 | Validus Holdings, Ltd. | |
| Bermuda Commercial Bank Building | ||
| 19 Par-la-Ville Road | ||
| Hamilton, HM 11 | ||
| Bermuda | ||
| November 7, 2008 | Mailing Address: | |
| Suite 1790 | ||
| 48 Par-la-Ville Road | ||
| Hamilton, HM 11 | ||
| Bermuda | ||
| Telephone: (441) 278-9000 | ||
| Facsimile: (441) 278-9090 | ||
| Website: www.validusre.bm |
ADDITIONAL DISCLOSURE ON THE VALIDUS HOLDINGS, LTD. (“VALIDUS”)
CONSOLIDATED INVESTMENT PORTFOLIO (THE “PORTFOLIO”)
CONSOLIDATED INVESTMENT PORTFOLIO (THE “PORTFOLIO”)
As of September 30, 2008, the Portfolio had a fair market value of $3,256.1 million. Validus is providing the following additional disclosure on the composition of its Portfolio in response to the continued volatility in the global credit markets.
Validus Mortgage-Backed And Asset-Backed Securities Portfolio
Fair Market Values (in USD MM) as of September 30, 2008
| RATING | ||||||||||||||||||||||||||||||||||||
| Gov't | AAA | AA | A | BBB | BB | B | Other | Total | ||||||||||||||||||||||||||||
Mortgage-Backed Securities | ||||||||||||||||||||||||||||||||||||
| Residential Mortgage-Backed GNMA | 43.0 | — | — | — | — | — | — | — | 43.0 | |||||||||||||||||||||||||||
| FNMA | 216.3 | — | — | — | — | — | — | — | 216.3 | |||||||||||||||||||||||||||
| Freddie Mac | 186.0 | — | — | — | — | — | — | — | 186.0 | |||||||||||||||||||||||||||
| Total Agency RMBS | 445.3 | — | — | — | — | — | — | — | 445.3 | |||||||||||||||||||||||||||
| Non-Agency RMBS | — | 267.6 | 6.1 | 4.9 | — | — | — | — | 278.6 | |||||||||||||||||||||||||||
| Total Residential Mortgage-Backed | 445.3 | 267.6 | 6.1 | 4.9 | — | — | — | — | 723.9 | |||||||||||||||||||||||||||
| Commercial Mortgage-Backed | — | 216.7 | — | — | — | — | — | — | 216.7 | |||||||||||||||||||||||||||
Total Mortgage-Backed Securities | 445.3 | 484.3 | 6.1 | 4.9 | — | — | — | — | 940.6 | |||||||||||||||||||||||||||
Asset-Backed Securities | ||||||||||||||||||||||||||||||||||||
| Sub Prime | — | 8.7 | — | — | — | 0.9 | — | — | 9.6 | |||||||||||||||||||||||||||
| Credit Cards | — | 33.1 | — | — | — | — | — | — | 33.1 | |||||||||||||||||||||||||||
| Autos | — | 101.5 | — | — | — | — | — | — | 101.5 | |||||||||||||||||||||||||||
| Stranded Cost & UK ABS | — | 13.7 | — | — | — | — | — | — | 13.7 | |||||||||||||||||||||||||||
Total Asset-Backed Securities | — | 157.0 | — | — | — | 0.9 | — | — | 157.9 | |||||||||||||||||||||||||||
Total Asset-Backed and Mortgage- Backed Securities | 1,098.5 | |||||||||||||||||||||||||||||||||||
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Residential Mortgage Backed Securities (“RMBS”) (22.2% of total cash and investments*)
GSE RMBS (13.7%)
The Portfolio contains $445.3 million in GSE residential mortgage-backed securities.
The Portfolio contains $445.3 million in GSE residential mortgage-backed securities.
Validus’ GSE RMBS allocation has a weighted-average effective duration of 3.0 years, a fair market price of 101.27 and corresponding yield of 5.4%, a book yield of 5.6% and an unrealized gain of approximately $2.8 million.
Non-Agency RMBS — Prime (4.8%)
The Portfolio’s $157.0 million prime non-Agency RMBS allocation consists entirely of AAA rated securities. 61.9% of Validus’ prime non-Agency allocation consists of securities whose loans were originated in 2005 and prior; 19.0% of the prime RMBS allocation was issued in 2006. The allocation has a weighted average current credit enhancement of 8.1%, which continues to increase as the securities pay down. The allocation has a weighted-average FICO score of 740 and a loan-to-value ratio of 65.7%.
The Portfolio’s $157.0 million prime non-Agency RMBS allocation consists entirely of AAA rated securities. 61.9% of Validus’ prime non-Agency allocation consists of securities whose loans were originated in 2005 and prior; 19.0% of the prime RMBS allocation was issued in 2006. The allocation has a weighted average current credit enhancement of 8.1%, which continues to increase as the securities pay down. The allocation has a weighted-average FICO score of 740 and a loan-to-value ratio of 65.7%.
Validus’ overall prime non-agency allocation has a weighted-average effective duration of 2.5 years; a fair market price of 87.28 and corresponding yield of 9.2%; an equivalent weighted-average book yield of 5.5%; and an unrealized loss of approximately $21.8 million.
Non-Agency RMBS — Alt-A (3.7%)
91.0% of the Portfolio’s $121.6 million Alt-A non-Agency RMBS allocation consists of AAA rated securities. 47.6% of Validus’ Alt-A non-Agency allocation consists of securities whose loans were originated in 2006 and prior. The allocation has a weighted average current credit enhancement of 26.4%, which continues to increase as the securities pay down. The allocation has a high weighted-average FICO score of 711 and a loan-to-value ratio of 77.7%.
91.0% of the Portfolio’s $121.6 million Alt-A non-Agency RMBS allocation consists of AAA rated securities. 47.6% of Validus’ Alt-A non-Agency allocation consists of securities whose loans were originated in 2006 and prior. The allocation has a weighted average current credit enhancement of 26.4%, which continues to increase as the securities pay down. The allocation has a high weighted-average FICO score of 711 and a loan-to-value ratio of 77.7%.
Validus’ overall Alt-A non-agency allocation has a weighted-average effective duration of 0.8 years; a fair market price of 92.55 and corresponding yield of 6.3%; a book yield of 5.0%; and an unrealized loss of approximately $10.1 million.
The Company determined that markets for certain of its non-agency RMBS (“identified non-agency RMBS securities”), primarily Alt-A, were illiquid at September 30, 2008. As a result, the identified non-agency RMBS securities were deemed to be Level 3 securities as defined by Financial Accounting Standard 157 (“FAS 157”). The Company applied the guidance in FSP FAS 157-3 to determine the fair market value of the identified non-agency RMBS securities using a discounted cash flow model.
The following table shows fair market values by vintage year and rating:
Fair Market Values (in USD MM) of Alt-A non-Agency RMBS by Vintage Year & Rating
| Vintage | AAA | AA | A | BBB | BB and below | Total | ||||||||||||||||||
| 2007 | 51.8 | — | 4.9 | — | — | 56.7 | ||||||||||||||||||
| 2006 | 29.3 | 6.1 | — | — | — | 35.4 | ||||||||||||||||||
| 2005 | 26.4 | — | — | — | — | 26.4 | ||||||||||||||||||
| 2004 and prior | 3.1 | — | — | — | — | 3.1 | ||||||||||||||||||
Total | 110.6 | 6.1 | 4.9 | — | — | 121.6 | ||||||||||||||||||
*Total cash and investments at 09/30/08 (MMs) = $3,256.1
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ABS (4.8% of total cash and investments *)
Auto & Credit Card ABS — Non Sub-Prime (4.6%)
The Portfolio’s $148.3 million allocation to ABS consists predominantly of AAA rated securities. The ABS portfolio excluding Sub-Prime consists of auto, credit card, stranded cost and UK ABS. 64.6% of Validus’ auto- and credit card-backed allocation consists of securities whose loans were originated in 2006 and prior.
The Portfolio’s $148.3 million allocation to ABS consists predominantly of AAA rated securities. The ABS portfolio excluding Sub-Prime consists of auto, credit card, stranded cost and UK ABS. 64.6% of Validus’ auto- and credit card-backed allocation consists of securities whose loans were originated in 2006 and prior.
Validus’ ABS allocation, excluding Sub-Prime, has a weighted-average effective duration of 0.7 years; a fair market price of 99.28 and corresponding yield of 6.0%; a book yield of 4.8% and an unrealized loss of approximately $1.4 million.
Home Equity ABS — Sub-Prime (0.3%)
The Portfolio’s $9.6 million sub-prime HEL ABS allocation consists primarily of AAA rated securities. 59.9% of Validus’ sub-prime allocation consists of securities issued in 2006 and prior. The allocation has a weighted-average current credit enhancement of 36.3% and very short weighted-average life of 1.6 years. The credit enhancement will continue to increase as the securities pay down. The securities have a weighted-average FICO score of 637 and a loan-to-value ratio of 79.9%.
The Portfolio’s $9.6 million sub-prime HEL ABS allocation consists primarily of AAA rated securities. 59.9% of Validus’ sub-prime allocation consists of securities issued in 2006 and prior. The allocation has a weighted-average current credit enhancement of 36.3% and very short weighted-average life of 1.6 years. The credit enhancement will continue to increase as the securities pay down. The securities have a weighted-average FICO score of 637 and a loan-to-value ratio of 79.9%.
Validus’ overall home equity-backed ABS allocation has a weighted-average effective duration of 0.1 years; a fair market price of 90.44 and corresponding yield of 13.6%; a book yield of 3.9%; and an unrealized loss of approximately $1.3 million.
The following table shows fair market values by vintage year and rating:
Fair Market Values (in USD MM) of Sub prime HEL ABS by Vintage Year & Rating
| Vintage | AAA | AA | A | BBB | BB and below | Total | ||||||||||||||||||
| 2007 | 2.9 | — | — | — | 0.9 | 3.8 | ||||||||||||||||||
| 2006 | 5.1 | — | — | — | — | 5.1 | ||||||||||||||||||
| 2005 | — | — | — | — | — | — | ||||||||||||||||||
| 2004 and prior | 0.7 | — | — | — | — | 0.7 | ||||||||||||||||||
Total | 8.7 | — | — | — | 0.9 | 9.6 | ||||||||||||||||||
CMBS (6.7% of total cash and investments *)
The Portfolio’s $216.7 million CMBS allocation is well-diversified and consists solely of AAA rated stable, seasoned deals that have collateral with transparent histories. 66.2% of Validus’ CMBS allocation consists of securities issued in 2004 and prior; 16.3% of the portfolio’s allocation was issued in 2005 and 2006. The allocation has a weighted average current credit enhancement of 29.2%, which continues to increase as the securities pay down. The average loan-to-value ratio is 68.6% and the debt service coverage ratio in excess of 1.70.
Validus’ overall CMBS allocation has a weighted-average effective duration of 2.5 years; a fair market price of 96.31 and corresponding yield of 6.8%; a book yield of 5.3%; and an unrealized loss of approximately $9.4 million.
*Total cash and investments at 09/30/08 (MMs) = $3,256.1
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Validus Exposure to U.S. Government Sponsored Agencies
As of September 30, 2008, the Portfolio had approximately $130.4 million invested in debt of U.S. Government sponsored agencies Fannie Mae (FNMA) and Freddie Mac (FHLMC), as set forth below:
| Fair Market Values (in USD MM) | % of Total Cash | |||||||||||||||
| FNMA | FHLMC | Total | and Investments | |||||||||||||
| Senior bonds | 72.9 | 58.5 | 131.4 | 4.04 | % | |||||||||||
| Subordinated debt | 6.5 | — | 6.5 | 0.20 | % | |||||||||||
Total | 79.4 | 58.5 | 137.9 | 4.24 | % | |||||||||||
Validus’ investment guidelines do not permit purchases of equity securities and therefore Validus has no investment in common or preferred stock of FNMA or Freddie Mac. Similarly, the Portfolio’s investment guidelines do not permit investment in derivatives and so the Portfolio does not have exposure to FNMA or Freddie Mac through derivative contracts.
Validus Analysis of Exposure To Financial Guarantors
As of September 30, 2008, the Portfolio has approximately $5.6 million of insurance enhanced asset backed securities (“Insured Investments”) that have no underlying credit ratings. Detail by insurer for the Insured Investments is as follows:
| Fair | ||||||||
| Market | % of Total | |||||||
| Value | Cash and | |||||||
| Insurer | ($MMs) | Investments | ||||||
| FSA | $ | 3.0 | 0.09 | % | ||||
| AMBAC | 1.0 | 0.03 | % | |||||
| MBIA | 1.6 | 0.05 | % | |||||
| $ | 5.6 | 0.17 | % | |||||
*Total cash and investments at 09/30/08 (MMs) = $3,256.1
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The following table presents the Portfolio by rating category at September 30, 2008, with the Insured Investments shown at the then applicable rating or at the underlying rating without giving effect to insurance enhancement:
| Uninsured Investments | Insured Investments | Underlying Ratings of Insured | Total Investments | Total Investments | ||||||||||||||||||||||||||||||||||||||||||||
| (A) | (B) | (C) | (A) + (B) | (A) + (C) | ||||||||||||||||||||||||||||||||||||||||||||
| Fair | Fair | Fair | Fair | Fair | ||||||||||||||||||||||||||||||||||||||||||||
| Market | Market | Market | Market | Market | ||||||||||||||||||||||||||||||||||||||||||||
| Value | Market | Value | Market | Value | Market | Value | Market | Value | Market | |||||||||||||||||||||||||||||||||||||||
| Rating | ($MM) | Value (%) | Rating | ($MM) | Value (%) | Rating | ($MM) | Value (%) | Rating | ($MM) | Value (%) | Rating | ($MM) | Value (%) | ||||||||||||||||||||||||||||||||||
| AAA | $ | 2,091.5 | 80.8 | % | AAA1 | $ | 5.6 | 100.0 | % | AAA | — | 0.0 | % | AAA | $ | 2,097.1 | 80.8 | % | AAA | $ | 2,091.5 | 80.6 | % | |||||||||||||||||||||||||
| AA+ | 35.4 | 1.4 | % | AA+ | — | 0.0 | % | AA+ | — | 0.0 | % | AA+ | 35.4 | 1.4 | % | AA+ | 35.4 | 1.4 | % | |||||||||||||||||||||||||||||
| AA | 53.7 | 2.1 | % | AA | — | 0.0 | % | AA | — | 0.0 | % | AA | 53.7 | 2.1 | % | AA | 53.7 | 2.1 | % | |||||||||||||||||||||||||||||
| AA- | 124.7 | 4.8 | % | AA- | — | 0.0 | % | AA- | — | 0.0 | % | AA- | 124.7 | 4.8 | % | AA- | 124.7 | 4.8 | % | |||||||||||||||||||||||||||||
| A+ | 111.5 | 4.3 | % | A+ | — | 0.0 | % | A+ | — | 0.0 | % | A+ | 111.5 | 4.3 | % | A+ | 111.5 | 4.3 | % | |||||||||||||||||||||||||||||
| A | 122.5 | 4.7 | % | A | — | 0.0 | % | A | — | 0.0 | % | A | 122.5 | 4.7 | % | A | 122.5 | 4.7 | % | |||||||||||||||||||||||||||||
| A- | 41.4 | 1.6 | % | A- | — | 0.0 | % | A- | — | 0.0 | % | A- | 41.4 | 1.6 | % | A- | 41.4 | 1.6 | % | |||||||||||||||||||||||||||||
| BBB+ | 6.0 | 0.2 | % | BBB+ | — | 0.0 | % | BBB+ | — | 0.0 | % | BBB+ | 6.0 | 0.2 | % | BBB+ | 6.0 | 0.2 | % | |||||||||||||||||||||||||||||
| BBB | 2.2 | 0.1 | % | BBB | — | 0.0 | % | BBB | — | 0.0 | % | BBB | 2.2 | 0.1 | % | BBB | 2.2 | 0.1 | % | |||||||||||||||||||||||||||||
| BB | 1.0 | 0.0 | % | BB | — | 0.0 | % | BB | — | 0.0 | % | BB | 1.0 | 0.0 | % | BB | 1.0 | 0.0 | % | |||||||||||||||||||||||||||||
| NR | — | 0.0 | % | NR | — | 0.0 | % | NR2 | 5.6 | 100.0 | % | NR | — | 0.0 | % | NR2 | 5.6 | 0.2 | % | |||||||||||||||||||||||||||||
Sub-total | $ | 2,589.9 | 100.0 | % | Sub-total | $ | 5.6 | 100.0 | % | Sub-total | $ | 5.6 | 100.0 | % | Sub-total | $ | 2,595.5 | 100.0 | % | Sub-total | $ | 2,595.5 | 100.0 | % | ||||||||||||||||||||||||
| Cash & Short-term investments | 660.6 | 660.6 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total cash and investments | $ | 3,256.1 | $ | 3,256.1 | ||||||||||||||||||||||||||||||||||||||||||||
| 1 | Includes insured investments without underlying ratings | |
| 2 | The insured investments have no underlying ratings. |
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As of September 30, 2008, the Portfolio’s allocation to Corporate and Financial issuers was $626.4 million and $342.3 million, respectively. The following table presents the ten largest Corporate and ten largest Financial issuers as of September 30, 2008:
| Corporate Issuers | ||||||||
| % of Total | ||||||||
| Fair Value | Cash & | |||||||
| ISSUER | ($MM) | Investments | ||||||
| WELLS FARGO | $ | 23.7 | 0.7 | % | ||||
| AT&T INC | 22.4 | 0.7 | % | |||||
| GENERAL ELECTRIC | 19.3 | 0.6 | % | |||||
| JP MORGAN CHASE & CO | 16.2 | 0.5 | % | |||||
| BANK OF AMERICA | 15.9 | 0.5 | % | |||||
| ORACLE CORP | 15.8 | 0.5 | % | |||||
| NEW YORK LIFE GLOBAL FUNDING | 14.6 | 0.4 | % | |||||
| GOLDMAN SACHS GROUP INC | 11.5 | 0.4 | % | |||||
| CITIGROUP | 10.4 | 0.3 | % | |||||
| AMERICAN HONDA FINANCE CORP | 9.9 | 0.3 | % | |||||
Sub-total | $ | 159.9 | 4.9 | % | ||||
| Financial Issuers | ||||||||
| % of Total | ||||||||
| Fair Value | Cash & | |||||||
| ISSUER | ($MM) | Investments | ||||||
| WELLS FARGO | $ | 23.7 | 0.7 | % | ||||
| GENERAL ELECTRIC | 19.3 | 0.6 | % | |||||
| JP MORGAN CHASE & CO | 16.2 | 0.5 | % | |||||
| BANK OF AMERICA | 15.9 | 0.5 | % | |||||
| NEW YORK LIFE GLOBAL FUNDING | 14.6 | 0.4 | % | |||||
| GOLDMAN SACHS GROUP INC | 11.5 | 0.4 | % | |||||
| CITIGROUP | 10.4 | 0.3 | % | |||||
| AMERICAN HONDA FINANCE CORP | 9.9 | 0.3 | % | |||||
| TIAA GLOBAL MARKETS CORP | 9.8 | 0.3 | % | |||||
| HOUSEHOLD FINANCE CORP | 8.8 | 0.3 | % | |||||
Sub-total | $ | 140.2 | 4.3 | % | ||||
| 1 | Issuers exclude government-backed, government-sponsored enterprises and cash and cash equivalents | |
| 2 | Credit exposures represent only direct exposure to fixed maturities and short-term investments of the parent issuer and its major subsidiaries. |
These exposures exclude asset and mortgage backed securities that were issued, sponsored or serviced by the parent
*Total cash and investments at 09/30/08 (MMs) = $3,256.1
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