VALIDUS REPORTS THIRD QUARTER 2017 FINANCIAL RESULTS
Pembroke, Bermuda, October 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. |
Validus Holdings, Ltd. 29 Richmond Road, Pembroke, Bermuda HM08
Tel: +1-441.278.9000 Fax: +1-441.278.9090
www.validusholdings.com
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. |
Validus Holdings, Ltd. 29 Richmond Road, Pembroke, Bermuda HM08
Tel: +1-441.278.9000 Fax: +1-441.278.9090
www.validusholdings.com
2
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. |
Validus Holdings, Ltd. 29 Richmond Road, Pembroke, Bermuda HM08
Tel: +1-441.278.9000 Fax: +1-441.278.9090
www.validusholdings.com
3
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. |
Validus Holdings, Ltd. 29 Richmond Road, Pembroke, Bermuda HM08
Tel: +1-441.278.9000 Fax: +1-441.278.9090
www.validusholdings.com
4
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. |
Validus Holdings, Ltd. 29 Richmond Road, Pembroke, Bermuda HM08
Tel: +1-441.278.9000 Fax: +1-441.278.9090
www.validusholdings.com
5
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. |
Validus Holdings, Ltd. 29 Richmond Road, Pembroke, Bermuda HM08
Tel: +1-441.278.9000 Fax: +1-441.278.9090
www.validusholdings.com
6
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. |
Validus Holdings, Ltd. 29 Richmond Road, Pembroke, Bermuda HM08
Tel: +1-441.278.9000 Fax: +1-441.278.9090
www.validusholdings.com
7
| • | 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. |
Validus Holdings, Ltd. 29 Richmond Road, Pembroke, Bermuda HM08
Tel: +1-441.278.9000 Fax: +1-441.278.9090
www.validusholdings.com
8
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. |
Validus Holdings, Ltd. 29 Richmond Road, Pembroke, Bermuda HM08
Tel: +1-441.278.9000 Fax: +1-441.278.9090
www.validusholdings.com
9
| • | 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.
Contacts:
| Investors: | Media: |
| Validus Holdings, Ltd. | Brunswick Group |
| Investor.Relations@validusholdings.com | Mustafa Riffat / Charlotte Connerton |
| +1-441-278-9000 | +1-212-333-3810 |
Validus Holdings, Ltd. 29 Richmond Road, Pembroke, Bermuda HM08
Tel: +1-441.278.9000 Fax: +1-441.278.9090
www.validusholdings.com
10
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. 29 Richmond Road, Pembroke, Bermuda HM08
Tel: +1-441.278.9000 Fax: +1-441.278.9090
www.validusholdings.com
11
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. 29 Richmond Road, Pembroke, Bermuda HM08
Tel: +1-441.278.9000 Fax: +1-441.278.9090
www.validusholdings.com
12
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. 29 Richmond Road, Pembroke, Bermuda HM08
Tel: +1-441.278.9000 Fax: +1-441.278.9090
www.validusholdings.com
13
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. 29 Richmond Road, Pembroke, Bermuda HM08
Tel: +1-441.278.9000 Fax: +1-441.278.9090
www.validusholdings.com
14
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. 29 Richmond Road, Pembroke, Bermuda HM08
Tel: +1-441.278.9000 Fax: +1-441.278.9090
www.validusholdings.com
15
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. 29 Richmond Road, Pembroke, Bermuda HM08
Tel: +1-441.278.9000 Fax: +1-441.278.9090
www.validusholdings.com
16
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. 29 Richmond Road, Pembroke, Bermuda HM08
Tel: +1-441.278.9000 Fax: +1-441.278.9090
www.validusholdings.com
17
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). |
Validus Holdings, Ltd. 29 Richmond Road, Pembroke, Bermuda HM08
Tel: +1-441.278.9000 Fax: +1-441.278.9090
www.validusholdings.com
18
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. 29 Richmond Road, Pembroke, Bermuda HM08
Tel: +1-441.278.9000 Fax: +1-441.278.9090
www.validusholdings.com
19
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. 29 Richmond Road, Pembroke, Bermuda HM08
Tel: +1-441.278.9000 Fax: +1-441.278.9090
www.validusholdings.com
20
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. |
Validus Holdings, Ltd. 29 Richmond Road, Pembroke, Bermuda HM08
Tel: +1-441.278.9000 Fax: +1-441.278.9090
www.validusholdings.com
21
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.
Validus Holdings, Ltd. 29 Richmond Road, Pembroke, Bermuda HM08
Tel: +1-441.278.9000 Fax: +1-441.278.9090
www.validusholdings.com
22