Endurance Specialty Holdings Reports Second Quarter 2006 Net Income of $64.1 Million and First Half 2006 Annualized ROE of 19.2%

Business Wire, July 26, 2006

PEMBROKE, Bermuda -- Endurance Specialty Holdings Ltd. (NYSE:ENH) today reported net income of $64.1 million and $0.85 per diluted common share for the second quarter of 2006 versus net income of $110.0 million and $1.67 per diluted common share in the second quarter of 2005.

For the six months ended June 30, 2006, net income was $171.1 million and $2.29 per diluted common share versus net income of $206.3 million and $3.11 per diluted common share for the first half of 2005. Net income for the six months ended June 30, 2006 and 2005 includes net favorable loss reserve development of $21.0 million and $73.7 million, respectively.

Operating highlights for the quarter ended June 30, 2006 are as follows:

--Total premiums written, including gross premiums written of $451.3 million and deposit premiums of $46.1 million, increased 23.0% to $497.4 million over the same period in 2005;

--Operating income, which excludes after-tax realized investment gains and losses and foreign exchange gains and losses, was $62.2 million and $0.82 per diluted common share;

--Annualized operating return on average common equity was 13.5%;

--Net investment income increased 51.3% to $59.2 million over the same period in 2005; and the

--Combined ratio, excluding 5.3 points of prior year net adverse loss reserve development primarily related to Hurricanes Katrina, Rita and Wilma, was 91.5%.

Operating highlights for the six months ended June 30, 2006 are as follows:

--Total premiums written, including gross premiums written of $1,022.6 million and deposit premiums of $145.3 million, decreased 2.1% to $1,167.9 million over the first half of 2005;

--Operating income, which excludes after-tax realized investment gains and losses and foreign exchange gains and losses, was $170.1 million and $2.28 per diluted common share;

--Annualized operating return on average common equity was 19.1%;

--Net investment income increased 52.6% to $119.7 million over the first half of 2005; and the

--Combined ratio, excluding 2.5 points of net favorable prior year loss reserve development, was 93.3%.

Kenneth J. LeStrange, Chairman and Chief Executive Officer, commented, "While Endurance's second quarter results were impacted negatively by prudent adjustments to our loss reserves based upon recent claims activity in connection with Hurricanes Katrina, Rita and Wilma, our underlying businesses remain strong. Endurance saw significant improvements in the U.S. property catastrophe insurance and reinsurance markets this quarter, and we expect to see the benefits from these market improvements through the remainder of this year."

The increase in gross premiums written by Endurance in the second quarter of 2006 compared to the second quarter of 2005 was largely due to price increases on catastrophe exposed lines in the Property Catastrophe Reinsurance and Property Individual Risk segments and from continued growth in our specialty and treaty casualty reinsurance lines. This growth in gross premiums written was partially offset by reductions in our Property Per Risk Treaty Reinsurance segment as Endurance did not renew several underperforming accounts.

Endurance's combined ratio was 96.8% in the second quarter of 2006 versus 81.9% for the second quarter of 2005. The combined ratio was impacted by $21.6 million in net unfavorable prior year loss reserve development in the second quarter of 2006 compared to $27.7 million of net favorable loss reserve development in the second quarter of 2005. This net adverse loss reserve development was due to greater than expected reported losses from Hurricanes Katrina, Rita and Wilma (the "2005 Hurricanes"), as well as increases to incurred but not reported loss reserves in relation to the 2005 Hurricanes, which resulted in an $84.0 million increase to Endurance's estimated ultimate loss from the 2005 Hurricanes. This increase was partially offset by $62.4 million of other favorable loss reserve development in Endurance's 2005 and prior loss reserves. The changes in Endurance's loss reserves in the second quarter impacted Endurance's Property Catastrophe Reinsurance, Property Per Risk Treaty Reinsurance and Aerospace and Other Specialty Lines segments. In addition, during the quarter, Endurance's Property Individual Risk segment incurred a loss of approximately $19 million from a large industrial fire.

Endurance's 51.3% increase in net investment income in the second quarter of 2006 was due to a combination of higher interest rates, increases in invested assets and positive performance in our alternative investment portfolio. Endurance's alternative investments added $4.6 million to investment income in the second quarter of 2006, a 9.9% return on investment on an annualized basis, versus alternative investment income of $0.2 million in the second quarter of 2005.

At June 30, 2006, Endurance's GAAP shareholders' equity was $1.9 billion or $24.24 per diluted common share versus $1.9 billion or $23.17 per diluted common share at December 31, 2005. At quarter end, total capitalization was $2.4 billion compared to $2.3 billion at December 31, 2005.