Agricultural insurance is one of Endurance's specialty lines. Source: Endurance Specialty Holdings.

The insurance industry can be difficult to understand, with complex arrangements to handle risk and allow customers to protect themselves against wide varieties of potential problems. Yet insurance is just another business, and Endurance Specialty Holdings (NYSE:ENH) looks to earn a profit just like any other business does. Coming into its second-quarter financial report, Endurance investors were looking forward to seeing how the company performed, but they were also looking forward to seeing how the recent acquisition of Montpelier Re would affect growth opportunities going forward. Endurance posted solid results that were better than expected for its last pre-acquisition quarter, and going forward, the company has high hopes that the Montpelier merger will only solidify its position in the industry. Let's look more closely at how Endurance Specialty performed and what it sees ahead.

Endurance Specialty keeps bringing in business
Endurance Specialty's second-quarter numbers showed the efforts the insurer has gone to in order to find new business. Gross premiums written jumped 25% from year-ago levels to $861.2 million, while net premiums written rose at a slower 9% pace to $559.1 million. On the bottom line, net income of $76 million was up just $1 million from the second quarter of 2014, but even though earnings per share stayed flat at $1.68, the figure was better than the consensus forecast among investors.

Looking more closely at the results, Endurance had a mix of positive and negative factors affecting its business. Book value increased to $63.32 per share, but that was only up about 3% since the beginning of 2015. In the company's insurance segment, combined ratios rose an unfavorable 3.4 percentage points, with the company blaming higher net losses and acquisition expenses for the rise. Two key energy-related losses were particularly noteworthy in hurting Endurance's bottom line, and the insurer saw less demand for its agricultural insurance products amid competition with third-party reinsurance and ceding business to the federal government.

The reinsurance segment, though, saw fairly good performance. Combined ratios fell 1.3 percentage points, with fewer catastrophic losses helping to boost profits. Endurance did a good job of expanding policies with existing client when they came up for annual renewal, although favorable loss experience in the industry led to some reductions in premiums for new and renewed business.

CEO John Charman described Endurance's experience as a result of its long-term strategic moves. "In spite of challenging market conditions," Charman said, "we were also able to meaningfully expand our global specialty book of business." He also referred to the success of its internal risk-assessment team, noting that "our globally recognized, market-leading underwriters are now firmly established and are attracting high-quality, historically profitable business."

What's ahead for Endurance Specialty?
He also noted the importance of the Montpelier Re transaction to its future. "We announced the completion of our acquisition of Montpelier after both Endurance and Montpelier received overwhelming shareholder support for the transaction," Charman said. "Having spent the last several months diligently planning, we have already begun to immediately integrate Montpelier into Endurance."

Endurance has high hopes for Montpelier. The company believes that the combination will help scale up its overall business, with a particularly attractive property catastrophe business that should fit well with its existing reinsurance exposure. In addition, Endurance believes that it can use Montpelier's experience to get into the business of managing insurance and reinsurance investment products to third-party investors, potentially giving it the ability to share risk and expand its business beyond levels it could do on its own. During the conference call, CFO Michael McGuire noted that Montpelier itself "had a pretty good quarter as well," with a combined ratio below 50% that he described as "a very solid result."

Endurance expects that its continued success will generate additional capital, and when it does, the insurer believes it will find new profitable ways to invest internally in expanding its business prospects. With a dividend yield of around 2%, Endurance also routinely shares its profits with shareholders, but growth appears to take a higher priority in capital allocation for now.

Endurance shares didn't move much following the announcement, and investors appear to be more in tune with the long-term outlook for the insurance company. As it moves forward with Montpelier Re in its arsenal, Endurance Specialty hopes to start a brand-new era of growth while remaining committed to the high-quality business it has done throughout its history.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.