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Press Release

Oct 26, 2017

Validus Reports Third Quarter 2017 Financial Results

PEMBROKE, Bermuda--(BUSINESS WIRE)--Oct. 26, 2017-- Validus Holdings, Ltd. (“Validus” or the “Company”) (NYSE: VR) today reported a net (loss) attributable to Validus common shareholders of $(250.4) million, or $(3.17) per diluted common share, for the three months ended September 30, 2017, compared to net income available to Validus common shareholders of $89.8 million, or $1.11 per diluted common share, for the three months ended September 30, 2016.

Net operating (loss) attributable to Validus common shareholders was $(254.5) million, or $(3.22) per diluted common share, for the three months ended September 30, 2017, compared to net operating income available to Validus common shareholders of $83.0 million, or $1.02 per diluted common share, for the three months ended September 30, 2016.

Book value per common share at September 30, 2017 was $44.51, compared to $47.93 at June 30, 2017. Book value per diluted common share at September 30, 2017 was $43.13, compared to $46.45 at June 30, 2017, reflecting a quarterly decrease of (6.3)%, inclusive of common dividends.

Commenting on the results for the three months ended September 30, 2017, Validus’ Chairman and CEO Ed Noonan stated:

“We incurred a $254.5 million operating loss in the quarter which is equal to $3.22 per diluted share, or a 6.3% decline in diluted book value per share inclusive of dividends. While results of operations were negative, I am gratified with this outcome which is the result of world class underwriting, risk, financial and operational management throughout our global businesses. Despite significant natural catastrophes we close the quarter with a very strong balance sheet and a belief that the quarter’s results across the industry have enhanced our competitive position.”

(Loss) income (attributable) available to Validus common shareholders by segment for the three months ended September 30, 2017 and September 30, 2016 was as follows:

   

Three Months Ended September 30,

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

2017     2016
Validus Re - Underwriting (loss) income $ (140.8 ) $ 67.1
Talbot - Underwriting (loss) income (65.0 ) 7.3
Western World - Underwriting (loss) (24.8 ) (2.7 )
Validus’ share of AlphaCat (loss) income (27.6 ) 11.2  
Total segmental (loss) income (258.2 ) 82.9
Total managed investment return (a) 39.9 50.3
Corporate expenses (31.0 ) (40.7 )
Other items and eliminations (1.1 ) (2.7 )
Net (loss) income (attributable) available to Validus common shareholders $ (250.4 ) $ 89.8  
Net (loss) income per diluted share (attributable) available to Validus common shareholders $ (3.17 ) $ 1.11  
Net operating (loss) income (attributable) available to Validus common shareholders (b) $ (254.5 ) $ 83.0  
Net operating (loss) income per diluted share (attributable) available to Validus common shareholders(b) $ (3.22 ) $ 1.02  
 
(a)   Total managed investment return includes returns generated on managed assets governed by the Company’s investment policy statement (“IPS”) and excludes returns on non-managed assets held in support of consolidated AlphaCat variable interest entities which are not governed by the Company’s IPS.
(b) Net operating (loss) income (attributable) available to Validus common shareholders is presented after tax and is considered a non-GAAP financial measure. A reconciliation of net (loss) income (attributable) available to Validus common shareholders, the most comparable GAAP measure, to net operating (loss) income (attributable) available to Validus common shareholders is presented at the end of this release.
 

This earnings release should be read in conjunction with the Company’s third quarter 2017 investor financial supplement that has been posted to the Investors section of the Company’s website located at www.validusholdings.com.

Third Quarter 2017 Results

In accordance with U.S. GAAP, the results of AlphaCat, inclusive of results attributable to AlphaCat’s third party investors and noncontrolling interests, have been included in the Company’s consolidated results of operations. The breakdown of results by segment is presented on page 15 of this release.

Highlights for the third quarter are as follows:

Notable and Non-Notable Losses

The Company defines a notable loss event as an event whereby consolidated net losses and loss expenses aggregate to a threshold greater than or equal to $30.0 million. The Company defines a non-notable loss event as an event whereby consolidated net losses and loss expenses aggregate to a threshold greater than or equal to $15.0 million but less than $30.0 million.

During the three months ended September 30, 2017 the Company incurred losses and loss expenses from notable loss events Hurricane Harvey, Hurricane Irma, and Hurricane Maria as described below:

   
Hurricane Harvey
(Dollars in thousands) Validus Re     Talbot    

Western
World

    Interco     Total

Gross losses and loss expenses excluding the Alphacat
segment

$ 277,643 $ 61,426 $ 100,725 $ (475 ) $ 439,319
Less: Reinsurance recoveries (170,018 ) (27,047 ) (95,725 ) 475   (292,315 )
Net losses and loss expenses excluding the AlphaCat segment $ 107,625 $ 34,379 $ 5,000 $ $ 147,004
Validus’ share of AlphaCat net losses and loss expenses         7,298  
Validus’ share of net losses and loss expenses 107,625 34,379 5,000 154,302
Less: Net impact on premiums earned (a) (18,602 ) 789   9,872     (7,941 )
Net loss attributable to Validus $ 89,023   $ 35,168   $ 14,872   $   $ 146,361  
 
Hurricane Irma
(Dollars in thousands) Validus Re Talbot

Western
World

Interco Total

Gross losses and loss expenses excluding the Alphacat
segment

$ 334,583 $ 74,301 $ 12,200 $ (1,168 ) $ 419,916
Less: Reinsurance recoveries (206,637 ) (42,304 ) (7,200 ) 1,168   (254,973 )
Net losses and loss expenses excluding the AlphaCat segment $ 127,946 $ 31,997 $ 5,000 $ $ 164,943
Validus’ share of AlphaCat net losses and loss expenses         20,992  
Validus’ share of net losses and loss expenses 127,946 31,997 5,000 185,935
Less: Net impact on premiums earned (a) (27,309 ) 4,623       (22,686 )
Net loss attributable to Validus $ 100,637   $ 36,620   $ 5,000   $   $ 163,249  
 
Hurricane Maria
(Dollars in thousands) Validus Re Talbot

Western
World

Interco Total

Gross losses and loss expenses excluding the Alphacat
segment

$ 114,178 $ 29,713 $ $ (838 ) $ 143,053
Less: Reinsurance recoveries (76,392 ) (14,308 )   838   (89,862 )
Net losses and loss expenses excluding the AlphaCat segment $ 37,786 $ 15,405 $ $ $ 53,191
Validus’ share of AlphaCat net losses and loss expenses         7,360  
Validus’ share of net losses and loss expenses 37,786 15,405 60,551
Less: Net impact on premiums earned (a) (4,254 ) 1,389       (2,865 )
Net loss attributable to Validus $ 33,532   $ 16,794   $   $   $ 57,686  
 
Total Notable Loss Events
(Dollars in thousands) Validus Re Talbot

Western
World

Interco Total

Gross losses and loss expenses excluding the Alphacat
segment

$ 726,404 $ 165,440 $ 112,925 $ (2,481 ) $ 1,002,288
Less: Reinsurance recoveries (453,047 ) (83,659 ) (102,925 ) 2,481   (637,150 )
Net losses and loss expenses excluding the AlphaCat segment $ 273,357 $ 81,781 $ 10,000 $ $ 365,138
Validus’ share of AlphaCat net losses and loss expenses         35,650  
Validus’ share of net losses and loss expenses 273,357 81,781 10,000 400,788
Less: Net impact on premiums earned (a) (50,165 ) 6,801   9,872     (33,492 )
Net loss attributable to Validus $ 223,192   $ 88,582   $ 19,872   $   $ 367,296  
 

(a) Net impact on premiums earned includes reinstatement premiums assumed and ceded and the net impact of accelerating unearned premiums assumed and ceded.

During the three months ended September 30, 2016, the Company incurred net losses and loss expenses from notable and non-notable loss events of $1.0 million and $21.6 million, respectively. Net of reinstatement premiums, the net loss attributable to the Company from the notable and non-notable loss events was $1.0 million and $20.4 million, respectively.

The Company’s loss ratio, excluding the impact of losses and loss expenses incurred from notable and non-notable loss events and the change in prior accident years, for the three months ended September 30, 2017 and 2016 was 55.8% and 51.2%, respectively.

Validus Re Segment

Highlights for the third quarter include the following:

Talbot Segment

Highlights for the third quarter include the following:

Western World Segment

Highlights for the third quarter include the following:

AlphaCat Segment

Highlights for the third quarter include the following:

Investments

Highlights of our managed investment portfolio for the third quarter include the following:

Corporate Expenses and Other Items

Highlights for the third quarter include the following:

Shareholders’ Equity and Capitalization

As at September 30, 2017, total shareholders’ equity was $4.0 billion including $78.9 million of noncontrolling interest and $400.0 million of preferred shares. Shareholders’ equity available to Validus common shareholders was $3.5 billion as at September 30, 2017. Book value per common share was $44.51 at September 30, 2017 based on 79,457,253 common shares, compared to $47.93 at June 30, 2017 based on 79,518,581 common shares. Book value per diluted common share was $43.13 at September 30, 2017 based on 82,001,606 diluted common shares, compared to $46.45 at June 30, 2017 based on 82,075,276 diluted common shares, a decrease of (6.3)%, inclusive of dividends for the three months ended September 30, 2017. Book value per diluted common share is a non-GAAP financial measure. A reconciliation of book value per common share, the most comparable GAAP measure, to book value per diluted common share is presented at the end of this release.

Total capitalization available to Validus at September 30, 2017 was $4.7 billion, including $538.9 million of junior subordinated deferrable debentures and $245.5 million of senior notes. Total capitalization at September 30, 2017 was $5.9 billion, including $1.1 billion of redeemable noncontrolling interest and $78.9 million of noncontrolling interest related to AlphaCat.

Share Repurchases

The Company repurchased 83,859 common shares during the three months ended September 30, 2017. A summary of the common share repurchases made to date under the Company’s previously announced share repurchase programs is as follows:

   
Share Repurchase Activity
(Expressed in thousands of U.S. dollars except for share and per share information)
As at June 30, 2017                 Quarter ended
(cumulative) July August September September 30, 2017
Aggregate purchase price (a) $ 2,718,402 $ 2,737 $ 1,610 $ $ 4,347
Shares repurchased 80,776,802 52,721 31,138 83,859
Average share price (a) $ 33.65 $ 51.91 $ 51.71 $ $ 51.84
 
Share Repurchase Activity

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

As at September 30, 2017     As at October 25, 2017    

Cumulative to Date
through October 25, 2017

Aggregate purchase price (a) $ 2,722,749 $ $ 2,722,749
Shares repurchased 80,860,661 80,860,661
Average share price (a) $ 33.67 $ $ 33.67
 

(a) Share transactions are on a trade date basis through October 25, 2017 and are inclusive of commissions. Average share price is rounded to two decimal places.

Year to Date 2017 Results

Highlights for the year to date include the following:

Conference Call

The Company will host a conference call for analysts and investors on October 27, 2017 at 10:00 AM (Eastern) to discuss the third quarter 2017 financial results and related matters. The conference call may be accessed by dialing 1-844-579-6824 (U.S. callers) or 1-763-488-9145 (international callers) and entering the passcode 6786 6099. 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 10, 2017, by dialing 1-855-859-2056 (U.S. callers) or 1-404-537-3406 (international callers) and entering the passcode 6786 6099.

This conference call will also be available through a live audio webcast accessible through the Investors section of the Company’s website located at www.validusholdings.com. A replay of the webcast will be available at the Investors section of the Company’s website through November 10, 2017. In addition, a financial supplement relating to the Company’s financial results for the three and nine months ended September 30, 2017 is available in the Investors section of the Company’s website.

About Validus Holdings, Ltd.

Validus Holdings, Ltd. (“Validus”) is a holding company for reinsurance and insurance operating companies and investment advisors including Validus Reinsurance, Ltd. (“Validus Re”), Talbot Holdings Ltd. (“Talbot”), Western World Insurance Group, Inc. (“Western World”) and AlphaCat Managers, Ltd.(“AlphaCat”).

Validus Re is a global reinsurance group focused primarily on treaty reinsurance. Talbot is a specialty (re)insurance group primarily operating within the Lloyd’s insurance market through Syndicate 1183. Western World is a U.S. specialty lines insurance group focused on excess and surplus lines. AlphaCat is a Bermuda based investment adviser managing capital for third parties and Validus in insurance linked securities and other property catastrophe and specialty reinsurance investments.

       

Validus Holdings, Ltd.

Consolidated Balance Sheets

As at September 30, 2017 and December 31, 2016

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

 
September 30,
2017
December 31,
2016
Assets
Fixed maturity investments trading, at fair value (amortized cost: 2017—$5,421,546; 2016—$5,584,599) $ 5,419,966 $ 5,543,030
Short-term investments trading, at fair value (amortized cost: 2017—$2,992,939; 2016—$2,796,358) 2,993,246 2,796,170
Other investments, at fair value (cost: 2017—$439,991; 2016—$380,130) 471,300 405,712
Investments in investment affiliates, equity method (cost: 2017—$60,228; 2016—$84,840) 92,079 100,431
Cash and cash equivalents 965,630 419,976
Restricted cash 89,403   70,956  
Total investments and cash 10,031,624 9,336,275
Premiums receivable 1,569,374 725,390
Deferred acquisition costs 258,078 209,227
Prepaid reinsurance premiums 207,618 77,996
Securities lending collateral 2,115 9,779
Loss reserves recoverable 1,335,016 430,421
Paid losses recoverable 77,730 35,247
Income taxes recoverable 9,704 4,870
Deferred tax asset 52,228 43,529
Receivable for investments sold 37,493 3,901
Intangible assets 173,398 115,592
Goodwill 227,701 196,758
Accrued investment income 27,976 26,488
Other assets 591,185   134,282  
Total assets $ 14,601,240   $ 11,349,755  
 
Liabilities
Reserve for losses and loss expenses $ 4,935,637 $ 2,995,195
Unearned premiums 1,526,465 1,076,049
Reinsurance balances payable 527,881 54,781
Securities lending payable 2,581 10,245
Deferred tax liability 4,198 3,331
Payable for investments purchased 84,431 29,447
Accounts payable and accrued expenses 478,892 587,648
Notes payable to AlphaCat investors 1,107,618 278,202
Senior notes payable 245,513 245,362
Debentures payable 538,910   537,226  
Total liabilities $ 9,452,126   $ 5,817,486  
Commitments and contingent liabilities
Redeemable noncontrolling interests 1,133,880 1,528,001
Shareholders’ equity
Preferred shares (Issued and Outstanding: 2017—16,000; 2016—6,000) 400,000 150,000

Common shares (Issued: 2017—161,956,886; 2016—161,279,976; Outstanding: 2017—79,457,253; 2016—
  79,132,252)

28,342 28,224
Treasury shares (2017—82,499,633; 2016—82,147,724) (14,437 ) (14,376 )
Additional paid-in capital 812,266 821,023
Accumulated other comprehensive loss (18,430 ) (23,216 )
Retained earnings 2,728,546   2,876,636  
Total shareholders’ equity available to Validus 3,936,287 3,838,291
Noncontrolling interests 78,947   165,977  
Total shareholders’ equity $ 4,015,234   $ 4,004,268  
Total liabilities, noncontrolling interests and shareholders’ equity $ 14,601,240   $ 11,349,755  
 
       

Validus Holdings, Ltd.

Consolidated Statements of (Loss) Income

For the three and nine months ended September 30, 2017 and 2016

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

 
Three Months Ended September 30, Nine Months Ended September 30,
2017       2016   2017       2016  
Revenues
Gross premiums written $ 523,856 $ 372,418 $ 2,507,615 $ 2,309,251
Reinsurance premiums ceded (116,860 ) (45,006 ) (373,188 ) (249,070 )
Net premiums written 406,996 327,412 2,134,427 2,060,181
Change in unearned premiums 316,212   236,363   (204,816 ) (351,415 )
Net premiums earned 723,208 563,775 1,929,611 1,708,766
Net investment income 44,458 43,514 128,913 112,232
Net realized gains on investments 906 4,397 2,016 6,537
Change in net unrealized (losses) gains on investments (5,197 ) 5,459 24,472 84,331
Income (loss) from investment affiliates 1,011 453 15,665 (4,249 )
Other insurance related income and other income (loss) 3,571 (610 ) 6,240 1,627
Foreign exchange (losses) gains (1,404 ) (766 ) (7,164 ) 11,765  
Total revenues 766,553   616,222   2,099,753   1,921,009  
Expenses
Losses and loss expenses 1,254,602 258,394 1,820,336 789,971
Policy acquisition costs 115,590 113,434 344,486 328,593
General and administrative expenses 70,342 82,443 254,615 258,339
Share compensation expenses 9,443 10,501 30,080 32,465
Finance expenses 14,523 14,521 42,675 43,890
Transaction expenses     4,427    
Total expenses 1,464,500   479,293   2,496,619   1,453,258  

(Loss) income before taxes, (loss) from operating affiliate and loss
  (income) attributable to AlphaCat investors

(697,947 ) 136,929 (396,866 ) 467,751
Tax benefit (expense) 2,632 (1,830 ) 7,168 (1,418 )
(Loss) from operating affiliate (23 )
Loss (income) attributable to AlphaCat investors 74,130   (5,564 ) 54,797   (16,278 )
Net (loss) income $ (621,185 ) $ 129,535 $ (334,901 ) $ 450,032
Net loss (income) attributable to noncontrolling interests 376,366   (37,439 ) 290,144   (96,163 )
Net (loss) income (attributable) available to Validus (244,819 ) 92,096 (44,757 ) 353,869
Dividends on preferred shares (5,627 ) (2,252 ) (10,033 ) (2,252 )

Net (loss) income (attributable) available to Validus common
  shareholders

$ (250,446 ) $ 89,844   $ (54,790 ) $ 351,617  
 
Selected ratios:
Ratio of net to gross premiums written 77.7 % 87.9 % 85.1 % 89.2 %
 
Losses and loss expense ratio (a) 173.5 % 45.8 % 94.3 % 46.2 %
 
Policy acquisition cost ratio 16.0 % 20.1 % 17.9 % 19.2 %
General and administrative expense ratio (b) 11.0 % 16.5 % 14.7 % 17.1 %
Expense ratio 27.0 % 36.6 % 32.6 % 36.3 %
Combined ratio (a) 200.5 % 82.4 % 126.9 % 82.5 %
 
(a)   Excluding the AlphaCat segment, which includes results attributable to AlphaCat’s third party investors and noncontrolling interests, the loss and combined ratios for the three months ended September 30, 2017 were 110.0% and 138.8%, respectively and 73.5% and 107.7% for the nine months ended September 30, 2017, respectively.
(b) The general and administrative expense ratio includes share compensation expenses.
 
       

Validus Holdings, Ltd.

Segment Information

For the three and nine months ended September 30, 2017 and 2016

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

 
Validus Re Segment Three Months Ended September 30, Nine Months Ended September 30,
2017     2016 2017     2016
Underwriting revenues
Gross premiums written $ 153,890 $ 94,741 $ 1,071,409 $ 1,072,219
Reinsurance premiums ceded (40,988 ) (15,967 ) (161,188 ) (111,658 )
Net premiums written 112,902 78,774 910,221 960,561
Change in unearned premiums 154,145   149,705   (184,155 ) (241,129 )
Net premiums earned 267,047 228,479 726,066 719,432
Other insurance related income (loss) 68   58   204   (107 )
Total underwriting revenues 267,115   228,537   726,270   719,325  
Underwriting deductions
Losses and loss expenses 347,484 98,425 538,323 313,432
Policy acquisition costs 45,422 42,837 133,836 127,660
General and administrative expenses 12,444 17,528 48,550 52,579
Share compensation expenses 2,606   2,695   7,746   8,371  
Total underwriting deductions 407,956   161,485   728,455   502,042  
Underwriting (loss) income $ (140,841 ) $ 67,052   $ (2,185 ) $ 217,283  
Talbot Segment     Three Months Ended September 30,     Nine Months Ended September 30,
2017     2016 2017     2016
Underwriting revenues
Gross premiums written $ 192,883 $ 189,674 $ 702,535 $ 752,058
Reinsurance premiums ceded (36,462 ) (22,877 ) (154,263 ) (137,496 )
Net premiums written 156,421 166,797 548,272 614,562
Change in unearned premiums 23,191   32,258   18,279   (7,166 )
Net premiums earned 179,612 199,055 566,551 607,396
Other insurance related income 692   99   1,512   389  
Total underwriting revenues 180,304   199,154   568,063   607,785  
Underwriting deductions
Losses and loss expenses 178,440 109,860 378,241 319,271
Policy acquisition costs 41,493 46,488 129,074 134,444
General and administrative expenses 23,069 32,333 97,094 109,929
Share compensation expenses 2,310   3,163   8,292   9,955  
Total underwriting deductions 245,312   191,844   612,701   573,599  
Underwriting (loss) income $ (65,008 ) $ 7,310   $ (44,638 ) $ 34,186  
Western World Segment     Three Months Ended September 30,     Nine Months Ended September 30,
2017     2016 2017     2016
Underwriting revenues
Gross premiums written $ 156,517 $ 85,260 $ 459,628 $ 236,190
Reinsurance premiums ceded (43,207 ) (6,202 ) (72,005 ) (15,347 )
Net premiums written 113,310 79,058 387,623 220,843
Change in unearned premiums 61,603   (8,260 ) 15,256   (22,890 )
Net premiums earned 174,913 70,798 402,879 197,953
Other insurance related income 662   219   1,566   696  
Total underwriting revenues 175,575   71,017   404,445   198,649  
Underwriting deductions
Losses and loss expenses 157,709 45,748 329,642 129,623
Policy acquisition costs 20,721 17,094 60,187 46,704
General and administrative expenses 21,553 10,171 50,623 33,704
Share compensation expenses 354   702   1,655   1,825  
Total underwriting deductions 200,337   73,715   442,107   211,856  
Underwriting (loss) $ (24,762 ) $ (2,698 ) $ (37,662 ) $ (13,207 )
 
       

Validus Holdings, Ltd.

Segment Information

For the three and nine months ended September 30, 2017 and 2016

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

 
AlphaCat Segment Three Months Ended September 30, Nine Months Ended September 30,
2017     2016 2017     2016
Fee revenues
Third party $ 5,095 $ 7,025 $ 15,288 $ 14,843
Related party 457   1,373   1,732   2,592  
Total fee revenues 5,552   8,398   17,020   17,435  
Expenses
General and administrative expenses 2,929 3,324 10,322 7,557
Share compensation expenses 183 (107 ) 348 167
Finance expenses 32 31 107 914
Tax (benefit) expense (65 ) 69
Foreign exchange losses 7   5   7   17  
Total expenses 3,086   3,253   10,853   8,655  

Income before investment (loss) income from AlphaCat Funds and
  Sidecars

2,466   5,145   6,167   8,780  
Investment (loss) income from AlphaCat Funds and Sidecars (a)
AlphaCat Sidecars 201 (72 ) 68 593
AlphaCat ILS Funds - Lower Risk (b) (7,553 ) 2,321 (4,063 ) 6,903
AlphaCat ILS Funds - Higher Risk (b) (21,816 ) 2,479 (16,849 ) 5,607
BetaCat ILS Funds (922 ) 1,303 (291 ) 2,979
PaCRe       (23 )

Validus’ share of investment (loss) income from AlphaCat Funds and
  Sidecars

(30,090 ) 6,031   (21,135 ) 16,059  
Validus’ share of AlphaCat (loss) income $ (27,624 ) $ 11,176   $ (14,968 ) $ 24,839  
 
(a)   The investment (loss) income from the AlphaCat funds and sidecars is based on equity accounting.
(b) Lower risk AlphaCat ILS funds have a maximum permitted portfolio expected loss of less than 7%, whereas higher risk AlphaCat ILS funds have a maximum permitted portfolio expected loss of greater than 7%. Expected loss represents the average annual loss over the set of simulation scenarios divided by the total limit.
 
       
Corporate and Investments Three Months Ended September 30, Nine Months Ended September 30,
2017     2016 2017     2016
Managed investments
Managed net investment income (a) $ 37,091 $ 41,071 $ 111,346 $ 105,843
Net realized gains on managed investments (a) 903 4,080 280 5,514
Change in net unrealized gains on managed investments (a) 941 4,652 31,232 81,782
Income (loss) from investment affiliates 1,011   453   15,665   (4,249 )
Total managed investment return $ 39,946   $ 50,256   $ 158,523   $ 188,890  
 
Corporate expenses
General and administrative expenses $ 9,539 $ 18,221 $ 45,563 $ 52,276
Share compensation expenses 3,990 4,048 12,039 12,147
Finance expenses (a) 14,449 14,317 42,462 42,637
Dividends on preferred shares 5,627 2,252 10,033 2,252
Tax (benefit) expense (a) (2,567 ) 1,830   (7,237 ) 1,418  
Total Corporate expenses $ 31,038   $ 40,668   $ 102,860   $ 110,730  
 
Other items
Foreign exchange (losses) gains (a) (1,495 ) (1,067 ) (7,715 ) 11,628
Other income (loss) 35 (1,529 ) 303 (773 )
Transaction expenses     (4,427 )  
Total other items $ (1,460 ) $ (2,596 ) $ (11,839 ) $ 10,855  
Total Corporate and Investments $ 7,448   $ 6,992   $ 43,824   $ 89,015  
 
(a)   These items exclude the components which are included in Validus’ share of AlphaCat and amounts which are consolidated from variable interest entities.
 
 

Validus Holdings, Ltd.

Segment Information

For the three months ended September 30, 2017

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

The following tables reconcile the results of our operating segments along with our corporate and investments function to the Consolidated results of the Company for the periods indicated:

    Three Months Ended September 30, 2017

Validus Re
Segment

   

Talbot
Segment

   

Western
World
Segment

   

AlphaCat
Segment and
Consolidated
VIEs

   

Corporate
and
Investments

    Eliminations     Total
Underwriting revenues
Gross premiums written $ 153,890 $ 192,883 $ 156,517 $ 27,213 $ $ (6,647 ) $ 523,856
Reinsurance premiums ceded (40,988 ) (36,462 ) (43,207 ) (2,850 )   6,647   (116,860 )
Net premiums written 112,902 156,421 113,310 24,363 406,996
Change in unearned premiums 154,145   23,191   61,603   77,273       316,212  
Net premiums earned 267,047 179,612 174,913 101,636 723,208
Other insurance related income 68   692   662   6,083     (3,969 ) 3,536  
Total underwriting revenues 267,115   180,304   175,575   107,719     (3,969 ) 726,744  
Underwriting deductions
Losses and loss expenses 347,484 178,440 157,709 570,969 1,254,602
Policy acquisition costs 45,422 41,493 20,721 8,314 (360 ) 115,590

General and administrative
expenses

12,444 23,069 21,553 7,687 9,539 (3,950 ) 70,342
Share compensation expenses 2,606   2,310   354   183   3,990     9,443  
Total underwriting deductions 407,956   245,312   200,337   587,153   13,529   (4,310 ) 1,449,977  
Underwriting (loss) income $ (140,841 ) $ (65,008 ) $ (24,762 ) $ (479,434 ) $ (13,529 ) $ 341 $ (723,233 )
Net investment return (a) 1,232 39,946 41,178
Other items (b) 82 (18,969 ) (18,887 )

Loss attributable to AlphaCat
investors

74,130 74,130

Net loss attributable to
noncontrolling interests

      376,366       376,366
Segmental (loss) income $ (140,841 ) $ (65,008 ) $ (24,762 ) $ (27,624 ) $ 7,448   $ 341    

Net loss attributable to Validus
common shareholders

$ (250,446 )
(a)   Net investment return includes net investment income, net realized and change in net unrealized gains (losses) on investments and income (loss) from investment affiliates.
(b) Other items includes finance expenses, transaction expenses, dividends on preferred shares, tax benefit (expense), foreign exchange gains (losses), income (loss) from operating affiliate and other income (loss).
 
   

Validus Holdings, Ltd.

Segment Information

For the three months ended September 30, 2016

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

 
Three Months Ended September 30, 2016

Validus Re
Segment

   

Talbot
Segment

   

Western
World
Segment

   

AlphaCat
Segment and
Consolidated
VIEs

   

Corporate
and
Investments

    Eliminations     Total
Underwriting revenues
Gross premiums written $ 94,741 $ 189,674 $ 85,260 $ 4,413 $ $ (1,670 ) $ 372,418
Reinsurance premiums ceded (15,967 ) (22,877 ) (6,202 ) (1,630 )   1,670   (45,006 )
Net premiums written 78,774 166,797 79,058 2,783 327,412
Change in unearned premiums 149,705   32,258   (8,260 ) 62,660       236,363  
Net premiums earned 228,479 199,055 70,798 65,443 563,775
Other insurance related income 58   99   219   8,656     (8,113 ) 919  
Total underwriting revenues 228,537   199,154   71,017   74,099     (8,113 ) 564,694  
Underwriting deductions
Losses and loss expenses 98,425 109,860 45,748 4,361 258,394
Policy acquisition costs 42,837 46,488 17,094 7,075 (60 ) 113,434
General and administrative expenses 17,528 32,333 10,171 12,255 18,221 (8,065 ) 82,443
Share compensation expenses 2,695   3,163   702   (107 ) 4,048     10,501  
Total underwriting deductions 161,485   191,844   73,715   23,584   22,269   (8,125 ) 464,772  
Underwriting income (loss) $ 67,052 $ 7,310 $ (2,698 ) $ 50,515 $ (22,269 ) $ 12 $ 99,922
Net investment return (a) 3,567 50,256 53,823
Other items (b) 97 (20,995 ) (20,898 )

(Income) attributable to AlphaCat
investors

(5,564 ) (5,564 )

Net (income) attributable to
noncontrolling interest

      (37,439 )     (37,439 )
Segmental income (loss) $ 67,052   $ 7,310   $ (2,698 ) $ 11,176   $ 6,992   $ 12    

Net income available to Validus
common shareholders

$ 89,844  
 
(a)   Net investment return includes net investment income, net realized and change in net unrealized gains (losses) on investments and income (loss) from investment affiliates.
(b) Other items includes finance expenses, transaction expenses, dividends on preferred shares, tax benefit (expense), foreign exchange gains (losses), income (loss) from operating affiliate and other income (loss).
 
   

Validus Holdings, Ltd.

Segment Information

For the nine months ended September 30, 2017

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

 
Nine Months Ended September 30, 2017

Validus Re
Segment

   

Talbot
Segment

   

Western
World
Segment

   

AlphaCat
Segment and
Consolidated
VIEs

   

Corporate
and
Investments

    Eliminations     Total
Underwriting revenues
Gross premiums written $ 1,071,409 $ 702,535 $ 459,628 $ 297,821 $ $ (23,778 ) $ 2,507,615
Reinsurance premiums ceded (161,188 ) (154,263 ) (72,005 ) (9,510 )   23,778   (373,188 )
Net premiums written 910,221 548,272 387,623 288,311 2,134,427
Change in unearned premiums (184,155 ) 18,279   15,256   (54,196 )     (204,816 )
Net premiums earned 726,066 566,551 402,879 234,115 1,929,611
Other insurance related income 204   1,512   1,566   17,118     (14,463 ) 5,937  
Total underwriting revenues 726,270   568,063   404,445   251,233     (14,463 ) 1,935,548  
Underwriting deductions
Losses and loss expenses 538,323 378,241 329,642 574,130 1,820,336
Policy acquisition costs 133,836 129,074 60,187 22,380 (991 ) 344,486
General and administrative expenses 48,550 97,094 50,623 27,096 45,563 (14,311 ) 254,615
Share compensation expenses 7,746   8,292   1,655   348   12,039     30,080  
Total underwriting deductions 728,455   612,701   442,107   623,954   57,602   (15,302 ) 2,449,517  
Underwriting (loss) income $ (2,185 ) $ (44,638 ) $ (37,662 ) $ (372,721 ) $ (57,602 ) $ 839 $ (513,969 )
Net investment return (a) 12,543 158,523 171,066
Other items (b) 269 (57,097 ) (56,828 )

Loss attributable to AlphaCat
investors

54,797 54,797

Net loss attributable to
noncontrolling interest

      290,144       290,144
Segmental (loss) income $ (2,185 ) $ (44,638 ) $ (37,662 ) $ (14,968 ) $ 43,824   $ 839    

Net loss attributable to Validus
common shareholders

$ (54,790 )
 
(a)   Net investment return includes net investment income, net realized and change in net unrealized gains (losses) on investments and income (loss) from investment affiliates.
(b) Other items includes finance expenses, transaction expenses, dividends on preferred shares, tax benefit (expense), foreign exchange gains (losses), income (loss) from operating affiliate and other income (loss).
   

Validus Holdings, Ltd.

Segment Information

For the nine months ended September 30, 2016

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

 
Nine Months Ended September 30, 2016

Validus Re
Segment

   

Talbot
Segment

   

Western
World
Segment

   

AlphaCat
Segment and
Consolidated
VIEs

   

Corporate
and
Investments

    Eliminations     Total
Underwriting revenues
Gross premiums written $ 1,072,219 $ 752,058 $ 236,190 $ 270,666 $ $ (21,882 ) $ 2,309,251
Reinsurance premiums ceded (111,658 ) (137,496 ) (15,347 ) (6,451 )   21,882   (249,070 )
Net premiums written 960,561 614,562 220,843 264,215 2,060,181
Change in unearned premiums (241,129 ) (7,166 ) (22,890 ) (80,230 )     (351,415 )
Net premiums earned 719,432 607,396 197,953 183,985 1,708,766
Other insurance related (loss) income (107 ) 389   696   17,722     (16,300 ) 2,400  
Total underwriting revenues 719,325   607,785   198,649   201,707     (16,300 ) 1,711,166  
Underwriting deductions
Losses and loss expenses 313,432 319,271 129,623 27,645 789,971
Policy acquisition costs 127,660 134,444 46,704 19,762 23 328,593
General and administrative expenses 52,579 109,929 33,704 26,272 52,276 (16,421 ) 258,339
Share compensation expenses 8,371   9,955   1,825   167   12,147     32,465  
Total underwriting deductions 502,042   573,599   211,856   73,846   64,423   (16,398 ) 1,409,368  
Underwriting income (loss) $ 217,283 $ 34,186 $ (13,207 ) $ 127,861 $ (64,423 ) $ 98 $ 301,798
Net investment return (a) 10,558 188,890 (597 ) 198,851
Other items (b) (1,139 ) (35,452 ) (36,591 )

(Income) attributable to AlphaCat
investors

(16,278 ) (16,278 )

Net (income) attributable
to noncontrolling interest

      (96,163 )     (96,163 )
Segmental income (loss) $ 217,283   $ 34,186   $ (13,207 ) $ 24,839   $ 89,015   $ (499 )  

Net income available to Validus
common shareholders

$ 351,617  
 
(a)   Net investment return includes net investment income, net realized and change in net unrealized gains (losses) on investments and income (loss) from investment affiliates.
(b) Other items includes finance expenses, transaction expenses, dividends on preferred shares, tax benefit (expense), foreign exchange gains (losses), income (loss) from operating affiliate and other income (loss).
 

Non-GAAP Financial Measures

In presenting the Company’s results, management has included and discussed certain non-GAAP financial measures. The Company believes that these non-GAAP measures, which may be defined and calculated differently by other companies, better explain and enhance the understanding of the Company’s results of operations. However, these measures should not be viewed as a substitute for those determined in accordance with U.S. GAAP.

In addition to presenting book value per common share determined in accordance with U.S. GAAP, the Company believes that the following non-GAAP book value financial measures are key financial indicators for evaluating performance and measuring overall growth: book value per diluted common share, book value per diluted common share plus accumulated dividends and tangible book value per diluted common share. A reconciliation of book value per common share, a GAAP financial measure, to the non-GAAP book value financial measures has been included below.

In addition to presenting net (loss) income (attributable) available to Validus common shareholders determined in accordance with U.S. GAAP, the Company believes that showing net operating (loss) income (attributable) available to Validus common shareholders, a non-GAAP financial measure, provides investors with a valuable measure of profitability and enables investors, analysts, rating agencies and other users of its financial information to more easily analyze the Company’s results in a manner similar to how management analyzes the Company’s underlying business performance.

Net operating (loss) income (attributable) available to Validus common shareholders, a non-GAAP financial measure, is calculated by the addition or subtraction of certain Consolidated Statement of (Loss) Income line items from net (loss) income (attributable) available to Validus common shareholders, the most directly comparable GAAP financial measure, and measures the performance of the Company’s operations without the influence of gains or losses on investments and foreign currencies and other items as noted in the reconciliation below. The Company excludes these items from its calculation of net operating (loss) income (attributable) available to Validus common shareholders because the amount of these gains and losses is heavily influenced by, and fluctuates in part, according to availability of investment market opportunities and other factors. The Company believes these amounts are largely independent of its core underwriting activities and including them distorts the analysis of trends in its operations. The Company believes the reporting of net operating (loss) income (attributable) available to Validus common shareholders enhances the understanding of results by highlighting the underlying profitability of the Company’s core (re)insurance operations. This profitability is influenced significantly by earned premium growth, adequacy of the Company’s pricing, as well as loss frequency and severity. Over time it 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.

Return on average equity, a GAAP financial measure, and net operating return on average equity, a non-GAAP financial measure, represents the returns generated on common shareholders’ equity during the year and are presented below.

   

Validus Holdings, Ltd.

Non-GAAP Financial Measures Reconciliation

Book Value per Common Share, Book Value per Diluted Common Share and Tangible Book Value per Diluted Common Share

As at September 30, 2017 and December 31, 2016

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

 
September 30, 2017
Equity Amount     Common Shares     Per Share
Amount (a)
Book value per common share (b) $ 3,536,287 79,457,253 $ 44.51
Non-GAAP Adjustments:
Assumed exercise of outstanding stock options (c)(d) 614 26,136
Unvested restricted shares   2,518,217  
Book value per diluted common share (e) 3,536,901 82,001,606 $ 43.13
Goodwill (227,701 )
Intangible assets (173,398 )  
Tangible book value per diluted common share (e) $ 3,135,802 82,001,606 $ 38.24
 
Book value per diluted common share (e) $ 43.13
Accumulated dividends 12.70
Book value per diluted common share plus accumulated dividends (e) $ 55.83
 
December 31, 2016
Equity Amount Common Shares Per Share
Amount (a)
Book value per common share (b) $ 3,688,291 79,132,252 $ 46.61
Non-GAAP Adjustments:
Assumed exercise of outstanding stock options (c)(d) 614 26,136
Unvested restricted shares   2,868,610  
Book value per diluted common share (e) 3,688,905 82,026,998 $ 44.97
Goodwill (196,758 )
Intangible assets (115,592 )  
Tangible book value per diluted common share (e) $ 3,376,555 82,026,998 $ 41.16
 
Book value per diluted common share (e) $ 44.97
Accumulated dividends 11.56
Book value per diluted common share plus accumulated dividends (e) $ 56.53
 
(a)   Per share amounts are calculated by dividing the equity amount by the common shares.
(b) The equity amount used in the calculation of book value per common share represents total shareholders’ equity available to Validus excluding the liquidation value of the preferred shares.
(c) Using the “as-if-converted” method, assuming all proceeds received upon exercise of stock options will be retained by the Company and the resulting common shares from exercise remain outstanding.
(d) At September 30, 2017, the weighted average exercise price for those stock options that had an exercise price lower than book value per share was $23.48 (December 31, 2016: $23.48).
(e) Non-GAAP financial measure.
 
       

Validus Holdings, Ltd.

Non-GAAP Financial Measures Reconciliation

Net Operating (Loss) Income (attributable) available to Validus Common Shareholders, Net Operating (Loss) Income per Diluted Share (attributable) available to Validus Common Shareholders and
Annualized Net Operating Return on Average Equity

For the three and nine months ended September 30, 2017 and 2016

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

 
Three Months Ended September 30, Nine Months Ended September 30,
2017     2016 2017     2016
Net (loss) income (attributable) available to Validus common shareholders $ (250,446 ) $ 89,844 $ (54,790 ) $ 351,617
Non-GAAP Adjustments:
Net realized gains on investments (906 ) (4,397 ) (2,016 ) (6,537 )
Change in net unrealized losses (gains) on investments 5,197 (5,459 ) (24,472 ) (84,331 )
(Income) loss from investment affiliates (1,011 ) (453 ) (15,665 ) 4,249
Foreign exchange losses (gains) 1,404 766 7,164 (11,765 )
Other (income) loss (35 ) 1,529 (303 ) 773
Transaction expenses 4,427
Net (loss) income attributable to noncontrolling interests (8,194 ) 767 (5,364 ) 869
Tax (benefit) expense (a) (468 ) 443   1,860   7,550  

Net operating (loss) income (attributable) available to Validus common
  shareholders (b)

$ (254,459 ) $ 83,040   $ (89,159 ) $ 262,425  
 
(Loss) earnings per diluted share (attributable) available to Validus common shareholders $ (3.17 ) $ 1.11 $ (0.69 ) $ 4.24
Non-GAAP Adjustments:
Net realized gains on investments (0.01 ) (0.06 ) (0.03 ) (0.08 )
Change in net unrealized losses (gains) on investments 0.06 (0.07 ) (0.31 ) (1.02 )
(Income) loss from investment affiliates (0.01 ) (0.01 ) (0.20 ) 0.05
Foreign exchange losses (gains) 0.02 0.01 0.09 (0.14 )
Other (income) loss 0.02 0.01
Transaction expenses 0.06
Net (loss) income attributable to noncontrolling interests (0.10 ) 0.01 (0.07 ) 0.01
Tax (benefit) expense (a) (0.01 ) 0.01   0.02   0.09  

Net operating (loss) income per diluted share (attributable) available to
  Validus common shareholders (b)

$ (3.22 ) $ 1.02   $ (1.13 ) $ 3.16  
 
Average shareholders’ equity available to Validus common shareholders (c) $ 3,673,859 $ 3,716,938 $ 3,699,471 $ 3,699,319
 
Annualized return on average equity (c)

(27.3

%)

9.7

%

(2.0

%)

12.7

%

Annualized net operating return on average equity (b)(c)

(27.7

%)

8.9

%

(3.2

%)

9.5

%

 
(a)   Represents the tax expense or benefit associated with the specific country to which the pre-tax adjustment relates to. The tax impact is estimated by applying the statutory rates of applicable jurisdictions, after consideration of other relevant factors including the ability to utilize tax losses carried forward.
(b) Non-GAAP financial measure.
(c) Average shareholders’ equity for the three months ended is the average of the beginning and ending quarter end shareholders’ equity balances, excluding the liquidation value of the preferred shares. Average shareholders’ equity for the nine months ended is the average of the beginning, ending and intervening quarter end shareholders’ equity balances, excluding the liquidation value of the preferred shares.
 

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.

Source: Validus Holdings, Ltd.

Investors:
Validus Holdings, Ltd.
Investor.Relations@validusholdings.com
+1-441-278-9000
or
Media:
Brunswick Group
Mustafa Riffat / Charlotte Connerton
+1-212-333-3810