Jan 4 - Fitch Ratings has affirmed the ratings of Endurance Specialty
Holdings Ltd (ENH) and its reinsurance operating subsidiaries, including
the Issuer Default Rating (IDR) for ENH at 'A-', and the Insurer
Financial Strength (IFS) rating of Endurance Specialty Insurance Ltd. at 'A'.
The Rating Outlook is Stable. A full rating list is shown below.
Fitch's rationale for the affirmation of ENH's ratings reflects the company's
favorable earnings and interest coverage, moderate financial leverage, and
high-quality and liquid investment portfolio. The ratings also reflect the
inherent earnings volatility derived from the company's catastrophe exposure,
potential uncertainty in the company's loss reserve estimates for long-tail
business lines and anticipated challenges in the overall competitive but
generally improving property/casualty market rate environment.
ENH announced an initial net loss estimate from Hurricane Sandy of $160 million
pre-tax, with approximately $125 million from the company's reinsurance segment
and the remainder from the insurance segment. Fitch considers this level to be
manageable given the company's strong capitalization (net loss represents about
6% of shareholders' equity at Sept. 30, 2012), although the loss estimate is
still subject to significant uncertainty.
Fitch views Endurance Specialty Holdings Ltd.'s (ENH) profitability as strong
but volatile, characterized by low combined ratios and high returns on capital
in most years, with ENH averaging a 91.8% combined ratio and 11.6% return on
equity over the recent five-year period (2007-2011). Fitch views this as an
important factor supporting the company's ratings and as evidence of ENH's
ENH's combined ratio improved to 96.2% for the first nine months of 2012
compared with 112.9% for full-year 2011, which included 24.8 points for
catastrophe losses. Excluding the impact of catastrophes (3.4 points) and
favorable reserve development (6.2 points), ENH's combined ratio for the first
nine months of 2012 was 99%, up from 97.4% for full-year 2011. This
deterioration was due to increased agriculture losses in the insurance segment
due to summer drought conditions in certain parts of the Midwestern U.S.
ENH's financial leverage and run-rate interest coverage remain supportive of the
company's ratings. Fitch believes that ENH's financial leverage ratio (adjusted
for equity credit and excluding unrealized net gains on fixed income
investments) continues to be moderate at 16.4% as of Sept. 30, 2012, down from
17.3% at Dec. 31, 2011. ENH's GAAP operating earnings-based interest and
preferred dividend coverage has been strong, averaging 6.5x from 2007 to 2011,
which included negative earnings coverage in 2011 due to the increased
The key rating triggers that could result in a downgrade include material
declines in ENH's capitalization that caused net written premiums-to-equity
ratio to exceed 1.2x; financial leverage ratio maintained above 25%; run-rate
operating earnings-based interest and preferred dividend coverage of less than
5x; and material adverse prior year reserve development. Also, catastrophe
losses that are unfavorably inconsistent with the company's publicly disclosed
modeling projections or accident year combined ratios in excess of 100% for
three consecutive years could result in a downgrade.
The key rating triggers that could result in an upgrade include material
improvement in key financial metrics (e.g. net written premium to equity) to
more overcapitalized levels and enhanced competitive positioning with favorable
operating results and manageable earnings volatility in line with higher-rated
peers over an extended time period.
Fitch has affirmed the following ratings with a Stable Outlook:
Endurance Specialty Holdings Ltd.
--IDR at 'A-';
--$200 million 6.15% senior unsecured notes due 2015 at 'BBB+';
--$335 million 7% senior unsecured notes due 2034 at 'BBB+';
--$200 million 7.75% series A non-cumulative perpetual preferred shares at
--$230 million 7.5% series B non-cumulative perpetual preferred shares at
Endurance Specialty Insurance Ltd.
Endurance Reinsurance Corporation of America
Endurance American Specialty Insurance Company
Endurance American Insurance Company
American Agri-Business Insurance Company
Endurance Risk Solutions Assurance Co.
--IFS at 'A'.