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| 8-K - FORM 8-K - ENDURANCE SPECIALTY HOLDINGS LTD | d922830d8k.htm |
 Endurance
Specialty Holdings Investor Presentation
March 31, 2015
Exhibit 99.1 |
 Forward Looking
Statements and Regulation G Disclaimer 2
Cautionary Note Regarding Forward Looking Statements
Some of the statements in this presentation may include, and Endurance may make related oral,
forward-looking statements which reflect our current views with respect to future events and
financial performance. Such statements may 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. These statements may also include assumptions about our proposed
acquisition of Montpelier (including its benefits, results, effects and timing). Statements which include the
words “should,” “would,” “expect,” “intend,”
“plan,” “believe,” “project,” “anticipate,” “seek,” “will,” and similar statements of a future or forward-looking nature identify forward-looking statements
in this presentation for purposes of the U.S. federal securities laws or otherwise. We intend
these forward-looking statements to be covered by the safe harbor provisions for forward-looking
statements in the Private Securities Litigation Reform Act of 1995.
All forward-looking statements address matters that involve risks and uncertainties.
Accordingly, there are or may be important factors that could cause actual results to differ materially from those
indicated in the forward-looking statements. These factors include, but are not limited
to, the effects of competitors’ pricing policies, greater frequency or severity of claims and loss activity, changes
in market conditions in the agriculture insurance industry, termination of or changes in the
terms of the U.S. multiple peril crop insurance program, a decreased demand for property and casualty
insurance or reinsurance, changes in the availability, cost or quality of reinsurance or
retrocessional coverage, our inability to renew business previously underwritten or acquired, our inability to
maintain our applicable financial strength ratings, our inability to effectively integrate
acquired operations, uncertainties in our reserving process, changes to our tax status, changes in insurance
regulations, reduced acceptance of our existing or new products and services, a loss of
business from and credit risk related to our broker counterparties, assessments for high risk or otherwise
uninsured individuals, possible terrorism or the outbreak of war, a loss of key personnel,
political conditions, changes in accounting policies, our investment performance, the valuation of our invested
assets, a breach of our investment guidelines, the unavailability of capital in the future,
developments in the world’s financial and capital markets and our access to such markets, government
intervention in the insurance and reinsurance industry, illiquidity in the credit markets,
changes in general economic conditions and other factors described in our Annual Report on Form 10-K for the
year ended December 31, 2014 and Quarterly Report on Form 10-Q for the quarter ended March
31, 2015. Additionally, the proposed transaction is subject to risks and
uncertainties, including: (A) that Endurance and Montpelier may be unable to complete the proposed transaction because, among other
reasons, conditions to the closing of the proposed transaction may not be satisfied or waived;
(B) uncertainty as to the timing of completion of the proposed transaction; (C) uncertainty as to the
actual premium of the Endurance share component of the proposal that will be realized by
Montpelier shareholders in connection with the transaction; (D) uncertainty as to the long-term value of
Endurance ordinary shares; (E) failure to realize the anticipated benefits and synergies from
the proposed transaction, including as a result of failure or delay in integrating Montpelier’s businesses
into Endurance; (F) the risk that regulatory or other approvals required for the transaction
are not obtained or are obtained subject to conditions that are not anticipated; (G) the inability to retain key
personnel; (H) any changes in general economic and/or industry specific conditions; and (I)
the outcome of any legal proceedings to the extent initiated against Endurance, Montpelier and others
following the announcement of the proposed transaction, as well as Endurance and Montpelier
management’s response to any of the aforementioned 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 herein and elsewhere,
including the risk factors included in Endurance’s most recent reports on Forms 10-K
and 10-Q and the risk factors included in Montpelier’s most recent reports on Forms 10-K and 10-Q and other
documents of Endurance and Montpelier on file with the Securities and Exchange Commission
(“SEC”). Any forward-looking statements made in this presentation are qualified by these cautionary
statements, and there can be no assurance that the actual results or developments anticipated
by Endurance will be realized or, even if substantially realized, that they will have the expected
consequences to, or effects on, Endurance or its business or operations. Except as required by
law, the parties undertake no obligation to update publicly or revise any forward-looking statement,
whether as a result of new information, future developments or otherwise.
Additional Information about the Proposed Transaction and Where to Find It
The issuance of Endurance ordinary shares to Montpelier shareholders in the merger will be
submitted to shareholders of Endurance for their consideration. The proposed merger will be submitted
to shareholders of Montpelier for their consideration. This presentation is not a
solicitation of any vote or approval and is not a substitute for the joint proxy statement/prospectus or any other
documents which Endurance or Montpelier may send to their respective shareholders in
connection with the proposed merger. This presentation does not constitute
an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction
in which such offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of such jurisdiction. No offering of securities shall be made except by means of
a proxy statement/prospectus meeting the requirements of the Securities Act of 1933, as
amended. ENDURANCE AND MONTPELIER SHAREHOLDERS ARE URGED TO READ THE JOINT PROXY
STATEMENT/PROSPECTUS FOR THE PROPOSED MERGER WHEN IT IS FILED, AND ANY AMENDMENT OR
SUPPLEMENT THERETO THAT MAY BE FILED, WITH THE SEC BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION. All such documents, when filed, are available free of charge at the SEC’s
website (www.sec.gov) or by directing a request to Endurance at the Investor Relations contact
on the next page. |
 Forward Looking
Statements and Regulation G Disclaimer (cont’d)
3
Participants in the Solicitation
Endurance and Montpelier and their directors and executive officers are deemed to be
participants in any solicitation of Endurance and Montpelier shareholders in connection with the proposed
merger. Information about Endurance’s directors and executive officers is available
in Endurance’s Definitive Proxy Statement, dated April 9, 2015, for its 2015 Annual General Meeting of
shareholders. Information about Montpelier’s directors and executive officers is
available in Amendment No. 1 on Form 10-K/A filed on March 31, 2015 amending Montpelier’s Annual Report on
Form 10-K, filed on February 25, 2015.
Additional Information
All references in this presentation to “$” refer to United States dollars. The
contents of any website referenced in this presentation are not incorporated by reference herein.
Regulation G Disclaimer
In this presentation, management has included and discussed certain non-GAAP
measures. Management believes that these non-GAAP measures, which may be defined differently by other
companies, better explain the proposed transaction in a manner that allows for a more complete
understanding. However, these measures should not be viewed as a substitute for those determined
in accordance with GAAP. For a complete description of non-GAAP measures and
reconciliations, please review the Investor Financial Supplement on our web site at www.endurance.bm.
The combined ratio is the sum of the loss, acquisition expense and general and administrative
expense ratios. Endurance presents the combined ratio as a measure that is commonly recognized as a
standard of performance by investors, analysts, rating agencies and other users of its
financial information. The combined ratio, excluding prior year net loss reserve development, enables investors,
analysts, rating agencies and other users of its financial information to more easily analyze
Endurance’s results of underwriting activities in a manner similar to how management analyzes Endurance’s
underlying business performance. The combined ratio, excluding prior year net loss
reserve development, should not be viewed as a substitute for the combined ratio.
Net premiums written is a non-GAAP internal performance measure used by Endurance in the
management of its operations. Net premiums written represents net premiums written and deposit
premiums, which are premiums on contracts that are deemed as either transferring only
significant timing risk or transferring only significant underwriting risk and thus are required to be accounted
for under GAAP as deposits. Endurance believes these amounts are significant to its
business and underwriting process and excluding them distorts the analysis of its premium trends. In addition to
presenting gross premiums written determined in accordance with GAAP, Endurance believes that
net premiums written enables investors, analysts, rating agencies and other users of its financial
information to more easily analyze Endurance’s results of underwriting activities in a
manner similar to how management analyzes Endurance’s underlying business performance. Net premiums
written should not be viewed as a substitute for gross premiums written determined in
accordance with GAAP. Return on Equity (ROE) is comprised using the average
common equity calculated as the arithmetic average of the beginning and ending common equity balances for stated periods. The Company
presents various measures of Return on Equity that are commonly recognized as a standard of
performance by investors, analysts, rating agencies and other users of its financial information.
|
 •
“A”
ratings from A.M. Best and S&P
•
$3.8 billion of total capital
•
Conservative, short-duration, AA-
rated investment portfolio
•
Prudent reserves that have
historically developed favorably
since our inception
•
Diversified and efficient capital
structure
•
Since inception, returned nearly
$2.1 billion to investors through
dividends and share repurchases
Endurance Has Strong Foundation to Build on
Strong balance sheet, diversified portfolio and robust infrastructure
4
Strategic Initiatives
•
Substantially expanded global
underwriting and leadership talent
•
Optimized balance of insurance and
reinsurance portfolios to lower
volatility and improve profitability
•
Increased strategic purchases of
reinsurance and retrocession to
support growth and manage cycle
•
Streamlined support operations to
generate significant savings to fund
underwriting additions
•
Financial results beginning to
reflect transformation initiatives
Diversified Portfolio of Businesses
•
Gross premiums written of $3.0
billion on a trailing 12 month basis
•
Book of business contains
insurance and reinsurance
exposures as well as short tail and
long tail lines of business
•
Proven leader in the U.S.
agriculture insurance industry
•
Focus on specialty lines of business,
with market recognized, industry-
leading talent
•
MRH acquisition further diversifies
distribution and market access with
Lloyd’s
and
3
rd
party
capital
Strong Balance Sheet and Capital
Strong and seasoned franchise
•
Inception to date operating ROE of 11.1%
•
10 year book value per share plus dividends CAGR of 10.2%
•
Continuous improvement in performance and market positioning |
 Larger book of
business with
lower
volatility and
improved
return
characteristics
We Have Transformed Our Specialty Insurance and Reinsurance Businesses
Starting in 2013 we rebalanced our insurance and reinsurance portfolios while expanding
our global underwriting talent to enhance our positioning and relevance in the market
The
core
of
our
underwriting
leadership
and
talent
is
now
firmly
embedded
throughout
our
organization.
Our
goal
is to produce a more consistent level of profitability while reducing volatility in order to
deliver excellent sustainable results for our shareholders.
5
Restructured
business
•
Withdrawal from
unprofitable lines
and accounts
•
Management of
limits
•
Strategic purchases
of reinsurance and
retrocessional
coverages
Improved
underwriting talent
•
Attracted and
retained teams of high
quality underwriters
•
Expanded
underwriting and
product capabilities in
insurance and
reinsurance specialty
lines
•
Newly added teams
are generating strong
premium flows with
improved margins
Expanding our
international
operations
•
Launched London
based international
insurance operation
and began writing in
January 2014
•
Zurich based marine
and energy
reinsurance team
started in August
2014
•
Expanded
catastrophe
reinsurance presence
in Singapore
Restructured
operations
•
Streamlined
leadership and
operations to
create
efficiencies |
 Specialty
Insurance Strategic Direction – Scale, Balance and Diversification
Expanded underwriting talent, refocused underwriting, rebalanced
portfolio and improved
positioning and relevance in the global market
6
2012
$1.4B
1Q2015
*
$1.8B
Insurance Gross Premiums Written
Agriculture
63%
U.S.
Specialty
23%
Bermuda
14%
Agriculture
48%
U.S.
Specialty
33%
Bermuda
10%
London
9%
•
Improved market presence through hiring of nearly 150 world class specialty underwriters in
the U.S and London •
Increased market relevance with expanded geographies and products including: U.S. (Primary and
excess casualty, inland and ocean marine, numerous professional liability classes,
E&S property and commercial property) and London (energy, property and professional
lines) •
Rebalanced portfolio by managing limits and by reducing unprofitable classes of business
including NY City contractors,
DIC
property,
and
numerous
casualty
exposures
while
growing
diversified
specialty
lines
Rebalancing
Specialty Growth
Paired With
* Based on a trailing 12 month basis |
 Reinsurance
Strategic Direction – Portfolio Enhancement
Enhanced profitability by recruiting top flight underwriting talent, developing strategic
partnerships with key clients and brokers, and improving underwriting and risk
selection 7
2012
$1.1B
1Q2015
*
$1.2B
Reinsurance Gross Premiums Written
Specialty
26%
Property
20%
Catastrophe
27%
Professional
16%
•
Expanded specialty focus through hiring of industry leading specialty teams in Trade Credit
and Surety, Marine and Energy and Agriculture
•
Improved balance and profit potential through re-underwriting and non-renewals
in: treaty property, UK Motor, low margin casualty treaties as well as numerous
contracts that no longer met our profit targets •
Enhanced leadership team and hired highly regarded North American team of underwriters
-
Significantly
expanded
profitable
U.S.
casualty
and
professional
lines
quota
share
business
•
Further expanded our international specialty book by an additional $70 million at 1/1/2015
renewals Rebalancing
Specialty Growth
Casualty
11%
Specialty
11%
Property
31%
Catastrophe
34%
Professional
5%
Casualty
19%
Paired With
* Based on a trailing 12 month basis |
 Portfolio
Diversified by Product, Distribution Source and Geography The transformation of Endurance
has expanded product and geographic diversification 8
1Q2015
*
Gross Premiums Written: $3.0 Billion
Reinsurance (41%)
Insurance (59%)
Casualty
Professional Liability
Property Per Risk
Small Business
Surety
Clash
Americas Property Catastrophe
Asia Property Catastrophe
Europe Property Catastrophe
Workers Compensation Catastrophe
U.S. Sponsored Multi
Peril Crop Insurance
(MPCI)
Hail and other named
peril covers
Professional Lines
Property
Primary and Excess Casualty
Miscellaneous E&O
Healthcare
Ocean/Inland Marine
Surety
Healthcare
Excess Casualty
Professional Lines
Europe P&C
2%
Bermuda
6%
U.S. Specialty
20%
Global
Catastrophe
11%
North America
15%
Agriculture
28%
Global Specialty
11%
Aviation & Space
Marine & Energy
Agriculture (International)
Trade Credit, Surety and Political Risk
Structured Reinsurance
Weather
Personal Accident
Asia P&C
2%
International
5%
Property
Professional Lines
Energy
* Based on a trailing 12 month basis |
 Endurance’s
Financial Results Diluted book value per common share has grown strongly
9
Growth in Diluted Book Value Per Common Share ($)
From
December
31,
2001
–
March
31,
2015
•
2005 –
Hurricanes Katrina, Rita
and Wilma
•
2008 –
Credit crisis and related
impact of marking assets to
market
•
2009 –
Post crisis asset
recovery
•
2011 –
High frequency of
global catastrophes
•
2012 –
Superstorm Sandy and
Midwest drought
Significant Impacts to Book Value |
 Excellent
Financial Strength and Risk Based Capital Position Strong flexibility to pursue value
enhancing growth initiatives Endurance
has
significantly
expanded
its
risk
based
capital
position
through
strong
results,
prudent
catastrophe
risk
management
and
leverage
of
reinsurance
market
while
also
returning
nearly
$2.1
billion
to
shareholders
since
inception
through
share
repurchases
and
dividends.
We
maintain
excellent
financial
strength
and
flexibility
to
pursue
our
strategic
objectives
and
profitably
grow
our
business
for
the
benefit
of
our
shareholders.
10
Significantly
Reduced
Catastrophe
Exposures
Excellent
Financial
Strength
with
Diversified
Capital
Base |
 •
Fixed maturity portfolio duration is 2.9 5 years in
order to balance investment yield and interest rate
risk
•
Investment quality (AA-
average) has remained high
as the portfolio is conservatively managed in a
challenging economy
–
33.2% of investments are cash/short term
or US backed
–
Minimal exposure to sovereign debt or
bank debt of European peripheral countries
•
Increased allocations to non-core fixed income to
diversify portfolio, improve return potential and
reduce interest rate risk
•
Other investments of $576.0 million consist of
alternative funds (90.2%) and specialty funds (9.8%)
–
Alternative funds predominantly include
hedge funds; complemented with some
private equity funds.
Hedge funds are
mostly a balanced mix of credit and equity
oriented strategies.
–
Specialty funds include high yield loan
funds
Conservatively Positioned Investment Portfolio
Endurance maintains a high quality, short duration investment portfolio
11
$6.5 Billion Investment Portfolio at March 31, 2015
Cash and
Short Term
8.9%
U.S. Government /
and U.S. Government
Backed –
24.3%
Municipals and Foreign
Government
3.5%
Other
Investments
8.9%
Asset Backed and
Non Agency Mortgage
Backed –
27.0%
Corporate
Securities
21.8%
Equities
5.6%
Investment Portfolio Highlights |
 Announced the
Acquisition of Montpelier Re on March 31, 2015 Key Transaction Terms
12
Notes
1.
Figures
based
on
Endurance
closing
share
price
of
$64.30
as
of
3/30/2015
and
45.5MM
fully-diluted
Montpelier
common
shares |
 The Acquisition
of Montpelier Re is Strategically and Financially Compelling Transaction Highlights
13
Increased Scale and
Market Presence
•
Transaction creates an enterprise with over $3.6 billion
(1)
of annual gross premiums written
•
Increased size allows organization to better capitalize on distribution relationships and
more effectively compete across all market conditions
Diversified Platform
Across Products and
Geographies
•
Good-sized and scalable Lloyd’s platform expands distribution and product
capabilities and provides access to new markets to further accelerate Endurance’s
London market insurance growth strategy •
Addition of established third party capital management franchise
(Blue Capital) expands market
presence, enhances capital flexibility and provides stable source of income
•
Montpelier’s attractive property catastrophe business complements existing reinsurance
portfolio •
Insurance to remain above 50% of the combined diversified portfolio
(1)
Stronger Balance
Sheet and Capital
Position
•
With common shareholders’
equity of $4.1 billion
(2)
and total capital of $5.5 billion
(2)
, the combined
company will have a substantially improved financial profile
•
Larger, stronger balance sheet better positions combined company
to pursue growth, withstand
volatility and manage capital
Manageable
Integration Risk
•
Montpelier maintains high quality business in lines where Endurance has significant
underwriting and management expertise
•
Similar corporate cultures and view of risk
•
Straightforward corporate and organizational structure
Financially Attractive
•
Meaningful transaction synergies, including more than $60 million of annual run-rate cost
savings •
Expected to be immediately accretive to EPS and ROE, excluding non-recurring integration
and transaction costs
•
Neutral to book value per share and modestly dilutive to tangible book value per share
•
Potential for enhanced capital management over time
Notes
1.
Based on 2014 figures
2.
Figures as of 12/31/14, pro forma for transaction. Based on Endurance closing share price of
$64.30 as of 3/30/2015. Shareholders’ equity and total capital exclude
non-controlling interests |
 Transaction
Provides Increased Scale and Stronger Balance Sheet 14
2014 Gross Premiums Written of
Peer Companies
Notes
1.
Pro forma for Platinum acquisition
2.
As of 12/31/2014, XL, PRE + AXS and RNR common shareholders’
equity shown pro forma for stock issued in connection with transactions based on publicly
filed pro forma financial disclosure 3.
As of 12/31/2014, pro forma for the acquisition of MRH, does not
include impact of purchase accounting adjustments or transaction expenses
Common Shareholders’
Equity of Peer
Companies (12/31/14) |
 15
Endurance
(1)
Montpelier
(1) (2)
Combined
Insurance
59%
Property
Catastrophe
Reinsurance
30%
Other
Reinsurance
18%
Other
Insurance
4%
+
=
Collateralized
Re
11%
Lloyd’s
Insurance
23%
GPW: $2.9Bn
GPW: $0.7Bn
GPW: $3.6Bn
Property
Catastrophe
Reinsurance
16%
Other
Reinsurance
27%
Insurance
48%
Lloyd’s
Insurance
5%
•
Meaningfully greater scale in reinsurance with premiums up ~35%
•
Overall business mix remains balanced, with over 50% insurance
Property
Catastrophe
Reinsurance
12%
Other
Reinsurance
29%
Collateralized
Re
2%
Notes
1.
Based on full year 2014 gross premiums written
2.
Montpelier insurance includes Property and Specialty Individual Risk; reinsurance includes
Property Catastrophe – Treaty, Property Specialty –
Treaty, and Other Specialty –
Treaty
Insurance:
59%
$1.7Bn
Reinsurance:
41%
$1.2Bn
Insurance:
27%
$0.2Bn
Reinsurance:
73%
$0.5Bn
Insurance:
53%
$1.9Bn
Reinsurance:
47%
$1.7Bn
Combined Business Well Diversified Across Business Lines and Platforms
Lloyd’s
Reinsurance
14%
Lloyd’s
Reinsurance
3% |
 •
Endurance has undergone a fundamental transformation to improve profitability and enhance
market relevance
–
Since John Charman joined Endurance in mid 2013 as Chairman and CEO Endurance has
meaningfully expanded its global specialty insurance and reinsurance capabilities
–
Endurance has rebalanced its insurance and reinsurance portfolios to lower volatility and
improve profitability
•
Benefits started to emerge in 2014 and have continued into 2015
•
Endurance maintains excellent balance sheet strength and liquidity
–
Capital levels meaningfully exceed rating agency minimums, providing support for growth
–
High quality investment portfolio; fixed maturity investments have an average credit quality
of AA- –
Prudent reserving philosophy and strong reserve position; strong, consistent history of
favorable development
•
While market conditions are increasingly competitive, the outlook for Endurance remains
attractive –
Industry leading specialty underwriting talent driving growth and improved underwriting and
risk selection; accident year loss ratios improved in both segments during 2014
and remained stable in 1Q15
–
Active management of exposures and reinsurance purchases has reduced expected portfolio
volatility –
Expanded footprint of our specialty insurance and reinsurance franchise is improving market
presence and relevance
•
Montpelier acquisition provides compelling value to Endurance’s shareholders
–
New strategic capabilities with increased scale and market presence
–
Enhanced combined balance sheet and capital position
–
Manageable integration risk
Conclusion
Endurance is a compelling investment opportunity
16 |
 Appendix
|
 Overview of
ARMtech |
 •
Multi Peril Crop Insurance (MPCI) is an insurance product regulated by the USDA that provides
farmers with yield or revenue protection
–
Offered by 19 licensed companies
–
Pricing
is
set
by
the
government
and
agent
compensation
limits
are
also
imposed
-
no
pricing
cycle exists
–
Reduced downside risks due to Federally sponsored reinsurance and loss sharing
–
Agriculture insurance provides strong return potential, diversification in Endurance’s
portfolio of (re)insurance risks and is an efficient user of capital
•
ARMtech is a leading specialty crop insurance business
–
Approximate 8% market share in MPCI (with estimated 199,000 total agriculture policies in
force) and is 5th largest of 19 MPCI industry participants
–
MPCI 2015 crop year* estimated gross written premiums of $815 million
–
Portfolio is well diversified by geography and by crop
•
ARMtech was founded by software developers and has maintained a strong focus on providing
industry leading service through leveraging technology
•
Endurance
purchased
ARMtech
in
December
2007
at
a
purchase
price
of
approximately
$125
million
–
ARMtech has grown MPCI policy count by 66.3% since 2007
Overview of ARMtech
ARMtech has been a strong contributor to Endurance since its acquisition
19
* 2015 crop year is defined as July 1, 2014 through June 30, 2015
|
 •
ARMtech has built a market leading specialty crop
insurance business through its focus on offering
excellent service supported by industry leading
technology.
•
MPCI policy count has grown 66.3% over the past
seven years in a line of business not subject to the
property/casualty pricing cycle.
•
ARMtech is a leader in using technology to deliver
high quality service and to satisfy the intense
compliance and documentation standards imposed
on the industry by the U.S. Federal Government.
•
2014 and 2015 industry premiums impacted by
declines in commodity prices
ARMtech is a Leader in Crop Insurance
ARMtech’s focus on technology and service has allowed it to steadily grow its
business 20
Written Premiums and Policy Counts by Crop Year
Using technology and service to expand
premiums
ARMtech has demonstrated its ability to grow market share and premiums over time through its
leading edge technology and superior delivery of service and compliance.
* Estimated 2015 crop year premiums and policy count
** Reflects cessions to the Federal Government as part of the MPCI Program and not third
party reinsurance purchases |
 •
2015 estimated crop year MPCI net written premiums of
$448.0 million*** are 4.5% lower than crop year 2014
–
Commodity prices for spring crops declined 14%
on average compared to a year ago
–
Estimated policy count growth of approximately
10.6%
•
The portfolio of 2015 crop risk is balanced by crop and
geography
•
Purchased excess of loss reinsurance to reimburse for
losses from 90% to 95% on MPCI portfolio as well as 90%
quota share for crop hail products
•
The decline in estimated 2015 crop year MPCI net
written premiums is principally due to declines in crop
commodity prices partially offset by increased policy
counts and new products
ARMtech is Increasing Market Share and Geographic Diversification
2012 through 2015 were very strong marketing years for ARMtech
ARMtech
continues
to
focus
on
diversifying
its
business
geographically
while
managing
its
exposure
to
Texas
through
active use of available reinsurance protections.
21
Estimated 2015 Net Written Crop Year
Premiums
* Group One States –
IL, IN, IA, MN, NE
Group Two States –
States other than Group One and Group Three states
Group Three States –
CT, DE, MA, MD, NV, NH, NJ, NY, PA, UT, WY, WV
** Estimated 2015 crop year premiums
*** Reflects cessions to the Federal Government
as part of the MPCI Program and not
third party reinsurance purchases
MPCI Net Written Premiums
by Crop Year and State Grouping *,*** |
 •
While individual states can produce large loss
ratios, the U.S. Federal reinsurance program has
historically reduced loss ratio volatility.
•
ARMtech’s business has historically produced stable
profits over time after reflecting the reinsurance
terms set out in the current standard crop
reinsurance agreement
–
Historic average loss ratio post U.S. Federal
cessions has been 83.5% (adjusted for the
2011 Federal reinsurance terms)
–
The best year was 2007 with a 69.8% net loss
ratio and the worst was 2012 with a 104.0%
net MPCI loss ratio
–
ARMtech’s current expense run rate after the
A&O subsidy is approximately 7% -
8%
Agriculture Insurance is Not Correlated with the P&C Cycle
FCIC reinsurance lowers volatility
22
Stable Results in Volatile Times
Historic MPCI Crop Year Loss Ratio Results
(Pre and Post Federal Reinsurance)
While individual states can produce highly varied gross loss ratios on a year to year basis,
the U.S. Federal reinsurance program has historically mitigated that volatility and
leaves ARMtech with a business which is not correlated to the traditional P&C
pricing cycle and has high risk adjusted return potential. |
 Overview of
ARMtech ARMtech’s
recognition
of
premiums
and
earnings
are
influenced
by
growing
seasons
23
Seasonality of MPCI Business
First Quarter
Third Quarter
Second Quarter
Recognition of
annual written
premiums
60% -
65%
Spring crops
20% -
25%
Spring crop acreage
report adjustments
Winter crops
10% -
15%
Spring crop
adjustments due to
actual cessions
5% -
10%
Winter crop
adjustments
Recognition of
annual earned
premiums
10%-15%
Largely driven by
winter crops
30% -
35%
Largely driven by
spring crops
25% -
30%
Driven by spring
crops and winter
crops
25% -
30%
Largely driven by
spring crops
Harvest
Harvest of winter
crops
Harvest of spring
crops
Fourth Quarter
Commodity
price setting
Setting of base prices
for spring crops
(forward commodity
price for fourth
quarter)
Setting of base prices
for winter crops
(forward commodity
price for second
quarter)
Harvest price
determined for
winter crops
Harvest price
determined for
spring crops |
 Geographic
Diversification of Crop Insurance Business ARMtech maintains a geographically diversified
portfolio of risk 24 |
 Diversification
of Crops Within ARMtech’s Portfolio Underwritten risks diversified by geography and
commodity type 25
ARMtech’s 2015 Estimated Crop Year MPCI Net Written Premiums
Iowa –
5.9%
Nebraska –
3.6%
Minnesota –
2.7%
Indiana –
2.4%
South Dakota –
1.8%
Missouri –
1.7%
North Dakota –
1.7%
Texas –
1.6%
Illinois –
1.4%
Colorado –
1.1%
Kentucky –
1.1%
Tennessee –
0.8%
Ohio –
0.7%
Kansas –
0.5%
Mississippi –
0.4%
South Carolina –
0.4%
Wisconsin –
0.4%
Maryland –
0.3%
All other states –
1.3%
Corn
(29.8%)
Texas –
12.7%
Georgia –
1.7%
Alabama –
0.7%
Mississippi –
0.6%
South Carolina –
0.5%
All other states –
1.0%
Cotton
(17.2%)
Soybeans
(20.4%)
Other Crops
(21.2%)
Wheat
(11.4%)
Texas –
3.4%
Colorado –
1.4%
North Dakota –
1.5%
Oklahoma –
0.7%
Kansas –
0.7%
Kentucky –
0.7%
All other states –
3.0%
Grain Sorghum –
3.5%
Citrus, Nursery & Orange Trees -
2.5%
Apples –
1.8%
Pasture, Rangeland, Forage –
1.5%
Peanuts –
1.4%
Tobacco –
1.2%
Potatoes –
1.0%
Dry Beans –
0.8%
Rice –
0.7%
Barley –
0.5%
All other crops –
6.3%
lowa –
2.9%
Minnesota –
2.2%
Mississippi –
1.9%
Kentucky –
1.6%
Nebraska –
1.4%
North Dakota –
1.4%
Indiana –
1.3%
Missouri –
1.3%
Tennessee –
1.2%
Arkansas –
0.7%
South Dakota –
0.7%
Ohio –
0.6%
Illinois –
0.5%
All other states –
2.7% |
  Agriculture
Insurance Contains Four Layers of Risk Mitigation Farmers retention, ceding premiums to
the U.S. Federal Government, limitations on losses and gains and purchase of stop loss
protection 26
45.0% of MPCI Premiums Ceded to U.S. Federal Government
Assigned Risk Fund
“Higher Risk Policies”
Commercial Fund
“Lower Risk Policies”
2015 Crop Year
Gross Liability
33.1%
of
first
dollar
risk
retained
by
farmers
15.7% of 2014 Crop Year NWP
84.3% of 2014 Crop Year NWP
Loss Sharing
(% of loss retained by
Loss Ratio
Loss Ratio
Group 1 States
Group 2 & 3 States
ARMtech within each
100 -
160
7.5%
100 -
160
65.0%
42.5%
applicable band when
160 -
220
6.0%
160 -
220
45.0%
20.0%
the loss ratio is above 100%.)
220 -
500
3.0%
220 -
500
10.0%
5.0%
Gain Sharing
(% of gain retained by
Loss Ratio
Loss Ratio
Group 1 States
Group 2 & 3 States
ARMtech within each
65 -
100
22.5%
65 -
100
75.0%
97.5%
applicable band when
50 -
65
13.5%
50 -
65
40.0%
40.0%
the loss ratio is below 100%.)
0 -
50
3.0%
0 -
50
5.0%
5.0%
66.9%
of risk retained by ARMtech |
  ARMtech Has Grown
Market Share Over Time Superior service and technology have driven growth in stable
market 27
Crop Year Market Share
% Change in
Est.
Market Share
MPCI Certified Companies (Owners)
2014
2013
2012
2011
2010
2009
2008
2007
2007 - 2014
Rain and Hail (ACE)
(1)
19.9%
20.8%
21.3%
21.8%
22.6%
24.3%
24.1%
25.0%
-5.1%
Rural Community Insurance Company (Wells Fargo)
19.2%
20.6%
22.1%
21.8%
22.9%
24.7%
25.2%
25.1%
-6.0%
NAU Country Insurance Company (QBE)
(1)
13.3%
13.1%
13.3%
14.8%
14.4%
13.7%
13.8%
13.3%
-0.1%
Great American Insurance Co. (American Fin. Group)
8.5%
8.5%
8.5%
8.7%
8.7%
9.1%
10.1%
10.6%
-2.2%
American Agri-Business Ins. Co. (Endurance)
8.0%
7.7%
7.4%
6.7%
7.0%
6.5%
5.7%
5.9%
2.1%
CGB Insurance Co. (CGB Diversified Services)
5.3%
4.6%
4.0%
2.7%
2.0%
1.2%
1.2%
1.1%
4.1%
Producers Ag. Ins. Co. (HCC)
5.1%
4.9%
5.5%
6.4%
6.3%
5.3%
5.2%
4.8%
0.3%
Farmers Mutual Hail Ins. of Iowa
3.9%
4.3%
4.4%
4.5%
4.2%
3.8%
4.0%
4.0%
-0.1%
John Deere Risk Protection, Inc.
3.8%
3.8%
3.3%
3.3%
3.8%
4.0%
3.3%
3.0%
0.8%
Agrinational Insurance Company (ADM)
3.8%
3.1%
2.5%
2.1%
1.5%
0.9%
1.0%
1.1%
2.7%
Hudson Insurance Company (Fairfax)
(1)
2.3%
2.0%
1.6%
1.2%
1.2%
0.8%
0.6%
0.4%
1.9%
Heartland (Everest Re)
1.8%
2.4%
2.3%
2.4%
3.0%
3.4%
3.3%
3.2%
-1.5%
AgriLogic (Occidental Firs & Casualty Co)
1.3%
1.6%
1.8%
1.4%
0.1%
0.0%
0.0%
0.0%
1.3%
American Agricultural Ins. Co (Amer. Farm Bureau)
1.2%
1.2%
1.3%
1.3%
1.3%
1.4%
1.4%
1.2%
0.0%
Country Mutual Insurance Company
0.9%
0.9%
0.9%
0.9%
1.0%
1.1%
1.2%
1.4%
-0.5%
Global Ag (XL Reinsurance)
0.8%
0.4%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.8%
International Ag (Starr Indemnity)
0.7%
0.3%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.7%
Climate Corp. (Atlantic Specialty Ins. Co.)
0.5%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.5%
Crop Pro (Technology Ins. Co.)
0.1%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.1%
Source - National Crop Insurance Services (NCIS)
(1) 2007 Crop Year Market Share was increased to reflect the acquisition of a company between
2007 and 2014. |
 Other
Miscellaneous Information |
 Probable Maximum
Loss by Zone and Peril Largest
1
in
100
year
PML
as
of
January
1,
2015
is
equal
to
10.0%
of
Shareholders’
Equity
as
of March 31, 2015
29
Estimated Occurrence Net Loss as of January 1, 2015
Jan. 1, 2014
Jan. 1, 2013
Zone
Peril
10
Year
Return
Period
25
Year
Return
Period
50
Year
Return
Period
100
Year
Return
Period
250
Year
Return
Period
100
Year
Return
Period
100
Year
Return
Period
United States
Hurricane
$111
$188
$249
$306
$402
$293
$429
Europe
Windstorm
86
137
217
328
448
317
346
California
Earthquake
37
137
192
238
318
238
395
Japan
Windstorm
28
84
119
131
148
144
201
Northwest U.S.
Earthquake
—
5
34
106
176
95
154
Japan
Earthquake
16
79
128
153
169
109
111
United States
Tornado/Hail
30
44
57
69
90
88
86
Australia
Earthquake
1
10
40
98
169
86
88
New Zealand
Earthquake
1
6
15
34
77
24
24
Australia
Windstorm
6
20
44
75
103
52
53
New Madrid
Earthquake
—
—
—
7
69
9
10
The net loss estimates by zone above represent estimated losses related to our property,
catastrophe and other specialty lines of business, based upon our catastrophe
models
and
assumptions
regarding
the
location,
size,
magnitude,
and
frequency
of
the
catastrophe
events
utilized
to
determine
the
above
estimates.
The net loss estimates are presented on an occurrence basis, before income tax and net of
reinsurance recoveries and reinstatement premiums, if applicable. Return period refers
to the frequency with which the related size of a catastrophic event is expected to occur.
Actual
realized
catastrophic
losses
could
differ
materially
from
our
net
loss
estimates
and
our
net
loss
estimates
should
not
be
considered
as
representative
of
the
actual
losses
that
we
may
incur
in
connection
with
any
particular
catastrophic
event.
The
net
loss
estimates
above
rely
significantly
on
computer
models
created to simulate the effect of catastrophes on insured properties based upon data emanating
from past catastrophic events. Since comprehensive data collection regarding insured
losses from catastrophe events is a relatively recent development in the insurance
industry, the data upon which catastrophe models is based is limited, which has the
potential to introduce inaccuracies into estimates of losses from catastrophic events, in particular those that occur infrequently.
In addition, catastrophe models are significantly influenced by management’s assumptions
regarding event characteristics, construction of insured property and the cost and
duration of rebuilding after the catastrophe. Lastly, changes in Endurance’s underwriting portfolio risk control mechanisms and other factors, either
before or after the date of the above net loss estimates, may also cause actual results to
vary considerably from the net loss estimates above. For a listing of risks
related
to
Endurance
and
its
future
performance,
please
see
“Risk
Factors”
in
our
Annual
Report
on
Form
10-K
for
the
year
ended
December
31,
2014
and
in
our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2015.
|
 •
Book value per common share, adjusted for dividends, expanded 3.0% during first quarter
2015 –
Net income attributable to common shareholders of $100.3 million
•
Stable accident year loss ratios in both segments
•
General and administrative expenses were lower due to expense management and increased ceding
commissions
•
Light catastrophe activity
•
Gross written premiums of $1.3 billion were 12.4% higher than first quarter 2014
–
Insurance gross written premiums of $736.2 million were 12.9% higher than first quarter
2014 •
Strong growth in our U.S. specialty operations and London were partially offset by lower
agriculture premiums. Professional lines grew 41.2% while the casualty and other
specialty lines of business expanded 48.8% compared to first quarter 2014.
Agriculture gross premiums written declined 2.1% as the impact from reduced commodity
prices were partially offset by an increase in policy counts and new products.
–
Reinsurance gross written premiums of $565.2 million increased 11.9% compared to first quarter
2014 •
Significant growth within specialty and professional lines was partially offset by declines
within property and casualty lines of business.
•
Net written premiums declined 4.2% compared to first quarter 2014 as significant
reinsurance/retrocessional protection has been purchased to reduce potential
volatility First Quarter 2015 Highlights
Results were driven by strong underwriting margins supported by light catastrophe losses
and favorable development
30 |
 Financial
Results for First Quarter 2015 and 2014 31
Financial highlights
Key operating ratios |
 Gross Written
Premiums for First Quarter 2015 and 2014 32
Insurance Segment
Reinsurance Segment |
 Financial
Overview: Inception to Date Financial Performance 33
Financial highlights from 2002 through March 31, 2015 |