Returning Capital to Shareholders through Repurchasing and Dividend Increases

The years since Sept. 11, 2001 have been relatively easy for the new Bermuda-based company, even allowing for the four hurricanes last year. But that is likely to change in 2005, with excess capital and signs of backsliding on pricing.

How is Endurance planning to cope?

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"We have had a focus on capital management from the earliest days of the company, and one of the issues that begins to challenge management after a certain period is having too much capital, so this is a problem we anticipated," LeStrange says. "We have responded by returning capital to shareholders through share repurchases or increasing dividends."

LeStrange has set a goal of generating a return on equity of at least 15 percent annually throughout the underwriting cycle. But in the cyclical property casualty business, the company's growth will likely consume capital at a rate of less than 15 percent a year, and will, therefore, generate excess capital.

Buying its shares at a significant premium to book value depresses the growth of book value per share, and makes the return-on-equity target a little easier to achieve. The company has determined that the appropriate break-even point between whether to repurchase shares or distribute the excess capital by increasing dividends is 1.3 to 1.4 times book value.

When share prices move above that level, Endurance tends to favor dividends over share repurchases. At lower price-to-book multiples, the company favors share repurchases.

April 1, 2005

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