Validus 10-Q 2017 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________________________________

Form 10-Q

__________________________________________________

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

Commission file number 001-33606

__________________________________________________

VALIDUS HOLDINGS, LTD.

(Exact name of registrant as specified in its charter)

__________________________________________________

BERMUDA	98-0501001
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

29 Richmond Road, Pembroke, Bermuda HM 08

(Address of principal executive offices and zip code)

(441) 278-9000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	x	Accelerated filer	o
Non-accelerated filer	o	(Do not check if a smaller reporting company)
		Smaller reporting company	o
		Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

As of October 31, 2017 there were 79,461,813 outstanding Common Shares, $0.175 par value per share, of the registrant.

INDEX

	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements	2
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	59
Item 3. Quantitative and Qualitative Disclosures About Market Risk	110
Item 4. Controls and Procedures	111
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	111
Item 1A. Risk Factors	111
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	112
Item 3. Defaults Upon Senior Securities	112
Item 4. Mine Safety Disclosure	112
Item 5. Other Information	113
Item 6. Exhibits	114
SIGNATURES	115

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Table of Contents	Page
Consolidated Balance Sheets as at September 30, 2017 (unaudited) and December 31, 2016	3
Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income for the Three and Nine Months Ended September 30, 2017 and 2016 (unaudited)	4
Consolidated Statements of Shareholders’ Equity for the Nine Months Ended September 30, 2017 and 2016 (unaudited)	5
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016 (unaudited)	6
Notes to the Consolidated Financial Statements (Unaudited)	7
Note 1 - Basis of preparation and consolidation	7
Note 2 - Recent accounting pronouncements	7
Note 3 - Business combination	7
Note 4 - Investments	10
Note 5 - Fair value measurements	16
Note 6 - Variable interest entities	23
Note 7 - Noncontrolling interests	27
Note 8 - Derivative instruments	28
Note 9 - Reserve for losses and loss expenses	29
Note 10 - Reinsurance	31
Note 11 - Share capital	33
Note 12 - Stock plans	35
Note 13 - Debt and financing arrangements	38
Note 14 - Accumulated other comprehensive loss	42
Note 15 - Commitments and contingencies	43
Note 16 - Related party transactions	44
Note 17 - Earnings per common share	45
Note 18 - Segment information	46
Note 19 - Subsequent events	58

2

Validus Holdings, Ltd.

Consolidated Balance Sheets

As at September 30, 2017 (unaudited) and December 31, 2016

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

	September 30, 2017			December 31, 2016
	(unaudited)
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

The accompanying notes are an integral part of these unaudited consolidated financial statements.

3

Validus Holdings, Ltd.

Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income

For the Three and Nine Months Ended September 30, 2017 and 2016 (unaudited)

(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
	(unaudited)						(unaudited)
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
Comprehensive (loss) income
Net (loss) income	$	(621,185	)	$	129,535		$	(334,901	)	$	450,032
Other comprehensive income (loss)
Change in foreign currency translation adjustments	1,481			(1,370		)	3,567			(6,685		)
Change in minimum pension liability, net of tax	—			(1,101		)	1,252			(705		)
Change in fair value of cash flow hedge	13			(439		)	(33		)	(1,133		)
Other comprehensive income (loss)	1,494			(2,910		)	4,786			(8,523		)
Comprehensive loss (income) attributable to noncontrolling interests	376,366			(37,439		)	290,144			(96,163		)
Comprehensive (loss) income (attributable) available to Validus	$	(243,325	)	$	89,186		$	(39,971	)	$	345,346
Earnings per common share
Basic (loss) earnings per share (attributable) available to Validus common shareholders	$	(3.17	)	$	1.12		$	(0.69	)	$	4.31
(Loss) earnings per diluted share (attributable) available to Validus common shareholders	$	(3.17	)	$	1.11		$	(0.69	)	$	4.24
Cash dividends declared per common share	$	0.38		$	0.35		$	1.14		$	1.05
Weighted average number of common shares and common share equivalents outstanding:
Basic	78,994,335			80,134,394			79,132,856			81,635,496
Diluted	78,994,335			81,244,556			79,132,856			82,938,624

The accompanying notes are an integral part of these unaudited consolidated financial statements.

4

Validus Holdings, Ltd.

Consolidated Statements of Shareholders’ Equity

For the Nine Months Ended September 30, 2017 and 2016 (unaudited)

(Expressed in thousands of U.S. dollars)

	Nine Months Ended September 30,
	2017			2016
	(unaudited)
Preferred shares
Balance, beginning of period	$	150,000		$	—
Preferred shares issued	250,000			150,000
Balance, end of period	$	400,000		$	150,000
Common shares
Balance, beginning of period	$	28,224		$	28,100
Common shares issued, net	118			123
Balance, end of period	$	28,342		$	28,223
Treasury shares
Balance, beginning of period	$	(14,376	)	$	(13,592	)
Repurchase of common shares	(61		)	(728		)
Balance, end of period	$	(14,437	)	$	(14,320	)
Additional paid-in capital
Balance, beginning of period	$	821,023		$	1,002,980
Offering expenses on preferred shares	(8,314		)	(5,148		)
Common shares redeemed, net	(12,241		)	(7,754		)
Repurchase of common shares	(18,282		)	(195,287		)
Share compensation expenses	30,080			32,465
Balance, end of period	$	812,266		$	827,256
Accumulated other comprehensive loss
Balance, beginning of period	$	(23,216	)	$	(12,569	)
Other comprehensive income (loss)	4,786			(8,523		)
Balance, end of period	$	(18,430	)	$	(21,092	)
Retained earnings
Balance, beginning of period	$	2,876,636		$	2,634,056
Net (loss) income	(334,901		)	450,032
Net loss (income) attributable to noncontrolling interests	290,144			(96,163		)
Dividends on preferred shares	(10,033		)	(2,252		)
Dividends on common shares	(93,300		)	(88,120		)
Balance, end of period	$	2,728,546		$	2,897,553
Total shareholders’ equity available to Validus	$	3,936,287		$	3,867,620
Noncontrolling interests	78,947			222,996
Total shareholders’ equity	$	4,015,234		$	4,090,616

The accompanying notes are an integral part of these unaudited consolidated financial statements.

5

Validus Holdings, Ltd.

Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2017 and 2016 (unaudited)

(Expressed in thousands of U.S. dollars)

	Nine Months Ended September 30,
	2017			2016
	(unaudited)
Cash flows provided by (used in) operating activities
Net (loss) income	$	(334,901	)	$	450,032
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Share compensation expenses	30,080			32,465
Loss on deconsolidation of AlphaCat ILS fund	402			—
Amortization of discount on senior notes	81			81
(Income) loss from investment affiliates	(15,665		)	4,249
Net realized and change in net unrealized gains on investments	(26,488		)	(90,868		)
Amortization of intangible assets	6,115			4,248
Loss from operating affiliate	—			23
Foreign exchange gains included in net income	(14,179		)	(4,585		)
Amortization of premium on fixed maturity investments	11,178			13,381
Change in:
Premiums receivable	(275,782		)	(288,048		)
Deferred acquisition costs	(52,967		)	(68,920		)
Prepaid reinsurance premiums	97,535			(41,813		)
Loss reserves recoverable	(847,186		)	(97,742		)
Paid losses recoverable	(24,598		)	(13,165		)
Reserve for losses and loss expenses	1,822,992			66,561
Unearned premiums	43,767			393,228
Reinsurance balances payable	177,798			2,726
Other operational balance sheet items, net	(294,300		)	(107,257		)
Net cash provided by operating activities	303,882			254,596
Cash flows provided by (used in) investing activities
Proceeds on sales of fixed maturity investments	2,533,122			2,047,496
Proceeds on maturities of fixed maturity investments	356,073			256,082
Purchases of fixed maturity investments	(2,746,360		)	(2,317,674		)
Purchases of short-term investments, net	(188,928		)	(540,102		)
Purchases of other investments, net	(53,617		)	(53,627		)
Decrease (increase) in securities lending collateral	7,664			(5,766		)
Redemption from operating affiliates	—			369
Distributions from (investments in) investment affiliates, net	24,017			(16,307		)
Increase in restricted cash	(18,447		)	(39,778		)
Purchase of subsidiary, net of cash acquired	(183,923		)	—
Net cash used in investing activities	(270,399		)	(669,307		)
Cash flows provided by (used in) financing activities
Net proceeds on issuance of notes payable to AlphaCat investors	310,548			296,527
Net proceeds on issuance of preferred shares	241,686			144,852
Redemption of common shares, net	(12,123		)	(7,631		)
Purchases of common shares under share repurchase program	(18,343		)	(196,015		)
Dividends paid on preferred shares	(10,033		)	(2,252		)
Dividends paid on common shares	(93,615		)	(87,901		)
(Decrease) increase in securities lending payable	(7,664		)	5,766
Third party investment in redeemable noncontrolling interests	237,199			381,950
Third party redemption of redeemable noncontrolling interests	(157,534		)	(17,284		)
Third party investment in noncontrolling interests	258,300			171,674
Third party distributions of noncontrolling interests	(197,250		)	(127,103		)
Third party subscriptions deployed in AlphaCat Funds and Sidecars	(57,452		)	(412,736		)
Net cash provided by financing activities	493,719			149,847
Effect of foreign currency rate changes on cash and cash equivalents	18,452			(14,253		)
Net increase (decrease) in cash and cash equivalents	545,654			(279,117		)
Cash and cash equivalents - beginning of period	419,976			723,109
Cash and cash equivalents - end of period	$	965,630		$	443,992
Supplemental disclosure of cash flow information:
Taxes paid during the period	$	2,810		$	5,914
Interest paid during the period	$	46,388		$	46,072

The accompanying notes are an integral part of these unaudited consolidated financial statements.

6

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

1. Basis of preparation and consolidation

These unaudited Consolidated Financial Statements (the “Consolidated Financial Statements”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 in Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In addition, the year-end balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. This Quarterly Report on Form 10-Q should be read in conjunction with the financial statements and related notes included in Validus Holdings, Ltd.’s (the “Company”) Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the U.S. Securities and Exchange Commission (the “SEC”).

The Company consolidates in these Consolidated Financial Statements the results of operations and financial position of all voting interest entities (“VOE”) in which the Company has a controlling financial interest and all variable interest entities (“VIE”) in which the Company is considered to be the primary beneficiary. The consolidation assessment, including the determination as to whether an entity qualifies as a VIE or VOE, depends on the facts and circumstances surrounding each entity.

In the opinion of management, these unaudited Consolidated Financial Statements reflect all adjustments (including normal recurring adjustments) considered necessary for a fair statement of the Company’s financial position and results of operations as at the end of and for the periods presented. All significant intercompany accounts and transactions have been eliminated. The results of operations for any interim period are not necessarily indicative of the results for a full year.

The preparation of these financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. While management believes that the amounts included in the Consolidated Financial Statements reflect its best estimates and assumptions, actual results could differ materially from those estimates. The Company’s principal estimates include:

•reserve for losses and loss expenses;

•premium estimates for business written on a line slip or proportional basis;

•the valuation of goodwill and intangible assets;

•reinsurance recoverable balances including the provision for uncollectible amounts; and

•investment valuation of financial assets.

The term “ASC” used in these notes refers to Accounting Standard Codification issued by the United States Financial Accounting Standards Board (the “FASB”).

2. Recent accounting pronouncements

Recently issued accounting standards not yet adopted

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815).” This ASU is directed at targeted improvements to accounting for hedging activities. This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of this guidance on the Company’s Consolidated Financial Statements.

3.Business combination

On May 1, 2017, Western World Insurance Group, Inc. (“Western World”), a wholly owned subsidiary of the Company acquired all of the outstanding capital stock of Crop Risk Services (“CRS”) for an aggregate purchase price of $185,576 in cash. CRS is a primary crop insurance managing general agent (“MGA”) based in Decatur, Illinois with 1,170 agents across 36 states. CRS does not have insurance licenses of its own, but acts solely as an MGA in that it can produce business for any properly licensed entity on a commission basis. Concurrent with closing of the transaction, Stratford Insurance Company (“Stratford”), a wholly–owned subsidiary of Western World, was granted the required licenses to write crop insurance in the United States and executed several agreements to transfer the related agriculture book of business to Stratford.    

The CRS acquisition was undertaken to expand the Company’s presence in U.S. primary specialty lines.

7

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

For segmental reporting purposes, the results of CRS’ operations, including the related agricultural book of business have been included within the Western World segment in the Consolidated Financial Statements from the date of acquisition.

On closing, the Company recorded intangible assets totaling $63,921 for Distribution Channels, Brand Name and Technology. Distribution Channels and Brand Name were estimated to have finite useful economic lives of ten years on acquisition and are being amortized on a straight line basis over such period. Technology was estimated to have a finite useful economic life of two years on acquisition and is being amortized on a straight line basis over such a period.

The purchase price was allocated to the acquired assets and liabilities of CRS based on estimated fair values on May 1, 2017, the date the transaction closed, as detailed below. The Company recognized goodwill of $30,943 primarily attributable to CRS’s assembled workforce and synergies expected to result upon the integration of CRS and its related book of business into the Company’s operations. The estimates of fair values for tangible assets acquired and liabilities assumed were determined by management based on various market and income analyses. The Company estimated the fair values of intangible assets acquired based on variations of the income and cost approaches. Significant judgment was required to arrive at these estimates of fair value and changes to assumptions used could have led to materially different results.

The purchase of CRS was a taxable transaction and as such, goodwill and intangibles recorded at closing will be deductible for income tax purposes. The Company has recognized and recorded a deferred tax asset of $6,443 which results from the excess of tax-deductible goodwill over book value goodwill as recognized in the purchase price allocation.

The fair value of net assets acquired, including GAAP adjustments, are summarized as follows:

Total purchase price			$	185,576
Assets acquired
Cash and cash equivalents	$	1,653
Premiums receivable	564,453
Prepaid reinsurance premiums	227,157
Other assets	157,146
Assets acquired			950,409
Liabilities acquired
Reinsurance balances payable	$	294,201
Unearned premiums	406,649
Net loss reserves	42,575
Other liabilities	122,715
Liabilities acquired			866,140
Excess purchase price			$	101,307
Goodwill and other intangible assets acquired
Intangible asset - Distribution channels	$	52,898
Intangible asset - Brand name	9,568
Intangible asset - Technology	1,455
Total intangible assets	63,921
Goodwill	30,943
Deferred tax arising on Goodwill	6,443
Total goodwill and intangible assets			$	101,307

The Company also incurred transaction expenses related to the CRS acquisition of $4,427. Transaction expenses included legal, financial advisory and audit related services.

8

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

The following tables reconcile the carrying amount of goodwill and intangible assets from December 31, 2016 to September 30, 2017:

	Goodwill
	Nine Months Ended September 30, 2017
	Talbot			Western World			Total
Balance at December 31, 2016	$	20,393		$	176,365		$	196,758
Additions	—			30,943			30,943
Balance at September 30, 2017	$	20,393		$	207,308		$	227,701
	Intangible assets
	Nine Months Ended September 30, 2017
	Talbot			Western World			Total
Balance at December 31, 2016	$	93,924		$	21,668		$	115,592
Additions	—			63,921			63,921
Amortization	(2,081		)	(4,034		)	(6,115		)
Balance at September 30, 2017	$	91,843		$	81,555		$	173,398

	Intangible assets
	Nine Months Ended September 30, 2017
	With a Finite Life			With an Indefinite Life		Total
Balance at December 31, 2016	$	11,424		$	104,168	$	115,592
Additions	63,921			—		63,921
Amortization	(6,115		)	—		(6,115		)
Balance at September 30, 2017	$	69,230		$	104,168	$	173,398

Operating results of CRS have been included in the Consolidated Financial Statements from the May 1, 2017 acquisition date.

The following selected unaudited information has been provided to present a summary of the results of CRS that have been included in the Consolidated Financial Statements for the three and nine months ended September 30, 2017.

	Three Months Ended September 30, 2017		Nine Months Ended September 30, 2017
Net premiums written	$	32,852	$	39,840
Net premiums earned	$	98,757	$	148,801
Total underwriting deductions	$	84,826	$	129,606
Underwriting income, before general and administrative expenses	$	13,931	$	19,195

9

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

4. Investments

Managed investments represent assets governed by the Company’s investment policy statement (“IPS”) whereas, non-managed investments represent assets held in support of consolidated AlphaCat VIEs which are not governed by the Company’s IPS. Refer to Note 6, “Variable interest entities,” for further details.

The Company classifies its fixed maturity and short-term investments as trading and accounts for its other investments in accordance with ASC Topic 825 “Financial Instruments.” As such, all investments are carried at fair value with interest and dividend income and realized and unrealized gains and losses included in net income for the period.

The amortized cost (or cost) and fair value of the Company’s investments as at September 30, 2017 and December 31, 2016 were as follows:

	September 30, 2017				December 31, 2016
	Amortized  Cost or Cost		Fair Value		Amortized  Cost or Cost		Fair Value
Managed investments
U.S. government and government agency	$	598,607	$	595,694	$	809,392	$	804,126
Non-U.S. government and government agency	288,296		290,538		245,651		240,791
U.S. states, municipalities and political subdivisions	205,880		206,667		271,742		271,830
Agency residential mortgage-backed securities	830,542		828,400		684,490		679,595
Non-agency residential mortgage-backed securities	38,806		38,993		15,858		15,477
U.S. corporate	1,457,073		1,466,739		1,540,036		1,534,508
Non-U.S. corporate	390,519		392,242		418,520		410,227
Bank loans	471,855		464,464		579,121		570,399
Asset-backed securities	520,594		522,524		528,563		526,814
Commercial mortgage-backed securities	315,585		314,221		333,740		330,932
Total fixed maturities	5,117,757		5,120,482		5,427,113		5,384,699
Short-term investments	258,339		258,646		228,574		228,386
Other investments
Fund of hedge funds	—		—		1,457		955
Hedge funds	11,292		19,233		11,292		17,381
Private equity investments	88,299		107,230		66,383		82,627
Fixed income investment funds	282,707		285,034		247,967		249,275
Overseas deposits	55,775		55,775		50,106		50,106
Mutual funds	1,918		4,028		2,925		5,368
Total other investments	439,991		471,300		380,130		405,712
Investments in investment affiliates (a)	60,228		92,079		84,840		100,431
Total managed investments	$	5,876,315	$	5,942,507	$	6,120,657	$	6,119,228
Non-managed investments
Catastrophe bonds	$	303,789	$	299,484	$	157,486	$	158,331
Short-term investments	2,734,600		2,734,600		2,567,784		2,567,784
Total non-managed investments	3,038,389		3,034,084		2,725,270		2,726,115
Total investments	$	8,914,704	$	8,976,591	$	8,845,927	$	8,845,343

(a) The Company’s investments in investment affiliates have been treated as equity method investments with the corresponding gains and losses recorded in

income as “Income (loss) from investment affiliates.”

10

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

(a) Fixed maturity investments

The following table sets forth certain information regarding the investment ratings of the Company’s fixed maturity investments as at September 30, 2017 and December 31, 2016.

	September 30, 2017				December 31, 2016
	Fair Value		% of Total		Fair Value		% of Total
Managed fixed maturities
AAA	$	2,349,803	43.3	%	$	2,405,597	43.4	%
AA	437,215		8.1	%	538,289		9.7	%
A	1,060,849		19.6	%	1,081,949		19.5	%
BBB	752,808		13.9	%	740,861		13.4	%
Total investment grade managed fixed maturities	4,600,675		84.9	%	4,766,696		86.0	%
BB	177,667		3.2	%	213,568		3.9	%
B	156,590		2.9	%	177,737		3.2	%
CCC	5,286		0.1	%	13,371		0.2	%
NR	180,264		3.4	%	213,327		3.8	%
Total non-investment grade fixed maturities	519,807		9.6	%	618,003		11.1	%
Total managed fixed maturities	$	5,120,482	94.5	%	$	5,384,699	97.1	%
Non-managed catastrophe bonds
AAA	$	1,650	0.0	%	$	—	0.0	%
Total investment grade non-managed fixed maturities	1,650		0.0	%	—		0.0	%
BB	28,031		0.5	%	29,731		0.6	%
B	2,755		0.1	%	4,524		0.1	%
NR	267,048		4.9	%	124,076		2.2	%
Total non-investment grade non-managed fixed maturities	297,834		5.5	%	158,331		2.9	%
Total non-managed fixed maturities	299,484		5.5	%	158,331		2.9	%
Total fixed maturities	$	5,419,966	100.0	%	$	5,543,030	100.0	%

11

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

The amortized cost and fair value amounts for the Company’s fixed maturity investments held at September 30, 2017 and December 31, 2016 are shown below by contractual maturity. Actual maturity may differ from contractual maturity because certain borrowers may have the right to call or prepay certain obligations with or without call or prepayment penalties.

	September 30, 2017				December 31, 2016
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Managed fixed maturities
Due in one year or less	$	279,069	$	278,118	$	350,733	$	346,161
Due after one year through five years	2,418,737		2,416,963		2,954,856		2,933,146
Due after five years through ten years	534,922		535,538		430,365		426,647
Due after ten years	179,502		185,725		128,508		125,927
	3,412,230		3,416,344		3,864,462		3,831,881
Asset-backed and mortgage-backed securities	1,705,527		1,704,138		1,562,651		1,552,818
Total managed fixed maturities	$	5,117,757	$	5,120,482	$	5,427,113	$	5,384,699
Non-managed catastrophe bonds
Due in one year or less	$	88,949	$	88,202	$	43,664	$	45,418
Due after one year through five years	209,340		206,117		112,572		111,656
Due after five years through ten years	5,500		5,165		1,250		1,257
Total non-managed fixed maturities	303,789		299,484		157,486		158,331
Total fixed maturities	$	5,421,546	$	5,419,966	$	5,584,599	$	5,543,030

(b) Other investments

The following tables set forth certain information regarding the Company’s other investment portfolio as at September 30, 2017 and December 31, 2016:

	September 30, 2017
	Fair Value		Investments with redemption restrictions		Investments without redemption restrictions		Redemption frequency (a)	Redemption notice period (a)
Hedge funds	19,233		19,233		—
Private equity investments	107,230		107,230		—
Fixed income investment funds	285,034		249,999		35,035		Daily	Daily to 2 days
Overseas deposits	55,775		55,775		—
Mutual funds	4,028		—		4,028		Daily	Daily
Total other investments	$	471,300	$	432,237	$	39,063
	December 31, 2016
	Fair Value		Investments with redemption restrictions		Investments without redemption restrictions		Redemption frequency (a)	Redemption notice period (a)
Fund of hedge funds	$	955	$	955	$	—
Hedge funds	17,381		17,381		—
Private equity investments	82,627		82,627		—
Fixed income investment funds	249,275		218,333		30,942		Daily	2 days
Overseas deposits	50,106		50,106		—
Mutual funds	5,368		—		5,368		Daily	Daily
Total other investments	$	405,712	$	369,402	$	36,310

(a) The redemption frequency and notice periods only apply to investments without redemption restrictions.

12

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

Other investments include alternative investments in various funds and pooled investment schemes. These alternative investments employ various investment strategies primarily involving, but not limited to, investments in collateralized obligations, fixed income securities, private equities, distressed debt and equity securities. Certain debt-like investments totaling $274,651 are either rated or consist of underlying securities or instruments which carry credit ratings issued by nationally recognized statistical rating organizations. Other equity-like investments totaling $196,649 are unrated given the nature of their underlying assets, such as private equity investments, and as such do not carry credit ratings.

Certain securities included in other investments are subject to redemption restrictions and are unable to be redeemed from the funds. Distributions from these funds will be received as the underlying investments of the funds are liquidated. Currently, it is not known to the Company when these underlying assets will be sold by their investment managers; however, it is estimated that the majority of the underlying assets of the investments would liquidate over five to ten years from inception of the funds. In addition, one of the investment funds with a fair value of $195,903 (December 31, 2016: $184,749), has various lock-up periods of approximately two years or less as at September 30, 2017 and may also impose a redemption gate. A lock-up period refers to the initial amount of time an investor is contractually required to remain invested before having the ability to redeem. Typically, the imposition of a gate delays a portion of the requested redemption, with the remaining portion settled in cash shortly after the redemption date. The underlying investments held in the overseas deposit funds are liquid and will generally trade freely in an open market. However, the Company’s ability to withdraw from the overseas deposit funds is restricted by an annual and quarterly funding and release process for Lloyd’s market participants.

The Company’s maximum exposure to any of these alternative investments is limited to the amount invested and any remaining capital commitments. Refer to Note 15, “Commitments and contingencies,” for further details. As at September 30, 2017, the Company does not have any plans to sell any of the other investments listed above.

(c)    Investments in investment affiliates

Included in the Company’s managed investment portfolio as at September 30, 2017 were investments in Aquiline Financial Services Fund II L.P. (“Aquiline II”), Aquiline Financial Services Fund III L.P. (“Aquiline III”) and Aquiline Technology Growth Fund L.P. (“Aquiline Tech”).

Aquiline II and III

For further information regarding Aquiline II and III please refer to Note 7(c), “Investments in investment affiliates,” included within the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. As at September 30, 2017, the Company’s total unfunded investment commitment to Aquiline II and III was $3,229 and $66,285, respectively (December 31, 2016: $2,040 and $62,031).

Aquiline Tech

On March 20, 2017, the Company entered into a Subscription Agreement (the “Subscription Agreement”) with Aquiline Technology Growth GP Ltd, (the “General Partner”) pursuant to which the Company committed and agreed to purchase limited partnership or other comparable limited liability equity interests in Aquiline Tech, a Cayman Islands exempted limited partnership, with a capital commitment in an amount equal to $20,000. The limited partnership interests are governed by the terms of an amended and restated exempted limited partnership agreement. As at September 30, 2017, the unfunded investment commitment to Aquiline Tech was $17,858.

The following table presents a reconciliation of the Company’s beginning and ending investments in investment affiliates for the three and nine months ended September 30, 2017 and 2016:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2017			2016		2017			2016
Investments in investment affiliates, beginning of period	$	103,377		$	99,278	$	100,431		$	87,673
Net capital (distributions) contributions	(12,309		)	—		(24,017		)	16,307
Income (loss) from investment affiliates	1,011			453		15,665			(4,249		)
Investments in investment affiliates, end of period	$	92,079		$	99,731	$	92,079		$	99,731

13

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

The following table presents the Company’s investments in investment affiliates as at September 30, 2017 and December 31, 2016:

	September 30, 2017
	Investment at cost		Voting ownership %		Equity ownership %		Carrying value
Aquiline II	$	33,349	—	%	8.1	%	$	50,695
Aquiline III	24,737		—	%	9.0	%	39,530
Aquiline Tech	2,142		—	%	10.6	%	1,854
Total investments in investment affiliates	$	60,228					$	92,079
	December 31, 2016
	Investment at cost		Voting ownership %		Equity ownership %		Carrying value
Aquiline II	$	46,871	—	%	8.1	%	$	61,999
Aquiline III	37,969		—	%	9.0	%	38,432
Total investments in investment affiliates	$	84,840					$	100,431

(d)    Net investment income

Net investment income was derived from the following sources:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Managed investments
Fixed maturities and short-term investments	$	30,823		$	30,572		$	93,706		$	89,210
Other investments	7,391			11,768			21,832			20,666
Cash and cash equivalents and restricted cash	1,230			891			2,556			2,136
Securities lending income	3			22			23			39
Total gross investment income	39,447			43,253			118,117			112,051
Investment expenses	(2,356		)	(2,182		)	(6,771		)	(6,208		)
Total managed net investment income	$	37,091		$	41,071		$	111,346		$	105,843
Non managed investments
Fixed maturities and short-term investments	$	3,941		$	1,970		$	11,501		$	5,242
Restricted cash, cash and cash equivalents	3,426			473			6,066			1,147
Total non-managed net investment income	7,367			2,443			17,567			6,389
Total net investment income	$	44,458		$	43,514		$	128,913		$	112,232

Net investment income from other investments includes distributed and undistributed net income from hedge funds, overseas deposits and certain fixed income investment funds.

14

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

(e)    Net realized and change in net unrealized (losses) gains on investments

The following table sets forth an analysis of net realized gains and the change in net unrealized (losses) gains on investments:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Managed fixed maturities, short-term and other investments
Gross realized gains	$	5,170		$	4,544		$	13,035		$	11,067
Gross realized (losses)	(4,267		)	(464		)	(12,755		)	(5,553		)
Net realized gains on investments	903			4,080			280			5,514
Change in net unrealized gains on investments	941			4,652			31,232			81,782
Total net realized and change in net unrealized gains on managed investments	$	1,844		$	8,732		$	31,512		$	87,296
Non-managed fixed maturities and short-term investments
Gross realized gains	$	3		$	317		$	1,736		$	1,032
Gross realized (losses)	—			—			—			(9		)
Net realized gains on investments	3			317			1,736			1,023
Change in net unrealized (losses) gains on investments	(6,138		)	807			(6,760		)	2,549
Total net realized and change in net unrealized (losses) gains on non-managed investments	(6,135		)	1,124			(5,024		)	3,572
Total net realized and change in net unrealized (losses) gains on total investments	$	(4,291	)	$	9,856		$	26,488		$	90,868

(f)    Pledged cash and investments

As at September 30, 2017, the Company had $5,433,107 (December 31, 2016: $5,173,966) of cash and cash equivalents, restricted cash, short-term investments and fixed maturity investments that were pledged during the normal course of business. Of those, $5,368,025 were held in trust (December 31, 2016: $5,068,092). Pledged assets are generally for the benefit of the Company’s cedants and policyholders, to support AlphaCat’s fully collateralized reinsurance transactions and to facilitate the accreditation of Validus Reinsurance, Ltd., Validus Reinsurance (Switzerland) Ltd. (“Validus Re Swiss”) and Talbot as an alien Insurer/Reinsurer by certain regulators.

In addition, the Company has pledged cash and investments as collateral under the Company’s credit facilities in the total amount of $265,089 (December 31, 2016: $442,184). For further details on the credit facilities, please refer to Note 13, “Debt and financing arrangements.”

15

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

5. Fair value measurements

(a) Classification within the fair value hierarchy

Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between market participants. Under U.S. GAAP, a company must determine the appropriate level in the fair value hierarchy for each fair value measurement. The fair value hierarchy prioritizes the inputs, which refer broadly to assumptions market participants would use in pricing an asset or liability, into three levels. It gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The level in the fair value hierarchy within which a fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

The three levels of the fair value hierarchy are described below:

Level 1 - Fair values are measured based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access.

Level 2 - Fair values are measured based on quoted prices in active markets for similar assets or liabilities, quoted prices for identical assets or liabilities in inactive markets, or for which significant inputs are observable (e.g., interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by observable market data.

Level 3 - Fair values are measured based on inputs that are unobservable and significant to the overall fair value measurement. The unobservable inputs reflect the Company’s own judgments about assumptions where there is little, if any, market activity for that asset or liability that market participants might use.

The availability of observable inputs can vary from financial instrument to financial instrument and is affected by a wide variety of factors including, for example, the type of financial instrument, whether the financial instrument is new and not yet established in the marketplace, and other characteristics particular to the instrument. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires significantly more judgment.

Accordingly, the degree of judgment exercised by management in determining fair value is greatest for instruments categorized in Level 3. In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This may lead the Company to change the selection of our valuation technique (for example, from market to cash flow approach) or to use multiple valuation techniques to estimate the fair value of a financial instrument. These circumstances could cause an instrument to be reclassified between levels within the fair value hierarchy.

16

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

At September 30, 2017, the Company’s investments were allocated between Levels 1, 2 and 3 as follows:

	Level 1		Level 2		Level 3		Fair value based on NAV practical expedient (a)		Total
Managed investments
U.S. government and government agency	$	—	$	595,694	$	—	$	—	$	595,694
Non-U.S. government and government agency	—		290,538		—		—		290,538
U.S. states, municipalities and political subdivisions	—		206,667		—		—		206,667
Agency residential mortgage-backed securities	—		828,400		—		—		828,400
Non-agency residential mortgage-backed securities	—		38,993		—		—		38,993
U.S. corporate	—		1,466,739		—		—		1,466,739
Non-U.S. corporate	—		392,242		—		—		392,242
Bank loans	—		240,563		223,901		—		464,464
Asset-backed securities	—		486,537		35,987		—		522,524
Commercial mortgage-backed securities	—		314,221		—		—		314,221
Total fixed maturities	—		4,860,594		259,888		—		5,120,482
Short-term investments	251,578		7,068		—		—		258,646
Other investments
Hedge funds	—		—		—		19,233		19,233
Private equity investments	—		—		—		107,230		107,230
Fixed income investment funds	—		35,145		16,886		233,003		285,034
Overseas deposits	—		—		—		55,775		55,775
Mutual funds	—		4,028		—		—		4,028
Total other investments	—		39,173		16,886		415,241		471,300
Investments in investment affiliates (b)	—		—		—		—		92,079
Total managed investments	$	251,578	$	4,906,835	$	276,774	$	415,241	$	5,942,507
Non-managed investments
Catastrophe bonds	$	—	$	230,775	$	68,709	$	—	$	299,484
Short-term investments	2,734,600		—		—		—		2,734,600
Total non-managed investments	2,734,600		230,775		68,709		—		3,034,084
Total investments	$	2,986,178	$	5,137,610	$	345,483	$	415,241	$	8,976,591

(a) In accordance with ASC Topic 820 “Fair Value Measurements,” investments measured at fair value using the net asset value (“NAV”) per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.

(b) In accordance with ASC Topic 825 “Financial Instruments,” the Company’s investments in investment affiliates have not been classified in the fair value hierarchy.

17

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

At December 31, 2016, the Company’s investments were allocated between Levels 1, 2 and 3 as follows:

	Level 1		Level 2		Level 3		Fair value based on NAV practical expedient (a)		Total
Managed investments
U.S. government and government agency	$	—	$	804,126	$	—	$	—	$	804,126
Non-U.S. government and government agency	—		240,791		—		—		240,791
U.S. states, municipalities and political subdivisions	—		271,830		—		—		271,830
Agency residential mortgage-backed securities	—		679,595		—		—		679,595
Non-agency residential mortgage-backed securities	—		15,477		—		—		15,477
U.S. corporate	—		1,534,508		—		—		1,534,508
Non-U.S. corporate	—		410,227		—		—		410,227
Bank loans	—		323,903		246,496		—		570,399
Asset-backed securities	—		502,883		23,931		—		526,814
Commercial mortgage-backed securities	—		330,932		—		—		330,932
Total fixed maturities	—		5,114,272		270,427		—		5,384,699
Short-term investments	209,651		18,735		—		—		228,386
Other investments
Fund of hedge funds	—		—		—		955		955
Hedge funds	—		—		—		17,381		17,381
Private equity investments	—		—		—		82,627		82,627
Fixed income investment funds	—		30,941		12,168		206,166		249,275
Overseas deposits	—		—		—		50,106		50,106
Mutual funds	—		5,368		—		—		5,368
Total other investments	—		36,309		12,168		357,235		405,712
Investments in investment affiliates (b)	—		—		—		—		100,431
Total managed investments	$	209,651	$	5,169,316	$	282,595	$	357,235	$	6,119,228
Non-managed investments
Catastrophe bonds	$	—	$	109,956	$	48,375	$	—	$	158,331
Short-term investments	2,567,784		—		—		—		2,567,784
Total non-managed investments	2,567,784		109,956		48,375		—		2,726,115
Total investments	$	2,777,435	$	5,279,272	$	330,970	$	357,235	$	8,845,343

(a) In accordance with ASC Topic 820 “Fair Value Measurements,” investments measured at fair value using the net asset value (“NAV”) per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.

(b) In accordance with ASC Topic 825 “Financial Instruments,” the Company’s investments in investment affiliates have not been classified in the fair value hierarchy.

At September 30, 2017, managed Level 3 investments totaled $276,774 (December 31, 2016: $282,595), representing 4.7% (December 31, 2016: 4.6%) of total managed investments.

(b) Valuation techniques

There have been no material changes in the Company’s valuation techniques during the period, or periods, represented by these Consolidated Financial Statements. The following methods and assumptions were used in estimating the fair value of each class of financial instrument recorded in the Consolidated Balance Sheets.

18

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

Fixed maturity investments

In general, valuation of the Company’s fixed maturity investment portfolio is provided by pricing services, such as index providers and pricing vendors, as well as broker quotations. The pricing vendors provide valuations for a high volume of liquid securities that are actively traded. For securities that do not trade on an exchange, the pricing services generally utilize market data and other observable inputs in matrix pricing models to determine month end prices. Prices are generally verified using third party data. Securities which are priced by an index provider are generally included in the index.

In general, broker-dealers value securities through their trading desks based on observable inputs. The methodologies include mapping securities based on trade data, bids or offers, observed spreads, and performance on newly issued securities. Broker-dealers also determine valuations by observing secondary trading of similar securities. Prices obtained from broker quotations are considered non-binding, however they are based on observable inputs and by observing secondary trading of similar securities obtained from active, non-distressed markets. The Company considers these Level 2 inputs as they are corroborated with other market observable inputs. The techniques generally used to determine the fair value of the Company’s fixed maturity investments are detailed below by asset class.

U.S. government and government agency

U.S. government and government agency securities consist primarily of debt securities issued by the U.S. Treasury and mortgage pass-through agencies such as the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and the Government National Mortgage Association. Fixed maturity investments included in U.S. government and government agency securities are primarily priced by pricing services. When evaluating these securities, the pricing services gather information from market sources and integrate other observations from markets and sector news. Evaluations are updated by obtaining broker dealer quotes and other market information including actual trade volumes, when available. The fair value of each security is individually computed using analytical models which incorporate option adjusted spreads and other daily interest rate data. As the significant inputs used to price these securities are observable, the fair value of these investments are classified as Level 2.

Non-U.S. government and government agency

Non-U.S. government and government agency securities consist of debt securities issued by non-U.S. governments and their agencies along with supranational organizations (also known as sovereign debt securities). Securities held in these sectors are primarily priced by pricing services who employ proprietary discounted cash flow models to value the securities. Key quantitative inputs for these models are daily observed benchmark curves for treasury, swap and high issuance credits. The pricing services then apply a credit spread for each security which is developed by in-depth and real time market analysis. For securities in which trade volume is low, the pricing services utilize data from more frequently traded securities with similar attributes. These models may also be supplemented by daily market and credit research for international markets. As the significant inputs used to price these securities are observable, the fair value of these investments are classified as Level 2.

U.S. states, municipalities and political subdivisions

The Company’s U.S. states, municipalities and political subdivisions portfolio contains debt securities issued by U.S. domiciled state and municipal entities. These securities are generally priced by independent pricing services using the techniques described for U.S. government and government agency securities described above. As the significant inputs used to price these securities are observable, the fair value of these investments are classified as Level 2.

Agency residential mortgage-backed securities

The Company’s agency residential mortgage-backed investments are primarily priced by pricing services using a mortgage pool specific model which utilizes daily inputs from the active to be announced market which is very liquid, as well as the U.S. treasury market. The model also utilizes additional information, such as the weighted average maturity, weighted average coupon and other available pool level data which is provided by the sponsoring agency. Valuations are also corroborated with daily active market quotes. As the significant inputs used to price these securities are observable, the fair value of these investments are classified as Level 2.

Non-agency residential mortgage-backed securities

The Company’s non-agency mortgage-backed investments include non-agency prime residential mortgage-backed fixed maturity investments. The Company has no fixed maturity investments classified as sub-prime held in its fixed maturity investments portfolio. Securities held in these sectors are primarily priced by pricing services using an option adjusted spread model or other

19

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

relevant models, which principally utilize inputs including benchmark yields, available trade information or broker quotes, and issuer spreads. The pricing services also review collateral prepayment speeds, loss severity and delinquencies among other collateral performance indicators for the securities valuation, when applicable. As the significant inputs used to price these securities are observable, the fair value of these investments are classified as Level 2.

U.S. corporate

U.S. corporate debt securities consist primarily of investment-grade debt of a wide variety of U.S. corporate issuers and industries. The Company’s corporate fixed maturity investments are primarily priced by pricing services. When evaluating these securities, the pricing services gather information from market sources regarding the issuer of the security and obtain credit data, as well as other observations, from markets and sector news. Evaluations are updated by obtaining broker dealer quotes and other market information including actual trade volumes, when available. The pricing services also consider the specific terms and conditions of the securities, including any specific features which may influence risk. In certain instances, securities are individually evaluated using a spread which is added to the U.S. treasury curve or a security specific swap curve as appropriate. As the significant inputs used to price these securities are observable, the fair value of these investments are classified as Level 2.

Non-U.S. corporate

Non-U.S. corporate debt securities consist primarily of investment-grade debt of a wide variety of non-U.S. corporate issuers and industries. The Company’s non-U.S. corporate fixed maturity investments are primarily priced by pricing services. When evaluating these securities, the pricing services gather information from market sources regarding the issuer of the security and obtain credit data, as well as other observations, from markets and sector news. Evaluations are updated by obtaining broker dealer quotes and other market information including actual trade volumes, when available. The pricing services also consider the specific terms and conditions of the securities, including any specific features which may influence risk. As the significant inputs used to price these securities are observable, the fair value of these investments are classified as Level 2.

Bank loans

The Company’s bank loan investments consist primarily of below-investment-grade debt of a wide variety of corporate issuers and industries. The Company’s bank loans are primarily priced by pricing services. When evaluating these securities, the pricing services gather information from market sources regarding the issuer of the security and obtain credit data, as well as other observations, from markets and sector news. Evaluations are updated by obtaining broker dealer quotes and other market information including actual trade volumes, when available. The pricing services also consider the specific terms and conditions of the securities, including any specific features which may influence risk. As the significant inputs used to price these securities are observable, the fair value of these investments are classified as Level 2.

Also, included in the bank loan portfolio is a collection of loan participations held through an intermediary. A third party pricing service provides monthly valuation reports for each loan and participation using a combination of quotations from loan pricing services, leveraged loan indices or market price quotes obtained directly from the intermediary. Significant unobservable inputs used to price these securities include credit spreads and default rates; therefore, the fair value of these investments are classified as Level 3.

Asset-backed securities

Asset backed securities include mostly investment-grade debt securities backed by pools of loans with a variety of underlying collateral, including automobile loan receivables, student loans, credit card receivables, and collateralized loan obligations originated by a variety of financial institutions. Securities held in these sectors are primarily priced by pricing services. The pricing services apply dealer quotes and other available trade information such as bids and offers, prepayment speeds which may be adjusted for the underlying collateral or current price data, the U.S. treasury curve and swap curve as well as cash settlement. The pricing services determine the expected cash flows for each security held in this sector using historical prepayment and default projections for the underlying collateral and current market data. In addition, a spread is applied to the relevant benchmark and used to discount the cash flows noted above to determine the fair value of the securities held in this sector. As the significant inputs used to price these securities are observable, the fair value of these investments are classified as Level 2. Where pricing is unavailable from pricing services, we obtain non-binding quotes from broker-dealers. This is generally the case when there is a low volume of trading activity and current transactions are not orderly. Broker-dealer quotes for which significant observable inputs are unable to be corroborated with market observable information are classified as Level 3.

20

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

Commercial mortgage-backed securities

Commercial mortgage backed securities are investment-grade debt primarily priced by pricing services. The pricing services apply dealer quotes and other available trade information such as bids and offers, prepayment speeds which may be adjusted for the underlying collateral or current price data, the U.S. treasury curve and swap curve as well as cash settlement. The pricing services determine the expected cash flows for each security held in this sector using historical prepayment and default projections for the underlying collateral and current market data. In addition, a spread is applied to the relevant benchmark and used to discount the cash flows noted above to determine the fair value of the securities held in this sector. As the significant inputs used to price these securities are observable, the fair value of these investments are classified as Level 2.

Catastrophe bonds

Catastrophe bonds are priced based on broker or underwriter bid indications. As the significant inputs used to price these securities are observable, the fair value of these investments are classified as Level 2. To the extent that these indications are based on significant unobservable inputs, the fair value of the relevant bonds will be classified as a Level 3.

Short-term investments

Short-term investments consist primarily of highly liquid securities, all with maturities of less than one year from the date of purchase. The fair value of the portfolio is generally determined using amortized cost which approximates fair value. As the highly liquid money market-type funds are actively traded, the fair value of these investments are classified as Level 1. To the extent that the remaining securities are not actively traded due to their approaching maturity, the fair value of these investments are classified as Level 2.

Other investments

Fund of hedge funds

During the three months ended June 30, 2017, the Company’s investment in a fund of hedge funds was liquidated. Prior to liquidation, the fund’s administrator provided a monthly reported NAV with a three month delay in its valuation. The fund manager provided an estimate of the fund NAV at year end based on the estimated performance provided from the underlying funds. To determine the reasonableness of the estimated NAV, the Company compared the fund administrator’s NAV to the fund manager’s estimated NAV that incorporates relevant valuation sources. Prior to liquidation, the fair value of these investments were measured using the NAV practical expedient and therefore were not categorized within the fair value hierarchy.

Hedge funds

The hedge fund’s administrator provides quarterly NAVs with a three month delay in valuation. The fair value of this investment is measured using the NAV practical expedient and therefore has not been categorized within the fair value hierarchy.

Private equity investments

The private equity funds provide quarterly or semi-annual partnership capital statements with a three or six month delay which are used as a basis for valuation. These private equity investments vary in investment strategies and are not actively traded in any open markets. The fair value of these investments are measured using the NAV practical expedient and therefore have not been categorized within the fair value hierarchy.

Fixed income investment funds

The Company’s investment funds classified as Level 2 consist of a pooled investment fund. The pooled investment is invested in fixed income securities with high credit ratings and is only open to Lloyd’s Trust Fund participants. The fair value of units in the investment fund is based on the NAV of the fund and is traded on a daily basis.

Included in investment funds is a residual equity tranche of a structured credit fund valued using a dynamic yield that calculates an income accrual based on an underlying valuation model with a typical cash flow waterfall structure. Significant unobservable inputs used to price this fund include default rates and prepayment rates; therefore, the fair value of the investment fund is classified as Level 3.

The fair value of the Company’s remaining investment funds is based on the NAV of the fund as reported by the independent fund administrator. The fund’s administrators provide a monthly reported NAV with a one or three month delay in their valuation.

21

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

The fair value of these investments are measured using the NAV practical expedient and therefore have not been categorized within the fair value hierarchy.

Overseas deposits

The Company’s share of a portfolio of Lloyd’s overseas deposits are managed centrally by Lloyd’s and invested according to local regulatory requirements. The composition of the portfolio varies and the deposits are made across the market. The fair value of the deposits is based on the portfolio level reporting that is provided by Lloyd’s. The fair value of these investments are measured using the NAV practical expedient and therefore have not been categorized within the fair value hierarchy.

Mutual funds

Mutual funds consist of an investment fund which invests in various quoted investments. The fair value of units in the mutual fund is based on the NAV of the fund as reported by the fund manager. The mutual fund has daily liquidity which allows us to redeem our holdings at the applicable NAV in the near term. As such, the Company has classified this investment as Level 2.

(c) Level 3 investments

The following table presents a reconciliation of the beginning and ending balances for all investments measured at fair value on a recurring basis using Level 3 inputs during the three and nine months ended September 30, 2017 and 2016:

	Three Months Ended September 30, 2017
	Bank Loans			Catastrophe Bonds			Fixed Income Investment Funds		Asset Backed Securities			Total
Level 3 investments, beginning of period	$	224,172		$	68,025		$	16,400	$	35,921		$	344,518
Purchases	31,312			—			—		—			31,312
Sales	—			—			—		(71		)	(71		)
Settlements	(29,796		)	(1,000		)	486		—			(30,310		)
Change in net unrealized (losses) gains	(1,787		)	1,684			—		137			34
Level 3 investments, end of period	$	223,901		$	68,709		$	16,886	$	35,987		$	345,483

	Three Months Ended September 30, 2016
	Bank Loans			Catastrophe Bonds		Asset Backed Securities		Total
Level 3 investments, beginning of period	$	243,148		$	37,518	$	12,383	$	293,049
Purchases	21,256			—		11,513		32,769
Sales	(12,388		)	—		—		(12,388		)
Change in net unrealized gains	484			517		—		1,001
Level 3 investments, end of period	$	252,500		$	38,035	$	23,896	$	314,431

	Nine Months Ended September 30, 2017
	Bank Loans			Catastrophe Bonds			Fixed Income Investment Funds		Asset Backed Securities			Total
Level 3 investments—beginning of period	$	246,496		$	48,375		$	12,168	$	23,931		$	330,970
Purchases	71,245			66,091			3,432		11,053			151,821
Sales	—			—			—		(124		)	(124		)
Settlements	(91,799		)	(49,996		)	1,286		—			(140,509		)
Net realized gains	—			3,350			—		—			3,350
Change in net unrealized (losses) gains	(2,041		)	889			—		1,127			(25		)
Level 3 investments—end of period	$	223,901		$	68,709		$	16,886	$	35,987		$	345,483

22

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

	Nine Months Ended September 30, 2016
	Bank Loans			Catastrophe Bonds			Asset Backed Securities		Total
Level 3 investments—beginning of period	$	232,337		$	13,500		$	—	$	245,837
Purchases	72,244			23,272			23,896		119,412
Sales	(14,777		)	—			—		(14,777		)
Settlements	(34,033		)	(125		)	—		(34,158		)
Change in net unrealized (losses) gains	(3,271		)	1,388			—		(1,883		)
Level 3 investments—end of period	$	252,500		$	38,035		$	23,896	$	314,431

There have not been any transfers into or out of Level 3 during the three and nine months ended September 30, 2017 or 2016.

(d) Financial instruments not carried at fair value

ASC Topic 825 “Financial Instruments” is also applicable to disclosures of financial instruments not carried at fair value, except for certain financial instruments, including insurance contracts and investments in affiliates. The carrying values of cash and cash equivalents, restricted cash, accrued investment income, other assets, net payable for investments purchased and accounts payable and accrued expenses approximated their fair values at September 30, 2017, due to their respective short maturities. As these financial instruments are not actively traded, their respective fair values are classified within Level 2.

6.Variable interest entities

The Company consolidates all VOEs in which it has a controlling financial interest and all VIEs in which it is considered to be the primary beneficiary. The Company’s VIEs are primarily entities in the AlphaCat segment.

(a) Consolidated VIEs

AlphaCat sidecars

Beginning on May 25, 2011, the Company joined with other investors in capitalizing a series of sidecars for the purpose of investing in collateralized reinsurance and retrocessional contracts. Certain of these sidecars deployed their capital through transactions entered into by AlphaCat Reinsurance Ltd. (“AlphaCat Re”). Each of these entities return capital once the risk period expires and all losses have been paid out. The AlphaCat sidecars are VIEs and are consolidated by the Company as the primary beneficiary. The Company’s maximum exposure to any of the sidecars is the amount of capital invested at any given time.

AlphaCat ILS funds

The AlphaCat ILS funds received third party subscriptions beginning on December 17, 2012. The Company and third party investors invest in the AlphaCat ILS funds for the purpose of investing in instruments with returns linked to property catastrophe reinsurance, retrocession and ILS contracts. The AlphaCat ILS funds have varying risk profiles and are categorized by the expected loss of the fund. Expected loss represents the average annual loss over the set of simulation scenarios divided by the total limit. Lower risk ILS funds are defined as having a maximum permitted portfolio expected loss of less than 7%, whereas higher risk ILS funds have a maximum permitted portfolio expected loss of greater than 7%. The AlphaCat ILS funds primarily deploy their capital through transactions entered into by AlphaCat Re and AlphaCat Master Fund Ltd. (“AlphaCat Master Fund”). All of the AlphaCat ILS funds are VIEs and were consolidated by the Company as the primary beneficiary through May 31, 2017. However, on June 1, 2017, the Company redeemed its investment in one of the lower risk AlphaCat ILS funds. As a result, the Company was no longer deemed to be the primary beneficiary and therefore this fund was deconsolidated effective June 1, 2017. The deconsolidation resulted in a loss of $402 which is included in the Consolidated Statements of Comprehensive Income as other insurance related income for the nine months ended September 30, 2017. The Company’s maximum exposure to any of the funds is the amount of capital invested at any given time and any remaining capital commitments. Refer to Note 15, “Commitments and contingencies,” for further details.

AlphaCat Re and AlphaCat Master Fund

The Company utilizes AlphaCat Re and AlphaCat Master Fund (collectively the “master funds”), both market facing entities, for the purpose of writing collateralized reinsurance and investing in capital markets products, respectively, on behalf of certain entities within the AlphaCat segment and direct third party investors. AlphaCat Re enters into transactions on behalf of the AlphaCat sidecars and ILS funds (collectively the “feeder funds”) and direct third party investors, whereas AlphaCat Master Fund only enters into transactions on behalf of certain AlphaCat ILS funds. All of the risks and rewards of the underlying transactions are allocated

23

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

to the feeder funds and direct third party investors using variable funding notes. The master funds are VIEs and are consolidated by the Company as the primary beneficiary.

Notes Payable to AlphaCat Investors

The master funds issue variable funding notes to the feeder funds, and direct to third party investors, in order to write collateralized reinsurance and invest in capital markets products on their behalf. The Company’s investments in the feeder funds, together with investments made by third parties in the feeder funds and on a direct basis, are provided as consideration for the notes to the master funds. The duration of the underlying collateralized reinsurance contracts and capital market products is typically twelve months; however, the variable funding notes do not have a stated maturity date or principal amount since repayment is dependent on the settlement and income or loss of the underlying transactions. Therefore, the notes are subsequently redeemed as the underlying transactions are settled. The income or loss generated by the underlying transactions is then transferred to the feeder funds and direct third party investors via the variable funding notes.

Any notes issued by the master funds to the consolidated feeder funds are eliminated on consolidation and only variable funding notes issued by AlphaCat Re to direct third party investors and non-consolidated feeder funds remain on the Consolidated Balance Sheets as notes payable to AlphaCat investors with the related income or loss included in the Consolidated Statements of Income and Comprehensive Income as (income) attributable to AlphaCat investors. To the extent that the income has not been returned to the investors, it is included in accounts payable and accrued expenses in the Consolidated Balance Sheets.

During 2017 and 2016, one of the AlphaCat ILS funds (the “Fund”) issued both common shares and structured notes to the Company and other third party investors in order to capitalize the fund. The Fund deploys its capital through AlphaCat Re; therefore, the structured notes do not have a stated maturity date or principal amount since repayment is dependent on the settlement and income or loss of the variable funding notes with AlphaCat Re. The structured notes rank senior to the common shares of the Fund and earn an interest rate of 7% (2016: 8%) per annum, payable on a cumulative basis in arrears.

As the Fund is consolidated by the Company, the structured notes issued to the Company are eliminated on consolidation and only the structured notes issued to third party investors remain on the Consolidated Balance Sheets as notes payable to AlphaCat investors with any related interest included in the Consolidated Statements of Income and Comprehensive Income as (income) attributable to AlphaCat investors. To the extent that the accrued interest on the structured notes has not been returned to the investors, it is included in accounts payable and accrued expenses in the Consolidated Balance Sheets.

24

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

The following tables present a reconciliation of the beginning and ending notes payable to AlphaCat investors for the three and nine months ended September 30, 2017 and 2016:

	Three Months Ended September 30, 2017
	Variable Funding Notes			Structured Notes		Total
Notes payable to AlphaCat investors, beginning of period	$	893,959		$	172,200	$	1,066,159
Issuance of notes payable to AlphaCat investors	59,530			—		59,530
Redemption of notes payable to AlphaCat investors	(18,627		)	—		(18,627		)
Foreign exchange losses	556			—		556
Notes payable to AlphaCat investors, end of period	$	935,418		$	172,200	$	1,107,618

	Three Months Ended September 30, 2016
	Variable Funding Notes			Structured Notes		Total
Notes payable to AlphaCat investors, beginning of period	$	276,656		$	94,326	$	370,982
Issuance of notes payable to AlphaCat investors	13,808			—		13,808
Redemption of notes payable to AlphaCat investors	(12,028		)	—		(12,028		)
Foreign exchange gains	(32		)	—		(32		)
Notes payable to AlphaCat investors, end of period	$	278,404		$	94,326	$	372,730

	Nine Months Ended September 30, 2017
	Variable Funding Notes			Structured Notes		Total
Notes payable to AlphaCat investors, beginning of period	$	278,202		$	—	$	278,202
Notes payable to AlphaCat investors recognized on deconsolidation of AlphaCat ILS fund	423,269			—		423,269
Issuance of notes payable to AlphaCat investors	601,407			172,200		773,607
Redemption of notes payable to AlphaCat investors	(367,733		)	—		(367,733		)
Foreign exchange losses	273			—		273
Notes payable to AlphaCat investors, end of period	$	935,418		$	172,200	$	1,107,618

	Nine Months Ended September 30, 2016
	Variable Funding Notes			Structured Notes		Total
Notes payable to AlphaCat investors, beginning of period	$	75,493		$	—	$	75,493
Issuance of notes payable to AlphaCat investors	311,913			94,326		406,239
Redemption of notes payable to AlphaCat investors	(109,712		)	—		(109,712		)
Foreign exchange losses	710			—		710
Notes payable to AlphaCat investors, end of period	$	278,404		$	94,326	$	372,730

As at December 31, 2016, $1,000 of the structured notes redeemed during the year were payable to AlphaCat investors and included in accounts payable and accrued expenses.

The loss attributable to AlphaCat investors for the three and nine months ended September 30, 2017 was $74,130 and $54,797 (2016: income of $5,564 and $16,278), with $9,737 included in accounts payable and accrued expenses as at September 30, 2017 (December 31, 2016: $17,068).

25

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

BetaCat ILS funds

The BetaCat ILS funds invest exclusively in catastrophe bonds (principal-at-risk variable rate notes and other event-linked securities, being referred to collectively as “Cat Bonds”) focused on property and casualty risk and issued under Rule 144A of the Securities Act of 1933, as amended, following a passive buy-and-hold investment strategy. Two of the funds are VIEs, one of which is consolidated by the Company as the primary beneficiary. The remaining fund is a VOE and is consolidated by the Company as it owns all of the voting equity interests. The Company’s maximum exposure to any of the funds is the amount of capital invested at any given time.

The following table presents the total assets and total liabilities of the Company’s consolidated VIEs, excluding intercompany eliminations, as at September 30, 2017 and December 31, 2016:

	September 30, 2017				December 31, 2016
	Total Assets		Total Liabilities		Total Assets		Total Liabilities
AlphaCat sidecars	$	30,598	$	3,708	$	40,041	$	3,206
AlphaCat ILS funds - Lower Risk (a)	1,019,072		234,192		1,498,276		42,457
AlphaCat ILS funds - Higher Risk (a)	947,135		541,466		972,633		381,332
AlphaCat Re and AlphaCat Master Fund	3,427,625		3,427,455		2,510,415		2,510,245
BetaCat ILS funds	144,766		291		82,471		30,663

(a) 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.

Assets of consolidated VIEs can only be used to settle obligations and liabilities of the consolidated VIEs and do not have recourse to the general credit of the Company. Investments held by these entities are presented separately in Note 4, “Investments,” as non-managed investments.

(b) Non-Consolidated VIEs

The Company invests in private equity and other investment vehicles as part of the Company’s investment portfolio. The activities of these VIEs are generally limited to holding investments and the Company’s involvement in these entities is passive in nature. The Company’s maximum exposure to the VIEs is the amount of capital invested at any given time, and the Company does not have the power to direct the activities which most significantly impact the VIEs economic performance. The Company is therefore not the primary beneficiary of these VIEs.

26

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

7.Noncontrolling interests

Investors in certain of the AlphaCat and BetaCat ILS funds have rights that enable them, subject to certain limitations, to redeem their shares. The third party equity is therefore recorded in the Company’s Consolidated Balance Sheets as redeemable noncontrolling interests. When and if a redemption notice is received, the fair value of the redemption is reclassified to a liability.

The AlphaCat sidecars and one of the AlphaCat ILS funds have no shareholder redemption rights. Therefore, the third party equity is recorded in the Company’s Consolidated Balance Sheets as noncontrolling interests.

The following tables present a reconciliation of the beginning and ending balances of redeemable noncontrolling interests and noncontrolling interests for the three and nine months ended September 30, 2017 and 2016:

	Redeemable noncontrolling interests						Noncontrolling interests						Total
	Three Months Ended September 30,						Three Months Ended September 30,						Three Months Ended September 30,
	2017			2016			2017			2016			2017			2016
Balance, beginning of period	$	1,251,660		$	1,532,283		$	415,658		$	212,154		$	1,667,318		$	1,744,437
Issuance of shares	26,999			700			—			—			26,999			700
(Loss) income attributable to noncontrolling interests	(140,781		)	26,597			(235,585		)	10,842			(376,366		)	37,439
Redemption of shares / distributions	(3,998		)	—			(101,126		)	—			(105,124		)	—
Balance, end of period	$	1,133,880		$	1,559,580		$	78,947		$	222,996		$	1,212,827		$	1,782,576
	Redeemable noncontrolling interests						Noncontrolling interests						Total
	Nine Months Ended September 30,						Nine Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016			2017			2016
Balance, beginning of period	$	1,528,001		$	1,111,714		$	165,977		$	154,662		$	1,693,978		$	1,266,376
Issuance of shares	237,199			381,950			258,300			171,674			495,499			553,624
Adjustment to noncontrolling interests as a result of deconsolidation	(459,021		)	—			—			—			(459,021		)	—
(Loss) income attributable to noncontrolling interests	(86,296		)	72,400			(203,848		)	23,763			(290,144		)	96,163
Redemption of shares / distributions	(86,003		)	(6,484		)	(141,482		)	(127,103		)	(227,485		)	(133,587		)
Balance, end of period	$	1,133,880		$	1,559,580		$	78,947		$	222,996		$	1,212,827		$	1,782,576

As at September 30, 2017, redemptions of $nil and distributions of $nil (December 31, 2016: $71,530 and $16,144) were payable to redeemable noncontrolling interests and noncontrolling interests, respectively. These amounts are classified within accounts payable and accrued expenses on the Company’s Consolidated Balance Sheets.

27

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

8.Derivative instruments

The Company enters into derivative instruments for risk management purposes, specifically to hedge unmatched foreign currency exposures, interest rate exposures and to shorten the duration of the Company’s fixed maturities portfolio.

(a) Derivatives not designated as hedging instruments

The following table summarizes information on the classification and amount of the fair value of derivatives not designated as hedging instruments for accounting purposes within the Company’s Consolidated Balance Sheets as at September 30, 2017 and December 31, 2016:

	September 30, 2017						December 31, 2016
Derivatives not designated as hedging instruments	Notional Exposure		Asset Derivative at Fair Value (a)		Liability Derivative at Fair Value (a)		Notional Exposure		Asset Derivative at Fair Value (a)		Liability Derivative at Fair Value (a)
Foreign currency forward contracts	$	267,206	$	1,522	$	1,379	$	181,375	$	2,351	$	3,421
Interest rate swap contracts	$	200,000	$	440	$	1,607	$	—	$	—	$	—

(a) Asset and liability derivatives are classified within other assets and accounts payable and accrued expenses, respectively, within the Company’s consolidated balance sheets.

The following table summarizes information on the classification and net impact on earnings, recognized in the Company’s Consolidated Statements of Income and Comprehensive Income relating to the foreign currency forward and interest rate swap contracts that were not designated as hedging instruments for accounting purposes during the three and nine months ended September 30, 2017 and 2016:

Derivatives not designated as hedging instruments	Classification of (losses) gains recognized in earnings	Three Months Ended September 30,						Nine Months Ended September 30,
		2017			2016			2017			2016
Foreign currency forward contracts	Foreign exchange (losses) gains	$	(1,927	)	$	1,326		$	(7,999	)	$	209
Foreign currency forward contracts	Other loss	$	—		$	(155	)	$	(979	)	$	(35	)
Interest rate swap contracts	Change in unrealized (losses) gains on investments	$	(848	)	$	566		$	(1,167	)	$	566

(b) Derivatives designated as hedging instruments

The following table summarizes information on the classification and amount of the fair value of derivatives designated as hedging instruments for accounting purposes on the Consolidated Balance Sheets as at September 30, 2017 and December 31, 2016:

	September 30, 2017						December 31, 2016
Derivatives designated as hedging instruments	Notional Exposure		Asset Derivative at Fair Value (a)		Liability Derivative at Fair Value (a)		Notional Exposure		Asset Derivative at Fair Value (a)		Liability Derivative at Fair Value (a)
Interest rate swap contracts	$	552,263	$	20	$	1,347	$	552,263	$	20	$	1,479

(a) Asset and liability derivatives are classified within other assets and accounts payable and accrued expenses, respectively, within the Company’s consolidated balance sheets.

Derivative instruments designated as a cash flow hedge

The Company designates its interest rate derivative instruments as cash flow hedges for accounting purposes and formally and contemporaneously documents all relationships between the hedging instruments and hedged items and links the derivative instruments to specific assets and liabilities. The Company assesses the effectiveness of the hedges, both at inception and on an on-going basis and determines whether the hedges are highly effective in offsetting changes in fair value of the linked hedged items. The Company currently applies the long haul method when assessing the hedge’s effectiveness.

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Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

The following table provides the total impact on other comprehensive income (loss) and earnings relating to the derivative instruments formally designated as cash flow hedges along with the impact of the related hedged items for the three and nine months ended September 30, 2017 and 2016:

	Three Months Ended September 30,						Nine Months Ended September 30,
Interest rate swap contracts	2017			2016			2017			2016
Amount of effective portion recognized in other comprehensive income	$	1,918		$	3,155		$	6,294		$	9,505
Amount of effective portion subsequently reclassified to earnings	$	(1,931	)	$	(2,717	)	$	(6,261	)	$	(8,373	)
Amount of ineffective portion excluded from effectiveness testing	$	13		$	(438	)	$	(33	)	$	(1,132	)

The above balances relate to interest payments and have therefore been classified as finance expenses in the Consolidated Statements of Income and Comprehensive Income.

(c) Classification within the fair value hierarchy

As described in Note 5, “Fair value measurements,” under U.S. GAAP, a company must determine the appropriate level in the fair value hierarchy for each fair value measurement. The assumptions used within the valuation of the Company’s derivative instruments are observable in the marketplace, can be derived from observable data or are supported by observable levels at which other similar transactions are executed in the marketplace. Accordingly, these derivatives were classified within Level 2 of the fair value hierarchy.

(d) Balance sheet offsetting

There was no balance sheet offsetting activity as at September 30, 2017 or December 31, 2016.

The Company currently provides cash collateral as security for interest rate swap contracts. The Company does not provide cash collateral or financial instruments as security for foreign currency forward contracts. Our derivative instruments are generally traded under International Swaps and Derivatives Association master netting agreements, which establish terms that apply to all transactions. On a periodic basis, the amounts receivable from or payable to the counterparties are settled in cash.

The Company has not elected to settle multiple transactions with an individual counterparty on a net basis.

9.Reserve for losses and loss expenses

Reserves for losses and loss expenses are based in part upon the estimation of case reserves from broker, insured and ceding company reported data. The Company also uses statistical and actuarial methods to estimate ultimate expected losses and loss expenses, from which incurred but not reported losses (“IBNR”) can be calculated. The period of time from the occurrence of a loss to the reporting of a loss to the Company and to the settlement of the Company’s liability may be several months or years. During this period, additional facts and trends may be revealed. As these factors become apparent, reserves will be adjusted, sometimes requiring an increase or decrease in the overall reserves of the Company, and at other times requiring a reallocation of incurred but not reported reserves to specific case reserves. These estimates are reviewed and adjusted regularly, and such adjustments, if any, are reflected in earnings in the period in which they become known. While management believes that it has made a reasonable estimate of ultimate losses, there can be no assurances that ultimate losses and loss expenses will not exceed this estimate.

The following table summarizes the total reserve for losses and loss expenses as at September 30, 2017 and December 31, 2016:

	September 30, 2017		December 31, 2016
Case reserves	$	1,271,580	$	1,237,772
IBNR	3,664,057		1,757,423
Total reserve for losses and loss expenses	$	4,935,637	$	2,995,195

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Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

The following table represents an analysis of paid and unpaid losses and loss expenses incurred and a reconciliation of the beginning and ending unpaid losses and loss expenses for the three and nine months ended September 30, 2017 and 2016:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Reserve for losses and loss expenses, beginning of period	$	3,305,191		$	3,122,717		$	2,995,195		$	2,996,567
Loss reserves recoverable	(600,207		)	(442,987		)	(430,421		)	(350,586		)
Net reserves for losses and loss expenses, beginning of period	2,704,984			2,679,730			2,564,774			2,645,981
Net reserves acquired (a)	—			—			23,753			—
Increase (decrease) in net reserves for losses and loss expenses in respect of losses occurring in:
Current year	1,329,666			311,279			1,999,921			959,376
Prior years	(75,064		)	(52,885		)	(179,585		)	(169,405		)
Total net incurred losses and loss expenses	1,254,602			258,394			1,820,336			789,971
Less net losses and loss expenses paid in respect of losses occurring in:
Current year	(191,612		)	(178,707		)	(242,068		)	(240,362		)
Prior years	(181,094		)	(166,539		)	(612,448		)	(596,618		)
Total net paid losses	(372,706		)	(345,246		)	(854,516		)	(836,980		)
Foreign exchange losses (gains)	13,741			(1,500		)	46,274			(7,594		)
Net reserve for losses and loss expenses, end of period	3,600,621			2,591,378			3,600,621			2,591,378
Loss reserves recoverable	1,335,016			444,609			1,335,016			444,609
Reserve for losses and loss expenses, end of period	$	4,935,637		$	3,035,987		$	4,935,637		$	3,035,987

(a) Equals net reserves acquired of $42,575 less net reserves commuted at closing of $18,822.

Incurred losses and loss expenses comprise:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Gross losses and loss expenses	$	2,104,914		$	284,413		$	2,866,722		$	952,129
Reinsurance recoverable	(850,312		)	(26,019		)	(1,046,386		)	(162,158		)
Net incurred losses and loss expenses	$	1,254,602		$	258,394		$	1,820,336		$	789,971

The net favorable development on prior years by segment and line of business for the three and nine months ended September 30, 2017 and 2016 was as follows:

	Three Months Ended September 30, 2017
	Property			Marine			Specialty			Liability			Total
Validus Re	$	(26,372	)	$	(7,105	)	$	(14,660	)	$	—		$	(48,137	)
Talbot	(8,752		)	(2,737		)	(12,125		)	—			(23,614		)
Western World	464			—			—			(526		)	(62		)
AlphaCat	(1,471		)	—			(1,780		)	—			(3,251		)
Net favorable development	$	(36,131	)	$	(9,842	)	$	(28,565	)	$	(526	)	$	(75,064	)

The net favorable loss reserve development on prior accident years of $75.1 million during the three months ended September 30, 2017 included favorable development on loss events and attritional losses of $16.1 million and $58.9 million, respectively.

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Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

	Three Months Ended September 30, 2016
	Property			Marine			Specialty			Liability			Total
Validus Re	$	(19,736	)	$	(8,504	)	$	(4,793	)	$	—		$	(33,033	)
Talbot	(2,429		)	(4,547		)	(11,715		)	—			(18,691		)
Western World	(553		)	—			—			(327		)	(880		)
AlphaCat	(265		)	—			(16		)	—			(281		)
Net favorable development	$	(22,983	)	$	(13,051	)	$	(16,524	)	$	(327	)	$	(52,885	)

The net favorable loss reserve development on prior accident years of $52.9 million during the three months ended September 30, 2016 included favorable development on loss events and attritional losses of $20.3 million and $32.6 million, respectively.

	Nine Months Ended September 30, 2017
	Property			Marine			Specialty			Liability		Total
Validus Re	$	(30,614	)	$	(38,847	)	$	(30,555	)	$	—	$	(100,016	)
Talbot	(19,980		)	(35,789		)	(12,535		)	—		(68,304		)
Western World	(2,838		)	—			—			2,094		(744		)
AlphaCat	(8,963		)	—			(1,558		)	—		(10,521		)
Net (favorable) adverse development	$	(62,395	)	$	(74,636	)	$	(44,648	)	$	2,094	$	(179,585	)

The net favorable loss reserve development on prior accident years of $179.6 million during the nine months ended September 30, 2017 included favorable development on loss events and attritional losses of $31.5 million and $148.0 million, respectively.

	Nine Months Ended September 30, 2016
	Property			Marine			Specialty			Liability			Total
Validus Re	$	(52,036	)	$	(14,967	)	$	(22,591	)	$	—		$	(89,594	)
Talbot	(30,969		)	(10,511		)	(28,259		)	—			(69,739		)
Western World	(2,576		)	—			—			(5,888		)	(8,464		)
AlphaCat	(742		)	—			(866		)	—			(1,608		)
Net favorable development	$	(86,323	)	$	(25,478	)	$	(51,716	)	$	(5,888	)	$	(169,405	)

The net favorable development on prior accident years of $169.4 million during the nine months ended September 30, 2016 included favorable development on loss events and attritional losses of $9.0 million and $160.4 million, respectively.

10.Reinsurance

The Company’s reinsurance balances recoverable at September 30, 2017 and December 31, 2016 were as follows:

	September 30, 2017		December 31, 2016
Loss reserves recoverable on unpaid:
Case reserves	$	207,368	$	165,328
IBNR	1,127,648		265,093
Total loss reserves recoverable	1,335,016		430,421
Paid losses recoverable	77,730		35,247
Total reinsurance balances recoverable	$	1,412,746	$	465,668

The Company enters into reinsurance and retrocession agreements in order to mitigate its accumulation of loss, reduce its liability on individual risks, enable it to underwrite policies with higher limits and increase its aggregate capacity. The cession of insurance and reinsurance does not legally discharge the Company from its primary liability for the full amount of the policies, and the Company is required to pay the loss and bear collection risk if the reinsurer fails to meet its obligations under the reinsurance or retrocession agreement. Amounts recoverable from reinsurers are estimated in a manner consistent with the underlying liabilities.

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Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

Credit risk

The Company evaluates the financial condition of its reinsurers and monitors concentration of credit risk arising from its exposure to individual reinsurers. The reinsurance program is generally placed with reinsurers whose rating, at the time of placement, was A- or better as rated by Standard & Poor’s or the equivalent with other rating agencies. Exposure to a single reinsurer is also controlled with restrictions dependent on rating. As at September 30, 2017, $1,400,430 or 99.1% (December 31, 2016: $461,369 or 99.1%) of the Company’s reinsurance balances recoverable were either fully collateralized or recoverable from reinsurers rated A- or better.

Reinsurance balances recoverable by reinsurer as at September 30, 2017 and December 31, 2016 were as follows:

	September 30, 2017				December 31, 2016
	Reinsurance Recoverable		% of Total		Reinsurance Recoverable		% of Total
Top 10 reinsurers	$	1,208,003	85.5	%	$	395,308	84.9	%
Other reinsurers’ balances > $1 million	198,774		14.1	%	66,944		14.4	%
Other reinsurers’ balances < $1 million	5,969		0.4	%	3,416		0.7	%
Total	$	1,412,746	100.0	%	$	465,668	100.0	%

The following tables show the reinsurance balances recoverable due from, and the ratings associated with, the Company’s top ten reinsurers as at September 30, 2017 and December 31, 2016:

	September 30, 2017
Top 10 Reinsurers	Rating	Reinsurance Recoverable		% of Total
Fully collateralized reinsurers	NR	$	564,714	40.0	%
Munich Re	AA-	164,131		11.6	%
Everest Re	A+	95,759		6.8	%
Lloyd's Syndicates	A+	94,845		6.7	%
Swiss Re	AA-	81,921		5.8	%
Hannover Re	AA-	62,715		4.4	%
Federal Crop Insurance Corporation	(a)	49,503		3.5	%
Qatar Insurance Company	A	38,061		2.7	%
Transatlantic Re	A+	29,795		2.1	%
XL Catlin	A+	26,559		1.9	%
Total		$	1,208,003	85.5	%

(a) The Company participates in a crop reinsurance program sponsored by the U.S. federal government. The Company remains obligated for amounts ceded in the event that its reinsurers or retrocessionaires do not meet their obligations, except for amounts ceded to the U.S. federal government in the agriculture line of business.

32

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

	December 31, 2016
Top 10 Reinsurers	Rating	Reinsurance Recoverable		% of Total
Lloyd's Syndicates	A+	$	84,419	18.2	%
Swiss Re	AA-	84,044		18.1	%
Fully collateralized reinsurers	NR	83,088		17.8	%
Hannover Re	AA-	50,603		10.9	%
Everest Re	A+	36,912		7.9	%
Munich Re	AA-	18,214		3.9	%
Transatlantic Re	A+	10,593		2.3	%
Hamilton Re	A-	10,343		2.2	%
Toa Re	A+	9,510		2.0	%
National Indemnity Company	AA+	7,582		1.6	%
Total		$	395,308	84.9	%

At September 30, 2017 and December 31, 2016, the provision for uncollectible reinsurance relating to reinsurance balances recoverable was $8,326 and $5,153, respectively. To estimate this provision for uncollectible reinsurance, reinsurance balances recoverable are first allocated to applicable reinsurers. This determination is based on a process rather than an estimate, although an element of judgment is applied, especially in relation to ceded IBNR. The Company then uses default factors to determine the portion of a reinsurer’s balance deemed to be uncollectible. Default factors require considerable judgment and are determined in part using the current rating, or rating equivalent, of each reinsurer as well as other key considerations and assumptions.

11.Share capital

The Company is authorized to issue up to an aggregate of 571,428,571 common and preferred shares with a par value of $0.175 per share.

(a) Preferred shares

On June 12, 2017, the Company issued 10,000 shares of its 5.800% Non-Cumulative Preferred Shares, Series B (the “Series B Preferred Shares”) (equivalent to 10,000,000 Depositary Shares, each of which represents a 1/1,000th interest in a Series B Preferred Share), $0.175 par value and $25,000 liquidation preference per share (equivalent to $25 per Depositary Share). The Series B Preferred Shares were registered and sold under the Securities Act of 1933, as amended, and were issued at a price to the public of $25,000 per share (equivalent to $25 per Depositary Share). After underwriting discounts and expenses, the Company received net proceeds of $241,686 which was used for general corporate purposes.

The Depositary Shares, representing the Series B Preferred Shares, are traded on the New York Stock Exchange (“NYSE”) under the symbol “VRPRB.” The Series B Preferred Shares have no stated maturity date and are redeemable, in whole or in part, at the Company’s option on and after June 21, 2022, at a redemption price of $25,000 per Series B Preferred Share (equivalent to $25 per Depository Share), plus declared and unpaid dividends. The Company may also redeem all, but not less than all, of the Series B Preferred Shares before the redemption date at a redemption price of $26,000 per share (equivalent to $26 per Depository Share), plus declared and unpaid dividends, if the Company is required to submit a proposal to the holders of the Series B Preferred Shares concerning an amalgamation, consolidation, merger or other similar corporate transaction or change in Bermuda law. The Series B Preferred Shares may also be redeemed before the redemption date at a redemption price of $25,000 per Series B Preferred Share (equivalent to $25 per Depository Share), plus declared and unpaid dividends, in whole, if there is a certain change in tax law, or in whole or in part, in the case of a capital disqualification event. However, no redemption may occur prior to June 21, 2027 unless the Company has sufficient funds in order to meet the Bermuda Monetary Authority’s (“the BMA”) Enhanced Capital Requirements (“ECR”) and the BMA approves of the redemption, or the Company replaces the capital represented by the Series B Preferred Shares with capital having equal or better capital treatment as the Series B Preferred Shares under the ECR.

Dividends on the Series B Preferred Shares, when, as and if declared by the Company’s Board of Directors or a duly authorized committee thereof, will accrue and be payable on the liquidation preference amount from the original issue date, on a non-cumulative basis, quarterly in arrears on each dividend payment date at an annual rate of 5.800%. The Company will be restricted from paying dividends on and repurchasing its common shares, unless certain dividend payments are made on the Series B Preferred Shares.

33

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, holders of the Series B Preferred Shares and any parity shares are entitled to receive out of our assets available for distribution to shareholders, before any distribution is made to holders of common shares or other junior shares, a liquidating distribution in the amount of $25,000 per Series B Preferred Share (equivalent to $25 per Depositary Share) plus declared and unpaid dividends. Distributions will be made pro rata in accordance with the respective aggregate liquidation preferences of the Series B Preferred Shares and any parity shares and only to the extent of our assets, if any, that are available after satisfaction of all liabilities to creditors.

Holders of the Series B Preferred Shares have no voting rights, except with respect to certain fundamental changes in the terms of the Series B Preferred Shares and in the case of certain dividend non-payments or as otherwise required by Bermuda law or the Company’s bye-laws.

On June 13, 2016, the Company issued 6,000 shares of its 5.875% Non-Cumulative Preferred Shares, Series A (the “Series A Preferred Shares”) (equivalent to 6,000,000 Depositary Shares, each of which represents a 1/1,000th interest in a Series A Preferred Share), $0.175 par value and $25,000 liquidation preference per share (equivalent to $25 per Depositary Share). Holders of the Series A Preferred Shares have no voting rights, except with respect to certain fundamental changes in the terms of the Series A Preferred Shares and in the case of certain dividend non-payments or as otherwise required by Bermuda law or the Company’s bye-laws.

The following table is a summary of the preferred share activity during the nine months ended September 30, 2017 and 2016:

	Nine Months Ended September 30,
	2017	2016
Preferred shares issued and outstanding, beginning of period	6,000	—
Preferred shares issued	10,000	6,000
Preferred shares issued and outstanding, end of period	16,000	6,000

The Company had 6,000 Series A Preferred Shares and 10,000 Series B Preferred Shares issued and outstanding as at September 30, 2017 and 6,000 Series A Preferred Shares issued and outstanding as at December 31, 2016.

(b)        Common Shares

The holders of common shares are entitled to receive dividends and are allocated one vote per share, provided that, if the controlled shares of any shareholder or group of related shareholders constitute more than 9.09 percent of the outstanding common shares of the Company, their voting power will be reduced to 9.09 percent.

The Company may from time to time repurchase its securities, including common shares, Junior Subordinated Deferrable Debentures and Senior Notes. On February 3, 2015, the Board of Directors of the Company approved an increase in the Company’s common share repurchase authorization to $750,000. This amount is in addition to the $2,274,401 of common shares repurchased by the Company through February 3, 2015 under its previously authorized share repurchase programs.

The Company has repurchased 80,860,661 common shares for an aggregate purchase price of $2,722,749 from the inception of its share repurchase program to September 30, 2017. The Company had $301,652 remaining under its authorized share repurchase program as of September 30, 2017.

The Company expects the purchases under its share repurchase program to be made from time to time in the open market or in privately negotiated transactions. The timing, form and amount of the share repurchases under the program will depend on a variety of factors, including market conditions, the Company’s capital position relative to internal and rating agency targets, legal requirements and other factors. The repurchase program may be modified, extended or terminated by the Board of Directors at any time.

34

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

The following table is a summary of the common share activity during the nine months ended September 30, 2017 and 2016:

	Nine Months Ended September 30,
	2017		2016
Common shares issued, beginning of period	161,279,976		160,570,772
Restricted share awards vested, net of shares withheld	619,046		608,024
Restricted share units vested, net of shares withheld	15,454		18,486
Options exercised	—		27,983
Performance share awards vested, net of shares withheld	42,410		48,088
Common shares issued, end of period	161,956,886		161,273,353
Treasury shares, end of period	(82,499,633	)	(81,830,323	)
Common shares outstanding, end of period	79,457,253		79,443,030

(c) Dividends

On August 9, 2017, the Company announced a quarterly cash dividend of $0.38 (2016: $0.35) per common share and cash dividends of $0.3671875 (2016: $0.3753472) and $0.3423611 per depositary share on its outstanding Series A and Series B Preferred Shares, respectively. The common share dividend was paid on September 29, 2017 to holders of record on September 15, 2017. The preferred share dividends were paid on September 15, 2017 to shareholders of record on September 1, 2017.

On May 10, 2017, the Company announced a quarterly cash dividend of $0.38 (2016: $0.35) per common share and a cash dividend of $0.3671875 per depositary share on its outstanding Series A Preferred Shares. The common share dividend was paid on June 30, 2017 to holders of record on June 15, 2017. The preferred share dividend was paid on June 15, 2017 to holders of record on June 1, 2017.

On February 9, 2017, the Company announced a quarterly cash dividend of $0.38 (2016: $0.35) per common share and a cash dividend of $0.3671875 per depositary share on its outstanding Series A Preferred Shares. The common share dividend was paid on March 31, 2017 to holders of record on March 15, 2017. The preferred share dividend was paid on March 15, 2017 to holders of record on March 1, 2017.

12.Stock plans

(a) Long Term Incentive Plan

The Company’s Amended and Restated 2005 Long Term Incentive Plan (“LTIP”) provides for grants to employees of options, stock appreciation rights (“SARs”), restricted shares, restricted share units, performance shares, dividend equivalents or other share-based awards. The total number of shares reserved for issuance under the LTIP are 2,753,292 shares of which 701,617 shares remain available for issuance at September 30, 2017. The LTIP is administered by the Compensation Committee of the Board of Directors. No SARs have been granted to date. Grant prices are established at the fair market value of the Company’s common shares at the date of grant.

i. Options

Options may be exercised for voting common shares upon vesting. Outstanding options have a life of 10 years and vest either pro rata or at the end of the required service period from the date of grant. Fair value of the option awards at the date of grant is determined using the Black-Scholes option-pricing model.

Expected volatility is based on stock price volatility of comparable publicly-traded companies. The Company used the simplified method consistent with U.S. GAAP authoritative guidance on stock compensation expenses to estimate expected lives for options granted during the period as historical exercise data was not available and the options met the requirement as set out in the guidance.

The Company has not granted any stock option awards since September 4, 2009. These stock option awards were fully amortized during the year ended December 31, 2012.

35

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

Activity with respect to options for the nine months ended September 30, 2017 and 2016 was as follows:

	Nine Months Ended September 30,
	2017					2016
	Options	Weighted Average Grant Date Fair Value		Weighted Average Grant Date Exercise Price		Options		Weighted Average Grant Date Fair Value		Weighted Average Grant Date Exercise Price
Options outstanding, beginning of period	26,136	$	6.78	$	23.48	65,401		$	7.74	$	20.17
Options exercised	—	—		—		(35,351	)	8.16		17.82
Options outstanding, end of period	26,136	$	6.78	$	23.48	30,050		$	7.24	$	22.93

ii. Restricted share awards

Restricted shares granted under the LTIP vest either pro rata or at the end of the required service period and contain certain restrictions during the vesting period, relating to, among other things, forfeiture in the event of termination of employment and transferability. The Company recognized share compensation expenses in respect of restricted share awards during the three and nine months ended September 30, 2017 of $7,814 (2016: $9,159) and $26,603 (2016: $27,805), respectively. The expenses represent the proportionate accrual of the fair value of each grant based on the remaining vesting period.

Activity with respect to unvested restricted share awards for the nine months ended September 30, 2017 and 2016 was as follows:

	Nine Months Ended September 30,
	2017				2016
	Restricted Share Awards		Weighted Average Grant Date Fair Value		Restricted Share Awards		Weighted Average Grant Date Fair Value
Restricted share awards outstanding, beginning of period	2,469,982		$	40.89	2,739,446		$	38.25
Restricted share awards granted	508,186		53.25		559,516		48.78
Restricted share awards vested	(828,800	)	41.25		(789,547	)	37.36
Restricted share awards forfeited	(53,775	)	43.38		(33,070	)	40.25
Restricted share awards outstanding, end of period	2,095,593		$	43.69	2,476,345		$	40.88

At September 30, 2017, there were $57,065 (December 31, 2016: $58,804) of total unrecognized share compensation expenses in respect of restricted share awards that are expected to be recognized over a weighted-average period of 2.4 years (December 31, 2016: 2.3 years).

iii. Restricted share units

Restricted share units under the LTIP vest either ratably or at the end of the required service period and contain certain restrictions during the vesting period, relating to, among other things, forfeiture in the event of termination of employment and transferability. The Company recognized share compensation expenses in respect of restricted share units during the three and nine months ended September 30, 2017 of $340 (2016: $290) and $982 (2016: $978), respectively. The expenses represent the proportionate accrual of the fair value of each grant based on the remaining vesting period.

36

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

Activity with respect to unvested restricted share units for the nine months ended September 30, 2017 and 2016 was as follows:

	Nine Months Ended September 30,
	2017				2016
	Restricted Share Units		Weighted Average Grant Date Fair Value		Restricted Share Units		Weighted Average Grant Date Fair Value
Restricted share units outstanding, beginning of period	112,808		$	40.95	114,337		$	38.47
Restricted share units granted	12,236		53.40		21,609		48.83
Restricted share units vested	(18,748	)	41.91		(23,982	)	38.18
Restricted share units issued in lieu of cash dividends	2,260		41.42		2,436		39.10
Restricted share units forfeited	—		—		(8,338	)	44.34
Restricted share units outstanding, end of period	108,556		$	42.20	106,062		$	40.20

At September 30, 2017, there were $2,233 (December 31, 2016: $2,542) of total unrecognized share compensation expenses in respect of restricted share units that are expected to be recognized over a weighted-average period of 2.5 years (December 31, 2016: 2.6 years).

iv. Performance share awards

The performance share awards contain a performance based component. The performance component relates to the compounded growth in the Dividend Adjusted Diluted Book Value per Share (“DBVPS”) over a three-year period relative to the Company’s peer group. For performance share awards granted during the period, the grant date DBVPS is based on the DBVPS at the end of the most recent financial reporting year. The Dividend Adjusted Performance Period End DBVPS will be the DBVPS three years after the grant date DBVPS. The fair value estimate earns over the requisite attribution period and the estimate will be reassessed at the end of each performance period which will reflect any adjustments in the Consolidated Statements of Income and Comprehensive Income in the period in which they are determined.

The Company recognized share compensation expenses in respect of performance share awards during the three and nine months ended September 30, 2017 of $1,289 (2016: $1,052) and $2,495 (2016: $3,682), respectively.

Activity with respect to unvested performance share awards for the nine months ended September 30, 2017 and 2016 was as follows:

	Nine Months Ended September 30,
	2017				2016
	Performance Share Awards		Weighted Average Grant Date Fair Value		Performance Share Awards		Weighted Average Grant Date Fair Value
Performance share awards outstanding, beginning of period	285,820		$	44.53	172,594		$	40.70
Performance share awards granted	107,209		53.40		125,290		48.75
Performance share awards vested	(52,639	)	37.33		(57,581	)	36.11
Performance share awards conversion adjustment	(26,322	)	36.82		45,517		36.82
Performance share awards outstanding, end of period	314,068		$	49.37	285,820		$	44.53

At September 30, 2017, there were $9,031 (December 31, 2016: $6,902) of total unrecognized share compensation expenses in respect of performance share awards that are expected to be recognized over a weighted-average period of 2.1 years (December 31, 2016: 2.1 years).

37

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

(b) Total share compensation expenses

The breakdown of share compensation expenses by award type for the periods indicated was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Restricted share awards	$	7,814	$	9,159	$	26,603	$	27,805
Restricted share units	340		290		982		978
Performance share awards	1,289		1,052		2,495		3,682
Total	$	9,443	$	10,501	$	30,080	$	32,465

13.Debt and financing arrangements

The Company’s financing structure is comprised of debentures and senior notes payable along with credit and other facilities.

(a) Senior notes and junior subordinated deferrable debentures

The Company’s outstanding debentures and senior notes payable as at September 30, 2017 and December 31, 2016 were as follows:

	September 30, 2017			December 31, 2016
Deferrable debentures
2006 Junior Subordinated	$	150,000		$	150,000
2007 Junior Subordinated	139,800			139,800
Flagstone 2006 Junior Subordinated	135,360			133,676
Flagstone 2007 Junior Subordinated	113,750			113,750
Total debentures payable	538,910			537,226
2010 Senior notes payable	250,000			250,000
Less: Unamortized debt issuance costs	(4,487		)	(4,638		)
Total senior notes payable	245,513			245,362
Total debentures and senior notes payable	$	784,423		$	782,588

38

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

The following table summarizes the key terms of the Company’s senior notes and junior subordinated deferrable debentures:

Description	Issuance date	Issued		Maturity date	Interest Rate as at						Interest payments due
					Issuance Date			September 30, 2017
2006 Junior Subordinated Deferrable Debentures	June 15, 2006	$	150,000	June 15, 2036	9.069	%	(a)	5.831	%	(e)	Quarterly
Flagstone 2006 Junior Subordinated Deferrable Debentures	August 23, 2006	$	135,360	September 15, 2036	3.540	%	(b)	6.463	%	(e)	Quarterly
2007 Junior Subordinated Deferrable Debentures	June 21, 2007	$	200,000	June 15, 2037	8.480	%	(c)	5.180	%	(e)	Quarterly
Flagstone 2007 Junior Subordinated Deferrable Debentures	June 8, 2007	$	100,000	July 30, 2037	3.000	%	(b)	5.900	%	(e)	Quarterly
Flagstone 2007 Junior Subordinated Deferrable Debentures	September 20, 2007	$	25,000	September 15, 2037	3.100	%	(b)	5.983	%	(e)	Quarterly
2010 Senior Notes due 2040	January 26, 2010	$	250,000	January 26, 2040	8.875	%	(d)	8.875	%	(d)	Semi-annually in arrears

(a) Fixed interest rate for 5 years, floating interest rate of three-month LIBOR plus 3.550% thereafter, reset quarterly.

(b) Floating interest rate of three-month LIBOR plus amount stated, reset quarterly.

(c) Fixed interest rate for 5 years, floating interest rate of three-month LIBOR plus 2.950% thereafter, reset quarterly.

(d) Fixed interest rate.

(e) Fixed interest rate as a result of interest rate swap contracts entered into by the Company.

Future payments of principal of $250,000 and $538,910 on the 2010 Senior Notes and the debentures, respectively, are expected to be made after 2022.

(b) Credit and other facilities

The Company’s outstanding credit facilities as at September 30, 2017 and December 31, 2016 were as follows:

	September 30, 2017
	Commitment		Outstanding (a)		Drawn (b)		Cash and investments pledged as collateral
Credit facilities
$85,000 syndicated unsecured letter of credit facility	$	85,000	$	—	$	—	$	—
$300,000 syndicated secured letter of credit facility	300,000		89,449		—		108,265
$24,000 secured bi-lateral letter of credit facility	24,000		5,767		—		22,342
$25,000 IPC bi-lateral facility	25,000		7,755		—		—
$236,000 Flagstone bi-lateral facility	236,000		90,390		—		134,482
$65,000 unsecured revolving credit facility	65,000		65,000		65,000		—
$100,000 unsecured revolving credit facility	100,000		100,000		100,000		—
Total credit facilities	$	835,000	$	358,361	$	165,000	$	265,089

(a) Indicates utilization of commitment amount, not drawn borrowings.

(b) Represents drawn borrowings included in accounts payable and accrued expenses.

39

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

	December 31, 2016
	Commitment		Outstanding (a)		Drawn (b)		Cash and investments pledged as collateral
Credit facilities
$85,000 syndicated unsecured letter of credit facility	$	85,000	$	—	$	—	$	—
$300,000 syndicated secured letter of credit facility	300,000		121,428		—		157,597
$24,000 secured bi-lateral letter of credit facility	24,000		4,553		—		48,097
$20,000 AlphaCat Re secured letter of credit facility (c)	20,000		20,000		—		20,032
$25,000 IPC bi-lateral facility	25,000		8,807		—		—
$236,000 Flagstone bi-lateral facility	236,000		156,375		—		216,458
Total credit facilities	$	690,000	$	311,163	$	—	$	442,184

(a) Indicates utilization of commitment amount, not drawn borrowings.

(b) Represents drawn borrowings.

(c) The Company terminated its AlphaCat Re secured letter of credit facility on January 6, 2017.

On August 7, 2017, the Company and Validus Reinsurance, Ltd. entered into a $65,000 unsecured revolving credit facility with Barclays Bank PLC, as the lender (the “Barclays Unsecured Revolving Facility”) expiring August 6, 2018. Loans under the Barclays Unsecured Revolving Facility will be available for the general corporate and working capital purposes of the Company. Borrowings under the Barclays Unsecured Revolving Facility bear interest at the base rate (the higher of (i) the prime rate quoted in the Wall Street Journal, (ii) the federal reserve bank effective rate plus 0.50%, and (iii) the adjusted LIBOR rate plus 1.0%) or the adjusted LIBOR rate applicable to such loans, plus an applicable rate.

Also on August 7, 2017, the Company and Validus Reinsurance, Ltd. entered into a $100,000 unsecured revolving credit facility with HSBC Bank USA, National Association, as the lender (the “HSBC Unsecured Revolving Facility” and together with the Barclays Unsecured Revolving Facility, the “Credit Facilities”) expiring December 31, 2019. Loans under the HSBC Unsecured Revolving Facility will be available for the general corporate and working capital purposes of the Company. Borrowings under the HSBC Unsecured Revolving Facility bear interest at the base rate (the higher of (i) the prime rate announced by HSBC Bank USA, National Association, (ii) the higher of the federal reserve bank effective rate the overnight bank funding rate plus 0.50%, or (iii) the adjusted LIBOR rate plus 1.0%).

The Credit Facilities contain covenants that include, among other things (i) the requirement that the Company initially maintain a minimum level of consolidated net worth of at least $2,789,131 and, commencing with the end of the fiscal quarter ending September 30, 2017, to be increased quarterly by an amount equal to 25% of the Company’s consolidated net income (if positive) for such quarter plus 50% of the aggregate increases in the consolidated shareholders’ equity of the Company during such fiscal quarter by reason of the issuance and sale of common equity interests of the Company, including upon any conversion of debt securities of the Company into such equity interests, (ii) the requirement that the Company maintain at all times a consolidated total debt to consolidated total capital ratio not greater than 0.35:1.00, and (iii) the requirement that Validus Reinsurance, Ltd. and any certain other material insurance subsidiaries maintain a financial strength rating by A.M. Best of not less than “B++” (Fair).  In addition, the Credit Facilities contain customary negative covenants applicable to the Company and its subsidiaries, including limitations on the ability to pay dividends and other payments in respect of equity interests at any time that the Company is otherwise in default with respect to certain provisions under the respective Credit Facilities, limitations on the ability to incur liens, sell assets, merge or consolidate with others, enter into transactions with affiliates, and limitations on the ability of its subsidiaries to incur indebtedness. The Credit Facilities also contain customary affirmative covenants, representations and warranties and events of default for credit facilities of its type.

As of September 30, 2017 and December 31, 2016, the Company was in compliance with all covenants and restrictions under its credit and other facilities.

40

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

(c) Finance expenses

Finance expenses consist of interest on the junior subordinated deferrable debentures and senior notes, the amortization of debt offering costs, credit facility fees, bank charges, AlphaCat financing fees and other charges as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
2006 Junior Subordinated Deferrable Debentures	$	2,235	$	2,135	$	6,633	$	6,557
2007 Junior Subordinated Deferrable Debentures	1,851		1,851		5,492		5,512
Flagstone 2006 Junior Subordinated Deferrable Debentures	2,272		2,271		6,741		6,760
Flagstone 2007 Junior Subordinated Deferrable Debentures	1,775		1,784		5,249		5,317
2010 Senior Notes due 2040	5,597		5,597		16,792		16,791
Credit facilities	575		463		1,196		1,359
Bank and other charges	183		276		465		489
AlphaCat fees (a)	35		144		107		1,105
Total finance expenses	$	14,523	$	14,521	$	42,675	$	43,890

(a) Includes finance expenses incurred by AlphaCat Managers Ltd. in relation to fund raising for the AlphaCat sidecars, the AlphaCat ILS funds and AlphaCat direct.

41

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

14. Accumulated other comprehensive loss

The changes in accumulated other comprehensive loss, by component for the three and nine months ended September 30, 2017 and 2016 was as follows:

	Three Months Ended September 30, 2017
	Foreign currency translation adjustment			Minimum pension liability			Cash flow hedge			Total
Balance, net of tax, beginning of period	$	(20,188	)	$	1,102		$	(838	)	$	(19,924	)
Other comprehensive income, net of tax	1,481			—			13			1,494
Balance, net of tax, end of period	$	(18,707	)	$	1,102		$	(825	)	$	(18,430	)
	Three Months Ended September 30, 2016
	Foreign currency translation adjustment			Minimum pension liability			Cash flow hedge			Total
Balance, net of tax, beginning of period	$	(17,149	)	$	730		$	(1,763	)	$	(18,182	)
Other comprehensive loss, net of tax	(1,370		)	(1,101		)	(439		)	(2,910		)
Balance, net of tax, end of period	$	(18,519	)	$	(371	)	$	(2,202	)	$	(21,092	)
	Nine Months Ended September 30, 2017
	Foreign currency translation adjustment			Minimum pension liability			Cash flow hedge			Total
Balance, net of tax, beginning of period	$	(22,274	)	$	(150	)	$	(792	)	$	(23,216	)
Other comprehensive income (loss), net of tax	3,567			1,252			(33		)	4,786
Balance, net of tax, end of period	$	(18,707	)	$	1,102		$	(825	)	$	(18,430	)
	Nine Months Ended September 30, 2016
	Foreign currency translation adjustment			Minimum pension liability			Cash flow hedge			Total
Balance, net of tax, beginning of period	$	(11,834	)	$	334		$	(1,069	)	$	(12,569	)
Other comprehensive loss, net of tax	(6,685		)	(705		)	(1,133		)	(8,523		)
Balance, net of tax, end of period	$	(18,519	)	$	(371	)	$	(2,202	)	$	(21,092	)

42

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

15. Commitments and contingencies

(a) Funds at Lloyd’s

Talbot operates in Lloyd’s through a corporate member, Talbot 2002 Underwriting Capital Ltd (“T02”), which is the sole participant in Syndicate 1183. Lloyd’s sets T02’s required capital annually based on Syndicate 1183’s business plan, rating environment and reserving environment together with input arising from Lloyd’s discussions with, inter alia, regulatory and rating agencies. Such capital, called Funds at Lloyd’s (“FAL”), comprises cash and investments. The Company provided FAL in the amount of $583,600 for the 2017 underwriting year (2016 underwriting year: $617,000).

The amounts which are provided as FAL are not available for distribution to the Company for the payment of dividends. Talbot’s corporate member may also be required to maintain funds under the control of Lloyd’s in excess of its capital requirement and such funds also may not be available for distribution to the Company for the payment of dividends.

(b) Lloyd’s Central Fund

Whenever a member of Lloyd’s is unable to pay its debts to policyholders, such debts may be payable by the Lloyd’s Central Fund. If Lloyd’s determines that the Central Fund needs to be increased, it has the power to assess premium levies on current Lloyd’s members up to 3% of a member’s underwriting capacity in any one year. The Company does not believe that any assessment is likely in the foreseeable future and has not provided any allowance for such an assessment. However, based on the Company’s 2017 underwriting capacity at Lloyd’s of £600,000, at the September 30, 2017 exchange rate of £1 equals $1.34 and assuming the maximum 3% assessment, the Company would be assessed approximately $24,120.

(c) Marketing Services Agreement (“MSA”)

On May 1, 2017, the Company entered into a MSA with Archer Daniels Midland (“ADM”). Under this agreement, ADM agrees to provide marketing services via its own distribution channels for an annual fee of $2,000 for a period of seven years, with an option for the Company to extend for an additional three years. For the three and nine months ended September 30, 2017, the Company had incurred fees in relation to the MSA of $500 and $833, respectively.

(d)    Unfunded investment commitments

As at September 30, 2017 and December 31, 2016, the Company had total unfunded investment commitments related to the following:

	Unfunded investment commitments
	September 30, 2017		December 31, 2016
Fixed maturity investments (a)	$	21,959	$	28,499
Other investments (b)	101,082		156,134
Investments in investment affiliates (c)	87,372		64,071
AlphaCat ILS Fund	—		10,000
Total unfunded investment commitments	$	210,413	$	258,704

(a) The Company has an outstanding commitment to participate in certain secured loan facilities through participation agreements with an established loan originator.

(b) The Company’s total capital commitments related to other investments as at September 30, 2017 was $313,000 (December 31, 2016: $308,000).

(c) Refer to Note 4(c), “Investments in Investment Affiliates.”

43

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

16. Related party transactions

The transactions listed below are classified as related party transactions as principals and/or directors of each counterparty are members of the Company’s board of directors.

(a) Aquiline Capital Partners LLC (“Aquiline Capital”)

Group Ark Insurance

Subsequent to July 2016, Aquiline Capital ceased to be shareholders of Group Ark Insurance Holdings Ltd. (“Group Ark”). Christopher E. Watson, a director of the Company and senior principal of Aquiline Capital, continues to serve as a director of Group Ark. Pursuant to reinsurance agreements with a subsidiary of Group Ark, the Company recognized gross premiums written during the three and nine months ended September 30, 2016 of $1,096 and $3,067, respectively. The Company also recognized reinsurance premiums ceded during the three and nine months ended September 30, 2016 of $41 and $41, respectively. Earned premium adjustments were recorded during the three and nine months ended September 30, 2016 of $1,276 and $2,275, respectively. As at December 31, 2016 the Company had recorded premiums receivable and loss reserves recoverable of $292 and $798, respectively.

Wellington

Pursuant to reinsurance agreements with a subsidiary of Wellington Insurance Company (“Wellington”), during the three and nine months ended September 30, 2017 the Company recognized gross premiums written of $78 and $4,196 (2016: $nil and $nil), respectively, and earned premium adjustments of $943 and $3,480 (2016: $nil and $nil), respectively. As at September 30, 2017 and December 31, 2016 the Company had recorded premiums receivable of $468 and $666, respectively. Aquiline Capital are shareholders of Wellington and Christopher E. Watson, a director of the Company and senior principal of Aquiline Capital, serves as a director of Wellington.

Aquiline II, Aquiline III and Aquiline Tech

The Company had, as of September 30, 2017 and December 31, 2016, investments in Aquiline II, III and Tech with a total value of $92,079 and $100,431 and outstanding unfunded commitments of $87,372 and $64,071, respectively. For the three and nine months ended September 30, 2017, the Company incurred $106 and $592 (2016: $520 and $1,535), respectively, in partnership fees associated with these investments. Jeffrey W. Greenberg and Christopher E. Watson, directors of the Company, serve as managing principal and senior principal, respectively, of Aquiline Capital. Additional information related to Aquiline II, III and Tech is disclosed in Note 4(c), “Investments in Investment Affiliates.”

(b) Other

Certain shareholders of the Company and their affiliates, as well as employers of entities associated with directors or officers have purchased insurance and/or reinsurance from the Company in the ordinary course of business. The Company believes these transactions were settled for arm’s length consideration.

44

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

17. Earnings per common share

The following table sets forth the computation of basic earnings per common share and earnings per diluted common share for the three and nine months ended September 30, 2017 and 2016:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2017			2016		2017			2016
Basic (loss) earnings per common share
Net (loss) income (attributable) available to Validus common shareholders	$	(250,446	)	$	89,844	$	(54,790	)	$	351,617
Weighted average number of common shares outstanding	78,994,335			80,134,394		79,132,856			81,635,496
Basic (loss) earnings per share (attributable) available to Validus common shareholders	$	(3.17	)	$	1.12	$	(0.69	)	$	4.31
(Loss) earnings per diluted common share
Net (loss) income (attributable) available to Validus common shareholders	$	(250,446	)	$	89,844	$	(54,790	)	$	351,617
Weighted average number of common shares outstanding	78,994,335			80,134,394		79,132,856			81,635,496
Share equivalents:
Stock options	—			26,705		—			32,126
Unvested restricted shares	—			1,083,457		—			1,271,002
Weighted average number of diluted common shares outstanding	78,994,335			81,244,556		79,132,856			82,938,624
(Loss) earnings per diluted share (attributable) available to Validus common shareholders	$	(3.17	)	$	1.11	$	(0.69	)	$	4.24

Earnings per diluted common share assumes the exercise of all dilutive stock options and restricted stock grants. Due to the net loss incurred during the three and nine months ended September 30, 2017, share equivalents were not included in the computation of diluted loss per share due to their anti-dilutive effect. Share equivalents that would result in the issuance of common shares of 19,808 and 175,690 were outstanding for the three and nine months ended September 30, 2016, respectively, but were not included in the computation of earnings per diluted common share because the effect would be anti-dilutive.

45

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

18.Segment information

The Company conducts its operations worldwide through four operating segments, which have been determined under ASC Topic 280 “Segment Reporting” to be Validus Re, Talbot, Western World and AlphaCat. For segmental reporting purposes, the results of CRS have been included in the results of the Western World segment as of May 1, 2017, the date of acquisition. The Company’s operating segments are strategic business units that offer different products and services. They are managed and have capital allocated separately because each segment undertakes different strategies.

A description of each of the Company’s operating segments and its Corporate and Investments function is as follows:

Validus Re Segment

The Validus Re segment is focused primarily on treaty reinsurance. The primary lines in which the segment conducts business are property, marine and specialty which includes agriculture, aerospace and aviation, financial lines of business, nuclear, terrorism, life, accident & health, workers’ compensation, crisis management, contingency, technical lines, composite, trade credit and casualty.

Talbot Segment

The Talbot segment is focused on a wide range of marine and energy, political lines, commercial property, financial lines, contingency, accident & health and aviation classes of business on an insurance or facultative reinsurance basis and principally property, aerospace and marine classes of business on a treaty reinsurance basis.

Western World Segment

The Western World segment is focused on providing commercial insurance products on a surplus lines and specialty admitted basis. Western World specializes in underwriting classes of business that are not easily placed in the standard insurance market due to their complexity, high hazard, or unusual nature; including general liability, property and professional liability, homeowners, commercial package and agriculture classes of business.

AlphaCat Segment

The AlphaCat segment leverages the Company’s underwriting and analytical expertise and earns management and performance fees from the Company and other third party investors primarily through the AlphaCat ILS funds and sidecars.

Corporate and Investments

The Company has a corporate and investments function (“Corporate and Investments”), which includes the activities of the parent company, and which carries out certain functions for the group, including investment management. Corporate and Investments includes investment income on a managed basis and other non-segment expenses, predominantly general and administrative, stock compensation, finance and transaction expenses. Transaction expenses are primarily comprised of legal, financial advisory and audit related services incurred in connection with the acquisition of CRS. Corporate and Investments also includes the activities of certain key executives such as the Chief Executive Officer and Chief Financial Officer. For reporting purposes, Corporate and Investments is reflected separately; however, it is not considered an operating segment under these circumstances. Other reconciling items include, but are not limited to, the elimination of certain inter segment revenues and expenses and other items that are not allocated to the operating segments.

46

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

The following tables summarize the results of our operating segments and “Corporate and Investments”:

	Three Months Ended September 30,						Nine Months Ended September 30,
Validus Re Segment Information	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
Selected ratios
Ratio of net to gross premiums written	73.4		%	83.1		%	85.0		%	89.6		%
Losses and loss expense ratio	130.1		%	43.1		%	74.1		%	43.6		%
Policy acquisition cost ratio	17.0		%	18.7		%	18.4		%	17.7		%
General and administrative expense ratio (a)	5.7		%	8.9		%	7.8		%	8.5		%
Expense ratio	22.7		%	27.6		%	26.2		%	26.2		%
Combined ratio	152.8		%	70.7		%	100.3		%	69.8		%

(a) The general and administrative expense ratio includes share compensation expenses.

47

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

	Three Months Ended September 30,						Nine Months Ended September 30,
Talbot Segment Information	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
Selected ratios
Ratio of net to gross premiums written	81.1		%	87.9		%	78.0		%	81.7		%
Losses and loss expense ratio	99.3		%	55.2		%	66.8		%	52.6		%
Policy acquisition cost ratio	23.1		%	23.4		%	22.8		%	22.1		%
General and administrative expense ratio (a)	14.2		%	17.8		%	18.5		%	19.7		%
Expense ratio	37.3		%	41.2		%	41.3		%	41.8		%
Combined ratio	136.6		%	96.4		%	108.1		%	94.4		%

(a) The general and administrative expense ratio includes share compensation expenses.

48

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

	Three Months Ended September 30,						Nine Months Ended September 30,
Western World Segment Information	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	)
Selected ratios
Ratio of net to gross premiums written	72.4		%	92.7		%	84.3		%	93.5		%
Losses and loss expense ratio	90.2		%	64.6		%	81.8		%	65.5		%
Policy acquisition cost ratio	11.8		%	24.1		%	14.9		%	23.6		%
General and administrative expense ratio (a)	12.5		%	15.4		%	13.0		%	17.9		%
Expense ratio	24.3		%	39.5		%	27.9		%	41.5		%
Combined ratio	114.5		%	104.1		%	109.7		%	107.0		%

(a) The general and administrative expense ratio includes share compensation expenses.

49

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

	Three Months Ended September 30,						Nine Months Ended September 30,
AlphaCat Segment Information	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 investments 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 segment (loss) income	$	(27,624	)	$	11,176		$	(14,968	)	$	24,839
Supplemental information
Gross premiums written
AlphaCat Sidecars	$	—		$	(112	)	$	66		$	(178	)
AlphaCat ILS Funds - Lower Risk (b)	10,979			2,049			117,519			112,241
AlphaCat ILS Funds - Higher Risk (b)	16,275			1,797			153,483			140,127
AlphaCat Direct (c)	(41		)	679			26,753			18,476
Total gross premiums written	$	27,213		$	4,413		$	297,821		$	270,666

(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.

(c) AlphaCat Direct includes direct investments from third party investors in AlphaCat Re.

50

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

	Three Months Ended September 30,						Nine Months Ended September 30,
Corporate and Investments	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) (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 VIEs.

51

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

(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)	$	(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 interest	—			—			—			376,366			—			—			376,366
Segmental (loss)	$	(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).

52

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

(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).

53

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

(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)	$	(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)	$	(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).

54

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

(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).

55

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

The Company’s exposures are generally diversified across geographic zones. The following tables set forth the gross premiums written by operating segment allocated to the territory of coverage exposure for the periods indicated:

	Gross Premiums Written
	Three Months Ended September 30, 2017
	Validus Re			Talbot		Western World		AlphaCat		Eliminations			Total		%
United States	$	59,838		$	24,584	$	156,517	$	18,440	$	(6,300	)	$	253,079	48.3	%
Worldwide excluding United States (a)	7,198			43,136		—		712		76			51,122		9.8	%
Australia and New Zealand	(450		)	3,696		—		—		9			3,255		0.6	%
Europe	4,744			5,372		—		149		62			10,327		2.0	%
Latin America and Caribbean	19,430			20,726		—		—		(454		)	39,702		7.6	%
Japan	436			1,165		—		—		—			1,601		0.3	%
Canada	24			1,820		—		458		(6		)	2,296		0.4	%
Rest of the world (b)	1,447			21,478		—		—		57			22,982		4.4	%
Sub-total, non United States	32,829			97,393		—		1,319		(256		)	131,285		25.1	%
Worldwide including United States (a)	33,724			16,293		—		4,993		(91		)	54,919		10.5	%
Other locations non-specific (c)	27,499			54,613		—		2,461		—			84,573		16.1	%
Total	$	153,890		$	192,883	$	156,517	$	27,213	$	(6,647	)	$	523,856	100.0	%

	Gross Premiums Written
	Three Months Ended September 30, 2016
	Validus Re			Talbot		Western World		AlphaCat			Eliminations			Total		%
United States	$	31,345		$	19,937	$	85,260	$	1,837		$	(76	)	$	138,303	37.1	%
Worldwide excluding United States (a)	4,145			40,058		—		(288		)	(39		)	43,876		11.7	%
Australia and New Zealand	57			3,238		—		—			6			3,301		0.9	%
Europe	4,536			4,957		—		—			40			9,533		2.6	%
Latin America and Caribbean	17,036			25,173		—		—			(793		)	41,416		11.1	%
Japan	(33		)	997		—		—			7			971		0.3	%
Canada	149			2,015		—		—			(42		)	2,122		0.6	%
Rest of the world (b)	2,360			19,166		—		—			66			21,592		5.8	%
Sub-total, non United States	28,250			95,604		—		(288		)	(755		)	122,811		33.0	%
Worldwide including United States (a)	22,399			12,771		—		2,872			(838		)	37,204		10.0	%
Other locations non-specific (c)	12,747			61,362		—		(8		)	(1		)	74,100		19.9	%
Total	$	94,741		$	189,674	$	85,260	$	4,413		$	(1,670	)	$	372,418	100.0	%

56

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

	Gross Premiums Written
	Nine Months Ended September 30, 2017
	Validus Re		Talbot		Western World		AlphaCat		Eliminations			Total		%
United States	$	374,018	$	88,139	$	459,628	$	116,691	$	(10,623	)	$	1,027,853	41.0	%
Worldwide excluding United States (a)	45,803		110,094		—		8,617		(463		)	164,051		6.6	%
Australia and New Zealand	3,745		8,726		—		2,003		(101		)	14,373		0.6	%
Europe	35,108		22,944		—		600		(368		)	58,284		2.2	%
Latin America and Caribbean	40,646		69,703		—		46		(4,737		)	105,658		4.2	%
Japan	40,902		6,371		—		3,855		(36		)	51,092		2.0	%
Canada	4,894		4,068		—		588		(55		)	9,495		0.4	%
Rest of the world (b)	20,229		67,918		—		—		(1,520		)	86,627		3.5	%
Sub-total, non United States	191,327		289,824		—		15,709		(7,280		)	489,580		19.5	%
Worldwide including United States (a)	189,669		74,385		—		158,239		(5,875		)	416,418		16.6	%
Other locations non-specific (c)	316,395		250,187		—		7,182		—			573,764		22.9	%
Total	$	1,071,409	$	702,535	$	459,628	$	297,821	$	(23,778	)	$	2,507,615	100.0	%

	Gross Premiums Written
	Nine Months Ended September 30, 2016
	Validus Re		Talbot		Western World		AlphaCat		Eliminations			Total		%
United States	$	455,826	$	85,182	$	236,190	$	64,566	$	(1,631	)	$	840,133	36.4	%
Worldwide excluding United States (a)	51,384		105,590		—		22,219		(650		)	178,543		7.8	%
Australia and New Zealand	6,906		7,613		��		4,949		(107		)	19,361		0.8	%
Europe	30,270		25,673		—		3,306		(668		)	58,581		2.5	%
Latin America and Caribbean	36,610		76,577		—		—		(6,330		)	106,857		4.6	%
Japan	39,892		5,579		—		3,221		(24		)	48,668		2.1	%
Canada	3,646		5,577		—		223		(129		)	9,317		0.4	%
Rest of the world (b)	22,307		76,456		—		—		(2,276		)	96,487		4.2	%
Sub-total, non United States	191,015		303,065		—		33,918		(10,184		)	517,814		22.4	%
Worldwide including United States (a)	169,737		75,423		—		170,639		(10,052		)	405,747		17.6	%
Other locations non-specific (c)	255,641		288,388		—		1,543		(15		)	545,557		23.6	%
Total	$	1,072,219	$	752,058	$	236,190	$	270,666	$	(21,882	)	$	2,309,251	100.1	%

(a) Represents risks in two or more geographic zones.

(b) Represents risks in one geographic zone.

(c) The Other locations non-specific category refers to business for which an analysis of exposure by geographic zone is not applicable since these exposures can span multiple geographic areas and, in some instances, are not fixed locations.

57

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements (unaudited)

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

19.Subsequent events

California Wildfires

The California Wildfires were a series of wildfires that burned across Northern California in October 2017 causing widespread residential and commercial property damage across a number of counties. The Company is presently reviewing its exposure based on in-force contracts and preliminary loss information from clients and anticipates that the California Wildfires will likely be a notable loss event.

Dividends

On November 1, 2017, the Company announced a quarterly cash dividend of $0.38 per common share, payable on December 29, 2017 to shareholders of record on December 15, 2017. The Company also announced a quarterly cash dividend of $0.3671875 and $0.3625000 per depository share on the outstanding Series A and Series B Preferred Shares, respectively. The Series A and Series B Preferred Share dividends are payable on December 15, 2017 to shareholders of record on December 1, 2017.

58

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion and analysis of the Company’s unaudited consolidated results of operations for the three and nine months ended September 30, 2017 and 2016 and the Company’s consolidated financial condition, liquidity and capital resources as at September 30, 2017 and December 31, 2016. This discussion and analysis should be read in conjunction with the Company’s unaudited Consolidated Financial Statements and notes thereto included in this filing and the Company’s audited Consolidated Financial Statements and related notes for the fiscal year ended December 31, 2016, the discussions of critical accounting policies and the qualitative and quantitative disclosure about market risk, as well as management’s discussion and analysis of financial condition and results of operations contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

For a number of reasons, the Company’s historical financial results may not accurately indicate future performance. See “Cautionary Note Regarding Forward-Looking Statements.” The Risk Factors set forth in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 present a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained herein.

Table of Contents
Section	Page
Executive Overview	60
Business Outlook and Trends	60
Non-GAAP Financial Measures	61
Results of Operations - Three Months Ended September 30, 2017 and 2016	64
Validus Re Segment	68
Talbot Segment	71
Western World Segment	74
AlphaCat Segment	77
Corporate and Investments	79
Results of Operations - Nine Months Ended September 30, 2017 and 2016	81
Validus Re Segment	84
Talbot Segment	88
Western World Segment	91
AlphaCat Segment	94
Corporate and Investments	96
Liquidity and Capital Resources	98
Investments	98
Reserve for Losses and Loss Expenses	101
Sources of Liquidity	104
Capital Resources	107
Ratings	108
Recent Accounting Pronouncements	109
Critical Accounting Policies	109
Cautionary Note Regarding Forward-Looking Statements	109

59

Executive Overview

The Company conducts its operations worldwide through four operating segments which have been determined under U.S. GAAP segment reporting to be Validus Re, Talbot, Western World, and AlphaCat. On May 1, 2017, the Company acquired all of the outstanding capital stock of CRS and its related agriculture book of business. For segmental reporting purposes, the results of CRS have been included in the results of the Western World segment as of May 1, 2017, the date of acquisition.

In addition, the Company has a corporate and investment function (“Corporate and Investments”), which includes the activities of the parent company, and which carries out certain functions for the group, including investment management. Corporate and Investments includes investment income on a managed basis and other non-segment expenses, predominantly general and administrative, stock compensation, finance and transaction expenses. Corporate and Investments also includes the activities of certain key executives such as the Chief Executive Officer and Chief Financial Officer. For reporting purposes, Corporate and Investments is reflected separately; however, it is not considered an operating segment. The Company’s corporate expenses, capital servicing and debt costs and investment results are presented separately within the corporate and investments discussion.

The Company’s strategy is to concentrate primarily on short-tail risks, which has been an area where management believes prices and terms provide an attractive risk-adjusted return and the management team has proven expertise. The Company’s profitability in any given period is a function of net earned premium and investment revenues, less net losses and loss expenses, acquisition expenses and operating expenses. Financial results in the insurance and reinsurance industry are influenced by the frequency and/or severity of claims and losses, including as a result of catastrophic events; changes in interest rates, financial markets and general economic conditions; the supply of insurance and reinsurance capacity and changes in legal, regulatory and judicial environments.

Potential Change to Reportable Segments

The Company continually monitors and reviews its segment reporting structure in accordance with authoritative guidance to determine whether any changes have occurred that would impact its reportable segments. As a result of the evolution of the Company’s operations, the global nature of the industry and synergies obtained through the acquisition and integration of Talbot, Western World and CRS, the Company’s current reportable segments have been becoming progressively more integrated such that it is likely that we will change our reportable segments to “Insurance,”“Reinsurance” and “Asset Management." The Company expects that the finalization of this new segment structure will occur in the fourth quarter of 2017. As such, the Company expects that it will present its full year results for 2017, and revise all prior periods presented, in conformity with this new segment structure.

Business Outlook and Trends

We underwrite global property insurance and reinsurance and have large aggregate exposures to natural and man-made disasters. The occurrence of claims from catastrophic events results in substantial volatility, and can have material adverse effects on the Company’s financial condition and results and its ability to write new business. This volatility affects results for the period in which the loss occurs because U.S. GAAP does not permit reinsurers to reserve for such catastrophic events until they occur. Catastrophic events of significant magnitude historically have been relatively infrequent, although management believes the property catastrophe reinsurance market has experienced a higher level of worldwide catastrophic losses in terms of both frequency and severity in the period from 1992 to the present. We also expect that increases in the values and concentrations of insured property will increase the severity of such occurrences in the future. The Company seeks to reflect these types of trends when pricing contracts.

Property and other reinsurance premiums have historically risen in the aftermath of significant catastrophic losses. As loss reserves are established, industry surplus is depleted and the industry’s capacity to write new business diminishes. The global property and casualty insurance and reinsurance industry has historically been highly cyclical. Since 2007, increased capital and the absence of significant catastrophic events resulted in a softening of rates on most lines. From 2010 to 2012, there was an increased level of catastrophe activity, principally the Chilean earthquake, Deepwater Horizon, the Tohoku earthquake, the New Zealand earthquakes and Superstorm Sandy; however, the impact of these events in the aggregate were not severe enough to increase rates. As such, the Company continues to see increased competition and decreased premium rates in most classes of business.

During the Validus Re and AlphaCat mid year 2017 renewal period, the U.S. property market saw a continuation of the rate trend observed at the January 1 renewals where rate declines were in the low single-digits, with terms and conditions generally unchanged. However, the rate environment in the international property market proved to be more challenging with average rate reductions ranging between 4% and 5%.

Business written by the Talbot and Western World segments is distributed more evenly throughout the year. Through September 30, 2017, the Talbot segment experienced a whole account rate decrease of approximately 4.0% driven primarily by decreases in the downstream and upstream energy classes. The Western World segment experienced a modest whole account rate increase of approximately 0.2% through September 30, 2017.

60

Following the significant catastrophic events of the third quarter 2017: Hurricanes Harvey, Irma and Maria, the Company expects the industry to see meaningful rate increases across all loss affected classes. The Company expects rate changes to be driven by the retrocession market, with reinsurers and insurers following accordingly. However, the full extent of rate increases will not likely be realized until mid year 2018.

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.

Book value financial indicators

In addition to presenting book value per common share determined in accordance with U.S. GAAP, the Company believes that the key financial indicator for evaluating our performance and measuring the overall growth in value generated for shareholders is book value per diluted common share plus accumulated dividends, a non-GAAP financial measure.

The following table presents reconciliations of book value per common share to book value per diluted common share plus accumulated dividends and other non-GAAP book value financial indicators:

	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.

61

Book value per common share, a GAAP financial measure, decreased by $2.10, or 4.5%, from $46.61 at December 31, 2016 to $44.51 at September 30, 2017.

Book value per diluted common share plus accumulated dividends, a non-GAAP financial measure, is considered by management to be the key financial indicator of performance, as the Company believes growth in book value on a diluted basis, plus the dividends that have accumulated, ultimately translates into the return that a shareholder will receive. Book value per diluted common share plus accumulated dividends decreased by $0.70, or 1.2%, from $56.53 at December 31, 2016 to $55.83 at September 30, 2017. Cash dividends per common share are an integral part of the value created for shareholders. During the nine months ended September 30, 2017, the Company paid cash dividends of $1.14 (2016: $1.05) per common share.

Book value per diluted common share, a non-GAAP financial measure, is considered by management to be a measure of returns to common shareholders, as the Company believes growth in book value on a diluted basis ultimately translates into growth in stock price. Book value per diluted common share after dividends paid decreased by $1.84, or 4.1%, from $44.97 at December 31, 2016 to $43.13 at September 30, 2017. The change in book value per diluted common share inclusive of dividends paid was (1.6)% and 9.2% for the nine months ended September 30, 2017 and 2016, respectively.

Tangible book value per diluted common share, a non-GAAP financial measure, is considered by management to be a measure of returns to common shareholders excluding goodwill and other intangible assets, as the Company believes growth in tangible book value on a diluted basis ultimately translates into growth in the tangible value of the Company. Tangible book value per diluted common share decreased by $2.92, or 7.1%, from $41.16 at December 31, 2016 to $38.24 at September 30, 2017.

Other financial indicators

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 is calculated by the addition or subtraction of certain Consolidated Statement of (Loss) Income and Comprehensive (Loss) Income line items from net (loss) income (attributable) available to Validus common shareholders, the most directly comparable GAAP financial measure, as illustrated in the table below:

	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	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
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	(27.3		%)	9.7		%	(2.0		%)	12.7		%
Annualized net operating return on average equity (b)	(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.

62

Net operating (loss) income (attributable) available to Validus common shareholders, a non-GAAP financial measure, 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 table above. 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. The Company’s objective is to generate superior returns on capital that appropriately reward shareholders for the risks assumed.

For further discussion of the components driving the Company’s financial indicators refer to the “Results of Operations” sections.

63

Third Quarter 2017 Results of Operations - Consolidated

The following table presents the results of operations for the three months ended September 30, 2017 and 2016:

	Three Months Ended September 30,
	2017			2016
Revenues
Gross premiums written	$	523,856		$	372,418
Reinsurance premiums ceded	(116,860		)	(45,006		)
Net premiums written	406,996			327,412
Change in unearned premiums	316,212			236,363
Net premiums earned	723,208			563,775
Net investment income	44,458			43,514
Net realized gains on investments	906			4,397
Change in net unrealized (losses) gains on investments	(5,197		)	5,459
Income from investment affiliates	1,011			453
Other insurance related income and other income (loss)	3,571			(610		)
Foreign exchange (losses)	(1,404		)	(766		)
Total revenues	766,553			616,222
Expenses
Losses and loss expenses	1,254,602			258,394
Policy acquisition costs	115,590			113,434
General and administrative expenses	70,342			82,443
Share compensation expenses	9,443			10,501
Finance expenses	14,523			14,521
Transaction expenses	—			—
Total expenses	1,464,500			479,293
(Loss) income before taxes and loss (income) attributable to AlphaCat investors	(697,947		)	136,929
Tax benefit (expense)	2,632			(1,830		)
Loss (income) attributable to AlphaCat investors	74,130			(5,564		)
Net (loss) income	$	(621,185	)	$	129,535
Net loss (income) attributable to noncontrolling interests	376,366			(37,439		)
Net (loss) income (attributable) available to Validus	(244,819		)	92,096
Dividends on preferred shares	(5,627		)	(2,252		)
Net (loss) income (attributable) available to Validus common shareholders	$	(250,446	)	$	89,844
Supplemental information:
Losses and loss expenses:
Current period excluding items below	$	403,491		$	288,650
Current period—notable loss events	926,175			986
Current period—non-notable loss events	—			21,643
Change in prior accident years	(75,064		)	(52,885		)
Total losses and loss expenses	$	1,254,602		$	258,394
Selected ratios:
Ratio of net to gross premiums written	77.7		%	87.9		%
Losses and loss expense ratio:
Current period excluding items below	55.8		%	51.2		%
Current period—notable loss events	128.1		%	0.2		%
Current period—non-notable loss events	—		%	3.8		%
Change in prior accident years	(10.4		)%	(9.4		)%
Losses and loss expense ratio	173.5		%	45.8		%
Policy acquisition cost ratio	16.0		%	20.1		%
General and administrative expense ratio (a)	11.0		%	16.5		%
Expense ratio	27.0		%	36.6		%
Combined ratio	200.5		%	82.4		%

(a) The general and administrative expense ratio includes share compensation expenses.

64

Highlights for the third quarter 2017 as compared to 2016 were 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 Validus Re, Western World 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 Validus Re, Western World and Talbot segments.

• Net premiums earnedfor 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 Validus Re, Western World and AlphaCat segments and was partially offset by a decrease in the Talbot segment.

• Losses and loss expenses for the three months ended September 30, 2017 were $1,254.6 million compared to $258.4 million for the three months ended September 30, 2016, an increase of $996.2 million. The increase was primarily driven by an increase in losses from notable loss events during the three months ended September 30, 2017 and was partially offset by higher favorable development on prior accident years and a decrease in non-notable loss events.

Notable and Non-notable Loss Events

◦ 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. The term “events” refers to aggregate notable and non-notable losses incurred.

Notable Loss Events

◦ Losses and loss expenses incurred during the three months ended September 30, 2017 from three notable loss events were $926.2 million, or 128.1 percentage points of the loss ratio during the three months ended September 30, 2017. 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 excluding the AlphaCat segment. Including Validus’ share of AlphaCat net losses and loss expenses of $35.7 million and the net impact of reinstatement premiums and acceleration of unearned premiums of $33.5 million, the net loss attributable to Validus from third quarter 2017 notable loss events was $367.3 million and was incurred by event as follows:

	Three Months Ended September 30, 2017
	Total Notable Loss Events
(Dollars in thousands)	Hurricane Harvey			Hurricane Irma			Hurricane Maria			Total
Gross losses and loss expenses excluding the Alphacat segment	$	439,319		$	419,916		$	143,053		$	1,002,288
Less: Reinsurance recoveries	(292,315		)	(254,973		)	(89,862		)	(637,150		)
Net losses and loss expenses excluding the AlphaCat segment	147,004			164,943			53,191			365,138
Validus’ share of AlphaCat losses and loss expenses	7,298			20,992			7,360			35,650
Validus’ share of net losses and loss expenses	154,302			185,935			60,551			400,788
Less: Net impact on premiums earned (a)	(7,941		)	(22,686		)	(2,865		)	(33,492		)
Net loss attributable to Validus	$	146,361		$	163,249		$	57,686		$	367,296

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

◦ During the three months ended September 30, 2016, the Company incurred losses and loss expenses of $1.0 million, or 0.2 percentage points of the loss ratio relating to the second quarter 2016 Canadian Wildfires notable loss event, reflecting an increase in the industry loss estimate during the three months ended September 30, 2016.

Non-notable Loss Events

◦ There were no non-notable loss events occurring during the three months ended September 30, 2017.

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◦ Losses and loss expenses incurred during the three months ended September 30, 2016 from two non-notable loss events were as follows:

	Three Months Ended September 30, 2016
	Non-notable Loss Events					Total
(Dollars in thousands)	Texas Hailstorms		SpaceX
Validus’ share of net losses and loss expenses	$	1,400	$	20,243		$	21,643
Less: Reinstatement premiums, net	—		(1,240		)	(1,240		)
Net loss attributable to Validus	$	1,400	$	19,003		$	20,403

Losses and loss expenses from two non-notable loss events were $21.6 million, or 3.8 percentage points of the loss ratio. Losses and loss expenses related to SpaceX, the September 1^st rocket explosion at Cape Canaveral, Florida, were $20.2 million, or 3.6 percentage points of the loss ratio. Net of reinstatement premiums of $1.2 million, the net loss attributable to the Company from this event was $19.0 million. In addition, losses and loss expenses of $1.4 million, or 0.2 percentage points of the loss ratio, related to the Texas Hailstorms second quarter 2016 non-notable loss event.

Change in prior accident years

◦ Loss reserve development for the three months ended September 30, 2017 and 2016 was as follows:

	Three Months Ended September 30,
(Dollars in thousands)	2017			2016
(Favorable) development on event losses	$	(16,142	)	$	(20,314	)
(Favorable) development on attritional losses	(58,922		)	(32,571		)
Change in prior accident years	$	(75,064	)	$	(52,885	)

The favorable development for the three months ended September 30, 2017 was primarily driven by favorable development on attritional losses and multiple loss events. The favorable development for the three months ended September 30, 2016 was primarily driven by favorable development on attritional losses and the 2015 Tianjin port explosion and Chilean earthquake loss events.

Loss Ratio

◦ The loss ratio for the three months ended September 30, 2017 and September 30, 2016 was 173.5% and 45.8%, respectively, an increase of 127.7 percentage points. Excluding the AlphaCat segment, which includes results attributable to AlphaCat’s third party investors and noncontrolling interests, the loss ratio for the three months ended September 30, 2017 was 110.0%.

◦ Loss ratios by line of business for the three months ended September 30, 2017 and 2016 were as follows:

	Three Months Ended September 30,
	2017		2016
Property	318.4	%	27.5	%
Marine	123.4	%	60.1	%
Specialty	62.5	%	55.6	%
Liability	71.2	%	66.8	%
All lines	173.5	%	45.8	%

• Policy acquisition cost ratio for the three months ended September 30, 2017 was 16.0% compared to 20.1% for the three months ended September 30, 2016, a decrease of 4.1 percentage points. The decrease was primarily driven by new agriculture business written in the Western World segment which carries lower acquisition costs and the net impact of the third quarter 2017 notable loss events on net premiums earned.

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• General and administrative (“G&A”) expensesfor the three months ended September 30, 2017 were $70.3 million compared to $82.4 million for the three months ended September 30, 2016, a decrease of $12.1 million or 14.7%. The decrease was primarily driven by a reduction in the bonus accrual during the three months ended September 30, 2017 and was partially offset by an increase in G&A expenses in the Western World segment, which included $12.0 million of CRS expenses, of which $1.7 million related to the amortization of intangible assets acquired.

• 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%.

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Third Quarter 2017 Results of Operations - Validus Re Segment

The following table presents underwriting (loss) income by line of business for the three months ended September 30, 2017 and 2016:

	Three Months Ended September 30,
	2017												2016
(Dollars in thousands)	Property			Marine			Specialty			Total			Property			Marine			Specialty			Total
Underwriting revenues
Gross premiums written	$	117,657		$	1,226		$	35,007		$153,890			$	53,761		$	(4,533	)	$	45,513		$	94,741
Reinsurance premiums ceded	(20,455		)	(3,824		)	(16,709		)	(40,988		)	(5,357		)	(6,021		)	(4,589		)	(15,967		)
Net premiums written	97,202			(2,598		)	18,298			112,902			48,404			(10,554		)	40,924			78,774
Change in unearned premiums	37,307			27,555			89,283			154,145			45,290			31,711			72,704			149,705
Net premiums earned	134,509			24,957			107,581			267,047			93,694			21,157			113,628			228,479
Other insurance related income										68												58
Total underwriting revenues										267,115												228,537
Underwriting deductions
Losses and loss expenses	248,984			41,953			56,547			347,484			10,024			13,229			75,172			98,425
Policy acquisition costs	18,783			3,551			23,088			45,422			18,138			3,744			20,955			42,837
Total underwriting deductions before G&A	267,767			45,504			79,635			392,906			28,162			16,973			96,127			141,262
Underwriting (loss) income before G&A	$	(133,258	)	$	(20,547	)	$	27,946		$	(125,791	)	$	65,532		$	4,184		$	17,501		$	87,275
General and administrative expenses										12,444												17,528
Share compensation expenses										2,606												2,695
Total underwriting deductions										407,956												161,485
Underwriting (loss) income										$	(140,841	)										$	67,052
Supplemental information:
Losses and loss expenses:
Current period excluding items below	$	39,265		$	11,792		$	71,207		$	122,264		$	29,754		$	11,384		$	79,965		$	121,103
Current period—notable loss events	236,091			37,266			—			273,357			—			—			—			—
Current period—non-notable loss events	—			—			—			—			6			10,349			—			10,355
Change in prior accident years	(26,372		)	(7,105		)	(14,660		)	(48,137		)	(19,736		)	(8,504		)	(4,793		)	(33,033		)
Total losses and loss expenses	$	248,984		$	41,953		$	56,547		$	347,484		$	10,024		$	13,229		$	75,172		$	98,425
Selected ratios:
Ratio of net to gross premiums written	82.6		%	(211.9		)%	52.3		%	73.4		%	90.0		%	232.8		%	89.9		%	83.1		%
Losses and loss expense ratio:
Current period excluding items below	29.2		%	47.3		%	66.2		%	45.7		%	31.8		%	53.8		%	70.4		%	53.1		%
Current period—notable loss events	175.5		%	149.3		%	—		%	102.4		%	—		%	—		%	—		%	—		%
Current period—non-notable loss events	—		%	—		%	—		%	—		%	—		%	48.9		%	—		%	4.5		%
Change in prior accident years	(19.6		)%	(28.5		)%	(13.6		)%	(18.0		)%	(21.1		)%	(40.2		)%	(4.2		)%	(14.5		)%
Losses and loss expense ratio	185.1		%	168.1		%	52.6		%	130.1		%	10.7		%	62.5		%	66.2		%	43.1		%
Policy acquisition cost ratio	14.0		%	14.2		%	21.5		%	17.0		%	19.4		%	17.7		%	18.4		%	18.7		%
General and administrative expense ratio (a)										5.7		%										8.9		%
Expense ratio										22.7		%										27.6		%
Combined ratio										152.8		%										70.7		%

(a) The general and administrative expense ratio includes share compensation expenses.

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Highlights for the third quarter 2017 as compared to 2016 were as follows:

• Gross premiums writtenfor 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%. 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 in gross premiums written was driven by:

◦ A decrease in the specialty lines of $10.5 million, primarily due to the timing of renewals on certain programs and adjustments to existing business; 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 assumed 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.

• Losses and loss expenses for the three months ended September 30, 2017 were $347.5 million compared to $98.4 million for the three months ended September 30, 2016, an increase of $249.1 million or 253.0%. The increase was primarily driven by an increase in notable loss events and was partially offset by higher favorable development on prior accident years and a decrease in non-notable loss events.

Notable Loss Events

◦ Losses and loss expenses incurred during the three months ended September 30, 2017 from three notable loss events were as follows:

	Three Months Ended September 30, 2017
	Notable Loss Events									Total
(Dollars in thousands)	Hurricane Harvey			Hurricane Irma			Hurricane Maria
Gross losses and loss expenses	$	277,643		$	334,583		$	114,178		$	726,404
Less: Reinsurance recoveries	(170,018		)	(206,637		)	(76,392		)	(453,047		)
Validus Re’s share of net losses and loss expenses	107,625			127,946			37,786			273,357
Less: Net impact on premiums earned (a)	(18,602		)	(27,309		)	(4,254		)	(50,165		)
Net loss attributable to Validus Re	$	89,023		$	100,637		$	33,532		$	223,192

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

Validus Re’s share of net losses and loss expenses from Hurricanes Harvey, Irma and Maria was $273.4 million, or 102.4 percentage points of the loss ratio. Net of reinstatement premiums assumed and the impact of accelerating net unearned premiums ceded of $50.2 million, the net loss attributable to Validus Re from notable loss events was $223.2 million. The net losses and loss expenses from the notable loss events by line of business were as follows:

◦ Hurricane Harvey - property and marine lines of $89.2 million and $18.4 million, respectively;

◦ Hurricane Irma - property and marine lines of $113.7 million and $14.3 million, respectively; and

◦ Hurricane Maria - property and marine lines of $33.2 million and $4.6 million, respectively.

◦ There were no notable loss events occurring during the three months ended September 30, 2016.

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Non-notable Loss Events

◦ There were no non-notable loss events occurring during the three months ended September 30, 2017.

◦ Losses and loss expenses from a single non-notable loss event occurring during the three months ended September 30, 2016, SpaceX, were $10.4 million, or 4.5 percentage points of the loss ratio, and related solely to the marine lines. Net of reinstatement premiums, the net loss attributable to Validus Re was $8.2 million.

Change in prior accident years

◦ Loss reserve development by line of business for the three months ended September 30, 2017 and 2016 was as follows:

	Three Months Ended September 30, 2017
(Dollars in thousands)	Property			Marine			Specialty			Total
(Favorable) development on event losses	$	(16,703	)	$	(960	)	$	—		$	(17,663	)
(Favorable) development on attritional losses	(9,669		)	(6,145		)	(14,660		)	(30,474		)
Change in prior accident years	$	(26,372	)	$	(7,105	)	$	(14,660	)	$	(48,137	)

The favorable development on event losses in the property lines was driven by favorable development across multiple loss events. The net favorable development across the marine and specialty lines was primarily driven by favorable development on attritional losses.

	Three Months Ended September 30, 2016
(Dollars in thousands)	Property			Marine			Specialty			Total
(Favorable) adverse development on event losses	$	(18,269	)	$	(504	)	$	295		$	(18,478	)
(Favorable) development on attritional losses	(1,467		)	(8,000		)	(5,088		)	(14,555		)
Change in prior accident years	$	(19,736	)	$	(8,504	)	$	(4,793	)	$	(33,033	)

The net favorable development in the property lines was primarily driven by favorable development on the 2015 Tianjin port explosion and Chilean earthquake loss events. The net favorable development across the marine and specialty lines was primarily driven by favorable development on attritional losses.

Loss Ratio

◦ The loss ratio for the three months ended September 30, 2017 and 2016 was 130.1% and 43.1%, respectively, an increase of 87.0 percentage points.

• Policy acquisition cost ratio for the three months ended September 30, 2017 was 17.0% compared to 18.7% for the three months ended September 30, 2016, a decrease of 1.7 percentage points. Excluding the net impact of reinstatement premiums assumed and the acceleration of net unearned premiums ceded from third quarter 2017 notable loss events, the policy acquisition cost ratio for the three months ended September 30, 2017 was 20.9%, an increase of 2.2 percentage points compared to the three months ended September 30, 2016. The increase primarily related to an increase in the specialty lines as a result of a change in business mix, notably an increase in casualty business which carries higher acquisition costs and was partially offset by a decrease in agriculture business which carries lower acquisition costs.

• General and administration 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 primarily driven by a reduction in the bonus accrual during the three months ended September 30, 2017.

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Third Quarter 2017 Results of Operations - Talbot Segment

The following table presents underwriting (loss) income by line of business for the three months ended September 30, 2017 and 2016:

	Three Months Ended September 30,
	2017												2016
(Dollars in thousands)	Property			Marine			Specialty			Total			Property			Marine			Specialty			Total
Underwriting revenues
Gross premiums written	$	68,848		$	39,167		$	84,868		$192,883			$	64,301		$	48,093		$	77,280		$	189,674
Reinsurance premiums ceded	(25,972		)	(2,626		)	(7,864		)	(36,462		)	(12,497		)	(352		)	(10,028		)	(22,877		)
Net premiums written	42,876			36,541			77,004			156,421			51,804			47,741			67,252			166,797
Change in unearned premiums	5,005			15,017			3,169			23,191			5,465			16,495			10,298			32,258
Net premiums earned	47,881			51,558			80,173			179,612			57,269			64,236			77,550			199,055
Other insurance related income										692												99
Total underwriting revenues										180,304												199,154
Underwriting deductions
Losses and loss expenses	99,156			52,474			26,810			178,440			40,330			38,076			31,454			109,860
Policy acquisition costs	9,520			12,346			19,627			41,493			10,476			17,680			18,332			46,488
Total underwriting deductions before G&A	108,676			64,820			46,437			219,933			50,806			55,756			49,786			156,348
Underwriting (loss) income before G&A	$	(60,795	)	$	(13,262	)	$	33,736		$	(39,629	)	$	6,463		$	8,480		$	27,764		$	42,806
General and administrative expenses										23,069												32,333
Share compensation expenses										2,310												3,163
Total underwriting deductions										245,312												191,844
Underwriting (loss) income										$	(65,008	)										$	7,310
Supplemental information:
Losses and loss expenses:
Current period excluding items below	$	54,098		$	32,926		$	33,249		$	120,273		$	41,384		$	32,729		$	43,169		$	117,282
Current period—notable loss events	53,810			22,285			5,686			81,781			—			—			—			—
Current period—non-notable loss events	—			—			—			—			1,375			9,894			—			11,269
Change in prior accident years	(8,752		)	(2,737		)	(12,125		)	(23,614		)	(2,429		)	(4,547		)	(11,715		)	(18,691		)
Total losses and loss expenses	$	99,156		$	52,474		$	26,810		$	178,440		$	40,330		$	38,076		$	31,454		$	109,860
Selected ratios:
Ratio of net to gross premiums written	62.3		%	93.3		%	90.7		%	81.1		%	80.6		%	99.3		%	87.0		%	87.9		%
Losses and loss expense ratio:
Current period excluding items below	113.0		%	63.9		%	41.4		%	66.9		%	72.3		%	51.0		%	55.7		%	58.9		%
Current period—notable loss events	112.4		%	43.2		%	7.1		%	45.5		%	—		%	—		%	—		%	—		%
Current period—non-notable loss events	—		%	—		%	—		%	—		%	2.4		%	15.4		%	—		%	5.7		%
Change in prior accident years	(18.3		)%	(5.3		)%	(15.1		)%	(13.1		)%	(4.3		)%	(7.1		)%	(15.1		)%	(9.4		)%
Losses and loss expense ratio	207.1		%	101.8		%	33.4		%	99.3		%	70.4		%	59.3		%	40.6		%	55.2		%
Policy acquisition cost ratio	19.9		%	23.9		%	24.5		%	23.1		%	18.3		%	27.5		%	23.6		%	23.4		%
General and administrative expense ratio (a)										14.2		%										17.8		%
Expense ratio										37.3		%										41.2		%
Combined ratio										136.6		%										96.4		%

(a) The general and administrative expense ratio includes share compensation expenses.

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Highlights for the third quarter 2017 as compared to 2016 were as follows:

• 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%. Excluding the impact of reinstatement premiums from third quarter 2017 notable loss events of $3.0 million which impacted the property lines, 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.

• Losses and loss expenses for the three months ended September 30, 2017 were $178.4 million compared to $109.9 million for the three months ended September 30, 2016, an increase of $68.6 million or 62.4%. The increase was primarily driven by an increase in notable loss events and losses of $10.8 million, or 6.0 percentage points of the loss ratio, arising from the Mexico City Earthquake and was partially offset by a decrease in non-notable loss events.

Notable Loss Events

◦ Losses and loss expenses incurred during the three months ended September 30, 2017 from three notable loss events were as follows:

	Three Months Ended September 30, 2017
	Notable Loss Events									Total
(Dollars in thousands)	Hurricane Harvey			Hurricane Irma			Hurricane Maria
Gross losses and loss expenses	$	61,426		$	74,301		$	29,713		$	165,440
Less: Reinsurance recoveries	(27,047		)	(42,304		)	(14,308		)	(83,659		)
Talbot’s share of net losses and loss expenses	34,379			31,997			15,405			81,781
Plus: Net impact on premiums earned (a)	789			4,623			1,389			6,801
Net loss attributable to Talbot	$	35,168		$	36,620		$	16,794		$	88,582

(a) Net impact on premiums earned includes reinstatement premiums assumed and ceded.

Talbot’s share of net losses and loss expenses from Hurricanes Harvey, Irma and Maria was $81.8 million, or 45.5 percentage points of the loss ratio. Inclusive of net reinstatement premiums ceded of $6.8 million, the net loss attributable to Talbot from notable loss events was $88.6 million. The net losses and loss expenses from the notable loss events by line of business were as follows:

◦ Hurricane Harvey - property, marine and specialty lines of $21.8 million, $10.4 million and $2.2 million, respectively;

◦ Hurricane Irma - property, marine and specialty lines of $17.5 million, $11.2 million and $3.3 million, respectively; and

◦ Hurricane Maria - property, marine and specialty lines of $14.5 million, $0.7 million and $0.2 million, respectively;

◦ There were no notable loss events occurring during the three months ended September 30, 2016.

Non-notable Loss Events

◦ There were no non-notable loss events occurring during the three months ended September 30, 2017.

72

◦ Losses and loss expenses incurred during the three months ended September 30, 2016 from two non-notable loss events were as follows:

	Three Months Ended September 30, 2016
	Non-notable Loss Events				Total
(Dollars in thousands)	Texas Hailstorms		SpaceX
Talbot’s share of net losses and loss expenses	1,375		9,894		11,269
Plus: Reinstatement premiums ceded	—		919		919
Net loss attributable to Talbot	$	1,375	$	10,813	$	12,188

Losses and loss expenses from two non-notable loss events were $11.3 million, or 5.7 percentage points of the loss ratio. Losses and loss expenses related to SpaceX were $9.9 million, or 5.0 percentage points of the loss ratio, and related solely to the marine lines. Inclusive of reinstatement premiums ceded, the net loss attributable to Talbot was a reduction of $10.8 million. Losses and loss expenses from the Texas Hailstorms non-notable loss event were $1.4 million, or 0.7 percentage points of the loss ratio, and related solely to the property lines.

Change in prior accident years

◦ Loss reserve development by line of business for the three months ended September 30, 2017 and 2016 was as follows:

	Three Months Ended September 30, 2017
(Dollars in thousands)	Property			Marine			Specialty			Total
(Favorable) adverse development on event losses	$	(177	)	$	1,277		$	(470	)	$	630
(Favorable) development on attritional losses	(8,575		)	(4,014		)	(11,655		)	(24,244		)
Change in prior accident years	$	(8,752	)	$	(2,737	)	$	(12,125	)	$	(23,614	)

The adverse development on event losses in the marine lines was driven by adverse development on the 2016 Jubilee Oil non-notable loss event. The favorable development across the property and specialty lines was driven by favorable development on attritional losses.

	Three Months Ended September 30, 2016
(Dollars in thousands)	Property			Marine			Specialty			Total
(Favorable) development on event losses	$	(478	)	$	(526	)	$	(833	)	$	(1,837	)
(Favorable) development on attritional losses	(1,951		)	(4,021		)	(10,882		)	(16,854		)
Change in prior accident years	$	(2,429	)	$	(4,547	)	$	(11,715	)	$	(18,691	)

The net favorable development across all lines was primarily driven by favorable development on attritional losses.

Loss Ratio

◦ The loss ratio for the three months ended September 30, 2017 and 2016 was 99.3% and 55.2%, respectively, an increase of 44.1 percentage points.

• Policy acquisition cost ratio for the three months ended September 30, 2017 was 23.1% compared to 23.4% for the three months ended September 30, 2016, a decrease of 0.3 percentage points.

• General and administration 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 primarily driven by a reduction in the bonus accrual during the three months ended September 30, 2017.

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Third Quarter 2017 Results of Operations - Western World Segment

The following table presents underwriting (loss) by line of business for the three months ended September 30, 2017 and 2016:

	Three Months Ended September 30,
	2017												2016
(Dollars in thousands)	Property			Liability			Specialty			Total			Property			Liability			Specialty			Total
Underwriting revenues
Gross premiums written	$	36,359		$	68,358		$	51,800		$156,517			$	23,757		$	61,503		$	—		$	85,260
Reinsurance premiums ceded	(22,466		)	(1,793		)	(18,948		)	(43,207		)	(2,688		)	(3,514		)	—			(6,202		)
Net premiums written	13,893			66,565			32,852			113,310			21,069			57,989			—			79,058
Change in unearned premiums	800			(5,102		)	65,905			61,603			(4,371		)	(3,889		)	—			(8,260		)
Net premiums earned	14,693			61,463			98,757			174,913			16,698			54,100			—			70,798
Other insurance related income										662												219
Total underwriting revenues										175,575												71,017
Underwriting deductions
Losses and loss expenses	29,086			43,784			84,839			157,709			9,604			36,144			—			45,748
Policy acquisition costs	6,672			14,062			(13		)	20,721			4,382			12,712			—			17,094
Total underwriting deductions before G&A	35,758			57,846			84,826			178,430			13,986			48,856			—			62,842
Underwriting (loss) income before G&A	$	(21,065	)	$	3,617		$	13,931		$	(2,855	)	$	2,712		$	5,244		$	—		$	8,175
General and administrative expenses										21,553												10,171
Share compensation expenses										354												702
Total underwriting deductions										200,337												73,715
Underwriting (loss)										$	(24,762	)										$	(2,698	)
Supplemental information:
Losses and loss expenses:
Current period excluding items below	$	18,622		$	44,310		$	84,839		$	147,771		$	10,139		$	36,471		$	—		$	46,610
Current period—notable loss events	10,000			—			—			10,000			—			—			—			—
Current period—non-notable loss events	—			—			—			—			18			—			—			18
Change in prior accident years	464			(526		)	—			(62		)	(553		)	(327		)	—			(880		)
Total losses and loss expenses	$	29,086		$	43,784		$	84,839		$	157,709		$	9,604		$	36,144		$	—		$	45,748
Selected ratios:
Ratio of net to gross premiums written	38.2		%	97.4		%	63.4		%	72.4		%	88.7		%	94.3		%	—		%	92.7		%
Losses and loss expense ratio:
Current period excluding items below	126.7		%	72.1		%	85.9		%	84.5		%	60.7		%	67.4		%	—		%	65.8		%
Current period—notable loss events	68.1		%	—		%	—		%	5.7		%	—		%	—		%	—		%	—		%
Current period—non-notable loss events	—		%	—		%	—		%	—		%	0.1		%	—		%	—		%	—		%
Change in prior accident years	3.2		%	(0.9		)%	—		%	—		%	(3.3		)%	(0.6		)%	—		%	(1.2		)%
Losses and loss expense ratio	198.0		%	71.2		%	85.9		%	90.2		%	57.5		%	66.8		%	—		%	64.6		%
Policy acquisition cost ratio	45.4		%	22.9		%	—		%	11.8		%	26.2		%	23.5		%	—		%	24.1		%
General and administrative expense ratio (a)										12.5		%										15.4		%
Expense ratio										24.3		%										39.5		%
Combined ratio										114.5		%										104.1		%

(a) The general and administrative expense ratio includes share compensation expenses.

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Highlights for the third quarter 2017 as compared to 2016 were as follows:

• 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%. The increase in gross premiums written was driven by:

◦ An increase in gross premiums written in specialty lines of $51.8 million due to new agriculture business written through CRS; and

◦ An increase in the property and liability lines of $12.6 million and $6.9 million, respectively, primarily due to the continued build out of product offerings in the short-tail property lines. The increase in the liability lines was due to 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.

• 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 of $18.9 million relating to new business written through CRS, reinstatement premiums ceded of $9.9 million from third quarter 2017 notable loss events and new reinsurance coverage purchased following third quarter 2017 notable loss events.

• Net premiums earned for the three months ended September 30, 2017 were $174.9 million compared to $70.8 million for the three months ended September 30, 2016, an increase of $104.1 million, or 147.1%. The increase was primarily driven by an increase in agriculture net premiums earned of $98.8 million relating to new business written through CRS and was partially offset by the impact of reinstatement premiums ceded from the third quarter 2017 notable loss events.

• Losses and loss expenses for the three months ended September 30, 2017 were $157.7 million compared to $45.7 million for the three months ended September 30, 2016, an increase of $112.0 million or 244.7%. The increase was primarily driven by an increase in the specialty lines due to new agriculture business written through CRS, losses and loss expenses from the third quarter 2017 notable loss events and an increase in attritional losses in the property lines as a result of an increase in fire losses of $2.9 million and several large losses reported in the brokerage professional lines totaling $1.4 million.

Notable Loss Events

◦ Losses and loss expenses incurred during the three months ended September 30, 2017 from two notable loss events were as follows:

	Three Months Ended September 30, 2017
	Notable Loss Events						Total
(Dollars in thousands)	Hurricane Harvey			Hurricane Irma
Gross losses and loss expenses	$	100,725		$	12,200		$	112,925
Less: Reinsurance recoveries	(95,725		)	(7,200		)	(102,925		)
Western World’s share of net losses and loss expenses	5,000			5,000			10,000
Plus: Net impact on premiums earned (a)	9,872			—			9,872
Net loss attributable to Western World	$	14,872		$	5,000		$	19,872

(a) Net impact on premiums earned includes reinstatement premiums ceded.

Western World’s share of net losses and loss expenses from Hurricanes Harvey and Irma was $10.0 million, or 5.7 percentage points of the loss ratio and related solely to the property lines. Inclusive of reinstatement premiums ceded of $9.9 million, the net loss attributable to Western World from notable loss events was $19.9 million.

◦ There were no notable loss events occurring during the three months ended September 30, 2016.

Non-notable Loss Events

◦ There were no non-notable loss events occurring during the three months ended September 30, 2017 and 2016.

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Loss Ratio

◦ The loss ratio for the three months ended September 30, 2017 and 2016 was 90.2% and 64.6%, respectively, an increase of 25.6 percentage points. The loss ratio for the three months ended September 30, 2017 included specialty losses of $84.8 million arising from new agriculture business written through CRS which is booked at a 85.9% loss ratio and other U.S.-based weather losses of $1.3 million, or 0.7 percentage points of the loss ratio, compared to $3.0 million, or 4.3 percentage points of the loss ratio during the three months ended September 30, 2016.

• Policy acquisition cost ratio for the three months ended September 30, 2017 was 11.8% compared to 24.1% for the three months ended September 30, 2016, a decrease of 12.3 percentage points. The decrease was primarily driven by new agriculture business written during the three months ended September 30, 2017 which carries lower acquisition costs.

• General and administration 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.

76

Third Quarter 2017 Results of Operations - AlphaCat Segment

The following table presents Validus’ share of the AlphaCat (loss) income on an asset manager basis for the three months ended September 30, 2017 and 2016:

	Three Months Ended September 30,
(Dollars in thousands)	2017			2016
Fee revenues
Third party	$	5,095		$	7,025
Related party	457			1,373
Total fee revenues	5,552			8,398
Expenses
General and administrative expenses	2,929			3,324
Share compensation expenses	183			(107		)
Finance expenses	32			31
Tax (benefit)	(65		)	—
Foreign exchange losses	7			5
Total expenses	3,086			3,253
Income before investment (loss) income from AlphaCat Funds and Sidecars	$	2,466		$	5,145
Investment (loss) income from AlphaCat Funds and Sidecars (a)
AlphaCat Sidecars	201			(72		)
AlphaCat ILS Funds - Lower Risk (b)	(7,553		)	2,321
AlphaCat ILS Funds - Higher Risk (b)	(21,816		)	2,479
BetaCat ILS Funds	(922		)	1,303
PaCRe	—			—
Validus' share of investment (loss) income from AlphaCat Funds and Sidecars	(30,090		)	6,031
Validus' share of AlphaCat (loss) income	$	(27,624	)	$	11,176
Supplemental information:
Gross premiums written
AlphaCat Sidecars	$	—		$	(112	)
AlphaCat ILS Funds - Lower Risk (b)	10,979			2,049
AlphaCat ILS Funds - Higher Risk (b)	16,275			1,797
AlphaCat Direct (c)	(41		)	679
Total	$	27,213		$	4,413

(a) The investment income from the AlphaCat funds and sidecars is based on equity accounting.

(b) Lower risk AlphaCat ILS funds have a maximum permitted portfolio expected loss of less than 7%, whereas higher risk AlphaCat ILS funds have a maximum permitted portfolio expected loss of greater than 7%. Expected loss represents the average annual loss over the set of simulation scenarios divided by the total limit.

(c) AlphaCat Direct includes direct investments from third party investors in AlphaCat Re.

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Highlights for the third quarter 2017 as compared to 2016 were as follows:

• Fee revenues earned for the three months ended September 30, 2017 were $5.6 million compared to $8.4 million during the three months ended September 30, 2016, a decrease of $2.8 million or 33.9%. Third party fee revenues earned during the three months ended September 30, 2017 were $5.1 million compared to $7.0 million, a decrease of $1.9 million or 27.5%. 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 during 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.

• Validus’ share of investment (loss) income from AlphaCat Funds and Sidecars for the three months ended September 30, 2017 was a loss $30.1 million compared to income of $6.0 million during 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.

Assets Under Management

	Assets Under Management (a)
(Dollars in thousands)	October 1, 2017		July 1, 2017
Assets Under Management - Related Party (a)
AlphaCat Sidecars	$	5,608	$	5,686
AlphaCat ILS Funds - Lower Risk	75,492		79,808
AlphaCat ILS Funds - Higher Risk	62,566		84,663
AlphaCat Direct (b)	—		—
BetaCat ILS Funds	24,084		25,000
Total	$	167,750	$	195,157
Assets Under Management - Third Party (a)
AlphaCat Sidecars	$	20,459	$	20,590
AlphaCat ILS Funds - Lower Risk	1,317,417		1,309,377
AlphaCat ILS Funds - Higher Risk	687,674		896,639
AlphaCat Direct (b)	546,226		534,555
BetaCat ILS Funds	120,391		118,493
Total	2,692,167		2,879,654
Total Assets Under Management	$	2,859,917	$	3,074,811

(a) The Company’s assets under management are based on NAV and are represented by investments made by related parties and third parties in the feeder funds and on a direct basis.

(b) AlphaCat Direct includes direct investments from third party investors in AlphaCat Re.

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. The decrease in assets under management was driven by the impact of the third quarter 2017 notable loss events.

During the three months ended October 1, 2017, a total of $176.5 million of capital was raised, all of which 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.

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Third Quarter 2017 Results - Corporate and Investments

The following table presents the Corporate and Investment function’s income and expense items on a consolidated basis for the three months ended September 30, 2017 and 2016:

	Three Months Ended September 30,
(Dollars in thousands)	2017			2016
Managed investments
Managed net investment income (a)	$	37,091		$	41,071
Net realized gains on managed investments (a)	903			4,080
Change in net unrealized gains on managed investments (a)	941			4,652
Income from investment affiliates	1,011			453
Total managed investment return	$	39,946		$	50,256
Corporate expenses
General and administrative expenses	$	9,539		$	18,221
Share compensation expenses	3,990			4,048
Finance expenses (a)	14,449			14,317
Dividends on preferred shares	5,627			2,252
Tax (benefit) expense (a)	(2,567		)	1,830
Total Corporate expenses	$	31,038		$	40,668
Other items
Foreign exchange losses (a)	(1,495		)	(1,067		)
Other income (loss)	35			(1,529		)
Total other items	$	(1,460	)	$	(2,596	)
Total Corporate and Investments	$	7,448		$	6,992

(a) These items exclude the components which are included in the Company’s share of AlphaCat and amounts which are consolidated from VIEs.

Investments

Highlights of our managed investment portfolio for the third quarter 2017 as compared to 2016 were as follows:

• Managed net investment income 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 2017 as compared to 2016 were as follows:

• General and administrative expenses for the three months ended September 30, 2017 were $9.5 million compared to $18.2 million for the three months ended September 30, 2016, a decrease of $8.7 million or 47.6%. The decrease was driven by a reduction in the bonus accrual during the three months ended September 30, 2017.

• Share compensation expenses for the three months ended September 30, 2017 were $4.0 million compared to $4.0 million for the three months ended September 30, 2016.

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• 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 being 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%.

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Year to Date Results of Operations - Consolidated

The following table presents the results of operations for the nine months ended September 30, 2017 and 2016:

	Nine Months Ended September 30,
	2017			2016
Revenues
Gross premiums written	$	2,507,615		$	2,309,251
Reinsurance premiums ceded	(373,188		)	(249,070		)
Net premiums written	2,134,427			2,060,181
Change in unearned premiums	(204,816		)	(351,415		)
Net premiums earned	1,929,611			1,708,766
Net investment income	128,913			112,232
Net realized gains on investments	2,016			6,537
Change in net unrealized gains on investments	24,472			84,331
Income (loss) from investment affiliates	15,665			(4,249		)
Other insurance related income and other income	6,240			1,627
Foreign exchange (losses) gains	(7,164		)	11,765
Total revenues	2,099,753			1,921,009
Expenses
Losses and loss expenses	1,820,336			789,971
Policy acquisition costs	344,486			328,593
General and administrative expenses	254,615			258,339
Share compensation expenses	30,080			32,465
Finance expenses	42,675			43,890
Transaction expenses	4,427			—
Total expenses	2,496,619			1,453,258
(Loss) income before taxes, (loss) from operating affiliate and (income) attributable to AlphaCat investors	(396,866		)	467,751
Tax benefit (expense)	7,168			(1,418		)
(Loss) from operating affiliate	—			(23		)
Loss (income) attributable to AlphaCat investors	54,797			(16,278		)
Net (loss) income	$	(334,901	)	$	450,032
Net loss (income) attributable to noncontrolling interests	290,144			(96,163		)
Net (loss) income (attributable) available to Validus	(44,757		)	353,869
Dividends on preferred shares	(10,033		)	(2,252		)
Net (loss) income (attributable) available to Validus common shareholders	$	(54,790	)	$	351,617
Supplemental information:
Losses and loss expenses:
Current period excluding items below	$	1,046,416		$	851,540
Current period—notable loss events	926,175			37,901
Current period—non-notable loss events	27,330			69,935
Change in prior accident years	(179,585		)	(169,405		)
Total losses and loss expenses	$	1,820,336		$	789,971
Selected ratios:
Ratio of net to gross premiums written	85.1		%	89.2		%
Losses and loss expense ratio:
Current period excluding items below	54.2		%	49.8		%
Current period—notable loss events	48.0		%	2.2		%
Current period—non-notable loss events	1.4		%	4.1		%
Change in prior accident years	(9.3		)%	(9.9		)%
Losses and loss expense ratio	94.3		%	46.2		%
Policy acquisition cost ratio	17.9		%	19.2		%
General and administrative expense ratio (a)	14.7		%	17.1		%
Expense ratio	32.6		%	36.3		%
Combined ratio	126.9		%	82.5		%

(a) The general and administrative expense ratio includes share compensation expenses.

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Highlights for the nine months ended September 30, 2017 as compared to 2016 were as follows:

• 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%. The increase was primarily driven by an increase in the Western World and AlphaCat segments and was partially offset by a decrease in the Talbot segment.

• 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% and was across all segments.

• Net premiums earnedfor 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 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.

• Losses and loss expenses for the nine months ended September 30, 2017 were $1,820.3 million compared to $790.0 million for the nine months ended September 30, 2016, an increase of $1,030.4 million or 130.4%. The increase was driven by an increase in losses from notable loss events and $148.4 million of losses relating to new agriculture business written through CRS. The increase was partially offset by higher favorable development on prior accident years and a reduction in losses from non-notable loss events.

Notable Loss Events

◦ Losses and loss expenses incurred during the nine months ended September 30, 2017 from three notable loss events were $926.2 million, or 48.0 percentage points of the loss ratio during the three months ended September 30, 2017. 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 excluding the AlphaCat segment. Including Validus’ share of AlphaCat losses and loss expenses of $35.7 million and the net impact of reinstatement premiums and acceleration of unearned premiums of $33.5 million, the net loss attributable to Validus from 2017 notable loss events was $367.3 million and was incurred by event as follows:

	Nine Months Ended September 30, 2017
	Total Notable Loss Events
(Dollars in thousands)	Hurricane Harvey			Hurricane Irma			Hurricane Maria			Total
Gross losses and loss expenses excluding the Alphacat segment	$	439,319		$	419,916		$	143,053		$	1,002,288
Less: Reinsurance recoveries	(292,315		)	(254,973		)	(89,862		)	(637,150		)
Net losses and loss expenses excluding the AlphaCat segment	147,004			164,943			53,191			365,138
Validus’ share of AlphaCat losses and loss expenses	7,298			20,992			7,360			35,650
Validus’ share of net losses and loss expenses	154,302			185,935			60,551			400,788
Less: Net impact on premiums earned (a)	(7,941		)	(22,686		)	(2,865		)	(33,492		)
Net loss attributable to Validus	$	146,361		$	163,249		$	57,686		$	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.

◦ Losses and loss expenses incurred from a single notable loss event occurring during the nine months ended September 30, 2016, the Canadian Wildfires, were $37.9 million, or 2.2 percentage points of the loss ratio. Net of reinstatement premiums of $3.6 million, the net loss attributable to the Company was $34.3 million.

Non-notable Loss Events

◦ Losses and loss expenses from a single energy non-notable loss event occurring during the nine months ended September 30, 2017 were $27.3 million, or 1.4 percentage points of the loss ratio. Net of reinstatement premiums of $0.6 million, the net loss attributable to the Company was $26.8 million.

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◦ Losses and loss expenses from four non-notable loss events occurring during the nine months ended September 30, 2016 were as follows:

	Nine Months Ended September 30, 2016
	Non-notable Loss Events											Total
(Dollars in thousands)	Texas Hailstorms			Kumamoto Earthquake		Jubilee Oil			SpaceX
Validus’ share of net losses and loss expenses	19,160			15,318		15,214			20,243			69,935
Less: Reinstatement premiums, net	(1,967		)	—		(7,667		)	(1,240		)	(10,874		)
Net loss attributable to Validus	$	17,193		$	15,318	$	7,547		$	19,003		$	59,061

Losses and loss expenses from the Texas Hailstorms, Kumamoto Earthquake, Jubilee Oil and SpaceX non-notable loss events were $69.9 million, or 4.1 percentage points of the loss ratio. Net of reinstatement premiums of $10.9 million, the net loss attributable to the Company from these non-notable loss events was $59.1 million.

Change in prior accident years

◦ Loss reserve development for the nine months ended September 30, 2017 and 2016 was as follows:

	Nine Months Ended September 30,
(Dollars in thousands)	2017			2016
(Favorable) development on event losses	$	(31,545	)	$	(9,049	)
(Favorable) development on attritional losses	(148,040		)	(160,356		)
Change in prior accident years	$	(179,585	)	$	(169,405	)

The favorable development on event losses during the nine months ended September 30, 2017 primarily related to the 2015 Pemex oil refinery explosion. The favorable development on event losses for the nine months ended September 30, 2016 primarily related to the 2015 Tianjin port explosion and Chilean earthquake loss events.

Loss Ratio

◦ The loss ratio for the nine months ended September 30, 2017 and 2016 was 94.3% and 46.2%, respectively, an increase of 48.1 percentage points. Excluding the AlphaCat segment, which includes results attributable to AlphaCat’s third party investors and noncontrolling interests, the loss ratio for the nine months ended September 30, 2017 was 73.5%.

• Loss ratios by line of business for the nine months ended September 30, 2017 and 2016 were as follows:

	Nine Months Ended September 30,
	2017		2016
Property	143.0	%	30.2	%
Marine	50.1	%	52.4	%
Specialty	64.2	%	57.6	%
Liability	71.6	%	65.1	%
All lines	94.3	%	46.2	%

• Policy acquisition cost ratio for the nine months ended September 30, 2017 was 17.9% compared to 19.2% for the nine months ended September 30, 2016, a decrease of 1.3 percentage points.

• General and administrative expensesfor the nine months ended September 30, 2017 were $254.6 million compared to $258.3 million for the nine months ended September 30, 2016, a decrease of $3.7 million or 1.4%. The decrease was primarily driven by a reduction in the bonus accrual during the nine months ended September 30, 2017 and was partially offset by an increase in G&A expenses in the Western World segment, which included $18.8 million of CRS expenses, of which $2.9 million related to the amortization of intangible assets acquired.

• 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%.

83

Year to Date Results of Operations - Validus Re Segment

The following table presents underwriting (loss) income by line of business for the nine months ended September 30, 2017 and 2016:

	Nine Months Ended September 30,
	2017												2016
(Dollars in thousands)	Property			Marine			Specialty			Total			Property			Marine			Specialty			Total
Underwriting revenues
Gross premiums written	$	496,120		$	116,331		$	458,958		$	1,071,409		$	462,432		$	109,876		$	499,911		$	1,072,219
Reinsurance premiums ceded	(108,496		)	(18,295		)	(34,397		)	(161,188		)	(86,745		)	(12,568		)	(12,345		)	(111,658		)
Net premiums written	387,624			98,036			424,561			910,221			375,687			97,308			487,566			960,561
Change in unearned premiums	(59,990		)	(19,410		)	(104,755		)	(184,155		)	(74,613		)	(10,183		)	(156,333		)	(241,129		)
Net premiums earned	327,634			78,626			319,806			726,066			301,074			87,125			331,233			719,432
Other insurance related income (loss)										204												(107		)
Total underwriting revenues										726,270												719,325
Underwriting deductions
Losses and loss expenses	306,021			41,192			191,110			538,323			58,638			40,561			214,233			313,432
Policy acquisition costs	53,607			13,785			66,444			133,836			55,351			13,937			58,372			127,660
Total underwriting deductions before G&A	359,628			54,977			257,554			672,159			113,989			54,498			272,605			441,092
Underwriting (loss) income before G&A	$	(31,994	)	$	23,649		$	62,252		$	54,111		$	187,085		$	32,627		$	58,628		$	278,233
General and administrative expenses										48,550												52,579
Share compensation expenses										7,746												8,371
Total underwriting deductions										728,455												502,042
Underwriting (loss) income										$	(2,185	)										$	217,283
Supplemental information:
Losses and loss expenses:
Current period excluding items below	$	89,189		$	42,773		$	214,440		$	346,402		$	70,705		$	44,509		$	227,117		$	342,331
Current period—notable loss events	236,091			37,266			—			273,357			17,884			—			—			17,884
Current period—non-notable loss events	11,355			—			7,225			18,580			22,085			11,019			9,707			42,811
Change in prior accident years	(30,614		)	(38,847		)	(30,555		)	(100,016		)	(52,036		)	(14,967		)	(22,591		)	(89,594		)
Total losses and loss expenses	$	306,021		$	41,192		$	191,110		$	538,323		$	58,638		$	40,561		$	214,233		$	313,432
Selected ratios:
Ratio of net to gross premiums written	78.1		%	84.3		%	92.5		%	85.0		%	81.2		%	88.6		%	97.5		%	89.6		%
Losses and loss expense ratio:
Current period excluding items below	27.1		%	54.4		%	67.0		%	47.7		%	23.6		%	51.1		%	68.6		%	47.6		%
Current period—notable loss events	72.1		%	47.4		%	—		%	37.6		%	5.9		%	—		%	—		%	2.5		%
Current period—non-notable loss events	3.5		%	—		%	2.3		%	2.6		%	7.3		%	12.6		%	2.9		%	6.0		%
Change in prior accident years	(9.3		)%	(49.4		)%	(9.5		)%	(13.8		)%	(17.3		)%	(17.1		)%	(6.8		)%	(12.5		)%
Losses and loss expense ratio	93.4		%	52.4		%	59.8		%	74.1		%	19.5		%	46.6		%	64.7		%	43.6		%
Policy acquisition cost ratio	16.4		%	17.5		%	20.8		%	18.4		%	18.4		%	16.0		%	17.6		%	17.7		%
General and administrative expense ratio (a)										7.8		%										8.5		%
Expense ratio										26.2		%										26.2		%
Combined ratio										100.3		%										69.8		%

(a) The general and administrative expense ratio includes share compensation expenses.

84

Highlights for the nine months ended September 30, 2017 as compared to 2016 were as follows:

• Gross premiums writtenfor the nine months ended September 30, 2017 were $1,071.4 million compared to $1,072.2 million for the nine months ended September 30, 2016, a decrease of $0.8 million, or 0.1%. Excluding the impact of reinstatement premiums from 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 nine months ended September 30, 2017 were $1,005.6 million, a decrease of $66.6 million, or 6.2% compared to the nine months ended September 30, 2016. The decrease in gross premiums written was primarily driven by:

◦ A decrease in the specialty lines of $41.0 million, primarily driven by a decline in agriculture premiums and was partially offset by an increase in casualty business written; and

◦ A decrease in the property lines of $25.5 million, primarily driven by reductions in participation and the non-renewal of various catastrophe excess of loss programs due to market conditions.

• Reinsurance premiums ceded for the nine months ended September 30, 2017 were $161.2 million compared to $111.7 million for the nine months ended September 30, 2016, an increase of $49.5 million, or 44.4%. The increase was primarily driven by an increase in the property lines of $21.8 million as a result of a new proportional retro program, adjustments to existing business and new retrocession coverage purchased following 2017 notable loss events and an increase in the specialty lines of $22.1 million relating to new non-proportional retro coverage, proportional agriculture retro cover and a new casualty and mortgage quota share retrocession program.

• Net premiums earnedfor the nine months ended September 30, 2017 were $726.1 million compared to $719.4 million for the nine months ended September 30, 2016, an increase of $6.6 million, or 0.9%. Excluding the net impact of reinstatement premiums assumed and the acceleration of net unearned premiums ceded from 2017 notable loss events of $50.2 million, net premiums earned were $675.9 million, a decrease of $43.5 million, or 6.1% compared to the nine months ended September 30, 2016.

• Losses and loss expenses for the nine months ended September 30, 2017 were $538.3 million compared to $313.4 million for the nine months ended September 30, 2016, an increase of $224.9 million or 71.8%. The increase was driven by an increase in notable loss events and was partially offset by higher favorable development on prior accident years and a reduction in losses from non-notable loss events.

Notable Loss Events

◦ Losses and loss expenses incurred during the nine months ended September 30, 2017 from three notable loss events were as follows:

	Nine Months Ended September 30, 2017
	Notable Loss Events									Total
(Dollars in thousands)	Hurricane Harvey			Hurricane Irma			Hurricane Maria
Gross losses and loss expenses	$	277,643		$	334,583		$	114,178		$	726,404
Less: Reinsurance recoveries	(170,018		)	(206,637		)	(76,392		)	(453,047		)
Validus Re’s share of net losses and loss expenses	$	107,625		$	127,946		$	37,786		$	273,357
Less: Net impact on premiums earned (a)	(18,602		)	(27,309		)	(4,254		)	(50,165		)
Net loss attributable to Validus Re	$	89,023		$	100,637		$	33,532		$	223,192

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

Validus Re’s share of net losses and loss expenses from Hurricanes Harvey, Irma and Maria was $273.4 million, or 37.6 percentage points of the loss ratio. Net of reinstatement premiums assumed and the impact of accelerating net unearned premiums of $50.2 million, the net loss attributable to Validus Re from notable loss events was $223.2 million. The net losses and loss expenses from the notable loss events by line of business were as follows:

◦ Hurricane Harvey - property and marine lines of $89.2 million and $18.4 million, respectively;

◦ Hurricane Irma - property and marine lines of $113.7 million and $14.3 million, respectively; and

◦ Hurricane Maria - property and marine lines of $33.2 million and $4.6 million, respectively.

◦ Losses and loss expenses incurred from a single notable loss event occurring during the nine months ended September 30, 2016, the Canadian Wildfires, were $17.9 million, or 2.5 percentage points of the loss ratio and related solely to the property lines. Net of reinstatement premiums of $3.1 million, the net loss attributable to Validus Re was $14.8 million.

85

Non-notable Loss Events

◦ Losses and loss expenses from a single energy non-notable loss event occurring during the nine months ended September 30, 2017 were $18.6 million, or 2.6 percentage points of the loss ratio. Net of reinstatement premiums of $0.6 million, the net loss attributable to Validus Re was $18.0 million.

◦ Losses and loss expenses from four non-notable loss events occurring during the nine months ended September 30, 2016 were as follows:

	Nine Months Ended September 30, 2016
	Non-notable Loss Events											Total
(Dollars in thousands)	Texas Hailstorms			Kumamoto Earthquake		Jubilee Oil			SpaceX
Validus Re’s share of net losses and loss expenses	$	6,890		$	15,195	$	10,377		$	10,349		$	42,811
Less: Reinstatement premiums, net	(1,836		)	—		(6,706		)	(2,159		)	(10,701		)
Net loss attributable to Validus Re	$	5,054		$	15,195	$	3,671		$	8,190		$	32,110

Losses and loss expenses from the Texas Hailstorms, Kumamoto Earthquake, Jubilee Oil and SpaceX non-notable loss events were $42.8 million, or 6.0 percentage points of the loss ratio. Net of reinstatement premiums of $10.7 million, the net loss attributable to Validus Re from these events was $32.1 million. The losses and loss expenses from the 2016 non-notable loss events by line of business were as follows:

▪Texas Hailstorms and Kumamoto Earthquake - property lines of $22.1 million;

▪Jubilee Oil - marine and specialty lines of $0.7 million and $9.7 million, respectively; and

▪SpaceX - marine lines of $10.3 million

Change in prior accident years

• Loss reserve development by line of business for the nine months ended September 30, 2017 and 2016 was as follows:

	Nine Months Ended September 30, 2017
(Dollars in thousands)	Property			Marine			Specialty			Total
(Favorable) adverse development on event losses	$	(14,595	)	$	(18,834	)	$	6,235		$	(27,194	)
(Favorable) development on attritional losses	(16,019		)	(20,013		)	(36,790		)	(72,822		)
Change in prior accident years	$	(30,614	)	$	(38,847	)	$	(30,555	)	$	(100,016	)

The adverse development on event losses in the specialty lines was driven by additional reserves established on the second quarter 2016 non-notable loss event, Jubilee Oil, as a result of an increased industry loss estimate and was fully offset with favorable development in the marine lines relating to losses retroceded on the same event. The favorable development on event losses in the marine lines primarily related to the second quarter 2015 Pemex oil refinery explosion loss event and retrocession recoveries on the second quarter 2016 Jubilee Oil non-notable loss event as noted above.

	Nine Months Ended September 30, 2016
(Dollars in thousands)	Property			Marine			Specialty			Total
(Favorable) adverse development on event losses	$	(29,110	)	$	11,576		$	1,156		$	(16,378	)
(Favorable) development on attritional losses	(22,926		)	(26,543		)	(23,747		)	(73,216		)
Change in prior accident years	$	(52,036	)	$	(14,967	)	$	(22,591	)	$	(89,594	)

The favorable development on event losses in the property lines was primarily driven by favorable development on the 2015 Tianjin port explosion and Chilean earthquake loss events. The adverse development on event losses in the marine lines was driven by reserves established following the receipt of a loss advice on an individual marine policy that incepted during the second half of 2015. The net favorable development in the specialty lines was primarily driven by favorable development on attritional losses.

Loss Ratio

◦ The loss ratio for the nine months ended September 30, 2017 and 2016 was 74.1% and 43.6%, respectively, an increase of 30.5 percentage points.

86

• Policy acquisition cost ratio for the nine months ended September 30, 2017 was 18.4% compared to 17.7% for the nine months ended September 30, 2016, an increase of 0.7 percentage points. Excluding the net impact of reinstatement premiums assumed and the acceleration of net unearned premiums ceded from 2017 notable loss events, the policy acquisition cost ratio for the nine months ended September 30, 2017 was 19.8%, an increase of 2.1 percentage points compared to the nine months ended September 30, 2016. The increase primarily related to an increase in the specialty lines as a result of a change in business mix, notably an increase in casualty business which carries higher acquisition costs and was partially offset by a decrease in agriculture business which carries lower acquisition costs.

• General and administration expenses for the nine months ended September 30, 2017 were $48.6 million compared to $52.6 million for the nine months ended September 30, 2016, a decrease of $4.0 million, or 7.7%. The decrease was primarily driven by a reduction in the bonus accrual during the nine months ended September 30, 2017.

87

Year to Date Results of Operations - Talbot Segment

The following table presents underwriting (loss) income by line of business for the nine months ended September 30, 2017 and 2016:

	Nine Months Ended September 30,
	2017												2016
(Dollars in thousands)	Property			Marine			Specialty			Total			Property			Marine			Specialty			Total
Underwriting revenues
Gross premiums written	$	230,633		$	190,793		$	281,109		$702,535			$	245,714		$	222,305		$	284,039		$	752,058
Reinsurance premiums ceded	(80,129		)	(22,752		)	(51,382		)	(154,263		)	(66,286		)	(26,453		)	(44,757		)	(137,496		)
Net premiums written	150,504			168,041			229,727			548,272			179,428			195,852			239,282			614,562
Change in unearned premiums	7,967			951			9,361			18,279			(6,304		)	12,177			(13,039		)	(7,166		)
Net premiums earned	158,471			168,992			239,088			566,551			173,124			208,029			226,243			607,396
Other insurance related income										1,512												389
Total underwriting revenues										568,063												607,785
Underwriting deductions
Losses and loss expenses	176,290			82,791			119,160			378,241			96,641			114,105			108,525			319,271
Policy acquisition costs	28,694			41,610			58,770			129,074			27,950			53,777			52,717			134,444
Total underwriting deductions before G&A	204,984			124,401			177,930			507,315			124,591			167,882			161,242			453,715
Underwriting (loss) income before G&A	$	(46,513	)	$	44,591		$	61,158		$	60,748		$	48,533		$	40,147		$	65,001		$	154,070
General and administrative expenses										97,094												109,929
Share compensation expenses										8,292												9,955
Total underwriting deductions										612,701												573,599
Underwriting (loss) income										$	(44,638	)										$	34,186
Supplemental information:
Losses and loss expenses:
Current period excluding items below	$	133,710		$	96,295		$	126,009		$	356,014		$	110,258		$	109,885		$	136,784		$	356,927
Current period—notable loss events	53,810			22,285			5,686			81,781			11,703			—			—			11,703
Current period—non-notable loss events	8,750			—			—			8,750			5,649			14,731			—			20,380
Change in prior accident years	(19,980		)	(35,789		)	(12,535		)	(68,304		)	(30,969		)	(10,511		)	(28,259		)	(69,739		)
Total losses and loss expenses	$	176,290		$	82,791		$	119,160		$	378,241		$	96,641		$	114,105		$	108,525		$	319,271
Selected ratios:
Ratio of net to gross premiums written	65.3		%	88.1		%	81.7		%	78.0		%	73.0		%	88.1		%	84.2		%	81.7		%
Losses and loss expense ratio:
Current period excluding items below	84.3		%	57.0		%	52.6		%	63.0		%	63.6		%	52.8		%	60.5		%	58.8		%
Current period—notable loss events	34.0		%	13.2		%	2.4		%	14.4		%	6.8		%	—		%	—		%	1.9		%
Current period—non-notable loss events	5.5		%	—		%	—		%	1.5		%	3.3		%	7.1		%	—		%	3.4		%
Change in prior accident years	(12.6		)%	(21.2		)%	(5.2		)%	(12.1		)%	(17.9		)%	(5.0		)%	(12.5		)%	(11.5		)%
Losses and loss expense ratio	111.2		%	49.0		%	49.8		%	66.8		%	55.8		%	54.9		%	48.0		%	52.6		%
Policy acquisition cost ratio	18.1		%	24.6		%	24.6		%	22.8		%	16.1		%	25.9		%	23.3		%	22.1		%
General and administrative expense ratio (a)										18.5		%										19.7		%
Expense ratio										41.3		%										41.8		%
Combined ratio										108.1		%										94.4		%

(a) The general and administrative expense ratio includes share compensation expenses.

88

Highlights for the nine months ended September 30, 2017 as compared to 2016 were as follows:

• Gross premiums written for the nine months ended September 30, 2017 were $702.5 million compared to $752.1 million for the nine months ended September 30, 2016, a decrease of $49.5 million, or 6.6%. The decrease in gross premiums written was primarily driven by:

◦ A decrease in the marine lines of $31.5 million, primarily driven by decreases across all classes as a result of reductions in participation and non-renewals on various programs due to the current rate environment;

◦ A decrease in the property lines of $15.1 million, driven by reductions in participation and non-renewals on various programs in the construction and downstream energy and power classes due to the current rate environment; partially offset by new treaty business written; and

◦ A decrease in the specialty lines of $2.9 million, driven by decreases in the contingency and accident and health classes due to adjustments on existing business and the non-renewal of various programs. The decrease was partially offset by an increase in the political and financial lines which was driven by new business written and the timing of renewals.

• Reinsurance premiums ceded for the nine months ended September 30, 2017 were $154.3 million compared to $137.5 million for the nine months ended September 30, 2016, an increase of $16.8 million, or 12.2%. Excluding the impact of reinstatement premiums ceded from 2017 notable loss events of $9.8 million, reinsurance premiums ceded for the nine months ended September 30, 2017 were $144.5 million, an increase of $7.0 million, or 5.1% compared to the nine months ended September 30, 2016. The increase was primarily driven by new reinsurance coverage purchased following 2017 notable loss events.

• Net premiums earned for the nine months ended September 30, 2017 were $566.6 million compared to $607.4 million for the nine months ended September 30, 2016, a decrease of $40.8 million, or 6.7%. Excluding the impact of net reinstatement premiums ceded from 2017 notable loss events of $6.8 million, net premiums earned were $573.4 million, a decrease of $34.0 million, or 5.6% compared to the nine months ended September 30, 2016.

• Losses and loss expenses for the nine months ended September 30, 2017 were $378.2 million compared to $319.3 million for the nine months ended September 30, 2016, an increase of $59.0 million or 18.5%. The increase was driven by an increase in notable loss events and was partially offset by a reduction in losses from non-notable loss events.

Notable Loss Events

◦ Losses and loss expenses incurred during the nine months ended September 30, 2017 from three notable loss events were as follows:

	Nine Months Ended September 30, 2017
	Notable Loss Events									Total
(Dollars in thousands)	Hurricane Harvey			Hurricane Irma			Hurricane Maria
Gross losses and loss expenses	$	61,426		$	74,301		$	29,713		$	165,440
Less: Reinsurance recoveries	(27,047		)	(42,304		)	(14,308		)	(83,659		)
Talbot’s share of net losses and loss expenses	$	34,379		$	31,997		$	15,405		$	81,781
Plus: Net impact on premiums earned (a)	789			4,623			1,389			6,801
Net loss attributable to Talbot	$	35,168		$	36,620		$	16,794		$	88,582

(a) Net impact on premiums earned includes reinstatement premiums assumed and ceded.

Talbot’s share of net losses and loss expenses from Hurricanes Harvey, Irma and Maria was $81.8 million, or 14.4 percentage points of the loss ratio. Inclusive of net reinstatement premiums ceded of $6.8 million, the net loss attributable to Talbot from notable loss events was $88.6 million. The net losses and loss expenses from the notable loss events by line of business were as follows:

◦ Hurricane Harvey - property, marine and specialty lines of $21.8 million, $10.4 million and $2.2 million, respectively;

◦ Hurricane Irma - property, marine and specialty lines of $17.5 million, $11.2 million and $3.3 million, respectively; and

◦ Hurricane Maria - property, marine and specialty lines of $14.5 million, $0.7 million and $0.2 million, respectively;

◦ Losses and loss expenses incurred from a single notable loss event occurring during the nine months ended September 30, 2016, the Canadian Wildfires, were $11.7 million, or 1.9 percentage points of the loss ratio. Net of reinstatement premiums of $0.5 million, the net loss attributable to Talbot was $11.2 million.

89

Non-notable Loss Events

◦ Losses and loss expenses from a single energy non-notable loss event occurring during the nine months ended September 30, 2017 were $8.8 million, or 1.5 percentage points of the loss ratio. Including reinstatement premiums ceded of $1.6 million, the net loss attributable to Talbot was $10.4 million.

◦ Losses and loss expenses from four non-notable loss events occurring during the nine months ended September 30, 2016 were as follows:

	Nine Months Ended September 30, 2016
	Non-notable Loss Events										Total
(Dollars in thousands)	Texas Hailstorms			Kumamoto Earthquake		Jubilee Oil			SpaceX
Talbot’s share of net losses and loss expenses	$	5,516		$	133	$	4,837		$	9,894	$	20,380
Less: Reinstatement premiums, net	(131		)	—		(961		)	919		(173		)
Net loss attributable to Talbot	$	5,385		$	133	$	3,876		$	10,813	$	20,207

Losses and loss expenses from the Texas Hailstorms, Kumamoto Earthquake, Jubilee Oil and SpaceX non-notable loss events were $20.4 million, or 3.4 percentage points of the loss ratio. Net of reinstatement premiums of $0.2 million, the net loss attributable to Talbot from these events was $20.2 million. The losses and loss expenses of the 2016 non-notable loss events by line of business were as follows:

▪Texas Hailstorms and Kumamoto Earthquake - property lines of $5.7 million; and

▪Jubilee Oil and SpaceX - marine lines of $14.7 million.

Change in prior accident years

• Loss reserve development by line of business for the nine months ended September 30, 2017 and 2016 was as follows:

	Nine Months Ended September 30, 2017
(Dollars in thousands)	Property			Marine			Specialty			Total
(Favorable) development on event losses	$	(610	)	$	(1,342	)	$	(932	)	$	(2,884	)
(Favorable) development on attritional losses	(19,370		)	(34,447		)	(11,603		)	(65,420		)
Change in prior accident years	$	(19,980	)	$	(35,789	)	$	(12,535	)	$	(68,304	)

The net favorable development across all lines was primarily driven by favorable development on attritional losses.

	Nine Months Ended September 30, 2016
(Dollars in thousands)	Property			Marine			Specialty			Total
(Favorable) adverse development on event losses	$	(9,203	)	$	18,597		$	(2,066	)	$	7,328
(Favorable) development on attritional losses	(21,766		)	(29,108		)	(26,193		)	(77,067		)
Change in prior accident years	$	(30,969	)	$	(10,511	)	$	(28,259	)	$	(69,739	)

The adverse development on event losses in the marine lines was driven by reserves established following the receipt of a loss advice on an individual marine policy that incepted during the second half of 2015. The net favorable development across all lines was primarily driven by favorable development on attritional losses.

Loss Ratio

◦ The loss ratio for the nine months ended September 30, 2017 and 2016 was 66.8% and 52.6%, respectively, an increase of 14.2 percentage points.

• Policy acquisition cost ratio for the nine months ended September 30, 2017 was 22.8% compared to 22.1% for the nine months ended September 30, 2016, an increase of 0.7 percentage points. Excluding the net impact of reinstatement premiums and the acceleration of net unearned premiums ceded from 2017 notable loss events, the policy acquisition cost ratio for the nine months ended September 30, 2017 was 22.5%, an increase of 0.4 percentage points compared to the nine months ended September 30, 2016.

• General and administration expenses for the nine months ended September 30, 2017 were $97.1 million compared to $109.9 million for the nine months ended September 30, 2016, a decrease of $12.8 million, or 11.7%. The decrease was primarily driven by a reduction in the bonus accrual during the nine months ended September 30, 2017.

90

Year to Date Results of Operations - Western World Segment

The following table presents underwriting (loss) by line of business for the nine months ended September 30, 2017 and 2016:

	Nine Months Ended September 30,
	2017												2016
(Dollars in thousands)	Property			Liability			Specialty			Total			Property			Liability			Specialty			Total
Underwriting revenues
Gross premiums written	$	103,462		$	196,128		$	160,038		$	459,628		$	65,401		$	170,789		$	—		$	236,190
Reinsurance premiums ceded	(32,821		)	(3,285		)	(35,899		)	(72,005		)	(6,395		)	(8,952		)	—			(15,347		)
Net premiums written	70,641			192,843			124,139			387,623			59,006			161,837			—			220,843
Change in unearned premiums	(12,756		)	(17,436		)	45,448			15,256			(15,936		)	(6,954		)	—			(22,890		)
Net premiums earned	57,885			175,407			169,587			402,879			43,070			154,883			—			197,953
Other insurance related income										1,566												696
Total underwriting revenues										404,445												198,649
Underwriting deductions
Losses and loss expenses	55,665			125,536			148,441			329,642			28,835			100,788			—			129,623
Policy acquisition costs	18,714			39,522			1,951			60,187			10,665			36,039			—			46,704
Total underwriting deductions before G&A	74,379			165,058			150,392			389,829			39,500			136,827			—			176,327
Underwriting (loss) income before G&A	$	(16,494	)	$	10,349		$	19,195		$	14,616		$	3,570		$	18,056		$	—		$	22,322
General and administrative expenses										50,623												33,704
Share compensation expenses										1,655												1,825
Total underwriting deductions										442,107												211,856
Underwriting (loss)										$	(37,662	)										$	(13,207	)
Supplemental information:
Losses and loss expenses:
Current period excluding items below	$	48,503		$	123,442		$	148,441		$	320,386		$	30,768		$	106,676		$	—		$	137,444
Current period—notable loss events	10,000			—			—			10,000			—			—			—			—
Current period—non-notable loss events	—			—			—			—			643			—			—			643
Change in prior accident years	(2,838		)	2,094			—			(744		)	(2,576		)	(5,888		)	—			(8,464		)
Total losses and loss expenses	$	55,665		$	125,536		$	148,441		$	329,642		$	28,835		$	100,788		$	—		$	129,623
Selected ratios:
Ratio of net to gross premiums written	68.3		%	98.3		%	77.6		%	84.3		%	90.2		%	94.8		%	—		%	93.5		%
Losses and loss expense ratio:
Current period excluding items below	83.8		%	70.4		%	87.5		%	79.5		%	71.4		%	68.9		%	—		%	69.5		%
Current period—notable loss events	17.3		%	—		%	—		%	2.5		%	—		%	—		%	—		%	—		%
Current period—non-notable loss events	—		%	—		%	—		%	—		%	1.5		%	—		%	—		%	0.3		%
Change in prior accident years	(4.9		)%	1.2		%	—		%	(0.2		)%	(6.0		)%	(3.8		)%	—		%	(4.3		)%
Losses and loss expense ratio	96.2		%	71.6		%	87.5		%	81.8		%	66.9		%	65.1		%	—		%	65.5		%
Policy acquisition cost ratio	32.3		%	22.5		%	1.2		%	14.9		%	24.8		%	23.3		%	—		%	23.6		%
General and administrative expense ratio (a)										13.0		%										17.9		%
Expense ratio										27.9		%										41.5		%
Combined ratio										109.7		%										107.0		%

(a) The general and administrative expense ratio includes share compensation expenses.

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Highlights for the nine months ended September 30, 2017 as compared to 2016 were as follows:

• Gross premiums written for the nine months ended September 30, 2017 were $459.6 million compared to $236.2 million for the nine months ended September 30, 2016, an increase of $223.4 million, or 94.6%. The increase in gross premiums written was driven by:

◦ An increase in gross premiums written in specialty lines of $160.0 million due to new agriculture business written through and in relation to CRS; and

◦ An increase in the property and liability lines of $38.1 million and $25.3 million, respectively, primarily due to the continued build out of product offerings in the short-tail property lines. The increase in the liability lines was due to an increase in the contract and programs liability lines which was partially offset by decreases resulting from the discontinuation of other underperforming general liability lines.

• Reinsurance premiums ceded for the nine months ended September 30, 2017 were $72.0 million compared to $15.3 million for the nine months ended September 30, 2016, an increase of $56.7 million. The increase was primarily driven by an increase in ceded agriculture premiums of $35.9 million relating to new business written through CRS, reinstatement premiums ceded of $9.9 million from 2017 notable loss events and new reinsurance coverage purchased following the 2017 notable loss events.

• Net premiums earned for the nine months ended September 30, 2017 were $402.9 million compared to $198.0 million for the nine months ended September 30, 2016, an increase of $204.9 million, or 103.5%. The increase was primarily driven by the increases in gross premiums written as noted above and was partially offset by an increase in reinsurance premiums ceded which included the impact of reinstatement premiums ceded from 2017 notable loss events.

• Losses and loss expenses for the nine months ended September 30, 2017 were $329.6 million compared to $129.6 million for the nine months ended September 30, 2016, an increase of $200.0 million or 154.3%. The increase was driven by an increase in the specialty lines due to new agriculture business written through CRS, losses and loss expenses from 2017 notable loss events, an increase in attritional losses and lower favorable development on prior accident years.

Notable Loss Events

◦ Losses and loss expenses incurred during the nine months ended September 30, 2017 from two notable loss events were as follows:

	Nine Months Ended September 30, 2017
	Notable Loss Events						Total
(Dollars in thousands)	Hurricane Harvey			Hurricane Irma
Gross losses and loss expenses	$	100,725		$	12,200		$	112,925
Less: Reinsurance recoveries	(95,725		)	(7,200		)	(102,925		)
Western World’s share of net losses and loss expenses	$	5,000		$	5,000		$	10,000
Plus: Net impact on premiums earned (a)	9,872			—			9,872
Net loss attributable to Western World	$	14,872		$	5,000		$	19,872

(a) Net impact on premiums earned includes reinstatement premiums ceded

Western World’s share of net losses and loss expenses from Hurricanes Harvey and Irma was $10.0 million, or 2.5 percentage points of the loss ratio and related solely to the property lines. Inclusive of reinstatement premiums ceded of $9.9 million, the net loss attributable to Western World from notable loss events was $19.9 million.

Non-notable Loss Events

◦ There were no non-notable loss events occurring during the nine months ended September 30, 2017.

◦ Losses and loss expenses incurred from the Texas Hailstorms non-notable loss event were $0.6 million, or 0.3 percentage points of the loss ratio during the nine months ended September 30, 2016.

Loss Ratio

◦ The loss ratio for the nine months ended September 30, 2017 and 2016 was 81.8% and 65.5%, respectively, an increase of 16.3 percentage points. The loss ratio for the nine months ended September 30, 2017 included notable losses of $10.0 million, specialty losses of $148.4 million arising from new agriculture business written through CRS which is booked at an 87.5% loss ratio and U.S.-based weather losses of $12.4 million, or 3.1 percentage points of the loss ratio, compared to $11.5 million, or 5.8 percentage points of the loss ratio during the nine months ended September 30, 2016.

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• Policy acquisition cost ratio for the nine months ended September 30, 2017 was 14.9% compared to 23.6% for the nine months ended September 30, 2016, a decrease of 8.7 percentage points. The decrease was primarily driven by new agriculture business written during the nine months ended September 30, 2017 which carries lower acquisition costs.

• General and administration expenses for the nine months ended September 30, 2017 were $50.6 million compared to $33.7 million for the nine months ended September 30, 2016, an increase of $16.9 million, or 50.2%. General and administrative expenses for the nine months ended September 30, 2017 included $18.8 million of CRS expenses, of which $2.9 million related to the amortization of intangible assets acquired and was partially offset by a reduction in the bonus accrual during the nine months ended September 30, 2017.

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Year to Date 2017 Results of Operations - AlphaCat Segment

The following table presents Validus’ share of the AlphaCat segment (loss) income on an asset manager basis for the nine months ended September 30, 2017 and 2016:

	Nine Months Ended September 30,
(Dollars in thousands)	2017			2016
Fee revenues
Third party	$	15,288		$	14,843
Related party	1,732			2,592
Total fee revenues	17,020			17,435
Expenses
General and administrative expenses	10,322			7,557
Share compensation expenses	348			167
Finance expenses	107			914
Tax expense	69			—
Foreign exchange losses	7			17
Total expenses	10,853			8,655
Income before investment (loss) income from AlphaCat Funds and Sidecars	$	6,167		$	8,780
Investment income (loss) from AlphaCat Funds and Sidecars (a)
AlphaCat Sidecars	68			593
AlphaCat ILS Funds - Lower Risk (b)	(4,063		)	6,903
AlphaCat ILS Funds - Higher Risk (b)	(16,849		)	5,607
BetaCat ILS Funds	(291		)	2,979
PaCRe	—			(23		)
Validus' share of investment (loss) income from AlphaCat Funds and Sidecars	(21,135		)	16,059
Validus' share of AlphaCat (loss) income	$	(14,968	)	$	24,839
Supplemental information:
Gross premiums written
AlphaCat Sidecars	$	66		$	(178	)
AlphaCat ILS Funds - Lower Risk (b)	117,519			112,241
AlphaCat ILS Funds - Higher Risk (b)	153,483			140,127
AlphaCat Direct (c)	26,753			18,476
Total	$	297,821		$	270,666

(a) The investment income from the AlphaCat funds and sidecars is based on equity accounting.

(b) Lower risk AlphaCat ILS funds have a maximum permitted portfolio expected loss of less than 7%, whereas higher risk AlphaCat ILS funds have a maximum permitted portfolio expected loss of greater than 7%. Expected loss represents the average annual loss over the set of simulation scenarios divided by the total limit.

(c) AlphaCat Direct includes direct investments from third party investors in AlphaCat Re.

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Highlights for the nine months ended September 30, 2017 as compared to 2016 were as follows:

• Fee revenues earned for the nine months ended September 30, 2017 were $17.0 million compared to $17.4 million during the nine months ended September 30, 2016, a decrease of $0.4 million or 2.4%. Third party fee revenues earned during the nine months ended September 30, 2017 were $15.3 million, compared to $14.8 million, an increase of $0.4 million or 3.0%. The increase in third party fee revenues was primarily driven by an increase in assets under management and was partially offset by a decrease in performance fees as a result of the impact of notable loss events during the nine months ended September 30, 2017.

• Total expenses for the nine months ended September 30, 2017 were $10.9 million, compared to $8.7 million for the nine months ended September 30, 2016, an increase of $2.2 million or 25.4% The increase was primarily driven by a higher allocation of costs to the AlphaCat segment and a was partially offset by a reduction in the bonus accrual during the nine months ended September 30, 2017.

• Validus’ share of investment (loss) income from AlphaCat Funds and Sidecars was a loss of $21.1 million for the nine months ended September 30, 2017 compared to income $16.1 million for the nine months ended September 30, 2016, a decrease of $37.2 million or 231.6%. The decrease was driven by the 2017 notable loss events.

Assets Under Management

	Assets Under Management (a)
(Dollars in thousands)	October 1, 2017		January 1, 2017
Assets Under Management - Related Party
AlphaCat Sidecars	$	5,608	$	7,729
AlphaCat ILS Funds - Lower Risk	75,492		124,297
AlphaCat ILS Funds - Higher Risk	62,566		83,881
AlphaCat Direct (b)	—		—
BetaCat ILS Funds	24,084		26,808
Total	$	167,750	$	242,715
Assets Under Management - Third Party
AlphaCat Sidecars	$	20,459	$	28,829
AlphaCat ILS Funds - Lower Risk	1,317,417		1,257,287
AlphaCat ILS Funds - Higher Risk	687,674		738,813
AlphaCat Direct (b)	546,226		444,668
BetaCat ILS Funds	120,391		29,000
Total	2,692,167		2,498,597
Total Assets Under Management	$	2,859,917	$	2,741,312

(a) The Company’s assets under management are based on NAV and are represented by investments made by related parties and third parties in the feeder funds and on a direct basis.

(b) AlphaCat Direct includes direct investments from third party investors in AlphaCat Re.

AlphaCat’s assets under management were $2.9 billion as at October 1, 2017, compared to $2.7 billion as at January 1, 2017. Third party assets under management were $2.7 billion as at October 1, 2017, compared to $2.5 billion as at January 1, 2017.

During the nine months ended October 1, 2017, a total of $655.2 million of capital was raised, of which $645.2 million was raised from third parties. During the nine months ended October 1, 2017, $298.5 million was returned to investors, of which $229.6 million was returned to third party investors.

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Year to Date Results of Operations - Corporate and Investments

The following table presents the Corporate and Investment function’s income and expense items on a consolidated basis for the nine months ended September 30, 2017 and 2016:

	Nine Months Ended September 30,
(Dollars in thousands)	2017			2016
Managed investments
Managed net investment income (a)	$	111,346		$	105,843
Net realized gains on managed investments (a)	280			5,514
Change in net unrealized gains on managed investments (a)	31,232			81,782
Income (loss) from investment affiliates	15,665			(4,249		)
Total managed investment return	$	158,523		$	188,890
Corporate expenses
General and administrative expenses	$	45,563		$	52,276
Share compensation expenses	12,039			12,147
Finance expenses (a)	42,462			42,637
Dividends on preferred shares	10,033			2,252
Tax (benefit) expense (a)	(7,237		)	1,418
Total Corporate expenses	$	102,860		$	110,730
Other items
Foreign exchange (losses) gains (a)	(7,715		)	11,628
Other income (loss)	303			(773		)
Transaction expenses	(4,427		)	—
Total other items	$	(11,839	)	$	10,855
Total Corporate and Investments	$	43,824		$	89,015

(a) These items exclude the components which are included in the Company’s share of AlphaCat and amounts which are consolidated from VIEs.

Investments

Highlights of our managed investment portfolio for the nine months ended September 30, 2017 as compared to 2016 were as follows:

• Managed net investment income 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%. The increase was primarily driven by a strong performance from the Company’s fixed income funds.

• Annualized effective yield for the nine months ended September 30, 2017 was 2.28% compared to 2.24% for the nine months ended September 30, 2016, an increase of 4 basis points.

• Net realized gains on managed investments for the nine months ended September 30, 2017 were $0.3 million compared to $5.5 million for the nine months ended September 30, 2016, an unfavorable movement of $5.2 million or 94.9%.

• 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%. The unfavorable movement was primarily driven by changes in interest rates having less of an impact on the Company’s managed fixed maturity investment portfolio during the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016.

• 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 income from investment affiliates represents equity earnings on investments in funds managed by Aquiline Capital Partners LLC.

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Corporate Expenses and Other Items

Highlights for the nine months ended September 30, 2017 as compared to 2016 were as follows:

• General and administrative expenses for the nine months ended September 30, 2017 were $45.6 million compared to $52.3 million for the nine months ended September 30, 2016, a decrease of $6.7 million or 12.8%. The decrease was driven by a reduction in the bonus accrual during the nine months ended September 30, 2017.

• Share compensation expenses for the nine months ended September 30, 2017 were $12.0 million compared to $12.1 million for the nine months ended September 30, 2016, a decrease of $0.1 million or 0.9%.

• Finance expenses, excluding the Company’s share of AlphaCat finance expenses from consolidated VIEs, for the nine months ended September 30, 2017 were $42.5 million compared to $42.6 million for the nine months ended September 30, 2016, a decrease of $0.2 million or 0.4%.

• The Company issued $250.0 million of preferred shares during the nine months ended September 30, 2017 and $150.0 million of preferred shares during the nine months ended September 30, 2016. Dividends paid on preferred shares during the nine months ended September 30, 2017 were $10.0 million compared to $2.3 million during the nine months ended September 30, 2016, an increase of $7.8 million.

• Tax benefit for the nine months ended September 30, 2017 was $7.2 million compared to tax expense of $1.4 million for the nine months ended September 30, 2016, a favorable movement of $8.7 million. The favorable movement was driven by tax benefits relating to the Company’s U.S. domiciled subsidiaries.

• Foreign exchange losses for the nine months ended September 30, 2017 were $7.7 million compared to gains of $11.6 million for the nine months ended September 30, 2016, an unfavorable movement of $19.3 million. The unfavorable movement was primarily driven by the Euro and British pound strengthening against the U.S. dollar during the nine months ended September 30, 2017.

• Transaction expenses for the nine months ended September 30, 2017 were $4.4 million compared to $nil for the nine months ended September 30, 2016 and are primarily comprised of legal, financial advisory and audit related services incurred in connection with the acquisition of CRS, which was completed on May 1, 2017.

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Liquidity and Capital Resources

Investments

Managed investments represent assets governed by the Company’s Investment Policy Statement (“IPS”) whereas, non-managed investments represent assets held in support of consolidated AlphaCat VIEs which are not governed by the Company’s IPS. Refer to Note 6, “Variable interest entities,” to the Consolidated Financial Statements in Part I, Item 1 for further details.

The fair value of the Company’s investments, cash and cash equivalents and restricted cash as at September 30, 2017 and December 31, 2016 was as follows:

	Fair Value
	September 30, 2017		December 31, 2016
Managed investments, cash and cash equivalents and restricted cash
Fixed maturities
U.S. government and government agency	$	595,694	$	804,126
Non-U.S. government and government agency	290,538		240,791
U.S. states, municipalities and political subdivisions	206,667		271,830
Agency residential mortgage-backed securities	828,400		679,595
Non-agency residential mortgage-backed securities	38,993		15,477
U.S. corporate	1,466,739		1,534,508
Non-U.S. corporate	392,242		410,227
Bank loans	464,464		570,399
Asset-backed securities	522,524		526,814
Commercial mortgage-backed securities	314,221		330,932
Total fixed maturities	5,120,482		5,384,699
Short-term investments	258,646		228,386
Other investments
Fund of hedge funds	—		955
Hedge funds	19,233		17,381
Private equity investments	107,230		82,627
Fixed income investment funds	285,034		249,275
Overseas deposits	55,775		50,106
Mutual funds	4,028		5,368
Total other investments	471,300		405,712
Investment in investment affiliate	92,079		100,431
Cash and cash equivalents	961,539		415,419
Restricted cash	51,585		15,000
Total managed investments, cash and cash equivalents and restricted cash	$	6,955,631	$	6,549,647
Non-managed investments, cash and cash equivalents and restricted cash
Catastrophe bonds	$	299,484	$	158,331
Short-term investments	2,734,600		2,567,784
Cash and cash equivalents	4,091		4,557
Restricted cash	37,818		55,956
Total non-managed investments, cash and cash equivalents and restricted cash	3,075,993		2,786,628
Total investments and cash	$	10,031,624	$	9,336,275

As at September 30, 2017, the Company’s managed cash and investment portfolio totaled $7.0 billion (December 31, 2016: $6.5 billion). Refer to Note 4, “Investments,” to the Consolidated Financial Statements in Part I, Item 1 for further details related to the Company’s managed investments.

A significant portion of (re)insurance contracts written by the Company provide short-tail reinsurance coverage for losses resulting mainly from natural and man-made catastrophes, which could result in payment of a substantial amount of losses at short notice. Accordingly, the Company’s investment portfolio is primarily structured to provide liquidity, which means the investment portfolio contains a significant amount of relatively short-term fixed maturity investments. The Company’s IPS specifically requires

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certain minimum amounts of cash, short-term investments, and highly-rated fixed maturity securities relative to our consolidated net reserves and estimates of probable maximum loss exposures at the 1 in 100 year threshold to provide necessary liquidity in a wide range of loss scenarios. As such, the Company structures its managed cash and investment portfolio to support policyholder reserves and contingent risk exposures with a liquid portfolio of high quality fixed-income investments with a comparable duration profile.

The Company’s IPS requires managed investments to have an average duration in the range of 0.75 years to 3.25 years. At September 30, 2017, the average duration of the Company’s managed investment portfolio was 2.04 years (December 31, 2016: 2.26 years). This duration is reviewed regularly based on changes in the duration of the Company’s liabilities and general market conditions.

The Company’s IPS also requires certain minimum credit quality standards for its managed fixed maturity portfolio, including a minimum weighted average portfolio rating of A+ for securities with ratings. Further limits on asset classes and security types are also mandated. In addition, the Company stress-tests the downside risks within its asset portfolio using internal and external inputs and stochastic modeling processes to help define and limit asset risks to acceptable levels that are consistent with our overall ERM framework. At September 30, 2017, the Company’s rated managed fixed maturity portfolio had an average credit quality rating of AA- (December 31, 2016: AA-). For further details related to the investment ratings of the Company’s fixed maturity portfolio, refer to Note 4(a) to the Consolidated Financial Statements, “Investments,” in Part I, Item 1.

The value of the Company’s managed fixed maturity portfolio will fluctuate with, among other factors, changes in the interest rate environment and in overall economic conditions. Additionally, the structure of the Company’s overall managed investment portfolio exposes the Company to other risks, including insolvency or reduced credit quality of corporate debt securities, prepayment, default and structural risks on asset-backed securities, mortgage-backed securities and bank loans and liquidity risks on certain other investments, including hedge funds, investment funds and private equity investments. For further details on market risks, refer to

Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

As part of the ongoing risk management process, the Company monitors the aggregation of country or jurisdiction risk exposure. Jurisdiction risk exposure is the risk that events within a jurisdiction, such as currency crises, regulatory changes and other political events, will adversely affect the ability of obligors within the jurisdiction to honor their obligations. The following table provides a breakdown of the fair value of jurisdiction risk exposures outside the United States within the Company’s managed fixed maturity portfolio:

	September 30, 2017
(Dollars in thousands)	Fair Value		% of Total
Germany	$	70,805	10.4	%
Supranational	56,119		8.2	%
Province of Ontario	32,865		4.8	%
Canada	24,032		3.5	%
United Kingdom	23,897		3.5	%
Jordan	10,044		1.5	%
Other (individual jurisdictions below $10,000)	72,776		10.7	%
Total Managed Non-U.S. Government Securities	290,538		42.6	%
European Corporate Securities	146,835		21.5	%
United Kingdom Corporate Securities	110,601		16.2	%
Other Non-U.S. Corporate Securities	134,806		19.7	%
Total Managed Non-U.S. Fixed Maturity Portfolio	$	682,780	100.0	%

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	December 31, 2016
(Dollars in thousands)	Fair Value		% of Total
Germany	$	66,886	10.3	%
Supranational	41,502		6.4	%
United Kingdom	36,178		5.6	%
Canada	15,836		2.4	%
Province of Ontario	12,387		1.9	%
Norway	12,085		1.9	%
France	10,360		1.6	%
Jordan	10,080		1.5	%
Other (individual jurisdictions below $10,000)	35,477		5.4	%
Total Managed Non-U.S. Government Securities	240,791		37.0	%
European Corporate Securities	173,326		26.6	%
United Kingdom Corporate Securities	96,425		14.8	%
Other Non-U.S. Corporate Securities	140,476		21.6	%
Total Managed Non-U.S. Fixed Maturity Portfolio	$	651,018	100.0	%

At September 30, 2017, the Company did not have an aggregate exposure to any single issuer of more than 0.9% (December 31, 2016: 1.0%) of total managed investments and cash, other than with respect to government and agency securities. The top ten exposures to fixed income corporate issuers at September 30, 2017 were as follows:

	September 30, 2017
Issuer (a)	Fair Value (b)		S&P Rating (c)	% of Managed Investments and Cash
JPMorgan Chase & Co.	$	59,650	BBB+	0.9	%
Citigroup Inc.	58,171		BBB+	0.8	%
Morgan Stanley	56,445		BBB+	0.7	%
Bank of America Corp.	50,634		BBB+	0.7	%
Wells Fargo & Company	49,373		A	0.7	%
Goldman Sachs Group	45,835		BBB+	0.7	%
Bank of New York Mellon Corp.	33,147		A	0.5	%
AT&T Inc.	31,882		BBB+	0.5	%
British American Tobacco Plc.	28,416		BBB	0.4	%
Anheuser-Busch Inbev NV	27,761		A-	0.4	%
Total	$	441,314		6.3	%

	December 31, 2016
Issuer (a)	Fair Value (b)		S&P Rating (c)	% of Managed Investments and Cash
JPMorgan Chase & Co	$	66,827	BBB+	1.0	%
Citigroup Inc	52,737		BBB	0.8	%
Bank of America Corp	50,280		BBB+	0.8	%
Morgan Stanley	48,273		BBB+	0.7	%
Goldman Sachs Group	46,261		BBB+	0.7	%
Wells Fargo & Company	44,596		A	0.7	%
Anheuser-Busch Inbev NV	39,674		A-	0.6	%
Bank of New York Mellon Corp	34,619		A	0.5	%
HSBC Holdings plc	29,411		A	0.4	%
US Bancorp	28,175		AA-	0.4	%
Total	$	440,853		6.6	%

(a) Issuers exclude government-backed, government-sponsored enterprises and cash and cash equivalents.

(b) 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.

(c) Investment ratings are the median of Moody’s, Standard & Poor’s and Fitch. For investments where three ratings are unavailable, the lower of the ratings shall apply. All investment ratings are presented as the Standard & Poor’s equivalent rating.

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Reserve for Losses and Loss Expenses

At September 30, 2017, gross and net reserves for losses and loss expenses were estimated using the methodology as outlined in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

The following tables indicate the breakdown of gross and net reserves for losses and loss expenses between lines of business and between case reserves and IBNR.

	September 30, 2017						December 31, 2016
(Dollars in thousands)	Gross Case Reserves		Gross IBNR		Total Gross Reserve for Losses and Loss Expenses		Gross Case Reserves		Gross IBNR		Total Gross Reserve for Losses and Loss Expenses
Property	$	464,050	$	1,946,555	$	2,410,605	$	390,141	$	440,531	$	830,672
Marine	341,920		500,471		842,391		389,614		471,845		861,459
Specialty	276,713		842,250		1,118,963		259,251		473,656		732,907
Liability	188,897		374,781		563,678		198,766		371,391		570,157
Total	$	1,271,580	$	3,664,057	$	4,935,637	$	1,237,772	$	1,757,423	$	2,995,195

	September 30, 2017						December 31, 2016
(Dollars in thousands)	Net Case Reserves		Net IBNR		Total Net Reserve for Losses and Loss Expenses		Net Case Reserves		Net IBNR		Total Net Reserve for Losses and Loss Expenses
Property	$	370,957	$	1,207,268	$	1,578,225	$	330,213	$	392,886	$	723,099
Marine	279,067		378,178		657,245		337,550		369,908		707,458
Specialty	239,559		640,692		880,251		222,496		428,864		651,360
Liability	174,629		310,271		484,900		182,185		300,672		482,857
Total	$	1,064,212	$	2,536,409	$	3,600,621	$	1,072,444	$	1,492,330	$	2,564,774

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The following table sets forth a reconciliation of gross and net reserves for losses and loss expenses by operating segment for the three months ended September 30, 2017.

	Three Months Ended September 30, 2017
(Dollars in thousands)	Validus Re			Talbot			Western World			AlphaCat			Eliminations			Total
Reserve for losses and loss expenses, beginning of period	$	1,139,401		$	1,393,639		$	788,063		$	46,483		$	(62,395	)	$	3,305,191
Loss reserves recoverable	(101,926		)	(364,658		)	(196,018		)	—			62,395			(600,207		)
Net reserves for losses and loss expenses, beginning of period	1,037,475			1,028,981			592,045			46,483			—			2,704,984
Increase (decrease) in net reserves for losses and loss expenses in respect of losses occurring in:
Current year	395,621			202,054			157,771			574,220			—			1,329,666
Prior years	(48,137		)	(23,614		)	(62		)	(3,251		)	—			(75,064		)
Total net incurred losses and loss expenses	347,484			178,440			157,709			570,969			—			1,254,602
Foreign exchange loss	7,140			6,309			—			292			—			13,741
Less net losses and loss expenses paid in respect of losses occurring in:
Current year	(74,457		)	(37,318		)	(79,779		)	(58		)	—			(191,612		)
Prior years	(60,532		)	(77,476		)	(41,615		)	(1,471		)	—			(181,094		)
Total net paid losses	(134,989		)	(114,794		)	(121,394		)	(1,529		)	—			(372,706		)
Net reserve for losses and loss expenses, end of period	1,257,110			1,098,936			628,360			616,215			—			3,600,621
Loss reserves recoverable	589,963			430,399			317,489			60,000			(62,835		)	1,335,016
Reserve for losses and loss expenses, end of period	$	1,847,073		$	1,529,335		$	945,849		$	676,215		$	(62,835	)	$	4,935,637

For the three months ended September 30, 2017, favorable loss reserve development on prior accident years was $75.1 million, of which $48.1 million related to the Validus Re segment, $23.6 million related to the Talbot segment, $0.1 million related to the Western World segment and $3.3 million related to the AlphaCat segment.

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The following table sets forth a reconciliation of gross and net reserves for losses and loss expenses by operating segment for the nine months ended September 30, 2017:

	Nine Months Ended September 30, 2017
(Dollars in thousands)	Validus Re			Talbot			Western World			AlphaCat			Eliminations			Total
Reserve for losses and loss expenses, beginning of period	$	1,116,753		$	1,301,517		$	589,500		$	48,534		$	(61,109	)	$	2,995,195
Loss reserves recoverable	(98,005		)	(306,038		)	(87,487		)	—			61,109			(430,421		)
Net reserves for losses and loss expenses, beginning of period	1,018,748			995,479			502,013			48,534			—			2,564,774
Increase (decrease) in net reserves for losses and loss expenses in respect of losses occurring in:
Net reserves acquired (a)	—			—			23,753			—			—			23,753
Current year	638,339			446,545			330,386			584,651			—			1,999,921
Prior years	(100,016		)	(68,304		)	(744		)	(10,521		)	—			(179,585		)
Total net incurred losses and loss expenses	538,323			378,241			329,642			574,130			—			1,820,336
Foreign exchange loss	27,734			17,467			—			1,073			—			46,274
Less net losses and loss expenses paid in respect of losses occurring in:
Current year	(84,683		)	(59,824		)	(97,503		)	(58		)	—			(242,068		)
Prior years	(243,012		)	(232,427		)	(129,545		)	(7,464		)	—			(612,448		)
Total net paid losses	(327,695		)	(292,251		)	(227,048		)	(7,522		)	—			(854,516		)
Net reserves for losses and loss expenses, end of period	1,257,110			1,098,936			628,360			616,215			—			3,600,621
Loss reserves recoverable	589,963			430,399			317,489			60,000			(62,835		)	1,335,016
Reserve for losses and loss expenses, end of period	$	1,847,073		$	1,529,335		$	945,849		$	676,215		$	(62,835	)	$	4,935,637

(a) Equals net reserves acquired of $42,575 less net reserves commuted at closing of $18,822.

For the nine months ended September 30, 2017, favorable loss reserve development on prior accident years was $179.6 million, of which $100.0 million related to the Validus Re segment, $68.3 million related to the Talbot segment, $0.7 million related to the Western World segment and $10.5 million related to the AlphaCat segment.

For further information regarding the Company’s reserves for losses and loss expenses refer to Note 9,“Reserve for losses and loss expenses,” to the Consolidated Financial Statements in Part I, Item 1. The amount of recorded reserves represents management’s best estimate of expected losses and loss expenses on premiums earned.

The management of insurance and reinsurance companies use significant judgment in the estimation of reserves for losses and loss expenses. Given the magnitude of some notable loss events and other uncertainties inherent in loss estimation, meaningful uncertainty remains regarding the estimation for these events. The Company’s actual ultimate net loss may vary materially from these estimates. Ultimate losses for notable loss events are estimated through detailed review of contracts which are identified by the Company as potentially exposed to the specific notable loss event. However, there can be no assurance that the ultimate loss amount estimated for a specific contract will be accurate, or that all contracts with exposure to a specific notable loss event will be identified in a timely manner. Potential losses in excess of the estimated ultimate loss assigned to a contract on the basis of a specific review, or loss amounts from contracts not specifically included in the detailed review may be reserved for in the reserve for potential development on notable loss events (“RDE”) and would be included as part of the Company’s overall reserves. As at September 30, 2017 and December 31, 2016 the Company had no RDE.

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For disclosure purposes, only those notable loss events which have an ultimate loss estimate above $30.0 million are disclosed separately and included in the reserves for notable loss event roll forward table below. To the extent that there are increased complexity and volatility factors relating to notable loss events in the aggregate, RDE may be established for a specific accident year.

			Year Ended December 31, 2016					Nine Months Ended September 30, 2017
2016 Notable Loss Events	Initial estimate (a)		Development (Favorable) / Unfavorable			Closing Estimate (b)		Development (Favorable) / Unfavorable			Closing Estimate (b)
Canadian Wildfires	$	36,915	$	(17,265	)	$	19,650	$	(162	)	$	19,488
Hurricane Matthew	39,140		—			39,140		5,997			45,137
2016 New Zealand Earthquake	31,421		—			31,421		—			31,421
Total	$	107,476	$	(17,265	)	$	90,211	$	5,835		$	96,046
			Paid Loss			Closing Reserve (c)		Paid Loss			Closing Reserve (c)
Canadian Wildfires			$	5,676		$	13,974	$	3,805		$	10,007
Hurricane Matthew			6,712			32,428		19,743			18,682
2016 New Zealand Earthquake			—			31,421		811			30,610
Total			$	12,388		$	77,823	$	24,359		$	59,299
2017 Notable Loss Events	Initial estimate (a)										Closing Estimate (b)
Hurricane Harvey	$	247,409									$	247,409
Hurricane Irma	518,559										518,559
Hurricane Maria	160,207										160,207
Total	$	926,175									$	926,175
								Paid Loss			Closing Reserve (c)
Hurricane Harvey								$	7,781		$	239,628
Hurricane Irma								4,543			514,016
Hurricane Maria								—			160,207
Total								$	12,324		$	913,851

(a) Includes paid losses, case reserves and IBNR reserves.

(b) Excludes impact of movements in foreign exchange rates.

(c) Closing Reserve for the period equals Closing Estimate for the period less cumulative paid losses (recovery).

Sources of Liquidity

Holding Company Liquidity

Validus Holdings is a holding company and conducts no operations of its own. The Company relies primarily on cash dividends and other permitted payments from operating subsidiaries within the Validus Re, Talbot, Western World and AlphaCat segments to pay dividends, finance expenses and other holding company expenses. There are restrictions on the payment of dividends from most operating subsidiaries, primarily due to regulatory requirements in the jurisdictions in which the operating subsidiaries are domiciled. The Company believes the dividend/distribution capacity of the Company’s subsidiaries will provide the Company with sufficient liquidity for the foreseeable future. The Company continues to generate substantial cash from operating activities and remains in a strong financial position, with resources available for reinvestment in existing businesses, strategic acquisitions and managing capital structure to meet its short and long-term objectives.

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The following table details the capital resources of certain subsidiaries of the Company on an unconsolidated basis:

(Dollars in thousands)	September 30, 2017			December 31, 2016
Validus Reinsurance, Ltd. (excluding capital supporting FAL) (a) (b)	$	3,976,449		$	3,720,595
Talbot Holdings, Ltd. (including capital supporting FAL) (b)	835,212			914,442
Other, net	(90,951		)	(14,158		)
Redeemable noncontrolling interests in AlphaCat	1,133,880			1,528,001
Noncontrolling interests in AlphaCat	78,947			165,977
Total consolidated capitalization	5,933,537			6,314,857
Senior notes payable	(245,513		)	(245,362		)
Debentures payable	(538,910		)	(537,226		)
Redeemable noncontrolling interests in AlphaCat	(1,133,880		)	(1,528,001		)
Total shareholders’ equity	4,015,234			4,004,268
Preferred shares (c)	(400,000		)	(150,000		)
Noncontrolling interests in AlphaCat	(78,947		)	(165,977		)
Total shareholders’ equity available to Validus common shareholders (c)	$	3,536,287		$	3,688,291

(a) Validus Reinsurance, Ltd. (excluding capital supporting FAL) includes capital of $726,268 (December 31, 2016: $639,113) relating to Western World Insurance Group, Inc.

(b) Validus Reinsurance, Ltd. (excluding capital supporting FAL) excludes capital of $618,125 (December 31, 2016: $723,888) which supports Talbot’s FAL. This capital was included in Talbot Holdings, Ltd. (including capital supporting FAL).

(c) Total shareholders’ equity available to Validus common shareholders excludes the liquidation value of the preferred shares.

Sources and Uses of Cash

The Company has written certain (re)insurance business that has loss experience generally characterized as having low frequency and high severity. This results in volatility in both results and operational cash flows. The potential for large claims or a series of claims under one or more reinsurance contracts means that substantial and unpredictable payments may be required within relatively short periods of time. As a result, cash flows from operating activities may fluctuate, perhaps significantly, between individual quarters and years. Management believes the Company’s unused credit facility amounts and highly liquid investment portfolio are sufficient to support any potential operating cash flow deficiencies.

In addition to relying on premiums received and investment income from the investment portfolio, the Company intends to meet these cash flow demands by carrying a substantial amount of short and medium term investments that would mature, or possibly be sold, prior to the settlement of expected liabilities. The Company cannot provide assurance, however, that it will successfully match the structure of its investments with its liabilities due to uncertainty related to the timing and severity of loss events.

There are three main sources of cash flows for the Company: operating activities, investing activities and financing activities. The movement in net cash provided by or used in operating, investing and financing activities and the effect of foreign currency rate changes on cash and cash equivalents for the nine months ended September 30, 2017 and 2016 is provided in the following table:

	Nine Months Ended September 30,
(Dollars in thousands)	2017			2016
Net cash provided by operating activities	$	303,882		$	254,596
Net cash used in investing activities	(270,399		)	(669,307		)
Net cash provided by financing activities	493,719			149,847
Effect of foreign currency rate changes on cash and cash equivalents	18,452			(14,253		)
Net increase (decrease) in cash and cash equivalents	$	545,654		$	(279,117	)

Operating Activities

Cash flow from operating activities is derived primarily from the receipt of premiums less the payment of losses and loss expenses related to underwriting activities.

Net cash provided by operating activities during the nine months ended September 30, 2017 was $303.9 million compared to $254.6 million during the nine months ended September 30, 2016, a favorable movement of $49.3 million. This favorable movement

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was primarily due to the timing of cash receipts and payments, notably with regard to premiums receivable and losses payable, respectively.

We anticipate that cash flows from operations will continue to be sufficient to cover cash outflows under our contractual commitments as well as most loss scenarios through the foreseeable future. Refer to the “Capital Resources” section below for further information on our anticipated obligations.

Investing Activities

Cash flow from investing activities is derived primarily from the receipt of net proceeds on the Company’s investment portfolio. As at September 30, 2017, the Company’s portfolio was composed of fixed income, short-term and other investments and investments in investment affiliates amounting to $9.0 billion or 89.5% of total cash and investments. For further details related to investments pledged as collateral, refer to Note 4, “Investments,” to the Consolidated Financial Statements in Part I, Item 1.

Net cash used in investing activities during the nine months ended September 30, 2017 was $270.4 million compared to $669.3 million for the nine months ended September 30, 2016, a decrease of $398.9 million. The decrease was primarily driven by lower investment purchases and was partially offset by cash used to fund the Company’s acquisition of CRS during the nine months ended September 30, 2017.

Financing Activities

Cash flow from financing activities is derived primarily from the issuance and purchase of shares in the Company and its subsidiaries, including third party investments in the AlphaCat ILS funds and sidecars, as well as the issuance of notes payable to AlphaCat investors.

Net cash provided by financing activities during the nine months ended September 30, 2017 was $493.7 million compared to $149.8 million during the nine months ended September 30, 2016, an increase of $343.9 million. The increase during the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 was primarily driven by a decrease in share repurchases of $177.7 million, an increase in net proceeds received on the issuance of preferred shares of $96.8 million and an increase in net third party investments from AlphaCat investors of $86.8 million.

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Capital Resources

The following table details the Company’s capital position as at September 30, 2017 and December 31, 2016.

(Dollars in thousands)	September 30, 2017			December 31, 2016
Senior Notes (a)	$	245,513		$	245,362
Junior Subordinated Deferrable Debentures (JSDs) (a)	289,800			289,800
Flagstone Junior Subordinated Deferrable Debentures (JSDs) (a)	249,110			247,426
Total debt	$	784,423		$	782,588
Redeemable noncontrolling interests	$	1,133,880		$	1,528,001
Preferred shares, liquidation value (b)	$	400,000		$	150,000
Ordinary shares, capital and surplus available to Validus common shareholders	3,554,717			3,711,507
Accumulated other comprehensive loss	(18,430		)	(23,216		)
Noncontrolling interests	78,947			165,977
Total shareholders’ equity	$	4,015,234		$	4,004,268
Total capitalization (c)	$	5,933,537		$	6,314,857
Total capitalization available to Validus (d)	$	4,720,710		$	4,620,879
Debt to total capitalization	13.2		%	12.4		%
Debt (excluding JSDs) to total capitalization	4.1		%	3.9		%
Debt and preferred shares to total capitalization	20.0		%	14.8		%
Debt to total capitalization available to Validus	16.6		%	16.9		%
Debt (excluding JSDs) to total capitalization available to Validus	5.2		%	5.3		%
Debt and preferred shares to total capitalization available to Validus	25.1		%	20.2		%

(a) Refer to Part I, Item 1, Note 13 to the Consolidated Financial Statements, “Debt and financing arrangements,” for further details and discussion on the debt and financing arrangements of the Company.

(b) Refer to Part I, Item 1, Note 11 to the Consolidated Financial Statements, “Share capital,” for further details and discussion on the Company’s preferred shares.

(c) Total capitalization equals total shareholders’ equity plus redeemable noncontrolling interests and total debt.

(d) Total capitalization available to Validus equals total capitalization as per (c) less redeemable noncontrolling interests and noncontrolling interests.

Shareholders’ Equity

Shareholders’ equity available to Validus common shareholders at September 30, 2017 was $3.5 billion, compared to $3.7 billion at December 31, 2016. Including $400.0 million of preferred shares at September 30, 2017 (December 31, 2016: $150.0 million), shareholders’ equity available to Validus at September 30, 2017 was $3.9 billion, compared to $3.8 billion at December 31, 2016.

On November 1, 2017, the Company announced a quarterly cash dividend of $0.38 per common share, payable on December 29, 2017 to shareholders of record on December 15, 2017. The Company also announced a quarterly cash dividend of $0.3671875 and $0.3625000 per depository share on the outstanding Series A and Series B Preferred Shares, respectively. The Series A and Series B Preferred Share dividends are payable on December 15, 2017 to shareholders of record on December 1, 2017.

The timing and amount of any future cash dividends, however, will be at the discretion of the Board and will depend upon results of operations and cash flows, the Company’s financial position and capital requirements, general business conditions, legal, tax, regulatory, rating agency and contractual constraints or restrictions and any other factors that the Board deems relevant.

The Company may from time to time repurchase its securities, including common shares, Junior Subordinated Deferrable Debentures and Senior Notes. The Company has repurchased 80,860,661 common shares for an aggregate purchase price of $2.7 billion from the inception of the share repurchase program to October 31, 2017. The Company had $301.7 million remaining under its authorized share repurchase program as of October 31, 2017.

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The Company expects the purchases under its share repurchase program to be made from time to time in the open market or in privately negotiated transactions. The timing, form and amount of the share repurchases under the program will depend on a variety of factors, including market conditions, the Company’s capital position relative to internal and rating agency targets, legal requirements and other factors. The repurchase program may be modified, extended or terminated by the Board of Directors at any time.

Debt and Financing Arrangements

For additional information about our debt, including the terms of our financing arrangements, basis for interest rates and debt covenants, refer to Part I, Item 1, Note 13 to the Consolidated Financial Statements, “Debt and financing arrangements” and Part I, Item 1, Note 20 to the Consolidated Financial Statements, “Debt and financing arrangements,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

Noncontrolling interests

Investors in certain of the AlphaCat and BetaCat ILS funds have rights that enable them, subject to certain limitations, to redeem their shares. The third party equity is therefore recorded in the Company’s Consolidated Balance Sheets as redeemable noncontrolling interests. When and if a redemption notice is received, the fair value of the redemption is reclassified to a liability. As at September 30, 2017 and December 31, 2016, the amount of the Company’s total capitalization owed to third parties as redeemable noncontrolling interests was $1.1 billion and $1.5 billion, respectively.

The AlphaCat sidecars and one of the AlphaCat ILS funds have no shareholder redemption rights. Therefore, the third party equity is recorded in the Company’s Consolidated Balance Sheets as noncontrolling interests. As at September 30, 2017 and December 31, 2016, the amount of the Company’s total capitalization owed to third parties as noncontrolling interests was $78.9 million and $166.0 million, respectively. Refer to Part I, Item I, Notes 6and 7 to the Consolidated Financial Statements, “Variable Interest Entities,” and “Noncontrolling interests,” respectively, for further details.

Ratings

The following table summarizes the financial strength ratings of the Company and its principal reinsurance and insurance subsidiaries from internationally recognized rating agencies as of November 2, 2017:

	A.M. Best	S&P	Moody’s	Fitch
Validus Holdings, Ltd.
Issuer credit rating	bbb	BBB+	Baa1	A-
Senior debt	bbb	BBB+	Baa1	BBB+
Subordinated debt	bbb-	—	Baa2	BBB
Preferred stock	bb+	BBB-	Baa3	BBB
Outlook on ratings	Positive	Stable	Stable	Stable
Validus Reinsurance, Ltd.
Financial strength rating	A	A	A2	A
Outlook on ratings	Stable	Stable	Stable	Stable
Lloyd’s of London
Financial strength rating applicable to all Lloyd’s syndicates	A	A+	—	AA-
Outlook on ratings	Stable	Negative	—	Negative
Validus Reinsurance (Switzerland) Ltd
Financial strength rating	A	A	—	—
Outlook on ratings	Stable	Stable	—	—
Western World Insurance Company
Financial strength rating	A	—	—	—
Outlook on ratings	Stable	—	—	—

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Recent Accounting Pronouncements

For information relating to relevant recent accounting pronouncements, refer to Part I, Item 1, Note 2 to the Consolidated Financial Statements, “Recent accounting pronouncements,” for further details.

Critical Accounting Policies and Estimates

There are certain accounting policies that the Company considers to be critical due to the judgment and uncertainty inherent in the application of those policies. In calculating financial statement estimates, the use of different assumptions could produce materially different estimates. The Company believes the following critical accounting policies affect significant estimates used in the preparation of the Company’s Consolidated Financial Statements:

• reserve for losses and loss expenses;

• premium estimates for business written on a line slip or proportional basis;

• the valuation of goodwill and intangible assets;

• reinsurance recoverable balances including the provision for uncollectible amounts; and

• investment valuation of financial assets.

Critical accounting policies and estimates are discussed further in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 (“PSLRA”) provides a “safe harbor” for forward-looking statements. Any prospectus, prospectus supplement, the Company’s Annual Report to shareholders, any proxy statement, any Form 10-K, Form 10-Q or Form 8-K of the Company or any other written or oral statements made by or on behalf of the Company may include forward-looking statements that reflect the Company’s current views with respect to future events and financial performance. Such statements include forward-looking statements both with respect to the Company in general, and to the insurance and reinsurance sectors in particular. 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 for purposes of the PSLRA or otherwise. All forward-looking statements address matters that involve risks and uncertainties. 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 statement.

The Company believes that these factors include, but are not limited to, the following:

• unpredictability and severity of catastrophic events;

• our ability to obtain and maintain ratings, which may affect our ability to raise additional equity or debt financings, as well as other factors described herein;

• adequacy of the Company’s risk management and loss limitation methods;

• cyclicality of demand and pricing in the insurance and reinsurance markets;

• the Company’s ability to implement its business strategy during “soft” as well as “hard” markets;

• adequacy of the Company’s loss reserves;

• continued availability of capital and financing;

• the Company’s ability to identify, hire and retain, on a timely and unimpeded basis and on anticipated economic and other terms, experienced and capable senior management, as well as underwriters, claims professionals and support staff;

• acceptance of our business strategy, security and financial condition by rating agencies and regulators, as well as by brokers and (re)insureds;

• competition, including increased competition, on the basis of pricing, capacity, coverage terms or other factors;

• potential loss of business from one or more major insurance or reinsurance brokers;

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• the Company’s 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;

• general economic and market conditions (including inflation, volatility in the credit and capital markets, interest rates and foreign currency exchange rates) and conditions specific to the insurance and reinsurance markets in which we operate;

• the integration of businesses we may acquire or new business ventures, including overseas offices, we may start and the risk associated with implementing our business strategies and initiatives with respect to these new businesses;

• accuracy of those estimates and judgments used in the preparation of our financial statements, including those related to revenue recognition, insurance and other reserves, reinsurance recoverables, investment valuations, intangible assets, bad debts, taxes, contingencies, litigation and any determination to use the deposit method of accounting, which, for a relatively new insurance and reinsurance company like our company, are even more difficult to make than those made in a mature company because of limited historical information;

• the effect on the Company’s investment portfolio of changing financial market conditions including inflation, interest rates, liquidity and other factors;

• acts of terrorism, political unrest, outbreak of war and other hostilities or other non-forecasted and unpredictable events;

• availability and cost of reinsurance and retrocession coverage;

• the failure of reinsurers, retrocessionaires, producers or others to meet their obligations to us;

• the timing of loss payments being faster or the receipt of reinsurance recoverables being slower than anticipated by us;

• changes in domestic or foreign laws or regulations, or their interpretations;

• changes in accounting principles or the application of such principles by regulators;

• statutory or regulatory or rating agency developments, including as to tax policy and reinsurance and other regulatory matters such as the adoption of proposed legislation that would affect Bermuda-headquartered companies and/or Bermuda-based insurers or reinsurers;

• termination of or changes in the terms of the U.S. multiple peril crop insurance program and termination or changes to the U.S. Farm Bill, including modifications to the Standard Reinsurance Agreement put in place by the Risk Management Agency of the U.S. Department of Agriculture; and

• the other factors set forth under Part I Item 1A “Risk Factors” and under Part II Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the other sections of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, as well as the risk and other factors set forth in the Company’s other filings with the SEC, as well as management’s response to any of the aforementioned factors.

In addition, other general factors could affect the Company’s results, including: (a) developments in the world’s financial and capital markets and our access to such markets; (b) changes in regulations or tax laws applicable to us, and (c) the effects of business disruption or economic contraction due to terrorism or other hostilities.

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 or elsewhere. Any forward-looking statements made in this report are qualified by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, the Company or our business or operations. 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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For quantitative and qualitative disclosures about market risk, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. The Company’s exposure to market risks has not changed materially since December 31, 2016.

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ITEM 4. CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of disclosure controls and procedures as defined and in pursuant to Rules 13a-15 and 15d-15 promulgated under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report.

Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective to provide reasonable assurance that all material information relating to the Company required to be filed in this report has been recorded, processed, summarized and reported when required and the information is accumulated and communicated, as appropriate, to allow timely decisions regarding required disclosures.

Changes in Internal Control Over Financial Reporting

There have been no changes in internal control over financial reporting identified in connection with the Company’s evaluation required pursuant to Rules 13a-15 and 15d-15 promulgated under the Securities Exchange Act of 1934, as amended, that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

During the normal course of business, the Company and its subsidiaries are subject to litigation and arbitration. Legal proceedings such as claims litigation are common in the insurance and reinsurance industry in general. The Company and its subsidiaries may be subject to lawsuits and regulatory actions in the normal course of business that do not arise from or directly relate to claims on reinsurance treaties or contracts or insurance policies.

Litigation typically can include, but is not limited to, allegations of underwriting errors or misconduct, employment claims, regulatory activity, shareholder disputes or disputes arising from business ventures. These events are difficult, if not impossible, to predict with certainty. It is Company policy to dispute all allegations against the Company and/or its subsidiaries that management believes are without merit.

As at September 30, 2017, the Company was not a party to, or involved in any litigation or arbitration that it believes could have a material adverse effect on the financial condition, results of operations or liquidity of the Company.

ITEM 1A. RISK FACTORS

The Company’s results of operations and financial condition are subject to numerous risks and uncertainties described in “Risk Factors” included in Item 1A in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 and Quarterly Report on Form 10-Q for the three and six months ended June 30, 2017.

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ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The Company, from time to time, repurchases its shares in the open market, or in privately negotiated transactions, under its share repurchase program. The timing, form and amount of the share repurchases under the program will depend on a variety of factors, including market conditions, the Company’s capital position relative to internal and rating agency targets, legal requirements and other factors. Share repurchases may also include repurchases by the Company of shares from employees in order to facilitate the payment of withholding taxes on restricted shares that have vested. The Company repurchases these shares at their fair market value, as determined by reference to the closing price of its common shares on the day the restricted shares vested. The Company’s share repurchase program may be modified, extended or terminated by its Board of Directors at any time.

The Company repurchased 83,859 common shares during the three months ended September 30, 2017. The Company has, from the inception of its share repurchase program to October 31, 2017, repurchased 80,860,661 common shares for an aggregate purchase price of $2.7 billion. As of October 31, 2017, the Company had $301.7 million remaining under its authorized share repurchase program.

The table below details the following repurchases that were made under the Program through to October 31, 2017:

	Total shares repurchased under publicly announced repurchase program
(Dollars in thousands, except share and per share amounts)	Total number of shares repurchased	Aggregate Purchase Price (a)		Average Price per Share (a)		Approximate dollar value of shares that may yet be purchased under the Program
Cumulative inception-to-date to December 31, 2016	80,508,849	$	2,704,406	$	33.59	$	319,995
Cumulative for the three months ended March 31, 2017	—	—		$	—	$	319,995
Cumulative for the three months ended June 30, 2017	267,953	13,996		$	52.23	$	305,999
July 2017	52,721	2,737		$	51.91	$	303,262
August 2017	31,138	1,610		$	51.71	$	301,652
September 2017	—	—		$	—	$	301,652
Cumulative for the three months ended September 30, 2017	83,859	4,347		$	51.84
Cumulative inception-to-date to September 30, 2017	80,860,661	$	2,722,749	$	33.67	$	301,652
Repurchases made subsequent to quarter-end:
October 1 - October 31, 2017	—	$	—	$	—	$	301,652

(a) Share transactions are on a trade date basis through October 31, 2017 and are inclusive of commissions. Average share price is rounded to two decimal places.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.MINE SAFETY DISCLOSURE

Not applicable.

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ITEM 5.OTHER INFORMATION

Disclosure of Certain Activities Under Section 13(r) of the Securities Exchange Act of 1934

Section 13(r) of the Securities Exchange Act of 1934, as amended, requires an issuer to disclose in its annual or quarterly reports whether it or an affiliate knowingly engaged in certain activities described in that section, including certain activities related to Iran during the period covered by the report.

Effective January 16, 2016, the Office of Foreign Assets Control of the U.S. Department of the Treasury adopted General License H which authorizes non-U.S. entities that are owned or controlled by a U.S. person to engage in certain activities with Iran so long as they comply with certain specific requirements set forth therein.

Certain of the Company’s non-U.S. subsidiaries provide global marine hull, war, cargo and liability policies that provide coverage for vessels navigating into and out of ports worldwide. In light of EU and U.S. modifications to Iran sanctions in 2016, including the issuance of General License H, and consistent with General License H, the Company has been notified that certain of its policyholders have begun to ship cargo to and from Iran, including transporting crude oil from Iran to another country and transporting refined petroleum products to Iran. Since these policies insure multiple voyages and fleets containing multiple ships, the Company is unable to attribute gross revenues and net profits from such marine policies to these activities involving Iran. The Company intends for its non-U.S. subsidiaries to continue to provide such coverage to the extent permitted by applicable law.

Certain of the Company’s other non-U.S. subsidiaries have policies that provide excess of loss reinsurance coverage for various risks worldwide. In light of EU and U.S. modifications to Iran sanctions in 2016, including the issuance of General License H, and consistent with General License H, the Company has been notified by certain of its cedants that they either provide or intend to provide aviation spare parts coverage or marine and hull, war and related coverage for certain risks involving Iran. As the reinsurance coverage provided to these cedants covers multiple global risks and multiple insureds, the Company is unable to attribute gross revenues and net profits from such policy to these activities involving Iran. The Company intends for its non-U.S. subsidiaries to continue to provide such coverage to the extent permitted by applicable law.

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ITEM 6. EXHIBITS

Exhibit	Description
Exhibit 10.1	Credit Agreement, dated as of August 7, 2017, among Validus Holdings, Ltd., Validus Reinsurance, Ltd., and Barclays Bank PLC, as lender (Incorporated by reference from the Company’s Current Report on Form 8-K filed on August 8, 2017)
Exhibit 10.2	Unsecured Revolving Credit Agreement, dated as of August 7, 2017, among Validus Holdings, Ltd., Validus Reinsurance, Ltd., and HSBC Bank USA, National Association, as lender (Incorporated by reference from the Company’s Current Report on Form 8-K filed on August 8, 2017)
Exhibit 31.1*	Certification of Chief Executive Officer pursuant to Section 302 of The Sarbanes-Oxley Act of 2002
Exhibit 31.2*	Certification of Chief Financial Officer pursuant to Section 302 of The Sarbanes-Oxley Act of 2002
Exhibit 32*	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002
Exhibit 101.1 INS*	XBRL Instance Document
Exhibit 101.SCH*	XBRL Taxonomy Extension Schema Document
Exhibit 101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
Exhibit 101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
Exhibit 101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document
Exhibit 101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document

*Filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		VALIDUS HOLDINGS, LTD.
		(Registrant)
Date:	November 2, 2017	/s/ Edward J. Noonan
		Edward J. Noonan
		Chief Executive Officer
Date:	November 2, 2017	/s/ Jeffrey D. Sangster
		Jeffrey D. Sangster
		Executive Vice President and Chief Financial Officer

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