Exhibit 99.2
TALBOT HOLDINGS LTD
Unaudited Consolidated Financial Statements for the Six Month Period ended June 30, 2007
Unaudited Consolidated Financial Statements for the Six Month Period ended June 30, 2007
Contents
| Unaudited Consolidated balance sheets as at June 30, 2007 and December 31, 2006 | 1 | |||
| Unaudited Consolidated statements of income (loss) and comprehensive income (loss) for the Six Months ended June 30, 2007 and 2006 | 2 | |||
| Unaudited Consolidated statements of cash flows for the Six Months ended June 30, 2007 and 2006 | 3 | |||
| Notes to unaudited consolidated financial statements | 4 |
TALBOT HOLDINGS LTD CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
As at June 30, 2007 and December 31, 2006
| June 30, | December 31, | |||||||
| 2007 | 2006 | |||||||
| $000 | $000 | |||||||
ASSETS | ||||||||
| Securities available-for-sale (amortised cost $188,603; 2006: $527,458) | 188,067 | 524,483 | ||||||
| Short-term investments (estimated fair value approximates to cost) | 366,523 | 28,446 | ||||||
| Cash and cash equivalents | 353,705 | 278,231 | ||||||
Total investments and cash | 908,295 | 831,160 | ||||||
| Receivables | 84,005 | 46,065 | ||||||
| Accrued premium income | 168,346 | 140,440 | ||||||
| Reinsurance recoverable on paid and unpaid losses | 191,704 | 228,124 | ||||||
| Prepaid reinsurance premiums | 51,525 | 9,178 | ||||||
| Deferred policy acquisition costs | 70,029 | 55,841 | ||||||
| Accrued investment income | 7,692 | 7,717 | ||||||
| Other assets | 27,884 | 13,509 | ||||||
| Current taxes recoverable | 741 | 275 | ||||||
TOTAL ASSETS | 1,510,221 | 1,332,309 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Liabilities | ||||||||
| Insurance reserves | ||||||||
| - losses and loss adjustment expenses | 755,117 | 711,014 | ||||||
| - unearned premiums | 355,131 | 281,928 | ||||||
| Payable to insurance companies and reinsurers | 80,108 | 59,127 | ||||||
| Current taxation | (4,996 | ) | 1,735 | |||||
| Deferred taxation | 17,846 | 14,704 | ||||||
| Other liabilities | 68,072 | 76,552 | ||||||
Total liabilities | 1,271,278 | 1,145,060 | ||||||
Preference shares | 80,767 | 79,128 | ||||||
Shareholders’ equity | ||||||||
| Common stock (50,000,000 shares at 0.2 cents par value) | 115 | 100 | ||||||
| Additional paid-in capital | 17,219 | 5,065 | ||||||
| Retained earnings | 141,191 | 104,250 | ||||||
| Accumulated other comprehensive loss (net of tax) | (349 | ) | (681 | ) | ||||
| Treasury shares | — | (613 | ) | |||||
Total shareholders’ equity | 158,176 | 108,121 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | 1,510,221 | 1,332,309 | ||||||
See accompanying notes
1
TALBOT HOLDINGS LTD CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTH
PERIOD ENDED JUNE 30, 2007
PERIOD ENDED JUNE 30, 2007
CONSOLIDATED STATEMENTS OF INCOME/(LOSS) AND COMPREHENSIVE INCOME/(LOSS)
| Six Months ended June 30 | ||||||||
| 2007 | 2006 | |||||||
| $000 | $000 | |||||||
Revenues | ||||||||
| Gross premiums written | 401,186 | 335,664 | ||||||
| Reinsurance premiums ceded | (96,927 | ) | (119,295 | ) | ||||
| Net written premiums | 304,259 | 216,369 | ||||||
| Change in net unearned premiums | (27,853 | ) | (2,763 | ) | ||||
| Net earned premiums | 276,406 | 213,606 | ||||||
| Net investment income | 19,881 | 16,124 | ||||||
| Other | 2,165 | 2,351 | ||||||
Total operating revenues | 298,452 | 232,081 | ||||||
Expenses | ||||||||
| Losses and loss adjustment expenses | 144,842 | 104,916 | ||||||
| Net commissions and brokerage | 61,465 | 54,230 | ||||||
| Other operating expenses | 49,293 | 29,694 | ||||||
| Net realised losses on securities | 1,230 | 6,048 | ||||||
| Foreign exchange (gain)/loss | (1,183 | ) | 1,075 | |||||
| Interest expense | 184 | 581 | ||||||
Total operating expenses | 255,831 | 196,544 | ||||||
Income/(loss) before income taxes | 42,621 | 35,537 | ||||||
| Income tax (expense) | (1,194 | ) | (2,053 | ) | ||||
Net income | 41,427 | 33,484 | ||||||
Other comprehensive income/(loss) | ||||||||
| Net change in unrealised gains and losses on available for sale securities, net of taxes | 303 | (2,580 | ) | |||||
| Foreign currency translation adjustment | 29 | 647 | ||||||
Total other comprehensive income/(loss) | 332 | (1,933 | ) | |||||
Comprehensive income | 41,759 | 31,551 | ||||||
See accompanying notes
2
TALBOT HOLDINGS LTD CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTH
PERIOD ENDED JUNE 30, 2007
PERIOD ENDED JUNE 30, 2007
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Six Months ended June 30 | ||||||||
| 2007 | 2006 | |||||||
| $000 | $000 | |||||||
Operating activities | ||||||||
| Net income | 41,427 | 33,484 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities | ||||||||
| Depreciation | 497 | 440 | ||||||
| Cost of share options expensed | 2,370 | 272 | ||||||
| Realised losses on securities | 1,230 | 6,048 | ||||||
| Foreign exchange movements | (1,183 | ) | 1,075 | |||||
| Change in receivables | (42,101 | ) | (50,966 | ) | ||||
| Change in accrued premium income | (26,532 | ) | (3,305 | ) | ||||
| Change in deferred policy acquisition costs | (13,415 | ) | (10,146 | ) | ||||
| Change in current taxes recoverable | (443 | ) | — | |||||
| Change in other assets | (13,214 | ) | (2,576 | ) | ||||
| Change in unpaid losses and loss adjustment expenses, net | 38,050 | (19,158 | ) | |||||
| Change in unearned premiums, net | 69,883 | 55,021 | ||||||
| Change in payables to insurance companies | 7,739 | 10,008 | ||||||
| Change in accrued taxation | (1,149 | ) | (1,025 | ) | ||||
| Change in deferred income taxes | 231 | 202 | ||||||
| Change in other liabilities | 14,291 | (30,600 | ) | |||||
| Change in accrued preference dividend | (718 | ) | — | |||||
Net cash provided by (used in) operating activities | 76,963 | (11,226 | ) | |||||
Investing activities | ||||||||
| Proceeds from sales and maturities of investment securities | 878,767 | 765,670 | ||||||
| Cost of investment securities purchased | (877,369 | ) | (685,593 | ) | ||||
| Additions to property and equipment | (915 | ) | (356 | ) | ||||
Net cash provided by investing activities | 483 | 79,721 | ||||||
Financing activities | ||||||||
| Issue of common shares | 6,736 | — | ||||||
| Repayment of long-term debt | — | (6,809 | ) | |||||
| Change in overdraft | (11,179 | ) | 17,500 | |||||
| Preference dividends paid | (2,128 | ) | (2,127 | ) | ||||
| Shares sold (purchased) by Contingency Trust | 613 | (42 | ) | |||||
Net cash (utilised) provided by financing activities | (5,958 | ) | 8,522 | |||||
| Effect of exchange rate movements on cash and cash equivalents | 3,986 | 4,610 | ||||||
| Net change in cash and cash equivalents | 75,474 | 81,627 | ||||||
| Cash and cash equivalents at beginning of period | 278,231 | 119,386 | ||||||
Cash and cash equivalents at end of period | 353,705 | 201,013 | ||||||
See accompanying notes
3
TALBOT HOLDINGS LTD CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTH
PERIOD ENDED JUNE 30, 2007
PERIOD ENDED JUNE 30, 2007
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 General
The group underwrites marine, property, financial institutions, contingency insurance and treaty reinsurance through syndicate 1183 (“the syndicate”) at Lloyd’s. Reinsurance is purchased at a syndicate level to protect against exceptional large losses and at corporate member level to provide underwriting capacity.
A significant proportion of the group’s operations arise within the Lloyd’s insurance market. This business is conducted using the worldwide licensing and franchise of the Lloyd’s market.
2 Basis of preparation and consolidation
These unaudited condensed consolidated financial statements include Talbot Holdings Ltd and its wholly owned subsidiaries (together, the “Company”) and have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”). They do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Company’s financial position and results of operations as at the end of and for the periods presented. The results of operations for any interim period are not necessarily indicative of the results of a full year. All significant intercompany accounts and transactions have been eliminated. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. The major estimates reflected in the Company’s consolidated financial statements include unpaid losses and loss adjustment expenses. Actual results could differ from those estimates.
3 Commitments and contingencies
Funds at Lloyd’s
The Company’s underwriting at Lloyd’s for the 2005, 2006 and 2007 years of account is supported by Funds at Lloyd’s (“FAL”) comprising: cash, investments and undrawn letters of credit provided by various banks on behalf of various companies and persons under reinsurance and other agreements. The FAL are provided in exchange for payment calculated principally by reference to the syndicate’s 2005, 2006 and 2007 results, as appropriate, when they are declared. The amounts of cash, investments and letters of credit at June 30, 2007 amount to $266.5m (June 30, 2006: $268.6m).
At June 30, 2007, $145.0m is provided by the Company, of which $30.0m is provided under banking and other arrangements which would become a liability of the Company in the event of the syndicate declaring a loss at a level which would call on such arrangements.
Operating lease commitments
One of the Company’s subsidiaries leases office space under operating leases which expire at various dates. This subsidiary has also entered into operating leases for office equipment and furniture. Future minimum annual rental commitments for non-cancellable operating leases are as follows:
| June 30, | ||||
| 2007 | ||||
| $000 | ||||
| Within one year | 1,066 | |||
| Between one and two years | 1,477 | |||
| Between two and three years | 1,553 | |||
| After three years | 5,378 | |||
| 9,474 | ||||
4
TALBOT HOLDINGS LTD CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTH
PERIOD ENDED JUNE 30, 2007
PERIOD ENDED JUNE 30, 2007
Early redemption of preference shares
Under the terms of the Byelaws of the company, THL is obliged to offer, in respect of the annual redemption period ending on November 1, each year, to redeem preference shares as long as there are preference shares in issue. The minimum amount that can be offered each year is $10 million. The preference shareholders can choose whether to accept all or part of this redemption. The early redemption offer in respect of the annual redemption period ending on November 1, 2006 has been deferred, with the approval of all the preference shareholders, to a date not later than the date on which the redemption offer in respect of the annual redemption period ending on November 1, 2007 is made.
4 Subsequent Events
On June 29, 2007 all outstanding options over the shares of Talbot Holdings Ltd were exercised for cash payable on July 2, 2007.
On July 2, 2007, the entire share capital of the Company was acquired by Validus Holdings Ltd, a company registered in Bermuda. The Sale Agreement provides for limited post-completion indemnification of Validus, but only by certain employee sellers of shares.
On July 2, 2007, the preference shares were converted into ordinary shares and all rights of redemption ceased.
5