Validus Holdings, Ltd. (“Validus” or the “Company”) (NYSE: VR)
today reported net income available to Validus common shareholders
of $7.8 million, or $0.10 per diluted common share, for the three
months ended December 31, 2016, compared to $69.0 million, or
$0.81 per diluted common share, for the three months ended
December 31, 2015. Net income available to Validus common
shareholders was $359.4 million, or $4.36 per diluted common share,
for the year ended December 31, 2016, compared to $374.9
million, or $4.34 per diluted common share, for the year ended
December 31, 2015.
Net operating income available to Validus common shareholders
was $64.3 million, or $0.80 per diluted common share, for the three
months ended December 31, 2016, compared to $105.4 million, or
$1.24 per diluted common share, for the three months ended
December 31, 2015. Net operating income available to Validus
common shareholders was $319.2 million, or $3.88 per diluted common
share, for the year ended December 31, 2016, compared to
$409.7 million, or $4.74 per diluted common share, for the year
ended December 31, 2015.
The annualized return on average equity was 0.8% for the three
months ended December 31, 2016, compared to 7.6% for the three
months ended December 31, 2015. The return on average equity
was 9.7% for the year ended December 31, 2016, compared to
10.3% for the year ended December 31, 2015.
The annualized net operating return on average equity was 6.9%
for the three months ended December 31, 2016, compared to
11.6% for the three months ended December 31, 2015. The net
operating return on average equity was 8.6% for the year ended
December 31, 2016, compared to 11.3% for the year ended
December 31, 2015.
Book value per diluted common share at December 31, 2016
was $44.97, compared to $45.16 at September 30, 2016, reflecting
quarterly growth of 0.4%, inclusive of common dividends.
Commenting on the results for the three months ended
December 31, 2016, Validus' Chairman and CEO Ed Noonan
stated:
"Validus had another strong year in 2016. Despite the global
insurance market growing more competitive, we were able to deliver
an 84.2% combined ratio and grow our book value per diluted share
(including dividends) by 9.5%. We continue to position the Company
well to weather the soft market while building the foundation
to capitalize on better market conditions down the road."
Income available to Validus common shareholders by segment for
the three months ended December 31, 2016 and December 31,
2015 was as follows:
Income available to Validus common
shareholders for the three months ended December 31,
2016 2015 (Expressed in millions of U.S.
dollars, except per share information) Validus Re - Underwriting
income (a) (c) $ 50.3 $ 71.3 Talbot - Underwriting (loss) income
(a) (c) (1.4 ) 36.1 Western World - Underwriting (loss) income (a)
(c) (6.7 ) 3.8 Validus' share of AlphaCat income 6.3 8.8 Validus'
share of PaCRe, Ltd.
— (1.7
) Validus' share of AlphaCat income, net (a) 6.3
7.1
Total segmental income 48.5
118.3 Net investment income (b) 35.9 29.9 Corporate
operating expenses (19.3 ) (42.4 ) Eliminations and other (0.8 )
(0.4 )
Net operating income available to Validus common
shareholders (c) $ 64.3 $
105.4 Net operating income per diluted share
available to Validus common shareholders (c) $
0.80 $ 1.24 Net income
available to Validus common shareholders (c) $
7.8 $ 69.0 Net income per
diluted share available to Validus common shareholders $
0.10 $ 0.81
(a) Underwriting income (loss) and Validus' share of AlphaCat
income are non-GAAP measures. (b) Net investment income relates to
our managed investment portfolio. Total net investment income,
inclusive of AlphaCat's non-managed portfolio is $38.2 million and
$31.6 million for the three months ended December 31, 2016 and
2015, respectively. (c) A reconciliation of net operating income
available to Validus common shareholders and underwriting income to
net income available to Validus common shareholders, the most
directly comparable GAAP measure, is presented at the end of this
release.
January 2017 Reinsurance Renewals - Validus Re and AlphaCat
segments
During the January 2017 renewal season, the Validus Re and
AlphaCat segments underwrote $628.9 million in gross premiums
written, an increase of 3.0% from the January 2016 renewal period.
This renewal data does not include: (i) Talbot and Western World's
operations as the business of each of these segments is distributed
relatively evenly throughout the year; and (ii) Validus Re's U.S.
agriculture premiums.
The following table presents the Validus Re and AlphaCat
segments' combined January 2017 and 2016 reinsurance renewals by
Catastrophe XOL, Per Risk and Proportional premiums.
Validus Re and AlphaCat segments' combined
premium (a) (Dollars in thousands) Catastrophe
XOL Per Risk Proportional
Total 2017 $ 359,287 $ 62,448 $ 207,178 $ 628,913
2016 $ 366,235 $ 56,364 $ 187,860 $
610,459 (Decrease) Increase (1.9 )% 10.8 % 10.3 % 3.0 %
(a) The renewal data above does not include intercompany
eliminations between Validus Re and Talbot.
The following table presents the Validus Re and AlphaCat
segments' January 2017 and 2016 reinsurance renewals by line of
business.
Validus Re segment premium (a)
Property Specialty Marine
Total (Dollars in thousands) U.S.
International Casualty Other Specialty
2017 $ 96,601 $ 97,719 $ 21,783 $ 151,081 $ 98,489 $ 465,673
2016 $ 93,782 $ 92,302 $ 22,643 $
137,942 $ 95,310 $ 441,979 Increase (Decrease)
3.0 % 5.9 % (3.8 )% 9.5 % 3.3 % 5.4 %
AlphaCat segment
premium Property Specialty Marine
Total (Dollars in thousands) U.S.
International Casualty Other Specialty
2017 $ 136,574 $ 21,538 $ — $ 5,128 $ — $ 163,240
2016 $ 127,192 $ 37,942 $ — $ 3,346
$ — $ 168,480 Increase (Decrease) 7.4 % (43.2
)% — 53.3 % — (3.1 )%
Validus Re and AlphaCat segments'
combined premium (a) Property Specialty
Marine Total (Dollars in thousands)
U.S. International Casualty Other
Specialty 2017 $ 233,175 $ 119,257 $ 21,783 $ 156,209 $
98,489 $ 628,913
2016 $ 220,974 $ 130,244 $
22,643 $ 141,288 $ 95,310 $ 610,459
Increase (Decrease) 5.5 % (8.4 )% (3.8 )% 10.6 % 3.3 % 3.0 %
(a) The renewal data above does not include intercompany
eliminations between Validus Re and Talbot.
This earnings release should be read in conjunction with the
Company's fourth quarter 2016 investor financial supplement that
has been posted to the Investors section of the Company's website
located at www.validusholdings.com.
Fourth Quarter 2016
Results
Highlights for the fourth quarter are as follows:
- Gross premiums written for the three
months ended December 31, 2016 were $339.5 million compared to
$309.6 million for the three months ended December 31, 2015,
an increase of $29.8 million, or 9.6%. The increase was primarily
driven by increases in the Validus Re and Western World segments
and was offset by decreases in the Talbot and AlphaCat
segments.
- The loss ratio for the three months
ended December 31, 2016 was 50.9%, which included $46.8
million of favorable loss reserve development on prior accident
years, benefiting the loss ratio by 8.7 percentage points compared
to a loss ratio for the three months ended December 31, 2015
of 39.5%, which included $58.1 million of favorable loss reserve
development on prior accident years, benefiting the loss ratio by
10.7 percentage points. The loss ratio for the three months ended
December 31, 2016 included losses on fourth quarter 2016
notable loss events of $70.6 million or 13.0 percentage points of
the loss ratio. Partially offsetting these losses was a reduction
on the second quarter 2016 notable loss event, the Canadian
Wildfires, of $18.3 million, benefiting the loss ratio by 3.3
percentage points, for total notable losses of $52.3 million or 9.7
percentage points of the loss ratio. There were no notable or
non-notable loss events occurring during the three months ended
December 31, 2015. The favorable development of $46.8 million on
prior accident years for the three months ended December 31,
2016 was primarily due to favorable development on attritional
losses of $41.5 million and favorable development on events of $5.3
million.
- The combined ratio for the three months
ended December 31, 2016 was 89.6%, compared to a combined
ratio of 78.3% for the three months ended December 31, 2015,
an increase of 11.3 percentage points.
- Net investment income from managed
investments for the three months ended December 31, 2016 was
$35.9 million compared to $29.9 million for the three months ended
December 31, 2015, an increase of $6.0 million, or 20.0%. The
increase was primarily driven by returns on the Company's portfolio
of structured securities, of which $4.0 million was generated from
a single fixed income fund.
- Tax benefit for the three months ended
December 31, 2016 was $21.1 million compared to $0.8 million
for the three months ended December 31, 2015, a favorable
movement of $20.4 million. The favorable movement was primarily due
to a partial release of a valuation allowance which had been
applied against a deferred tax asset related to net operating
losses acquired as part of the Flagstone acquisition. The Company
believes it is now more-likely-than-not that it will have
sufficient future taxable income to realize a portion of that
deferred tax asset over the next three years and in accordance with
U.S. GAAP, the Company was required to record a tax benefit of
$18.4 million in the quarter.
- Net operating income available to
Validus common shareholders for the three months ended
December 31, 2016 was $64.3 million compared to $105.4 million
for the three months ended December 31, 2015, a decrease of
$41.1 million, or 39.0%.
- Net income available to Validus common
shareholders for the three months ended December 31, 2016 was
$7.8 million compared to $69.0 million for the three months ended
December 31, 2015, a decrease of $61.3 million, or 88.8%.
- Annualized return on average equity was
0.8% and annualized net operating return on average equity was 6.9%
for the three months ended December 31, 2016 compared to 7.6%
and 11.6%, respectively, for the three months ended
December 31, 2015.
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.
Losses and loss expenses from notable loss events occurring
during the three months ended December 31, 2016 were as
follows:
Hurricane Matthew (Dollars in
thousands) Validus Re Talbot
Western World AlphaCat Total
Net Losses and Loss Expenses $ 13,580 $
12,337 $ 3,400 $ 9,823 $
39,140 Less: Net Losses and Loss Expenses Attributable to
AlphaCat Third Party Investors and Noncontrolling Interest —
— — (8,943 ) (8,943 )
Validus' Share of Net Losses
and Loss Expenses 13,580 12,337 3,400 880 30,197 Less:
Reinstatement Premiums, net (2,781 ) — — —
(2,781 )
Net Loss Attributable to Validus $
10,799 $ 12,337 $
3,400 $ 880 $
27,416 2016 New Zealand Earthquake
(Dollars in thousands) Validus Re Talbot
Western World AlphaCat Total Net Losses and
Loss Expenses $ 18,902 $ 2,250
$ — $ 10,269 $ 31,421
Less: Net Losses and Loss Expenses Attributable to AlphaCat Third
Party Investors and Noncontrolling Interest — — —
(9,068 ) (9,068 )
Validus' Share of Net Losses and Loss
Expenses 18,902 2,250 — 1,201 22,353 Less: Reinstatement
Premiums, net (68 ) 3 — — (65 )
Net Loss
Attributable to Validus $ 18,834 $
2,253 $ — $ 1,201
$ 22,288 Total Notable Loss
Events (Dollars in thousands) Validus Re
Talbot Western World AlphaCat Total
Net Losses and Loss Expenses $ 32,482 $
14,587 $ 3,400 $ 20,092 $
70,561 Less: Net Losses and Loss Expenses Attributable to
AlphaCat Third Party Investors and Noncontrolling Interest —
— — (18,011 ) (18,011 )
Validus' Share of Net
Losses and Loss Expenses 32,482 14,587 3,400 2,081 52,550 Less:
Reinstatement Premiums, net (2,849 ) 3 — —
(2,846 )
Net Loss Attributable to Validus $
29,633 $ 14,590 $
3,400 $ 2,081 $
49,704
Hurricane Matthew resulted in losses and loss expenses of $39.1
million, or 7.2 percentage points of the loss ratio. Net of losses
attributable to AlphaCat investors and noncontrolling interest of
$8.9 million and reinstatement premiums of $2.8 million, the net
loss attributable to the Company from this event was $27.4 million.
The 2016 New Zealand earthquake resulted in losses and loss
expenses of $31.4 million, or 5.8 percentage points of the loss
ratio. Net of losses attributable to AlphaCat investors and
noncontrolling interest of $9.1 million and reinstatement premiums
of $0.1 million, the net loss attributable to the Company from this
event was $22.3 million.
There were no non-notable loss events occurring during the three
months ended December 31, 2016.
The Company's loss ratio, excluding the impact of notable and
non-notable loss events and the change in prior accident years, for
the three months ended December 31, 2016 and 2015 was 49.8%
and 50.2%, respectively.
Validus Re Segment
Highlights for the fourth quarter include the following:
- Gross premiums written for the three
months ended December 31, 2016 were $38.8 million compared to
$14.3 million for the three months ended December 31, 2015, an
increase of $24.5 million, or 170.6%. Gross premiums written for
the three months ended December 31, 2016 included $10.5
million of property premiums, $(4.2) million of marine premiums and
$32.5 million of specialty premiums, compared to $15.6 million of
property premiums, $(0.7) million of marine premiums and $(0.5)
million of specialty premiums for the three months ended
December 31, 2015. The increase in the specialty lines of
$33.0 million was primarily driven by new casualty business of
$24.9 million and growth in the financial lines of $9.3 million.
Partially offsetting this increase were decreases in the property
and marine lines of $5.0 million and $3.5 million,
respectively.
- The loss ratio for the three months
ended December 31, 2016 was 43.7%, which included $28.9
million of favorable loss reserve development on prior accident
years, benefiting the loss ratio by 12.9 percentage points compared
to a loss ratio for the three months ended December 31, 2015 of
43.3%, which included $22.6 million of favorable loss reserve
development on prior accident years, benefiting the loss ratio by
9.7 percentage points. The loss ratio for the three months ended
December 31, 2016 included losses on fourth quarter 2016
notable loss events of $32.5 million, or 14.4 percentage points of
the loss ratio. Partially offsetting these losses was a reduction
on the second quarter 2016 notable loss event, the Canadian
Wildfires, of $12.0 million, benefiting the loss ratio by 5.3
percentage points, for total notable losses of $20.5 million or 9.1
percentage points of the loss ratio. The favorable development of
$28.9 million on prior accident years for the three months ended
December 31, 2016 was primarily due to favorable development
on attritional losses of $24.3 million and favorable development on
events of $4.6 million.
- The combined ratio for the three months
ended December 31, 2016 was 77.6% compared to 69.3% for the
three months ended December 31, 2015, an increase of 8.3
percentage points.
- Underwriting income for the three
months ended December 31, 2016 was $50.3 million compared to
$71.3 million for the three months ended December 31, 2015, a
decrease of $21.1 million, or 29.5%.
Talbot Segment
Highlights for the fourth quarter include the following:
- Gross premiums written for the three
months ended December 31, 2016 were $218.6 million compared to
$229.7 million for the three months ended December 31, 2015, a
decrease of $11.0 million, or 4.8%. Gross premiums written for the
three months ended December 31, 2016 included $71.4 million of
property premiums, $39.6 million of marine premiums and $107.6
million of specialty premiums compared to $73.9 million of property
premiums, $60.6 million of marine premiums and $95.1 million of
specialty premiums for the three months ended December 31,
2015. The decrease in the marine lines of $21.0 million was
primarily driven by decreases in the upstream energy and cargo
classes as a result of reductions in our participation and
non-renewals on various programs due to the current rate
environment and premium adjustments on prior year policies. This
decrease was partially offset by an increase in gross premiums
written in the specialty lines of $12.5 million, primarily due to
increases in the contingency, political lines and financial lines
classes of $10.0 million, $7.6 million and $4.1 million,
respectively.
- Net premiums earned for the three
months ended December 31, 2016 were $174.5 million compared to
$203.9 million for the three months ended December 31, 2015, a
decrease of $29.4 million or 14.4%. The decrease was driven
primarily by the decline in gross premiums written in the marine
lines and slower earnings patterns on longer-term contracts in the
specialty lines during the twelve months ended December 31, 2016.
Also contributing to the decrease was the impact of reinstatement
premiums payable during the three months ended December 31,
2016.
- The loss ratio for the three months
ended December 31, 2016 was 60.6%, which included $16.1
million of favorable loss reserve development on prior accident
years, benefiting the loss ratio by 9.2 percentage points compared
to a loss ratio for the three months ended December 31, 2015 of
38.6%, which included $23.1 million of favorable loss reserve
development on prior accident years, benefiting the loss ratio by
11.3 percentage points. The loss ratio for the three months ended
December 31, 2016 included losses on fourth quarter 2016
notable loss events of $14.6 million, or 8.4 percentage points of
the loss ratio. Partially offsetting these losses was a reduction
on the second quarter 2016 notable loss event, the Canadian
Wildfires, of $2.2 million, benefiting the loss ratio by 1.3
percentage points, for total notable losses of $12.4 million or 7.1
percentage points of the loss ratio. The favorable development of
$16.1 million on prior accident years for the three months ended
December 31, 2016 is primarily due to favorable development on
attritional losses.
- The combined ratio for the three months
ended December 31, 2016 was 100.9% compared to 82.5% for the
three months ended December 31, 2015, an increase of 18.4
percentage points.
- Underwriting loss for the three months
ended December 31, 2016 was $1.4 million compared to income of
$36.1 million for the three months ended December 31, 2015, a
decrease of $37.5 million, or 104.0%.
Western World Segment
Highlights for the fourth quarter include the following:
- Gross premiums written for the three
months ended December 31, 2016 were $87.0 million compared to
$71.1 million for the three months ended December 31, 2015, an
increase of $15.9 million, or 22.3%. Gross premiums written for the
three months ended December 31, 2016 included $29.0 million of
property premiums and $58.0 million of liability premiums, compared
to $13.9 million of property premiums and $57.2 million of
liability premiums for the three months ended December 31,
2015. The increase in gross premiums written in the property lines
of $15.2 million was primarily due to additional business written
in the programs property, commercial package property, and
brokerage property classes of $5.6 million, $3.9 million, and $3.1
million, respectively, as a result of the continued build out of
the underwriting platform in short-tail lines.
- The loss ratio for the three months
ended December 31, 2016 was 72.0%, which included $0.6 million
of favorable loss reserve development on prior accident years,
benefiting the loss ratio by 0.9 percentage points compared to a
loss ratio for the three months ended December 31, 2015 of 54.7%,
which included $7.3 million of favorable loss reserve development
on prior accident years, benefiting the loss ratio by 11.9
percentage points. The loss ratio for the three months ended
December 31, 2016 included losses on fourth quarter 2016
notable loss events of $3.4 million, or 4.5 percentage points of
the loss ratio and other U.S.-based weather losses of $2.8 million,
or 3.7 percentage points of the loss ratio. The favorable
development of $7.3 million on prior accident years for the three
months ended December 31, 2015 is primarily due to favorable
development on attritional losses and the amortization of the risk
premium adjustment accounted for at the time of the acquisition of
Western World.
- The combined ratio for the three months
ended December 31, 2016 was 109.2% compared to 94.3% for the
three months ended December 31, 2015, an increase of 14.9
percentage points. The increase was driven by lower favorable
development on prior accident years and higher losses and loss
expenses on notable loss events and U.S.-based weather losses
during the three months ended December 31, 2016.
- Underwriting loss for the three months
ended December 31, 2016 was $6.7 million compared to income of
$3.8 million for the three months ended December 31, 2015, a
decrease of $10.5 million or 278.7%.
AlphaCat Segment
Highlights for the fourth quarter include the following:
- AlphaCat's assets under management were
$2,741.3 million as at January 1, 2017, compared to $2,615.1
million as at October 1, 2016. Third party assets under
management were $2,498.6 million as at January 1, 2017,
compared to $2,292.6 million as at October 1, 2016.
- Revenues earned for the three months
ended December 31, 2016 were $4.7 million, of which $3.9
million were earned from third parties, compared to $6.3 million
for the three months ended December 31, 2015, of which $5.0
million were earned from third parties. The decrease in revenues
earned from third parties of $1.1 million was driven by a decrease
in performance fees earned as a result of the notable loss events
incurred during the three months ended December 31, 2016.
- Total expenses for the three months
ended December 31, 2016 were $2.9 million, compared to $3.4
million for the three months ended December 31, 2015, a
decrease of $0.5 million, or 15.7%.
- Income before investment income from
AlphaCat Funds and Sidecars for the three months ended
December 31, 2016 was $1.8 million, compared to $2.9 million
for the three months ended December 31, 2015, a decrease of
$1.1 million, or 38.0%.
- Investment income from AlphaCat Funds
and Sidecars, excluding PaCRe which was off-risk effective January
1, 2016, for the three months ended December 31, 2016 was $4.5
million, compared to $5.9 million for the three months ended
December 31, 2015, a decrease of $1.4 million or 23.9%. The
decrease was driven by the notable loss events incurred during the
three months ended December 31, 2016.
- Validus' share of AlphaCat income,
excluding PaCRe which was off-risk effective January 1, 2016, for
the three months ended December 31, 2016 was $6.3 million,
compared to $8.8 million for the three months ended
December 31, 2015, a decrease of $2.5 million, or 28.5%.
Investments
Highlights of our managed portfolio for the fourth quarter
include the following:
- Net investment income from managed
investments for the three months ended December 31, 2016 was
$35.9 million compared to $29.9 million for the three months ended
December 31, 2015, an increase of $6.0 million, or 20.0%. The
increase was primarily driven by returns on the Company's portfolio
of structured securities, of which $4.0 million was generated from
a single fixed income fund. Annualized effective yield for the
three months ended December 31, 2016 was 2.25%, compared to
1.90% for the three months ended December 31, 2015, an
increase of 35 basis points.
- Net realized gains on managed
investments for the three months ended December 31, 2016 were $9.2
million compared to losses of $3.4 million for the three months
ended December 31, 2015, a favorable movement of $12.5 million. The
favorable movement primarily resulted from realized gains on the
termination of two interest rate swap contracts which were entered
into in the third quarter of 2016 to partially offset the impact of
interest rate increases on the Company’s fixed maturity
portfolio.
- The change in net unrealized losses on
managed investments for the three months ended December 31, 2016
was $67.7 million compared to $34.5 million for the three months
ended December 31, 2015, an unfavorable movement of $33.2 million,
or 96.1%. The unfavorable movement was primarily driven by an
increase in interest rates during the three months ended December
31, 2016.
Corporate Operating
Expenses
Highlights for the fourth quarter include the following:
- General and administrative expenses for
the three months ended December 31, 2016 were $20.0 million
compared to $24.2 million for the three months ended
December 31, 2015, a decrease of $4.2 million or 17.5%
primarily due to a reduction in the performance bonus accrual
during the three months ended December 31, 2016.
- Share compensation expenses for the
three months ended December 31, 2016 were $3.9 million
compared to $3.5 million for the three months ended
December 31, 2015, an increase of $0.4 million or 10.1%.
- Finance expenses, excluding the
Company's share of AlphaCat finance expenses from consolidated
variable interest entities, for the three months ended December 31,
2016 were $14.5 million compared to $15.4 million for the three
months ended December 31, 2015, a decrease of $0.9 million or
5.8%.
- Dividends paid on preferred shares for
the three months ended December 31, 2016 were $2.2 million
compared to $nil for the three months ended December 31, 2015.
- Tax benefit for the three months ended
December 31, 2016 was $21.2 million compared to $0.8 million
for the three months ended December 31, 2015, a favorable movement
of $20.5 million. The favorable movement was primarily due to
recognizing a deferred tax benefit during the three months ended
December 31, 2016 as described in the "Fourth Quarter 2016
Results" section above.
Year to Date 2016
Results
Highlights for the year to date include the following:
- Gross premiums written for the year
ended December 31, 2016 were $2,648.7 million compared to
$2,557.5 million for the year ended December 31, 2015, an
increase of $91.2 million, or 3.6%. The increase was primarily due
to increases in the AlphaCat and Western World segments and was
offset by decreases in the Talbot and Validus Re segments.
- The loss ratio for the year ended
December 31, 2016 was 47.4% which included $216.2 million of
favorable loss reserve development on prior accident years,
benefiting the loss ratio by 9.6 percentage points compared to a
loss ratio for the year ended December 31, 2015 of 43.5%,
which included $306.1 million of favorable loss reserve development
on prior accident years, benefiting the loss ratio by 13.6
percentage points. The loss ratio for the year ended
December 31, 2016 included notable losses of $90.2 million, or
4.0 percentage points of the loss ratio and non-notable losses of
$70.2 million, or 3.1 percentage points of the loss ratio. The loss
ratio for the year ended December 31, 2015 included notable
losses of $97.0 million, or 4.3 percentage points of the loss ratio
and non-notable losses of $22.2 million, or 1.0 percentage point of
the loss ratio. The favorable development of $216.2 million for the
year ended December 31, 2016 was primarily due to favorable
development on attritional losses of $201.8 million and favorable
development on events of $14.4 million. The favorable development
of $306.1 million for the year ended December 31, 2015 was
primarily due to favorable development on attritional losses of
$253.9 million and favorable development on events of $52.2
million, primarily relating to Superstorm Sandy.
- The combined ratio for the year ended
December 31, 2016 was 84.2% compared to 79.7% for the year
ended December 31, 2015, an increase of 4.5 percentage
points.
- Net investment income from managed
investments for the year ended December 31, 2016 was $141.7
million compared to $121.2 million for the year ended
December 31, 2015, an increase of $20.6 million, or 17.0%. The
increase was primarily driven by returns on the Company's portfolio
of structured securities, of which $16.7 million was generated from
a single fixed income fund. Effective yield for the year ended
December 31, 2016 was 2.24%, compared to 1.91% for the year
ended December 31, 2015, an increase of 33 basis points.
- Net operating income available to
Validus common shareholders for the year ended December 31,
2016 was $319.2 million compared to $409.7 million for the year
ended December 31, 2015, a decrease of $90.6 million, or
22.1%.
- Net income available to Validus common
shareholders for the year ended December 31, 2016 was $359.4
million compared to $374.9 million for the year ended
December 31, 2015, a decrease of $15.5 million, or 4.1%.
- Return on average equity was 9.7% and
net operating return on average equity was 8.6% for the year ended
December 31, 2016 compared to 10.3% and 11.3%, respectively,
for the year ended December 31, 2015.
Shareholders' Equity and
Capitalization
As at December 31, 2016, total shareholders' equity was
$4.0 billion including $166.0 million of noncontrolling interest
and $150.0 million of preferred shares. Shareholders' equity
available to Validus common shareholders was $3.7 billion as at
December 31, 2016. Book value per diluted common share was
$44.97 at December 31, 2016 based on 82,026,998 diluted common
shares, compared to $45.16 at September 30, 2016 based on
82,341,307 diluted common shares, an increase of 0.4%, inclusive of
dividends for the three months ended December 31, 2016. Book
value per diluted common share is a non-GAAP financial measure. A
reconciliation of this measure to book value per common share is
presented at the end of this release.
Total capitalization available to Validus at December 31,
2016 was $4.6 billion, including $537.2 million of junior
subordinated deferrable debentures and $245.4 million of senior
notes. Total capitalization at December 31, 2016 was $6.3
billion, including $1.5 billion of redeemable noncontrolling
interest and $166.0 million of noncontrolling interest related to
AlphaCat.
Share Repurchases
The Company repurchased 317,401 shares during the three months
ended December 31, 2016. The share repurchases made during the
three months ended December 31, 2016 resulted in a dilutive
impact to book value per diluted common share of $0.03 for the
quarter. A summary of the 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 September 30, 2016
Quarter ended Share repurchases:
(cumulative) October November December
December 31, 2016 Aggregate purchase price (a) $ 2,687,746 $
4,029 $ 9,250 $ 3,381 $ 16,660 Shares repurchased 80,191,448 81,174
174,734 61,493 317,401 Average price (a) $ 33.52 $ 49.63 $ 52.94 $
54.98 $ 52.49
Share Repurchase
Activity
(Expressed in thousands of U.S. dollars
except for share and per share information)
Share repurchases: As at December 31, 2016
As at February 1, 2017 Cumulative to Date
Aggregate purchase price (a) $ 2,704,406 $ — $ 2,704,406 Shares
repurchased 80,508,849 — 80,508,849 Average price (a) $ 33.59 $ — $
33.59
(a) Share transactions are on a trade date basis through
February 1, 2017 and are inclusive of commissions. Average
share price is rounded to two decimal places.
Conference Call
The Company will host a conference call for analysts and
investors on February 3, 2017 at 10:00 AM (Eastern) to discuss
the fourth quarter 2016 financial results and related matters. The
conference call may be accessed by dialing 1-844-309-6712
(toll-free U.S.) or 1-484-747-6926 (international) and entering the
passcode 2077 7771. 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 February 17, 2017, by dialing
1-855-859-2056 (toll-free U.S.) or 1-404-537-3406 (international)
and entering the passcode 2077 7771.
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 Investors section of the Company's website
through February 17, 2017. In addition, a financial supplement
relating to the Company's financial results for the three months
and year ended December 31, 2016 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
Underwriting Ltd. (“Talbot”), Western World Insurance Group, Inc.
(“Western World”) and AlphaCat Managers, Ltd. (“AlphaCat”).
Validus Re is a Bermuda based reinsurer focused on treaty
reinsurance. Talbot is a specialty insurance group primarily
operating within the Lloyd's insurance market through Syndicate
1183. Western World is a U.S. specialty lines insurance
company 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
December 31, 2016 and December 31, 2015
(Expressed in thousands of U.S. dollars,
except share and per share information)
December 31, 2016
December 31, 2015 Assets Fixed maturities
trading, at fair value (amortized cost: 2016—$5,584,599;
2015—$5,556,900) $ 5,543,030 $ 5,510,331 Short-term investments
trading, at fair value (amortized cost: 2016—$2,796,358;
2015—$1,941,615) 2,796,170 1,941,635 Other investments, at fair
value (cost: 2016—$380,130; 2015—$315,963) 405,712 336,856
Investments in investment affiliates, equity method (cost:
2016—$95,929; 2015—$69,794) 100,431 87,673 Cash and cash
equivalents 419,976 723,109 Restricted cash 70,956 73,270
Total investments and cash 9,336,275 8,672,874 Investment in
operating affiliate, equity method (cost: 2016—$nil; 2015—$392) —
392 Premiums receivable 725,390 658,682 Deferred acquisition costs
209,227 181,002 Prepaid reinsurance premiums 77,996 77,992
Securities lending collateral 9,779 4,863 Loss reserves recoverable
430,421 350,586 Paid losses recoverable 35,247 23,071 Income taxes
recoverable 4,870 16,228 Deferred tax asset 43,529 21,661
Receivable for investments sold 3,901 39,766 Intangible assets
115,592 121,258 Goodwill 196,758 196,758 Accrued investment income
26,488 23,897 Other assets 134,282 126,782
Total
assets $ 11,349,755 $ 10,515,812
Liabilities Reserve for losses and loss expenses $ 2,995,195
$ 2,996,567 Unearned premiums 1,076,049 966,210 Reinsurance
balances payable 54,781 75,380 Securities lending payable 10,245
5,329 Deferred tax liability 3,331 3,847 Payable for investments
purchased 29,447 77,475 Accounts payable and accrued expenses
587,648 627,331 Notes payable to AlphaCat investors 278,202 75,493
Senior notes payable 245,362 245,161 Debentures payable 537,226
537,668
Total liabilities $ 5,817,486 $
5,610,461
Commitments and contingent liabilities
Redeemable noncontrolling interest 1,528,001 1,111,714
Shareholders’ equity Preferred shares (Issued and
Outstanding: 2016—6,000; 2015—nil) 150,000 — Common shares (Issued:
2016—161,279,976; 2015—160,570,772; Outstanding: 2016—79,132,252;
2015—82,900,617) 28,224 28,100 Treasury shares (2016—82,147,724;
2015—77,670,155) (14,376 ) (13,592 ) Additional paid-in capital
821,023 1,002,980 Accumulated other comprehensive loss (23,216 )
(12,569 ) Retained earnings 2,876,636 2,634,056
Total shareholders’ equity available to Validus 3,838,291
3,638,975 Noncontrolling interest 165,977 154,662
Total shareholders’ equity $ 4,004,268 $ 3,793,637
Total liabilities, noncontrolling interests and
shareholders’ equity $ 11,349,755 $ 10,515,812
Validus Holdings, Ltd.
Non-GAAP Financial Measures
Consolidated Statements of Operations -
Underwriting Income Format
For the three
months and years ended December 31, 2016 and
2015
(Expressed in thousands of U.S. dollars,
except share and per share information)
Three Months Ended December 31, Years Ended December
31, (Dollars in thousands) 2016
2015 2016 2015 Underwriting
revenues Gross premiums written $ 339,454 $ 309,605 $ 2,648,705
$ 2,557,506 Reinsurance premiums ceded (40,635 ) (33,128 ) (289,705
) (328,681 ) Net premiums written 298,819 276,477 2,359,000
2,228,825 Change in unearned premiums 241,580 266,823
(109,835 ) 18,064
Net premiums earned 540,399
543,300 2,249,165 2,246,889 Other insurance
related income 561 969 2,961 6,113
Total underwriting revenues 540,960 544,269
2,252,126 2,253,002
Underwriting
deductions Losses and loss expenses 275,126 214,748 1,065,097
977,833 Policy acquisition costs 120,889 102,285 449,482 410,058
General and administrative expenses 77,955 98,563 336,294 363,709
Share compensation expenses 10,442 10,062 42,907
38,341
Total underwriting deductions 484,412
425,658 1,893,780 1,789,941
Underwriting income $ 56,548 $
118,611 $ 358,346 $ 463,061
Net investment income 38,153 31,612 150,385 127,824 Finance
expenses (14,630 ) (16,581 ) (58,520 ) (74,742 ) Dividends on
preferred shares (2,203 ) — (4,455 ) — Tax benefit (expense) 21,147
756 19,729 (6,376 ) Loss from operating affiliate — (1,708 ) (23 )
(3,949 ) (Income) attributable to AlphaCat investors (7,080 ) (974
) (23,358 ) (2,412 ) Net operating (income) attributable to
noncontrolling interest (27,612 ) (26,321 ) (122,906 ) (93,657 )
Net operating income available to Validus common
shareholders $ 64,323 $ 105,395
$ 319,198 $ 409,749 Net realized
gains (losses) on investments 9,220 (2,928 ) 15,757 2,298 Change in
net unrealized (losses) gains on investments (67,460 ) (34,862 )
16,871 (32,395 ) Income (loss) from investment affiliates 2,166
(1,261 ) (2,083 ) 4,281 Foreign exchange (losses) gains (901 ) 797
10,864 (8,731 ) Other income (loss) 7 1,576 (766 ) (1,002 ) Net
loss (income) attributable to noncontrolling interest 412
325 (457 ) 693
Net income available to Validus
common shareholders $ 7,767 $
69,042 $ 359,384 $
374,893 Selected ratios: Ratio of net
to gross premiums written 88.0 % 89.3 % 89.1 % 87.1 % Losses
and loss expenses ratio 50.9 % 39.5 % 47.4 % 43.5 % Policy
acquisition costs ratio 22.4 % 18.8 % 20.0 % 18.3 % General and
administrative expenses ratio (a) 16.3 % 20.0 % 16.8 % 17.9 %
Expense ratio 38.7 % 38.8 % 36.8 % 36.2 %
Combined
ratio 89.6 % 78.3 % 84.2 % 79.7 %
(a) The general and administrative expense ratio includes share
compensation expenses.
Validus Holdings, Ltd.
Segment Information
For the three
months and years ended December 31, 2016 and
2015
(Expressed in thousands of U.S. dollars,
except share and per share information)
Validus Re Segment
Three Months Ended December 31, Years Ended December
31, 2016 2015 2016
2015 Underwriting revenues Gross premiums written $
38,835 $ 14,349 $ 1,111,054 $ 1,126,759 Reinsurance premiums ceded
94 (87 ) (111,564 ) (149,088 ) Net premiums written 38,929
14,262 999,490 977,671 Change in unearned premiums 185,584
217,652 (55,545 ) 12,542
Net premiums earned
224,513 231,914 943,945 990,213 Other
insurance related income (loss) 52 257 (55 ) 3,575
Total underwriting revenues 224,565 232,171
943,890 993,788
Underwriting
deductions Losses and loss expenses 98,056 100,485 411,488
457,976 Policy acquisition costs 53,380 37,478 181,040 166,387
General and administrative expenses 20,191 20,174 72,770 78,428
Share compensation expenses 2,663 2,685 11,034
10,350
Total underwriting deductions 174,290
160,822 676,332 713,141
Underwriting income $ 50,275
$ 71,349 $ 267,558
$ 280,647 Talbot Segment
Three Months Ended December 31,
Years Ended December 31, 2016 2015
2016 2015 Underwriting revenues Gross
premiums written $ 218,644 $ 229,687 $ 970,702 $ 1,018,835
Reinsurance premiums ceded (38,233 ) (34,752 ) (175,729 ) (198,896
) Net premiums written 180,411 194,935 794,973 819,939 Change in
unearned premiums (5,891 ) 8,985 (13,057 ) 18,152
Net premiums earned 174,520 203,920 781,916
838,091 Other insurance related income 66 287
455 851
Total underwriting revenues
174,586 204,207 782,371 838,942
Underwriting deductions Losses and loss expenses 105,675
78,810 424,946 347,322 Policy acquisition costs 42,683 46,197
177,127 187,535 General and administrative expenses 24,550 39,965
134,479 155,306 Share compensation expenses 3,123 3,178
13,078 12,373
Total underwriting
deductions 176,031 168,150 749,630 702,536
Underwriting (loss)
income $ (1,445 ) $ 36,057
$ 32,741 $ 136,406
Western World Segment Three
Months Ended December 31, Years Ended December
31, 2016 2015 2016
2015 Underwriting revenues Gross premiums written $
87,030 $ 71,132 $ 323,220 $ 278,504 Reinsurance premiums ceded
(7,287 ) (5,487 ) (22,634 ) (18,877 ) Net premiums written 79,743
65,645 300,586 259,627 Change in unearned premiums (4,464 ) (3,925
) (27,354 ) (977 )
Net premiums earned 75,279 61,720
273,232 258,650 Other insurance related income
216 257 912 1,044
Total underwriting
revenues 75,495 61,977 274,144 259,694
Underwriting deductions Losses and loss
expenses 54,189 33,780 183,812 171,878 Policy acquisition costs
17,738 14,298 64,442 41,408 General and administrative expenses
9,576 9,578 43,280 38,715 Share compensation expenses 718
558 2,543 2,083
Total underwriting
deductions 82,221 58,214 294,077 254,084
Underwriting (loss)
income $ (6,726 ) $ 3,763
$ (19,933 ) $ 5,610
Validus Holdings, Ltd.
Segment Information
For the three
months and years ended December 31, 2016 and
2015
(Expressed in thousands of U.S. dollars,
except share and per share information)
AlphaCat Segment Three
Months Ended December 31, Years Ended December 31,
2016 2015 2016 2015
Revenues Third party $ 3,928 $ 5,039 $ 18,771 $ 19,661
Related party 737 1,251 3,329 5,309
Total revenues 4,665 6,290 22,100
24,970
Expenses General and administrative
expenses 2,676 3,232 10,233 12,115 Share compensation expenses 82
140 249 580 Finance expenses 33 53 947 9,312 Tax expense 90 — 90 —
Foreign exchange gains (losses) 2 (7 ) 19 (16 )
Total expenses 2,883 3,418 11,538
21,991
Income before investment income from AlphaCat
Funds and Sidecars 1,782 2,872 10,562
2,979
Investment income (loss) from AlphaCat Funds
and Sidecars (a) AlphaCat Sidecars 14 1,618 607 5,504
AlphaCat ILS Funds - Lower Risk (b) 1,998 2,037 8,901 7,491
AlphaCat ILS Funds - Higher Risk (b) 1,864 1,820 7,471 8,428
BetaCat ILS Funds 644 461 3,623 1,702 PaCRe — (1,708 ) (23 )
(3,949 )
Total investment income from AlphaCat Funds and
Sidecars 4,520 4,228 20,579 19,176
Validus' share of AlphaCat
income $ 6,302 $ 7,100
$ 31,141 $ 22,155
(a) The investment 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 December 31, Years Ended December
31, 2016 2015 2016
2015 Investment income Managed net investment income
(a) $ 35,875 $ 29,885 $ 141,718 $ 121,166
Operating
expenses General and administrative expenses 19,973 24,222
72,249 75,724 Share compensation expenses 3,856 3,501 16,003 12,955
Finance expenses (a) 14,546 15,448 57,183 61,071 Dividends on
preferred shares 2,203 — 4,455 — Tax (benefit) expense (a) (21,237
) (756 ) (19,819 ) 6,376
Total operating expenses
19,341 42,415 130,071 156,126
Other items Net realized gains (losses) on managed
investments (a) 9,166 (3,353 ) 14,680 1,698 Change in net
unrealized (losses) gains on managed investments (a) (67,676 )
(34,515 ) 14,106 (32,007 ) Income (loss) from investment affiliates
2,166 (1,261 ) (2,083 ) 4,281 Foreign exchange (losses) gains (a)
(850 ) 852 10,778 (8,172 ) Other income (loss) 7 1,576
(766 ) (1,002 )
Total other items (57,187 ) (36,701 )
36,715 (35,202 )
Total
Corporate and Investments $ (40,653 )
$ (49,231 ) $ 48,362
$ (70,162 )
(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.
Non-GAAP Financial Measures
Reconciliation
Book Value per Common Share, Book Value
per Diluted Common Share and Book Value per Diluted Common Share
plus Accumulated Dividends
As at
December 31, 2016 and December 31, 2015
(Expressed in thousands of U.S. dollars,
except share and per share information)
December 31, 2016 (Dollars in
thousands, except share and per share amounts) Equity
Amount Shares Exercise Price (a)
Book Value Per
Share
Book value per common share Total shareholders' equity
available to Validus common shareholders (b) $ 3,688,291 79,132,252
$ 46.61
Tangible book value per common share $ 42.66
Book value per diluted common share Total
shareholders' equity available to Validus common shareholders (b)
3,688,291 79,132,252 Assumed exercise of outstanding stock options
(c) 614 26,136 $ 23.48 Unvested restricted shares —
2,868,610
Book value per diluted common share $
3,688,905 82,026,998 $ 44.97 Adjustment for
accumulated dividends 11.56
Book value per diluted common share
plus accumulated dividends $ 56.53
Tangible book
value per diluted common share $ 41.16
December 31, 2015 (Dollars in thousands, except
share and per share amounts) Equity Amount
Shares Exercise Price (a) Book Value
Per
Share
Book value per common share Total shareholders' equity
available to Validus common shareholders (b) $ 3,638,975 82,900,617
$ 43.90
Tangible book value per common share $ 40.06
Book value per diluted common share Total
shareholders' equity available to Validus common shareholders (b)
3,638,975 82,900,617 Assumed exercise of outstanding stock options
(c) 1,319 65,401 $ 20.17 Unvested restricted shares —
3,026,376
Book value per diluted common share $
3,640,294 85,992,394 $ 42.33 Adjustment for
accumulated dividends 10.16
Book value per diluted common share
plus accumulated dividends $ 52.49
Tangible book
value per diluted common share $ 38.63
(a) Weighted average exercise price for those stock options that
have an exercise price lower than book value per share.
(b) Total shareholders' equity available to Validus common
shareholders excludes the liquidation value of the preferred shares
of $150.0 million.
(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.
Validus Holdings, Ltd.
Non-GAAP Financial Measures
Reconciliation
Underwriting Income, Net Operating Income
available to Validus Common Shareholders, Net Operating Income per
share available to Validus Common Shareholders and Annualized Net
Operating Return on Average Equity
For the three
months and years ended December 31, 2016 and
2015
(Expressed in thousands of U.S. dollars,
except share and per share information)
Three Months Ended December 31,
Years Ended December 31, 2016 2015
2016 2015 Net income available to Validus
common shareholders $ 7,767 $ 69,042 $ 359,384 $ 374,893
Adjustments for: Net realized (gains) losses on investments (9,220
) 2,928 (15,757 ) (2,298 ) Change in net unrealized losses (gains)
on investments 67,460 34,862 (16,871 ) 32,395 (Income) loss from
investment affiliates (2,166 ) 1,261 2,083 (4,281 ) Foreign
exchange losses (gains) 901 (797 ) (10,864 ) 8,731 Other (income)
loss (7 ) (1,576 ) 766 1,002 Net (loss) income attributable to
noncontrolling interest (412 ) (325 ) 457 (693 )
Net
operating income available to Validus common shareholders $
64,323 $ 105,395 $ 319,198 $ 409,749 Net investment income (38,153
) (31,612 ) (150,385 ) (127,824 ) Finance expenses 14,630 16,581
58,520 74,742 Dividends on preferred shares 2,203 — 4,455 — Tax
(benefit) expense (21,147 ) (756 ) (19,729 ) 6,376 Loss from
operating affiliate — 1,708 23 3,949 Income attributable to
AlphaCat investors 7,080 974 23,358 2,412 Net operating income
attributable to noncontrolling interest 27,612 26,321
122,906 93,657
Underwriting income $ 56,548
$ 118,611 $ 358,346 $ 463,061
Net operating income available to Validus common
shareholders 64,323 105,395 319,198 409,749 Less: Dividends on
outstanding warrants — — — (3,566 )
Net
operating income allocated to Validus, adjusted $ 64,323
$ 105,395 $ 319,198 $ 406,183
Net
income per share available to Validus common shareholders -
diluted $ 0.10 $ 0.81 $ 4.36 $ 4.34 Adjustments for: Net
realized (gains) losses on investments (0.11 ) 0.03 (0.19 ) (0.03 )
Change in net unrealized losses (gains) on investments 0.84 0.42
(0.20 ) 0.38 (Income) loss from investment affiliates (0.03 ) 0.01
0.03 (0.05 ) Foreign exchange losses (gains) 0.01 (0.01 ) (0.14 )
0.10 Other (income) loss — (0.02 ) 0.01 0.01 Net (loss) income
attributable to noncontrolling interest (0.01 ) — 0.01
(0.01 )
Net operating income per share available to
Validus common shareholders - diluted $ 0.80 $ 1.24
$ 3.88 $ 4.74
Weighted average
number of common shares and common share equivalents 80,621,967
85,181,258 82,359,460 86,426,760
Average shareholders'
equity available to Validus common shareholders $ 3,702,956 $
3,641,970 $ 3,697,114 $ 3,641,920
Annualized return on
average equity 0.8 % 7.6 % 9.7 % 10.3 %
Annualized net
operating return on average equity 6.9 % 11.6 % 8.6 % 11.3 %
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
common shareholders, net operating income (loss) per share,
underwriting income (loss), annualized net operating return on
average equity, book value per diluted common share and book value
per diluted common share plus accumulated dividends 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 underwriting
income and net operating income (loss) available (attributable) to
Validus common shareholders to net income (loss) available
(attributable) to Validus common shareholders, the most comparable
U.S. GAAP financial measure, is presented in the section above
entitled “Underwriting Income, Net Operating Income available to
Validus common shareholders, Net Operating Income per share
available to Validus common shareholders 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.
The AlphaCat segment information is presented as an asset
manager view and therefore is considered non-GAAP.
Underwriting income indicates the performance of the Company's
core underwriting segments, excluding revenues and expenses such as
net investment income (loss), finance expenses, net realized and
change in unrealized gains (losses) on investments, foreign
exchange gains (losses), other income (loss) 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.
Net operating income (loss), a non-GAAP financial measure, is
defined as net income (loss) excluding net realized and change in
net unrealized gains (losses) on investments, income (loss) from
investment affiliates, foreign exchange gains (losses), other
income (loss) and non-recurring items. Net operating income (loss)
available (attributable) to Validus common shareholders is defined
as above, but excludes operating income (loss) available
(attributable) to noncontrolling interest and dividends on
preferred shares. Reconciliations of these measures to net income
(loss) and net income (loss) available (attributable) to Validus
common shareholders, the most directly comparable GAAP measures,
are presented at the end of this release.
Annualized net operating return on average equity is presented
in the section above entitled “Underwriting Income, Net Operating
Income available to Validus common shareholders, Net Operating
Income per share available to Validus common shareholders and
Annualized Net Operating Return on Average Equity.” A
reconciliation of book value per diluted common share and book
value per diluted common share plus accumulated dividends 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, Book Value per Diluted Common Share and Book Value
per Diluted Common Share plus Accumulated Dividends.” Net operating
income (loss) is calculated based on net income (loss) excluding
net realized gains (losses) on investments, change in net
unrealized gains (losses) on investments, foreign exchange gains
(losses), other income (loss), income (loss) from investment
affiliates 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 common shareholders is defined
as net operating income (loss) as defined above, but excluding
operating income (loss) available (attributable) to noncontrolling
interest and dividends on preferred shares.
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Investors:Validus Holdings,
Ltd.Investor.Relations@validusholdings.com+1-441-278-9000orMedia:Brunswick
GroupMustafa Riffat / Charlotte Connerton+1-212-333-3810
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