driven by the combination of rate increases as well as growth in new business in our London, Zurich and United States offices.

“Within our casualty line of business, net written premiums increased $29.8 million from a year ago as a result of new business written in our Zurich and U.S. offices and a change in renewal date on one large treaty, partially offset by a decline in Bermuda based clash business as some contracts were non-renewed due to returns no longer meeting targeted profitability levels.

“Our other specialty line of reinsurance business expanded its net written premiums $19.8 million from a year ago, primarily due to new business generated by the trade credit and surety team that joined Endurance in late 2012.

“The Reinsurance segment combined ratio in the first quarter of 2013 improved compared to the same period in 2012 predominantly due to a lower net loss ratio. The net loss ratio for the first quarter of 2013 included less than one point of catastrophe losses compared to 9.7 percentage points of catastrophe losses recorded in the first quarter of 2012 related to tornadoes in Kentucky.

“The net loss ratio in the first quarter of 2013 also benefited from 12.4 percentage points of favorable prior year loss reserve development across all lines of business, compared to 3.6 percentage points for the same period a year ago. Also modestly contributing to the improved combined ratio in the current quarter compared to a year ago were lower general and administrative expenses on a larger earned premium base.”

Source: Endurance Specialty Holdings