Endurance Specialty was created in the difficult insurance environment in the aftermath of September 11. They have reinsurance and insurance operations with a focus on property and casualty. The company does, however, follow the line with the best prices and risk, in the opinion of their underwriters. In recent years they’ve had significant variability in net written premiums in, for example, worker’s compensation and professional lines.
The company announced full year earnings on February 9 and they were impressive. Full year EPS was $6.38. Book value ended the year at $52.74, an increase of nearly 2% over the last quarter and 18% over the last year. Their full year combined ratio was 88.7%, indicating a significant underwriting profit and, finally, a $200 million investment gain.
The two biggest things I look at for comparison purposes to other insurers are P/B and the combined ratio. Once you go from there, you have to look behind the numbers and into management, but P/B and combined ratio are a good place to start your research. Endurance Specialty’s P/B is currently 0.9. This is significantly lower than their pre-2008 figures, but that pretty much tracks the entire industry. I recently wrote an article discussing some of Endurance Specialty’s competitors, Montpelier Re (MRH), PartnerRe (PRE), and Everest Re (RE) and showing the reinsurance industries drop in P/B. I encourage you to take a look at: Four Cheap Reinsurers to Research: Historically Low Price to Book
For the combined ratio, Endurance Specialty was pretty good and comparable to their competitors. There are a few other highlights. The company repurchased 8.7 million shares in 2010. And, as mentioned above, they already repurchased about 7 million shares so far in 2011. That’s a significant portion of their outstanding shares and should be a considerable boost to EPS. Their 2010 EPS was a very impressive $6.38 and their P/E is 7.6. They’ve also increased their net premiums and sport a healthy operating return, mid-teens for the quarter, and 12.6% for the full year.
The insurance and reinsurance industries are out of favor but despite that, many names like Endurance Specialty continue to hit new 52 week and all-time highs. Their valuations are still pretty reasonable and P/B is 25% below their historic level. They also have a nice 2% yield. I didn’t uncover any unusual risks with the company, and their management appears to be top notch. An important thing to consider is whether an insurer will chase pricing in order to gain volume. Endurance Specialty seems to adjust their product mix in order to protect themselves from doing this. There are a number of attractive stocks in this space, and Endurance Specialty is one that it may be worth to follow as well.
Disclosure: No positions