Endurance Specialty Holdings Ltd. Chairman and CEO John Charman barely addressed the company’s three-month, failed attempted to buy Bermuda reinsurance rival Aspen Insurance Holdings during a 2014 second-quarter earnings call on Aug. 5.
Charman, and the company itself in its Q2 earnings release, simply noted that $12.8 million of expenses relating to the failed Aspen bid prevented operating income during the period from landing higher than the still-successful numbers it achieved.
Specifically, the Aspen-related expenses left Endurance with operating income of $84.7 million during the quarter, or $1.90 million per diluted common share. (Aspen also slightly dinged other results).
Charman mentioned Aspen only in that context rather than offering commentary on why the deal failed. Instead, he told a narrative of Aspen’s strong Q2 results. He said they reflected the success, in part, of 18 months of “rebalancing” Endurance’s portfolio, plus the hiring of a number of new underwriters.
Underwriting “teams are fully integrated and coordinated and leveraging their extensive industry knowledge and relationships to bring attractive business to Endurance,” a sedate Charman said during the company’s investor call. “Strategically, we have positioned Endurance to succeed in a challenging and highly competitive environment. Our investments already paying off from the past year.”
Charman added that as a result of efforts so far, he expected that Endurance can “safely expand and diversify while improving profitability even as market conditions remain challenging.
Endurance booked $75 million in net income available to common shareholders, or $1.68 per diluted common share. That’s up significantly from $52.8 million, or $1.21 per diluted common share, in the 2013 second quarter.
Gross written premiums came in at $689.4 million during the quarter, compared to $572.7 million in the 2013 second quarter. Net written premiums landed at $511.5 million, a jump over $464.6 million in net premiums written over the same period last year. Net premiums earned hit $481.5 million, however, down from $543.3 million in the 2013 second quarter. Investment income, at $39.3 million improved over close to $32.5 million brought in a year ago.
Endurance also achieved a combined ratio of 88.1 during the quarter, a 5.4-percentage point improvement over the 2013 second quarter. The company said a lower net loss ratio helped, but that was offset by higher acquisition and general/administrative expense ratios.
Endurance said its insurance segment produced $321.5 million in gross written premiums during Q2, a 16 percent bump over the 2013 second quarter. For the division, net premiums written are booked at $179 million, which dropped 6.5 percent over the year ago period. The combined ratio for Endurance’s insurance arm reached 97, a number that contains 2.3 percentage points related to Aspen-related expenses. Aspen said that growth came from beefed-up capacity writing professional lines, casualty and other specialty lines of business. Agriculture gains also helped, but that was offset, in part, by commodity price drops in Endurance’s agriculture insurance offerings.
The decline in net premiums written stemmed partially from Endurance’s increased purchase of reinsurance coverage, the company said.
Endurance’s reinsurance segment, on the other hand, produced $367.9 million in gross premiums written during the quarter, a jump of more than 24% over the 2013 second quarter. Net written premiums came in at a healthy $332.4 million, nearly 22 percent higher than the 2013 second quarter. Reinsurance achieved a combined ratio of 80.7. Of that total, $26.5 million in 2014 net catastrophe losses contributed 10.4 percentage points. Another 2.7 percentage points came from costs related to Endurance’s failed M&A bid for Aspen, Endurance said.
Despite gains, Charman acknowledged during the call that “insurance conditions are generally mixed.”
“Smaller casualty products are continuing to show positive rate changes. Professional liability prices are generally flat, although some deterioration is emerging in certain sectors,” Charman said. “Property and short tail rates continue to experience pricing pressure, as losses have been relatively benign. Reinsurance conditions are generally much more competitive than insurance, with short tail and catastrophe loss exposures facing the brunt of pricing pressures. Longer-tail reinsurance lines, while less competitive, continue to see margin compression.”
Charman said that Endurance is mindful of these conditions as it seeks to responsibly grow its business. Among its goals: prudent gross written-premium growth stemming from the company’s expanded specialty underwriter staff. But there’s more.
“We approach [reinsurance] renewals with a focus upon improving positions with longstanding key clients and avoid products targeted by alternative capacity,” Charman added. He noted that the company continues to expand underwriting with targeted clients, and “reduce or exit contracts that had worse deterioration of writing and terms.”
“Overall, I am very pleased with what we have all achieved and accomplished at Endurance over the last 12 to 18 month,” Charman said during the call. “But we still have much to do.”