Form 10-Q/A

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

Amendment No. 1

x	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the period ended June 30, 2014,

¨	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file number 1-31599

ENDURANCE SPECIALTY HOLDINGS LTD.

(Exact Name of Registrant as Specified in Its Charter)

Bermuda

98-0392908

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

Waterloo House

100 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

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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Description of Class

Common Shares Outstanding

as of August 1, 2014

Ordinary Shares - $1.00 par value

44,719,594

EXPLANATORY NOTE

Endurance Specialty Holdings Ltd. (the “Company”) is filing this Amendment No. 1 (“Amendment No. 1”) to its Quarterly Report on Form 10-Q for the three months ended June 30, 2014, dated as of August 7, 2014 (the “Form 10-Q”), solely for the purpose of re-filing Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in order to correct typographical errors in the losses and loss expenses and reserve table amounts included in the discussion of the Company’s reserve for losses and loss expenses.

No other changes have been made to the Form 10-Q. This Amendment No. 1 continues to speak as of the original filing date of the Form 10-Q, does not reflect events that may have occurred subsequent to the original filing date, and does not modify or update any related disclosures made in the Form 10-Q.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion and analysis of the financial condition and results of operations for the three and six months ended June 30, 2014 of Endurance Specialty Holdings Ltd. (“Endurance Holdings”) and its wholly-owned subsidiaries (collectively, the “Company”). This discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and related notes contained in this Quarterly Report on Form 10-Q (this “Form 10-Q”) as well as the audited consolidated financial statements and related notes for the fiscal year ended December 31, 2013, the discussions of critical accounting policies and the qualitative and quantitative disclosure about market risk contained in Endurance Holdings’ Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (the “2013 Form 10-K”).

Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-Q, including information with respect to the Company’s plans and strategy for its business, includes forward-looking statements that involve risk and uncertainties. Please see the section “Cautionary Statement Regarding Forward-Looking Statements” below for more information on factors that could cause actual results to differ materially from the results described in or implied by any forward-looking statements contained in this discussion and analysis. You should review the “Risk Factors” set forth in the 2013 Form 10-K and this Form 10-Q for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained herein.

Overview

Endurance Holdings was organized as a Bermuda holding company on June 27, 2002 and has seven wholly-owned operating subsidiaries:

•

Endurance Specialty Insurance Ltd. (“Endurance Bermuda”), domiciled in Bermuda with branch offices in Switzerland and Singapore;

•

Endurance Reinsurance Corporation of America (“Endurance U.S. Reinsurance”), domiciled in Delaware;

•

Endurance Worldwide Insurance Limited (“Endurance U.K.”), domiciled in England;

•

Endurance American Insurance Company (“Endurance American”), domiciled in Delaware;

•

Endurance American Specialty Insurance Company (“Endurance American Specialty”), domiciled in Delaware;

•

Endurance Risk Solutions Assurance Co. (“Endurance Risk Solutions”), domiciled in Delaware; and

•

American Agri-Business Insurance Company (“American Agri-Business”), domiciled in Texas and managed by ARMtech Insurance Services, Inc. (together with American Agri-Business, “ARMtech”).

The Company writes specialty lines of property and casualty insurance and reinsurance on a global basis and seeks to create a portfolio of specialty lines of business that are profitable and have limited correlation with one another. The Company’s portfolio of specialty lines of business is organized into two business segments, Insurance and Reinsurance.

In the Insurance segment, the Company writes agriculture, casualty and other specialty, professional lines, and property insurance. In the Reinsurance segment, the Company writes catastrophe, property, casualty, and specialty reinsurance.

The Company’s Insurance and Reinsurance segments both include property related coverages which provide insurance or reinsurance of an insurable interest in tangible property for property loss, damage or loss of use. In addition, the Company’s Insurance and Reinsurance segments include various casualty insurance and reinsurance coverages which are primarily concerned with the losses caused by injuries to third parties, i.e., not the insured, or to property owned by third parties and the legal liability imposed on the insured resulting from such injuries.

Application of Critical Accounting Estimates

The Company’s condensed consolidated financial statements are based on the selection of accounting policies and application of significant accounting estimates which require management to make significant estimates and assumptions. The Company believes that some of the more critical judgments in the areas of accounting estimates and assumptions that affect its financial condition and results of operations are related to the recognition of premiums written and ceded, reserves for losses and loss expenses, other-than-temporary impairments within the investment portfolio and fair value measurements of certain portions of the investment portfolio. For a detailed discussion of the Company’s critical accounting estimates, please refer to the 2013 Form 10-K and the Notes to the Unaudited Condensed Consolidated Financial Statements in this Form 10-Q. There were no material changes in the application of the Company’s critical accounting estimates subsequent to that report. Management has discussed the application of these critical accounting estimates with the Company’s Board of Directors and the Audit Committee of the Board of Directors.

Consolidated Results of Operations – For the Three Months Ended June 30, 2014 and 2013

Results of operations for the three months ended June 30, 2014 and 2013 were as follows:


	Three Months Ended June 30,
	2014			2013			Change⁽¹⁾
	(U.S. dollars in thousands, except for ratios)
Revenues
Gross premiums written	$	689,425		$	572,710			20.4	%
Ceded premiums written		(177,998	)		(108,089	)		64.7	%

Net premiums written		511,427			464,621			10.1	%

Net premiums earned		481,538			543,335			(11.4	)%
Net investment income		39,302			32,468			21.0	%
Net realized and unrealized investment gains		3,411			10,372			(67.1	)%
Net impairment losses recognized in earnings		(198	)		(579	)		(65.8	)%
Other underwriting (loss) income		(4,824	)		888			NM	⁽²⁾

Total revenues		519,229			586,484			(11.5	)%

Expenses
Net losses and loss expenses		259,196			359,058			(27.8	)%
Acquisition expenses		78,601			71,868			9.4	%
General and administrative expenses		86,455			81,359			6.3	%
Amortization of intangibles		1,623			1,625			(0.1	)%
Net foreign exchange losses		319			3,368			(90.5	)%
Interest expense		9,732			9,052			7.5	%
Income tax expense (benefit)		140			(865	)		NM	⁽²⁾

Net income	$	83,163		$	61,019			36.3	%


Net loss ratio		53.8	%		66.1	%		(12.3	)
Acquisition expense ratio		16.3	%		13.2	%		3.1
General and administrative expense ratio		18.0	%		15.0	%		3.0

Combined ratio		88.1	%		94.3	%		(6.2	)

⁽¹⁾	With respect to ratios, changes show increase or decrease in percentage points.

⁽²⁾	Not meaningful.

Premiums

Gross premiums written in the three months ended June 30, 2014 were $689.4 million, an increase of $116.7 million, or 20.4%, compared to the same period in 2013. Net premiums written in the three months ended June 30, 2014 were $511.4 million, an increase of $46.8 million, or 10.1%. The increase in gross and net premiums written was driven by the following factors:

•

An increase in gross and net premiums written in the professional line of business in the Reinsurance segment, due primarily to the extension of a significant contract, as well as new business generated by new underwriting teams that joined the Company in late 2013, partially offset by non-renewal of contracts that no longer met profitability targets;

•

An increase in gross and net premiums written in the casualty and other specialty and professional lines of business in the Insurance segment, including marine and energy, excess casualty and various professional liability coverages, as a result of substantial investments to expand the Company’s Insurance underwriting leadership and personnel over the last twelve months. Increases were partially offset by reductions in casualty business due to non-renewal of policies from continued restructuring and balancing to meet profitability targets and from increased reinsurance purchases across the Insurance segment portfolio;

•

An increase in gross and net premiums written in the specialty line of business in the Reinsurance segment as a result of new trade credit, surety and international agriculture business written;

•

A decline in gross and net premiums written in the agriculture line of business in the Insurance segment due to declines in commodity prices on spring crops, partially offset by growth in policy counts;

•

A decline in gross and net premiums written in the casualty line of business in the Reinsurance segment due to non-renewal of business that no longer met profitability targets and reduced participation on certain contracts where pricing declined, partially offset by new business;

•

A decline in net premiums written in the catastrophe line of business in the Reinsurance segment due to increased purchases of retrocessional coverage and price declines partially offset by new business; and

•

An increase in ceded premiums written by the Company during the quarter ended June 30, 2014 as compared to the same period in 2013 across both the Insurance and Reinsurance segments. Ceded premiums written increased across all lines of business in the Insurance segment due to an increase in quota share reinsurance purchases, including a new whole account quota share treaty covering the entire Insurance segment’s book of business for 2014 and an increase in the professional lines quota share percentage in the current period. In addition, the Company purchased an excess of loss treaty covering the Insurance segment’s agriculture line of business at a lower attachment point compared to 2013, resulting in increased ceded premiums written. In the Reinsurance segment, ceded premium written increased as the Company purchased increased levels of protection within the catastrophe line of business, including an aggregate all perils excess of loss treaty and additional proportional retrocession.

Net premiums earned for the three months ended June 30, 2014 were $481.5 million, a decrease of $61.8 million, or 11.4%, from the second quarter of 2013 due to the increase in ceded premiums written.

Net Investment Income

The Company’s net investment income of $39.3 million increased by 21.0%, or $6.8 million, for the quarter ended June 30, 2014 as compared to the same period in 2013. This increase resulted primarily from an increase in mark to market gains on other investments during the quarter ended June 30, 2014 and an increase in the Company’s available for sale investments from June 30, 2013 to June 30, 2014. Net investment income during the second quarter of 2014 included net mark to market gains of $10.8 million on other investments, comprised of alternative funds and specialty funds, as compared to mark to market gains of $6.8 million in the second quarter of 2013. Investment income generated from the Company’s available for sale investments, which consist of fixed maturity investments, short-term investments and equity securities, increased by $3.0 million for the three months ended June 30, 2014 compared to the same period in 2013. Investment expenses, including investment management fees, for the three months ended June 30, 2014 were $3.6 million compared to $3.8 million for the same period in 2013.

The annualized net earned yield and total return of the investment portfolio for the three months ended June 30, 2014 and 2013 and the market yield and portfolio duration as of June 30, 2014 and 2013 were as follows:


	Three Months Ended June 30,
	2014			2013
Annualized net earned yield⁽¹⁾		2.47	%		2.04	%
Total return on investment portfolio⁽²⁾		1.52	%		(1.22	)%
Market yield⁽³⁾		1.63	%		2.00	%
Portfolio duration⁽⁴⁾		2.88 years			3.05 years

(1)	The actual net earned income from the investment portfolio after adjusting for expenses and accretion of discount and amortization of premium from the purchase price divided by the average book value of assets.

(2)	Net of investment manager fees; includes realized and unrealized gains and losses.

(3)	The internal rate of return of the investment portfolio based on the given market price or the single discount rate that equates a security price (inclusive of accrued interest) for the portfolio with its projected cash flows. Excludes other investments and operating cash.

(4)	Includes only cash and cash equivalents and fixed income investments managed by the Company’s investment managers.

During the second quarter of 2014, the yield on the benchmark three year U.S. Treasury bond fluctuated within a 25 basis point range, with a high of 0.99% and a low of 0.74%. Trading activity in the Company’s portfolio during the second quarter included reductions in U.S. government and government agencies securities, commercial mortgage-backed securities, and short-term investments, and increased allocations to corporate securities, collateralized obligations, residential mortgage-backed securities, equity securities, foreign government bonds, other investments, municipals, and government and agency guaranteed corporate securities. The duration of fixed income investments decreased to 2.88 years at June 30, 2014 from 3.11 years at December 31, 2013, primarily due to the decrease in interest rates, which increased the estimated rate of prepayments underlying the Company’s mortgage-backed securities portfolio, causing a reduction of the average expected maturity of these securities.

Net Realized and Unrealized Investment Gains

The Company’s investment portfolio is actively managed on a fair value basis to generate attractive economic returns and income. Movements in financial markets and interest rates influence the timing and recognition of net realized investment gains and losses as the portfolio is adjusted and rebalanced. Proceeds from sales of investments classified as available for sale during the three months ended June 30, 2014 were $950.1 million compared to $937.4 million during the same period a year ago. Net realized investment gains decreased during the three months ended June 30, 2014 compared to the same period in 2013.

Realized investment gains and losses and the change in the fair value of derivative financial instruments for the three months ended June 30, 2014 and 2013 were as follows:


	Three Months Ended June 30,
	2014			2013
	(U.S. dollars in thousands)
Gross realized gains on investment sales	$	7,387		$	16,591
Gross realized losses on investment sales		(5,319	)		(5,283	)
Change in fair value of derivative financial instruments		1,343			(936	)

Net realized and unrealized investment gains	$	3,411		$	10,372

Net impairment losses recognized in earnings for the three months ended June 30, 2014 and 2013 were $0.2 million and $0.6 million, respectively.

Net Foreign Exchange Gains and Losses

For the three months ended June 30, 2014, the Company remeasured its monetary assets and liabilities denominated in foreign currencies, which resulted in a net foreign exchange loss of $0.3 million compared to a net foreign exchange loss of $3.4 million for the same period of 2013. The current period net foreign exchange loss resulted from the offsetting impacts of the U.S. dollar weakening generally against the key global currencies and British Sterling strengthening applied against the Company’s operations with U.S. dollar and British Sterling base currencies, respectively. In the prior year, the net foreign exchange gain resulted from offsetting exposures across the Company as the U.S. dollar strengthened against the Japanese Yen, Australian dollar and New Zealand dollar.

Net Losses and Loss Expenses

The Company’s net loss ratio for the three months ended June 30, 2014 decreased compared to the same period in 2013, principally as a result of lower incurred losses across all lines of business in the Insurance segment and the catastrophe, property, and casualty lines of business in the Reinsurance segment. Improvement in the net loss ratio was due to decreased catastrophe losses compared to the prior year, and the strategic re-underwriting and re-balancing of the Company’s underwriting portfolios, driven in part by the impact of underwriting teams added in the past year. This improvement was partially offset by decreased favorable prior year loss reserve development compared to the same period in 2013.

Favorable prior year loss reserve development was $54.2 million for the second quarter of 2014 compared to $62.8 million during the same period in 2013. In the second quarter of 2014, prior year loss reserves emerged favorably across all lines business of the Insurance and Reinsurance segments. In the Insurance segment, favorable reserve development in the second quarter of 2014 was higher than the second quarter of 2013 primarily in the casualty line of business due to lower than expected claims reported and favorable case reserve development. Favorable reserve development in the Reinsurance segment was lower than in 2013, primarily in the catastrophe, property and specialty lines of business.

The following table shows the net losses after adjustment for reinstatement premiums and other loss sensitive accruals recorded by the Company in connection with current calendar year catastrophes for the three months ended June 30, 2014 and 2013.

Three Months Ended June 30, 2014

Three Months Ended June 30, 2013

Event Date

Event

Net Loss

Event Date

Event

Net Loss

(U.S. dollars in millions)

April 2014

Windstorms in the United States

7.3

June 2013

Floods in Canada

11.3

May 2014

Windstorms in the United States

3.8

June 2013

Floods in Europe

23.7

June 2014

Windstorms in the United States

3.5

May 2013

Windstorms in the United States

12.4

June 2014

Windstorm Ela

9.3

Other loss events in 2014

2.6

26.5

47.4

For the three months ended June 30, 2014, natural catastrophe related losses added 5.8 percentage points to the Company’s net loss ratio after adjustment for reinstatement premiums and other loss sensitive accruals compared to 9.3 percentage points in the same period in 2013.

The Company participates in lines of business where claims may not be reported for many years. Accordingly, management does not believe that reported claims are the only valid means for estimating ultimate obligations. Ultimate losses and loss expenses may differ materially from the amounts recorded in the Company’s consolidated financial statements. These estimates are reviewed regularly and, as experience develops and new information becomes known, the reserves are adjusted as necessary. Reserve adjustments, if any, are recorded in earnings in the period in which they are determined. The overall loss reserves were established by the Company’s actuaries and reflect management’s best estimate of ultimate losses. See “Reserve for Losses and Loss Expenses” below for further discussion.

Acquisition Expenses

The acquisition expense ratio for the three months ended June 30, 2014 was higher than the same period in 2013 primarily due to growth in net earned premiums in the specialty and professional lines of business in the Reinsurance segment, which incur a higher than average net acquisition expense rate, and a decline in earned premiums in the catastrophe line of business in the Reinsurance segment, which incurs a lower than average acquisition expense rate.

General and Administrative Expenses

The Company’s general and administrative expense ratio for the second quarter of 2014 increased by 3.0 percentage points compared to the same period in 2013 due to corporate activities related to the potential acquisition of Aspen Insurance Holdings Limited (“Aspen”) of $12.1 million and an increase in personnel costs related to the addition of new underwriting teams and management personnel over the last year and the resulting payroll and equity compensation related expenses. This increase was partially offset by increased ceding commission reimbursements as a result of additional purchases of reinsurance during the current quarter. At June 30, 2014, the Company had a total of 948 employees compared to 927 employees at June 30, 2013.

Income Tax Expense

The Company recorded tax expense for the quarter ended June 30, 2014 of $0.1 million compared to a tax benefit of $0.9 million for the quarter ended June 30, 2013. The increase in tax expense in 2014 resulted from net income recorded at the Company’s United States taxable jurisdictions, partially offset by net operating loss carryforwards and a reduction in the Company’s deferred tax asset valuation allowance.

Net Income

The Company generated net income of $83.2 million in the three months ended June 30, 2014 compared to net income of $61.0 million in the same period of 2013 primarily due to a reduction in losses incurred during the current quarter, which was offset by reduced premiums earned and higher acquisition and general and administrative expenses.

Consolidated Results of Operations – For the Six Months Ended June 30, 2014 and 2013

Results of operations for the six months ended June 30, 2014 and 2013 were as follows:


	Six Months Ended June 30,
	2014			2013			Change⁽¹⁾
	(U.S. dollars in thousands, except for ratios)
Revenues
Gross premiums written	$	1,846,940		$	1,750,072			5.5	%
Ceded premiums written		(536,808	)		(376,536	)		42.6	%

Net premiums written		1,310,132			1,373,536			(4.6	)%

Net premiums earned		877,804			963,452			(8.9	)%
Net investment income		80,292			81,773			(1.8	)%
Net realized and unrealized investment gains		8,283			16,607			(50.1	)%
Net impairment losses recognized in earnings		(309	)		(1,385	)		(77.7	)%
Other underwriting (loss) income		(6,062	)		1,637			NM	⁽²⁾

Total revenues		960,008			1,062,084			(9.6	)%

Expenses
Losses and loss expenses		436,092			578,028			(24.6	)%
Acquisition expenses		150,758			143,504			5.1	%
General and administrative expenses		159,661			147,837			8.0	%
Amortization of intangibles		3,240			3,726			(13.0	)%
Net foreign exchange losses		3,283			6,295			(47.8	)%
Interest expense		18,783			18,090			3.8	%
Income tax expense		548			3,286			(83.3	)%

Net income	$	187,643		$	161,318			16.3	%


Net loss ratio		49.6	%		60.0	%		(10.4	)
Acquisition expense ratio		17.2	%		14.9	%		2.3
General and administrative expense ratio		18.2	%		15.3	%		2.9

Combined ratio		85.0	%		90.2	%		(5.2	)

⁽¹⁾	With respect to ratios, changes show increase or decrease in percentage points.

⁽²⁾	Not meaningful.

Premiums

Gross premiums written in the six months ended June 30, 2014 were $1,846.9 million, an increase of $96.9 million, or 5.5%, compared to the same period in 2013. Net premiums written in the six months ended June 30, 2014 were $1,310.1 million, a decrease of $63.4 million, or 4.6%, compared to the same period in 2013. The increase in gross premiums written and the decrease in net premiums written was driven by the following factors:

•

An increase in gross and net premiums written in the professional line of business in the Reinsurance segment, due primarily to new business generated by new underwriting teams that joined the Company in late 2013 and an extension of a significant contract, partially offset by non-renewal of contracts that no longer met profitability targets;

•

An increase in gross and net premiums written in the casualty and other specialty and professional lines business in the Insurance segment, including marine and energy, excess casualty and various professional liability coverages, as a result of substantial investments to expand the Company’s Insurance underwriting leadership and personnel over the last twelve months, partially offset by reductions in casualty business due to non-renewal of policies that no longer met profitability targets;

•

An increase in gross and net premiums written in the specialty line of business in the Reinsurance segment as a result of new trade credit, surety and international agriculture business, partially offset by non-renewal of business that no longer met profitability targets and increased ceding company retentions in the aviation and space business;

•

An increase in gross and net premiums written in the property line of business in the Reinsurance segment, due primarily to new business generated by the Company’s U.S. subsidiaries and Zurich branch and from a number of positive premium adjustments, partially offset by non-renewal of business that no longer met profitability targets and increased ceding company retentions;

•

A decline in gross and net premiums written in the catastrophe line of business in the Reinsurance segment due to decreased participation on certain contracts, downward pressure on renewal rates, and non-renewal of a number of contracts; and

•

An increase in ceded premiums written by the Company in the first half of the year as compared to the same period in 2013 across both the Insurance and Reinsurance segments. Ceded premiums written increased across all lines of business in the Insurance segment due to an increase in quota share reinsurance purchases, including a new whole account quota share treaty covering the entire Insurance segment’s book of business for 2014. In addition, the Company purchased an excess of loss treaty covering the Insurance segment’s agriculture line of business at a lower attachment point compared to 2013, resulting in increased ceded premiums written. In the Reinsurance segment, ceded premium written increased as the Company purchased increased levels of protection within the catastrophe line of business, including an aggregate all perils excess of loss treaty and additional proportional retrocession.

Net premiums earned for the six months ended June 30, 2014 were $877.8 million, a decrease of $85.6 million, or 8.9%, from the six months ended June 30, 2013 principally due to the increase in ceded premiums written.

Net Investment Income

The Company’s net investment income of $80.3 million decreased by 1.8%, or $1.5 million, for the six months ended June 30, 2014 as compared to the same period in 2013. Net investment income during the first six months of 2014 included net mark to market gains of $24.3 million on other investments, comprised of alternative funds and specialty funds, as compared to mark to market gains of $29.8 million in the first six months of 2013. Investment income generated from the Company’s available for sale investments, which consist of fixed maturity investments, short-term investments and equity securities, increased by $3.8 million for the six months ended June 30, 2014 compared to the same period in 2013. Investment expenses, including investment management fees, for the six months ended June 30, 2014 were $7.3 million compared to $7.5 million for the same period in 2013.

The annualized net earned yield and total return on the investment portfolio for the six months ended June 30, 2014 and 2013 and the market yield and portfolio duration as of June 30, 2014 and 2013 were as follows:


	Six Months Ended June 30,
	2014			2013
Annualized net earned yield⁽¹⁾		2.52	%		2.56	%
Total return on investment portfolio⁽²⁾		2.78	%		(0.62	)%
Market yield⁽³⁾		1.63	%		2.00	%
Portfolio duration⁽⁴⁾		2.88 years			3.05 years

⁽¹⁾	The actual net earned income from the investment portfolio after adjusting for expenses and accretion of discount and amortization of premium from the purchase price divided by the average book value of assets.

⁽²⁾	Net of investment manager fees; includes realized and unrealized gains and losses.

⁽³⁾	The internal rate of return of the investment portfolio based on the given market price or the single discount rate that equates to a security price (inclusive of accrued interest) for the portfolio with its projected cash flows. Excludes other investments and operating cash.

⁽⁴⁾	Includes only cash and cash equivalents and fixed income investments held by the Company’s investment managers.

During the six months ended June 30, 2014, the yield on the benchmark three year U.S. Treasury bond fluctuated within a 37 basis point range, with a high of 0.99% and a low of 0.62%. Trading activity in the Company’s portfolio for the six months ended June 30, 2014 included reductions in U.S. government and government agencies securities and short-term investments, and increased allocations to corporate securities, foreign government bonds, collateralized obligations, equity securities, other investments, residential mortgage-backed securities, asset-backed securities, government and agency guaranteed corporate securities, commercial mortgage-backed securities, and municipal securities. The duration of the fixed income investments decreased to 2.88 years at June 30, 2014 from 3.11 years at December 31, 2013, primarily due to a decrease in interest rates which increased the estimated rate of prepayments underlying the Company’s mortgage-backed securities portfolio, causing a reduction of the average maturity of these securities.

Net Realized and Unrealized Investment Gains

The Company’s investment portfolio is actively managed on a fair value basis to generate attractive economic returns and income. Movements in financial markets and interest rates influence the timing and recognition of net realized investment gains and losses as the portfolio is adjusted and rebalanced. Proceeds from sales of investments classified as available for sale during the six months ended June 30, 2014 were $2,060.7 million compared to $1,395.5 million during the same period a year ago. Net realized investment gains decreased during the six months ended June 30, 2014 compared to the same period in 2013.

Realized investment gains and losses and the change in the fair value of derivative financial instruments for the six months ended June 30, 2014 and 2013 were as follows:


	Six Months Ended June 30,
	2014			2013
	(U.S. dollars in thousands)
Gross realized gains on investment sales	$	17,634		$	24,011
Gross realized losses on investment sales		(11,303	)		(6,746	)
Change in fair value of derivative financial instruments		1,952			(658	)

Net realized and unrealized investment gains	$	8,283		$	16,607

Net impairment losses recognized in earnings for the six months ended June 30, 2014 and 2013 were $0.3 million and $1.4 million, respectively.

Net Foreign Exchange Gains

For the six months ended June 30, 2014, the Company remeasured its monetary assets and liabilities denominated in foreign currencies, which resulted in a net foreign exchange loss of $3.3 million compared to a net foreign exchange loss of $6.3 million for the same period in 2013. The current period net foreign exchange loss was primarily incurred in the first quarter and resulted from offsetting exposures across the Company as the U.S. dollar weakened against the Japanese Yen and Australian dollar, revaluing net liability balances in those currencies higher. In the prior year, the loss resulted from the U.S. dollar strengthening against the Japanese Yen, Australian dollar and New Zealand dollar and the downward revaluation of net asset balances in those currencies.

Net Losses and Loss Expenses

The Company’s net loss ratio for the six months ended June 30, 2014 decreased compared to the same period in 2013, principally as a result of lower incurred losses in the agriculture, casualty and other specialty and professional lines of business in the Insurance segment and the catastrophe, property and casualty lines of business in the Reinsurance segment. Improvement in the net loss ratio was due to a decrease in catastrophe losses compared to the prior year, and the strategic re-underwriting and re-balancing of the Company’s underwriting portfolios, driven in part by the impact of underwriting teams added during the past year. This improvement was partially offset by decreased favorable prior year loss reserve development compared to the same period in the prior year.

Favorable prior year loss reserve development was $104.5 million for the six months ended June 30, 2014 as compared to $113.5 million for the same period in 2013. In the six months ended June 30, 2014 and 2013, prior year loss reserves emerged favorably across all lines of the Insurance and Reinsurance segments. Favorable reserve development in the six months ended June 30, 2014 was higher than the six months ended June 30, 2013 in the Insurance segment due primarily to lower than expected reported losses in the casualty and other specialty line of business. Favorable reserve development in the six months ended June 30, 2014 was lower than the six months ended June 30, 2013 in the Reinsurance segment in the catastrophe line of business as the six months ended June 30, 2013 included significant reductions in reserve estimates related to the Thailand flood losses of 2011 and Superstorm Sandy losses in 2012.

Six Months Ended June 30, 2014

Six Months Ended June 30, 2013

Event Date

Event

Net Loss

Event Date

Event

Net Loss

(U.S. dollars in millions)

February 2014

Windstorm in Japan

4.7

June 2013

Floods in Canada

11.3

April 2014

Windstorms in the United States

7.3

June 2013

Floods in Europe

23.7

May 2014

Windstorms in the United States

3.8

May 2013

Windstorms in the United States

12.4

June 2014

Windstorms in the United States

3.5

June 2014

Windstorm Ela

9.3

28.6

47.4

For the six months ended June 30, 2014, catastrophe related losses added 3.4 percentage points to the Company’s net loss ratio after adjustment for reinstatement premiums and other loss sensitive accruals compared to 5.2 percentage points in the same period in 2013.

The Company participates in lines of business in which claims may not be reported for many years. Accordingly, management does not believe that reported claims are the only valid means for estimating ultimate obligations. Ultimate losses and loss expenses may differ materially from the amounts recorded in the Company’s consolidated financial statements. These estimates are reviewed regularly and, as experience develops and new information becomes known, the reserves are adjusted as necessary. Reserve adjustments, if any, are recorded in earnings in the period in which they are determined. The overall loss reserves were established by the Company’s actuaries and reflect management’s best estimate of ultimate losses. See “Reserve for Losses and Loss Expenses” below for further discussion.

Acquisition Expenses

The acquisition expense ratio for the six months ended June 30, 2014 was higher than the same period in 2013 primarily due to growth in net premiums earned in the specialty and professional lines of business in the Reinsurance segment, which incur a higher than average net acquisition expense rate, and a decline in net premiums earned in the catastrophe line of business in the Reinsurance segment, which incurs a lower than average acquisition expense rate.

General and Administrative Expenses

The Company’s general and administrative expense ratio for the six months ended June 30, 2014 increased by 2.9 percentage points compared to the same period in 2013 due to corporate activities related to the potential acquisition of Aspen of $13.0 million and an increase in personnel costs related to the addition of new underwriting teams and management personnel over the last year and the resulting payroll and equity compensation related expenses. This increase was partially offset by increased ceding commission reimbursements as a result of additional purchases of reinsurance during the current year. At June 30, 2014, the Company had a total of 948 employees compared to 927 employees at June 30, 2013.

Income Tax Expense

The Company recorded a tax expense for the six months ended June 30, 2014 of $0.5 million compared to a tax expense of $3.3 million for the same period in 2013. The reduction in tax expense in 2014 resulted from net income recorded at the Company’s United States taxable jurisdictions, partially offset by net operating loss carryforwards and adjustments to the Company’s deferred tax asset valuation allowances.

Net Income

The Company generated net income of $187.6 million for the six months ended June 30, 2014 compared to net income of $161.3 million in the same period of 2013 primarily due to a reduction in losses incurred which was partially offset by reduced net premiums earned and reduced net realized and unrealized investment gains, and higher acquisition and general and administrative expenses.

Reserve for Losses and Loss Expenses

As of June 30, 2014, the Company had accrued losses and loss expense reserves of $4.0 billion (December 31, 2013 - $4.0 billion). This amount represents management’s best estimate of the ultimate liability for payment of losses and loss expenses related to loss events. During the six months ended June 30, 2014 and 2013, the Company’s net paid losses and loss expenses were $497.2 million and $549.3 million, respectively.

As more fully described under “Reserving Process” in the Company’s Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2013 Form 10-K, the Company incorporates a variety of actuarial methods and judgments in its reserving process. Two key inputs in the various actuarial methods employed by the Company are initial expected loss ratios and expected loss reporting patterns. These key inputs impact the potential variability in the estimate of the reserve for losses and loss expenses and are applicable to each of the Company’s business segments. The Company’s loss and loss expense reserves consider and reflect, in part, deviations resulting from differences between expected loss and actual loss reporting as well as judgments relating to the weights applied to the reserve levels indicated by the actuarial methods. Expected loss reporting patterns are based upon internal and external historical data and assumptions regarding claims reporting trends over a period of time that extends beyond the Company’s own operating history.

Differences between actual reported losses and expected losses are anticipated to occur in any individual period and such deviations may influence future initial expected loss ratios and/or expected loss reporting patterns as the recent actual experience becomes part of the historical data utilized as part of the ongoing reserve estimation process. The Company has demonstrated the impact of changes in the speed of the loss reporting patterns, as well as changes in the expected loss ratios, within the table under the heading “Potential Variability in Reserves for Losses and Loss Expenses” in the Company’s Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2013 Form 10-K.

Losses and loss expenses for the three and six months ended June 30, 2014 are summarized as follows:


	Incurred related to:
Three Months Ended						Total incurred
June 30, 2014	Current year		Prior years			losses
	(U.S. dollars in thousands)
Insurance:
Agriculture	$	113,873	$	(2,188	)	$	111,685
Casualty and other specialty		37,809		(11,350	)		26,459
Professional lines		16,504		(3,991	)		12,513
Property		3,429		(4,519	)		(1,090	)

Total Insurance		171,615		(22,048	)		149,567


Reinsurance:
Catastrophe		23,620		(7,713	)		15,907
Property		43,629		(9,502	)		34,127
Casualty		28,457		(2,821	)		25,636
Professional lines		20,965		(2,551	)		18,414
Specialty		25,111		(9,566	)		15,545

Total Reinsurance		141,782		(32,153	)		109,629


Totals	$	313,397	$	(54,201	)	$	259,196


	Incurred related to:
Six Months Ended						Total incurred
June 30, 2014	Current year		Prior years			losses
	(U.S. dollars in thousands)
Insurance:
Agriculture	$	164,229	$	(4,328	)	$	159,901
Casualty and other specialty		63,752		(18,066	)		45,686
Professional lines		34,544		(5,119	)		29,425
Property		9,271		(6,183	)		3,088

Total Insurance		271,796		(33,696	)		238,100


Reinsurance:
Catastrophe		39,428		(15,474	)		23,954
Property		88,200		(24,259	)		63,941
Casualty		57,124		(5,572	)		51,552
Professional lines		40,930		(4,580	)		36,350
Specialty		43,127		(20,932	)		22,195

Total Reinsurance		268,809		(70,817	)		197,992


Totals	$	540,605	$	(104,513	)	$	436,092

Losses and loss expenses for the three and six months ended June 30, 2014 included $54.2 million and $104.5 million in favorable development of reserves relating to prior accident years, respectively. The favorable loss reserve development experienced during the three and six months ended June 30, 2014 benefited the Company’s reported net loss ratios by approximately 11.3 and 11.9 percentage points, respectively. This net reduction in estimated losses for prior accident years reflects lower than expected claims emergence for the six months ended June 30, 2014 in all lines of business within the Insurance and Reinsurance segments.

For the three and six months ended June 30, 2014, the Company did not materially alter key inputs utilized to establish reserve for losses and loss expenses (initial expected loss ratios and loss reporting patterns) related to prior years for the insurance and reinsurance segments as the variances in reported losses for those segments were within the range of possible results anticipated by the Company.

Losses and loss expenses for the three and six months ended June 30, 2013 are summarized as follows:


	Incurred related to:
Three Months Ended						Total incurred
June 30, 2013	Current year		Prior years			losses
	(U.S. dollars in thousands)
Insurance:
Agriculture	$	158,341	$	(233	)	$	158,108
Casualty and other specialty		42,393		(4,976	)		37,417
Professional lines		17,608		1,672			19,280
Property		3,127		(2,088	)		1,039

Total Insurance		221,469		(5,625	)		215,844


Reinsurance:
Catastrophe		67,780		(26,439	)		41,341
Property		59,716		(23,444	)		36,272
Casualty		42,676		(900	)		41,776
Professional lines		9,020		(996	)		8,024
Specialty		21,202		(5,401	)		15,801

Total Reinsurance		200,394		(57,180	)		143,214


Totals	$	421,863	$	(62,805	)	$	359,058


	Incurred related to:
Six Months Ended						Total incurred
June 30, 2013	Current year		Prior years			losses
	(U.S. dollars in thousands)
Insurance:
Agriculture	$	209,033	$	(4,966	)	$	204,067
Casualty and other specialty		80,702		(9,918	)		70,784
Professional lines		41,432		2,339			43,771
Property		7,061		(10,375	)		(3,314	)

Total Insurance		338,228		(22,920	)		315,308


Reinsurance:
Catastrophe		96,223		(38,350	)		57,873
Property		112,651		(25,070	)		87,581
Casualty		84,415		(9,140	)		75,275
Professional lines		18,866		(6,654	)		12,212
Specialty		41,118		(11,339	)		29,779

Total Reinsurance		353,273		(90,553	)		262,720


Totals	$	691,501	$	(113,473	)	$	578,028

Losses and loss expenses for the three and six months ended June 30, 2013 included $62.8 million and $113.5 million in favorable development of reserves relating to prior accident years, respectively. The favorable loss reserve development experienced during the three and six months ended June 30, 2013 benefited the Company’s reported net loss ratio by approximately 11.6 and 11.8 percentage points, respectively. This net reduction in estimated losses for prior accident years reflects lower than expected claims emergence for the six months ended June 30, 2013 in the agriculture, casualty and other specialty and property lines of business in the Insurance segment, and in all lines of business within the Reinsurance segment.

For the three and six months ended June 30, 2013, the Company did not materially alter the two key inputs utilized to establish its reserve for losses and loss expenses (initial expected loss ratios and loss reporting patterns) for business related to prior years for the insurance and reinsurance segments as the variances in reported losses for those segments were within the range of possible results anticipated by the Company.

Insurance

Agriculture. For the three and six months ended June 30, 2014 and 2013, the Company recorded favorable loss emergence due to lower than anticipated agriculture claims settlements for the 2013 and 2012 crop years.

Casualty and other specialty. For the three and six months ended June 30, 2014, the Company recorded favorable loss emergence within this line of business primarily due to lower than expected claims activity within the Bermuda and U.S. based excess casualty businesses. This favorable loss emergence was partially offset by adverse development within the healthcare liability business due to two large malpractice claims. For the three and six months ended June 30, 2013, the Company recorded favorable loss emergence within this line of business primarily due to lower than expected claims activity within the healthcare liability and the Bermuda based excess casualty businesses. This favorable loss emergence was partially offset by adverse development within the U.S. based casualty business.

Professional lines. For the three and six months ended June 30, 2014, the Company recorded favorable loss emergence within this line of business, primarily due to slightly lower than expected reported claims activity. For the three and six months ended June 30, 2013, the Company recorded favorable loss emergence within this line of business primarily due to lower than expected reported claims activity in the Bermuda based professional liability and U.S. based director and officers’ liability businesses.

Property. For the three and six months ended June 30, 2014 and 2013, the favorable loss emergence within the property line of business was primarily due to lower than expected reported claims emergence.

Reinsurance

Catastrophe. For the six months ended June 30, 2014, the Company recorded significant favorable loss emergence within this line of business primarily due to lower than expected claims activity. For the six months ended June 30, 2013, the Company recorded significant favorable loss emergence within this line of business primarily due to lower than expected claims activity, primarily related to the Thailand floods of 2011 and Superstorm Sandy in 2012.

Property. For the three and six months ended June 30, 2014, the Company recorded favorable loss emergence in the property line of business primarily due to lower than expected claims activity within the U.S. based business. For the three and six months ended June 30, 2013, the Company recorded favorable loss emergence in the property line of business due to lower than expected claims activity, primarily related to the Thailand floods of 2011 and Superstorm Sandy in 2012.

Casualty. For the three and six months ended June 30, 2014 and 2013, the Company recorded favorable loss emergence within this line of business primarily due to lower than expected claims emergence.

Professional lines. For the three and six months ended June 30, 2014 and 2013, the Company recorded favorable loss emergence within this line of business primarily due to lower than expected claims emergence.

Specialty. For the three and six months ended June 30, 2014 and 2013, the Company recorded favorable loss emergence within this line of business primarily due to lower than expected claims emergence.

The total reserves for losses and loss expenses recorded on the Company’s balance sheet were comprised of the following at June 30, 2014:


	Case Reserves		IBNR Reserves		Reserve for losses and loss expenses
	(U.S. dollars in thousands)
Insurance:
Agriculture	$	213,720	$	121,452	$	335,172
Casualty and other specialty		349,230		945,689		1,294,919
Professional lines		96,271		385,270		481,541
Property		18,138		14,151		32,289

Total Insurance		677,359		1,466,562		2,143,921


Reinsurance:
Catastrophe		151,530		95,279		246,809
Property		183,619		115,282		298,901
Casualty		252,827		549,794		802,621
Professional lines		62,612		174,159		236,771
Specialty		88,683		145,687		234,370

Total Reinsurance		739,271		1,080,201		1,819,472


Totals	$	1,416,630	$	2,546,763	$	3,963,393

The total reserves for losses and loss expenses recorded on the Company’s balance sheet were comprised of the following at December 31, 2013:


	Case Reserves		IBNR Reserves		Reserve for losses and loss expenses
	(U.S. dollars in thousands)
Insurance:
Agriculture	$	257,939	$	84,429	$	342,368
Casualty and other specialty		316,170		960,130		1,276,300
Professional lines		110,880		390,875		501,755
Property		23,410		15,057		38,467

Total Insurance		708,399		1,450,491		2,158,890


Reinsurance:
Catastrophe		167,152		98,474		265,626
Property		196,715		127,083		323,798
Casualty		244,300		554,289		798,589
Professional lines		65,353		149,882		215,235
Specialty		96,801		143,320		240,121

Total Reinsurance		770,321		1,073,048		1,843,369


Totals	$	1,478,720	$	2,523,539	$	4,002,259

Underwriting Results by Business Segments

The determination of the Company’s business segments is based on the manner in which management monitors the performance of the Company’s underwriting operations. As a result, we report two business segments – Insurance and Reinsurance.

Management measures the Company’s results on the basis of the combined ratio, which is obtained by dividing the sum of the losses and loss expenses, acquisition expenses and general and administrative expenses by net premiums earned. The Company’s historic combined ratios may not be indicative of future underwriting performance. When purchased within a single line of business, ceded reinsurance and recoveries are accounted for within that line of business. When purchased across multiple lines of business, ceded reinsurance and recoveries are allocated to the lines of

business in proportion to the related risks assumed. The Company does not manage its assets by business segment; accordingly, investment income and total assets are not allocated to the individual business segments. General and administrative expenses incurred by the business segments are allocated directly. Remaining general and administrative expenses not directly incurred by the business segments are allocated primarily based on estimated consumption, headcount and other variables deemed relevant to the allocation of such expenses. Ceded reinsurance and recoveries are recorded within the business segment to which they apply.

Insurance

The following table summarizes the underwriting results and associated ratios for the Company’s Insurance segment for the three and six months ended June 30, 2014 and 2013.


	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
	(U.S. dollars in thousands, except for ratios)
Revenues
Gross premiums written	$	321,526		$	276,941		$	973,802		$	929,884
Ceded premiums written		(142,488	)		(85,439	)		(451,737	)		(333,688	)

Net premiums written		179,038			191,502			522,065			596,196

Net premiums earned		218,563			267,878			362,584			419,030
Other underwriting income		—			—			—			—

		218,563			267,878			362,584			419,030

Expenses
Losses and loss expenses		149,567			215,844			238,100			315,308
Acquisition expenses		15,128			14,968			27,389			29,584
General and administrative expenses		47,237			43,524			88,973			79,151

		211,932			274,336			354,462			424,043

Underwriting income (loss)	$	6,631		$	(6,458	)	$	8,122		$	(5,013	)


Net loss ratio		68.5	%		80.6	%		65.7	%		75.2	%
Acquisition expense ratio		6.9	%		5.6	%		7.6	%		7.1	%
General and administrative expense ratio		21.6	%		16.2	%		24.5	%		18.9	%

Combined ratio		97.0	%		102.4	%		97.8	%		101.2	%

Premiums. Gross premiums written for the three months ended June 30, 2014 in the Insurance segment increased by 16.1% over the same period in 2013. Gross premiums written for the six months ended June 30, 2014 in the Insurance segment increased by 4.7% over the same period in 2013. Gross and net premiums written for each line of business in the Insurance segment were as follows:


	Three Months Ended June 30,
	2014				2013
	Gross Premiums Written		Net Premiums Written		Gross Premiums Written		Net Premiums Written
	(U.S. dollars in thousands)
Agriculture	$	80,540	$	45,826	$	131,633	$	84,537
Casualty and other specialty		146,728		89,765		87,614		63,373
Professional lines		74,650		29,846		38,296		27,788
Property		19,608		13,601		19,398		15,804

Total	$	321,526	$	179,038	$	276,941	$	191,502


	Six Months Ended June 30,
	2014				2013
	Gross Premiums Written		Net Premiums Written		Gross Premiums Written		Net Premiums Written
	(U.S. dollars in thousands)
Agriculture	$	608,434	$	327,471	$	696,107	$	425,667
Casualty and other specialty		221,623		131,486		144,081		106,634
Professional lines		113,430		44,416		59,260		41,991
Property		30,315		18,692		30,436		21,904

Total	$	973,802	$	522,065	$	929,884	$	596,196

The Insurance segment’s gross premiums written increased while the net premiums written declined for the three and six months ended June 30, 2014 compared to the same periods in 2013 due to the following factors:

•

An increase in gross premiums written in the casualty and other specialty and professional lines of business, including marine and energy, excess casualty and various professional liability coverages, as a result of substantial investments to expand the Company’s Insurance underwriting leadership and personnel over the last twelve months, partially offset by reductions in casualty business due to non-renewal of policies that no longer met profitability targets;

•

A decline in gross premiums written in the agriculture line of business due to declines in commodity prices on spring crops, partially offset by growth in policy counts; and

•

An increase in ceded premiums written by the Company in the first half of the year as compared to the same period in 2013. Ceded premiums written increased across all lines of business due to an increase in quota share reinsurance purchases, including a new whole account quota share treaty covering the entire Insurance segment’s book of business for 2014. In addition, the Company purchased an excess of loss treaty covering the Insurance segment’s agriculture line of business at a lower attachment point compared to 2013, resulting in increased ceded premiums written.

Net premiums earned by the Company in the Insurance segment decreased in the three and six months ended June 30, 2014 compared to the same periods in 2013 primarily due to the increase in ceded premiums written.

Losses and Loss Expenses. The net loss ratio in the Company’s Insurance segment decreased by 12.1 percentage points for the three month period ended June 30, 2014 compared to the same period in 2013 and decreased by

9.5 percentage points for the six months ended June 30, 2014 and 2013. The current accident quarter loss ratio decreased by 4.1 and 5.7 percentage points for the three and six months ended June 30, 2014, respectively, compared to the same periods in 2013 due primarily to lower losses incurred in the casualty and other specialty line of business driven by the strategic re-underwriting and re-balancing of the portfolio.

During the three and six months ended June 30, 2014, the Company’s previously estimated loss and loss expense reserve for the Insurance segment for prior accident years was reduced by $22.0 million and $33.7 million, respectively, which decreased the net loss ratio by 10.1 and 9.3 percentage points, respectively, as compared to reductions of $5.6 million and $22.9 million, which decreased the net loss ratio by 2.1 and 5.5 percentage points for the three and six months ended June 30, 2013, respectively. Higher levels of favorable loss development in the second quarter and first six months of 2014 compared to 2013 was experienced primarily in the casualty and other specialty and professional lines of business following lower than expected claims activity than 2013.

Acquisition Expenses. The acquisition expense ratios in the Insurance segment in the second quarter and six months ended June 30, 2014 increased compared to the same periods in 2013 due to the increase in net earned premiums in the casualty and other specialty line of business, which incurs a higher than average net acquisition expense rate, and the decrease of net earned premiums in the agriculture line of business, which incurs a lower than average net acquisition expense rate.

General and Administrative Expenses. The increase in general and administrative expense ratios in the Insurance segment in the second quarter and six months ended June 30, 2014 compared to the same periods in 2013 was due to corporate activities related to the potential acquisition of Aspen and an increase in personnel costs related to the addition of new underwriting teams and management personnel over the last year and the resulting payroll and equity compensation related expenses. This increase was partially offset by increased ceding commission reimbursements as a result of additional purchases of reinsurance during the current quarter and year to date.

Reinsurance

The following table summarizes the underwriting results and associated ratios for the Company’s Reinsurance business segment for the three and six months ended June 30, 2014 and 2013.


	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
	(U.S. dollars in thousands, except for ratios)
Revenues
Gross premiums written	$	367,899		$	295,769		$	873,138		$	820,188
Ceded premiums written		(35,510	)		(22,650	)		(85,071	)		(42,848	)

Net premiums written		332,389			273,119			788,067			777,340

Net premiums earned		262,975			275,457			515,220			544,422
Other underwriting (loss) income		(4,824	)		888			(6,062	)		1,637

		258,151			276,345			509,158			546,059

Expenses
Losses and loss expenses		109,629			143,214			197,992			262,720
Acquisition expenses		63,473			56,900			123,369			113,920
General and administrative expenses		39,218			37,835			70,688			68,686

		212,320			237,949			392,049			445,326

Underwriting income	$	45,831		$	38,396		$	117,109		$	100,733


Net loss ratio		41.7	%		52.0	%		38.5	%		48.3	%
Acquisition expense ratio		24.1	%		20.7	%		23.9	%		20.9	%
General and administrative expense ratio		14.9	%		13.7	%		13.7	%		12.6	%

Combined ratio		80.7	%		86.4	%		76.1	%		81.8	%

Premiums. In the second quarter of 2014, net premiums written in the Reinsurance segment increased by 21.7% over the same period of 2013. In the six months ended June 30, 2014, net premiums written in the Reinsurance segment increased by 1.4% over the same period in 2013. Gross and net premiums written for each line of business in the Reinsurance segment for the three and six months ended June 30, 2014 and 2013 were as follows:


	Three Months Ended June 30,
	2014				2013
	Gross Premiums Written		Net Premiums Written		Gross Premiums Written		Net Premiums Written
	(U.S. dollars in thousands)
Catastrophe	$	158,372	$	123,411	$	155,431	$	138,041
Property		42,887		42,886		48,384		44,516
Casualty		30,875		30,868		54,417		54,419
Professional lines		84,117		84,117		12,528		12,528
Specialty		51,648		51,107		25,009		23,615

Total	$	367,899	$	332,389	$	295,769	$	273,119


	Six Months Ended June 30,
	2014				2013
	Gross Premiums Written		Net Premiums Written		Gross Premiums Written		Net Premiums Written
	(U.S. dollars in thousands)
Catastrophe	$	285,020	$	202,374	$	303,297	$	269,439
Property		209,300		209,208		196,795		192,927
Casualty		115,857		114,260		183,809		182,382
Professional lines		109,736		109,736		24,835		24,835
Specialty		153,225		152,489		111,452		107,757

Total	$	873,138	$	788,067	$	820,188	$	777,340

The movements in gross and ceded premiums written in the Reinsurance segment for the second quarter and six months ended June 30, 2014 compared to the same periods in 2013 were primarily due to the following factors:

•

An increase in gross premiums written in the professional line of business, due primarily to new business generated by new underwriting teams that joined the Company in late 2013 and an extension of a significant contract, partially offset by non-renewal of contracts that no longer met profitability targets;

•

An increase in gross premiums written in the specialty line of business as a result of new trade credit, surety and international agriculture business, partially offset by non-renewal of business that no longer met profitability targets and increased ceding company retentions in the aviation and space business;

•

An increase in gross premiums written in the property line of business in the six month period, due primarily to new business generated by the Company’s U.S. subsidiaries and Zurich branch and from a number of positive premium adjustments, partially offset by non-renewal of business that no longer met profitability targets and increased ceding company retentions;

•

A decline in gross premiums written in the casualty line of business due to non-renewal of business that no longer met profitability targets and reduced participation on certain contracts where pricing declined, partially offset by new business;

•

Over the six month period, a decline in gross premiums written in the catastrophe line of business due to decreased participation on certain contracts, downward pressure on renewal rates and non-renewal of a number of contracts; and

•

An increase in ceded premiums written by the Company in the first half of the year as compared to the same period in 2013. Ceded premium written increased as the Company purchased increased levels of protection within the catastrophe line of business, including an aggregate all perils excess of loss treaty and additional proportional retrocession.

Net premiums earned by the Company in the Reinsurance segment for the three and six months ended June 30, 2014 decreased compared to the same period in 2013 due to the increase in ceded premiums written.

Losses and Loss Expenses. The net loss ratios in the Company’s Reinsurance segment for the three and six months ended June 30, 2014 decreased compared to the same periods in 2013 principally as a result of lower incurred losses in 2014 compared to 2013. Improvement in the net loss ratios was due to a decrease in catastrophe losses compared to the same periods in the prior year, and the strategic re-underwriting and re-balancing of the Company’s underwriting portfolios, driven in part by the impact of underwriting teams added during the past year. This improvement was partially offset by decreased favorable prior year loss reserve development for the three and six months ended June 30, 2014 compared to the same periods in 2013.

The Company recorded $32.2 million and $70.8 million of favorable prior year loss reserve development in the three and six months ended June 30, 2014 compared to $57.2 million and $90.6 million in the three and six months ended June 30, 2013. During the three and six months ended June 30, 2014, the majority of the favorable loss reserve development emanated from the property, specialty and catastrophe lines of business. The same periods in 2013 experienced favorable loss reserve development emanating from the property and catastrophe lines of business, driven by reductions in the Thailand flood losses of 2011 and Superstorm Sandy losses in 2012, and from lower than expected attritional losses.

Partially offsetting the decreased levels of favorable prior year loss reserve development in the current periods, the Company recorded catastrophe losses, net of reinstatement premiums and other loss sensitive accruals, of $26.5 million and $28.6 million in the quarter and six months ended June 30, 2014. The net losses from catastrophes added 10.9 and 6.0 percentage points to the Reinsurance segment’s net loss ratios for the second quarter and six months ended June 30, 2014, respectively. During the second quarter and six months ended June 30, 2013, the Company incurred catastrophe losses of $47.4 million and $47.4 million. The net losses from catastrophes added 18.8 and 9.5 percentage points to the Reinsurance segment’s net loss ratios for the second quarter and six months ended June 30, 2013, respectively.

The following table shows the net losses after adjustment for reinstatement premiums and other loss sensitive accruals recorded by the Company in the Reinsurance segment in connection with current calendar year catastrophes for the three and six months ended June 30, 2014 and 2013.

Three Months Ended June 30, 2014

Three Months Ended June 30, 2013

Event Date

Event

Net Loss

Event Date

Event

Net Loss

(U.S. dollars in millions)

April 2014

Windstorms in the United States

7.3

June 2013

Floods in Canada

11.3

May 2014

Windstorms in the United States

3.8

May 2013

Floods in Europe

23.7

June 2014

Windstorms in the United States

3.5

Windstorms in the United States

12.4

June 2014

Windstorm Ela

9.3

Other loss events in 2014

2.6

26.5

47.4

Six Months Ended June 30, 2014

Six Months Ended June 30, 2013

Event Date

Event

Net Loss

Event Date

Event

Net Loss

(U.S. dollars in millions)

February 2014

Windstorm in Japan

4.7

June 2013

Floods in Canada

11.3

April 2014

Windstorms in the United States

7.3

June 2013

Floods in Europe

23.7

May 2014

Windstorms in the United States

3.8

May 2013

Windstorms in the United States

12.4

June 2014

Windstorms in the United States

3.5

June 2014

Windstorm Ela

9.3

28.6

47.4

Acquisition Expenses. The Company’s acquisition expense ratios in the Reinsurance segment for the three and six months ended June 30, 2014 were higher than in the same periods in 2013 primarily due to growth in net premiums earned in the specialty and professional lines of business, which incur a higher than average net acquisition expense rate, and a decline in net premiums earned in the catastrophe line of business, which incurs a lower than average net acquisition expense rate.

General and Administrative Expenses. The general and administrative expense ratios in the Reinsurance segment for the three and six months ended June 30, 2014 increased compared to those in the same periods in 2013 due to corporate activities related to the potential acquisition of Aspen and an increase in personnel costs related to the acquisition of new underwriting teams and management personnel over the last year and the resulting payroll and equity compensation related expenses.

Liquidity and Capital Resources

Endurance Holdings is a holding company that does not have any significant operations or assets other than its ownership of the shares of its direct and indirect subsidiaries. Endurance Holdings relies primarily on dividends and other permitted distributions from its subsidiaries to pay its operating expenses, interest on debt and dividends, if any, on its ordinary shares, its 7.75% Non-Cumulative Preferred Shares, Series A (“Series A Preferred Shares”) and its 7.5% Non-Cumulative Preferred Shares, Series B (“Series B Preferred Shares”). There are restrictions on the payment of dividends by the Company’s operating subsidiaries to Endurance Holdings, which are described in more detail below.

Ability of Subsidiaries to Pay Dividends. The ability of Endurance Bermuda to pay dividends is dependent on its ability to meet the requirements of applicable Bermuda law and regulations. Under Bermuda law, Endurance Bermuda may not declare or pay a dividend if there are reasonable grounds for believing that Endurance Bermuda is, or would after the payment be, unable to pay its liabilities as they become due, or the realizable value of Endurance Bermuda’s assets would thereby be less than the aggregate of its liabilities and its issued share capital and share premium accounts. Further, Endurance Bermuda, as a regulated insurance company in Bermuda, is subject to additional regulatory restrictions on the payment of dividends or distributions. As of June 30, 2014, Endurance Bermuda could pay a dividend or return additional paid-in capital totaling approximately $551.8 million (December 31, 2013 – $654.5 million) without prior regulatory approval based upon the Bermuda insurance and corporate regulations. In 2011, Endurance Holdings loaned Endurance Bermuda $200.0 million, which remains outstanding and is callable on demand.

Endurance U.S. Reinsurance, Endurance American, Endurance American Specialty and Endurance Risk Solutions are subject to regulation by the State of Delaware Department of Insurance and American Agri-Business is subject to regulation by the Texas Department of Insurance. Dividends for each U.S. operating subsidiary are limited to the greater of 10% of policyholders’ surplus or statutory net income, excluding realized capital gains. In addition, dividends may only be declared or distributed out of earned surplus. At December 31, 2013, Endurance U.S. Reinsurance, Endurance American, Endurance Risk Solutions and Endurance American Specialty did not have earned surplus; therefore, these companies are precluded from declaring or distributing dividends at June 30, 2014 without the prior approval of the applicable insurance regulator. At June 30, 2014, American Agri-Business could pay dividends of $3.9 million with notice to the Texas Department of Insurance. In addition, any dividends paid by Endurance American, Endurance American Specialty and Endurance Risk Solutions would be subject to the dividend limitation of their respective parent insurance companies.

Under the jurisdiction of the United Kingdom’s Prudential Regulation Authority (“PRA”), Endurance U.K. must maintain a margin of solvency at all times, which is determined based on the type and amount of insurance business written. The PRA regulatory requirements impose no explicit restrictions on Endurance U.K.’s ability to pay a dividend, but Endurance U.K. would have to notify the PRA 28 days prior to any proposed dividend payment. Dividends may only be distributed from profits available for distributions. At June 30, 2014, Endurance U.K. did not have profits available for distributions.

Cash and Invested Assets. The Company’s aggregate invested assets, including fixed maturity investments, short-term investments, equity securities, other investments, cash and cash equivalents and pending securities transactions, as of June 30, 2014 totaled $6.5 billion, which is consistent with the aggregate invested assets of $6.5 billion as of December 31, 2013.

At June 30, 2014, the Company’s available for sale investments had gross unrealized gains of $130.9 million and gross unrealized losses of $11.8 million compared to gross unrealized gains of $95.6 million and gross unrealized losses of $49.6 million at December 31, 2013. The decrease in gross unrealized losses on the Company’s fixed income investments at June 30, 2014 compared to December 31, 2013 was primarily due to a decrease in interest rates during the period. The Company did not have the intent to sell any of the remaining fixed income investments in an unrealized loss position and determined that it was unlikely that the Company would be required to sell securities in an unrealized loss position at June 30, 2014. The Company has the ability and intent to hold its equity securities until recovery. Therefore, the Company does not consider its fixed income investments or equity securities to be other-than-temporarily impaired at June 30, 2014.

The Company’s aggregate direct exposure to the indebtedness and equity securities of those countries whose currency is the Euro or whose sovereign debt rating is below AAA (except the U.S.) was $614.9 million at June 30, 2014, compared to $463.4 million at December 31, 2013.

Cash Flows


	Six Months Ended June 30,
	2014			2013
	(U.S. dollars in thousands)
Net cash provided by operating activities	$	19,667		$	42,712
Net cash used in investing activities		(18,886	)		(165,604	)
Net cash used in financing activities		(54,251	)		(30,706	)
Effect of exchange rate changes on cash and cash equivalents		8,647			(28,359	)

Net decrease in cash and cash equivalents		(44,823	)		(181,957	)
Cash and cash equivalents, beginning of period		845,851			1,124,019

Cash and cash equivalents, end of period	$	801,028		$	942,062

The decrease in cash flows provided by operating activities in the six months ended June 30, 2014 compared to the same period in 2013 was primarily due to higher ceded premium and general expenditure outflows, partially offset by lower gross loss payments.

The decrease in cash used in investing activities reflected the Company’s active management of its investment portfolio on a fair value basis to generate attractive economic returns and income. Movements in financial markets and interest rates influence the timing of investment sales and purchases. The decrease in cash flows used in investing activities in 2014 principally reflected increased proceeds from sales and maturities of available for sale investments offset by higher purchases of available for sale investments compared to 2013.

The cash flows used in financing activities in the first quarter of 2014 were higher than in 2013 principally due to a decrease in the number of common shares issued, costs paid for bridge financing related to the proposed acquisition of Aspen and an increase in dividends paid to holders of the Company’s common shares. The higher financing outflows were partially offset by common share repurchases in 2013, while there was no repurchase activity in the current period. During the six months ended June 30, 2013, the Company used its capital to repurchase 318,252 ordinary shares in the open market for $14.6 million at an average price per share of $45.83.

The effect of exchange rate changes had a modestly positive impact on the cash balances of the Company in the first half of 2014 as exchange rates did not change to a significant extent in the period. In the first half of 2013 the dollar strengthened significantly against British Sterling and Japanese Yen resulting in a reduction in the reported value of cash balances.

As of June 30, 2014 and December 31, 2013, the Company had pledged cash and cash equivalents and fixed maturity investments of $128.7 million and $146.1 million, respectively, in favor of certain ceding companies to collateralize obligations. As of June 30, 2014 and December 31, 2013, the Company had also pledged $250.2 million and $302.7 million of its cash and fixed maturity investments to meet collateral obligations for $216.8 million and $260.3 million, respectively, in letters of credit outstanding under its Credit Facility (as defined below) and LOC agreement. In addition, at June 30, 2014 and December 31, 2013, cash and fixed maturity investments with fair values of $274.6 million and $273.7 million were on deposit with U.S. state regulators, respectively.

Credit Facility. On April 19, 2012, the Company and certain designated subsidiaries of the Company entered into a $700.0 million four-year revolving credit facility with JPMorgan Chase Bank, N.A. (“JPMorgan”) as administrative agent (“Credit Facility”). As of June 30, 2014, there were no borrowings under this facility and letters of credit outstanding under the Credit Facility were $216.8 million (December 31, 2013 – $260.3 million).

On June 25, 2014, the Company entered into the First Amendment (the “Amendment”) to the Credit Facility. The Amendment also amends the Security Agreement, dated as of April 19, 2012 (the “Security Agreement”), among the Company and certain designated subsidiaries of the Company, Deutsche Bank Trust Company Americas, as collateral agent, and JPMorgan as the administrative agent. The Amendment contains certain amendments to the Credit Facility and the Security Agreement to facilitate the proposed acquisition of Aspen and to change certain other provisions of the Credit Facility by, among other things, increasing the maximum permitted leverage ratio (calculated as provided in the Credit Facility) from 0.35:1.00 to 0.40:1.00 until the last day of the third full fiscal quarter following the consummation of any acquisition of Aspen, increasing the permitted amount of letters of credit and unsecured indebtedness and increasing the threshold amounts for cross-defaults, judgment defaults, and defaults under the Employee Retirement Income Security Act of 1974, as amended. Certain of the amendments were to become effective only upon consummation of an acquisition of Aspen.

Letter of Credit Facility. On January 17, 2014, the Company and certain designated subsidiaries of the Company entered into a $50.0 million revolving letter of credit reimbursement agreement (“LOC Agreement”) and cash collateral agreement with Australia and New Zealand Banking Group Limited. As of March 31, 2014, the Company had issued letters of credit of $1.4 million under the LOC Agreement. For letters of credit issued under the LOC Agreement, the Company is required to pay a fee that is negotiated at the time of issuance of the letter of credit. Letters of credit issued under the LOC Agreement are required to be collateralized with cash or investments.

Bridge Facility. On June 2, 2014, the Company entered into a commitment letter with Morgan Stanley Senior Funding, Inc. (the “Commitment Letter”). Pursuant to the Commitment Letter, Morgan Stanley Senior Funding, Inc., as lead arranger, committed to provide to the Company, subject to certain conditions, senior unsecured bank financing of up to $1.0 billion under an unsecured 364-day bridge facility (the “Bridge Facility”), which was to be used to finance a portion of the cash consideration to be paid in connection with the Company’s proposed acquisition of Aspen and related costs and expenses. As of June 30, 2014, there were no borrowings under the Bridge Facility. Upon the termination by the Company on July 30, 2014 of its offer to acquire Aspen, the Bridge Facility expired pursuant to its terms. On termination of the Bridge Facility, the Company will recognize the capitalized debt issuance costs associated with the facility of $4.1 million.

Agreement with Equity Investors. On June 2, 2014, the Company entered into an agreement (the “Agreement”) terminating a prior equity commitment letter, dated January 28, 2014, pursuant to its terms. In connection with such termination, the Company extended to CVC Capital Partners Advisory (U.S.), Inc. (“CVC”) and certain permitted assignees of CVC (collectively, the “Equity Option Investors”) an equity investment option in the event that, on

or prior to December 31, 2014, the Company enters into a definitive written agreement to acquire, or acquires, 95% or more of the issued and outstanding Aspen ordinary shares (the “Equity Investment Option”). Pursuant to the Equity Investment Option, if exercised, the Equity Option Investors would purchase $250.0 million of newly issued Company ordinary shares at a price of $50.03 per ordinary share, as adjusted for any stock splits, stock dividends or combinations prior to the closing of the Equity Investment Option. The Equity Investment Option would be exercisable for the sixty (60) day period following the closing of the Company’s acquisition of Aspen.

The Equity Option Investors would have certain preemptive rights with respect to future share issuances by the Company, and the purchased ordinary shares would be subject to lock-up restrictions that would limit the right of the Equity Option Investors to transfer the shares for 12 months following the exercise of the Equity Investment Option, subject to certain exceptions.

In addition to the purchase of Company ordinary shares, upon the closing of the Equity Investment Option, the Company would also grant the Equity Option Investors, on a pro rata basis, warrants to purchase a number of additional Company ordinary shares equal to 38.5% of the total number of Company ordinary shares acquired by the Equity Option Investors in connection with the Equity Investment Option, at an exercise price equal to $58.86 per share, as adjusted for any stock splits, stock dividends or combinations prior to the closing of the Equity Investment Option. The warrants would have a term of ten years from the date of the closing of the Equity Investment Option.

Upon the closing of the Equity Investment Option, CVC would have the right to nominate one individual to serve as a director of the Company, which individual shall qualify as an independent director for purposes of the NYSE rules and, except for two specified individuals, shall be subject to the approval of the Company’s board of directors (such approval not to be unreasonably withheld).

Pursuant to the Agreement, the Company also granted the Equity Option Investors a right of first refusal in the event the Company proposes to raise, on a private basis, equity capital through the sale of equity securities or securities convertible into or exchangeable or exercisable for equity securities of the Company or other equity-linked securities, the purpose of which is to partially fund the cash portion of an acquisition of Aspen completed, or for which a definitive written agreement is entered into, on or prior to December 31, 2014, or to refinance any debt incurred by the Company in connection with any such acquisition (only to the extent the proceeds of any such refinancing are specifically earmarked for such purposes). This right of first refusal is subject to certain exceptions, including with respect the to sale of equity securities to the Company’s Chief Executive Officer of up to $25.0 million and to certain other specified equity investors of up to $100.0 million. The Company does not currently intend to raise any equity capital that would be subject to the right of first refusal, but reserves the right to do so.

The Company has also agreed that, in the event any person or entity (other than certain funds advised by CVC or their affiliates) enters into a definitive written agreement to acquire or acquires more than 40% of the capital stock of the Company on or prior to December 31, 2014, the Company will pay CVC an amount equal to $26.3 million upon the closing of such transaction, less the amount of any previously reimbursed expenses.

The Charman Agreement. John R. Charman, the Company’s Chief Executive Officer, and the Company entered into an agreement on June 2, 2014, pursuant to which Mr. Charman committed to purchase, subject to the receipt of any required regulatory approvals and the completion of the Company’s acquisition of Aspen, $25.0 million of newly issued Company common shares at a price per share equal to $53.51, as adjusted for any stock splits, stock dividends or combinations prior to the closing of such investment.

Historically, the operating subsidiaries of the Company have generated sufficient cash flows to meet all of their obligations. Because of the inherent volatility of the business written by the Company, the seasonality in the timing of payments by ceding companies, the irregular timing of loss payments, the impact of a change in interest rates on the Company’s investment returns as well as seasonality in coupon payment dates for fixed maturity investments, cash flows from the Company’s operating activities may vary significantly between periods. The Company expects to generate positive operating cash flows through 2014, absent the occurrence of additional significant loss events. In the event that paid losses accelerate beyond the ability to fund such payments from operating cash flows, the Company would use its cash balances available, liquidate a portion of its investment portfolio, access its existing credit facility, or arrange for additional financing. There can be no assurance that the Company will be successful in executing these strategies.

Currency and Foreign Exchange

The Company’s functional currencies are U.S. dollars for its U.S. and Bermuda operations and British Sterling for its U.K. operations. The reporting currency for all operations is U.S. dollars. The Company maintains a portion of its investments and liabilities in currencies other than the U.S. dollar. The Company has made a significant investment in the capitalization of Endurance U.K, which is subject to the PRA’s rules concerning the matching of the currency of its assets to the currency of its liabilities. Depending on the profile of Endurance U.K.’s liabilities, it may be required to hold some of its assets in currencies corresponding to the currencies of its liabilities. The Company may, from time to time, experience gains or losses resulting from fluctuations in the values of foreign currencies, which could have a material adverse effect on the Company’s results of operations.

Assets and liabilities of foreign operations whose functional currency is not the U.S. dollar are translated at exchange rates in effect at the balance sheet date. Revenues and expenses of such foreign operations are translated at average exchange rates during the year. The effect of the translation adjustments for foreign operations is included in accumulated other comprehensive income.

Other monetary assets and liabilities denominated in foreign currencies are revalued at the exchange rates in effect at the balance sheet date with the resulting foreign exchange gains and losses included in earnings. Revenues and expenses denominated in foreign currencies are translated at the prevailing exchange rate on the transaction date.

Effects of Inflation

The effects of inflation could cause the severity of claims to rise in the future. The Company’s estimates for losses and loss expenses include assumptions about future payments for settlement of claims and claims handling expenses, such as medical treatments and litigation costs. To the extent inflation causes these costs to increase above reserves established for these claims, the Company will be required to increase the reserve for losses and loss expenses with a corresponding reduction in its earnings in the period in which the deficiency is identified. In addition, inflation could lead to higher interest rates causing the current unrealized gain position on the Company’s fixed maturity portfolio to decrease or become an unrealized loss position. In response, the Company may choose to hold its fixed income investments to maturity, which would result in the unrealized gains largely amortizing through net investment income.

Cautionary Statement Regarding Forward-Looking Statements

Some of the statements under “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”). The PSLRA provides a “safe harbor” for forward-looking statements. These forward-looking statements reflect our current views with respect to us specifically and the insurance and reinsurance business generally, investments, capital markets and the general economic environments in which we operate. 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 PSLRA 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, industry consolidation and development of competing financial products;

•

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

•

changes in market conditions in the agriculture industry, which may vary depending upon demand for agricultural products, weather, commodity prices, natural disasters, technological advances in agricultural practices, changes in U.S. and foreign legislation and policies related to agricultural products and producers;

•

termination of or changes in the terms of the U.S. multiple peril crop insurance program and termination or changes to the U.S. farm bill, including modifications to the Standard Reinsurance Agreement put in place by the Risk Management Agency of the U.S. Department of Agriculture;

•

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

•

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

•

the inability to renew business previously underwritten or acquired;

•

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

•

our ability to effectively integrate acquired operations and to continue to expand our business;

•

uncertainties in our reserving process, including the potential for adverse development of our loss reserves or failure of our loss limitation methods;

•

the ability of the counterparty institutions with which we conduct business to continue to meet their obligations to us;

•

the failure or delay of the Florida Hurricane Catastrophe Fund or private market participants in Florida to promptly pay claims, particularly following a large windstorm or of multiple smaller storms;

•

our continued ability to comply with applicable financial standards and restrictive covenants, the breach of which could trigger significant collateral or prepayment obligations;

•

Endurance Holdings or Endurance Bermuda becomes subject to income taxes in jurisdictions outside of Bermuda;

•

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

•

state, federal and foreign regulations that impede our ability to charge adequate rates and efficiently allocate capital;

•

changes in insurance regulations in the U.S. or other jurisdictions in which we operate, including the new Federal Insurance Office within the U.S. Department of the Treasury and other regulatory changes mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 in the United States and the implementation of Solvency II by the European Commission;

•

reduced acceptance of our existing or new products and services;

•

loss of business provided by any one of a few brokers on whom we depend for a large portion of our revenue, and our exposure to the credit risk of our brokers;

•

actions by our competitors, many of which are larger or have greater financial resources than we do;

•

assessments by states for high risk or otherwise uninsured individuals;

•

the impact of acts of terrorism and acts of war;

•

the effects of terrorist related insurance legislation and laws;

•

the inability to retain key personnel;

•

political stability of Bermuda;

•

changes in the political environment of certain countries in which we operate or underwrite business;

•

changes in accounting regulation, policies or practices;

•

our investment performance;

•

the valuation of our invested assets and the determination of impairments of those assets, if any;

•

the breach of our investment guidelines or the inability of those guidelines to mitigate investment risk;

•

the possible further downgrade of U.S. or foreign government securities by credit rating agencies, and the resulting effect on the value of U.S. or foreign government and other securities in our investment portfolio as well as the uncertainty in the market generally;

•

the need for additional capital in the future which may not be available or only available on unfavorable terms;

•

the ability to maintain the availability of our systems and safeguard the security of our data in the event of a disaster or other unanticipated event; and

•

changes in general economic conditions and/or industry specific 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 our 2013 Form 10-K, including the risk factors set forth in Item 1A thereof. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

EXHIBIT A

Item 6.

Exhibits

(a) The following sets forth those exhibits filed pursuant to Item 601 of Regulation S-K:


Exhibit Number		Description

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act.

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


			ENDURANCE SPECIALTY HOLDINGS LTD.

Date:	August 12, 2014	By:	/s/ John R. Charman
			John R. Charman
			Chief Executive Officer

Date:	August 12, 2014	By:	/s/ Michael J. McGuire
			Michael J. McGuire
			Chief Financial Officer (Principal Financial Officer)

EX-31.1

Exhibit 31.1

Endurance Specialty Holdings Ltd.

Certification of Chief Executive Officer

Pursuant to Rule 13a-14(a)

I, John R. Charman, certify that:

1.	I have reviewed this Amendment No. 1 to the Quarterly Report on Form 10-Q of Endurance Specialty Holdings Ltd.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: August 12, 2014	By:	/s/ John R. Charman
		Chief Executive Officer

EX-31.2

Exhibit 31.2

Endurance Specialty Holdings Ltd.

Certification of Chief Financial Officer

Pursuant to Rule 13a-14(a)

I, Michael J. McGuire, certify that:

1.	I have reviewed this Amendment No. 1 to the Quarterly Report on Form 10-Q of Endurance Specialty Holdings Ltd.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: August 12, 2014	By:	/s/ Michael J. McGuire
		Chief Financial Officer