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27 Jan 2011
New York, January 27, 2011 -- Moody's Investors Service has affirmed the A2 insurance financial strength
ratings of Endurance Specialty Insurance Ltd. and Endurance Reinsurance
Corporation of America, and the debt and preferred stock ratings
of their parent holding company, Endurance Specialty Holdings Ltd.
("Endurance" -- senior debt at Baa1) following the company's
announcement that it has reached an agreement to repurchase approximately
$321.5 million of ordinary shares and options from two investment
funds affiliated with Perry Corp., one of the founding investors
in Endurance. The outlook for the ratings is stable.
Moody's notes that while the size of the share repurchase relative
to Endurance's equity capital is large (approximately 11%
of 3Q2010 equity), total share repurchases and dividends (including
the recent announcement) during the past two years are roughly in line
with net income earned by the company during that period. Nonetheless,
the announced repurchase will result in pro forma risk-adjusted
capitalization and adjusted financial leverage metrics that are near the
boundaries consistent with Moody's expectations for the company
at the current rating level. In Moody's opinion, the
front-loaded nature of Endurance's repurchase results in
a reduced cushion for catastrophe or investment losses over the next several
quarters. During the first nine months of 2010, Endurance
repurchased approximately $228 million of its ordinary shares and
paid $39 million in common dividends, compared to net income
available to common shareholders of $242 million.
According to Moody's, Endurance's ratings reflect the
company's established business platform, its good spread of
risk in international insurance and reinsurance (primarily through subsidiaries
based in Bermuda, the United States and the United Kingdom) and
its strong earnings performance and internal capital generation to date.
Other strengths include its efficient operations, integrated systems
infrastructure, and the company's high quality investment portfolio.
The rating agency added that these core strengths are tempered by the
company's underwriting focus in highly cyclical specialty insurance and
reinsurance sectors, and by the inherent underwriting volatility
in many of these specialty lines, which include catastrophe-exposed
property and certain casualty-based exposures. Casualty
lines, by their nature, have significant pricing uncertainty,
given the latency between the time of policy issuance and claim reporting
and settlement, as well as uncertainties regarding emerging claims
and coverage issues.
At the current rating level, Moody's expects that the company will
maintain its adjusted debt to capital ratio below 25% (estimated
at approximately 22% following the share repurchase), gross
underwriting leverage will remain below 2.5x (estimated to be approximately
2.1x at 4Q2010 following the share repurchase), 2011 net
premium growth (excluding crop insurance) will not exceed 5%,
additional share repurchases will remain limited until shareholders'
equity returns to approximately $2.8 billion, shareholders'
equity will not decline by more than 10% over a 12 month period
as a result of catastrophe or other losses, and that the company
will continue to achieve an average return on equity greater than 10%,
measured across multiple years. Deviation from these expectations
could result in negative ratings pressure.
The following ratings were affirmed with a stable outlook:
Endurance Specialty Holdings Ltd. - senior unsecured debt
at Baa1; provisional senior unsecured debt at (P)Baa1, provisional
subordinated debt at (P)Baa2, preferred stock at Baa3, provisional
preferred stock at (P)Baa3;
Endurance Holdings Capital Trusts I and II - provisional capital
securities at (P)Baa2;
Endurance Specialty Insurance Ltd. -- insurance financial
strength at A2; and
Endurance Reinsurance Corporation of America -- insurance
financial strength at A2.
The last rating action on Endurance occurred on March 24, 2010,
when Moody's assigned a Baa1 senior debt rating to Endurance's
add-on issuance of $85 million of senior notes due 2034.
The principal methodology used in rating Endurance was Moody's Global
Rating Methodology for Reinsurers, updated July 2008, which
can be found at www.moodys.com in the Credit Policy &
Methodologies directory, in the Ratings Methodologies subdirectory.
Other methodologies and factors that may have been considered in the process
of rating the company can also be found in the Credit Policy & Methodologies
Endurance Specialty Holdings Ltd., based in Bermuda,
is engaged through its subsidiaries in underwriting insurance and reinsurance
on a worldwide basis. For the first nine months of 2010,
Endurance reported gross written premiums of $1.9 billion
and net income available to common shareholders of $242 million.
Shareholders' equity was approximately $2.9 billion as of
September 30, 2010.
Moody's insurance financial strength ratings are opinions of the ability
of insurance companies to pay punctually senior policyholder claims and
obligations. For more information, visit our website at www.moodys.com/insurance.
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
Senior Vice President
Financial Institutions Group
Moody's Investors Service
Moody's Investors Service
Moody's affirms Endurance Specialty's ratings following share buyback announcement
250 Greenwich Street
New York, NY 10007
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