Endurance Specialty Holdings' CEO Discusses Q3 2011 Results - Earnings Call Transcript

Endurance Specialty Holdings Ltd. ( ENH)

Q3 2011 Earnings Call

October 28, 2011 8:30 AM ET

Executives

Greg Schroeter – Senior Vice President, IR and Corporate Development

David Cash – Chief Executive Officer

Mike McGuire – Chief Financial Officer

Bill Jewett – President

Mike Angelina – Chief Risk Officer

Mark Silverstein – Chief Investment Officer

Analysts

Amit Kumar – Macquarie

Donald Chin – JPMorgan

Presentation

Operator

Good morning, everyone. And welcome to the Endurance Specialty Holdings Third Quarter Earnings Results Conference Call. This call is being recorded. Your lines will be in listen-only mode during the presentation. You will have an opportunity to ask questions after the presentation. Instructions will be given at that time.

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

Greg Schroeter

Thank you, Nikki, 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 I turn the call over to David, I’d like to note that certain of the matters will be discussed here today are forward-looking statements. These statements are based on current plans, estimates and expectations, and 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 risks 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, quarterly report on Form 10-Q and other documents on file with 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, 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 reconciliation of these items to the most directly comparable GAAP financial measures, please refer to our press release, which can be found our website 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. The third quarter was a challenging one for the insurance and reinsurance industry with catastrophe loss activity and unsettled financial markets dominating results. Notwithstanding the unforgiving backdrop against, which we currently operate, our underlying businesses remain very strong and I’m confident that as these conditions normalize, Endurance’s results will reflect that underlying strength.

For the quarter, our diluted book value share shrink 1.1% and now stand at $51.63, after adding back dividends paid, book value per share is down 0.4% for the year 2011. The company posted a combined ratio of a 104.6% for the quarter. This number included 17.5 percentage points of catastrophe losses, which was partially offset by 7.9 points of favorable prior year development.

Year-over-year written premiums grew materially with a 26% increase in gross written premiums and a 22% increase in net premiums. We experienced premium increases in our crop insurance business, rate and volume driven increases in our small risk and contract binding authority insurance businesses and finally, rate increases in our U.S. catastrophe business.

As respect to investments, our portfolio generated a positive total return of 37 basis points in the quarter. Net investment income was $14 million, down from the $54 million we generated in Q3 of 2010. This drop in income primarily stands from the negative marketing to market of our portfolio alternatives, which is fully reflected in our income statement. Later in the call, I will provide further commentary on our performance for the quarter, as well as some thoughts on our positioning for the balance of this year.

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

Mike McGuire

Thanks, David, and good morning, everyone. As we reported last night, Endurance generated a net loss of $20 million and $0.71 per diluted share for the third quarter, and our operating loss was $24.7 million and $0.83 per diluted share. Our results this quarter were impacted by $98.5 million of net catastrophe losses and $22.5 million of mark-to-market losses on our alternative investments.

Our third quarter net premiums written were $541.3 million, reflecting an increase of 22% over the same period in 2010. Our insurance segment generated net written premiums of $303.2 million, 48.4% higher than the third quarter of 2010. Due to premium growth in our agriculture and casualty lines of business, partially offset by declines in property and professional lines of business.

Agriculture net premiums written were up $96 million from a year ago, as increases in net positive premium adjustments by $74 million related to spring crops will recorded to reflect [treat up] acreage reports and the full impact of commodity price increases year-over-year. Fall planted winter wheat premiums accounted for much remaining growth, as wheat prices were approximately 20% higher than a year ago.

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