Test Environment

Validus Reports Third Quarter 2017 Financial Results

26 Oct 2017

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

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

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

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

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

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

       
     

Three Months Ended September 30,

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

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

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

Third Quarter 2017 Results

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

Highlights for the third quarter are as follows:

  • Gross premiums written for the three months ended September 30, 2017 were $523.9 million compared to $372.4 million for the three months ended September 30, 2016, an increase of $151.4 million, or 40.7%. The increase was primarily driven by increases in the Western World, Validus Re and AlphaCat segments.
  • Reinsurance premiums ceded for the three months ended September 30, 2017 were $116.9 million compared to $45.0 million for the three months ended September 30, 2016, an increase of $71.9 million or 159.7%. The increase was primarily driven by an increase in the Western World, Validus Re and Talbot segments.
  • Net premiums earned for the three months ended September 30, 2017 were $723.2 million compared to $563.8 million for the three months ended September 30, 2016, an increase of $159.4 million, or 28.3%. 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.
  • The loss ratio for the three months ended September 30, 2017 and September 30, 2016 was 173.5% and 45.8%, respectively, and included the following:
  • Notable losses of$926.2 million, or 128.1 percentage points of the loss ratio during the three months ended September 30, 2017 compared to$1.0 million, or 0.2 percentage points of the loss ratio during the three months ended September 30, 2016.
    • Excluding the AlphaCat segment, which includes results attributable to AlphaCat’s third party investors and noncontrolling interests, notable losses for the three months ended September 30, 2017 were $365.1 million, or 58.7 percentage points of the loss ratio. Including Validus’ share of AlphaCat net losses and loss expenses of $35.7 million, Validus’ share of net losses and loss expenses from third quarter 2017 notable loss events was $400.8 million;
    • Non-notable losses of $nil during the three months ended September 30, 2017 compared to $21.6 million, or 3.8 percentage points of the loss ratio during the three months ended September 30, 2016; and
    • Favorable loss reserve development on prior accident years of $75.1 million during the three months ended September 30, 2017, which benefited the loss ratio by 10.4 percentage points compared to favorable development of $52.9 million during the three months ended September 30, 2016, which benefited the loss ratio by 9.4 percentage points. The favorable development of $75.1 million for the three months ended September 30, 2017 was driven by favorable development on attritional and event losses of $58.9 million and $16.2 million, respectively.
  • The combined ratio for the three months ended September 30, 2017 and 2016 was 200.5% and 82.4%, respectively, an increase of 118.1 percentage points. Excluding the AlphaCat segment, which includes results attributable to AlphaCat’s third party investors and noncontrolling interests, the combined ratio for the three months ended September 30, 2017 was 138.8%, including a loss ratio of 110.0%.
  • Managed net investment income from our managed investment portfolio for the three months ended September 30, 2017 was $37.1 million compared to $41.1 million for the three months ended September 30, 2016, a decrease of $4.0 million, or 9.7%.
  • The annualized return on average equity was (27.3)% for the three months ended September 30, 2017, compared to 9.7% for the three months ended September 30, 2016. The annualized net operating return on average equity was (27.7)% for the three months ended September 30, 2017, compared to 8.9% for the three months ended September 30, 2016.

Notable and Non-Notable Losses

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

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

       
      Hurricane Harvey
(Dollars in thousands)     Validus Re     Talbot    

Western
World

    Interco     Total

Gross losses and loss expenses excluding the Alphacat
segment

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

Western
World

    Interco     Total

Gross losses and loss expenses excluding the Alphacat
segment

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

Western
World

    Interco     Total

Gross losses and loss expenses excluding the Alphacat
segment

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

Western
World

    Interco     Total

Gross losses and loss expenses excluding the Alphacat
segment

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

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

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

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

Validus Re Segment

Highlights for the third quarter include the following:

  • Gross premiums written for the three months ended September 30, 2017 were $153.9 million compared to $94.7 million for the three months ended September 30, 2016, an increase of $59.1 million, or 62.4%. Gross premiums written for the three months ended September 30, 2017 included $117.7 million of property premiums, $1.2 million of marine premiums and $35.0 million of specialty premiums, compared to $53.8 million of property premiums, $(4.5) million of marine premiums and $45.5 million of specialty premiums for the three months ended September 30, 2016. Excluding the impact of reinstatement premiums from third quarter 2017 notable loss events which impacted the property and marine lines by $59.1 million and $6.7 million, respectively, gross premiums written for the three months ended September 30, 2017 were $88.1 million, a decrease of $6.6 million, or 7.0% compared to the three months ended September 30, 2016. The decrease was primarily driven by a decrease in the specialty lines of $10.5 million due to the timing of renewals on certain programs and adjustments to existing business and was partially offset by an increase in the property lines of $4.8 million.
  • Reinsurance premiums ceded for the three months ended September 30, 2017 were $41.0 million compared to $16.0 million for the three months ended September 30, 2016, an increase of $25.0 million or 156.7%. The increase was primarily driven by an increase in the property lines of $15.1 million as a result of new retrocession coverage purchased following third quarter 2017 notable loss events and an increase in the specialty lines of $12.1 million relating to a new casualty and mortgage quota share retrocession program.
  • Net premiums earned for the three months ended September 30, 2017 were $267.0 million compared to $228.5 million for the three months ended September 30, 2016, an increase of $38.6 million or 16.9%. Excluding the net impact of reinstatement premiums and the acceleration of net unearned premiums ceded from third quarter 2017 notable loss events of $50.2 million, net premiums earned were $216.9 million, a decrease of $11.6 million, or 5.1% compared to the three months ended September 30, 2016.
  • The loss ratio for the three months ended September 30, 2017 and September 30, 2016 was 130.1% and 43.1%, respectively, and included the following:
    • Notable losses of $273.4 million, or 102.4 percentage points of the loss ratio during the three months ended September 30, 2017 compared to $nil during the three months ended September 30, 2016;
    • Non-notable losses of $nil during the three months ended September 30, 2017 compared to $10.4 million, or 4.5 percentage points of the loss ratio during the three months ended September 30, 2016; and
    • Favorable loss reserve development on prior accident years of $48.1 million during the three months ended September 30, 2017, which benefited the loss ratio by 18.0 percentage points compared to favorable development of $33.0 million during the three months ended September 30, 2016, which benefited the loss ratio by 14.5 percentage points. The favorable development of $48.1 million for the three months ended September 30, 2017 included favorable development on attritional and event losses of $30.5 million and $17.6 million, respectively.
  • General and administrative expenses for the three months ended September 30, 2017 were $12.4 million compared to $17.5 million for the three months ended September 30, 2016, a decrease of $5.1 million or 29.0%. The decrease was driven by a reduction in the bonus accrual during the three months ended September 30, 2017.
  • The combined ratio for the three months ended September 30, 2017 and 2016 was 152.8% and 70.7%, respectively, an increase of 82.1 percentage points.
  • Underwriting (loss) for the three months ended September 30, 2017 was $(140.8) million compared to income of $67.1 million for the three months ended September 30, 2016, a decrease of $207.9 million.

Talbot Segment

Highlights for the third quarter include the following:

  • Gross premiums written for the three months ended September 30, 2017 were $192.9 million compared to $189.7 million for the three months ended September 30, 2016, an increase of $3.2 million, or 1.7%. Gross premiums written for the three months ended September 30, 2017 included $68.8 million of property premiums, $39.2 million of marine premiums and $84.9 million of specialty premiums compared to $64.3 million of property premiums, $48.1 million of marine premiums and $77.3 million of specialty premiums for the three months ended September 30, 2016. Excluding the impact of reinstatement premiums from third quarter 2017 notable loss events of $3.0 million, gross premiums written for the three months ended September 30, 2017 were $189.9 million, an increase of $0.2 million, or 0.1% compared to the three months ended September 30, 2016.
  • Reinsurance premiums ceded for the three months ended September 30, 2017 were $36.5 million compared to $22.9 million for the three months ended September 30, 2016, an increase of $13.6 million or 59.4%. Excluding the impact of reinstatement premiums ceded from third quarter 2017 notable loss events of $9.8 million, reinsurance premiums ceded for the three months ended September 30, 2017 were $26.7 million, an increase of $3.8 million, or 16.5% compared to the three months ended September 30, 2016. The increase was primarily driven by new reinsurance coverage purchased following third quarter 2017 notable loss events.
  • Net premiums earned for the three months ended September 30, 2017 were $179.6 million compared to $199.1 million for the three months ended September 30, 2016, a decrease of $19.4 million or 9.8%. Excluding the impact of net reinstatement premiums ceded from third quarter 2017 notable loss events of $6.8 million, net premiums earned were $186.4 million, a decrease of $12.6 million, or 6.4% compared to the three months ended September 30, 2016.
  • The loss ratio for the three months ended September 30, 2017 and September 30, 2016 was 99.3% and 55.2%, respectively, and included the following:
    • Notable losses of $81.8 million, or 45.5 percentage points of the loss ratio during the three months ended September 30, 2017 compared to $nil during the three months ended September 30, 2016;
    • Non-notable losses of $nil during the three months ended September 30, 2017 compared to $11.3 million, or 5.7 percentage points of the loss ratio during the three months ended September 30, 2016;
    • Losses of $10.8 million, or 6.0 percentage points of the loss ratio, arising from the Mexico City Earthquake occurring during the three months ended September 30, 2017, and
    • Favorable loss reserve development on prior accident years of $23.6 million during the three months ended September 30, 2017, which benefited the loss ratio by 13.1 percentage points compared to favorable development of $18.7 million during the three months ended September 30, 2016, which benefited the loss ratio by 9.4 percentage points. The favorable development of $23.6 million for the three months ended September 30, 2017 was primarily due to favorable development on attritional losses.
  • General and administrative expenses for the three months ended September 30, 2017 were $23.1 million compared to $32.3 million for the three months ended September 30, 2016, a decrease of $9.3 million or 28.7%. The decrease was driven by a reduction in the bonus accrual during the three months ended September 30, 2017.
  • The combined ratio for the three months ended September 30, 2017 and 2016 was 136.6% and 96.4%, respectively, an increase of 40.2 percentage points.
  • Underwriting (loss) for the three months ended September 30, 2017 was $(65.0) million compared to income of $7.3 million for the three months ended September 30, 2016, a decrease of $72.3 million.

Western World Segment

Highlights for the third quarter include the following:

  • Gross premiums written for the three months ended September 30, 2017 were $156.5 million compared to $85.3 million for the three months ended September 30, 2016, an increase of $71.3 million, or 83.6%. Gross premiums written for the three months ended September 30, 2017 included $36.4 million of property premiums, $68.4 million of liability premiums and $51.8 million of specialty premiums, compared to $23.8 million of property premiums, $61.5 million of liability premiums and $nil specialty premiums for the three months ended September 30, 2016. The increase in the property and liability lines of $12.6 million and $6.9 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 programs and 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 $51.8 million was due to new agriculture business written through Crop Risk Services (“CRS”).
  • Reinsurance premiums ceded for the three months ended September 30, 2017 were $43.2 million compared to $6.2 million for the three months ended September 30, 2016, an increase of $37.0 million. The increase was primarily driven by an increase in ceded agriculture premiums relating to new business written through CRS, reinstatement premiums ceded from third quarter 2017 notable loss events and new reinsurance coverage purchased following third quarter 2017 notable loss events.
  • The loss ratio for the three months ended September 30, 2017 and September 30, 2016 was 90.2% and 64.6%, respectively, and included the following:
    • Specialty losses of $84.8 million during the three months ended September 30, 2017 arising from new crop business written through CRS which is booked at an 85.9% loss ratio;
    • Notable losses of $10.0 million, or 5.7 percentage points of the loss ratio during the three months ended September 30, 2017 compared to $nil during the three months ended September 30, 2016;
    • Other U.S.-based weather losses of $1.3 million, or 0.7 percentage points of the loss ratio during the three months ended September 30, 2017, compared to $3.0 million, or 4.3 percentage points of the loss ratio during the three months ended September 30, 2016;
    • Favorable loss reserve development on prior accident years of $0.1 million during the three months ended September 30, 2017 compared to favorable development of $0.9 million during the three months ended September 30, 2016.
  • General and administrative expenses for the three months ended September 30, 2017 were $21.6 million compared to $10.2 million for the three months ended September 30, 2016, an increase of $11.4 million, or 111.9%. General and administrative expenses for the three months ended September 30, 2017 included $12.0 million of CRS expenses, of which $1.7 million related to the amortization of intangible assets acquired and was partially offset by a reduction in the bonus accrual during the three months ended September 30, 2017.
  • The combined ratio for the three months ended September 30, 2017 and 2016 was 114.5% and 104.1%, respectively, an increase of 10.4 percentage points.
  • Underwriting (loss) for the three months ended September 30, 2017 was $(24.8) million compared to $(2.7) million for the three months ended September 30, 2016, an increase of $22.1 million.

AlphaCat Segment

Highlights for the third quarter include the following:

  • AlphaCat’s assets under management were $2.9 billion as at October 1, 2017 compared to $3.1 billion as at July 1, 2017, of which third party assets under management were $2.7 billion as at October 1, 2017 compared to $2.9 billion as at July 1, 2017. During the three months ended October 1, 2017, a total of $176.5 million was raised from third parties. During the three months ended October 1, 2017, $90.5 million was returned to investors, of which $83.2 million was returned to third party investors.
  • Fee revenues earned for the three months ended September 30, 2017 were $5.6 million, of which $5.1 million were earned from third parties, compared to $8.4 million for the three months ended September 30, 2016, of which $7.0 million were earned from third parties. The decrease in fee revenues earned from third parties of $1.9 million was driven by a decrease in performance fees as a result of the third quarter 2017 notable loss events and was partially offset by an increase in management fees as a result of an increase in assets under management over the last twelve months.
  • Total expenses for the three months ended September 30, 2017 were $3.1 million compared to $3.3 million for the three months ended September 30, 2016, a decrease of $0.2 million, or 5.1%. The decrease was driven by a reduction in the bonus accrual during the three months ended September 30, 2017.
  • Income before investment (loss) income from AlphaCat Funds and Sidecars, comprising fee revenues less total expenses, for the three months ended September 30, 2017 was $2.5 million compared to $5.1 million for the three months ended September 30, 2016, a decrease of $2.7 million.
  • Validus’ share of investment (losses) from AlphaCat Funds and Sidecars for the three months ended September 30, 2017 was $(30.1) million compared to income of $6.0 million for the three months ended September 30, 2016, a decrease of $36.1 million. The decrease was driven by the third quarter 2017 notable loss events.
  • Validus’ share of AlphaCat (losses) for the three months ended September 30, 2017 was $(27.6) million compared to income of $11.2 million for the three months ended September 30, 2016, a decrease of $38.8 million.

Investments

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

  • Managed net investment income from our managed investment portfolio for the three months ended September 30, 2017 was $37.1 million compared to $41.1 million for the three months ended September 30, 2016, a decrease of $4.0 million, or 9.7%. The decrease was primarily due to an outsized gain in one of the Company’s fixed income funds during the three months ended September 30, 2016.
  • Annualized effective yield for the three months ended September 30, 2017 was 2.23%, compared to 2.58% for the three months ended September 30, 2016, a decrease of 35 basis points.
  • Net realized gains on managed investments for the three months ended September 30, 2017 were $0.9 million compared to $4.1 million for the three months ended September 30, 2016, an unfavorable movement of $3.2 million or 77.9%.
  • The change in net unrealized gains on managed investments for the three months ended September 30, 2017 was $0.9 million compared to $4.7 million for the three months ended September 30, 2016, an unfavorable movement of $3.7 million, or 79.8%.

Corporate Expenses and Other Items

Highlights for the third quarter include the following:

  • General and administrative expenses for the three months ended September 30, 2017 were $9.5 million compared to $18.2 million for the three months ended September 30, 2016, a decrease of $8.7 million or 47.6%. The decrease was driven by a reduction in the bonus accrual during the three months ended September 30, 2017.
  • Share compensation expenses for the three months ended September 30, 2017 were $4.0 million compared to $4.0 million for the three months ended September 30, 2016.
  • Finance expenses, excluding the Company's share of AlphaCat finance expenses from consolidated VIEs, for the three months ended September 30, 2017 were $14.4 million compared to $14.3 million for the three months ended September 30, 2016, an increase of $0.1 million or 0.9%.
  • Dividends paid on preferred shares during the three months ended September 30, 2017 were $5.6 million compared to $2.3 million during the three months ended September 30, 2016, an increase of $3.4 million, or 149.9% due to $250.0 million of new preferred shares issued during the second quarter of 2017.
  • Foreign exchange losses for the three months ended September 30, 2017 were $1.5 million compared to $1.1 million for the three months ended September 30, 2016, an increase of $0.4 million, or 40.1%.

Shareholders’ Equity and Capitalization

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

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

Share Repurchases

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

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

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

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

Cumulative to Date
through October 25, 2017

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

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

Year to Date 2017 Results

Highlights for the year to date include the following:

  • Gross premiums written for the nine months ended September 30, 2017 were $2,507.6 million compared to $2,309.3 million for the nine months ended September 30, 2016, an increase of $198.4 million, or 8.6%.
  • Reinsurance premiums ceded for the nine months ended September 30, 2017 were $373.2 million compared to $249.1 million for the nine months ended September 30, 2016, an increase of $124.1 million, or 49.8%.
  • Net premiums earned for the nine months ended September 30, 2017 were $1,929.6 million compared to $1,708.8 million for the nine months ended September 30, 2016, an increase of $220.8 million, or 12.9%.
  • The loss ratio for the nine months ended September 30, 2017 and September 30, 2016 was 94.3% and 46.2%, respectively and included the following:
    • Notable losses of $926.2 million, or 48.0 percentage points of the loss ratio during the nine months ended September 30, 2017 compared to $37.9 million, or 2.2 percentage points of the loss ratio during the nine months ended September 30, 2016.
    • Excluding the AlphaCat segment, which includes results attributable to AlphaCat’s third party investors and noncontrolling interests, notable losses for the nine months ended September 30, 2017 were $365.1 million, or 21.5 percentage points of the loss ratio. Including Validus’ share of AlphaCat net losses and loss expenses of $35.7 million, Validus’ share of net losses and loss expenses from 2017 notable loss events was $400.8 million;
    • Non-notable losses of $27.3 million, or 1.4 percentage points of the loss ratio during the nine months ended September 30, 2017 compared to $69.9 million, or 4.1 percentage points of the loss ratio during the nine months ended September 30, 2016; and
    • Favorable loss reserve development on prior accident years of $179.6 million during the nine months ended September 30, 2017, which benefited the loss ratio by 9.3 percentage points compared to favorable development of $169.4 million during the nine months ended September 30, 2016, which benefited the loss ratio by 9.9 percentage points.
  • The combined ratio for the nine months ended September 30, 2017 and 2016 was 126.9% and 82.5%, respectively, an increase of 44.4 percentage points. Excluding the AlphaCat segment, which includes results attributable to AlphaCat’s third party investors and noncontrolling interests, the combined ratio for the nine months ended September 30, 2017 was 107.7%, including a loss ratio of 73.5%.
  • Managed net investment income from our managed investment portfolio for the nine months ended September 30, 2017 was $111.3 million compared to $105.8 million for the nine months ended September 30, 2016, an increase of $5.5 million, or 5.2%.
  • Income from investment affiliates for the nine months ended September 30, 2017 was $15.7 million compared to a (loss) of $4.2 million for the nine months ended September 30, 2016, an increase of $19.9 million.
  • The change in net unrealized gains on managed investments for the nine months ended September 30, 2017 was $31.2 million compared to $81.8 million for the nine months ended September 30, 2016, an unfavorable movement of $50.6 million, or 61.8%.
  • Net (loss) attributable to Validus common shareholders for the nine months ended September 30, 2017 was $(54.8) million compared to net income available to Validus common shareholders of $351.6 million for the nine months ended September 30, 2016, a decrease of $406.4 million.
  • Net operating (loss) attributable to Validus common shareholders for the nine months ended September 30, 2017 was $(89.2) million compared to net operating income available to Validus common shareholders of $262.4 million for the nine months ended September 30, 2016, a decrease of $351.6 million.
  • Annualized return on average equity was (2.0)% and annualized net operating return on average equity was (3.2)% for the nine months ended September 30, 2017 compared to 12.7% and 9.5%, respectively, for the nine months ended September 30, 2016.

Conference Call

The Company will host a conference call for analysts and investors on October 27, 2017 at 10:00 AM (Eastern) to discuss the third quarter 2017 financial results and related matters. The conference call may be accessed by dialing 1-844-579-6824 (U.S. callers) or 1-763-488-9145 (international callers) and entering the passcode 6786 6099. Those who intend to participate in the conference call should register at least ten minutes in advance to ensure access to the call. A telephone replay of the conference call will be available through November 10, 2017, by dialing 1-855-859-2056 (U.S. callers) or 1-404-537-3406 (international callers) and entering the passcode 6786 6099.

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

About Validus Holdings, Ltd.

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

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

             

Validus Holdings, Ltd.

Consolidated Balance Sheets

As at September 30, 2017 and December 31, 2016

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

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

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

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

Validus Holdings, Ltd.

Consolidated Statements of (Loss) Income

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

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

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

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

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

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

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

Validus Holdings, Ltd.

Segment Information

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

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

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

Validus Holdings, Ltd.

Segment Information

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

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

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

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

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

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

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

Validus Holdings, Ltd.

Segment Information

For the three months ended September 30, 2017

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

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

      Three Months Ended September 30, 2017
     

Validus Re
Segment

   

Talbot
Segment

   

Western
World
Segment

   

AlphaCat
Segment and
Consolidated
VIEs

   

Corporate
and
Investments

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

General and administrative
expenses

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

Loss attributable to AlphaCat
investors

                      74,130                   74,130  

Net loss attributable to
noncontrolling interests

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

Net loss attributable to Validus
common shareholders

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

Validus Holdings, Ltd.

Segment Information

For the three months ended September 30, 2016

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

       
      Three Months Ended September 30, 2016
     

Validus Re
Segment

   

Talbot
Segment

   

Western
World
Segment

   

AlphaCat
Segment and
Consolidated
VIEs

   

Corporate
and
Investments

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

(Income) attributable to AlphaCat
investors

                      (5,564 )                 (5,564 )

Net (income) attributable to
noncontrolling interest

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

Net income available to Validus
common shareholders

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

Validus Holdings, Ltd.

Segment Information

For the nine months ended September 30, 2017

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

       
      Nine Months Ended September 30, 2017
     

Validus Re
Segment

   

Talbot
Segment

   

Western
World
Segment

   

AlphaCat
Segment and
Consolidated
VIEs

   

Corporate
and
Investments

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

Loss attributable to AlphaCat
investors

                      54,797                   54,797  

Net loss attributable to
noncontrolling interest

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

Net loss attributable to Validus
common shareholders

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

Validus Holdings, Ltd.

Segment Information

For the nine months ended September 30, 2016

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

       
      Nine Months Ended September 30, 2016
     

Validus Re
Segment

   

Talbot
Segment

   

Western
World
Segment

   

AlphaCat
Segment and
Consolidated
VIEs

   

Corporate
and
Investments

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

(Income) attributable to AlphaCat
investors

                      (16,278 )                 (16,278 )

Net (income) attributable
to noncontrolling interest

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

Net income available to Validus
common shareholders

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

Non-GAAP Financial Measures

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

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

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

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

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

       

Validus Holdings, Ltd.

Non-GAAP Financial Measures Reconciliation

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

As at September 30, 2017 and December 31, 2016

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

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

Validus Holdings, Ltd.

Non-GAAP Financial Measures Reconciliation

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

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

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

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

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

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

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

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

(27.3

%)

   

9.7

%

   

(2.0

%)

   

12.7

%

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

(27.7

%)

   

8.9

%

   

(3.2

%)

   

9.5

%

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

Cautionary Note Regarding Forward-Looking Statements

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

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

 

Source: Validus Holdings, Ltd.

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