Validus Holdings, Ltd. (“Validus” or the “Company”) (NYSE:VR)
today reported net income available to Validus common shareholders
of $101.1 million, or $1.25 per diluted common share, for the three
months ended June 30, 2017, compared to $95.0 million, or
$1.14 per diluted common share, for the three months ended
June 30, 2016.
Net operating income available to Validus common shareholders
was $88.5 million, or $1.09 per diluted common share, for the three
months ended June 30, 2017, compared to $57.9 million, or
$0.69 per diluted common share, for the three months ended
June 30, 2016.
The annualized return on average equity was 10.7% for the three
months ended June 30, 2017, compared to 10.2% for the three
months ended June 30, 2016. The annualized net operating
return on average equity was 9.3% for the three months ended
June 30, 2017, compared to 6.2% for the three months ended
June 30, 2016.
Book value per common share at June 30, 2017 was $47.93,
compared to $47.54 at March 31, 2017. Book value per diluted
common share at June 30, 2017 was $46.45, compared to $45.88
at March 31, 2017, reflecting quarterly growth of 2.1%,
inclusive of common dividends.
Commenting on the results for the three months ended
June 30, 2017, Validus’ Chairman and CEO Ed Noonan stated:
“I’m very pleased to report another very solid quarter for
Validus. Despite soft trading conditions across the global market
and elevated industry event frequency we were able to deliver an
82.5% combined ratio in the quarter and grew our book value per
diluted share including dividends by 2.1%. We continue to position
the Company well to weather the soft market while building the
foundation to benefit from better market conditions down the
road.”
Income available to Validus common shareholders by segment for
the three months ended June 30, 2017 and June 30, 2016
was as follows:
Three Months Ended June 30, 2017
2016 (Expressed in millions of U.S. dollars,
except per share information)
Validus Re - Underwriting income $ 66.9 $ 51.9 Talbot -
Underwriting income 15.5 6.6 Western World - Underwriting loss (3.8
) (5.8 ) Validus’ share of AlphaCat income 6.5 4.9
Total segmental income 85.1 57.6 Managed net
investment income (a) 38.1 36.8 Managed net realized and change in
unrealized gains on investments (b) 27.7 32.0 Corporate expenses
(38.7 ) (37.6 ) Transaction expenses (4.4 ) — Other items and
eliminations (6.7 ) 6.2
Net income available to Validus
common shareholders $ 101.1 $
95.0 Net income per diluted share available to
Validus common shareholders $ 1.25
$ 1.14 Net operating income available to
Validus common shareholders (c) $ 88.5
$ 57.9 Net operating income per
diluted share available to Validus common shareholders
(c) $ 1.09 $ 0.69
(a) Managed net investment income relates to our managed
investment portfolio. Total net investment income, inclusive of
AlphaCat’s non-managed portfolio was $44.2 million and $39.3
million for the three months ended June 30, 2017 and 2016,
respectively. (b) Managed net realized and change in unrealized
gains on investments includes income (loss) from investment
affiliates. (c) Net operating income available to Validus common
shareholders is presented after tax and is considered a non-GAAP
financial measure. A reconciliation of net income available to
Validus common shareholders, the most comparable GAAP measure, to
net operating income 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 second quarter 2017 investor financial supplement that
has been posted to the Investors section of the Company’s website
located at www.validusholdings.com.
Second Quarter 2017
Results
On May 1, 2017, the Company completed its acquisition of Crop
Risk Services (“CRS”). The results of CRS have been included in the
Western World segment from the date of acquisition.
Highlights for the second quarter are as follows:
- Gross premiums written for the three
months ended June 30, 2017 were $792.9 million compared to
$764.0 million for the three months ended June 30, 2016, an
increase of $28.9 million, or 3.8%. The increase was primarily
driven by an increase in the Western World, Validus Re and AlphaCat
segments and was partially offset by a decrease in the Talbot
segment.
- Reinsurance premiums ceded for the
three months ended June 30, 2017 were $56.2 million compared
to $36.2 million for the three months ended June 30, 2016, an
increase of $20.0 million or 55.2%. The increase was primarily
driven by an increase in the Western World and Validus Re
segments.
- The loss ratio for the three months
ended June 30, 2017 and June 30, 2016 was 46.9% and
53.5%, respectively, and included the following:
- Notable losses of $nil during the three
months ended June 30, 2017 compared to $36.9 million, or 6.4
percentage points of the loss ratio during the three months ended
June 30, 2016;
- Non-notable losses of $7.6 million, or
1.2 percentage points of the loss ratio arising from an increase in
the loss estimate on the first quarter 2017 energy non-notable loss
event during the three months ended June 30, 2017 compared to
$48.3 million, or 8.4 percentage points of the loss ratio during
the three months ended June 30, 2016; and
- Favorable loss reserve development on
prior accident years of $43.3 million during the three months ended
June 30, 2017, which benefited the loss ratio by 6.9
percentage points compared to favorable development of $62.8
million during the three months ended June 30, 2016, which
benefited the loss ratio by 10.9 percentage points. The favorable
development of $43.3 million for the three months ended
June 30, 2017 was due to favorable development on attritional
and event losses of $38.2 million and $5.1 million,
respectively.
- The combined ratio for the three months
ended June 30, 2017 and 2016 was 82.5% and 89.9%,
respectively, a decrease of 7.4 percentage points.
- Managed net investment income from our
managed investment portfolio for the three months ended
June 30, 2017 was $38.1 million compared to $36.8 million for
the three months ended June 30, 2016, an increase of $1.2
million, or 3.3%.
- Income from investment affiliates for
the three months ended June 30, 2017 was $9.5 million compared to a
loss of $0.6 million for the three months ended June 30, 2016, a
favorable movement of $10.1 million. The income from investment
affiliates represents equity earnings on investments in funds
managed by Aquiline Capital Partners LLC.
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 June 30, 2017, the Company
incurred losses and loss expenses of $7.6 million, or 1.2
percentage points of the loss ratio on the single energy
non-notable loss event occurring during the first quarter of 2017,
reflecting an increase in the industry loss estimate during the
three months ended June 30, 2017.
During the three months ended June 30, 2016, the Company
incurred net losses and loss expenses from notable and non-notable
loss events of $36.9 million and $48.3 million, respectively. Net
of reinstatement premiums and losses attributable to AlphaCat third
party investors and noncontrolling interests, the net loss
attributable to the Company from the notable and non-notable loss
events was $26.9 million and $33.1 million, respectively.
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 June 30, 2017 and 2016 was 52.6% and
49.6%, respectively.
Validus Re Segment
Highlights for the second quarter include the following:
- Gross premiums written for the three
months ended June 30, 2017 were $297.0 million compared to
$285.8 million for the three months ended June 30, 2016, an
increase of $11.2 million, or 3.9%. Gross premiums written for the
three months ended June 30, 2017 included $174.8 million of
property premiums, $14.6 million of marine premiums and $107.7
million of specialty premiums, compared to $216.0 million of
property premiums, $7.8 million of marine premiums and $62.0
million of specialty premiums for the three months ended
June 30, 2016. The decrease in the property lines of $41.3
million was primarily driven by reductions in participation and the
non-renewal of various catastrophe programs due to market
conditions. The increase in the marine lines of $6.8 million was
primarily due to adjustments to existing business. The increase in
the specialty lines of $45.7 million was primarily driven by new
business in the casualty, composite and financial lines.
- Reinsurance premiums ceded for the
three months ended June 30, 2017 were $11.4 million compared
to $3.2 million for the three months ended June 30, 2016, an
increase of $8.2 million. The increase was primarily driven by an
increase in the specialty lines as a result of new non-proportional
coverage purchased and adjustments to existing business and was
partially offset by a decrease in the property lines relating to
the timing of certain reinsurance purchases.
- The loss ratio for the three months
ended June 30, 2017 and June 30, 2016 was 43.5% and
53.5%, respectively, and included the following:
- Notable losses of $nil during the three
months ended June 30, 2017 compared to $17.9 million, or 7.2
percentage points of the loss ratio during the three months ended
June 30, 2016;
- Non-notable losses of $7.6 million, or
3.1 percentage points of the loss ratio during the three months
ended June 30, 2017 compared to $32.5 million, or 13.1
percentage points of the loss ratio during the three months ended
June 30, 2016; and
- Favorable loss reserve development on
prior accident years of $23.1 million during the three months ended
June 30, 2017, which benefited the loss ratio by 9.6
percentage points compared to favorable development of $30.9
million during the three months ended June 30, 2016, which
benefited the loss ratio by 12.5 percentage points. The favorable
development of $23.1 million for the three months ended
June 30, 2017 was primarily due to favorable development on
attritional losses.
- The combined ratio for the three months
ended June 30, 2017 and 2016 was 72.2% and 79.1%,
respectively, a decrease of 6.9 percentage points.
- Underwriting income for the three
months ended June 30, 2017 was $66.9 million compared to $51.9
million for the three months ended June 30, 2016, an increase
of $15.0 million, or 28.8%.
Talbot Segment
Highlights for the second quarter include the following:
- Gross premiums written for the three
months ended June 30, 2017 were $262.5 million compared to
$296.1 million for the three months ended June 30, 2016, a
decrease of $33.6 million, or 11.3%. Gross premiums written for the
three months ended June 30, 2017 included $88.5 million of
property premiums, $74.3 million of marine premiums and $99.6
million of specialty premiums compared to $111.6 million of
property premiums, $86.0 million of marine premiums and $98.4
million of specialty premiums for the three months ended
June 30, 2016. The decreases in the property and marine lines
of $23.1 million and $11.7 million, respectively, were driven by
reductions in participation and non-renewals on various programs
due to the current rate environment and adjustments to existing
business.
- The loss ratio for the three months
ended June 30, 2017 and June 30, 2016 was 48.7% and
54.2%, respectively, and included the following:
- Notable losses of $nil during the three
months ended June 30, 2017 compared to $11.7 million, or 5.8
percentage points of the loss ratio during the three months ended
June 30, 2016;
- Non-notable losses of $nil during the
three months ended June 30, 2017 compared to $9.1 million, or
4.5 percentage points of the loss ratio during the three months
ended June 30, 2016; and
- Favorable loss reserve development on
prior accident years of $15.9 million during the three months ended
June 30, 2017, which benefited the loss ratio by 8.3
percentage points compared to favorable development of $28.3
million during the three months ended June 30, 2016, which
benefited the loss ratio by 14.1 percentage points. The favorable
development of $15.9 million for the three months ended
June 30, 2017 was primarily due to favorable development on
attritional losses.
- The combined ratio for the three months
ended June 30, 2017 and 2016 was 92.0% and 96.9%,
respectively, a decrease of 4.9 percentage points.
- Underwriting income for the three
months ended June 30, 2017 was $15.5 million compared to $6.6
million for the three months ended June 30, 2016, an increase
of $8.9 million, or 135.9%.
Western World Segment
On May 1, 2017, the Company completed its acquisition of CRS.
The results of CRS have been presented as the Specialty line of
business within the Western World segment from the date of
acquisition.
Highlights for the second quarter include the following:
- Gross premiums written for the three
months ended June 30, 2017 were $131.1 million compared to
$87.0 million for the three months ended June 30, 2016, an
increase of $44.1 million, or 50.7%. Gross premiums written for the
three months ended June 30, 2017 included $39.0 million of
property premiums, $68.2 million of liability premiums and $23.9
million of specialty premiums, compared to $26.2 million of
property premiums and $60.8 million of liability premiums for the
three months ended June 30, 2016. The increase in the property
and liability lines of $12.7 million and $7.4 million,
respectively, was primarily due to the continued build out of
product offerings in the short-tail property lines. Also
contributing to the increase in the liability lines was an increase
in the contract liability lines which was partially offset by
decreases resulting from the discontinuation of other
underperforming general liability lines. The increase in the
specialty lines of $23.9 million was due to new agriculture
business written through CRS.
- Reinsurance premiums ceded for the
three months ended June 30, 2017 were $23.2 million compared
to $5.0 million for the three months ended June 30, 2016, an
increase of $18.2 million. The increase was primarily driven by an
increase in ceded agriculture premiums relating to new business
written through CRS.
- The loss ratio for the three months
ended June 30, 2017 and June 30, 2016 was 74.2% and
67.4%, respectively, and included the following:
- Specialty losses of $44.8 million
during the three months ended June 30, 2017 arising from new
crop business written through CRS which is booked at a 89.5% loss
ratio;
- U.S.-based weather losses of $3.0
million, or 2.3 percentage points of the loss ratio during the
three months ended June 30, 2017, compared to $6.3 million, or
9.6 percentage points of the loss ratio during the three months
ended June 30, 2016;
- Non-notable losses of $nil during the
three months ended June 30, 2017 compared to $0.6 million, or
1.0 percentage point of the loss ratio during the three months
ended June 30, 2016; and
- Favorable loss reserve development on
prior accident years of $0.5 million during the three months ended
June 30, 2017, which benefited the loss ratio by 0.4
percentage points compared to favorable development of $3.2 million
during the three months ended June 30, 2016, which benefited
the loss ratio by 4.8 percentage points.
- General and administrative expenses for
the three months ended June 30, 2017 were $18.3 million
compared to $11.5 million for the three months ended June 30,
2016, an increase of $6.9 million, or 59.9%. General and
administrative expenses for the three months ended June 30,
2017 included $6.8 million of CRS expenses, of which $1.2 million
related to the amortization of intangible assets acquired.
- The combined ratio for the three months
ended June 30, 2017 and 2016 was 103.4% and 109.1%,
respectively, a decrease of 5.7 percentage points.
- Underwriting loss for the three months
ended June 30, 2017 was $3.8 million compared to $5.8 million
for the three months ended June 30, 2016, a decrease of $2.0
million, or 34.3%.
AlphaCat Segment
Highlights for the second quarter include the following:
- AlphaCat’s assets under management were
$3.1 billion as at July 1, 2017 compared to $2.9 billion as at
April 1, 2017, of which third party assets under management
were $2.9 billion as at July 1, 2017, compared to $2.7 billion
as at April 1, 2017. During the three months ended
July 1, 2017, a total of $338.2 million of capital was raised,
of which $330.2 million was raised from third parties. During the
three months ended July 1, 2017, $195.4 million was returned
to investors, of which $135.8 million was returned to third party
investors.
- Fee revenues earned for the three
months ended June 30, 2017 were $6.2 million, of which $5.5
million were earned from third parties, compared to $3.4 million
for the three months ended June 30, 2016, of which $3.1
million were earned from third parties.
- Total expenses for the three months
ended June 30, 2017 were $3.8 million compared to $3.0 million
for the three months ended June 30, 2016, an increase of $0.8
million, or 28.7%. The increase was driven by a higher allocation
of costs to the AlphaCat segment.
- Income before investment income from
AlphaCat Funds and Sidecars for the three months ended
June 30, 2017 was $2.4 million compared to $0.5 million for
the three months ended June 30, 2016, an increase of $1.9
million.
- Validus’ share of investment income
from AlphaCat Funds and Sidecars for the three months ended
June 30, 2017 was $4.1 million compared to $4.4 million for
the three months ended June 30, 2016, a decrease of $0.3
million or 6.3%.
- Validus’ share of AlphaCat income for
the three months ended June 30, 2017 was $6.5 million compared
to $4.9 million for the three months ended June 30, 2016, an
increase of $1.6 million, or 33.8%.
Investments
Highlights of our managed investment portfolio for the second
quarter include the following:
- Managed net investment income from our
managed investment portfolio for the three months ended
June 30, 2017 was $38.1 million compared to $36.8 million for
the three months ended June 30, 2016, an increase of $1.2
million, or 3.3%.
- Annualized effective yield for the
three months ended June 30, 2017 was 2.35%, compared to 2.34%
for the three months ended June 30, 2016, an increase of 1
basis point.
- Net realized gains on managed
investments for the three months ended June 30, 2017 were $2.3
million compared to $2.5 million for the three months ended June
30, 2016, an unfavorable movement of $0.3 million or 10.0%.
- The change in net unrealized gains on
managed investments for the three months ended June 30, 2017 was
$15.9 million compared to $30.1 million for the three months ended
June 30, 2016, an unfavorable movement of $14.1 million, or 47.0%.
The unfavorable movement was primarily driven by changes in
interest rates having less of an impact on the Company’s managed
fixed maturity investment portfolio during the three months ended
June 30, 2017 as compared to the three months ended June 30,
2016.
- Income from investment affiliates for
the three months ended June 30, 2017 was $9.5 million compared to a
loss of $0.6 million for the three months ended June 30, 2016, a
favorable movement of $10.1 million. The income from investment
affiliates represents equity earnings on investments in funds
managed by Aquiline Capital Partners LLC.
Corporate Expenses and Other
Items
Highlights for the second quarter include the following:
- General and administrative expenses for
the three months ended June 30, 2017 were $18.8 million
compared to $17.9 million for the three months ended June 30,
2016, an increase of $1.0 million or 5.5%.
- Share compensation expenses for the
three months ended June 30, 2017 were $4.6 million compared to
$4.0 million for the three months ended June 30, 2016, an
increase of $0.6 million or 15.7%.
- Finance expenses, excluding the
Company’s share of AlphaCat finance expenses from consolidated
variable interest entities, for the three months ended June 30,
2017 were $14.1 million compared to $14.0 million for the three
months ended June 30, 2016, an increase of $0.2 million or
1.2%.
- The Company issued $250.0 million of
preferred shares during the three months ended June 30, 2017
and $150.0 million of preferred shares during the three months
ended June 30, 2016. Dividends paid on preferred shares during
the three months ended June 30, 2017 were $2.2 million
compared to $nil during the three months ended June 30,
2016.
- Foreign exchange losses for the three
months ended June 30, 2017 were $7.3 million compared to gains
of $6.6 million for the three months ended June 30, 2016, an
unfavorable movement of $13.9 million. The unfavorable movement was
primarily driven by the Euro strengthening against the U.S. dollar
during the three months ended June 30, 2017.
- Transaction expenses for the three
months ended June 30, 2017 were $4.4 million compared to $nil
for the three months ended June 30, 2016 and are primarily
comprised of legal, financial advisory and audit related services
incurred in connection with the acquisition of CRS, which was
completed on May 1, 2017.
Shareholders’ Equity and
Capitalization
As at June 30, 2017, total shareholders’ equity was $4.6
billion including $415.7 million of noncontrolling interest and
$400.0 million of preferred shares. Shareholders’ equity available
to Validus common shareholders was $3.8 billion as at June 30,
2017. Book value per common share was $47.93 at June 30, 2017
based on 79,518,581 common shares, compared to $47.54 at
March 31, 2017 based on 79,137,590 common shares. Book value
per diluted common share was $46.45 at June 30, 2017 based on
82,075,276 diluted common shares, compared to $45.88 at
March 31, 2017 based on 82,001,614 diluted common shares, an
increase of 2.1%, inclusive of dividends for the three months ended
June 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 June 30, 2017
was $5.0 billion, including $538.4 million of junior subordinated
deferrable debentures and $245.5 million of senior notes. Total
capitalization at June 30, 2017 was $6.7 billion, including
$1.3 billion of redeemable noncontrolling interest and $415.7
million of noncontrolling interest related to AlphaCat.
Share Repurchases
The Company repurchased 267,953 common shares during the three
months ended June 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 March 31,
2017
Quarter ended (cumulative) April May
June June 30, 2017 Aggregate purchase price (a) $
2,704,406 $ — $ — $ 13,996 $
13,996
Shares repurchased 80,508,849 — — 267,953 267,953 Average share
price (a) $ 33.59 $ — $ — $ 52.23 $ 52.23
Share Repurchase Activity
(Expressed in thousands of U.S. dollars
except for share and per share information)
Cumulative to Date
As at June 30, 2017 As at July 26, 2017
through July 26, 2017
Aggregate purchase price (a) $ 2,718,402 $ 2,108 $
2,720,510
Shares repurchased 80,776,802 40,581 80,817,383 Average share price
(a) $ 33.65 $ 51.95 $ 33.66 (a) Share transactions are on a
trade date basis through July 26, 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:
- Gross premiums written for the six
months ended June 30, 2017 were $1,983.8 million compared to
$1,936.8 million for the six months ended June 30, 2016, an
increase of $46.9 million, or 2.4%.
- Reinsurance premiums ceded for the six
months ended June 30, 2017 were $256.3 million compared to
$204.1 million for the six months ended June 30, 2016, an
increase of $52.3 million, or 25.6%.
- The loss ratio for the six months ended
June 30, 2017 and June 30, 2016 was 46.9% and 46.4%,
respectively and included the following:
- Notable losses of $nil during the six
months ended June 30, 2017 compared to $36.9 million, or 3.2
percentage points of the loss ratio during the six months ended
June 30, 2016;
- Non-notable losses of $27.3 million, or
2.3 percentage points of the loss ratio during the six months ended
June 30, 2017 compared to $48.3 million, or 4.2 percentage
points of the loss ratio during the six months ended June 30,
2016; and
- Favorable loss reserve development on
prior accident years of $104.5 million during the six months ended
June 30, 2017, which benefited the loss ratio by 8.7
percentage points compared to favorable development of $116.5
million during the six months ended June 30, 2016, which
benefited the loss ratio by 10.2 percentage points.
- The combined ratio for the six months
ended June 30, 2017 and 2016 was 82.9% and 82.5%,
respectively, an increase of 0.4 percentage points.
- Managed net investment income from our
managed investment portfolio for the six months ended June 30,
2017 was $74.3 million compared to $64.8 million for the six months
ended June 30, 2016, an increase of $9.5 million, or
14.6%.
- Income from investment affiliates for
the six months ended June 30, 2017 was $14.7 million compared
to a loss of $4.7 million for the six months ended June 30,
2016, an increase of $19.4 million.
- Net income available to Validus common
shareholders for the six months ended June 30, 2017 was $195.7
million compared to $261.8 million for the six months ended
June 30, 2016, a decrease of $66.1 million, or 25.3%.
- Net operating income available to
Validus common shareholders for the six months ended June 30,
2017 was $165.3 million compared to $179.4 million for the six
months ended June 30, 2016, a decrease of $14.1 million, or
7.9%.
- Annualized return on average equity was
10.4% and annualized net operating return on average equity was
8.8% for the six months ended June 30, 2017 compared to 14.2%
and 9.7%, respectively, for the six months ended June 30,
2016.
Conference Call
The Company will host a conference call for analysts and
investors on July 28, 2017 at 10:00 AM (Eastern) to discuss
the second quarter 2017 financial results and related matters. The
conference call may be accessed by dialing 1-844-450-9827 (U.S.
callers) or 1-647-253-8637 (international callers) and entering the
passcode 4029 2347. 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 August 11, 2017, by dialing
1-800-585-8367 (U.S. callers) or 1-416-621-4642 (international
callers) and entering the passcode 4029 2347.
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 August 11, 2017. In addition, a financial supplement
relating to the Company’s financial results for the three and six
months ended June 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 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
June 30, 2017 and December 31, 2016
(Expressed in thousands of U.S. dollars,
except share and per share information)
June 30,
December 31,
2017
2016
Assets Fixed maturity investments trading, at fair value
(amortized cost: 2017—$5,424,562; 2016—$5,584,599) $ 5,418,643 $
5,543,030 Short-term investments trading, at fair value (amortized
cost: 2017—$2,871,126; 2016—$2,796,358) 2,871,353 2,796,170 Other
investments, at fair value (cost: 2017—$416,996; 2016—$380,130)
448,618 405,712 Investments in investment affiliates, equity method
(cost: 2017—$72,532; 2016—$84,840) 103,377 100,431 Cash and cash
equivalents 800,405 419,976 Restricted cash 195,039 70,956
Total investments and cash 9,837,435 9,336,275 Premiums
receivable 1,940,637 725,390 Deferred acquisition costs 302,857
209,227 Prepaid reinsurance premiums 335,837 77,996 Securities
lending collateral 2,514 9,779 Loss reserves recoverable 600,207
430,421 Paid losses recoverable 35,675 35,247 Income taxes
recoverable 4,763 4,870 Deferred tax asset 52,655 43,529 Receivable
for investments sold 20,519 3,901 Intangible assets 175,518 115,592
Goodwill 227,701 196,758 Accrued investment income 26,968 26,488
Other assets 387,860 134,282
Total assets $
13,951,146 $ 11,349,755
Liabilities
Reserve for losses and loss expenses $ 3,305,191 $ 2,995,195
Unearned premiums 1,970,896 1,076,049 Reinsurance balances payable
461,261 54,781 Securities lending payable 2,980 10,245 Deferred tax
liability 4,012 3,331 Payable for investments purchased 92,077
29,447 Accounts payable and accrued expenses 385,958 587,648 Notes
payable to AlphaCat investors 1,066,159 278,202 Senior notes
payable 245,463 245,362 Debentures payable 538,400 537,226
Total liabilities $ 8,072,397 $ 5,817,486
Commitments and contingent liabilities Redeemable
noncontrolling interests 1,251,660 1,528,001
Shareholders’
equity Preferred shares (Issued and Outstanding: 2017—16,000;
2016—6,000) 400,000 150,000 Common shares (Issued:
2017—161,934,355; 2016—161,279,976; Outstanding: 2017—79,518,581;
2016—79,132,252) 28,339 28,224 Treasury shares (2017—82,415,774;
2016—82,147,724) (14,423 ) (14,376 ) Additional paid-in capital
807,321 821,023 Accumulated other comprehensive loss (19,924 )
(23,216 ) Retained earnings 3,010,118 2,876,636
Total shareholders’ equity available to Validus 4,211,431
3,838,291 Noncontrolling interests 415,658 165,977
Total shareholders’ equity $ 4,627,089 $ 4,004,268
Total liabilities, noncontrolling interests and
shareholders’ equity $ 13,951,146 $ 11,349,755
Validus Holdings, Ltd.
Consolidated Statements of Income
For the three and
six months ended June 30, 2017 and 2016
(Expressed in thousands of U.S. dollars,
except share and per share information)
Three Months Ended June 30, Six Months
Ended June 30, 2017 2016 2017
2016 Revenues Gross premiums written $ 792,902
$ 764,042 $ 1,983,759 $ 1,936,833 Reinsurance premiums ceded
(56,222 ) (36,229 ) (256,328 ) (204,064 ) Net premiums written
736,680 727,813 1,727,431 1,732,769 Change in unearned premiums
(105,653 ) (154,090 ) (521,028 ) (587,778 ) Net premiums earned
631,027 573,723 1,206,403 1,144,991 Net investment income 44,241
39,257 84,455 68,718 Net realized gains on investments 2,274 2,724
1,110 2,140 Change in net unrealized gains on investments 16,321
31,428 29,669 78,872 Income (loss) from investment affiliates 9,466
(589 ) 14,654 (4,702 ) Other insurance related income and other
income 1,339 824 2,669 2,237 Foreign exchange (losses) gains (7,329
) 6,286 (5,760 ) 12,531
Total revenues 697,339
653,653 1,333,200 1,304,787
Expenses Losses and loss expenses 296,149 307,130 565,734
531,577 Policy acquisition costs 117,268 107,966 228,896 215,159
General and administrative expenses 96,349 89,688 184,273 175,896
Share compensation expenses 11,146 10,727 20,637 21,964 Finance
expenses 14,209 14,166 28,152 29,369 Transaction expenses 4,427
— 4,427 —
Total expenses 539,548
529,677 1,032,119 973,965
Income
before taxes, loss from operating affiliate and (income)
attributable to AlphaCat investors 157,791 123,976 301,081
330,822 Tax benefit (expense) 987 (1,706 ) 4,536 412 Loss from
operating affiliate — — — (23 ) (Income) attributable to AlphaCat
investors (11,830 ) (6,114 ) (19,333 ) (10,714 )
Net income
$ 146,948 $ 116,156 $ 286,284 $ 320,497 Net (income) attributable
to noncontrolling interests (43,650 ) (21,193 ) (86,222 ) (58,724 )
Net income available to Validus 103,298 94,963 200,062
261,773 Dividends on preferred shares (2,203 ) — (4,406 ) —
Net income available to Validus common shareholders $
101,095 $ 94,963 $ 195,656 $ 261,773
Selected ratios: Ratio of net to gross premiums
written 92.9 % 95.3 % 87.1 % 89.5 %
Losses and loss
expense ratio 46.9 % 53.5 % 46.9 % 46.4 % Policy
acquisition cost ratio 18.6 % 18.8 % 19.0 % 18.8 % General and
administrative expense ratio (a) 17.0 % 17.6 % 17.0 % 17.3 %
Expense ratio 35.6 % 36.4 % 36.0 % 36.1 %
Combined
ratio 82.5 % 89.9 % 82.9 % 82.5 % (a) The general and
administrative expense ratio includes share compensation expenses.
Validus Holdings, Ltd.
Segment Information
For the three and
six months ended June 30, 2017 and 2016
(Expressed in thousands of U.S. dollars,
except share and per share information)
Validus Re Segment Three Months Ended June
30, Six Months Ended June 30, 2017
2016 2017 2016 Underwriting
revenues Gross premiums written $ 296,997 $ 285,810 $ 917,519 $
977,478 Reinsurance premiums ceded (11,387 ) (3,196 ) (120,200 )
(95,691 ) Net premiums written 285,610 282,614 797,319 881,787
Change in unearned premiums (45,003 ) (35,492 ) (338,300 ) (390,834
)
Net premiums earned 240,607 247,122 459,019
490,953 Other insurance related income (loss) 58
150 136 (165 )
Total underwriting
revenues 240,665 247,272 459,155 490,788
Underwriting deductions Losses and loss expenses
104,685 132,139 190,839 215,007 Policy acquisition costs 47,158
42,564 88,414 84,823 General and administrative expenses 19,274
17,872 36,106 35,051 Share compensation expenses 2,663 2,775
5,140 5,676
Total underwriting
deductions 173,780 195,350 320,499 340,557
Underwriting income $ 66,885
$ 51,922 $ 138,656
$ 150,231 Talbot Segment
Three Months Ended June 30, Six Months Ended June
30, 2017 2016 2017
2016 Underwriting revenues Gross premiums written $
262,477 $ 296,067 $ 509,652 $ 562,384 Reinsurance premiums ceded
(24,977 ) (27,161 ) (117,801 ) (114,619 ) Net premiums written
237,500 268,906 391,851 447,765 Change in unearned premiums (45,626
) (67,357 ) (4,912 ) (39,424 )
Net premiums earned 191,874
201,549 386,939 408,341 Other insurance
related income 65 279 820 290
Total
underwriting revenues 191,939 201,828 387,759
408,631
Underwriting deductions Losses and
loss expenses 93,389 109,310 199,801 209,411 Policy acquisition
costs 44,305 43,613 87,581 87,956 General and administrative
expenses 35,582 39,061 74,025 77,596 Share compensation expenses
3,155 3,270 5,982 6,792
Total
underwriting deductions 176,431 195,254 367,389
381,755
Underwriting income $
15,508 $ 6,574 $
20,370 $ 26,876
Western World Segment Three Months Ended June
30, Six Months Ended June 30, 2017
2016 2017 2016 Underwriting
revenues Gross premiums written $ 131,068 $ 86,971 $ 303,111 $
150,930 Reinsurance premiums ceded (23,180 ) (5,006 ) (28,798 )
(9,145 ) Net premiums written 107,888 81,965 274,313 141,785 Change
in unearned premiums 22,806 (16,309 ) (46,347 ) (14,630 )
Net premiums earned 130,694 65,656 227,966
127,155 Other insurance related income 663 189
904 477
Total underwriting revenues
131,357 65,845 228,870 127,632
Underwriting deductions Losses and loss expenses 97,008
44,229 171,933 83,875 Policy acquisition costs 19,230 15,410 39,466
29,610 General and administrative expenses 18,316 11,458 29,070
23,533 Share compensation expenses 609 542 1,301
1,123
Total underwriting deductions 135,163
71,639 241,770 138,141
Underwriting
loss $ (3,806 ) $ (5,794
) $ (12,900 ) $ (10,509
)
Validus Holdings, Ltd.
Segment Information
For the three and
six months ended June 30,
2017 and 2016
(Expressed in thousands of U.S. dollars,
except share and per share information)
AlphaCat Segment Three Months Ended June
30, Six Months Ended June 30, 2017
2016 2017 2016 Fee revenues
Third party $ 5,549 $ 3,091 $ 10,193 $ 7,818 Related party 644
328 1,275 1,219
Total fee
revenues 6,193 3,419 11,468 9,037
Expenses General and administrative expenses 3,549 2,751
7,393 4,233 Share compensation expenses 83 133 165 274 Finance
expenses 44 75 75 883 Tax expense 135 — 134 — Foreign exchange
losses 1 4 — 12
Total expenses
3,812 2,963 7,767 5,402
Income
before investment income from AlphaCat Funds and Sidecars 2,381
456 3,701 3,635
Investment income (loss) from AlphaCat
Funds and Sidecars (a)
AlphaCat Sidecars (21 ) 541 (133 ) 665
AlphaCat ILS Funds - Lower Risk (b)
1,301 2,075 3,490 4,582 AlphaCat ILS Funds - Higher Risk (b) 2,600
692 4,967 3,128 BetaCat ILS Funds 263 1,113 631 1,676 PaCRe —
— — (23 )
Validus’ share of investment
income from AlphaCat Funds and Sidecars 4,143 4,421
8,955 10,028
Validus’ share of AlphaCat
income $ 6,524 $ 4,877
$ 12,656 $ 13,663
(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 June 30,
Six Months Ended June 30, 2017 2016
2017 2016 Investment income Managed net
investment income (a) $ 38,063 $ 36,849 $ 74,255 $ 64,772
Corporate expenses General and administrative expenses
18,847 17,872 36,024 34,055 Share compensation expenses 4,636 4,007
8,049 8,099 Finance expenses (a) 14,149 13,979 28,013 28,320
Dividends on preferred shares 2,203 — 4,406 — Tax (benefit) expense
(a) (1,122 ) 1,706 (4,670 ) (412 )
Total Corporate
expenses 38,713 37,564 71,822 70,062
Other items
Net realized gains (losses) on managed
investments (a)
2,269 2,520 (623 ) 1,434
Change in net unrealized gains on managed
investments (a)
15,942 30,052 30,291 77,130 Income (loss) from investment
affiliates 9,466 (589 ) 14,654 (4,702 ) Foreign exchange (losses)
gains (a) (7,323 ) 6,621 (6,220 ) 12,695 Other income 174 79 268
756 Transaction expenses (4,427 ) — (4,427 ) —
Total other items 16,101 38,683 33,943
87,313
Total Corporate and Investments $
15,451 $ 37,968 $
36,376 $ 82,023 (a) These
items exclude the components which are included in Validus’ share
of AlphaCat and amounts which are consolidated from variable
interest entities.
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 income available to Validus common
shareholders determined in accordance with U.S. GAAP, the
Company believes that showing net operating income 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 income available to Validus common shareholders, a
non-GAAP financial measure, is calculated by the addition or
subtraction of certain Consolidated Statement of Income line items
from net income 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 income 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 income 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
June 30, 2017 and December 31, 2016
(Expressed in thousands of U.S. dollars,
except share and per share information)
At June 30, 2017
Per Share
Equity Amount Common Shares
Amount (a)
Book value per common share (b) $ 3,811,431 79,518,581 $
47.93
Non-GAAP Adjustments: Assumed exercise of outstanding stock options
(c)(d) 614 26,136 Unvested restricted shares — 2,530,559
Book value per diluted common share (e) 3,812,045 82,075,276
$ 46.45 Goodwill (227,701 ) — Intangible assets (175,518 ) —
Tangible book value per diluted common share (e) $ 3,408,826
82,075,276 $ 41.53 Book value per diluted common share (e) $
46.45 Accumulated dividends 12.32 Book value per diluted
common share plus accumulated dividends (e) $ 58.77
At December 31, 2016
Per Share
Equity Amount Common Shares
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 June 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 Income available to Validus
Common Shareholders, Net Operating Income per Diluted Share
Available to Validus Common Shareholders and Annualized Net
Operating Return on Average Equity
For the three and
six months ended June 30, 2017 and 2016
(Expressed in thousands of U.S. dollars,
except share and per share information)
Three Months Ended Six Months Ended
June 30,
June 30,
June 30,
June 30,
2017
2016
2017
2016
Net income available to Validus common shareholders $ 101,095 $
94,963 $ 195,656 $ 261,773 Non-GAAP Adjustments: Net realized gains
on investments (2,274 ) (2,724 ) (1,110 ) (2,140 ) Change in net
unrealized gains on investments (16,321 ) (31,428 ) (29,669 )
(78,872 ) (Income) loss from investment affiliates (9,466 ) 589
(14,654 ) 4,702 Foreign exchange losses (gains) 7,329 (6,286 )
5,760 (12,531 ) Other income (174 ) (79 ) (268 ) (756 ) Transaction
expenses 4,427 — 4,427 — Net income (loss) attributable to
noncontrolling interests 2,102 (135 ) 2,830 102 Tax expense (a)
1,748 2,980 2,328 7,107 Net operating
income available to Validus common shareholders (d) $ 88,466
$ 57,880 $ 165,300 $ 179,385 Earnings
per diluted share available to Validus common shareholders $ 1.25 $
1.14 $ 2.42 $ 3.12 Non-GAAP Adjustments: Net realized gains on
investments (0.03 ) (0.03 ) (0.01 ) (0.02 ) Change in net
unrealized gains on investments (0.20 ) (0.38 ) (0.37 ) (0.94 )
(Income) loss from investment affiliates (0.12 ) 0.01 (0.18 ) 0.06
Foreign exchange losses (gains) 0.09 (0.08 ) 0.07 (0.15 ) Other
income — — — (0.01 ) Transaction expenses 0.05 — 0.05 — Net income
(loss) attributable to noncontrolling interests 0.03 — 0.03 — Tax
expense (a) 0.02 0.03 0.03 0.08 Net
operating income per diluted share available to Validus common
shareholders (b) $ 1.09 $ 0.69 $ 2.04 $ 2.14
Average shareholders’ equity available to Validus
common shareholders (b) $ 3,786,654 $ 3,720,341 $ 3,753,866 $
3,693,219 Annualized return on average equity (c)
10.7
%
10.2
%
10.4
%
14.2
%
Annualized net operating return on average equity (b)(c)
9.3
%
6.2
%
8.8
%
9.7
%
(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 six 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.
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version on businesswire.com: http://www.businesswire.com/news/home/20170727006232/en/
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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