Bermuda re/insurer Endurance yesterday had the A insurer financial strength of its principal operating subsidiary affirmed by Fitch Ratings, with a stable outlook.

Fitch said its ratings reflected the company's solid profitability and interest coverage, moderate financial leverage, and high-quality and liquid investment portfolio.

Partially offsetting these positives are the inherent earnings volatility derived from the company's catastrophe exposure, potential uncertainty in the company's loss reserve estimates for 'long-tail' business lines, and the fact that premium rates in many of the company's core business lines continue to face downward cyclical pressure, with no apparent near-term catalyst for a reversal.

Fitch said that Endurance has posted operating and net profits in each of the past four years, after posting a $223 million net loss in 2005 due to hurricane losses, and that the company's GAAP equity has grown nearly 50 percent over the same time period.

Fitch furthermore views Endurance's use of financial leverage as moderate and its operating earnings-based interest coverage as good.

At March 31, 20010, Endurance's equity-credit-adjusted ratio of debt plus preferred shares-to-total capital was approximately 16 percent.

Although earnings and coverage are materially exposed to catastrophe-related claims, Endurance's annual interest requirements are modest at roughly $36 million and the company's operating subsidiaries have significant dividend capacity, Fitch added.

Fitch views Endurance's investment portfolio as high-quality and liquid with nearly the entire portfolio invested in cash and fixed income securities. The company's portfolio is dominated by agency mortgage-backed securities, government issued debt, and highly rated corporate bonds.

The company's fixed income portfolio had a weighted average credit rating of 'AA+'.

Endurance's ratings also contemplate the company's exposure to large catastrophe events, as evidenced by meaningful hurricane-related losses suffered in 2005 and 2008 and more modest losses related to the Chilean earthquake in early 2010.

However, Fitch believes that Endurance takes a reasonable approach to controlling this significant, off-balance-sheet risk. This conclusion is based on Fitch's review of Endurance's publicly disclosed modelled operating losses for varying return periods and Fitch's observation that Endurance's historical catastrophe losses have been manageable relative to the company's earnings and capital base, and have not been unfavourably inconsistent with results implied by the company's modelled operating losses.