As part of my effort to eventually cover every publicly traded reinsurance company I can find, it's time to take on Motley Fool Inside Value recommendation Endurance Specialty (NYSE:ENH). If Endurance were a 70's-era song, it could either be Ted Nugent's "Cat Scratch Fever" or Gloria Gaynor's "I Will Survive." Both are true; this company (and stock) is still ailing a bit from the catastrophes of last year, but it will almost certainly endure.
Endurance's first-quarter results were really the first look at how the company will position itself for the new cycle in cat (short for "catastrophe") insurance. Net premiums written were down 22% -- down 8% after adjusting for premiums dealt with via a different accounting method -- which may have been slightly lower than some were expecting. The rationale makes a great deal of sense, though -- the company wants to diversify its risk exposure and doesn't want to renew business that doesn't meet a higher standard of risk-adjusted profitability.
Better news could be found elsewhere. Overall operating earnings (up about 5%) were higher than estimated, as the company benefited from a good combined ratio and better investment/foreign-exchange results.
Time will tell whether decisions made by companies such as Endurance, XL Capital (NYSE:XL), RenaissanceRe (NYSE:RNR), and Montpelier Re (NYSE:MRH) pan out. After all, restructuring yourself to minimize the impact of reoccurrences of past disasters doesn't guarantee that you won't be caught off guard if tomorrow's catastrophes follow a different pattern.
That said, if Endurance's valuation is any indication, investors may be irrationally skeptical about the company's future. If the new risk models are more on target and the company's attempts to move more underwriting into lines like surplus and excess (where the rate increases are just huge) pays off, Endurance could be a real bargain at current prices. This current underwriting cycle might be more about survival than maximizing a hard market, but Endurance might just be priced at a point where even mere survival can be profitable for patient shareholders.
For more reassuring Foolishness:
MontpelierRe is a Motley Fool Hidden Gems recommendation.
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
