Endurance has specialized marine lines of insurance. Image source: Endurance Specialty.

Acquisitions can be a smart move, but they almost always involve growing pains. For insurance company Endurance Specialty Holdings (ENH), the purchase of Montpelier Re involved a substantial amount of effort to integrate the two companies smoothly. Coming into its fourth-quarter financial report on Wednesday, Endurance investors had hoped to see sizable gains in revenue that would translate to stronger earnings. To a large extent, Endurance delivered on those expectations, even though it sees an increasingly competitive market having held it back. Let's look more closely at Endurance Specialty to see what's ahead for the insurer.

Endurance Specialty keeps growing
Endurance Specialty's fourth-quarter results generally ended 2015 on a solid note. Gross premiums written jumped 22.5% to $515.6 million, and net premium growth came in at an even faster 24%. The latter figure was less than the 29% rate that investors had wanted to see. GAAP net income rose nearly 20% to $91.4 million, and even though a large increase in outstanding shares sent GAAP earnings downward, adjusted operating income of $1.82 per share was higher than the $1.77 per share consensus forecast among investors.

Looking more closely at Endurance's numbers, book value climbed 7% from year-ago levels to $65.48 per share, inching up less than 1% from Sept. 30. Combined ratios improved by seven percentage points to 76.2%, thanks to extremely favorable prior-year loss reserve development and negligible losses from catastrophic events.

Yet there was a disparity between Endurance's two main business lines. The traditional Insurance segment saw gross premiums jump 34%, and net premiums rose by half. Strength in the non-agricultural area offset weakness in commodity prices that cut the company's writing of crop-insurance policies. Endurance pointed to the property, marine/energy, aviation, and professional lines in particular as helping to boost the segment's results.

By contrast, the reinsurance segment didn't do nearly as well. Premium volumes fell about 16% from the year-ago quarter, and although combined ratios still improved, the progress was far less than in its insurance segment. Competitive pressures forced Endurance to cut premiums and be more selective in choosing not to renew certain policies, and poor commodity prices also weighed on the segment.

CEO John Charman put Endurance's results in their proper context. "The actions we have taken over the last three years to increase our scale, expand our underwriting capabilities, and improve our market presence globally have prepared us extremely well for the competitive conditions we face," Charman said. He sees further gains from the moves Endurance has made paying off in 2016 and beyond.

Can Endurance Specialty keep moving forward?
Endurance Specialty isn't alone in dealing with tough markets, especially in the reinsurance field. Berkshire Hathaway (BRK.A 0.11%) (BRK.B 0.17%) has one of the largest reinsurance businesses in the world, and it has also had to deal with the same factors affecting its ability to maintain strong pricing discipline on its policies. Indeed, in the middle of last year, Berkshire took a hard look to see whether it still made sense for the company to remain in the reinsurance market given current conditions. Executive Ajit Jain said that reinsurance is no longer as lucrative as it once was, and that will make Berkshire focus more on the most profitable deals available while diverting resources toward areas with better prospects.

Endurance arguably doesn't have the same flexibility that Berkshire Hathaway has, but it can still make the most of a tough industry. By being smart about underwriting opportunities, Endurance should be able to navigate the business cycle in insurance and reinsurance and find ways to profit in the long run.