Endurance Specialty Holdings Ltd. (ENH) reported second-quarter financial results on August 1, reporting higher net income than in the year-ago period, but as we saw in recent quarters, the dilution related to the insurer's acquisition of Montpelier Re in 2015 took a bite out of earnings per share. At the same time, Endurance Specialty reported growth across a number of key metrics that measure its long-term value and earnings power.
Here's a closer look at Endurance Specialty's earnings report, as well as what to expect going forward.
The key numbers
|Metric||Q2 2016||Q2 2015||Change|
|Net income attributable to shareholder||$76.6||$76.0||0.8%|
|Earnings per share||$1.1||$1.7||(32.5%)|
|Book value per share||$68.20||$65.48||4.2%|
|Combined ratio||92.6%||85.5%||(710) basis points|
A closer look at Endurance Specialty's performance
Even with big, catastrophic losses in the insurance portfolio in the quarter, the company still reported profitable underwriting (measured by its combined ratio below 100%):
- The company took $73.6 million in catastrophic claims in the quarter, with $11.1 million in net reinstatement premiums and $7 million attributable to noncontrolling interests reducing the net impact on Endurance Specialty to $55.5 million.
- These claims increased the net loss ratio to 62.7%, from 52.2% one year ago.
- The claims were primarily related to the company's reinsurance segment, which saw its combined ratio increase (a bad thing) from 73% to 88.7%, while the insurance segment reported a lower combined ratio (a good thing) of 93.2% compared to 95.2% one year ago.
Both gross and net premiums written were up sharply from the year-ago quarter:
- Gross income premiums written were $1.14 billion, up 32%.
- Net income premiums written were $717.8 million, up 28%.
- This increase was driven both by the company's insurance segment (up 26%) and the reinsurance segment (up 39% gross, 30% net), which saw strong gains from renewals related to the Montpelier Re acquisition in the second half of 2015.
Investment income -- the profit made by investing the "float" of insurance premiums, was $44 million, up $11.7 million from last year, though its invested assets and cash position of $8.6 billion at quarter-end was down 3% from one year ago.
Chairman and CEO John Charman had the following to say on the earnings call when describing Endurance Specialty's strong recent growth, and how that growth has driven better efficiencies, better geographic exposure, and should reduce risk of losses even as it drives higher earnings:
In the first six months of 2016, Endurance underwrote $2.7 billion of gross premiums, which is greater than the gross written premiums for the full year of 2013, the year when I joined Endurance. Importantly, through disciplined underwriting and risk selection, we have improved our core margins while meaningfully adding to our scale. This is evidenced by our current quarter's accident year loss ratios, excluding the catastrophes, being relatively flat for both segments compared to a year ago, despite market pricing declines over the last 12 months and an elevated level of individual risk losses. Our expense ratio is also showing the clear benefits of our increasing scale, and successful achievements in expense synergies from our integration of Montpelier.
Even in an increasingly competitive environment, and with larger-than-usual catastrophic losses, Endurance continues to deliver profitable underwriting, and it delivered acceptable profits from its investments as well. While the Montpelier Re acquisition continues to weigh on per-share earnings growth, management expects that the larger scale of reach it now has, as well as its ability to drive costs down as it fully integrates Montpelier's operations with its own core, will pay of over the long term.
So far, premium growth offers some indication that it's working, but only time will prove out how much per-share value gets realized.