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Rating Action:

Moody's upgrades Endurance Specialty Holdings (senior debt to A3), outlook stable

08 Aug 2017

Note: On August 10, 2017, the press release was corrected as follows: Moody’s added the following at the end of the list of affected ratings: “The following ratings will be withdrawn: Endurance Specialty Holdings Ltd.: provisional senior unsecured (P)A3; provisional subordinated (P)Baa1; provisional preferred (P)Baa2; and provisional preferred stock non-cumulative (P)Baa2.” Revised release follows.

New York, August 08, 2017 -- Moody's Investors Service, ("Moody's") has upgraded the senior debt rating of Endurance Specialty Holdings, Ltd. ("Endurance") to A3 from Baa1 and the insurance financial strength ratings (IFS) of Endurance's principal operating subsidiaries -- Endurance Specialty Insurance Ltd. and Endurance Assurance Corporation -- to A1 from A2. The rating outlook for all entities is stable.

Endurance is a wholly-owned subsidiary of Sompo Japan Nipponkoa Insurance Inc. ("Sompo", IFS: A1, stable) since March 2017. Sompo is part of the Japan-based Sompo Holdings, Inc. ("the group", unrated).

RATINGS RATIONALE

--- RATING UPGRADE AND PARENTAL SUPPORT ---

The rating upgrades reflect implicit and explicit support from Sompo as well as Moody's view that Endurance is strategically important to the group as part of Sompo's strategy to grow its specialty platform and diversify outside its domestic Japanese market. Endurance is the group's largest international platform and accounted for approximately 19% of Sompo's pro forma fiscal year 2016 net income, although a relatively smaller contributor to Sompo's pro forma net premiums written at about 9%.

Moody's views Sompo as being committed to Endurance in terms of strategic collaboration, sharing of underwriting resources, and enterprise risk management integration. Furthermore, the rebranding of Endurance to Sompo International demonstrates increased reputational ties and operational integration between Endurance and Sompo. A further example of parental support is the net worth maintenance agreement from Sompo for the benefit of Endurance Specialty Insurance Ltd. Endurance's debt ratings benefit from both the underlying earnings and dividend capacity from Endurance's insurance operating subsidiaries and implicit parental support from Sompo.

--- STANDALONE CREDIT FUNDAMENTALS ---

The A1 IFS rating reflects the benefit of the aforementioned implicit and explicit parental support relative to the A2 standalone credit profile of Endurance's main operating entities.

Endurance's standalone credit profile reflects its strong position in specialty insurance and reinsurance lines, its conservative reserving philosophy and investment profile and its large capital base. These strengths are tempered by the inherent underwriting volatility in many of the company's core lines of business, including catastrophe exposed property risks and certain casualty-based exposures, as well as by the challenges faced by the company as it transitions its business mix toward higher margin specialty insurance and reinsurance lines. Such challenges include the changing industry dynamics resulting from increasing alternative capital flows into the reinsurance sector and soft pricing conditions in many of Endurance's chosen lines of business.

WHAT COULD CHANGE THE RATING UP / DOWN

Moody's stated that there is unlikely to be upward pressure on Endurance's ratings; however, the following factors could further enhance Endurance's credit profile: (1) an upgrade of Sompo's ratings; (2) continued development of the franchise, including further improvements in geographic and product diversification; (3) returns on capital consistently in low double digit percentage range; and/or (4) sustained reduction in catastrophe risk appetite (e.g. largest 1/100 occurrence PML less than 15% of total equity).

Conversely, Moody's said the following factors could lead to a downgrade of Endurance's ratings: (1) a downgrade of Sompo's ratings; (2) adverse reserve development in the aggregate; (3) a significant increase in the firm's catastrophe risk appetite; and/or (4) deteriorating profitability with multi-year returns on capital below the mid-single digit range (normalized for expected catastrophe losses).

LIST OF AFFECTED RATINGS --

The following ratings have been upgraded:

Endurance Specialty Holdings Ltd.:

.Senior unsecured to A3 from Baa1; preferred stock non-cumulative to Baa2(hyb) from Baa3(hyb); provisional senior unsecured to (P)A3 from (P)Baa1; provisional subordinated to (P)Baa1 from (P)Baa2; provisional preferred to (P)Baa2 from (P)Baa3; and provisional preferred stock non-cumulative to (P)Baa2 from (P)Baa3;

Endurance Specialty Insurance Ltd.:

.Insurance financial strength rating to A1 from A2;

Endurance Assurance Corporation:

.Insurance financial strength rating to A1 from A2.

The outlook for the ratings is stable.

The following ratings will be withdrawn:

Endurance Specialty Holdings Ltd.:

provisional senior unsecured (P)A3; provisional subordinated (P)Baa1; provisional preferred (P)Baa2; and provisional preferred stock non-cumulative (P)Baa2.

Endurance reported gross premiums written of USD4.2 billion and net income of USD333 million for 2016 with total shareholders' equity of USD5.1 billion as of 31 December 2016.

The principal methodology used in these ratings was Global Reinsurers published in April 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Jasper Cooper, CFA
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Marc R. Pinto, CFA
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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