ENDURANCE SPECIALTY HOLDINGS LTD.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of United States dollars)
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
MARCH 31,
|
|
2017
|
|
2016
|
Cash flows used in operating activities
|
|
Net income
|
$
|
26,383
|
|
|
$
|
124,644
|
|
Adjustments to reconcile net income to net cash used in operating activities:
|
|
|
|
Amortization of net premium on investments
|
9,714
|
|
|
10,460
|
|
Amortization of other intangibles and depreciation
|
22,554
|
|
|
26,880
|
|
Net realized and unrealized gains
|
(4,093
|
)
|
|
(13,787
|
)
|
Net impairment losses recognized in earnings
|
430
|
|
|
623
|
|
Deferred taxes
|
(14,033
|
)
|
|
(1,842
|
)
|
Stock-based compensation expense
|
41,816
|
|
|
10,015
|
|
Equity in (earnings) losses of other investments
|
(13,078
|
)
|
|
28,257
|
|
Change in:
|
|
|
|
Premiums receivable, net
|
(608,252
|
)
|
|
(524,440
|
)
|
Insurance and reinsurance balances receivable
|
163
|
|
|
(1,445
|
)
|
Deferred acquisition costs
|
(54,864
|
)
|
|
(66,153
|
)
|
Prepaid reinsurance premiums
|
(376,015
|
)
|
|
(392,694
|
)
|
Reinsurance recoverable on unpaid losses
|
(64,338
|
)
|
|
(27,649
|
)
|
Reinsurance recoverable on paid losses
|
(77,634
|
)
|
|
(42,925
|
)
|
Accrued investment income
|
3,749
|
|
|
657
|
|
Other assets
|
(23,552
|
)
|
|
10,312
|
|
Reserve for losses and loss expenses
|
(70,169
|
)
|
|
(52,226
|
)
|
Reserve for unearned premiums
|
849,449
|
|
|
776,257
|
|
Reinsurance balances payable
|
243,326
|
|
|
194,044
|
|
Other liabilities
|
(34,856
|
)
|
|
(89,372
|
)
|
Net cash flows used in operating activities
|
(143,300
|
)
|
|
(30,384
|
)
|
Cash flows provided by investing activities
|
|
|
|
Proceeds from sales and maturities of trading investments
|
731,116
|
|
|
753,987
|
|
Proceeds from sales and maturities of available for sale investments
|
916,256
|
|
|
964,133
|
|
Proceeds from the redemption of other investments
|
38,873
|
|
|
86,713
|
|
Purchases of trading investments
|
(219,134
|
)
|
|
(780,573
|
)
|
Purchases of available for sale investments
|
(1,163,339
|
)
|
|
(852,752
|
)
|
Purchases of other investments
|
(7,074
|
)
|
|
(39,162
|
)
|
Net settlements of other assets and other liabilities
|
(27,203
|
)
|
|
860
|
|
Purchases of fixed assets
|
(4,284
|
)
|
|
(2,385
|
)
|
Net cash paid upon subsidiary acquisition
|
(5
|
)
|
|
(3
|
)
|
Net cash flows provided by investing activities
|
265,206
|
|
|
130,818
|
|
Cash flows provided by (used in) financing activities
|
|
|
|
Issuance of common shares
|
30
|
|
|
566
|
|
Net distributions to non-controlling interests
|
(4,778
|
)
|
|
(16,859
|
)
|
Settlement of equity awards
|
(13,606
|
)
|
|
(10,735
|
)
|
Received from Sompo for settlement of equity awards
|
101,778
|
|
|
—
|
|
Offering and registration costs paid
|
—
|
|
|
(258
|
)
|
Proceeds from issuance of debt
|
—
|
|
|
178
|
|
Repayments of debt
|
(7
|
)
|
|
(13,199
|
)
|
Dividends on preferred shares
|
(3,651
|
)
|
|
(9,203
|
)
|
Dividends on common shares
|
(25,973
|
)
|
|
(25,578
|
)
|
Net cash flows provided by (used in) financing activities
|
53,793
|
|
|
(75,088
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
6,927
|
|
|
9,637
|
|
Net increase in cash and cash equivalents
|
182,626
|
|
|
34,983
|
|
Cash and cash equivalents, beginning of period
|
1,149,541
|
|
|
1,177,750
|
|
Cash and cash equivalents, end of period
|
$
|
1,332,167
|
|
|
$
|
1,212,733
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
ENDURANCE SPECIALTY HOLDINGS LTD.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Amounts in tables expressed in thousands of United States dollars, except
for ratios, share and per share amounts)
Endurance Specialty Holdings Ltd. ("Endurance Holdings" and together with its subsidiaries, the "Company") was organized as a Bermuda holding company on June 27, 2002. Endurance Holdings writes specialty lines of insurance and reinsurance on a global basis through its wholly-owned operating subsidiaries.
In addition, as part of its collateralized reinsurance and third party asset management operations, Endurance Holdings and Endurance Specialty Insurance Ltd. ("Endurance Bermuda") together own
33.3%
of Blue Capital Reinsurance Holdings Ltd. ("BCRH")'s common shares, and Endurance Bermuda owns
28.0%
of Blue Capital Global Reinsurance Fund Limited ("BCGR")'s ordinary shares.
BCRH is a Bermuda-based exempted limited liability holding company managed by Blue Capital Management Ltd. ("BCML"), a wholly-owned subsidiary of the Company. BCRH provides fully-collateralized property catastrophe reinsurance and invests in various insurance-linked securities through its wholly-owned Bermuda-based subsidiaries, Blue Capital Re. Ltd. ("Blue Capital Re") and Blue Capital Re ILS Ltd. ("Blue Capital Re ILS"). BCRH's shares are listed on the New York Stock Exchange and the Bermuda Stock Exchange.
BCGR is a closed-ended mutual fund incorporated in Bermuda and managed by BCML. BCGR serves as the feeder fund for the Blue Capital Global Reinsurance SA-I cell (the "BCGR Cell"). BCGR's shares are listed on the Specialist Fund Market of the London Stock Exchange and on the Bermuda Stock Exchange.
On October 5, 2016, the Company entered into an agreement and plan of merger (the "Merger Agreement") for the acquisition of
100%
of the outstanding ordinary shares of the Company by Sompo Holdings, Inc. ("Sompo") for
$93.00
per share in cash (the "Merger"). The Merger was approved by each company's Board of Directors and the Company's ordinary and preferred shareholders at a special general meeting.
On March 28, 2017, Sompo completed its acquisition of the Company following receipt of all shareholder and regulatory approvals. Pursuant to the terms of the Merger Agreement, Endurance Holdings ordinary shares ceased trading on the New York Stock Exchange ("NYSE") and each Endurance Holdings issued and outstanding ordinary share was canceled and converted into the right to receive
$93.00
per share. The Company's
6.35%
Non-Cumulative Preferred Shares, Series C (the "Series C Preferred Shares") continue to be traded on the NYSE following the close of the transaction.
Under the terms of the Merger Agreement, the aggregate consideration for the Merger was
$6,288.7 million
in cash. The purchase was financed by Sompo from existing sources of liquidity and supplementary facilities. In connection with the acquisition by Sompo, the Company incurred transaction expenses of
$56.2 million
for the
three months ended
March 31, 2017
, related primarily to equity compensation expenses, professional fees and investment banking fees. These expenses have been reported as a component of corporate expenses.
|
|
2.
|
Summary of significant accounting policies
|
The accompanying consolidated financial statements have been prepared on the basis of accounting principles generally accepted in the United States ("U.S. GAAP") for interim financial information and with the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Results for the
three
months ended
March 31, 2017
are not necessarily indicative of the results that may be expected for the year ending
December 31, 2017
. The consolidated financial statements include the accounts of Endurance Holdings, its wholly-owned subsidiaries, and BCRH and the BCGR Cell. All intercompany transactions and balances have been eliminated in consolidation. Management is required to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. Actual results could differ from those estimates. Among other matters, significant estimates and assumptions are used to record premiums written and ceded, to record the fair value of investments and to record reserves for losses and loss expenses and contingencies. Estimates and assumptions are periodically reviewed and the effects of revisions are recorded in the consolidated financial statements in the period that they are determined to be necessary.
The balance sheet at
December 31, 2016
has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes
ENDURANCE SPECIALTY HOLDINGS LTD.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
(Amounts in tables expressed in thousands of United States dollars, except
for ratios, share and per share amounts)
|
|
2.
|
Summary of significant accounting policies, cont'd.
|
thereto for the year ended
December 31, 2016
contained in Endurance Holdings' Annual Report on Form 10-K for the fiscal year ended
December 31, 2016
(the "
2016
Form 10-K").
Certain comparative information has been reclassified to conform to current year presentation.
There were no material changes in the Company's significant accounting and reporting policies subsequent to the filing of the
2016
Form 10-K.
Recent accounting pronouncements
In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-09, "Improvements to Employee Share-Based Payment Accounting" ("ASU 2016-09"). ASU 2016-09 changes how companies account for certain aspects of share-based payments to employees. Entities are required to recognize the income tax effects of awards in the income statement when the awards vest or are settled. The guidance also changes employers' accounting for an employee's use of shares to satisfy the employer's statutory income tax withholding obligation, and accounting for forfeitures. ASU 2016-09 was effective for public business entities for annual and interim periods beginning after December 15, 2016. Early adoption was permitted. The Company adopted ASU 2016-09 effective January 1, 2017. The adoption of this guidance resulted in a reduction of
$5.8 million
to opening retained earnings and a corresponding increase to opening additional paid-in capital. The adoption of this guidance did not have a material impact on the Company's Unaudited Condensed Consolidated Statements of Income and Comprehensive Income and Unaudited Condensed Consolidated Statements of Cash Flows.
In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350)" ("ASU 2017-04"). ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under ASU 2017-04, an entity would perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. ASU 2017-04 is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact of this guidance on its Unaudited Condensed Consolidated Financial Statements.
Composition of Net Investment Income and of Invested Assets
The components of net investment income for the
three
months ended
March 31, 2017
and
2016
are as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
|
2016
|
Fixed income investments
|
$
|
41,726
|
|
|
$
|
38,400
|
|
Equity securities
|
1,957
|
|
|
3,847
|
|
Other investments
|
13,078
|
|
|
(28,257
|
)
|
Cash and cash equivalents
|
625
|
|
|
1,047
|
|
|
$
|
57,386
|
|
|
$
|
15,037
|
|
Investment expenses
|
(4,536
|
)
|
|
(3,856
|
)
|
Net investment income
|
$
|
52,850
|
|
|
$
|
11,181
|
|
ENDURANCE SPECIALTY HOLDINGS LTD.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
(Amounts in tables expressed in thousands of United States dollars, except
for ratios, share and per share amounts)
Contractual maturities of the Company's fixed maturity and short-term investments are shown below as of
March 31, 2017
and
December 31, 2016
. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
Amortized
Cost
|
|
Fair Value
|
|
Amortized
Cost
|
|
Fair Value
|
Due within one year
|
$
|
298,437
|
|
|
$
|
298,369
|
|
|
$
|
617,655
|
|
|
$
|
617,462
|
|
Due after one year through five years
|
2,167,758
|
|
|
2,188,242
|
|
|
2,170,111
|
|
|
2,187,173
|
|
Due after five years through ten years
|
886,477
|
|
|
895,874
|
|
|
887,775
|
|
|
896,388
|
|
Due after ten years
|
59,155
|
|
|
61,938
|
|
|
55,400
|
|
|
58,449
|
|
Residential mortgage-backed securities
|
1,452,746
|
|
|
1,463,232
|
|
|
1,448,917
|
|
|
1,461,286
|
|
Commercial mortgage-backed securities
|
625,162
|
|
|
626,851
|
|
|
615,730
|
|
|
618,848
|
|
Collateralized loan and debt obligations
|
406,111
|
|
|
412,236
|
|
|
369,126
|
|
|
371,256
|
|
Asset-backed securities
|
509,011
|
|
|
510,773
|
|
|
509,595
|
|
|
510,663
|
|
Total
|
$
|
6,404,857
|
|
|
$
|
6,457,515
|
|
|
$
|
6,674,309
|
|
|
$
|
6,721,525
|
|
The following table summarizes the fair value of the fixed maturity investments, short-term investments and equity securities classified as trading at
March 31, 2017
and
December 31, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
Fixed maturity investments
|
|
|
|
|
U.S. government and agencies securities
|
|
$
|
412,572
|
|
|
$
|
551,055
|
|
U.S. state and municipal securities
|
|
2,627
|
|
|
6,006
|
|
Foreign government securities
|
|
110,730
|
|
|
110,088
|
|
Government guaranteed corporate securities
|
|
2,618
|
|
|
2,959
|
|
Corporate securities
|
|
958,677
|
|
|
1,051,200
|
|
Residential mortgage-backed securities
|
|
425,734
|
|
|
483,444
|
|
Commercial mortgage-backed securities
|
|
144,730
|
|
|
164,237
|
|
Collateralized loan and debt obligations
|
|
115,074
|
|
|
98,924
|
|
Asset-backed securities
|
|
224,545
|
|
|
272,142
|
|
Total fixed maturity investments
|
|
2,397,307
|
|
|
2,740,055
|
|
Short-term investments
|
|
52,967
|
|
|
330,199
|
|
Total fixed income investments
|
|
$
|
2,450,274
|
|
|
$
|
3,070,254
|
|
Equity securities
|
|
|
|
|
Equity investments
|
|
$
|
202
|
|
|
$
|
16,056
|
|
Total equity securities
|
|
$
|
202
|
|
|
$
|
16,056
|
|
In addition to the Company's fixed maturity, short-term and equity securities, the Company invests in other investments. At
March 31, 2017
and
December 31, 2016
, the Company had invested, net of capital returned, a total of
$445.1 million
and
$470.3 million
, respectively, in other investments. At
March 31, 2017
and
December 31, 2016
, the carrying value of other investments was
$569.7 million
and
$588.3 million
, respectively.
ENDURANCE SPECIALTY HOLDINGS LTD.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
(Amounts in tables expressed in thousands of United States dollars, except
for ratios, share and per share amounts)
The following table summarizes the composition, unfunded commitments and redemption restrictions of other investments as of
March 31, 2017
and
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
Market Value
|
|
Unfunded
Commitments
|
|
Ineligible for
Redemption over
next 12 months
|
Hedge funds
|
|
$
|
457,595
|
|
|
$
|
—
|
|
|
$
|
89,444
|
|
Private investment funds
|
|
81,550
|
|
|
86,220
|
|
|
81,550
|
|
Other investment funds
|
|
30,561
|
|
|
—
|
|
|
31,093
|
|
Total
|
|
$
|
569,706
|
|
|
$
|
86,220
|
|
|
$
|
202,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Market Value
|
|
Unfunded
Commitments
|
|
Ineligible for
Redemption in 2017
|
Hedge funds
|
|
$
|
482,865
|
|
|
$
|
—
|
|
|
$
|
85,963
|
|
Private investment funds
|
|
76,451
|
|
|
92,214
|
|
|
76,451
|
|
Other investment funds
|
|
28,992
|
|
|
—
|
|
|
27,518
|
|
Total
|
|
$
|
588,308
|
|
|
$
|
92,214
|
|
|
$
|
189,932
|
|
Hedge funds – The redemption frequency of the hedge funds in which the Company invests range from monthly to biennially with notice periods from
30
to
180
days. Over
one
year, it is estimated that the Company can liquidate approximately
80.5%
of its hedge fund portfolio, with the remainder over the following
two
years.
Private investment funds – The Company generally has no right to redeem its interest in any private investment fund in advance of dissolution of the applicable partnership. Instead, the nature of these investments is that distributions are received by the Company in connection with the liquidation of or distribution of earnings from the underlying assets of the applicable limited partnership. It is estimated that the majority of the underlying assets of the limited partnerships would liquidate over
5
to
10
years from inception of the limited partnership. A secondary market, with unpredictable liquidity, exists for limited partner interests in private equity funds.
Other investment funds – Other investment funds includes funds on deposit with Lloyd's of London ("Lloyd's"), which are restricted, and the Company's investment in BCGR, which represents the net asset or liability of the Company's investment in BCGR that has not been deployed into the BCGR cell.
Net Realized and Unrealized Gains
Realized gains and losses are recognized in earnings using the first in, first out method. The analysis of gross realized gains and losses, net unrealized gains on trading securities, and the change in the fair value of investment-related derivative financial instruments for the
three
months ended
March 31, 2017
and
2016
is as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2017
|
|
2016
|
Gross realized gains on investment sales
|
$
|
8,169
|
|
|
$
|
9,856
|
|
Gross realized losses on investment sales
|
(7,899
|
)
|
|
(11,195
|
)
|
Net unrealized gains on trading securities
|
7,490
|
|
|
14,796
|
|
Change in fair value of investment-related derivative financial instruments
(1)
|
(3,667
|
)
|
|
330
|
|
Net realized and unrealized gains
|
$
|
4,093
|
|
|
$
|
13,787
|
|
|
|
(1)
|
For additional information on the Company's derivative financial instruments, see Note 7, Derivatives.
|
ENDURANCE SPECIALTY HOLDINGS LTD.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
(Amounts in tables expressed in thousands of United States dollars, except
for ratios, share and per share amounts)
Unrealized Gains and Losses
The Company classifies some of its investments in fixed maturity investments, short-term investments and equity securities as available for sale. The amortized cost, fair value and related gross unrealized gains and losses on the Company's securities classified as available for sale at
March 31, 2017
and
December 31, 2016
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
Fixed maturity investments
|
|
|
|
|
|
|
|
|
U.S. government and agencies securities
|
|
$
|
545,642
|
|
|
$
|
3,905
|
|
|
$
|
(1,616
|
)
|
|
$
|
547,931
|
|
U.S. state and municipal securities
|
|
14,568
|
|
|
845
|
|
|
(94
|
)
|
|
15,319
|
|
Foreign government securities
|
|
76,397
|
|
|
1,211
|
|
|
(796
|
)
|
|
76,812
|
|
Government guaranteed corporate securities
|
|
764
|
|
|
—
|
|
|
(1
|
)
|
|
763
|
|
Corporate securities
|
|
1,205,017
|
|
|
24,752
|
|
|
(6,243
|
)
|
|
1,223,526
|
|
Residential mortgage-backed securities
|
|
1,027,938
|
|
|
19,523
|
|
|
(9,963
|
)
|
|
1,037,498
|
|
Commercial mortgage-backed securities
|
|
480,197
|
|
|
7,686
|
|
|
(5,762
|
)
|
|
482,121
|
|
Collateralized loan and debt obligations
|
|
294,667
|
|
|
2,639
|
|
|
(144
|
)
|
|
297,162
|
|
Asset-backed securities
|
|
284,421
|
|
|
2,577
|
|
|
(770
|
)
|
|
286,228
|
|
Total fixed maturity investments
|
|
3,929,611
|
|
|
63,138
|
|
|
(25,389
|
)
|
|
3,967,360
|
|
Short-term investments
|
|
39,891
|
|
|
—
|
|
|
(10
|
)
|
|
39,881
|
|
Total fixed income investments
|
|
$
|
3,969,502
|
|
|
$
|
63,138
|
|
|
$
|
(25,399
|
)
|
|
$
|
4,007,241
|
|
Equity securities
|
|
|
|
|
|
|
|
|
Equity investments
|
|
$
|
479,524
|
|
|
$
|
50,559
|
|
|
$
|
(271
|
)
|
|
$
|
529,812
|
|
Preferred equity investments
|
|
125
|
|
|
1
|
|
|
—
|
|
|
126
|
|
Total equity securities
|
|
$
|
479,649
|
|
|
$
|
50,560
|
|
|
$
|
(271
|
)
|
|
$
|
529,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
Fixed maturity investments
|
|
|
|
|
|
|
|
|
U.S. government and agencies securities
|
|
$
|
449,638
|
|
|
$
|
3,981
|
|
|
$
|
(2,792
|
)
|
|
$
|
450,827
|
|
U.S. state and municipal securities
|
|
11,560
|
|
|
945
|
|
|
(154
|
)
|
|
12,351
|
|
Foreign government securities
|
|
68,539
|
|
|
2,236
|
|
|
(1,944
|
)
|
|
68,831
|
|
Government guaranteed corporate securities
|
|
912
|
|
|
46
|
|
|
—
|
|
|
958
|
|
Corporate securities
|
|
1,078,756
|
|
|
26,481
|
|
|
(8,744
|
)
|
|
1,096,493
|
|
Residential mortgage-backed securities
|
|
968,273
|
|
|
21,032
|
|
|
(11,463
|
)
|
|
977,842
|
|
Commercial mortgage-backed securities
|
|
452,011
|
|
|
8,790
|
|
|
(6,190
|
)
|
|
454,611
|
|
Collateralized loan and debt obligations
|
|
271,361
|
|
|
1,644
|
|
|
(673
|
)
|
|
272,332
|
|
Asset-backed securities
|
|
237,177
|
|
|
2,242
|
|
|
(898
|
)
|
|
238,521
|
|
Total fixed maturity investments
|
|
3,538,227
|
|
|
67,397
|
|
|
(32,858
|
)
|
|
3,572,766
|
|
Short-term investments
|
|
78,506
|
|
|
1
|
|
|
(2
|
)
|
|
78,505
|
|
Total fixed income investments
|
|
$
|
3,616,733
|
|
|
$
|
67,398
|
|
|
$
|
(32,860
|
)
|
|
$
|
3,651,271
|
|
Equity securities
|
|
|
|
|
|
|
|
|
Equity investments
|
|
$
|
461,509
|
|
|
$
|
27,948
|
|
|
$
|
(4,545
|
)
|
|
$
|
484,912
|
|
Preferred equity investments
|
|
175
|
|
|
—
|
|
|
(2
|
)
|
|
173
|
|
Total equity securities
|
|
$
|
461,684
|
|
|
$
|
27,948
|
|
|
$
|
(4,547
|
)
|
|
$
|
485,085
|
|
ENDURANCE SPECIALTY HOLDINGS LTD.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
(Amounts in tables expressed in thousands of United States dollars, except
for ratios, share and per share amounts)
The following tables summarize, for all available for sale securities in an unrealized loss position at
March 31, 2017
and
December 31, 2016
, the aggregate fair value and gross unrealized loss by length of time the security has continuously been in an unrealized loss position.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
12 months or greater
|
|
Total
|
March 31, 2017
|
|
Unrealized
Losses
(1)
|
|
Fair
Value
|
|
Unrealized
Losses
(1)
|
|
Fair
Value
|
|
Unrealized
Losses
(1)
|
|
Fair
Value
|
Fixed maturity investments
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agencies securities
|
|
$
|
(1,615
|
)
|
|
$
|
240,131
|
|
|
$
|
(1
|
)
|
|
$
|
248
|
|
|
$
|
(1,616
|
)
|
|
$
|
240,379
|
|
U.S. state and municipal securities
|
|
(91
|
)
|
|
7,702
|
|
|
(3
|
)
|
|
2,058
|
|
|
(94
|
)
|
|
9,760
|
|
Foreign government securities
|
|
(207
|
)
|
|
22,247
|
|
|
(589
|
)
|
|
2,780
|
|
|
(796
|
)
|
|
25,027
|
|
Government guaranteed corporate securities
|
|
(1
|
)
|
|
763
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
763
|
|
Corporate securities
|
|
(5,269
|
)
|
|
344,120
|
|
|
(974
|
)
|
|
7,106
|
|
|
(6,243
|
)
|
|
351,226
|
|
Residential mortgage-backed securities
|
|
(8,720
|
)
|
|
522,225
|
|
|
(1,243
|
)
|
|
29,538
|
|
|
(9,963
|
)
|
|
551,763
|
|
Commercial mortgage-backed securities
|
|
(2,807
|
)
|
|
151,647
|
|
|
(2,955
|
)
|
|
58,708
|
|
|
(5,762
|
)
|
|
210,355
|
|
Collateralized loan and debt obligations
|
|
(97
|
)
|
|
63,336
|
|
|
(47
|
)
|
|
17,611
|
|
|
(144
|
)
|
|
80,947
|
|
Asset-backed securities
|
|
(596
|
)
|
|
106,552
|
|
|
(174
|
)
|
|
34,553
|
|
|
(770
|
)
|
|
141,105
|
|
Total fixed maturity investments
|
|
(19,403
|
)
|
|
1,458,723
|
|
|
(5,986
|
)
|
|
152,602
|
|
|
(25,389
|
)
|
|
1,611,325
|
|
Short-term investments
|
|
(10
|
)
|
|
35,230
|
|
|
—
|
|
|
—
|
|
|
(10
|
)
|
|
35,230
|
|
Total fixed income investments
|
|
$
|
(19,413
|
)
|
|
$
|
1,493,953
|
|
|
$
|
(5,986
|
)
|
|
$
|
152,602
|
|
|
$
|
(25,399
|
)
|
|
$
|
1,646,555
|
|
Equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity investments
|
|
$
|
(56
|
)
|
|
$
|
2,473
|
|
|
$
|
(215
|
)
|
|
$
|
3,884
|
|
|
$
|
(271
|
)
|
|
$
|
6,357
|
|
Total equity securities
|
|
$
|
(56
|
)
|
|
$
|
2,473
|
|
|
$
|
(215
|
)
|
|
$
|
3,884
|
|
|
$
|
(271
|
)
|
|
$
|
6,357
|
|
|
|
(1)
|
Gross unrealized losses include unrealized losses on non-OTTI and non-credit OTTI securities recognized in accumulated other comprehensive loss at
March 31, 2017
.
|
As of
March 31, 2017
,
1,015
available for sale securities were in an unrealized loss position aggregating
$25.7 million
. Of those,
184
securities with aggregated unrealized losses of
$6.2 million
had been in a continuous unrealized loss position for twelve months or greater.
ENDURANCE SPECIALTY HOLDINGS LTD.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
(Amounts in tables expressed in thousands of United States dollars, except
for ratios, share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
12 months or greater
|
|
Total
|
December 31, 2016
|
|
Unrealized
Losses
(1)
|
|
Fair
Value
|
|
Unrealized
Losses
(1)
|
|
Fair
Value
|
|
Unrealized
Losses
(1)
|
|
Fair
Value
|
Fixed maturity investments
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agencies securities
|
|
$
|
(2,791
|
)
|
|
$
|
289,012
|
|
|
$
|
(1
|
)
|
|
$
|
248
|
|
|
$
|
(2,792
|
)
|
|
$
|
289,260
|
|
U.S. state and municipal securities
|
|
(152
|
)
|
|
5,288
|
|
|
(2
|
)
|
|
2,143
|
|
|
(154
|
)
|
|
7,431
|
|
Foreign government securities
|
|
(446
|
)
|
|
15,717
|
|
|
(1,498
|
)
|
|
5,973
|
|
|
(1,944
|
)
|
|
21,690
|
|
Corporate securities
|
|
(7,512
|
)
|
|
448,643
|
|
|
(1,232
|
)
|
|
11,897
|
|
|
(8,744
|
)
|
|
460,540
|
|
Residential mortgage-backed securities
|
|
(10,082
|
)
|
|
521,167
|
|
|
(1,381
|
)
|
|
31,835
|
|
|
(11,463
|
)
|
|
553,002
|
|
Commercial mortgage-backed securities
|
|
(3,453
|
)
|
|
174,144
|
|
|
(2,737
|
)
|
|
76,694
|
|
|
(6,190
|
)
|
|
250,838
|
|
Collateralized loan and debt obligations
|
|
(223
|
)
|
|
50,194
|
|
|
(450
|
)
|
|
81,043
|
|
|
(673
|
)
|
|
131,237
|
|
Asset-backed securities
|
|
(539
|
)
|
|
64,109
|
|
|
(359
|
)
|
|
39,770
|
|
|
(898
|
)
|
|
103,879
|
|
Total fixed maturity investments
|
|
(25,198
|
)
|
|
1,568,274
|
|
|
(7,660
|
)
|
|
249,603
|
|
|
(32,858
|
)
|
|
1,817,877
|
|
Short-term investments
|
|
(2
|
)
|
|
4,691
|
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
4,691
|
|
Total fixed income investments
|
|
$
|
(25,200
|
)
|
|
$
|
1,572,965
|
|
|
$
|
(7,660
|
)
|
|
$
|
249,603
|
|
|
$
|
(32,860
|
)
|
|
$
|
1,822,568
|
|
Equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity investments
|
|
$
|
(2,855
|
)
|
|
$
|
71,509
|
|
|
$
|
(1,690
|
)
|
|
$
|
17,408
|
|
|
$
|
(4,545
|
)
|
|
$
|
88,917
|
|
Preferred equity investments
|
|
(2
|
)
|
|
123
|
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
123
|
|
Total equity securities
|
|
$
|
(2,857
|
)
|
|
$
|
71,632
|
|
|
$
|
(1,690
|
)
|
|
$
|
17,408
|
|
|
$
|
(4,547
|
)
|
|
$
|
89,040
|
|
|
|
(1)
|
Gross unrealized losses include unrealized losses on non-OTTI and non-credit OTTI securities recognized in accumulated other comprehensive loss at
December 31, 2016
.
|
As of
December 31, 2016
,
1,090
available for sale securities were in an unrealized loss position aggregating
$37.4 million
. Of those,
218
securities with aggregated unrealized losses of
$9.4 million
had been in a continuous unrealized loss position for twelve months or greater.
The decrease in gross unrealized losses on the Company's available for sale fixed income investments at
March 31, 2017
compared to
December 31, 2016
was primarily due to tightening credit spreads during the
three
months ended
March 31, 2017
. At
March 31, 2017
, 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 those securities in an unrealized loss position. During the
three
months ended
March 31, 2017
, the Company impaired certain fixed maturity investments and equity securities and therefore recognized in earnings total other-than-temporary impairments of
$0.4 million
for the
three
months ended
March 31, 2017
. As of
March 31, 2017
, the Company did not have the intent to sell any of the remaining equity securities in an unrealized loss position.
Other Investments
The Company is involved in the normal course of business with variable interest entities ("VIEs") as a passive investor in residential and commercial mortgage-backed securities and through its interests in various other investments that are structured as limited partnerships considered to be third party VIEs. The Company determines whether it is the primary beneficiary of an entity subject to consolidation based on a qualitative assessment of the VIE's capital structure, contractual terms, nature of the VIE's operations and purpose and the Company's relative exposure to the related risks of the VIE on the date it becomes initially involved in the VIE. The Company determined that it was not the primary beneficiary for any of these investments as of
March 31, 2017
. The Company believes its exposure to loss with respect to these investments is generally limited to the investment carrying amounts reported in the Company's Condensed Consolidated Balance Sheets and any unfunded investment commitments.
ENDURANCE SPECIALTY HOLDINGS LTD.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
(Amounts in tables expressed in thousands of United States dollars, except
for ratios, share and per share amounts)
Collateralized Reinsurance Entities
As of
March 31, 2017
, Endurance Holdings and Endurance Bermuda together owned
33.3%
of BCRH's common shares. BCRH is considered a VIE under U.S. GAAP due to service agreements for investment management, underwriting and insurance management and administrative services between BCRH and BCML, and the economic penalty to terminate the service agreements by BCRH. The Company has determined that it is BCRH's primary beneficiary due to its ability to direct the activities of BCRH through BCML along with its economic interest in BCRH. As a result, the Company fully consolidates the assets, liabilities and operations of BCRH and its subsidiaries within its Unaudited Condensed Consolidated Financial Statements. The interests in BCRH and its subsidiaries that the Company fully consolidates that are attributable to third-party investors are reported within the Company's Unaudited Condensed Consolidated Financial Statements as non-controlling interests. BCRH's shareholder rights do not include redemption features within the control of the third party shareholders. The Company reassesses its VIE determination with respect to BCRH on an ongoing basis.
As of
March 31, 2017
, Endurance Bermuda owned
28.0%
of BCGR's ordinary shares. BCGR is considered a "voting interest entity" under U.S. GAAP and, because the Company owns less than
50%
of its outstanding ordinary shares, the Company does not consolidate BCGR's assets, liabilities or operations within its Unaudited Condensed Consolidated Financial Statements. However, the BCGR Cell and Blue Water Re Ltd. ("Blue Water Re"), the Company's wholly-owned Bermuda-based special purpose insurance company, are considered VIEs under U.S. GAAP due to service agreements for investment management, underwriting and insurance management and administrative services between Blue Water Re and BCML. The Company has determined that it is the primary beneficiary of these entities due to its ability to direct the activities of Blue Water Re and the BCGR Cell along with its economic interest in these entities. Therefore, as funds held in BCGR are invested in the BCGR Cell, and ultimately into Blue Water Re, they are included in the Company's Unaudited Condensed Consolidated Financial Statements. Conversely, as funds previously invested by BCGR and the BCGR Cell into Blue Water Re are returned to BCGR, they are no longer included in the Company's Unaudited Condensed Consolidated Financial Statements. The interests in the BCGR Cell and Blue Water Re that the Company fully consolidates that are attributable to third-party investors are reported within the Company's Unaudited Condensed Consolidated Financial Statements as non-controlling interests. BCGR's shareholder rights do not include redemption features within the control of the third party shareholders. The Company reassesses its VIE determinations with respect to the BCGR Cell and Blue Water Re on an ongoing basis.
The following table summarizes the movements in the non-redeemable non-controlling interests balance during the
three
months ended
March 31, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2017
|
|
2016
|
Non-controlling interests, beginning of period
|
|
$
|
259,694
|
|
|
$
|
267,810
|
|
Income attributable to third-party investments in the BCGR Cell
|
|
4,195
|
|
|
5,741
|
|
Income attributable to third-party investments in BCRH
|
|
2,760
|
|
|
3,322
|
|
Net income attributable to non-controlling interests
|
|
6,955
|
|
|
9,063
|
|
Net preferred share redemptions attributable to third-party investments in the BCGR Cell
(1)
|
|
(1,402
|
)
|
|
(9,623
|
)
|
Net investments attributable to third-parties in BCRH
|
|
92
|
|
|
16
|
|
Net change in third-party investments in non-controlling interests
|
|
(1,310
|
)
|
|
(9,607
|
)
|
Dividends declared by BCRH attributable to non-controlling interests
|
|
(5,224
|
)
|
|
(9,007
|
)
|
Non-controlling interests, end of period
|
|
$
|
260,115
|
|
|
$
|
258,259
|
|
(1) The redemption from the BCGR Cell during the
three months ended
March 31, 2017
and
2016
was required to fund expenses, repay debt and fund dividends by BCGR.
ENDURANCE SPECIALTY HOLDINGS LTD.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
(Amounts in tables expressed in thousands of United States dollars, except
for ratios, share and per share amounts)
|
|
4.
|
Fair value measurement
|
The Company determines the fair value of its fixed maturity investments, short-term investments, equity securities, debt, and other assets and liabilities in accordance with current accounting guidance, which defines fair value and establishes a fair value hierarchy based on inputs to the various valuation techniques used for each fair value measurement. The Company determines the estimated fair value of each individual security utilizing the highest level inputs available. Valuation inputs by security type may include the following:
|
|
•
|
Government and agencies fixed maturity securities – These securities are generally priced by pricing services or index providers. The pricing services or index providers may use current market trades for securities with similar quality, maturity and coupon. If no such trades are available, the pricing service typically uses analytical models which may incorporate option adjusted spreads, daily interest rate data and market/sector news. The Company generally classifies the fair values of government and agencies securities in Level 2. Current issue U.S. government securities are generally valued based on Level 1 inputs, which use the market approach valuation technique.
|
|
|
•
|
Government guaranteed corporate fixed maturity securities – These securities are generally priced by pricing services or index providers. The pricing service or index providers may use current market trades for securities with similar quality, maturity and coupon. If no such trades are available, the pricing service typically uses analytical spread models which may incorporate inputs from the U.S. treasury curve or LIBOR. The Company generally classifies the fair values of its government guaranteed corporate securities in Level 2.
|
|
|
•
|
Corporate fixed maturity securities – These securities are generally priced by pricing services or index providers. The pricing services or index providers typically use discounted cash flow models that incorporate benchmark curves for treasury, swap and high issuance credits. Credit spreads are developed from current market observations for like or similar securities. The Company generally classifies the fair values of its corporate securities in Level 2. The Company uses models that include unobservable inputs to price its corporate bank loan portfolio. As such, the fair values of the corporate bank loans are generally classified in Level 3.
|
|
|
•
|
Equity securities – These securities are generally priced by pricing services or index providers. Depending on the type of underlying equity security or equity fund, the securities are priced by pricing services or index providers based on quoted market prices in active markets or through a discounted cash flow model that incorporates benchmark curves for treasury, swap and credits for like or similar securities. The Company generally classifies the fair values of its equity securities in Level 1 or 2.
|
|
|
•
|
Structured securities including agency and non-agency, residential and commercial mortgage-backed securities, asset-backed securities and collateralized loan and debt obligations – These securities are generally priced by broker/dealers. Broker/dealers may use current market trades for securities with similar qualities. If no such trades are available, inputs such as bid and offer, prepayment speeds, the U.S. treasury curve, swap curve and cash settlement may be used in a discounted cash flow model to determine the fair value of a security. The Company generally classifies the fair values of its structured securities in Level 2.
|
|
|
•
|
Other assets and liabilities – A portion of other assets and liabilities are composed of a variety of derivative instruments used to enhance the efficiency of the investment portfolio and economically hedge certain risks. These instruments are generally priced by pricing services, broker/dealers and/or recent trading activity. The market value approach valuation technique is used to estimate the fair value for these derivatives based on significant observable market inputs. Certain derivative instruments are priced by pricing services based on quoted market prices in active markets. These derivative instruments are generally classified in Level 1. Other derivative instruments are priced using industry valuation models and are considered Level 2, as the inputs to the valuation model are based on observable market inputs. Also included in this line item are proprietary, non-exchange traded derivative-based risk management products primarily used to address weather and energy risks. The trading market for these weather and energy derivatives are generally linked to energy and agriculture commodities, weather and other natural phenomena. In instances where market prices are not available, the Company uses industry or internally developed valuation techniques such as spread option, Black Scholes, quanto and simulation modeling to determine fair value and classifies these in Level 3. These models may reference prices for similar instruments.
|
|
|
•
|
Debt – Outstanding debt consists of the Company's
7.0%
Senior Notes due July 15, 2034, the
4.7%
Senior Notes due October 15, 2022 (together, the "Senior Notes") and the Trust Preferred Securities. The fair values of the Senior Notes
|
ENDURANCE SPECIALTY HOLDINGS LTD.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
(Amounts in tables expressed in thousands of United States dollars, except
for ratios, share and per share amounts)
|
|
4.
|
Fair value measurement, cont'd.
|
were obtained from a third party pricing service and pricing was based on the spread above the risk-free yield curve. The fair values of the Trust Preferred Securities were based on the spread above the risk-free yield curve. These spreads are generally obtained from the new issue market, secondary trading and broker-dealer quotes. As these spreads and the yields for the risk-free yield curve are observable market inputs, the fair values of the Senior Notes and the Trust Preferred Securities are classified in Level 2.
The carrying values of cash and cash equivalents, accrued investment income, other investments, net receivable on sales of investments, net payable on purchases of investments and other financial instruments not described above approximated their fair values at
March 31, 2017
and December 31,
2016
.
Transfers between levels are assumed to occur at the end of each period.
The following table sets forth the Company's fixed maturity investments, equity securities, short-term investments, other assets and liabilities and debt categorized by the level within the hierarchy in which the fair value measurements fall at
March 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2017
|
|
Total at March 31, 2017
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant Unobservable
Inputs
(Level 3)
|
Assets
|
|
|
|
|
|
|
|
Fixed maturity investments
|
|
|
|
|
|
|
|
U.S. government and agencies securities
|
$
|
960,503
|
|
|
$
|
23,292
|
|
|
$
|
937,211
|
|
|
$
|
—
|
|
U.S. state and municipal securities
|
17,946
|
|
|
—
|
|
|
17,946
|
|
|
—
|
|
Foreign government securities
|
187,542
|
|
|
—
|
|
|
187,542
|
|
|
—
|
|
Government guaranteed corporate securities
|
3,381
|
|
|
—
|
|
|
3,381
|
|
|
—
|
|
Corporate securities
|
2,182,203
|
|
|
—
|
|
|
1,994,513
|
|
|
187,690
|
|
Residential mortgage-backed securities
|
1,463,232
|
|
|
—
|
|
|
1,463,232
|
|
|
—
|
|
Commercial mortgage-backed securities
|
626,851
|
|
|
—
|
|
|
626,851
|
|
|
—
|
|
Collateralized loan and debt obligations
|
412,236
|
|
|
—
|
|
|
412,236
|
|
|
—
|
|
Asset-backed securities
|
510,773
|
|
|
—
|
|
|
510,773
|
|
|
—
|
|
Total fixed maturity investments
|
6,364,667
|
|
|
23,292
|
|
|
6,153,685
|
|
|
187,690
|
|
Equity securities
|
|
|
|
|
|
|
|
Equity investments
|
530,014
|
|
|
190,659
|
|
|
339,355
|
|
|
—
|
|
Preferred equity investments
|
126
|
|
|
—
|
|
|
126
|
|
|
—
|
|
Total equity securities
|
530,140
|
|
|
190,659
|
|
|
339,481
|
|
|
—
|
|
Short-term investments
|
92,848
|
|
|
—
|
|
|
92,848
|
|
|
—
|
|
Other assets (see Note 7)
|
235,276
|
|
|
1,945
|
|
|
190,571
|
|
|
42,760
|
|
Total assets
|
$
|
7,222,931
|
|
|
$
|
215,896
|
|
|
$
|
6,776,585
|
|
|
$
|
230,450
|
|
Liabilities
|
|
|
|
|
|
|
|
Other liabilities (see Note 7)
|
$
|
136,617
|
|
|
$
|
334
|
|
|
$
|
98,406
|
|
|
$
|
37,877
|
|
Debt
|
810,494
|
|
|
—
|
|
|
810,494
|
|
|
—
|
|
Total liabilities
|
$
|
947,111
|
|
|
$
|
334
|
|
|
$
|
908,900
|
|
|
$
|
37,877
|
|
During the three months ended
March 31, 2017
,
no
securities were transferred into or out of Level 3.
No
securities were transferred between Level 3 and Level 2 during the period.
During the three months ended
March 31, 2016
,
$3.6 million
of primarily of corporate securities were transferred into Level 3 as no observable inputs were available.
$5.0 million
of primarily corporate securities were transferred out of Level 3 into Level 2 during the period.
ENDURANCE SPECIALTY HOLDINGS LTD.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
(Amounts in tables expressed in thousands of United States dollars, except
for ratios, share and per share amounts)
|
|
4.
|
Fair value measurement, cont'd.
|
The following table sets forth the Company's fixed maturity investments, equity securities, short-term investments, other assets and liabilities and debt categorized by the level within the hierarchy in which the fair value measurements fall at
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2016
|
|
Total at December 31, 2016
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Assets
|
|
|
|
|
|
|
|
Fixed maturity investments
|
|
|
|
|
|
|
|
U.S. government and agencies securities
|
$
|
1,001,882
|
|
|
$
|
51,827
|
|
|
$
|
950,055
|
|
|
$
|
—
|
|
U.S. state and municipal securities
|
18,357
|
|
|
—
|
|
|
18,357
|
|
|
—
|
|
Foreign government securities
|
178,919
|
|
|
—
|
|
|
178,919
|
|
|
—
|
|
Government guaranteed corporate securities
|
3,917
|
|
|
—
|
|
|
3,917
|
|
|
—
|
|
Corporate securities
|
2,147,693
|
|
|
—
|
|
|
1,968,056
|
|
|
179,637
|
|
Residential mortgage-backed securities
|
1,461,286
|
|
|
—
|
|
|
1,461,286
|
|
|
—
|
|
Commercial mortgage-backed securities
|
618,848
|
|
|
—
|
|
|
618,848
|
|
|
—
|
|
Collateralized loan and debt obligations
|
371,256
|
|
|
—
|
|
|
371,256
|
|
|
—
|
|
Asset-backed securities
|
510,663
|
|
|
—
|
|
|
510,663
|
|
|
—
|
|
Total fixed maturity investments
|
6,312,821
|
|
|
51,827
|
|
|
6,081,357
|
|
|
179,637
|
|
Equity securities
|
|
|
|
|
|
|
|
Equity investments
|
500,968
|
|
|
184,251
|
|
|
316,717
|
|
|
—
|
|
Preferred equity investments
|
173
|
|
|
—
|
|
|
173
|
|
|
—
|
|
Total equity securities
|
501,141
|
|
|
184,251
|
|
|
316,890
|
|
|
—
|
|
Short-term investments
|
408,704
|
|
|
—
|
|
|
408,654
|
|
|
50
|
|
Other assets (see Note 7)
|
166,716
|
|
|
1,953
|
|
|
123,681
|
|
|
41,082
|
|
Total assets
|
$
|
7,389,382
|
|
|
$
|
238,031
|
|
|
$
|
6,930,582
|
|
|
$
|
220,769
|
|
Liabilities
|
|
|
|
|
|
|
|
Other liabilities (see Note 7)
|
$
|
84,069
|
|
|
$
|
2,772
|
|
|
$
|
55,051
|
|
|
$
|
26,246
|
|
Debt
|
770,704
|
|
|
—
|
|
|
770,704
|
|
|
—
|
|
Total liabilities
|
$
|
854,773
|
|
|
$
|
2,772
|
|
|
$
|
825,755
|
|
|
$
|
26,246
|
|
Level 3 assets represented
3.2%
and
3.0%
of the Company's total fair valued assets at
March 31, 2017
and
December 31, 2016
, respectively. At
March 31, 2017
and
December 31, 2016
, Level 3 securities were primarily comprised of corporate securities and weather derivatives. There were no material changes in the Company's valuation techniques for the
three
months ended
March 31, 2017
.
Other assets and other liabilities measured at fair value at
March 31, 2017
included Level 3 assets of
$42.8 million
(December 31,
2016
-
$41.1 million
) and liabilities of
$37.9 million
(December 31,
2016
-
$26.2 million
) related to proprietary, non-exchange traded derivative-based risk management products used in the Company's weather risk management business, and hedging and trading activities related to these risks. In instances where market prices are not available, the Company may use industry or internally developed valuation techniques such as historical analysis and simulation modeling to determine fair value and are considered Level 3.
Observable and unobservable inputs to these valuation techniques vary by contract requirements and commodity type, are validated using market-based or independently sourced parameters where applicable and may typically include the following:
•
Observable inputs: contract price, notional, option strike, term to expiry, interest rate, contractual limits,
temperature, rainfall, windspeed, wave height, snow fall, cyclone category;
ENDURANCE SPECIALTY HOLDINGS LTD.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
(Amounts in tables expressed in thousands of United States dollars, except
for ratios, share and per share amounts)
|
|
4.
|
Fair value measurement, cont'd.
|
•
Unobservable inputs: correlation, composite weather variable; and
•
Both observable and unobservable: forward commodity price.
The Company's weather curves are determined by taking the average payouts for each transaction within its portfolio utilizing detrended historical weather measurements. The Company's commodity curves are determined using historical market data scaled to currently observed market prices. The range of each unobservable input could vary based on the specific commodity, including, but not limited to natural gas, electricity, crude, liquids, temperature or precipitation. Due to the diversity of the portfolio, the range of unobservable inputs could be wide-spread as reflected in the below table on quantitative information. The unobservable inputs are validated at each reporting period and are only changed when corroborated by evidence such as similar market transactions, third-party pricing services and/or broker or dealer quotations or other empirical market data.
Changes in any or all of the unobservable inputs listed above may contribute positively or negatively to the overall portfolio fair value depending upon the underlying position. In general, movements in weather curves are the largest contributing factor that impacts fair value.
Below is a summary of quantitative information regarding the significant inputs used in determining the fair value of the net weather and energy related derivative assets classified in Level 3 that are measured at fair value on a recurring basis at
March 31, 2017
and December 31,
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
Fair Value
(Level 3)
|
|
Valuation
Techniques
|
|
Inputs
|
|
Range
|
|
|
|
|
Low
|
|
High
|
|
(Commodity curve in U.S. dollars in thousands)
|
Net weather and energy related derivative assets
|
$
|
4,883
|
|
|
Historical
Analysis and Simulation
|
|
Correlation
|
|
0
|
|
|
1
|
|
|
|
|
|
|
Temperature
|
|
-15F
|
|
|
115F
|
|
|
|
|
|
|
Composite weather variable
|
|
-25 deg.
|
|
|
45 deg.
|
|
|
|
|
|
|
Rainfall
|
|
0"
|
|
|
2"
|
|
|
|
|
|
|
Windspeed
|
|
0.01 m/s
|
|
|
25 m/s
|
|
|
|
|
|
|
Wave height
|
|
0 m
|
|
|
25 m
|
|
|
|
|
|
|
Commodity curve
|
|
$
|
(1
|
)
|
|
$
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Fair Value
(Level 3)
|
|
Valuation
Techniques
|
|
Inputs
|
|
Range
|
|
|
|
|
Low
|
|
High
|
|
(Commodity curve in U.S. dollars in thousands)
|
Net weather and energy related derivative assets
|
$
|
14,836
|
|
|
Historical
Analysis and Simulation
|
|
Correlation
|
|
0
|
|
|
1
|
|
|
|
|
|
|
Temperature
|
|
-15F
|
|
|
115F
|
|
|
|
|
|
|
Composite weather variable
|
|
-25 deg.
|
|
|
45 deg.
|
|
|
|
|
|
|
Rainfall
|
|
0"
|
|
|
2"
|
|
|
|
|
|
|
Windspeed
|
|
0.01 m/s
|
|
|
25 m/s
|
|
|
|
|
|
|
Wave height
|
|
0 m
|
|
|
25 m
|
|
|
|
|
|
|
Commodity curve
|
|
$
|
(1
|
)
|
|
$
|
14
|
|
ENDURANCE SPECIALTY HOLDINGS LTD.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
(Amounts in tables expressed in thousands of United States dollars, except
for ratios, share and per share amounts)
|
|
4.
|
Fair value measurement, cont'd.
|
The following tables present a reconciliation of the beginning and ending balances for all assets and liabilities measured at fair value on a recurring basis using Level 3 inputs during the three months ended
March 31, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017
|
|
Fixed maturity
investments
|
|
Other assets
|
|
Total assets
|
|
Other
liabilities
|
Level 3, beginning of period
|
$
|
179,687
|
|
|
$
|
41,082
|
|
|
$
|
220,769
|
|
|
$
|
(26,246
|
)
|
Total realized and unrealized gains and losses included in earnings
|
(95
|
)
|
|
—
|
|
|
(95
|
)
|
|
—
|
|
Total income and losses included in other underwriting loss
|
—
|
|
|
1,237
|
|
|
1,237
|
|
|
(5,335
|
)
|
Change in unrealized gains and losses included in other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Purchases
|
27,068
|
|
|
—
|
|
|
27,068
|
|
|
—
|
|
Issues
|
—
|
|
|
4,687
|
|
|
4,687
|
|
|
(6,518
|
)
|
Sales
|
(18,970
|
)
|
|
—
|
|
|
(18,970
|
)
|
|
—
|
|
Settlements
|
—
|
|
|
(4,246
|
)
|
|
(4,246
|
)
|
|
222
|
|
Transfers into Level 3
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Transfers out of Level 3
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Level 3, end of period
|
$
|
187,690
|
|
|
$
|
42,760
|
|
|
$
|
230,450
|
|
|
$
|
(37,877
|
)
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
Fixed maturity
investments
|
|
Other assets
|
|
Total assets
|
|
Other
liabilities
|
Level 3, beginning of period
|
$
|
112,453
|
|
|
$
|
41,503
|
|
|
$
|
153,956
|
|
|
$
|
(42,029
|
)
|
Total realized and unrealized gains and losses included in earnings
|
(864
|
)
|
|
—
|
|
|
(864
|
)
|
|
—
|
|
Total income and losses included in other underwriting loss
|
—
|
|
|
(144
|
)
|
|
(144
|
)
|
|
(533
|
)
|
Change in unrealized gains and losses included in other comprehensive income
|
415
|
|
|
—
|
|
|
415
|
|
|
—
|
|
Purchases
|
671
|
|
|
—
|
|
|
671
|
|
|
—
|
|
Issues
|
—
|
|
|
2,692
|
|
|
2,692
|
|
|
(4,093
|
)
|
Sales
|
(2,469
|
)
|
|
—
|
|
|
(2,469
|
)
|
|
—
|
|
Settlements
|
—
|
|
|
(14,080
|
)
|
|
(14,080
|
)
|
|
16,236
|
|
Transfers into Level 3
|
3,629
|
|
|
—
|
|
|
3,629
|
|
|
—
|
|
Transfers out of Level 3
|
(5,034
|
)
|
|
—
|
|
|
(5,034
|
)
|
|
—
|
|
Level 3, end of period
|
$
|
108,801
|
|
|
$
|
29,971
|
|
|
$
|
138,772
|
|
|
$
|
(30,419
|
)
|
ENDURANCE SPECIALTY HOLDINGS LTD.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
(Amounts in tables expressed in thousands of United States dollars, except
for ratios, share and per share amounts)
5.
Reserve for losses and loss expenses
Activity in the reserve for losses and loss expenses for the
three months ended
March 31, 2017
and
2016
is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2017
|
|
2016
|
Gross reserve for losses and loss expenses, beginning of period
|
|
$
|
4,905,138
|
|
|
$
|
4,510,415
|
|
Reinsurance recoverable on unpaid losses
|
|
1,213,129
|
|
|
907,944
|
|
Net reserve for losses and loss expenses, beginning of period
|
|
3,692,009
|
|
|
3,602,471
|
|
|
|
|
|
|
Incurred related to:
|
|
|
|
|
Current year
|
|
335,119
|
|
|
304,437
|
|
Prior years
|
|
(33,806
|
)
|
|
(61,109
|
)
|
Total incurred
|
|
301,313
|
|
|
243,328
|
|
Paid related to:
|
|
|
|
|
Current year
|
|
(12,386
|
)
|
|
(7,051
|
)
|
Prior years
|
|
(439,208
|
)
|
|
(333,227
|
)
|
Total paid
|
|
(451,594
|
)
|
|
(340,278
|
)
|
|
|
|
|
|
Foreign currency translation and other
|
|
15,774
|
|
|
17,075
|
|
|
|
|
|
|
Net reserve for losses and loss expenses, end of period
|
|
3,557,502
|
|
|
3,522,596
|
|
Reinsurance recoverable on unpaid losses
|
|
1,277,467
|
|
|
935,593
|
|
Gross reserve for losses and loss expenses, end of period
|
|
$
|
4,834,969
|
|
|
$
|
4,458,189
|
|
During the
three months ended
March 31, 2017
, the Company's estimated ultimate losses for prior accident years were reduced by
$33.8 million
(
2016
-
$61.1 million
) due to lower claims emergence than originally estimated by the Company. During the
three months ended
March 31, 2017
, the Company experienced favorable reserve development of
$22.7 million
across all lines of business in the Reinsurance segment and
$11.1 million
of favorable development across all lines of business in the Insurance segment. During the
three months ended
March 31, 2016
, the Company experienced favorable development of
$37.9 million
across all lines of business in the Reinsurance segment and
$23.2 million
of favorable development across all lines of business in the Insurance segment.
Reserves for losses and loss expenses are based in part upon the estimation of losses resulting from catastrophic events. Estimation of these losses and loss expenses are based upon the Company's historical claims experience and is inherently difficult because of the Company's short operating history and the possible severity of catastrophe claims. Therefore, the Company uses both proprietary and commercially available models, as well as historical reinsurance industry catastrophe claims experience in addition to its own historical data for purposes of evaluating trends and providing an estimate of ultimate claims costs.
A significant portion of the Company's contracts and policies cover excess layers for high severity exposures. Underwriting results and ultimate claims payments for this type of coverage are therefore not typically reported to the Company until later in the contract and policy lives. As a result, the level of losses reported to date is not necessarily indicative of expected future results.
ENDURANCE SPECIALTY HOLDINGS LTD.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
(Amounts in tables expressed in thousands of United States dollars, except
for ratios, share and per share amounts)
|
|
6.
|
Accumulated other comprehensive loss
|
The following tables present the changes in accumulated other comprehensive loss balances by component for the three months ended
March 31, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2017
|
|
Losses on cash flow hedges
|
|
Unrealized gains on available for sale securities
|
|
Foreign currency translation adjustments
|
|
Total
|
Beginning balance
|
$
|
(1,590
|
)
|
|
$
|
61,483
|
|
|
$
|
(118,642
|
)
|
|
$
|
(58,749
|
)
|
Other comprehensive income before reclassifications
|
—
|
|
|
28,897
|
|
|
5,689
|
|
|
34,586
|
|
Amounts reclassified from accumulated other comprehensive loss
(1)
|
22
|
|
|
1,211
|
|
|
—
|
|
|
1,233
|
|
Net current period other comprehensive income
|
22
|
|
|
30,108
|
|
|
5,689
|
|
|
35,819
|
|
Ending balance
|
$
|
(1,568
|
)
|
|
$
|
91,591
|
|
|
$
|
(112,953
|
)
|
|
$
|
(22,930
|
)
|
(1)
All amounts are net of tax.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2016
|
|
Losses on cash flow hedges
|
|
Unrealized gains on available for sale securities
|
|
Foreign currency translation adjustments
|
|
Total
|
Beginning balance
|
$
|
(1,678
|
)
|
|
(12,638
|
)
|
|
$
|
(32,318
|
)
|
|
$
|
(46,634
|
)
|
Other comprehensive income before reclassifications
|
—
|
|
|
55,494
|
|
|
(12,318
|
)
|
|
43,176
|
|
Amounts reclassified from accumulated other comprehensive loss
(1)
|
22
|
|
|
2,264
|
|
|
—
|
|
|
2,286
|
|
Net current period other comprehensive income
|
22
|
|
|
57,758
|
|
|
(12,318
|
)
|
|
45,462
|
|
Ending balance
|
$
|
(1,656
|
)
|
|
$
|
45,120
|
|
|
$
|
(44,636
|
)
|
|
$
|
(1,172
|
)
|
(1)
All amounts are net of tax.
ENDURANCE SPECIALTY HOLDINGS LTD.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
(Amounts in tables expressed in thousands of United States dollars, except
for ratios, share and per share amounts)
|
|
6.
|
Accumulated other comprehensive loss, cont'd.
|
The following tables present the significant items reclassified out of accumulated other comprehensive loss during the three months ended
March 31, 2017
and
2016
:
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017
|
Details about accumulated other comprehensive
loss components
|
|
Amount reclassified
from accumulated other
comprehensive loss
|
|
Affected line item in the Unaudited
Condensed Consolidated Statements of
Income and Comprehensive Income
|
Losses on cash flow hedges - Debt
|
|
$
|
22
|
|
|
Interest expense
|
|
|
22
|
|
|
Total before income taxes
|
|
|
—
|
|
|
Income tax expense
|
|
|
$
|
22
|
|
|
Total net of income taxes
|
|
|
|
|
|
Unrealized losses on available for sale securities
|
|
$
|
680
|
|
|
Net realized losses on available for sale securities
|
|
|
430
|
|
|
Net impairment losses recognized in earnings
|
|
|
1,110
|
|
|
Total before income taxes
|
|
|
101
|
|
|
Income tax expense
|
|
|
$
|
1,211
|
|
|
Total net of income taxes
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
Details about accumulated other comprehensive
loss components
|
|
Amount reclassified
from accumulated other
comprehensive loss
|
|
Affected line item in the Unaudited
Condensed Consolidated Statements of
Income and Comprehensive Income
|
Losses on cash flow hedges - Debt
|
|
$
|
22
|
|
|
Interest expense
|
|
|
22
|
|
|
Total before income taxes
|
|
|
—
|
|
|
Income tax expense
|
|
|
$
|
22
|
|
|
Total net of income taxes
|
|
|
|
|
|
Unrealized losses on available for sale securities
|
|
$
|
1,877
|
|
|
Net realized losses on available for sale securities
|
|
|
623
|
|
|
Net impairment losses recognized in earnings
|
|
|
2,500
|
|
|
Total before income taxes
|
|
|
(236
|
)
|
|
Income tax benefit
|
|
|
$
|
2,264
|
|
|
Total net of income taxes
|
The Company regularly transacts in certain derivative-based weather risk management products primarily to address weather and energy risks on behalf of third parties. The markets for these derivatives are generally linked to energy and agriculture commodities, weather and other natural phenomena. Generally, the Company's current portfolio of such derivative contracts is of short duration and such contracts are predominantly seasonal in nature. The Company also invests a portion of its investments with third party investment managers with investment guidelines that permit the use of derivative instruments. The Company may enter derivative transactions directly or as part of strategies employed by its external investment managers.
The Company's derivative instruments are recorded in the Condensed Consolidated Balance Sheets at fair value, with changes in fair value and gains and losses recognized in net realized and unrealized gains, net foreign exchange gains and other underwriting loss in the Unaudited Condensed Consolidated Statements of Income and Comprehensive Income.
ENDURANCE SPECIALTY HOLDINGS LTD.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
(Amounts in tables expressed in thousands of United States dollars, except
for ratios, share and per share amounts)
The Company's derivatives are not designated as hedges under current accounting guidance.
The Company's objectives for holding these derivatives are as follows:
Interest Rate Futures, Swaps, Swaptions and Options
- to manage exposure to interest rate risk, which can include increasing or decreasing its exposure to this risk through modification of the portfolio composition and duration.
Industry Loss Warranty ("ILW") Swaps
- to manage underwriting risk. The Company has entered into ILW swap contracts which provide reinsurance-like protection to the Company for specific loss events associated with certain lines of its business. The Company has also sold ILW protection, which provides reinsurance-like protection to third parties for specific loss events.
Foreign Exchange Forwards, Futures and Options
- as part of overall currency risk management and investment strategies.
Credit Default Swaps
- to manage market exposures. The Company may assume or economically hedge credit risk through credit default swaps to replicate or hedge investment positions. The original term of these credit default swaps is generally
five
years or less.
To-Be-Announced Mortgage-backed Securities ("TBAs")
- to enhance investment performance and as part of overall investment strategy. TBAs represent commitments to purchase or sell a future issuance of agency mortgage-backed securities. For the period between purchase of a TBA and issuance of the underlying securities, the Company’s position is accounted for as a derivative.
Energy and Weather Contracts
– to address weather and energy risks. The Company may purchase or sell contracts with financial settlements based on the performance of an index linked to a quantifiable weather element, such as temperature, precipitation, snowfall or windspeed, and structures with multiple risk triggers indexed to a quantifiable weather element and a weather sensitive commodity price, such as temperature and electrical power or natural gas. Generally, the Company's current portfolio of energy and weather derivative contracts is of comparably short duration and such contracts are predominantly seasonal in nature.
LIBOR Swap
– to establish future net cash flows in connection with the Trust Preferred Securities for the
five
-year period beginning March 30, 2012 as if these securities bore interest at a fixed rate of
4.905%
.
Loss Development Cover
– as part of the sale of Montpelier U.S. Insurance Company ("MUSIC") to Selective Insurance Group, Inc. ("Selective"), Montpelier Reinsurance Ltd. ("Montpelier Re", now Endurance Bermuda) entered into a loss development cover with MUSIC which ensures that MUSIC's reserve for losses and loss expenses relating to retained business written on or prior to December 31, 2011 remains adequate. Under the loss development cover, any future adverse development associated with such retained reserves will be protected by Endurance Bermuda and any future favorable development associated with such retained reserves will benefit Endurance Bermuda.
ENDURANCE SPECIALTY HOLDINGS LTD.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
(Amounts in tables expressed in thousands of United States dollars, except
for ratios, share and per share amounts)
The fair values and the related notional values of derivatives at
March 31, 2017
and
December 31, 2016
are shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
Fair
Value
|
|
Notional
Principal
Amount
|
|
Fair
Value
|
|
Notional
Principal
Amount
|
Derivatives recorded in other assets
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
$
|
357
|
|
|
$
|
29,396
|
|
|
$
|
629
|
|
|
$
|
34,630
|
|
Credit default swaps
|
197
|
|
|
3,150
|
|
|
266
|
|
|
5,450
|
|
Interest rate swaps
|
426
|
|
|
8,200
|
|
|
374
|
|
|
7,000
|
|
Interest rate futures
|
47
|
|
|
4,008
|
|
|
—
|
|
|
—
|
|
ILWs
|
14
|
|
|
10,000
|
|
|
1,010
|
|
|
20,000
|
|
TBAs
|
189,530
|
|
|
185,000
|
|
|
121,402
|
|
|
120,300
|
|
Energy and weather contracts
|
44,705
|
|
|
75,060
|
|
|
43,035
|
|
|
101,436
|
|
Total recorded in other assets
|
$
|
235,276
|
|
|
|
|
$
|
166,716
|
|
|
|
Derivatives recorded in other liabilities
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
$
|
246
|
|
|
$
|
31,728
|
|
|
$
|
1,204
|
|
|
$
|
32,080
|
|
Credit default swaps
|
221
|
|
|
2,756
|
|
|
21
|
|
|
2,744
|
|
Interest rate swaps
|
59
|
|
|
1,100
|
|
|
59
|
|
|
1,100
|
|
Interest rate swaptions
|
—
|
|
|
—
|
|
|
34
|
|
|
5,400
|
|
Interest rate futures
|
2,969
|
|
|
28,476
|
|
|
—
|
|
|
—
|
|
ILWs
|
—
|
|
|
—
|
|
|
184
|
|
|
14,209
|
|
LIBOR swap
|
—
|
|
|
100,000
|
|
|
27
|
|
|
100,000
|
|
TBAs
|
92,272
|
|
|
90,300
|
|
|
50,704
|
|
|
50,400
|
|
Loss development cover
|
2,639
|
|
|
24,451
|
|
|
2,818
|
|
|
24,451
|
|
Energy and weather contracts
|
38,211
|
|
|
121,419
|
|
|
29,018
|
|
|
162,900
|
|
Total recorded in other liabilities
|
$
|
136,617
|
|
|
|
|
$
|
84,069
|
|
|
|
Net derivative asset
|
$
|
98,659
|
|
|
|
|
$
|
82,647
|
|
|
|
At
March 31, 2017
, the Company's derivative assets of
$235.2 million
(
December 31, 2016
-
$166.7 million
) and liabilities of
$133.6 million
(
December 31, 2016
-
$84.1 million
) are subject to master netting agreements, which provide for the ability to settle the derivative asset and liability with each counterparty on a net basis. Interest rate futures are not subject to master netting agreements. At
March 31, 2017
and
December 31, 2016
, the Company's derivative instruments were recorded on a gross basis in the Condensed Consolidated Balance Sheets.
At
March 31, 2017
, the Company held
$5.2 million
(
December 31, 2016
-
nil
) of reverse repurchase agreements. These agreements were fully collateralized, were generally outstanding for a short period of time and were presented as part of cash and cash equivalents in the Condensed Consolidated Balance Sheets. The required collateral for these agreements was either cash or U.S. treasury securities at a minimum rate of
102%
of the principal amount. Upon maturity, the Company received the principal and interest income.
ENDURANCE SPECIALTY HOLDINGS LTD.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
(Amounts in tables expressed in thousands of United States dollars, except
for ratios, share and per share amounts)
The gains and losses on the Unaudited Condensed Consolidated Statements of Income and Comprehensive Income for derivatives for the
three
months ended
March 31, 2017
and
2016
were as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2017
|
|
2016
|
Total losses included in net foreign exchange gains from foreign exchange forward contracts
|
$
|
(300
|
)
|
|
$
|
(538
|
)
|
|
|
|
|
Interest rate futures
|
(2,961
|
)
|
|
(282
|
)
|
Credit default swaps
|
88
|
|
|
30
|
|
Interest rate swaps
|
47
|
|
|
(51
|
)
|
Interest rate swaptions
|
—
|
|
|
(13
|
)
|
ILWs
|
(812
|
)
|
|
304
|
|
LIBOR swap
|
26
|
|
|
(144
|
)
|
TBAs
|
(55
|
)
|
|
486
|
|
Total (losses) gains included in net realized and unrealized gains
|
(3,667
|
)
|
|
330
|
|
|
|
|
|
Energy and weather contracts
|
(4,790
|
)
|
|
(715
|
)
|
Loss development cover
|
(14
|
)
|
|
(867
|
)
|
Total losses included in other underwriting loss
|
(4,804
|
)
|
|
(1,582
|
)
|
|
|
|
|
Total losses from derivatives
|
$
|
(8,771
|
)
|
|
$
|
(1,790
|
)
|
|
|
8.
|
Stock-based employee compensation and other stock plans
|
The Company had a stock-based employee compensation plan, which provided the Company with the ability to grant options to purchase the Company's ordinary shares, share appreciation rights, restricted shares, restricted share units, share bonuses and other equity incentive awards to key employees. The Company recognizes forfeitures of awards as they occur. In accordance with the Company's stock-based employee compensation plan and the Merger Agreement, all of the Company's share-based awards fully vested and were acquired by Sompo upon the acquisition of the Company on March 28, 2017. These awards were settled in cash to employees in April 2017.
A summary of option activity, including options held by employees, during the quarter ended
March 31, 2017
is presented below:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2017
|
Options Outstanding
|
|
Number of
Options
|
|
Weighted
Average
Exercise Price
|
Beginning of period
|
|
160,000
|
|
|
$
|
48.20
|
|
Granted
|
|
—
|
|
|
—
|
|
Settled on close of acquisition of the Company by Sompo
|
|
(160,000
|
)
|
|
48.20
|
|
Forfeited
|
|
—
|
|
|
—
|
|
Outstanding, end of period
|
|
—
|
|
|
$
|
—
|
|
ENDURANCE SPECIALTY HOLDINGS LTD.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
(Amounts in tables expressed in thousands of United States dollars, except
for ratios, share and per share amounts)
|
|
8.
|
Stock-based employee compensation and other stock plans, cont'd.
|
No
options were granted or expired during the quarters ended
March 31, 2017
and
2016
.
160,000
options vested and were settled during the quarter ended
March 31, 2017
(
2016
-
nil
). For the quarter ended
March 31, 2017
, compensation costs recognized in earnings for all options totaled
$0.4 million
(
2016
-
$0.3 million
), of which
$0.3 million
was related to the vesting of options upon the acquisition of the Company by Sompo. At
March 31, 2017
, there were
no
(
2016
-
$0.7 million
) compensation costs not yet recognized related to unvested stock options.
A summary of the restricted share and restricted share unit activity during the quarter ended
March 31, 2017
is presented below:
|
|
|
|
|
|
|
Number of
Shares/Units
|
Unvested, beginning of period
|
|
1,466,716
|
|
Granted
|
|
—
|
|
Settled prior to acquisition of the Company by Sompo
|
|
(430,129
|
)
|
Vested on close of acquisition of the Company by Sompo
|
|
(1,033,476
|
)
|
Forfeited
|
|
(3,111
|
)
|
Unvested, end of period
|
|
—
|
|
During the quarter ended
March 31, 2017
, the Company granted
no
(
2016
–
560,172
) restricted shares and restricted share units. The restricted shares and restricted share units granted during the quarter ended
March 31, 2016
had weighted average grant date fair values of
$33.3 million
. During the quarter ended
March 31, 2017
, the aggregate fair value of restricted shares and restricted share units that vested was
$120.9 million
(
2016
-
$33.0 million
). For the quarter ended
March 31, 2017
, compensation costs recognized in earnings for all restricted shares and restricted share units were
$41.4 million
(
2016
-
$9.7 million
), of which
$34.1 million
was related to the vesting of restricted shares and restricted share units upon the acquisition of the Company by Sompo. At
March 31, 2017
, there were
no
(
2016
-
$46.3 million
) compensation costs not yet recognized related to unvested restricted shares and restricted share units.
Employee Share Purchase Plan
The Company also had an Employee Share Purchase Plan ("ESPP") under which employees of Endurance Holdings and certain of its subsidiaries were able to purchase the Company's ordinary shares. As a result of signing the Merger Agreement with Sompo, the ESPP was suspended as of January 1, 2017 and was terminated upon the closing of the acquisition by Sompo on March 28, 2017. For the
three
months ended
March 31, 2017
, total expenses related to the Company's ESPP were
nil
(
2016
-
$0.1 million
).
The determination of the Company's business segments is based on how the Company monitors the performance of its underwriting operations. The Company has two reportable business segments, Insurance and Reinsurance, which are comprised of the following lines of business:
Insurance segment lines of business
•
Agriculture
•
Casualty and other specialty
•
Professional lines
•
Property, marine/energy and aviation
Reinsurance segment lines of business
•
Catastrophe
•
Property
•
Casualty
•
Professional lines
•
Specialty
ENDURANCE SPECIALTY HOLDINGS LTD.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
(Amounts in tables expressed in thousands of United States dollars, except
for ratios, share and per share amounts)
|
|
9.
|
Segment reporting, cont'd.
|
Management measures Insurance and Reinsurance segment results on the basis of the combined ratio, which is obtained by dividing the sum of the net losses and loss expenses, acquisition expenses and general and administrative expenses by net premiums earned. 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 segment; accordingly, investment income and total assets are not allocated to the individual business segments. General and administrative expenses incurred by the segments are allocated directly. Remaining general and administrative expenses not incurred by the segments are classified as corporate expenses and are not allocated to the individual business segments. Ceded reinsurance and recoveries are recorded within the business segment to which they apply.
The following table provides a summary of segment revenues and results for the three months ended
March 31, 2017
and the reserve for losses and loss expenses as of
March 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017
|
|
|
Insurance
|
|
Reinsurance
|
|
Total
|
|
Revenues
|
|
|
|
|
|
|
Gross premiums written
|
$
|
989,897
|
|
|
$
|
788,964
|
|
|
$
|
1,778,861
|
|
|
Ceded premiums written
|
(543,132
|
)
|
|
(216,080
|
)
|
|
(759,212
|
)
|
|
Net premiums written
|
446,765
|
|
|
572,884
|
|
|
1,019,649
|
|
|
Net premiums earned
|
224,650
|
|
|
322,382
|
|
|
547,032
|
|
|
Other underwriting loss
|
—
|
|
|
(5,892
|
)
|
|
(5,892
|
)
|
|
|
224,650
|
|
|
316,490
|
|
|
541,140
|
|
|
Expenses
|
|
|
|
|
|
|
Net losses and loss expenses
|
149,218
|
|
|
152,095
|
|
|
301,313
|
|
|
Acquisition expenses
|
41,119
|
|
|
78,005
|
|
|
119,124
|
|
|
General and administrative expenses
|
48,114
|
|
|
25,843
|
|
|
73,957
|
|
|
|
238,451
|
|
|
255,943
|
|
|
494,394
|
|
|
Underwriting (loss) income
|
$
|
(13,801
|
)
|
|
$
|
60,547
|
|
|
46,746
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
52,850
|
|
|
Corporate expenses
|
|
|
|
|
(70,367
|
)
|
|
Net foreign exchange gains
|
|
|
|
|
1,157
|
|
|
Net realized and unrealized gains
|
|
|
|
|
4,093
|
|
|
Net impairment losses recognized in earnings
|
|
|
|
|
(430
|
)
|
|
Amortization of intangibles
|
|
|
|
|
(15,934
|
)
|
|
Interest expense
|
|
|
|
|
(10,788
|
)
|
|
Income before income taxes
|
|
|
|
|
$
|
7,327
|
|
|
|
|
|
|
|
|
|
Net loss ratio
|
66.4
|
%
|
|
47.2
|
%
|
|
55.0
|
%
|
|
Acquisition expense ratio
|
18.3
|
%
|
|
24.2
|
%
|
|
21.8
|
%
|
|
General and administrative expense ratio
|
21.4
|
%
|
|
8.0
|
%
|
|
26.4
|
%
|
(1)
|
Combined ratio
|
106.1
|
%
|
|
79.4
|
%
|
|
103.2
|
%
|
|
|
|
|
|
|
|
|
Reserve for losses and loss expenses
|
$
|
2,716,325
|
|
|
$
|
2,118,644
|
|
|
$
|
4,834,969
|
|
|
(1) Total general and administrative expense ratio includes general and administrative expenses and corporate expenses.
ENDURANCE SPECIALTY HOLDINGS LTD.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
(Amounts in tables expressed in thousands of United States dollars, except
for ratios, share and per share amounts)
|
|
9.
|
Segment reporting, cont'd.
|
The following table provides a summary of segment revenues and results for the three months ended
March 31, 2016
and the reserve for losses and loss expenses as of
March 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
|
Insurance
|
|
Reinsurance
|
|
Total
|
|
Revenues
|
|
|
|
|
|
|
Gross premiums written
|
$
|
835,117
|
|
|
$
|
776,560
|
|
|
$
|
1,611,677
|
|
|
Ceded premiums written
|
(464,173
|
)
|
|
(208,662
|
)
|
|
(672,835
|
)
|
|
Net premiums written
|
370,944
|
|
|
567,898
|
|
|
938,842
|
|
|
Net premiums earned
|
219,569
|
|
|
333,622
|
|
|
553,191
|
|
|
Other underwriting loss
|
—
|
|
|
(2,444
|
)
|
|
(2,444
|
)
|
|
|
219,569
|
|
|
331,178
|
|
|
550,747
|
|
|
Expenses
|
|
|
|
|
|
|
Net losses and loss expenses
|
126,132
|
|
|
117,196
|
|
|
243,328
|
|
|
Acquisition expenses
|
30,358
|
|
|
73,484
|
|
|
103,842
|
|
|
General and administrative expenses
|
38,429
|
|
|
33,796
|
|
|
72,225
|
|
|
|
194,919
|
|
|
224,476
|
|
|
419,395
|
|
|
Underwriting income
|
$
|
24,650
|
|
|
$
|
106,702
|
|
|
131,352
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
11,181
|
|
|
Corporate expenses
|
|
|
|
|
(11,771
|
)
|
|
Net foreign exchange gains
|
|
|
|
|
11,729
|
|
|
Net realized and unrealized gains
|
|
|
|
|
13,787
|
|
|
Net impairment losses recognized in earnings
|
|
|
|
|
(623
|
)
|
|
Amortization of intangibles
|
|
|
|
|
(21,374
|
)
|
|
Interest expense
|
|
|
|
|
(10,870
|
)
|
|
Income before income taxes
|
|
|
|
|
$
|
123,411
|
|
|
|
|
|
|
|
|
|
Net loss ratio
|
57.5
|
%
|
|
35.2
|
%
|
|
43.9
|
%
|
|
Acquisition expense ratio
|
13.8
|
%
|
|
22.0
|
%
|
|
18.8
|
%
|
|
General and administrative expense ratio
|
17.5
|
%
|
|
10.1
|
%
|
|
15.2
|
%
|
(1)
|
Combined ratio
|
88.8
|
%
|
|
67.3
|
%
|
|
77.9
|
%
|
|
|
|
|
|
|
|
|
Reserve for losses and loss expenses
|
$
|
2,422,960
|
|
|
$
|
2,035,229
|
|
|
$
|
4,458,189
|
|
|
(1) Total general and administrative expense ratio includes general and administrative expenses and corporate expenses.
ENDURANCE SPECIALTY HOLDINGS LTD.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
(Amounts in tables expressed in thousands of United States dollars, except
for ratios, share and per share amounts)
|
|
9.
|
Segment reporting, cont'd.
|
The following table provides gross and net premiums written by line of business for the three months ended
March 31, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
premiums
written
|
|
Net
premiums
written
|
|
Gross
premiums
written
|
|
Net
premiums
written
|
Business Segment
|
2017
|
|
2017
|
|
2016
|
|
2016
|
Insurance
|
|
|
|
|
|
|
|
Agriculture
|
$
|
545,041
|
|
|
$
|
264,343
|
|
|
$
|
496,216
|
|
|
$
|
208,627
|
|
Casualty and other specialty
|
196,585
|
|
|
82,752
|
|
|
138,255
|
|
|
63,497
|
|
Professional lines
|
99,886
|
|
|
45,953
|
|
|
77,415
|
|
|
43,334
|
|
Property, marine/energy and aviation
|
148,385
|
|
|
53,717
|
|
|
123,231
|
|
|
55,486
|
|
Total Insurance
|
989,897
|
|
|
446,765
|
|
|
835,117
|
|
|
370,944
|
|
Reinsurance
|
|
|
|
|
|
|
|
Catastrophe
|
207,473
|
|
|
98,191
|
|
|
200,830
|
|
|
88,868
|
|
Property
|
143,149
|
|
|
123,417
|
|
|
156,466
|
|
|
150,056
|
|
Casualty
|
63,932
|
|
|
63,869
|
|
|
98,720
|
|
|
98,719
|
|
Professional lines
|
78,040
|
|
|
76,539
|
|
|
48,549
|
|
|
48,220
|
|
Specialty
|
296,370
|
|
|
210,868
|
|
|
271,995
|
|
|
182,035
|
|
Total Reinsurance
|
788,964
|
|
|
572,884
|
|
|
776,560
|
|
|
567,898
|
|
Total
|
$
|
1,778,861
|
|
|
$
|
1,019,649
|
|
|
$
|
1,611,677
|
|
|
$
|
938,842
|
|
|
|
10.
|
Commitments and contingencies
|
Concentrations of credit risk.
The Company's reinsurance recoverables on paid and unpaid losses at
March 31, 2017
and
December 31, 2016
amounted to
$1,628.9 million
and
$1,486.9 million
, respectively. At
March 31, 2017
, substantially all reinsurance recoverables on paid and unpaid losses were due from the U.S. government or from reinsurers rated A- or better by A.M. Best Company, Inc. or Standard & Poor's Corporation. At
March 31, 2017
and
December 31, 2016
, the Company held collateral of
$501.3 million
and
$493.3 million
, respectively, related to its ceded reinsurance agreements.
Major production sources.
The following table shows the percentage of gross premiums written generated through the Company's largest brokers for the
three
months ended
March 31, 2017
and
2016
, respectively:
|
|
|
|
|
|
|
|
Broker
|
|
2017
|
|
2016
|
Marsh & McLennan Companies, Inc.
|
|
15.7
|
%
|
|
19.1
|
%
|
Aon Benfield
|
|
14.0
|
%
|
|
13.4
|
%
|
Willis Companies
|
|
7.8
|
%
|
|
8.9
|
%
|
Total of largest brokers
|
|
37.5
|
%
|
|
41.4
|
%
|
Letters of credit.
As of
March 31, 2017
, the Company had issued letters of credit of
$224.4 million
(
December 31, 2016
–
$222.3 million
) under its credit facilities and letter of credit reimbursement agreements in favor of certain ceding companies to collateralize obligations.
Investment commitments.
As of
March 31, 2017
and
December 31, 2016
, the Company had pledged cash and cash equivalents and fixed maturity investments of
$105.7 million
and
$106.8 million
, respectively, in favor of certain ceding companies to collateralize obligations. As of
March 31, 2017
and
December 31, 2016
, the Company had also pledged
$248.3 million
and
$252.2 million
of its cash and fixed maturity investments as required to meet collateral obligations for
$224.4 million
and
$222.3 million
, respectively, in letters of credit outstanding under its credit facilities and letter of credit reimbursement agreements. In addition, as of
March 31, 2017
and
December 31, 2016
, cash and fixed maturity investments with fair values of
$207.6 million
and
$207.8 million
were on deposit with U.S. state regulators, respectively.
ENDURANCE SPECIALTY HOLDINGS LTD.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
(Amounts in tables expressed in thousands of United States dollars, except
for ratios, share and per share amounts)
|
|
10.
|
Commitments and contingencies, cont'd.
|
The Company is subject to certain commitments with respect to other investments at
March 31, 2017
and
December 31, 2016
. See Note 3, Investments.
Investment assets held in trust.
Blue Water Re and Blue Water Re II do not operate with a financial strength rating and, instead, fully collateralize their reinsurance obligations through cash and cash equivalents held in trust funds established by Blue Water Re and Blue Water Re II (the "Blue Water Trusts") for the benefit of ceding companies. As of
March 31, 2017
, the fair value of the assets held in the Blue Water Trusts was
$391.1 million
(
December 31, 2016
-
$427.8 million
), which met the minimum value required on that date.
As of
March 31, 2017
, Blue Capital Re had pledged
$181.9 million
(
December 31, 2016
-
$191.4 million
) of its cash and cash equivalents to trust accounts established for the benefit of Blue Water Re.
Blue Capital Re ILS fully collateralizes its insurance-linked security obligations through cash and cash equivalents held in trust funds established by Blue Capital Re ILS (the "Blue Capital Re ILS Trusts") for the benefit of third parties. As of
March 31, 2017
, the fair value of the assets held in the Blue Capital Re ILS Trusts was
$3.1 million
(
December 31, 2016
-
$3.3 million
), which met the minimum value required on that date.
During 2015, Endurance Bermuda established a multi-beneficiary reinsurance trust (the "Endurance Reinsurance Trust") domiciled in Delaware. The Endurance Reinsurance Trust was established as a means of providing statutory credit to Endurance Bermuda's U.S. cedants. As of
March 31, 2017
, the fair value of the investments held in the Endurance Reinsurance Trust exceeded
$768.3 million
(
December 31, 2016
-
$783.9 million
), the minimum value required on that date.
During 2015, Endurance Bermuda also established a second multi-beneficiary reinsurance trust domiciled in Delaware as a means of providing statutory credit to Endurance Bermuda's U.S. cedants in connection with a reduction in collateral requirements in certain states (the "Reduced Collateral Trust"). As of
March 31, 2017
, the fair value of the assets held in the Reduced Collateral Trust exceeded
$25.1 million
(
December 31, 2016
-
$16.4 million
), the minimum value required on that date.
Endurance Bermuda is party to a reinsurance trust (the "MUSIC Trust"). The MUSIC Trust was established as a means of providing statutory credit to MUSIC in support of the business retained in connection with the 2011 sale by Montpelier Re of MUSIC. As of
March 31, 2017
, the fair value of the assets held in the MUSIC Trust was
$24.9 million
(
December 31, 2016
-
$24.6 million
), the minimum value required on that date.
Endurance Bermuda is party to a Lloyd's Deposit Trust Deed (the "Lloyd's Capital Trust") in order to meet Endurance Corporate Capital Limited ("ECCL")'s ongoing funds at Lloyd's ("FAL") requirements. The minimum value of cash and investments held by the Lloyd’s Capital Trust is subject to approval by Lloyd's and is based on ECCL's Solvency Capital Requirement, which is used to determine the required amount of FAL. As of
March 31, 2017
, the fair value of cash and investments held in the Lloyd's Capital Trust was
$324.2 million
(
December 31, 2016
-
$323.6 million
), which met the minimum value required on that date.
Premiums received by Syndicate 5151 are required to be received into the Lloyd's Premiums Trust Funds (the "Premiums Trust Funds"). Under the Premiums Trust Funds' deeds, assets may only be used for the payment of claims and valid expenses for a stated period of time. As of
March 31, 2017
, the fair value of all assets held in the Premiums Trust Funds was
$178.4 million
(
December 31, 2016
-
$184.1 million
).
The Company's investment assets held in trust appear on the Company's Condensed Consolidated Balance Sheets as cash and cash equivalents, fixed maturity investments and accrued investment income, as appropriate.
Lloyd's New Central Fund.
The Lloyd's New Central Fund is available to satisfy claims if a member of Lloyd's is unable to meet its obligations to policyholders. The Lloyd's New Central Fund is funded by an annual levy imposed on members, which is determined annually by Lloyd's as a percentage of each member's gross written premiums (
2017
-
0.35%
;
2016
-
0.35%
). In addition, the Council of Lloyd's has power to call on members to make an additional contribution to the Lloyd's New Central Fund of up to
3.0%
of their underwriting capacity each year should it decide that such additional contributions are necessary. The Company currently estimates that its
2017
obligation to the Lloyd's New Central Fund will be approximately
$1.5 million
(
2016
-
$1.1 million
) and accrues for this obligation ratably throughout the year on a quarterly basis.
ENDURANCE SPECIALTY HOLDINGS LTD.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
(Amounts in tables expressed in thousands of United States dollars, except
for ratios, share and per share amounts)
|
|
10.
|
Commitments and contingencies, cont'd.
|
Lloyd's also imposes other charges on its members and the syndicates on which they participate, including an annual subscription charge (
2017
-
0.40%
;
2016
-
0.45%
), a market modernization levy (
2017
-
0.9%
;
2016
-
0.1%
) and an overseas business charge, levied as a percentage of gross international premiums (defined as business outside the U.K. and the Channel Islands), with the percentage depending on the type of business written. Lloyd's also has power to impose additional charges under Lloyd's Powers of Charging Byelaw. The Company currently estimates that its
2017
obligation to Lloyd's for such charges will be approximately
$2.1 million
(
2016
-
$1.8 million
) and accrues for this obligation ratably throughout the year on a quarterly basis.
BCRH Credit Facility.
The Company, through a wholly-owned subsidiary, is party to an unsecured
$20.0 million
credit facility agreement with BCRH (the "BCRH Credit Facility"). As of
March 31, 2017
, BCRH had
no
outstanding borrowings under the BCRH Credit Facility (
2016
-
nil
).
BCGR Credit Facility.
The Company, through a wholly-owned subsidiary, is party to an unsecured
$20.0 million
credit facility agreement with BCGR (the "BCGR Credit Facility"). As of
March 31, 2017
, BCGR had
no
outstanding borrowings under the BCGR Credit Facility (
2016
-
nil
).
Reinsurance commitments
. In the ordinary course of business, the Company periodically enters into reinsurance agreements that include terms that could require the Company to collateralize certain of its obligations.
Employment agreements.
The Company has entered into employment agreements with certain officers that provide for incentive awards, executive benefits and severance payments under certain circumstances.
Operating leases.
The Company leases office space and office equipment under operating leases. Future minimum lease commitments at
March 31, 2017
are as follows:
|
|
|
|
|
|
Twelve months ended March 31,
|
|
Amount
|
2018
|
|
$
|
16,295
|
|
2019
|
|
21,872
|
|
2020
|
|
22,549
|
|
2021
|
|
21,228
|
|
2022
|
|
17,909
|
|
2023 and thereafter
|
|
99,741
|
|
|
|
$
|
199,594
|
|
Total net lease expense under operating leases for the
three
months ended
March 31, 2017
was
$3.4 million
(
2016
–
$3.3 million
).
Legal proceedings.
The Company is party to various legal proceedings generally arising in the normal course of its business. While any proceeding contains an element of uncertainty, the Company does not believe that the eventual outcome of any litigation or arbitration proceeding to which it is presently a party could have a material adverse effect on its financial condition or business. Pursuant to the Company's insurance and reinsurance agreements, disputes are generally required to be settled by arbitration.
|
|
11.
|
Related party transactions
|
On March 28, 2017, Sompo completed its acquisition of
100%
of the outstanding ordinary shares of the Company. The Company has entered into assumed and ceded reinsurance arrangements with certain subsidiaries and affiliates of Sompo.
ENDURANCE SPECIALTY HOLDINGS LTD.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
(Amounts in tables expressed in thousands of United States dollars, except
for ratios, share and per share amounts)
|
|
11.
|
Related party transactions, cont'd.
|
The following table presents the impact of the related party reinsurance arrangements in the Company's Unaudited Condensed Consolidated Balance Sheet at
March 31, 2017
:
|
|
|
|
|
|
|
2017
|
Premiums receivable
|
|
2,326
|
|
Deferred acquisition costs
|
|
1,188
|
|
Prepaid reinsurance premiums
|
|
10,728
|
|
Reinsurance recoverable on unpaid losses
|
|
11,120
|
|
Reinsurance recoverable on paid losses
|
|
2,672
|
|
Reserve for losses and loss expenses
|
|
12,717
|
|
Reserve for unearned premiums
|
|
4,297
|
|
Reinsurance balances payable
|
|
792
|
|