Best Affirms Endurance Ratings

May 3, 2005

A.M. Best Co. announced that it has affirmed the financial strength rating of “A” (Excellent) and the issuer credit ratings of “a” of Bermuda-based Endurance Specialty Insurance Ltd. and its operating affiliates.

Best also assigned an issuer credit rating of “bbb” to Endurance Specialty Holdings, Ltd. and affirmed the senior debt rating of “bbb” on $250 million 7.0 percent unsecured notes due 2034, as well as all debt securities filed under a $500 million universal shelf registration.

All of the ratings have a stable outlook.

“The ratings reflect Endurance’s excellent operating results, which stem from the development of a strong broker distribution network, successful implementation of underwriting and risk management controls and selective acquisitions,” said Best. “The geographically diversified book of business, which includes both short- and long-tail lines, is fully supported by the company’s excellent level of risk-based capitalization. Lines of business include property per risk, property catastrophe reinsurance, casualty treaty reinsurance, casualty individual risks and specialty lines.”

Best noted: “Endurance produced a combined ratio of 86 percent in 2004 despite recording approximately $170 million in gross catastrophe losses, while shareholders’ equity grew to $1.9 billion at December 31, 2004. Since inception, the company has used selective acquisitions to expand its existing book of business. In prior years, Endurance acquired the renewal rights to LaSalle Re Limited’s property catastrophe business and selected portions of The Hartford Fire Insurance Company’s reinsurance business. In 2004, Endurance acquired the renewal right to XL Re Ltd.’s surety book and hired Converium Reinsurance (NA) Inc.’s agribusiness underwriting team. Each acquisition has been complementary to Endurance’s profile and did not include the addition of any historical liabilities.”

The rating agency indicated, however, that “the company’s short operating history in relation to its casualty business” is an offsetting factor. “Due to the long-tail nature of these lines, the consistency and sustainability of Endurance’s casualty segment’s operating performance has yet to be proven.

“Furthermore, market pressure on pricing could dampen expected returns along with exposure to low frequency, high severity property catastrophe losses,” Best continued. It said, however, that despite these concerns, it “expects Endurance to manage its capital base very conservatively within acceptable ranges to support its current ratings and meet the more stringent capital requirements for a recently established Bermuda entity.”

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