ENDURANCE SPECIALTY HOLDINGS LTD - 10-K Annual Report

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification Number)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 2004,

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from to

Commission file number 1-31599

ENDURANCE SPECIALTY HOLDINGS LTD.
(Exact name of registrant as specified in its charter)

Wellesley House
90 Pitts Bay Road
Pembroke HM 08, Bermuda
(Address of principal executive offices, including postal code)

Registrant's telephone number, including area code: (441) 278-0400

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes No

The aggregate market value of the ordinary shares held by non-affiliates of the registrant, as of June 30, 2004, was $1,817,963,032.

As of February 21, 2005, 61,255,592 ordinary shares were outstanding.

Certain portions of the registrant's definitive proxy statement relating to its 2005 annual general meeting of shareholders are incorporated by reference into Part III of this report and certain portions of the registrant's annual report to shareholders for the fiscal year ended December 31, 2004 are incorporated by reference into Parts II and IV of this report.

ENDURANCE SPECIALTY HOLDINGS LTD.
Table of Contents


Item			Page Number
PART I
	1.	Business	4
	2.	Properties	58
	3.	Legal Proceedings	58
	4.	Submission of Matters to a Vote of Security Holders	58
PART II
	5.	Market for the Registrant's Ordinary Shares, Related Shareholder Matters and Issuer Purchases of Equity Securities	59
	6.	Selected Financial Data	60
	7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	60
	7A.	Quantitative and Qualitative Disclosures about Market Risk	60
	8.	Financial Statements and Supplementary Data	61
	9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	62
	9A.	Controls and Procedures	62
	9B.	Other Information	62
PART III
	10.	Directors and Executive Officers of the Registrant	63
	11.	Executive Compensation	63
	12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters	63
	13.	Certain Relationships and Related Transactions	63
	14.	Principal Accountant Fees and Services	64
PART IV
	15.	Exhibits, Financial Statement Schedules	65

PART I

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements under "Item 1. Business," "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Annual Report on Form 10-K may include forward-looking statements which reflect our current views with respect to future events and financial performance. Such statements include forward-looking statements both with respect to us in general and the insurance and reinsurance sectors specifically, both as to underwriting and investment matters. Statements which include the words "expect," "intend," "plan," "believe," "project," "anticipate," "seek," "will," and similar statements of a future or forward-looking nature identify forward-looking statements for purposes of the federal securities laws or otherwise.

All forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause actual results to differ materially from those indicated in such statements. We believe that these factors include, but are not limited to, the following:


•	the effects of competitors' pricing policies, and of changes in laws and regulations on competition, including those regarding contingent commissions, industry consolidation and development of competing financial products;


•	the impact of acts of terrorism and acts of war;


•	the effects of terrorist related insurance legislation and laws;


•	greater frequency or severity of claims and loss activity, including as a result of natural or man-made catastrophic events, than our underwriting, reserving or investment practices have anticipated;


•	decreased level of demand for property and casualty insurance or reinsurance or increased competition due to an increase in capacity of property and casualty insurers and reinsurers;


•	the inability to obtain or maintain financial strength or claims-paying ratings by one or more of our subsidiaries;


•	uncertainties in our reserving process;


•	Endurance Specialty Holdings Ltd. ("Endurance Holdings") or Endurance Specialty Insurance Ltd. ("Endurance Bermuda") becomes subject to income taxes in the United States or the United Kingdom;


•	changes in regulations or tax laws applicable to us, our subsidiaries, brokers or customers;


•	acceptance of our products and services, including new products and services;


•	the inability to renew business previously underwritten or acquired;


•	changes in the availability, cost or quality of reinsurance or retrocessional coverage;


•	loss of key personnel;


•	political stability of Bermuda;


•	changes in accounting policies or practices;


•	the impact of the investigations of the New York Attorney General on the industry and on the Company in particular; and


•	changes in general economic conditions, including inflation, foreign currency exchange rates, interest rates, and other factors.

The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this Annual Report on Form 10-K. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. The information constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Item 1. Business

Overview

Endurance Holdings is a holding company domiciled in Bermuda. Through our operating subsidiaries based in Bermuda, the United Kingdom and the United States, we focus on underwriting specialty lines of personal and commercial property and casualty insurance and reinsurance on a global basis. We define specialty lines as those lines of insurance and reinsurance that require dedicated, specialized underwriting skills and resources in order to be profitably underwritten. Our portfolio of specialty lines of business is organized into the following segments: property per risk treaty reinsurance, property catastrophe reinsurance, casualty treaty reinsurance, property individual risk, casualty individual risk and aerospace and other specialty lines.

We seek to create a portfolio of specialty lines which are profitable and have limited correlation with one another. We believe that a well constructed portfolio of diversified risks will produce less volatile results than each of the individual lines of business independently, allow for greater capital efficiency and provide a superior risk-adjusted return on capital. We identify and underwrite attractive insurance and reinsurance business through our experienced underwriting staff and apply a centralized quantitative framework of risk analysis across all of our business segments. We produce our business through the leading worldwide insurance and reinsurance brokers and intermediaries.

We began operations on December 17, 2001 after Endurance Bermuda completed a private placement of $1.2 billion of its equity securities. Initial investors in Endurance Bermuda included Aon Corporation ("Aon"), Zurich Financial Services Group ("Zurich"), Thomas H. Lee Partners, L.P., Texas Pacific Group, Capital Z Financial Services Fund II, L.P., Perry Capital, Metro Center Investments Pte Ltd., General Motors Asset Management, Lightyear Capital, Credit Suisse First Boston Private Equity, Golden Gate Capital, Reservoir Capital and TIAA CREF. Since our inception in December, 2001, we have been able to achieve significant success in the development of our business. Our accomplishments include:


•	building our business from a startup in 2001 to $1.7 billion in gross premiums and $355.6 million in net income for the year ended December 31, 2004;


•	generating a 20.3% return on average equity for the year ended December 31, 2004;


•	successfully launching numerous specialty business segments;


•	building a substantial client base around the world;


•	recruiting a highly experienced management team and building a staff of approximately 300;


•	licensing insurance subsidiaries in Bermuda, the United Kingdom and the United States;


•	acquiring renewal rights to the property catastrophe business of LaSalle Re Limited ("LaSalle");


•	acquiring renewal rights to the majority of the reinsurance business of The Hartford Fire Insurance Company and HartRe Company, L.L.C. (collectively, "HartRe");


•	acquiring renewal rights to the majority of the surety reinsurance business of XL Reinsurance America Inc. ("XL Re America") on a prospective basis;


•	expanding our credit capacity to an $850 million multi-year letter of credit and revolving credit facility and issuing $250 million of 7% Senior Notes due 2034;


•	successfully completing our initial public offering in February 2003 and obtaining a NYSE listing;


•	repurchasing 8.6 million of our ordinary shares since our start up in 2001; and


•	paying $70.9 million in dividends to our shareholders during 2003 and 2004.

In general, we believe operating conditions in the insurance and reinsurance marketplace continued to be favorable during 2004. Though pricing has not sustained levels seen in the two years immediately following the events of September 11, 2001, we continue to see the opportunity to

provide needed underwriting capacity at what we believe are attractive rates in conjunction with steady terms and conditions. Although we are beginning to see increased competition across a number of our business segments, we believe premium levels are still attractive in the lines of business in which we participate.

Endurance Specialty Insurance Ltd. ("Endurance Bermuda")

Endurance Bermuda was incorporated on November 30, 2001and Endurance Bermuda is registered with the Bermuda Monetary Authority ("BMA") as a Class 4 Bermuda insurance and reinsurance company. Among other matters, Bermuda statutes, regulations and policies of the BMA require Endurance Bermuda to maintain minimum levels of statutory capital, statutory capital and surplus, and liquidity to meet solvency standards, to obtain prior approval of ownership and transfer of shares and to submit to certain periodic examinations of its financial condition. Endurance Bermuda, headquartered in Pembroke, Bermuda, focuses on property and casualty insurance and reinsurance business that is of a low frequency, high severity nature. Endurance Bermuda is headed by David Cash.

Endurance Worldwide Insurance Limited ("Endurance U.K.")

Endurance U.K. was incorporated on April 10, 2002. On December 4, 2002, Endurance U.K. was authorized by the FSA to begin writing certain lines of insurance and reinsurance in the United Kingdom. Headquartered in London, Endurance U.K. is able to operate throughout the European Union, subject to compliance with certain notification requirements of the FSA and in some cases, certain local regulatory requirements, and focuses on the origination of property and casualty insurance and reinsurance from non-North American markets. We initially capitalized Endurance U.K. with £100 million of initial capital. Endurance U.K. is headed by Mark W. Boucher.

Endurance Reinsurance Corporation of America ("Endurance U.S.")

Endurance U.S. was incorporated on September 5, 2002. On December 18, 2002, Endurance U.S. received a license in the State of New York from the New York Department of Insurance to conduct business as a property and casualty reinsurer. Certain reinsurance business, known as working layer, is characterized by higher frequency and lower severity of losses as compared to the type of reinsurance business targeted by Endurance Bermuda. We believe that this business, which requires a higher degree of client contact including underwriting, claims, actuarial and accounting reviews, would be difficult to underwrite from a Bermuda location. Endurance U.S. focuses on such working layer business and provides us with access to classes of reinsurance business and types of reinsurance clients which we would not otherwise be able to effectively access from Bermuda. We initially capitalized Endurance U.S. with $336 million in equity capital and during 2003 and 2004 contributed an additional $278 million of equity capital. Endurance U.S. is headed by William M. Jewett.

Endurance Insurance Operations ("Endurance Insurance")

The Company commenced development of its United States insurance business in October 2004. Endurance Insurance will focus on finding specialized insurance opportunities that allow us to diversify our client base and distribution in lines of business that complement our existing specialty insurance and reinsurance business. Endurance Insurance has written no premiums as of December 31, 2004. Endurance Insurance is headed by Michael Fujii.

Endurance Services Limited ("Endurance Services")

Endurance Services was incorporated on January 12, 2004. Endurance Services has been established to provide administrative support to and to improve operational efficiencies among Endurance Bermuda, Endurance U.S. and Endurance U.K. Endurance Services is headed by John L. O'Connor.

Our Competitive Strengths

We believe certain characteristics distinguish us from our competitors, including:


•	Extensive Specialized Underwriting and Risk Management Capabilities. We have made significant investments in our technical capabilities, including hiring 102 experienced underwriters and an actuarial, risk analysis and modeling staff of 34.

•

Underwriting and Risk Management Discipline. We remain highly selective in our underwriting approach. All of our underwriting activity is supported by detailed, upfront pricing analyses through which we seek to limit our exposure to any single contract and any single geographic or catastrophic peril. In 2004, we authorized on 46% of the 10,264 insurance and reinsurance submissions we received, while in 2003 we authorized on 37% of the 8,637 insurance and reinsurance submissions received.


•	Experienced Management Team. Our senior management team averages over 20 years of experience in the insurance and reinsurance industry and participates in our stock-based compensation plan that ties compensation to the achievement of goals aligned with those of our shareholders.

•

Strong Market Relationships. The underwriting expertise and extensive industry relationships previously developed by our senior management team and underwriters have allowed us to quickly establish our presence in the global insurance and reinsurance markets. We have strong relationships with major insurance and reinsurance brokers, including: Aon, Marsh, Willis, and Benfield. In the year ended December 31, 2004, we wrote business with more than 1,200 clients.

•

Bermuda-Based Operations. Bermuda is our principal base of operations. As one of the leading centers of the global insurance industry, Bermuda provides us with ready access to clients who increasingly seek Bermuda-based capacity to meet their insurance and reinsurance needs. Bermuda also has a well developed network of insurance and reinsurance brokers, an experienced pool of employees with significant insurance expertise and a responsive regulatory environment which allows for rapid innovation in insurance and reinsurance products.


•	Conservative Investment Policy. We have a conservative investment policy aimed at minimizing the volatility of our investment results. At December 31, 2004, 97.7% of our invested assets were held in cash and cash equivalents and fixed maturity securities, 84.1% of which were U.S. government or rated AAA and 100% were rated A or better, with an average duration of 2.77 years.


•	Excellent Financial Strength. The Company's operating subsidiaries are rated "A" (Excellent) by A.M. Best and "A-" (Strong) by Standard & Poor's. These ratings reflect A.M. Best's and Standard & Poor's opinions of our financial strength and are not applicable to the securities of the Company are not recommendations to buy, sell or hold such securities.

•

Unencumbered Capital Base. At December 31, 2004, we had total shareholders' equity of approximately $1.86 billion. As a recently formed company, we are unencumbered by any historical losses relating to asbestos liabilities, the World Trade Center tragedy and other pre-December 31, 2001 liability exposures currently affecting many of our competitors. We believe that our unencumbered capital will allow us to distinguish ourselves from many of our competitors and help to attract clients who are seeking long- term financial stability from their insurers and reinsurers.

Business Strategy

Our goal is to generate a superior long-term return on capital by leveraging our competitive strengths and successfully executing our strategy.

The key elements of our strategy are:


•	Maintain a Portfolio of Profitable Specialty Lines. We believe there are significant opportunities in a number of lines of business in the current market environment. We participate in those specific specialty lines that we believe have the potential to offer the


	highest risk-adjusted return on capital and in which we believe we can establish a competitive advantage through our specialized teams of expert underwriters. We intend to use our ability to participate in multiple lines of business to deploy capital and resources to the most attractive business lines at the most opportune times.


•	Utilize Monoline Level of Expertise in Each Line of Business. We have formed teams of highly experienced professionals to manage each of our specific lines of business. Each team is led by a senior executive and is supported by highly experienced underwriting personnel who are specialists in their unique business line.

•

Apply Extensive Technical Analysis to Our Underwriting. We manage our portfolio of risks through the utilization of catastrophe modeling and dynamic financial analysis techniques that provide a quantitative basis for the management of risk aggregation and correlation. We license a broad array of catastrophe modeling products available from EQE, AIR and RMS. We have also launched our own proprietary underwriting risk management system and have built a proprietary suite of individual contract, portfolio, capital allocation and market risk management and price monitoring tools around this system. We proactively monitor market trends to look for competitive threats to the lines of business in which we are operating as well as analyze potential new lines that may provide attractive opportunities.

We require significant amounts of data in our underwriting process. All major accounts are underwritten with dedicated actuarial involvement. We avoid writing business for which we believe sufficient underwriting data is not available, and therefore, did not write qualifying quota share agreements for Lloyd's of London syndicates and have written only a limited amount of retrocessional business. We also limit the use of retrocessional protection, relying upon our underwriting analysis and portfolio diversification for risk management purposes.

•

Maintain an Efficient Expense Structure. We believe an efficient expense structure will allow us to produce more profitable results and more easily deploy our resources to those lines of business that become more attractive as market conditions change. Several factors contribute to our low cost structure, including our utilization of variable cost brokerage distribution, our emphasis on large insurance and reinsurance programs for clients, which can be underwritten by relatively small teams, and our centralized risk management structure which limits redundant expenses and systems.

•

Proactively Manage Our Capital Base. We actively manage our capital by allocating resources to underwriting opportunities which we believe will offer the highest risk-adjusted return on capital. Over the long term, we will seek to return excess capital to our shareholders rather than use excess capital to underwrite business at unattractive pricing levels or coverage terms. We have already undertaken a number of capital management initiatives including three acquisitions at prices which were accretive to our earnings, selective repurchases of our ordinary shares on favorable terms, and the payment of shareholder dividends.

Business Segments

Our commitment to specialized underwriting requires market knowledge, analytic capabilities and experience more typically found in monoline companies. Accordingly, we have organized our company by business segment, under the direction of managers for each line of business who are recognized leaders in their respective fields. We support these managers with centralized and state of the art analytic expertise and technology. Our six business segments and the related gross premiums written and acquired for the year ended December 31, 2004 are as follows:


Business Segment	Gross Premiums Written and Acquired (in millions)		% of Total
Property Per Risk Treaty Reinsurance	$	441.4		25.8	%
Property Catastrophe Reinsurance		247.0		14.4
Casualty Treaty Reinsurance		441.3		25.8
Property Individual Risk		112.9		6.6
Casualty Individual Risk		246.8		14.4
Aerospace and Other Specialty Lines		222.0		13.0
Total	$	1,711.4		100.0	%

These segments and their associated lines of business are described in greater detail below.

Property Per Risk Treaty Reinsurance. Our Property Per Risk Treaty Reinsurance business segment reinsures individual property risks of ceding companies on a treaty basis. This segment is comprised of a diversified portfolio of property per risk reinsurance contracts covering claims from individual insurance policies issued by our ceding company clients and including both personal lines and commercial exposures (principally covering buildings, structures, equipment, contents and time element coverages). Loss exposures in this segment include the perils of fire, explosion, collapse, riot, vandalism, wind, tornado, flood and earthquake. This segment is comprised of proportional and excess of loss reinsurance agreements. Our current mix of business, as measured by gross premiums written during the year ended December 31, 2004, is approximately 44% excess of loss and 56% proportional. Currently, 58% of the exposures reinsured in this segment are in the United States. The remaining reinsured risks represent worldwide exposures, including the United States. This segment is underwritten by Endurance U.S., Endurance U.K. and Endurance Bermuda.

Because the reinsurance contracts written in this segment are exposed to losses on an individual policy basis, we underwrite and price the agreements based on anticipated claims frequency. We use actuarial techniques to examine our ceding companies' underwriting results as well as the underwriting results from the ceding companies with comparable books of business and pertinent industry results. These experience analyses are compared against actuarial exposure analyses to refine our pricing assumptions. Our pricing also takes into account our variable and fixed expenses and our assessment of an appropriate return on the capital required to support each individual contract relative to our portfolio of risks.

Reinsurance contracts that provide coverage through individual underlying insurance policies may contain significant risk of accumulation of exposures, both to natural and other perils. Our underwriting process explicitly recognizes these exposures. Natural perils, such as windstorm, earthquake and flood, are analyzed through our catastrophe modeling systems. Other perils, such as fire and terrorism events, are considered on a contract-by-contract basis and monitored for cumulative aggregate exposure. All of our excess of loss agreements have occurrence limits and many have limited reinstatement rights. Proportional contracts can be particularly prone to accumulations of exposure and losses in catastrophic events. Most of our proportional contracts in force at December 31, 2004 are also subject to occurrence limits. The only exceptions made to our occurrence limits requirements are a result of explicit approval by our executive management and have been based on complete and ongoing disclosures by our ceding companies of the underlying policies.

This business segment typically operates as a subscription market, with the reinsurance intermediaries seeking participation for specific treaties among a number of reinsurers. Those reinsurers that ultimately subscribe to any given treaty participate at substantially the same pricing and terms and conditions. Our maximum capacity on any one program is $30 million on any one risk and our average commitment has been approximately $3.1 million.

Our Property Per Risk Treaty Reinsurance business is produced principally by Aon, Benfield, Willis and Marsh. Our principal competitors in this segment include Arch Capital Group Ltd. ("Arch"), GeneralCologne Re ("General Re"), Munchener Ruckversicherungs-Gesellschaft Aktiengesellschaft ("Munich Re"), PartnerRe Ltd. ("PartnerRe"), Transatlantic Reinsurance Company ("Transatlantic Re") and XL Capital Ltd ("XL").

Property Catastrophe Reinsurance. Our Property Catastrophe Reinsurance business segment reinsures catastrophic perils for ceding companies on a treaty basis. Our property catastrophe reinsurance contracts provide protection for most catastrophic losses that are covered in the underlying insurance policies written by our ceding company clients. The principal perils in our portfolio include hurricane, typhoon, earthquake, flood, tornado, hail and fire. This segment is comprised of reinsurance contracts which incur losses only when events occur that impact more than one risk or insured. Protection under property catastrophe treaties is provided on an occurrence basis, allowing our ceding company clients to combine losses that have been incurred in any single event from multiple underlying policies. The multiple claimant nature of property catastrophe reinsurance requires careful monitoring and control of cumulative aggregate exposure. This business is predominately underwritten by Endurance Bermuda.

We have licensed catastrophe modeling software from the principal modeling firms, including EQE, RMS and AIR. These software tools use exposure data provided by our ceding company clients to simulate catastrophic losses. We have high standards for the quality and level of detail of such exposure data and have an expressed preference for data at the zip code or postal code level. Data provided at more summary levels, such as counties or CRESTA zones, is conservatively modeled and effectively surcharged for increased uncertainty. Our commitment to detailed exposure data precludes significant involvement as a retrocessionaire in the current market. To date, less than 5% of the gross written premiums in this segment have been derived from other reinsurers, with over 95% coming from the catastrophe programs of insurance companies.

Data output from the software described above is incorporated in a proprietary model for multiple purposes. First, the data output is used to estimate the amount of reinsurance premium that is required to pay the long-term expected losses under the proposed contracts. Second, the data output is used to estimate correlation among the contracts we have written. The degree of correlation is used to estimate the incremental capital required to support our participation on each proposed contract, allowing us to allocate capital to contracts and calculate a return on consumed capital. Finally, the data output is used to monitor and control our cumulative exposure to individual perils across all of our businesses.

Our pricing of property catastrophe reinsurance contracts is based on a combination of modeled loss estimates, actual ceding company loss history, surcharges for potential unmodeled exposures, fixed and variable expense estimates and profit requirements. The profit requirements are based on incremental capital usage estimates described above and our required return on consumed capital.

Similar to the Property Per Risk Treaty Reinsurance segment, the Property Catastrophe Reinsurance market operates on a subscription basis with all subscribing reinsurers participating at substantially the same pricing, terms and conditions. Our average attachment point is approximately $336 million. Generally, our maximum capacity on any one program is $30 million per event.

Our property catastrophe business is diversified geographically. As of December 31, 2004, approximately 49% of our property catastrophe premium was associated with exposures in the United States and the remainder from over 20 other countries around the world. Our principal exposures outside the United States are in the United Kingdom, continental Europe, Australia, Canada and Japan. Our estimates of exposures to the major perils in each of these territories are provided in the "Risk Management" section below.

Our Property Catastrophe Reinsurance business is produced primarily by Aon, Marsh, Willis and Benfield. Our principal competitors in this segment include ACE Limited ("ACE"), Arch, AXIS Specialty Limited ("AXIS"), IPC Holdings Ltd. ("IPC"), Montpelier Re Holdings Ltd. ("Montpelier Re"), PartnerRe, Renaissance Re Holdings Ltd. ("Renaissance Re") and XL.

Casualty Treaty Reinsurance. Our Casualty Treaty Reinsurance business segment reinsures third party liability exposures from ceding companies on a treaty basis. Approximately 78% of the exposures are in the United States, with the remainder representing worldwide risks, including the United States. The exposures that we reinsure include automobile liability, professional liability, directors' and officers' liability, umbrella liability and workers' compensation. We write severity

oriented casualty treaty business such as clash and high excess workers' compensation in Endurance Bermuda. Other casualty treaty business is underwritten by Endurance U.S. and Endurance U.K.

Our customer base includes national, regional and specialty insurance companies. Due to the potential for long claims payment patterns in the underlying business, we target ceding companies with strong financial positions. We look for sophisticated actuarial capabilities, the demonstrated ability to monitor and react to shifts in pricing levels and coverage changes, experienced claims management capabilities and substantial net retentions from our clients. We also favor companies and management teams that have worked through prior property and casualty insurance market cycles.

The maximum capacity available for casualty treaty programs that are exposed to loss by individual policy limits is $30 million, but we rarely allocate capacity over $15 million. Our average capacity commitment in this segment as of December 31, 2004 was approximately $2 million per program.

Our Casualty Treaty Reinsurance business is produced primarily by Aon, Marsh, Willis and A.J. Gallagher. Our principal competitors in this segment are American Re, General Re, Munich Re, Swiss Reinsurance Company ("Swiss Re"), Transatlantic Re and XL.