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Endurance upgraded to A by S&P

In a year that has seen ratings upgrades outstrip downgrades for the first time since 2000, Standard & Poor's (S&P) has upgraded Bermudian (re)insurer Endurance Specialty Holdings Ltd from A- to A in response to growth in its US excess and surplus platform and its strong enterprise risk management.

The agency raised the counterparty credit and financial strength ratings by a notch on the company and its operating subsidiaries, assigning a stable outlook.

It also lifted Endurance counterparty credit and senior debt ratings from BBB to BBB+ and its preferred stock rating from BB+ to BBB-.

S&P said the upgrade "reflects [Endurance's] strong competitive position based on its global market presence, scale, and diversified insurance (30 percent of projected gross premiums in 2006) and reinsurance (70 percent) platforms, in particular the increased scale within its US excess and surplus platform".

It also highlighted the company's turn around in performance for 2006-to-date, "so all of 2005's losses have been replenished", and its "strong financial flexibility".

The agency pointed to management's underestimating of the volatility and correlations in its large national commercial per risk accounts for flood exposure, along with property and offshore marine exposures to the 2005 storms. Indeed, the company increased loss estimates by $84mn in its second quarter results.

But S&P noted the (re)insurer's actions "to non-renew or cancel these exposures" - actions that were reflected in its strategic decision to pull out of the offshore energy market, as reported in The Insurance Insider in October.

"Based on Endurance's strong enterprise risk management, we expect prospective volatility to be reduced," the agency added.

"However, while fully reflected in the new rating, Endurance does still write severity risks that could create earnings and capital volatility, and this limits future prospects for additional favourable rating actions," it warned.

S&P said the company could potentially earn net income near $400mn in 2007, excluding significant catastrophe losses, with a combined ratio of around 90 percent.

"From a qualitative standpoint, Endurance has built-out its competitive position in the insurance and reinsurance markets and the company's growth in niche products is expected to continue," the agency concluded.

Rival rating agency AM Best noted that 2006 marks the first year since 2000 that ratings upgrades have exceeded ratings downgrades.

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