Endurance Specialty Holdings' CEO Discusses Q2 2011 Results - Earnings Call Transcript

Endurance Specialty Holdings Ltd. ( ENH)

Q2 2011 Earnings Call

July 27, 2011 8:30 AM ET

Executives

Greg Schroeter – VP, IR and Corporate Development

David Cash – CEO

Michael McGuire – CFO

Mark Silverstein – Chief Investment Officer

Analysts

Amit Kumar – Macquarie Capital Inc.

Darren Marcus – Ticonderoga Securities

Presentation

Operator

Good day and welcome to the Endurance Specialty Holdings Second Quarter 2011 Earnings Call. Today’s conference is being recorded. During the presentation, you will be in a listen-only mode. Following the presentation, you will be given instructions on how to signal for a question.

At this time, I would like to turn the conference over to the Senior Vice President of Investor Relations and Corporate Development, Mr. Greg Schroeter. Please go ahead, sir.

Greg Schroeter

Thank you, Audra, and welcome to our call. David Cash, Chief Executive Officer; and Mike McGuire, Chief Financial Officer will deliver our prepared remarks. For the question-and-answer portion of our call, joining David and Mike will be Bill Jewett, President; Mike Angelina, Chief Risk Officer; and Mark Silverstein, Chief Investment Officer.

Before turning the call over to David, I’d like to note that certain of the matters that will be discussed here today are forward-looking statements. These statements are based on current plans, estimates, and expectations, include, but are not necessarily limited to, various elements of our strategy, business plans, growth prospects, market conditions, capital management initiatives and information regarding our premiums, loss reserves, expenses and investment portfolio.

Forward-looking statements are based on our current expectations and assumptions regarding our business, the markets in which we operate, the economy and other future conditions, and involve inherent risk and uncertainties.

A number of factors could cause actual results to differ materially from those contained in the forward-looking statements and we therefore caution you against relying on any of these forward-looking statements.

Forward-looking statements are sensitive to many factors including those identified in Endurance’s most recent Annual Report on Form 10-K and quarterly report on Form 10-Q and other documents on file with the SEC that could cause actual results to differ materially from those contained in the forward-looking statements.

Forward-looking statements speak only as of the date on which they are made, and Endurance undertakes no obligation publicly to update or revise any forward-looking statement whether as a result of new information, future developments or otherwise.

In addition, this presentation contains information regarding operating income and other measures that are non-GAAP financial measures. For a reconciliation of these items to the most directly comparable GAAP financial measures, please refer to our press release, which can be found on our website at www.endurance.bm.

I would now like to turn the call over to David cash.

David Cash

Thank you, Greg. Good morning and welcome to our call. Although our second quarter results were impacted by catastrophe losses, we’re pleased with our performance on a number of fronts. Our diluted book value per share grew 1.3% in the quarter and stands at $52.20, after adding back dividends paid, book value per share is up 11.6% over mid-year 2010.

The company posted a combined ratio of 101.9% for the quarter. This number included 12.8 percentage points of catastrophe losses. Year-over-year written premiums were relatively flat with a 2.7% increase in gross premiums and a 2% decrease in net premiums. We experienced rate driven increases in our Bermuda catastrophe book rate and exposure driven increases in our international reinsurance business and policy count in premium growth in our U.S. Contract Binding Authority insurance business.

Finally, our balance sheet continues to perform well with our short and long tail reserves showing their respective strength in the quarter and our investment portfolio producing a total return of 1.3% for the quarter. Later in the call, I will provide some commentary on the performance for the quarter as well as some thoughts on market conditions and our positioning for the balance of this year.

With that I will hand the call over to Mike McGuire who will review our financial results in more detail.

Michael McGuire

Thanks, David, and good morning everyone. For the second quarter, we generated net income of $41.1 million and $0.87 per diluted share. Our operating income for the second quarter was $24.5 million and $0.48 per diluted share. Our second quarter net premiums written were $441.8 million, down about 2% over the same period in 2010.

Within our insurance segment, net written premiums decline $21.5 million or 11% from the second quarter of 2010, largely due to premium declines and property and professional lines with some offset from growth in casualty. In both our property and professional lines of insurance, business conditions remain competitive and we let policies go.

In casualty, growth from our recently launched small risk Contract Binding Authority Unit was partially offset by declines in large risk excess casualty insurance, where the market remains competitive.

Within the Reinsurance segment, net premiums written were up $12.4 million or 4.9% from the second quarter of 2010, driven by strong renewals and price improvements in our catastrophe business and favorable premium adjustments in our property lines, partially offset by decline in casualty reinsurance premiums from several non-renewals due to pricing, terms and conditions.

Endurance’s combined ratio was 101.9% in the second quarter of 2011, compared to 91% reported in the second quarter a year ago. The increase year-over-year was driven primarily by $61.8 million of net catastrophe losses in our reinsurance business, which added 12.8 points to our overall combined ratio.

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