Validus Announces Third Quarter 2012 Net Operating Income of $170.6 Million, Diluted Book Value Growth of 14.7% Year to Date Inclusive of Dividends

Diluted Operating Earnings Per Share of $1.74

Diluted Book Value Per Share of $36.27 at September 30, 2012

PEMBROKE, Bermuda--()--Validus Holdings, Ltd. (“Validus” or the “Company”) (NYSE: VR) today reported net income available to Validus of $207.3 million, or $2.11 per diluted common share for the three months ended September 30, 2012, compared to $56.5 million, or $0.54 per diluted common share, for the three months ended September 30, 2011. Net income available to Validus for the nine months ended September 30, 2012 was $499.2 million, or $4.88 per diluted common share compared to net (loss) attributable to Validus of $(6.0) million, or $(0.12) per diluted common share for the nine months ended September 30, 2011.

Net operating income available to Validus for the three months ended September 30, 2012 was $170.6 million, or $1.74 per diluted common share, compared to $112.6 million, or $1.09 per diluted common share, for the three months ended September 30, 2011. Net operating income available to Validus for the nine months ended September 30, 2012 was $434.6 million, or $4.25 per diluted common share, compared to $29.0 million, or $0.23 per diluted common share, for the nine months ended September 30, 2011.

Net operating income (loss), a non-GAAP financial measure, is defined as net income (loss) excluding net realized and unrealized gains (losses) on investments, foreign exchange gains (losses) and non-recurring items. Net operating income (loss) available (attributable) to Validus is defined as net operating income (loss) as defined above, but excluding income (loss) available (attributable) to noncontrolling interest. Reconciliations of these measures to net income (loss) and net income (loss) available (attributable) to Validus, the most directly comparable GAAP measures, are presented at the end of this release.

Net income available to Validus, net operating income available to Validus and diluted earnings per share by Validus entity for the three months ended September 30, 2012 were as follows:

           
 

Net Income
Available to
Validus

 

Diluted Earnings
Per Share
Available to
Validus

 

Net Operating
Income Available
to Validus

 

Diluted
Operating
Earnings Per
Share Available
to Validus

(Expressed in millions of U.S. dollars, except per share information)

 

Validus Re $ 164.7 $ 139.0
PaCRe 6.3 0.1
Other AlphaCat Companies & Other 18.0   17.2  
Validus Re consolidated 189.0 156.3
Talbot 52.1 44.1
Corporate & Eliminations   (33.8 )       (29.8 )    
Total $ 207.3   $ 2.11   $ 170.6   $ 1.74  
 

Commenting on the financial results for the three months ended September 30, 2012, Ed Noonan, Validus' Chairman and Chief Executive Officer stated: “I am pleased to report third quarter net operating income for Validus in the amount of $170.6 million which equates to an annualized operating return on average equity of 19.2%. These results and growth in diluted book value per share of 6.1% inclusive of dividends for the quarter and 14.7% year to date reflect a light quarter for natural catastrophes, Validus' rock solid balance sheet and the excellent portfolio of short tail risks which we have been able to assemble due to Validus' size, scale and expertise in both its Bermuda and London operations.”

Third Quarter 2012 Results

Highlights for the third quarter include the following:

  • Total managed gross premiums written which include gross premiums written from our non-consolidated affiliates, AlphaCat Re 2011, Ltd. ("AlphaCat Re 2011") and AlphaCat Re 2012, Ltd. ("AlphaCat Re 2012"), for the three months ended September 30, 2012 were $399.5 million compared to $391.1 million for the three months ended September 30, 2011, an increase of $8.3 million or 2.1%.
  • Gross premiums written for the three months ended September 30, 2012 were $390.2 million compared to $391.1 million for the three months ended September 30, 2011, a decrease of $0.9 million, or 0.2%.
  • Net premiums earned for the three months ended September 30, 2012 were $475.1 million compared to $458.6 million for the three months ended September 30, 2011, an increase of $16.5 million, or 3.6%.
  • Underwriting income for the three months ended September 30, 2012 was $143.1 million compared to $111.8 million for the three months ended September 30, 2011, an increase of $31.3 million, or 28.0%.
  • Combined ratio of 69.9% which included $49.8 million of favorable loss reserve development on prior accident years, benefiting the loss ratio by 10.5 percentage points.
  • Net operating income available to Validus for the three months ended September 30, 2012 was $170.6 million compared to $112.6 million for the three months ended September 30, 2011, an increase of $58.0 million, or 51.5%.
  • Net income available to Validus for the three months ended September 30, 2012 was $207.3 million compared to $56.5 million for the three months ended September 30, 2011, an increase of $150.8 million, or 267.0%.
  • Annualized return on average equity of 23.3% and annualized net operating return on average equity of 19.2%.

Highlights for the year to date include the following:

  • Total managed gross premiums written which include gross premiums written from our non-consolidated affiliates, AlphaCat Re 2011 and AlphaCat Re 2012, for the nine months ended September 30, 2012 were $1,981.1 million compared to $1,846.4 million for the nine months ended September 30, 2011, an increase of $134.7 million or 7.3%.
  • Gross premiums written for the nine months ended September 30, 2012 were $1,854.6 million compared to $1,846.4 million for the nine months ended September 30, 2011, an increase of $8.2 million, or 0.4%.
  • Net premiums earned for the nine months ended September 30, 2012 were $1,373.9 million compared to $1,313.8 million for the nine months ended September 30, 2011, an increase of $60.1 million, or 4.6%.
  • Underwriting income for the nine months ended September 30, 2012 was $361.8 million compared to an underwriting (loss) of $(1.0) million for the nine months ended September 30, 2011, an increase of $362.8 million.
  • Combined ratio of 73.7% which included $117.7 million of favorable loss reserve development on prior accident years, benefiting the loss ratio by 8.6 percentage points.
  • Net operating income available to Validus for the nine months ended September 30, 2012 was $434.6 million compared to $29.0 million for the nine months ended September 30, 2011, an increase of $405.7 million.
  • Net income available to Validus for the nine months ended September 30, 2012 was $499.2 million compared to a net (loss) attributable to Validus of $(6.0) million for the nine months ended September 30, 2011, an increase of $505.1 million.
  • Annualized return on average equity of 18.9% and annualized net operating return on average equity of 16.4%.

Notable Loss Events

During the three months ended September 30, 2012, the Company incurred losses and loss expenses of $37.2 million from notable loss events which represented 7.8 percentage points of the loss ratio. Including the impact of $1.6 million of reinstatement premiums, the effect of these events on net income was a decrease of $35.6 million. For the three months ended September 30, 2011, the Company incurred $51.9 million of losses from notable loss events, which represented 11.3 percentage points of the loss ratio. Including the impact of $4.0 million of reinstatement premiums, the effect of these events on net income was a decrease of $47.9 million. The Company's loss ratio, excluding prior year development and notable loss events, for the three months ended September 30, 2012 and 2011 was 35.4% and 51.3%, respectively.

           
Three Months Ended September 30, 2012
(U.S. Dollars in thousands)

 

Third Quarter 2012 Notable Loss Events (a) Validus Re   Talbot Total
Description  

Net Losses
and Loss
Expenses (b)

  % of NPE

Net Losses
and Loss
Expenses (b)

  % of NPE

Net Losses
and Loss
Expenses (b)

  % of NPE
U.S. drought Drought $ 22,021 9.1 % $ 0.0 % $ 22,021 4.6 %
Hurricane Isaac Windstorm 13,459   5.6 % 1,750   0.8 % 15,209   3.2 %
Total $ 35,480   14.7 % $ 1,750   0.8 % $ 37,230   7.8 %
 
Three Months Ended September 30, 2011
(U.S. Dollars in thousands)

 

Third Quarter 2011 Notable Loss Events (a) Validus Re Talbot Total
Description Net Losses and Loss Expenses (b) % of NPE (c)

Net Losses
and Loss
Expenses (b)

% of NPE

Net Losses
and Loss
Expenses (b)

% of NPE
Danish flood Rainstorm $ 16,429 6.8 % $ 3,000 1.6 % $ 19,429 4.2 %
Hurricane Irene Windstorm 22,951   9.6 % 9,500   5.0 % 32,451   7.1 %
Total $ 39,380   16.4 % $ 12,500   6.6 % $ 51,880   11.3 %
 
(a)   These notable loss event amounts were based on management's estimates following a review of the Company's potential exposure and discussions with certain clients and brokers. Given the magnitude and recent occurrence of these events, and other uncertainties inherent in loss estimation, meaningful uncertainty remains regarding losses from these events and the Company's actual ultimate net losses from these events may vary materially from these estimates.
 
(b) Net of reinsurance but not net of reinstatement premiums. Total reinstatement premiums were $1.6 million and $4.0 million for the three months ended September 30, 2012 and September 30, 2011, respectively.
 
(c) 2011 loss ratios for the Validus Re segment have been represented to exclude the impact of the AlphaCat segment.

Validus Re Segment Results

Gross premiums written for the three months ended September 30, 2012 were $145.0 million compared to $163.9 million for the three months ended September 30, 2011, a decrease of $18.9 million, or 11.5%. Gross premiums written for the three months ended September 30, 2012 included $106.0 million of property premiums, $25.5 million of marine premiums and $13.5 million of specialty premiums compared to $122.6 million of property premiums, $32.8 million of marine premiums and $8.5 million of specialty premiums for the three months ended September 30, 2011.

Net premiums earned for the three months ended September 30, 2012 were $242.3 million compared to $240.2 million for the three months ended September 30, 2011, an increase of $2.1 million, or 0.9%.

The combined ratio for the three months ended September 30, 2012 was 51.0% compared to 74.5% for the three months ended September 30, 2011, a decrease of 23.5 percentage points.

The loss ratio for the three months ended September 30, 2012 was 27.6% compared to 53.6% for the three months ended September 30, 2011, a decrease of 26.0 percentage points. For the three months ended September 30, 2012, Validus Re incurred $35.5 million of losses attributable to notable loss events which represented 14.7 percentage points of the loss ratio. The loss ratio for the three months ended September 30, 2012 included favorable loss reserve development on prior accident years of $23.8 million, benefiting the loss ratio by 9.8 percentage points.

Gross premiums written for the nine months ended September 30, 2012 were $1,052.7 million compared to $1,058.6 million for the nine months ended September 30, 2011, a decrease of $5.9 million, or 0.6%. Gross premiums written for the nine months ended September 30, 2012 included $716.7 million of property premiums, $248.8 million of marine premiums and $87.1 million of specialty premiums compared to $752.9 million of property premiums, $222.7 million of marine premiums and $83.1 million of specialty premiums for the nine months ended September 30, 2011.

Net premiums earned for the nine months ended September 30, 2012 were $738.0 million compared to $713.4 million for the nine months ended September 30, 2011, an increase of $24.6 million, or 3.4%.

The combined ratio for the nine months ended September 30, 2012 was 55.9% compared to 96.6% for the nine months ended September 30, 2011, a decrease of 40.7 percentage points.

The loss ratio for the nine months ended September 30, 2012 was 33.1% compared to 74.8% for the nine months ended September 30, 2011, a decrease of 41.7 percentage points. For the nine months ended September 30, 2012, Validus Re incurred $120.2 million of losses attributable to notable loss events, which represented 16.3 percentage points of the loss ratio. The loss ratio for the nine months ended September 30, 2012 included favorable loss reserve development on prior accident years of $52.8 million, benefiting the loss ratio by 7.2 percentage points.

AlphaCat Segment Results

Managed gross premiums written from our non-consolidated affiliates, AlphaCat Re 2011 and AlphaCat Re 2012, for the three months ended September 30, 2012 were $9.3 million compared to $18.8 million for the three months ended September 30, 2011, a decrease of $9.6 million or 50.8%.

Gross premiums written from our consolidated entities for the three months ended September 30, 2012 were $2.9 million compared to $0.1 million for the three months ended September 30, 2011, an increase of $2.8 million.

Net premiums earned for the three months ended September 30, 2012 were $5.5 million compared to $27.7 million for the three months ended September 30, 2011, a decrease of $22.2 million or 80.1%.

The combined ratio for the three months ended September 30, 2012 was 49.2% compared to 19.9% for the three months ended September 30, 2011, an increase of 29.3 percentage points.

The loss ratio for the three months ended September 30, 2012 and 2011 was 0.0%.

Managed gross premiums written from our non-consolidated affiliates, AlphaCat Re 2011 and AlphaCat Re 2012, for the nine months ended September 30, 2012 were $126.5 million compared to $61.4 million for the nine months ended September 30, 2011, an increase of $65.1 million or 106.1%.

Gross premiums written from our consolidated entities for the nine months ended September 30, 2012 were $21.6 million compared to $15.7 million for the nine months ended September 30, 2011, an increase of $6.0 million or 38.0%.

Net premiums earned for the nine months ended September 30, 2012 were $11.8 million compared to $39.5 million for the nine months ended September 30, 2011, a decrease of $27.7 million or 70.2%.

The combined ratio for the nine months ended September 30, 2012 was 58.6% compared to 22.3% for the nine months ended September 30, 2011, an increase of 36.3 percentage points.

The loss ratio for the nine months ended September 30, 2012 and 2011 was 0.0%.

Talbot Segment Results

Gross premiums written for the three months ended September 30, 2012 were $260.8 million compared to $238.9 million for the three months ended September 30, 2011, an increase of $21.8 million, or 9.1%. Gross premiums written for the three months ended September 30, 2012 included $84.3 million of property premiums, $100.8 million of marine premiums and $75.6 million of specialty premiums compared to $86.1 million of property premiums, $69.2 million of marine premiums and $83.7 million of specialty premiums in the three months ended September 30, 2011.

Net premiums earned for the three months ended September 30, 2012 were $227.3 million compared to $190.7 million for the three months ended September 30, 2011, an increase of $36.6 million, or 19.2%.

The combined ratio for the three months ended September 30, 2012 was 83.2% compared to 82.6% for the three months ended September 30, 2011, an increase of 0.6 percentage points.

The loss ratio for the three months ended September 30, 2012 was 39.0% compared to 51.0% for the three months ended September 30, 2011, a decrease of 12.0 percentage points. For the three months ended September 30, 2012, Talbot incurred $1.8 million of losses attributable to notable loss events which represented 0.8 percentage points of the loss ratio. The loss ratio for the three months ended September 30, 2012 included favorable loss reserve development on prior accident years of $26.0 million, benefiting the loss ratio by 11.4 percentage points.

Gross premiums written for the nine months ended September 30, 2012 were $837.5 million compared to $778.9 million for the nine months ended September 30, 2011, an increase of $58.7 million, or 7.5%. Gross premiums written for the nine months ended September 30, 2012 included $262.7 million of property premiums, $314.7 million of marine premiums and $260.2 million of specialty premiums compared to $254.5 million of property premiums, $267.6 million of marine premiums and $256.8 million of specialty premiums in the nine months ended September 30, 2011.

Net premiums earned for the nine months ended September 30, 2012 were $624.1 million compared to $560.9 million for the nine months ended September 30, 2011, an increase of $63.3 million, or 11.3%.

The combined ratio for the nine months ended September 30, 2012 was 87.4% compared to 103.7% for the nine months ended September 30, 2011, a decrease of 16.3 percentage points.

The loss ratio for the nine months ended September 30, 2012 was 47.6% compared to 67.1% for the nine months ended September 30, 2011, a decrease of 19.5 percentage points. For the nine months ended September 30, 2012, Talbot incurred $17.8 million of losses attributable to notable loss events, which represented 2.8 percentage points of the loss ratio. The loss ratio for the nine months ended September 30, 2012 included favorable loss reserve development on prior accident years of $65.0 million, benefiting the loss ratio by 10.4 percentage points.

Corporate Results

Corporate results include executive and board expenses, internal and external audit expenses, interest and costs incurred in connection with the Company's senior notes and junior subordinated deferrable debentures and other costs relating to the Company as a whole. General and administrative expenses for the three months ended September 30, 2012 were $14.9 million compared to $4.7 million for the three months ended September 30, 2011, an increase of $10.3 million, or 220.4%. Share compensation expenses for the three months ended September 30, 2012 were $3.0 million compared to $3.3 million for the three months ended September 30, 2011, a decrease of $0.3 million, or 8.5%. Additionally, there were $3.8 million of non-recurring costs relating to the proposed acquisition of Flagstone Reinsurance Holdings, S.A. in the quarter.

General and administrative expenses for the nine months ended September 30, 2012 were $43.8 million compared to $25.8 million for the nine months ended September 30, 2011, an increase of $18.0 million, or 69.9%. Share compensation expenses for the nine months ended September 30, 2012 were $8.1 million compared to $13.2 million for the nine months ended September 30, 2011, a decrease of $5.1 million, or 38.5%.

Investments

Net investment income for the three months ended September 30, 2012 was $25.5 million compared to $27.7 million for the three months ended September 30, 2011, a decrease of $2.3 million, or 8.1%. Net investment income for the nine months ended September 30, 2012 was $79.1 million compared to $84.2 million for the nine months ended September 30, 2011, a decrease of $5.1 million or 6.0%.

Net realized gains on investments for the three months ended September 30, 2012 were $9.1 million compared to $5.2 million for the three months ended September 30, 2011, an increase of $3.8 million, or 72.8%. Net realized gains on investments for the nine months ended September 30, 2012 were $22.7 million compared to $23.2 million for the nine months ended September 30, 2011, a decrease of $0.4 million or 1.8%.

Net unrealized gains on investments for the three months ended September 30, 2012 were $86.3 million compared to (losses) of $(27.8) million for the three months ended September 30, 2011, an increase of $114.2 million, or 410.1%. Net unrealized gains for the nine months ended September 30, 2012 were $53.4 million compared to (losses) of $(22.2) million for the nine months ended September 30, 2011, an increase of $75.6 million or 341.3%.

Finance Expenses

Finance expenses for the three months ended September 30, 2012 were $9.4 million compared to $10.9 million for the three months ended September 30, 2011, a decrease of $1.6 million, or 14.4%. Finance expenses for the nine months ended September 30, 2012 were $39.3 million compared to $41.3 million for the nine months ended September 30, 2011, a decrease of $2.0 million or 4.7%.

Shareholders' Equity and Capitalization

As at September 30, 2012, total shareholders' equity was $4.1 billion including $461.5 million of noncontrolling interest. Shareholders' equity available to Validus was $3.6 billion as at September 30, 2012. Diluted book value per common share was $36.27 at September 30, 2012, compared to $34.43 at June 30, 2012. Diluted book value per common share is a non-GAAP financial measure. A reconciliation of this measure to shareholders' equity is presented at the end of this release.

Total capitalization at September 30, 2012 was $4.6 billion, including $289.8 million of junior subordinated deferrable debentures and $247.1 million of senior notes.

Share Repurchases

A summary of the share repurchases made to date under the Company’s previously announced share repurchase program is as follows:

       
Share Repurchase Activity
(Expressed in thousands of U.S. dollars except for share and per share information)
As at June 30, 2012         Quarter ended
Effect of share repurchases: (cumulative) July August September September 30, 2012
Aggregate purchase price (a) $ 1,168,422 $ 22,805 $ 15,618 $ $ 38,423
Shares repurchased 41,963,429 696,347 478,281 1,174,628
Average price (a) $ 27.84 $ 32.75 $ 32.65 $ $ 32.71
Estimated cumulative net accretive (dilutive) impact on:
Diluted BV per common share (b) 2.42
Diluted EPS - Quarter (c) 0.63
 
     
Share Repurchase Activity

(Expressed in thousands of U.S. dollars except for share and per share information)

As at September 30, 2012   As at  
Effect of share repurchases: (cumulative) October 23, 2012 Cumulative to Date Effect
Aggregate purchase price (a) $ 1,206,845 $ $ 1,206,845
Shares repurchased 43,138,057 43,138,057
Average price (a) $ 27.98 $ $ 27.98
 
(a)   Share transactions are on a trade date basis through October 23, 2012 and are inclusive of commissions. Average share price is rounded to two decimal places.
 
(b) As the average price per share repurchased during the periods 2009, 2010, 2011 and 2012 was lower than the book value per common share, the repurchase of shares increased the Company's period ending book value per share.
 
(c) The estimated impact on diluted earnings per share was calculated by comparing reported results versus i) net income per share plus an estimate of lost net investment income on the cumulative share repurchases divided by ii) weighted average diluted shares outstanding excluding the weighted average impact of cumulative share repurchases. The impact of cumulative share repurchases was accretive to diluted earnings per share.

Conference Call

The Company will host a conference call for analysts and investors on October 26, 2012 at 9:30 AM (Eastern) to discuss the third quarter 2012 financial results and related matters. The conference call can be accessed via telephone by dialing 1-800-706-7745 (toll-free U.S.) or 1-617-614-3472 (international) and entering the pass code 61856228#. Those who intend to participate in the conference call should register at least ten minutes in advance to ensure access to the call. A telephone replay of the conference call will be available through November 9, 2012 by dialing 1-888-286-8010 (toll-free U.S.) or 1-617-801-6888 (international) and entering the pass code 86075046#.

This conference call will also be available through a live audio webcast accessible through the Investor Relations section of the Company's website located at www.validusholdings.com. A replay of the webcast will be available at the Investor Relations section of the Company's website through November 9, 2012. In addition, a financial supplement relating to the Company's financial results for the three and nine months ended September 30, 2012 is available in the Investor Relations section of the Company's website.

About Validus Holdings, Ltd.

Validus Holdings, Ltd. is a provider of reinsurance and insurance, conducting its operations worldwide through two wholly-owned subsidiaries, Validus Reinsurance, Ltd. and Talbot Holdings Ltd. Validus Re is a Bermuda based reinsurer focused on short-tail lines of reinsurance. Talbot is the Bermuda parent of the specialty insurance group primarily operating within the Lloyd's insurance market through Syndicate 1183.

       
Validus Holdings, Ltd.

Consolidated Balance Sheets

As at September 30, 2012 (unaudited) and December 31, 2011

(Expressed in thousands of U.S. dollars, except share and per share information)

 

 
  September 30, 2012 December 31, 2011
(unaudited)
Assets
Fixed maturities, at fair value (amortized cost: 2012—$4,803,217; 2011—$4,859,705)

$

4,887,622

$ 4,894,145
Short-term investments, at fair value (amortized cost: 2012—$275,099; 2011—$280,299) 275,324 280,191
Other investments, at fair value (amortized cost: 2012—$511,310; 2011—$15,002) 525,441 16,787
Cash and cash equivalents 1,005,829   832,844  
Total investments and cash 6,694,216 6,023,967
Investments in affiliates 99,312 53,031
Premiums receivable 781,991 646,354
Deferred acquisition costs 155,456 121,505
Prepaid reinsurance premiums 144,788 91,381
Securities lending collateral 10,383 7,736
Loss reserves recoverable 317,252 372,485
Paid losses recoverable 36,209 90,495
Income taxes recoverable 5,019
Intangible assets 111,611 114,731
Goodwill 20,393 20,393
Accrued investment income 19,945 25,906
Other assets   67,245     50,487  
Total assets $ 8,463,820   $ 7,618,471  
 
Liabilities
Reserve for losses and loss expenses $ 2,562,604 $ 2,631,143
Unearned premiums 1,034,605 772,382
Reinsurance balances payable 87,955 119,899
Securities lending payable 10,849 8,462
Deferred income taxes 22,848

 

16,720
Net payable for investments purchased 26,629 1,256
Accounts payable and accrued expenses 86,128 83,402
Senior notes payable 247,063 246,982
Debentures payable   289,800     289,800  
Total liabilities   4,368,481     4,170,046  
 
Commitments and contingent liabilities
 
Shareholders' equity
Common shares, 571,428,571 authorized, par value $0.175 (Issued: 2012—136,632,448; 2011—134,503,065; Outstanding: 2012—93,494,391; 2011—99,471,080) 23,911 23,538
Treasury shares (2012—43,138,057; 2011—35,031,985) (7,549 )

 

 

(6,131 )
Additional paid-in-capital 1,657,767 1,893,890
Accumulated other comprehensive (loss) (4,565 ) (6,601 )
Retained earnings   1,964,289     1,543,729  
Total shareholders' equity available to Validus   3,633,853     3,448,425  
 
Noncontrolling interest 461,486
       
Total shareholders' equity   4,095,339     3,448,425  
 
Total liabilities and shareholders' equity $ 8,463,820   $ 7,618,471  
       
Validus Holdings, Ltd.

Consolidated Statement of Operations

For the three and nine months ended September 30, 2012 and 2011 (unaudited)

(Expressed in thousands of U.S. dollars, except share and per share information)

 

 

Three Months Ended
September 30,

Nine Months Ended
September 30,

(unaudited)   (unaudited)  
2012     2011   2012     2011  
Underwriting income
Gross premiums written $ 390,215 $ 391,129 $ 1,854,593 $ 1,846,412
Reinsurance premiums ceded   (45,743 )   (30,586 )   (271,847 )   (272,752 )
Net premiums written 344,472 360,543 1,582,746 1,573,660
Change in unearned premiums   130,632     98,081     (208,816 )   (259,863 )
Net premiums earned   475,104     458,624     1,373,930     1,313,797  
 
Underwriting deductions
Losses and loss expenses 155,455 226,067 541,136 909,572
Policy acquisition costs 98,623 77,405 252,884 232,931
General and administrative expenses 70,547 35,926 198,557 145,244
Share compensation expenses   7,345     7,382     19,583     27,059  
Total underwriting deductions   331,970     346,780     1,012,160     1,314,806  
 
Underwriting income (loss) $ 143,134 $ 111,844 $ 361,770 $ (1,009 )
 
Net investment income 25,489 27,747 79,134 84,216
Other income 7,324 22,209 2,201
Finance expenses   (9,362 )   (10,935 )   (39,347 )   (41,297 )
Operating income before taxes and income from operating affiliates $ 166,585 $ 128,656 $ 423,766 $ 44,111
Tax (expense) (1,343 ) (2,538 ) (1,886 ) (1,050 )
Income from operating affiliates   6,235         13,194      
Net operating income $ 171,477 $ 126,118 $ 435,074 $ 43,061
 
Net realized gains on investments 9,063 5,246 22,749 23,177
Net unrealized gains (losses) on investments 86,345 (27,848 ) 53,442 (22,150 )
(Loss) from investment affiliate (160 ) (558 )
Foreign exchange gains (losses) 1,103 (19,932 ) 3,617 (22,390 )
Transaction expenses (a)   (3,784 )   (13,583 )   (3,784 )   (13,583 )
Net income $ 264,044 $ 70,001 $ 510,540 $ 8,115
 
Net (income) attributable to noncontrolling interest (56,746 ) (13,516 ) (11,386 ) (14,110 )
               
Net income (loss) available (attributable) to Validus $ 207,298   $ 56,485   $ 499,154   $ (5,995 )
 
Selected ratios:
Net premiums written / Gross premiums written 88.3 % 92.2 % 85.3 % 85.2 %
 
Losses and loss expenses 32.7 % 49.3 % 39.4 % 69.2 %
Policy acquisition costs 20.8 % 16.9 % 18.4 % 17.7 %
General and administrative expenses   16.4 %   9.4 %   15.9 %   13.1 %
Expense ratio   37.2 %   26.3 %   34.3 %   30.8 %
 
Combined ratio   69.9 %   75.6 %   73.7 %   100.0 %
 
(a) The transaction expenses relate to costs incurred in connection with the proposed acquisition of Flagstone Reinsurance Holdings, S.A. The transaction expenses for 2011 relate to costs incurred in connection with the Company's proposed acquisition of Transatlantic Holdings, Inc. Transaction expenses are primarily comprised of legal, financial advisory and audit related services.
       
Validus Holdings, Ltd.

Consolidated Segment Underwriting Income (Loss)

For the three and nine months ended September 30, 2012 and 2011 (unaudited)

(Expressed in thousands of U.S. dollars, except share and per share information)

 

 
Three Months Ended September 30, Nine Months Ended September 30,
(unaudited)   (unaudited)  
2012     2011   2012     2011  

Validus Re

Gross premiums written $ 145,010 $ 163,863 $ 1,052,726 $ 1,058,642
Reinsurance premiums ceded   (10,426 )   (5,646 )   (137,504 )   (150,669 )
Net premiums written 134,584 158,217 915,222 907,973
Change in unearned premiums   107,728     81,997     (177,215 )   (194,529 )
Net premiums earned   242,312     240,214     738,007     713,444  
 
Losses and loss expenses 66,890 128,823 244,286 533,402
Policy acquisition costs 37,785 40,592 113,659 115,355
General and administrative expenses 16,938 7,358 48,332 32,947
Share compensation expenses   2,076     2,190     5,914     7,118  
Total underwriting deductions   123,689     178,963     412,191     688,822  
 
Underwriting income   118,623     61,251     325,816     24,622  
 

AlphaCat

Gross premiums written $ 2,934 $ 18,940 $ 21,607 $ 77,050
Reinsurance premiums ceded                
Net premiums written 2,934 18,940 21,607 77,050
Change in unearned premiums   2,591     8,758     (9,832 )   (37,595 )
Net premiums earned   5,525     27,698     11,775     39,455  
 
Losses and loss expenses
Policy acquisition costs 547 3,326 1,185 4,615
General and administrative expenses 2,087 2,167 5,521 4,122
Share compensation expenses   84     26     195     74  
Total underwriting deductions   2,718     5,519     6,901     8,811  
 
Underwriting income   2,807     22,179     4,874     30,644  
 

Talbot

Gross premiums written $ 260,755 $ 238,937 $ 837,536 $ 778,880
Reinsurance premiums ceded   (53,801 )   (55,551 )   (191,619 )   (190,243 )
Net premiums written 206,954 183,386 645,917 588,637
Change in unearned premiums   20,313     7,326     (21,769 )   (27,739 )
Net premiums earned   227,267     190,712     624,148     560,898  
 
Losses and loss expenses 88,565 97,244 296,850 376,170
Policy acquisition costs 61,640 36,651 142,181 116,174
General and administrative expenses 36,605 21,745 100,910 82,396
Share compensation expenses   2,200     1,903     5,347     6,648  
Total underwriting deductions   189,010     157,543     545,288     581,388  
 
Underwriting income (loss)   38,257     33,169     78,860     (20,490 )
 
       
Validus Holdings, Ltd.

Consolidated Segment Underwriting Income (Loss)

For the three and nine months ended September 30, 2012 and 2011 (unaudited)

(Expressed in thousands of U.S. dollars, except share and per share information)

 

 
Three Months Ended September 30, Nine Months Ended September 30,
(unaudited)   (unaudited)  
2012     2011   2012     2011  

Corporate & Eliminations

Gross premiums written $ (18,484 ) $ (30,611 ) $ (57,276 ) $ (68,160 )
Reinsurance premiums ceded   18,484     30,611     57,276     68,160  
Net premiums written
Change in unearned premiums                
Net premiums earned                
 
Losses and loss expenses
Policy acquisition costs (1,349 ) (3,164 ) (4,141 ) (3,213 )
General and administrative expenses 14,917 4,656 43,794 25,779
Share compensation expenses   2,985     3,263     8,127     13,219  
Total underwriting deductions   16,553     4,755     47,780     35,785  
 
Underwriting (loss)   (16,553 )   (4,755 )   (47,780 )   (35,785 )
               
Total underwriting income (loss) $ 143,134   $ 111,844   $ 361,770   $ (1,009 )
 
       
Validus Holdings, Ltd.

Non-GAAP Financial Measure Reconciliation

Managed Gross Premiums Written

For the three and nine months ended September 30, 2012 and 2011 (unaudited)

(Expressed in thousands of U.S. dollars, except share and per share information)

 

 
Three Months Ended Nine Months Ended
(unaudited)   (unaudited)
September 30,   September 30, September 30,   September 30,
2012   2011(a)   2012   2011(a)
 
Total gross premiums written $ 390,215 $ 391,129 $ 1,854,593 $ 1,846,412
Adjustments for:
Gross premiums written on behalf of AlphaCat Re 2011 7,604 94,309
Gross premiums written on behalf of AlphaCat Re 2012   1,658         32,216    
Total managed gross premiums written $ 399,477   $ 391,129   $ 1,981,118   $ 1,846,412
 

(a) Total gross premiums written for the three and nine months ended September 30, 2011 included $18.8 million and $61.4 million, respectively, of gross premiums written from AlphaCat Re 2011, which was a consolidated subsidiary during the three months ended June 30, September 30 and December 31, 2011. The balance sheet of AlphaCat Re 2011 was deconsolidated as at December 31, 2011.

       
Validus Holdings, Ltd.

Non-GAAP Financial Measure Reconciliation

Net Operating Income (Loss), Net Operating Income (Loss) per share,

and Annualized Net Operating Return on Average Equity

For the three and nine months ended September 30, 2012 and 2011 (unaudited)

(Expressed in thousands of U.S. dollars, except share and per share information)

 

 
Three Months Ended Nine Months Ended
  (unaudited)   (unaudited)  
September 30,   September 30, September 30,   September 30,
  2012   2011   2012   2011
 
Net income (loss) available (attributable) to Validus $ 207,298 $ 56,485 $ 499,154 $ (5,995 )
Adjustments for:
Net realized (gains) on investments (9,063 ) (5,246 ) (22,749 ) (23,177 )
Net unrealized (gains) losses on investments (86,345 ) 27,848 (53,442 ) 22,150
Loss from investment affiliate 160 558
Foreign exchange (gains) losses (1,103 ) 19,932 (3,617 ) 22,390
Transaction expenses (a) 3,784 13,583 3,784 13,583
Net income attributable to noncontrolling interest 55,821     10,940    
Net operating income available to Validus 170,552 112,602 434,628 28,951
Less: Dividends and distributions declared on outstanding warrants   (1,663 )   (1,966 )   (5,121 )   (5,916 )
Net operating income available to Validus, adjusted $ 168,889   $ 110,636   $ 429,507   $ 23,035  
 
Net income (loss) per share available (attributable) to Validus - diluted $ 2.11 $ 0.54 $ 4.88 $ (0.12 )
Adjustments for:
Net realized (gains) on investments (0.09 ) (0.04 ) (0.22 ) (0.22 )
Net unrealized (gains) losses on investments (0.88 ) 0.27 (0.52 ) 0.22
Loss from investment affiliate
Foreign exchange (gains) losses (0.01 ) 0.19 (0.04 ) 0.22
Transaction expenses (a) 0.04 0.13 0.04 0.13
Net income attributable to noncontrolling interest   0.57         0.11      
Net operating income per share available (attributable) to Validus - diluted $ 1.74   $ 1.09   $ 4.25   $ 0.23  
 
Weighted average number of common shares and common share equivalents 98,236,490 103,482,263 102,333,515 100,796,280
 
Average shareholders' equity available to Validus $ 3,555,844 $ 3,426,093 $ 3,524,906 $ 3,418,085
 
Annualized net operating return on average equity   19.2 %   13.1 %   16.4 %   1.1 %
 
(a) The transaction expenses relate to costs incurred in connection with the proposed acquisition of Flagstone Reinsurance Holdings, S.A. The transaction expenses for 2011 relate to costs incurred in connection with the Company's proposed acquisition of Transatlantic Holdings, Inc. Transaction expenses are primarily comprised of legal, financial advisory and audit related services.
     
Validus Holdings, Ltd.

Non-GAAP Financial Measure Reconciliation

Book Value and Diluted Book Value per Common Share

As at September 30, 2012 (unaudited) and December 31, 2011

(Expressed in thousands of U.S. dollars, except share and per share information)

 

 
As at September 30, 2012
(unaudited)

Equity
Amount

    Shares    

Exercise
Price

   

Book Value
Per Share

Book value per common share        
Total shareholders' equity available to Validus $ 3,633,853 93,494,391 $ 38.87
 
Diluted book value per common share
Total shareholders' equity available to Validus 3,633,853 93,494,391
Assumed exercise of outstanding warrants 116,822 6,652,550 $ 17.56
Assumed exercise of outstanding stock options 37,745 1,823,947 $ 20.69
Unvested restricted shares       2,468,053  
Diluted book value per common share $ 3,788,420     104,438,941   $ 36.27
 
As at December 31, 2011

Equity
Amount

  Shares  

Exercise
Price

 

Book Value
Per Share

Book value per common share
Total shareholders' equity available to Validus $ 3,448,425 99,471,080 $ 34.67
 
Diluted book value per common share
Total shareholders' equity available to Validus 3,448,425 99,471,080
Assumed exercise of outstanding warrants 121,445 6,916,677 $ 17.56
Assumed exercise of outstanding stock options 45,530 2,263,012 $ 20.12
Unvested restricted shares       3,340,729  
Diluted book value per common share $ 3,615,400     111,991,498   $ 32.28
 

Cautionary Note Regarding Forward-Looking Statements

This press release may include forward-looking statements, both with respect to the Company and its industry, that reflect our current views with respect to future events and financial performance. Statements that include the words "expect", "intend", "plan", "believe", "project", "anticipate", "will", "may" and similar statements of a future or forward-looking nature identify forward-looking statements. All forward-looking statements address matters that involve risks and uncertainties, many of which are beyond the Company's control. Accordingly, there are or will be important factors that could cause actual results to differ materially from those indicated in such statements and, therefore, you should not place undue reliance on any such statements. We believe that these factors include, but are not limited to, the following: 1) unpredictability and severity of catastrophic events; 2) rating agency actions; 3) adequacy of Validus' risk management and loss limitation methods; 4) cyclicality of demand and pricing in the insurance and reinsurance markets; 5) statutory or regulatory developments including tax policy, reinsurance and other regulatory matters; 6) Validus' ability to implement its business strategy during "soft" as well as "hard" markets; 7) adequacy of Validus' loss reserves; 8) continued availability of capital and financing; 9) retention of key personnel; 10) competition; 11) potential loss of business from one or more major insurance or reinsurance brokers; 12) Validus' ability to implement, successfully and on a timely basis, complex infrastructure, distribution capabilities, systems, procedures and internal controls, and to develop accurate actuarial data to support the business and regulatory and reporting requirements; 13) general economic and market conditions (including inflation, volatility in the credit and capital markets, interest rates and foreign currency exchange rates); 14) the integration of businesses Validus may acquire or new business ventures Validus may start; 15) the effect on Validus' investment portfolios of changing financial market conditions including inflation, interest rates, liquidity and other factors; 16) acts of terrorism or outbreak of war; and 17) availability of reinsurance and retrocessional coverage, as well as management's response to any of the aforementioned factors.

The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included herein and elsewhere, including the risk factors included in Validus' most recent reports on Form 10-K and Form 10-Q and other documents of the Company on file with or furnished to the U.S. Securities and Exchange Commission (“SEC”). Any forward-looking statements made in this press release are qualified by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by Validus will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, Validus or its business or operations. Except as required by law, the Company undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.

Non-GAAP Financial Measures

In presenting the Company's results, management has included and discussed certain schedules containing net operating income (loss), net operating income (loss) available (attributable) to Validus, net operating income (loss) per share, underwriting income (loss), managed gross premiums written, annualized net operating return on average equity and diluted book value per common share that are not calculated under standards or rules that comprise U.S. GAAP. Such measures are referred to as non-GAAP. Non-GAAP measures may be defined or calculated differently by other companies. These measures should not be viewed as a substitute for those determined in accordance with U.S. GAAP. A reconciliation of net operating income (loss) to net income (loss), the most comparable U.S. GAAP financial measure, is presented in the section above entitled “Net Operating Income (Loss), Net Operating Income (Loss) per share and Annualized Net Operating Return on Average Equity”. A reconciliation of underwriting income and operating income to net income, the most comparable U.S. GAAP financial measure, is presented in the “Consolidated Statements of Operations” above. A reconciliation of managed gross premiums written to gross premiums written, the most comparable U.S. GAAP financial measure, is presented in the section above entitled "Managed Gross Premiums Written".

Underwriting income indicates the performance of the Company's core underwriting function, excluding revenues and expenses such as net investment income (loss), other income, finance expenses, net realized and unrealized gains (losses) on investments, foreign exchange gains (losses) and transaction expenses. The Company believes the reporting of underwriting income enhances the understanding of our results by highlighting the underlying profitability of the Company's core insurance and reinsurance business. Underwriting profitability is influenced significantly by earned premium growth, adequacy of the Company's pricing and loss frequency and severity.

Underwriting profitability over time is also influenced by the Company's underwriting discipline, which seeks to manage exposure to loss through favorable risk selection and diversification, its management of claims, its use of reinsurance and its ability to manage its expense ratio, which it accomplishes through its management of acquisition costs and other underwriting expenses. The Company believes that underwriting income provides investors with a valuable measure of profitability derived from underwriting activities.

Managed gross premiums written represents gross premiums written by the Company and its operating affiliates. Managed gross premiums written differs from total gross premiums written, which the Company believes is the most directly comparable GAAP measure, due to the inclusion of premiums written on behalf of the Company's operating affiliates, AlphaCat Re 2011, Ltd. and AlphaCat Re 2012, Ltd., which are accounted for under the equity method of accounting.

Annualized net operating return on average equity is presented in the section above entitled “Net Operating Income (Loss), Net Operating Income (Loss) per share and Annualized Net Operating Return on Average Equity.” A reconciliation of diluted book value per common share to book value per common share, the most comparable U.S. GAAP financial measure, is presented in the section above entitled “Book Value Per Common Share and Diluted Book Value Per Common Share.” Net operating income (loss) is calculated based on net income (loss) excluding net realized gains (losses) on investments, net unrealized gains (losses) on investments, gains (losses) arising from translation of non-US$ denominated balances and non-recurring items. Realized gains (losses) from the sale of investments are driven by the timing of the disposition of investments, not by our operating performance. Gains (losses) arising from translation of non-US$ denominated balances are unrelated to our underlying business. Net operating income (loss) available (attributable) to Validus is defined as net operating income (loss) as defined above, but excluding income (loss) available (attributable) to noncontrolling interest.

Contacts

Investors:
Validus Holdings, Ltd.
Jon Levenson, +1-441-278-9000
Executive Vice President
Jon.Levenson@validusholdings.com
or
Media:
Brunswick Group
Greg Faje / Beau Allen
+1-212-333-3810

Sharing

Contacts

Investors:
Validus Holdings, Ltd.
Jon Levenson, +1-441-278-9000
Executive Vice President
Jon.Levenson@validusholdings.com
or
Media:
Brunswick Group
Greg Faje / Beau Allen
+1-212-333-3810