Proportional reinsurance contracts accounted for approximately 27%, 32%, and 36% of the Company’s gross premiums written during the years ended December 31, 2007, 2006 and 2005, respectively.
Information Used in Determining the Reserve for Losses and Loss Expenses. In order to estimate the Company’s reserve for losses and loss expenses, management uses information either developed from internal or independent external sources, or pricing information created by the Company or
The inherent uncertainty of estimating the Company’s loss and loss expense reserves for its Reinsurance segment increases principally due to
Due to the large volume of potential transactions that must be recorded in the insurance and reinsurance industry, backlogs in the recording of the Company’s business activities can also impair the accuracy of its loss and loss expense reserve estimates. As of December 31, 2007, there were no significant backlogs related to the processing of policy or contract information in the Company’s Insurance or Reinsurance segments.
• changes in the litigation environment regarding the representation of plaintiffs and potential plaintiffs;
(1) Reconciles the Company’s gross premiums written to the Company’s financial statement presentation.
The Company’s general and administrative expense ratio for 2007 increased as compared to 2006 and 2005 primarily due to the growth and development of the Company’s U.S. operations related to the Insurance segment beginning late in 2005. At December 31, 2007, the Company had a total of 709
additional amounts as determined in accordance with the terms of the purchase agreement. ARMtech underwrites crop insurance primarily through the U.S. federally sponsored Multiple Peril Crop Insurance Program.
(3) The Company leases office space and office equipment under various operating leases.
Variable Equity Forward. On September 11, 2007, Endurance Holdings consummated an equity forward sale arrangement as described above under the section entitled ‘‘Significant Transactions and Events’’.
Preferred Shares. On October 10, 2005, Endurance Holdings issued 8,000,000 shares of its 7.75% Non-Cumulative Preferred Shares, Series A (the ‘‘Series A Preferred Shares’’). The Series A Preferred Shares sold in the offering were registered under the Securities Act of 1933, as amended, and are traded on the New York Stock Exchange. The Series A Preferred Shares were issued at a price to the public of $25.00 per share. Endurance Holdings received net proceeds from this offering of $193.5 million after expenses and underwriting discounts. The proceeds from this offering were used to provide additional capital to Endurance Holdings’ subsidiaries and for other general corporate purposes.
Upon any voluntary or involuntary liquidation, dissolution or winding-up of Endurance Holdings, holders of the Series A Preferred Shares and any parity shares are entitled to receive out of Endurance Holdings’ assets available for distribution to shareholders, before any distribution is made to holders of Junior Shares, a liquidating distribution in the amount of $25 per Series A Preferred Share plus any declared and unpaid dividends, without accumulation of any undeclared dividends. Distributions will be made pro rata as to the Series A Preferred Shares and any parity shares and only to the extent of Endurance Holdings’ assets, if any, that are available after satisfaction of all liabilities to creditors.
inflation causes these costs to increase above reserves established for these claims, the Company will be required to increase the reserve for losses and loss expenses with a corresponding reduction in its earnings in the period in which the deficiency is identified.
Other Reinsurance. Loss settlement activity, which was modestly unfavorable, arising from the Company’s agricultural reinsurance line, resulted in the Company increasing its estimated losses and loss expenses in this reserve category for prior years during 2007.
Partially offsetting the increase in estimated losses and loss expenses related to prior years in the short tail reinsurance reserve category was lower than expected non-catastrophe or attritional paid and reported losses. Upon review of the Company’s key inputs, the Company determined that non-catastrophe-related losses were reporting faster than originally estimated. Due to a continued lack of reported losses, along with additional loss data accumulated from the maturation of the Company’s short tail reinsurance portfolio, the Company shortened reporting patterns for non-catastrophe business related to prior years in this reserve category in 2006 to more appropriately reflect actual experience. The change in reporting patterns for the non-catastrophe business resulted in lower estimated losses and loss expenses for prior years.
The following table represents the development of GAAP balance sheet reserve for losses and loss expenses, net of losses and loss expenses recoverable, for 2002 through December 31, 2007. This table does not present accident or policy year development data. The top line of the table shows the gross reserve for losses and loss expenses at the balance sheet date for each of the indicated years. This represents the estimated amounts of gross losses and loss expenses arising in the current year and all prior years that are unpaid at the balance sheet date, including IBNR reserves. The table also shows the re-estimated amount of the previously recorded reserve based on experience as of the end of each succeeding year. The estimate changes as more information becomes known about the frequency and severity of claims for individual years. The ‘‘cumulative redundancy’’ represents the aggregate change to date from the original estimate on the top line of the table. The table also shows the cumulative paid amounts as of successive years with respect to the reserve liability.
established for losses that have been reported, but not yet paid. IBNR reserves represent the estimated ultimate cost of events or conditions that have not been reported to or specifically identified by the Company, but have occurred. Case reserves and IBNR reserves are established by management based on reports from reinsurance intermediaries, ceding companies and insureds, and consultations with independent legal counsel. In addition, reserves for IBNR losses and loss expenses are established by management based on reported losses and loss expenses, and actuarially determined estimates of ultimate losses and loss expenses.
A portion of the Company’s assumed proportional reinsurance agreements contain occurrence limitations or loss sensitive provisions, such as adjustable or sliding scale commissions, that may impact the ultimate amounts paid to or received from ceding companies based on loss experience. In some loss scenarios, these features would result in the ceding company’s results not being proportional to the Company’s results from the proportional agreement, and such differences may be meaningful. The Company evaluates these contracts on an individual basis in accordance with the provisions of Statement of Financial Accounting Standards (‘‘SFAS’’) No. 113 - ‘‘Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts’’ (‘‘SFAS No. 113’’).
The components of net investment income for the years ended December 31, 2007, 2006 and 2005 are as follows:
Shackleton is a variable interest entity under the provisions of FASB Interpretation No. 46(R), ‘‘Consolidation of Variable Interest Entities.’’ The Company is not the primary beneficiary of Shackleton and is therefore not required to consolidate Shackleton in its consolidated financial statements. The Company has no exposure to loss as a result of its involvement with Shackleton.
Operating Leases. The Company leases office space and office equipment under operating leases. Future minimum lease commitments at December 31, 2007 are as follows:
The Company follows SFAS No. 128, ‘‘Earnings per Share’’, to account for its weighted average shares. Basic earnings (loss) per common share are calculated by dividing net income (loss) available to common shareholders of Endurance Holdings’ ordinary shares and class A shares (collectively referred to as ‘‘common shares’’) by the weighted average number of common shares outstanding. The weighted average number of common shares includes the fully vested restricted share units discussed in Note 15.
On January 1, 2006, the Company implemented Statement of Financial Accounting Standard 123(R) (‘‘SFAS 123(R)’’) under the modified-prospective method as it relates to its stock-based employee and non-employee compensation plan and other stock plans. As part of the adoption of SFAS 123(R), the Company has elected the alternative simplified approach to calculating the excess tax benefits as allowed by Financial Statement of Position 123(R)-3.
A summary of option activity, including options held by employees and non-employee directors, during the year ended December 31, 2007 is presented below: