RenaissanceRe 8K/A Financial Statements and Exhibits | RNR 11 Jan 24

Exhibit 99.1

Validus Holdings, Ltd.

Incorporated in Bermuda

Consolidated Financial Statements

As at and for the years ended

December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

Page 1 | 54

Table of Contents


Independent Auditors’ Report			3 - 4

Consolidated Balance Sheets			5

Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income			6

Consolidated Statements of Shareholder’s Equity			7

Consolidated Statements of Cash Flows			8 - 9

Notes to the Consolidated Financial Statements			10 - 54

Page 2 | 54

Report of Independent Auditors

To the Board of Directors and Shareholder of Validus Holdings, Ltd.

Opinion

We have audited the accompanying consolidated financial statements of Validus Holdings, Ltd. and its subsidiaries (the “Company”), which comprise the consolidated balance sheets as of December 31, 2022 and 2021, and the related consolidated statements of (loss) income and comprehensive (loss) income, of shareholder’s equity and of cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Basis for opinion

We conducted our audit in accordance with auditing standards generally accepted in the United States of America (US GAAS). Our responsibilities under those standards are further described in the Auditors’ responsibilities for the audit of the consolidated financial statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Responsibilities of management for the consolidated financial statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date the consolidated financial statements are available to be issued.

Auditors’ responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with US GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgement made by a reasonable user based on the consolidated financial statements.

Page 3 | 54

In performing an audit in accordance with US GAAS, we:

•

Exercise professional judgement and maintain professional skepticism throughout the audit.

•

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

•

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed.

•

Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the consolidated financial statements.

•

Conclude whether, in our judgement, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.

Required supplemental information

Accounting principles generally accepted in the United States of America require that the required supplemental information pertaining to Short-Duration Contracts disclosures labelled as “Unaudited” within Note 10 on pages 36 to 39 be presented to supplement the basic consolidated financial statements. Such information is the responsibility of management and, although not a part of the basic consolidated financial statements, is required by the Financial Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic consolidated financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplemental information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic consolidated financial statements, and other knowledge we obtained during our audit of the basic consolidated financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

/s/ PricewaterhouseCoopers Ltd.

Hamilton, Bermuda

October 27, 2023

Page 4 | 54

Validus Holdings, Ltd.

Consolidated Balance Sheets

As at December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts


	2022		2021
	$		$
Assets
Fixed maturity investments trading, at fair value (amortized cost: 2022 -$4,611,442; 2021 -$4,098,663)		4,237,877		4,091,386
Short-term investments trading, at fair value		114,117		326,146
Cash and cash equivalents		297,206		265,705
Restricted cash		69,135		138,589

Total investments and cash		4,718,335		4,821,826
Investments in operating affiliates, equity method		4,885		6,800
Premiums receivable		1,559,292		1,227,289
Deferred acquisition costs		393,443		295,290
Prepaid reinsurance premiums		88,554		105,283
Loss reserves recoverable		1,900,032		2,140,746
Paid losses recoverable		81,005		36,151
Income taxes recoverable		10,114		8,316
Deferred tax assets, net		27,630		65,587
Balances due from affiliates		1,011,985		989,548
Accrued investment income		20,644		14,141
Funds withheld		107,175		148,104
Other assets		40,603		27,478

Total assets		9,963,697		9,886,559

Liabilities
Reserve for losses and loss expenses		4,968,249		4,733,761
Unearned premiums		1,518,995		1,241,697
Reinsurance balances payable		87,423		263,736
Income taxes payable		3,863		3,520
Deferred tax liabilities		—		213
Balances due to affiliates		25,633		26,808
Senior notes payable		196,397		210,499
Funds withheld liability		2,717		2,807
Accounts payable and accrued expenses		43,262		40,420
Other liabilities		55		5,294

Total liabilities		6,846,594		6,528,755

Shareholder’s equity
Common shares, 100 authorized, par value $0.01 Issued and outstanding (2022 and 2021 -100)		—		—
Accumulated other comprehensive income		26,672		26,672
Additional paid-in capital		1,008,809		988,977
Retained earnings		2,081,622		2,342,155

Total shareholder’s equity		3,117,103		3,357,804

Total liabilities and shareholder’s equity		9,963,697		9,886,559

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

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Validus Holdings, Ltd.

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

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars


	2022			2021
	$			$
Revenues
Gross premiums written		3,080,316			3,171,374
Reinsurance premiums ceded		(551,785	)		(719,266	)

Net premiums written		2,528,531			2,452,108
Change in unearned premiums		(294,027	)		(338,403	)

Net premiums earned		2,234,504			2,113,705
Net investment income		128,184			110,711
Net realized (losses) gains on investments		(12,537	)		146,603
Net change in unrealized losses on investments		(364,069	)		(154,677	)
Other insurance-related income and other income		24,021			31,571
Foreign exchange gains, net		17,552			24,824

Total revenues		2,027,655			2,272,737

Expenses
Losses and loss expenses		1,403,881			1,521,143
Policy acquisition costs		583,837			487,570
General and administrative expenses		129,529			135,324
Share compensation expenses		4,811			6,116
Finance expenses		31,637			53,119
Transaction expenses		618			159

Total expenses		2,154,313			2,203,431

(Loss) Income before taxes and before income (loss) from operating affiliates and structured notes		(126,658	)		69,306
Tax (expense) benefit		(34,747	)		1,227
Income (loss) from operating affiliates		792			(20,864	)
Income (loss) from structured notes receivable from AlphaCat ILS fund		80			(173	)

Net (loss) income and comprehensive (loss) income		(160,533	)		49,496

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

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Validus Holdings, Ltd.

Consolidated Statements of Shareholder’s Equity

As at December 31, 2022 and 2021

Expressed in thousands of U.S. dollars


	2022			2021
	$			$
Common shares
Balance, beginning and end of year		—			—

Accumulated other comprehensive income
Balance, beginning and end of year		26,672			26,672

Additional paid-in capital
Balance, beginning of year		988,977			920,679
(Distributions to) contributions from parent company relating to settlement of share-based compensation arrangements		(2,425	)		6,257
Contributions from parent company relating to repurchase of debt		22,257			62,041

Balance, end of year		1,008,809			988,977

Retained earnings
Balance, beginning of year		2,342,155			2,292,659
Net (loss) income for the year		(160,533	)		49,496
Dividends declared and paid		(100,000	)		—

Balance, end of year		2,081,622			2,342,155

Total shareholder’s equity		3,117,103			3,357,804

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

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Validus Holdings, Ltd.

Consolidated Statements of Cash Flows

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars


	2022			2021
	$			$
Cash flows provided by (used in) operating activities
Net (loss) income		(160,533	)		49,496
Adjustments to reconcile net income and comprehensive income to net cash provided by operating activities:
Amortization of discount on senior notes		166			202
Loss on extinguishment of debt		7,729			25,155
Change in net realized and unrealized losses on investments		376,606			8,074
Change in net asset value of structured notes		(54	)		353
(Income) loss from operating affiliates		(792	)		20,864
Foreign exchange gains included in net income		(17,552	)		(24,824	)
Amortization of premium on fixed maturity investments		19,093			18,573
Transaction expenses		618			159
Change in operational balance sheet items:
Premiums receivable		(359,115	)		(355,198	)
Deferred acquisition costs		(98,153	)		(99,667	)
Prepaid reinsurance premiums		16,729			(48,201	)
Loss reserves recoverable		240,714			(1,066,129	)
Paid losses recoverable		(48,744	)		(14,254	)
Reserve for losses and loss expenses		279,518			1,573,306
Unearned premiums		277,298			386,604
Reinsurance balances payable		(161,954	)		224,084
Funds withheld		40,929			(13,426	)
Other operational balance sheet items, net		(2,787	)		(2,429	)

Net cash provided by operating activities		409,716			682,742

Cash flows provided by (used in) investing activities
Proceeds on sales of investments		161,483			2,107,610
Proceeds on maturities of investments		531,081			928,359
Purchases of fixed maturity investments		(1,243,588	)		(4,030,439	)
Proceeds from sales of (purchases of) short-term investments, net		212,201			(201,485	)
Proceeds from sales of other investments, net		—			325,320
Purchase of shares in operating affiliates		(2	)		(15,004	)
Redemption of shares from operating affiliates		2,709			12,883
Sales of investment in operating affiliates		—			92,947
Redemptions of structured notes from AlphaCat ILS fund		—			10,000
Sales of structured notes from AlphaCat ILS fund		—			10,000
Purchases of structured notes from AlphaCat ILS fund		—			(10,000	)
Deployment of investments with AlphaCat ILS fund		—			(12,500	)

Net cash used in investment activities		(336,116	)		(782,309	)

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Validus Holdings, Ltd.

Consolidated Statements of Cash Flows (continued)

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars


	2022			2021
	$			$
Cash flow used in financing activity
Dividends paid		(100,000	)		—

Cash flow used in financing activity		(100,000	)		—

Effect of foreign currency rate changes on cash and cash equivalents and restricted cash		(11,553	)		(8,015	)

Net decrease in cash and cash equivalents and restricted cash		(37,953	)		(107,582	)
Cash and cash equivalents and restricted cash – beginning of year		404,294			511,876

Cash and cash equivalents and restricted cash – end of year		366,341			404,294

Supplemental information
Taxes paid during the year		132			673
Interest paid during the year		18,314			22,188
Non-cash information
Deemed capital contribution from parent for senior notes retirement		22,257			62,041

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

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Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

1.	Nature of the business

Validus Holdings, Ltd. (together with its wholly and majority owned subsidiaries, the “Company” or “Validus”) was incorporated under the laws of Bermuda on October 19, 2005. The Company provides reinsurance coverage and insurance-linked securities (“ILS”) management. The Company is wholly owned by American International Group, Inc. (“AIG”), which is a company registered with the United States Securities and Exchange Commission and is incorporated in the state of Delaware, USA.

2.	Basis of preparation and consolidation

These Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). 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.

All significant intercompany accounts and transactions have been eliminated.

The preparation of these Consolidated 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 the amounts included in the Consolidated Financial Statements reflect management’s best estimates and assumptions, actual results could differ materially from those estimates. The Company’s principal estimates include:

•

the reserve for losses and loss expenses;

•

the premium written on a line slip or proportional basis;

•

the loss reserves recoverable, including the provision for uncollectible amounts; and

•

the valuation of invested assets and other financial instruments.

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

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Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

3.	Significant accounting policies

The following is a summary of significant accounting policies adopted by the Company:

Premiums

Reinsurance contracts can be written on risks attaching or losses occurring basis. Under risks attaching reinsurance contracts, all claims from cedants’ underlying policies incepting and attaching during the reinsurance contract period are covered, even if they occur after the expiration date of the reinsurance contract and before the expiration date of the attaching policy. In contrast, losses occurring reinsurance contracts cover all claims occurring during the coverage period of the reinsurance contract, regardless of the inception dates of the underlying policies. Any claims occurring after the expiration of the losses occurring contract are not covered.

Reinsurance premiums written are recorded at the inception of the policy. Premiums are estimated based on information received from brokers, ceding companies and reinsureds, and any subsequent differences arising on such estimates are recorded in the periods in which they are determined.

Premiums written are earned on a pro-rated basis over the term of the related policy or contract. For losses occurring reinsurance contracts, the earnings period is generally the same as the term of the related contract or policy. For reinsurance contracts written on risks attaching basis, the earnings period is based on the terms of the underlying contracts and policies and is generally 24 months. The portion of the premiums written applicable to the unexpired terms of the underlying contracts and policies in force is recorded as unearned premiums.

Reinstatement premiums are recorded and earned at the time a loss event occurs and coverage limits for the remaining life of the contract are reinstated under predefined contract terms. The accrual of reinstatement premiums is based on our estimate of losses and loss expenses, which reflects management’s judgment, as described in “Reserve for losses and loss expenses” below.

Policy acquisition costs

Policy acquisition costs are costs that vary with, and are directly related to, the successful production of new and renewal business, and consist principally of commissions and brokerage expenses. These costs are deferred and amortized over the period in which the related premiums are earned. Acquisition costs are shown net of commissions earned on reinsurance ceded. However, if the sum of a contract’s expected losses and loss expenses and deferred acquisition costs exceeds related unearned premiums, a premium deficiency is determined to exist. In this event, deferred acquisition costs are immediately expensed to the extent necessary to eliminate the premium deficiency. If the premium deficiency exceeds deferred acquisition costs then a liability is accrued for the excess deficiency. There were no premium deficiency adjustments recognized during the periods presented herein.

Policy acquisition costs also include profit commissions, which are recognized on a basis consistent with our estimate of losses and loss expenses.

Reserve for losses and loss expenses

The reserve for losses and loss expenses includes reserves for unpaid reported losses (“case reserves”) and for losses incurred but not reported (“IBNR”). Case reserves are established by management based on reports from brokers, ceding companies and insureds and represents the unpaid portion of the estimated ultimate cost of events or conditions that have been reported to, or specifically identified by, the Company. IBNR reserves are established by management based on actuarially determined estimates of ultimate losses and loss expenses. Inherent in the estimate of ultimate losses and loss expenses are expected trends in claim severity and frequency and other factors, which may vary significantly as claims are settled.

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Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

3.	Significant accounting policies (continued)

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. Accordingly, losses and loss expenses ultimately paid may differ materially from the amounts recorded in the Consolidated Financial Statements. These estimates are reviewed regularly and, as experience develops and new information becomes known, the reserves are adjusted as necessary. These adjustments can result in an increase or decrease in ultimate losses, and at other times result in a reallocation between IBNR and specific case reserves. Adjustments to ultimate loss estimates, if any, are recorded in earnings in the period in which they become known. Prior period development arises from changes to these estimates recognized in the current year that relate to losses and loss expenses that were incurred in previous calendar years.

Although there is normally a lag in receiving reinsurance data from cedants, the Company currently has adequate procedures in place regarding the timeliness related to the processing of assumed reinsurance information and there is no significant backlog. The Company actively manages its relationships with brokers and clients and considers existing disputes with counterparties to be in the normal course of business.

Reinsurance

The Company enters into retrocession agreements in order to provide greater diversification of business and 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. Premiums ceded are recognized over the period of exposure to risk, with the unearned portion being deferred in the Consolidated Balance Sheets as Prepaid reinsurance premiums.

Loss reserves recoverable on unpaid losses represent amounts that will be collectible from reinsurers once the losses are paid. Reinsurance recoverable on paid losses represents amounts currently due from reinsurers. The recognition of reinsurance recoverable requires two key judgments: Firstly, the determination of gross assumed IBNR, and secondly the amount of gross IBNR that can be ceded to retrocessionaires based on the reinsurance agreements in place. The ceded IBNR is developed as part of the Company’s loss reserving process and consequently its estimation is subject to risks and uncertainties similar to the estimation of gross IBNR.

Retroactive reinsurance agreements are reinsurance agreements under which the reinsurer agrees to reimburse the Company for liabilities incurred as a result of past insurable events. For these agreements, the excess of the amounts collectible under the agreement over the premium paid is recognized as a deferred gain and is amortized into income over the settlement period of the ceded reserves. The amount of the deferred gain is adjusted each period based on loss payments and updated estimates. If the premium paid exceeds the ultimate losses collectible under the agreement, the net loss is recognized immediately in the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income.

Funds withheld

The Company writes and cedes certain business on a funds withheld basis. Under these contractual arrangements, the Company and the cedants withhold premiums for the purpose of paying claims. The remaining net funds will be remitted to or paid by the Company after all policies have expired and all claims have been settled.

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Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

3.	Significant accounting policies (continued)

Investments

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. Investments in fixed maturity securities are recorded on a trade-date basis with balances pending settlement reflected as a receivable for investments sold or a payable for investments purchased.

Net investment income includes interest and dividend income along with amortization of premium or accretion of discount. Interest on fixed maturity securities is recorded in Net investment income when earned. Realized gains and losses on the sale of investments are determined on the basis of amortized cost.

For investments in certain structured securities, prepayment assumptions are evaluated and revised as necessary. Any adjustments required due to the resultant change in effective yields and maturities are recognized under the retrospective interest method. Prepayment fees or call premiums that are only payable to the Company when a security is called prior to its maturity are earned when received and reflected in Net investment income.

Short-term investments primarily comprise investments with a remaining maturity of less than one year at time of purchase and money market funds held at the Company’s investment managers.

Investments in operating affiliates in which the Company has significant influence over the operating and financial policies of the investee are accounted for under the equity method of accounting. Under this method, the Company records its proportionate share of income or loss from such investments in its results for the period. Due to a lag in reporting, the fund managers are unable to provide final investment statements as of the Company’s reporting date. In these circumstances, the Company estimates its proportionate share of income or loss from such investments by starting with the prior month’s investment statement, adjusting for capital calls, redemptions or distributions, and then estimating the return for the current period.

In circumstances in which the Company estimates the return for the current period, it uses all credible information available. This includes utilizing preliminary estimates reported by its fund managers, obtaining the valuation of underlying portfolio investments where such underlying investments are publicly traded and therefore have a readily observable price, using information that is available to the Company with respect to the underlying investments, reviewing various indices for similar investments or asset classes, as well as estimating returns based on the results of similar types of investments for which the Company has reported results, or other valuation methods, as necessary. Actual final fund valuations may differ materially from the Company’s estimates and these differences are recorded in the period they become known as a change in estimate.

Fair value of financial instruments

Fair value is defined as the price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820, “Fair Value Measurement and Disclosure”, provides a framework for measuring fair value by creating a hierarchy of fair value measurements that distinguishes market data between observable independent market inputs and unobservable market assumptions by the reporting entity. The guidance further expands disclosures about such fair value measurements. The guidance applies broadly to most existing accounting pronouncements that require or permit fair value measurements (including both financial and non-financial assets and liabilities) but does not require any new fair value measurements. The Company has adopted all authoritative guidance in effect as of the balance sheet date regarding certain market conditions that allow for fair value measurements that incorporate unobservable inputs where active market transaction-based measurements are unavailable.

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Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

3.	Significant accounting policies (continued)

Derivative instruments

The Company enters into various derivative instruments in the form of foreign exchange contracts and commodity derivative instruments. Foreign exchange derivatives (principally foreign exchange forwards) are used to economically mitigate risk associated with exchange rate fluctuations on non-U.S. dollar foreign currency transactions and foreign currency denominated investments. Commodity derivatives are used to mitigate financial risk associated with certain agricultural insurance liabilities the Company assumes. The Company’s derivative financial instruments are recorded on a trade-date basis and carried at fair value in the Consolidated Balance Sheets. The effect on earnings from recognizing the fair values of these derivative financial instruments depends on their intended use, their hedge designation, and their effectiveness in offsetting changes in the fair values of the exposures they are hedging.

Changes in the fair values of derivative instruments that are not designated as hedges are reported currently in earnings. Refer to Note 8, “Derivative instruments”, for further details.

Cash and cash equivalents

The Company considers time deposits and money market funds with an original maturity of one month or less as equivalent to cash.

Restricted cash

Restricted cash primarily relates to funds held in trust in support of collateralized reinsurance transactions.

Foreign exchange

The U.S. dollar is the functional currency of the Company and its subsidiaries. For these companies, monetary assets and liabilities denominated in foreign currencies are revalued at the exchange rates in effect at the balance sheet date and revenues and expenses denominated in foreign currencies are translated at the prevailing exchange rate on the transaction date with the resulting foreign exchange gains and losses included in earnings. Non-monetary assets and liabilities denominated in foreign currencies are revalued at the exchange rate in effect at the time of the underlying transaction.

Stock plans

AIG accounts for their stock plans in accordance with the ASC Topic 718, “Compensation – Stock Compensation”. Accordingly, AIG recognizes the compensation expense for stock option grants, restricted share grants and performance share grants based on the fair value of the award on the date of grant over the requisite service period, and allocates the expense to its subsidiaries, including the Company, based on the country of residence of employees. Under the AIG stock plan, the expense allocated to each subsidiary, including the Company, is settled in cash, payable to AIG upon the date of vest. The difference in share price between the fair value determined on the grant date and the cash settlement date is recognized in additional paid-in capital as a contribution or distribution to parent company.

For the awards granted under the AIG stock plan, no forfeiture rate is applied, and the compensation expense for forfeited awards is reversed on occurrence.

Income taxes and uncertain tax provisions

Deferred tax assets and liabilities are recorded in accordance with ASC Topic 740, “Income Taxes”. Consistent with ASC 740, the Company records deferred income taxes which reflect operating losses and tax credits carried forward and the tax effect of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases.

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Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

3.	Significant accounting policies (continued)

Income taxes and uncertain tax provisions (continued)

The Company and its Bermuda domiciled subsidiaries are not subject to any income, withholding or capital gains taxes under current Bermuda law. The Company has operating subsidiaries and branch offices in various other jurisdictions around the world, including but not limited to the United States of America, the United Kingdom, Luxembourg, Switzerland, Singapore and Canada that are subject to relevant taxes in those jurisdictions.

The Company recognizes the tax benefits of uncertain tax positions only where the position is more likely than not to be sustained upon examination by tax authorities based upon the technical merits of the position. Based on the more-likely-than-not recognition threshold, the Company must presume that the tax position will be subject to examination by a taxing authority with full knowledge of all relevant information. If the recognition threshold is met, then the tax position is measured at the largest amount of benefit that is more than 50% likely of being realized upon ultimate settlement. The Company classifies all interest and penalties related to uncertain tax positions in income tax expenses.

Variable interest entities

The Company determines whether it has relationships with entities defined as VIEs in accordance with ASC Topic 810, “Consolidation”. A VIE is consolidated by the variable interest holder that is determined to be the primary beneficiary.

An entity in which the Company holds a variable interest is a VIE if any of the following conditions exist: (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support, (b) as a group, the holders of equity investment at risk lack either the direct or indirect ability through voting rights or similar rights to make decisions about an entity’s activities that most significantly impact the entity’s economic performance or the obligation to absorb the expected losses or right to receive the expected residual returns, or (c) the voting rights of some investors are disproportionate to their obligation to absorb the expected losses of the entity, their rights to receive the expected residual returns of the entity, or both and substantially all of the entity’s activities either involve or are conducted on behalf of an investor with disproportionately few voting rights.

The primary beneficiary is defined as the variable interest holder that is determined to have both (a) the power to direct the activities of a VIE that most significantly impact the economic performance of the VIE and (b) the obligation to absorb losses or right to receive benefits from the VIE that could potentially be significant to the VIE. At inception of the VIE, as well as following an event that requires reassessment, the Company determines whether it is the primary beneficiary based on the facts and circumstances surrounding each entity.

Transfers of financial assets

The Company accounts for transfers of financial assets as sales when it has surrendered control over the related assets. Whether control has been relinquished requires, among other things, an evaluation of relevant legal considerations and an assessment of the nature and extent of the Company’s continuing involvement, if any, with the assets transferred. Gains and losses stemming from transfers of other investments accounted for as sales are included in “Net realized (losses) gains on investments” in the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income. Gains and losses stemming from transfers of investments in operating affiliates and structured notes receivable from AlphaCat ILS Fund accounted for as sales are included in “Income (loss) from operating affiliates” and “Income (loss) from structured notes receivable from AlphaCat ILS fund,” respectively. Assets obtained and liabilities incurred in connection with transfers reported as sales are initially recognized in the Consolidated Balance Sheets at fair value.

Page 15 | 54

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

4.	Recent accounting pronouncements

Accounting standards adopted in 2022

Codification Improvements

In October 2020, the FASB issued ASU 2020-10, “Codification Improvements”. The amendments in this update improve the Codification by ensuring that all guidance that requires or provides an option for an entity to provide information in the notes to financial statements is codified in the Disclosure Section of the Codification.

The amendments in this update were effective for fiscal years beginning after December 15, 2021. The adoption of this update did not have a material impact on the Company’s Consolidated Financial Statements.

Current expected credit loss model

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326)”. The FASB also issued ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11, and 2020-11 which provide certain clarifications and codification improvements to the initially issued standard update. The standard replaces the existing incurred loss impairment model with a new Current Expected Credit Loss model (“CECL”) with the intention of recognizing credit losses earlier. The standard applies to the Company’s financial assets not already carried at fair value, principally impacting investments in operating affiliates, premium receivable, loss reserves recoverable, paid loss recoverable, and loans measured at amortized cost. The measurement of expected credit losses is based on relevant information about past events, such as probability of default, and collectability of reported amounts in an event of default. ASU 2016-13 became effective for public business entities for annual and interim periods beginning after December 15, 2019. While the Company is not a public business entity, the standard has been early adopted. The adoption of ASU 2016-13 did not have a material impact on the Company’s consolidated financial condition, results of operations, cash flows or required disclosures and, as a result, there was no cumulative adjustment to opening retained earnings as of January 1, 2021.

Reference Rate Reform

In June 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848)”, that defers the timeline for applying the reference rate reform relief in ASC 848 from December 31, 2022 to December 31, 2024 as the United Kingdom’s Financial Conduct Authority and the administrator of the London Interbank Offered Rate (“LIBOR”) will continue to publish rates until June 30, 2023. The Company does not have material remaining LIBOR exposure and as such the adoption of the standard is not anticipated to have a material impact on the consolidated financial condition, results of operations, cash flows or required disclosures.

Page 16 | 54

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

4.	Recent accounting pronouncements (continued)

Accounting standards not yet adopted

Fair value hedging: portfolio layer method

In March 2022, the FASB issued ASU 2022-01, “Derivatives and Hedging: Fair Value Hedging – Portfolio Layer Method”. The amendments in this standard would:

expand the last-of-layer method that permits only one hedged layer to allow multiple hedged layers of a single closed portfolio;

change the name of the method to the portfolio layer method;

expand the scope of the portfolio layer method to include non-prepayable financial assets;

specify that eligible hedging instruments in a single-layer hedge may include spot-starting or forward-starting constant-notional swaps, or spot or forward-starting amortizing-notional swaps and that the number of hedged layers (that is, single or multiple) corresponds with the number of hedges designated;

provide additional guidance on the accounting for and disclosure of hedge basis adjustments that are applicable to the portfolio layer method whether a single hedged layer or multiple hedged layers are designated; and

specify how hedge basis adjustments should be considered when determining credit losses for the assets included in the closed portfolio.

The amendments in this standard are effective for fiscal years beginning after December 15, 2022, including interim periods within those years. The Company does not expect the standard to have a material impact on reported consolidated financial condition, results of operations, cash flows or required disclosures.

Troubled debt restructurings and vintage disclosures

In March 2022, the FASB issued ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326)”, which eliminates the accounting guidance for troubled debt restructurings for creditors and amends the guidance on “vintage disclosures” to require disclosure of current-period gross write-offs by year of origination. The standard also updates the requirements for accounting for credit losses by adding enhanced disclosures for creditors related to loan refinancings and restructurings for borrowers experiencing financial difficulty.

As the Company has already adopted CECL, the amendments in this standard are effective for fiscal years beginning after December 15, 2022, including interim periods within those years. The Company does not expect the standard to have a material impact on reported consolidated financial condition, results of operations, cash flows or required disclosures.

Page 17 | 54

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

4.	Recent accounting pronouncements (continued)

Accounting standards not yet adopted (continued)

Fair value measurement of equity securities subject to contractual sale restrictions

In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”. The amendments in this Update clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. The amendments in this Update also require the following disclosures for equity securities subject to contractual sale restrictions:

The fair value of equity securities subject to contractual sale restrictions reflected in the balance sheet.

The nature and remaining duration of the restriction(s).

The circumstances that could cause a lapse in the restriction(s).

The amendments in this standard are effective for fiscal years beginning after December 15, 2023, including interim periods within those years. The Company does not expect the standard to have a material impact on reported consolidated financial condition, results of operations, cash flows or required disclosures.

Leases under common control

In January 2023, the FASB issued ASU 2023-01, “Leases (Topic 842)”, which provides practical expedients for private companies and not-for-profits on the treatment of leases with entities under common control, it also provided incremental guidance on accounting for leasehold improvements for leases under common control. The amendments in this standard are effective for fiscal years beginning after December 15, 2023, including interim periods within those years. While the Company does have certain lease arrangements with entities under common control, the Company does not expect the standard to have a material impact on reported consolidated financial condition, results of operations, cash flows or required disclosures.

Page 18 | 54

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

5.	Investments

Fixed maturity investments

The amortized cost and fair value of the Company’s fixed maturity investments as at December 31, 2022 and 2021 were as follows:


	2022				2021
	Amortized cost $		Fair value $		Amortized cost $		Fair value $
U.S. government and government agency		696,857		674,824		376,913		377,422
Non-U.S. government and government agency		314,124		289,664		282,348		280,408
U.S. states, municipalities and political subdivisions		164,524		146,103		178,747		177,846
Agency residential mortgage-backed securities		702,000		607,322		839,521		838,522
Non-agency residential mortgage-backed securities		380,011		330,743		350,813		346,952
Corporate		1,322,323		1,237,546		972,929		977,746
Asset-backed securities		456,658		416,559		503,199		497,445
Commercial mortgage-backed securities		574,945		535,116		594,193		595,045

Total fixed maturities		4,611,442		4,237,877		4,098,663		4,091,386

The following table summarizes the fair value of the Company’s fixed maturity investments by credit rating as issued by a recognized rating agency as at December 31, 2022 and 2021:


	2022				2021
	Fair value $		Percentage of total %		Fair value $		Percentage of total %
AAA		2,458,194		58.01		2,479,777		60.61
AA		554,612		13.09		594,584		14.53
A		702,760		16.58		521,519		12.75
BBB		472,563		11.15		419,127		10.24

Total investment grade fixed maturities		4,188,129		98.83		4,015,007		98.13

BB		21,041		0.49		29,600		0.72
B		6,853		0.16		12,140		0.30
CCC		246		0.01		1,122		0.03
CC		819		0.02		—		—
C		2,259		0.05		8,009		0.20
NR		18,530		0.44		25,508		0.62

Total non-investment grade fixed maturities		49,748		1.17		76,379		1.87

Total fixed maturities		4,237,877		100.00		4,091,386		100.00

Page 19 | 54

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

5.	Investments (continued)

Fixed maturity investments (continued)

The amortized cost and fair values for the Company’s fixed maturity investments held at December 31, 2022 and 2021 are shown below by contractual maturity. Actual maturity may differ from contractual maturity due to prepayment rights associated with certain investments.


	2022				2021
	Amortized cost $		Fair value $		Amortized cost $		Fair value $
Due in one year or less		458,146		447,021		106,765		107,595
Due after one year through five years		1,867,536		1,759,793		1,460,089		1,461,973
Due after five years through ten years		131,244		110,194		179,717		180,460
Due after ten years		40,902		31,129		64,366		63,394

		2,497,828		2,348,137		1,810,937		1,813,422
Asset-backed and mortgage-backed securities		2,113,614		1,889,740		2,287,726		2,277,964

Total fixed maturities		4,611,442		4,237,877		4,098,663		4,091,386

Other investments

During the year ended December 31, 2021, the Company sold all of its other investments in hedge funds, private equity investments and fixed income investment funds to subsidiaries of AIG that are not subsidiaries of the Company. The Company received $277,456 in cash proceeds in exchange for the fair value of the transferred assets. The fair value of the transferred assets was based on the final net asset valuation (“NAV”) of the individual investments held by the Company as of the dates the investments were sold.

During the year ended December 31, 2022, net returns of $2,517 (2021: $86,212) were earned on other investments, with realized gains of $2,517 (2021: $138,855) as a result of their sale and are included in “Net realized (losses) gains on investments” reported in the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income.

Net investment income

Net investment income during the years ended December 31, 2022 and 2021 was derived from the following sources:


	2022 $			2021 $
Fixed maturity investments		87,905			68,098
Short-term investments		1,064			40
Cash and cash equivalents		1,451			(681	)
Other investments		—			5,628
Loan receivables		44,640			42,207

Investment income		135,060			115,292
Investment expenses		(6,876	)		(4,581	)

Total net investment income		128,184			110,711

Net investment income from other investments includes distributed and undistributed net income (loss) from certain private equity investments and fixed income investment funds.

Page 20 | 54

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

5.	Investments (continued)

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

The following represents an analysis of net realized and net change in unrealized (losses) gains on investments for the years ended December 31, 2022 and 2021:


	2022
	Fixed maturities $			Other investments $		Total $
Gross realized gains		2,087			2,517		4,604
Gross realized losses		(17,141	)		—		(17,141	)

Net realized (losses) gains on investments		(15,054	)		2,517		(12,537	)
Net change in unrealized losses on investments		(364,069	)		—		(364,069	)

Total net realized and unrealized (losses) gains on investments		(379,123	)		2,517		(376,606	)


	2021
	Fixed maturities $			Other investments $			Total $
Gross realized gains		20,263			178,548			198,811
Gross realized losses		(12,515	)		(39,693	)		(52,208	)

Net realized gains on investments		7,748			138,855			146,603
Change in net unrealized gains on investments		(96,406	)		(58,271	)		(154,677	)

Total net realized and unrealized (losses) gains on investments		(88,658	)		80,584			(8,074	)

Pledged investments

As at December 31, 2022, the Company had $2,567,699 (December 31, 2021: $1,882,442) of cash and cash equivalents, short-term investments and fixed maturity investments that were pledged and held in trust during the normal course of business. Pledged assets are generally for the benefit of the Company’s cedants and policyholders to facilitate the accreditation of the Company, its Canada branch office, and its operating subsidiary, Validus Reinsurance (Switzerland) Ltd (“Validus Re Swiss”), as alien reinsurers by certain regulators. This is principally achieved via multi-beneficiary reinsurance trusts.

Page 21 | 54

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

6.	Fair value measurements

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 at the measurement date. 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 the Company has 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 rates, default rates, loss severities, etc.), or can be corroborated by observable market data.

Level 3 – Fair values are measured based on unobservable inputs that 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 the valuation technique (e.g., 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.

Page 22 | 54

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

6.	Fair value measurements (continued)

As at December 31, 2022, the Company’s investments were allocated between Levels 1, 2 and 3 as follows:


	2022
	Level 1 $		Level 2 $		Level 3 $		Total $
U.S. government and government agency		—		674,824		—		674,824
Non-U.S. government and government agency		—		289,664		—		289,664
U.S. states, municipalities and political subdivisions		—		146,103		—		146,103
Agency residential mortgage-backed securities		—		607,322		—		607,322
Non-agency residential mortgage-backed securities		—		289,170		41,573		330,743
Corporate		—		1,237,546		—		1,237,546
Asset-backed securities		—		413,912		2,647		416,559
Commercial mortgage-backed securities		—		535,116		—		535,116

Total fixed maturities		—		4,193,657		44,220		4,237,877

Short-term investments		114,117		—		—		114,117

Total investments		114,117		4,193,657		44,220		4,351,994


	2021
	Level 1 $		Level 2 $		Level 3 $		Total $
U.S. government and government agency		50,066		327,356		—		377,422
Non-U.S. government and government agency		1,956		278,452		—		280,408
U.S. states, municipalities and political subdivisions		—		177,846		—		177,846
Agency residential mortgage-backed securities		—		838,522		—		838,522
Non-agency residential mortgage-backed securities		—		282,351		64,601		346,952
Corporate		—		977,746		—		977,746
Asset-backed securities		—		465,518		31,927		497,445
Commercial mortgage-backed securities		—		595,045		—		595,045

Total fixed maturities		52,022		3,942,836		96,528		4,091,386

Short-term investments		326,146		—		—		326,146

Total investments		378,168		3,942,836		96,528		4,417,532

As at December 31, 2022, Level 3 investments totalled $44,220 (December 31, 2021: $96,528), representing 1.02% (December 31, 2021: 2.19%) of total investments.

Page 23 | 54

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

6.	Fair value measurements (continued)

Valuation techniques

There have been no material changes in the Company’s valuation techniques during the periods presented in 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.

Fixed maturity investments

In general, valuation of the Company’s fixed maturity investment portfolio is provided by independent third party valuation service providers, 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. Index providers generally utilize centralized trade reporting networks, available market makers and statistical techniques.

When independent third party valuation service providers are unable to obtain sufficient market observable information upon which to estimate the fair value for a particular security, fair value is determined either through a broker-dealer price quote or by employing market accepted valuation models. 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 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 certain mortgage pass-through agencies. 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. On-the-Run U.S. Treasury issuances are considered Level 1 given the availability of quoted prices in active markets. Off-the-Run and other U.S. Treasuries are classified as Level 2 as the significant inputs used to price these securities are observable.

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. Bills, Bonds and Notes issued from Canada, France, Germany, Italy, Japan, and the United Kingdom within one year of the balance sheet date are considered Level 1 given the availability of quoted prices in active markets. All other instruments are classified as Level 2 as the significant inputs used to price these securities are observable.

Page 24 | 54

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

6.	Fair value measurements (continued)

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 available market information such as yields and credit spreads. The availability of observable inputs used to price these securities is contingent on their respective maturity dates. As the significant inputs utilized to determine price 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 consist primarily of debt securities issued by mortgage-pass through agencies. These securities 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 securities with investment grade credit ratings utilize significant observable inputs to determine prices, the fair value of these investments are classified as Level 2. Securities below investment grade credit ratings, or where security holdings are backed by certain collateral types or are residual tranches, utilize an element of significant unobservable inputs, including credit spreads, default rates, prepayment rates, and default projections. Accordingly, the fair value of these investments are classified as Level 3.

Non-agency residential mortgage-backed securities

The Company’s non-agency residential mortgage-backed investments include non-agency prime and sub-prime residential mortgage-backed fixed maturity investments. Securities held in these sectors are primarily priced by pricing services using an option adjusted spread model or discounted cash flow model, which principally utilize inputs including benchmark yields, available trade information or broker quotes, issuer spreads, prepayment and default projections. The pricing services also review collateral prepayment rates, loss severity and delinquencies among other collateral performance indicators for the securities valuation, when applicable. Where significant inputs used to price the securities are observable, the fair value of these investments are classified as Level 2. Where such information is unavailable, or the security credit rating is below AAA, significant unobservable inputs are used to price these securities, which may include constant prepayment rates, loss severity, default rates and yield, resulting in certain securities being classified as Level 3.

Corporate

Corporate debt securities consist primarily of investment-grade debt of a wide variety of 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.

Page 25 | 54

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

6.	Fair value measurements (continued)

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 rates 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 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. The fair value classification of asset-backed securities is based on a combination of collateral type, tranche type and rating, in addition to observable pricing inputs. As the significant inputs used to price the majority of these securities are observable, the fair value of these investments are classified as Level 2. Where such information is unavailable and pricing is sourced by a broker, or the security meets specific criteria, significant unobservable inputs are used to price these securities, which includes yield, resulting in certain securities classified as Level 3.

Commercial mortgage-backed securities

The Company’s commercial mortgage-backed securities consist of primarily investment grade debt securities. The pricing services apply dealer quotes and other available trade information such as bids and offers, prepayment rates 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 securities with investment grade credit ratings utilize significant observable inputs to determine prices, the fair value of these investments are classified as Level 2.

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.

Page 26 | 54

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

6.	Fair value measurements (continued)

Level 3 investments

The following tables 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 years ended December 31, 2022 and 2021:


	2022
	Non-agency residential mortgage-backed securities $			Asset- backed securities $			Total $
Level 3 investments, beginning of year		64,601			31,927			96,528
Transfers into Level 3 investments		—			21,009			21,009
Transfers out of Level 3 investments		—			(29,920	)		(29,920	)
Purchases		—			—			—
Sales		(4,724	)		(2,316	)		(7,040	)
Settlements		(10,841	)		(17,360	)		(28,201	)
Realized (losses), net		(400	)		(14	)		(414	)
Change in net unrealized (losses), net		(7,063	)		(679	)		(7,742	)

Level 3 investments, end of year		41,573			2,647			44,220


	2021
	Non-agency residential mortgage- backed securities $			Asset- backed securities $			Total $
Level 3 investments, beginning of year		35,076			41,893			76,969
Transfers into Level 3 investments		—			23,800			23,800
Transfers out of Level 3 investments		—			(35,230	)		(35,230	)
Purchases		45,622			24,097			69,719
Sales		—			—			—
Settlements		(15,145	)		(21,523	)		(36,668	)
Realized gains, net		57			110			167
Change in net unrealized (losses), net		(1,009	)		(1,220	)		(2,229	)

Level 3 investments, end of year		64,601			31,927			96,528

During the years ended December 31, 2022 and 2021, transfers into Level 3 investments included investments in asset-backed securities. These transfers were primarily the result of limited market pricing information and decreases in investment credit rating relating to collateralized debt obligations that required management to determine fair value for these securities based on unobservable inputs.

During the years ended December 31, 2022 and 2021, transfers out of Level 3 investments included investments in asset-backed securities. These transfers were primarily the result of using pricing information that reflects the fair value of those securities based on observable inputs.

Page 27 | 54

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

6.	Fair value measurements (continued)

Quantitative information about Level 3 investments

The following tables presents information about the significant unobservable inputs used for fair value measurements for certain Level 3 instruments as at December 31, 2022 and 2021:


2022
Valuation technique	Unobservable inputs		Range			Weighted average
Non-agency residential mortgage-backed securities (fair value of $31,004)
Discounted cash flow		Constant prepayment rate		7.00	% - 10.64%		8.58	%
Discounted cash flow		Loss severity		10.48	% - 19.84%		15.16	%
Discounted cash flow		Constant default rate		0.96	% - 3.60%		2.28	%
Discounted cash flow		Yield		5.84	% - 6.27%		6.06	%
Asset-backed securities (fair value of $1,202)
Discounted cash flow		Yield		5.93	% - 6.38%		6.08	%

2021
Valuation technique	Unobservable inputs		Range			Weighted average
Non-agency residential mortgage-backed securities (fair value of $47,582)
Discounted cash flow		Constant prepayment rate		6.10	% - 15.58%		10.84	%
Discounted cash flow		Loss severity		0	% - 47.52%		19.73	%
Discounted cash flow		Constant default rate		0	% - 2.90%		1.26	%
Discounted cash flow		Yield		1.66	% - 2.48%		2.07	%
Asset-backed securities (fair value of $20,264)
Discounted cash flow		Yield		0.90	% - 2.55%		1.58	%

The weighted average for fixed maturity securities is based on the estimated fair value of the Level 3 securities.

The table above includes only those instruments for which information about the inputs is reasonably available to the Company, such as data from independent third-party valuation service providers and from internal valuation models. Because input information from third parties with respect to certain Level 3 instruments are not available, balances shown in the table above do not represent the total amounts reported as Level 3 assets.

Financial instruments not carried at fair value

ASC Topic 825, “Financial Instruments” is 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, other liabilities, and accounts payable and accrued expenses approximated their fair values at December 31, 2022 and 2021, due to their respective short maturities. As these financial instruments are not actively traded, their respective fair values are classified within Level 2.

As at December 31, 2022, the Company’s Senior notes payable were carried at cost, net of debt issuance costs of $2,719 (2021—$3,094). The fair value of the Senior notes payable was $244,920 (2021—$353,949). As the senior notes payable are not actively traded, their respective fair values are classified within Level 2.

As at December 31, 2022, the Company’s Balances due from affiliates is principally comprised of loans made to affiliated entities as further described in Note 17, “Related party transactions.” The fair value of the loans was $926,072 (2021—$986,572). As these Balances due from affiliates are not actively traded, their respective fair values are classified within Level 2.

Page 28 | 54

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

7.	Investments in operating affiliates and structured notes receivable from AlphaCat ILS fund

Investments in operating affiliates

AlphaCat sidecars

Beginning on May 25, 2011, the Company joined with other investors in capitalizing a series of reinsurance and investment entities, referred to as “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”) and OmegaCat Reinsurance Ltd. (“OmegaCat Re”). Each of these entities returns capital once the risk period expires and all losses have been paid out. The AlphaCat sidecars are VIEs and the Company is not the primary beneficiary. Therefore, the Company’s investments in the sidecars have been treated as equity method investments. The Company’s maximum exposure to any of the sidecars is the amount of capital invested at any given time and any remaining capital commitments.

AlphaCat ILS funds

Beginning on December 17, 2012, the Company joined with other investors in capitalizing the AlphaCat ILS funds for the purpose of investing in instruments with returns linked to property catastrophe reinsurance, retrocession and insurance linked securities (“ILS”) contracts. The AlphaCat ILS funds have varying risk profiles and are categorized by the maximum permitted portfolio expected loss of the fund. The maximum permitted portfolio 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 7% or greater. The AlphaCat ILS funds primarily deploy their capital through transactions entered into by AlphaCat Re or OmegaCat Re and AlphaCat Master Fund Ltd. The AlphaCat ILS funds are VIEs and the Company is not the primary beneficiary. Therefore, the Company’s investments in the funds have been treated as equity method investments.

During the year ended December 31, 2021, the Company sold its ownership interest in certain AlphaCat ILS funds and certain structured notes receivable to subsidiaries of AIG. The Company surrendered control over the financial assets and has no continuing involvement with the transferred investments.

During the year ended December 31, 2021, the Company received $92,947 and $10,000 in cash proceeds in exchange for the carrying value of its ownership interest in certain AlphaCat ILS funds and certain structured notes receivable, respectively. The value of the transferred assets was based on the final investment valuation statements established by the fund administrators. Ownership interest in AlphaCat ILS funds was transferred at the carrying value of the assets at the effective date and did not result in the recognition of net gains or losses on sale. The Company recognized net losses from the sale of structured notes of $337, which are included in Income (loss) from structured notes receivable from AlphaCat ILS fund reported in the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income.

The Company’s maximum exposure to any of the AlphaCat ILS funds is the amount of capital invested at any given time and any remaining capital commitments. Refer to Note 16, “Commitments and contingencies”, for further details.

AlphaCat Re

The Company utilized AlphaCat Re, a market facing entity, for the purpose of writing collateralized reinsurance on behalf of the AlphaCat sidecars and ILS funds (collectively the “Feeder Funds”) and direct third-party investors. All of the risks and rewards of the underlying transactions are allocated to the Feeder Funds and direct third-party investors using variable funding notes. AlphaCat Re is a VIE and the Company is not the primary beneficiary. Therefore, the Company’s investment in AlphaCat Re has been treated as an equity method investment.

Page 29 | 54

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

7.	Investments in operating affiliates and structured notes receivable from AlphaCat ILS fund (continued)

The following tables present a reconciliation of the beginning and ending investments in operating affiliates for the years ended December 31, 2022 and 2021:


	2022
	AlphaCat sidecars		AlphaCat ILS Funds - Lower Risk			AlphaCat ILS Funds - Higher Risk			AlphaCat Re		Total
	$		$			$			$		$
Balance, beginning of year		1,557		5			5,118			120		6,800
Purchase of shares		—		2						—		2
Redemption of shares		—		(2	)		(2,707	)		—		(2,709	)
Income from operating affiliates		48		—			744			—		792

Balance, end of year		1,605		5			3,155			120		4,885


	2021
	AlphaCat sidecars			AlphaCat ILS Funds - Lower Risk			AlphaCat ILS Funds - Higher Risk			AlphaCat Re		Total
	$			$			$			$		$
Balance, beginning of year		1,584			61,706			55,080			120		118,490
Risk profile change, net		—			(40,597	)		40,597			—		—
Purchase of shares		—			—			15,004			—		15,004
Redemption of shares		—			(6,865	)		(6,018	)		—		(12,883	)
Sale of shares		—			(13,859	)		(79,088	)		—		(92,947	)
Loss from operating affiliates		(27	)		(380	)		(20,457	)		—		(20,864	)

Balance, end of year		1,557			5			5,118			120		6,800

During the year ended December 31, 2021, the Company saw a change to the maximum permitted portfolio expected loss to one of the AlphaCat ILS Funds. As a result of this risk profile change, this AlphaCat ILS Fund was transferred from lower risk to higher risk.

Page 30 | 54

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

7.	Investments in operating affiliates and structured notes receivable from AlphaCat ILS fund (continued)

The following tables present the Company’s Investments in operating affiliates as at December 31, 2022 and 2021:


	2022
	Voting ownership		Equity ownership			Carrying value
	%		%			$
AlphaCat sidecars		40.00		20.00			1,605
AlphaCat ILS Funds – Lower Risk		n/a		(a	)		5
AlphaCat ILS Funds – Higher Risk		n/a		(b	)		3,155
AlphaCat Re		100.00		100.00			120

Total							4,885

(a)	Equity ownerships in the lower risk AlphaCat ILS funds were between 0.00% and 0.00%

(b)	Equity ownerships in the higher risk AlphaCat ILS funds were between 0.00% and 3.86%


	2021
	Voting ownership		Equity ownership			Carrying value
	%		%			$
AlphaCat sidecars		40.00		20.00			1,557
AlphaCat ILS Funds – Loser Risk		n/a		(a	)		5
AlphaCat ILS Funds – Higher Risk		n/a		(b	)		5,118
AlphaCat Re		100.00		100.00			120

Total							6,800

(a)	Equity ownerships in the lower risk AlphaCat ILS funds were between 0.00% and 0.00%

(b)	Equity ownerships in the higher risk AlphaCat ILS funds were between 0.00% and 3.68%

Structured notes receivable from AlphaCat ILS fund

During the year ended December 31, 2021, one of the AlphaCat ILS funds (the “Fund”) issued both common shares and structured notes to the Company in order to capitalize the Fund. The Structured notes do not have a stated maturity date since repayment is dependent on the settlement and income or loss of the underlying transactions. These structured notes rank senior to the common shares of the Fund and earn an interest rate of 7% per annum (2021: 5.00% plus the 3-month London Inter-Bank Offer Rate per annum (or equivalent benchmark rate), payable on a cumulative basis in arrears. Structured notes receivable are classified within “Other assets” on the Consolidated Balance Sheets.

The following table presents a reconciliation of the beginning and ending structured notes receivable from the Fund as at December 31, 2022 and 2021:


	2022		2021
	$		$
Structured notes receivable from the Fund, beginning of year		12		10,365
Purchases of structured notes receivable		—		10,000
Redemptions of structured notes receivable		—		(10,000	)
Sale of structured notes receivable		—		(10,000	)
Increase (decrease) in net asset value of structured notes receivable		54		(353	)

Structured notes receivable from the Fund, end of year		66		12

Page 31 | 54

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

8.	Derivative instruments

Derivatives not designated as hedging instruments

The following tables summarize information on the classification and amount of the fair value of derivatives not designated as hedging instruments within the Company’s Consolidated Balance Sheets as at December 31, 2022 and 2021:


	2022
	Asset notional exposure ^(a)		Asset derivative at fair value ^(b)		Liability notional exposure ^(a)		Liability derivative at fair value ^(b)
	$		$		$		$
Foreign exchange contracts		295,085		17,405		83,598		5,312
Commodity derivative contracts		211,791		9,167		20,015		34

Total		506,876		26,572		103,613		5,346


	2021
	Asset notional exposure ^(a)		Asset derivative at fair value ^(b)		Liability notional exposure ^(a)		Liability derivative at fair value ^(b)
	$		$		$		$
Foreign exchange contracts		38,935		611		224,046		2,278
Commodity derivative contracts		302,687		3,961		218,858		287

Total		341,622		4,572		442,904		2,565

(a)	Notional exposure represents the total aggregate notional exposure. For commodity derivative contracts derivative transactions, management enters into option collar arrangements wherein our net notional exposure is $191,776 as at December 31, 2022 (2021: $83,829).

(b)

Asset and liability derivatives are classified within “Other assets” and “Accounts payable and accrued expenses”, respectively, on the Consolidated Balance Sheets. Fair value amounts are shown before the effects of counterparty netting adjustments and offsetting cash collateral. Margin call liability for foreign exchange contract derivative transactions as at December 31, 2022 was $10,420 (2021: margin call asset of $2,940).

The foreign exchange contracts are valued on the basis of standard industry valuation models. The inputs to these models are based on observable market inputs, and as such the fair values of these contracts are classified as Level 2.

The commodity derivative contracts are exchange traded instruments and are valued on the basis of standard industry valuation models. The inputs to these models are based on observable market inputs, and as such the fair values of these contracts are classified as level 2.

The following table summarizes information on the classification and net impact on earnings, recognized in the Company’s Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income relating to derivatives that were not designated as hedging instruments during the years ended December 31, 2022 and 2021:


Derivatives not designated as hedging instruments	Classification of gains (losses) recognized in earnings	2022 $			2021 $
Foreign exchange contracts	Foreign exchange gains		14,035			2,787
Commodity derivative contracts	Foreign exchange losses		(13,107	)		(9,694	)

Page 32 | 54

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

8.	Derivative instruments (continued)

Balance sheet offsetting

There was no balance sheet offsetting activity as at December 31, 2022 and 2021.

Commencing in 2019, the Company engaged in foreign exchange contracts with an affiliated AIG entity under International Swaps and Derivatives Association, Inc. Master Agreements, which establish terms that apply to all transactions. As part of the agreements, collateral is provided as security for the foreign exchange contracts. On a periodic basis, the amounts receivable from or payable to the counterparties are settled in cash on a net basis.

9.	Premiums receivable and funds withheld

Premiums receivable

Premiums receivable is composed of premiums in the course of collection and premiums accrued but unbilled, both of which are presented net of commissions and brokerage. It is common practice in the reinsurance industry for premiums to be paid on an instalment basis, therefore significant amounts will be considered unbilled and will not become due until a future date, which is typically no later than expiration of the underlying coverage period.

The following is a breakdown of the components of Premiums receivable as at December 31, 2022 and 2021:

2022

Premiums in
course of
collection
$

Premiums
accrued but
unbilled
$

Total
$

Premiums receivable, beginning of year

76,537

1,150,752

1,227,289

Change during the year

8,458

323,545

332,003

Premiums receivable, end of year

84,995

1,474,297

1,559,292

2021

Premiums in
course of
collection
$

Premiums
accrued but
unbilled
$

Total
$

Premiums receivable, beginning of year

25,499

861,148

886,647

Change during the year

51,038

289,604

340,642

Premiums receivable, end of year

76,537

1,150,752

1,227,289

Funds withheld

The Company writes and cedes certain business on a funds withheld basis. Under these contractual arrangements, the Company and the cedants withhold premiums for the purpose of paying claims. The remaining net funds will be remitted or settled after all policies have expired and all claims have been paid.

Funds withheld assumed and ceded as at December 31, 2022 were $107,175 and $2,717, respectively (December 31, 2021: $148,104 and $2,807, respectively).

Page 33 | 54

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

10.

Reserve for losses and loss expenses

The following table summarizes the Company’s reserve for losses and loss expenses as at December 31, 2022 and 2021:


	2022 $		2021 $
Case reserves		1,402,082		1,072,070
IBNR		3,566,167		3,661,691

Reserve for losses and loss expenses		4,968,249		4,733,761

The following table presents rollforward of activity in net reserves for losses and loss expenses for the years ended December 31, 2022 and 2021:


	2022 $			2021 $
Reserve for losses and loss expenses, beginning of year		4,733,761			3,211,396
Loss reserves recoverable, beginning of year		(2,140,746	)		(1,074,617	)

Net reserves for losses and loss expenses, beginning of year		2,593,015			2,136,779
Net incurred losses and loss expenses in respect of losses occurring in:
Current year		1,434,485			1,554,009
Prior years		(30,604	)		(32,866	)

Total incurred losses and loss expenses		1,403,881			1,521,143
Foreign exchange gains		(45,030	)		(50,941	)
Net losses and loss expenses paid in respect of losses occurring in:
Current year		(190,004	)		(413,001	)
Prior years		(693,645	)		(600,965	)

Total net paid losses		(883,649	)		(1,013,966	)

Net reserve for losses and loss expenses, end of year		3,068,217			2,593,015
Loss reserves recoverable, end of year		1,900,032			2,140,746

Reserve for losses and loss expenses, end of year		4,968,249			4,733,761

Page 34 | 54

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

10.

Reserve for losses and loss expenses (continued)

Total incurred losses and loss expenses for the years ended December 31, 2022 and 2021 is comprised of:


	2022 $		2021 $
Gross losses and loss expenses		1,297,514		2,782,914
Reinsurance recoveries		106,367		(1,261,771	)

Net incurred losses and loss expenses		1,403,881		1,521,143

The net favourable (unfavourable) development on prior accident years by line of business is as follows:


	Line of Business
	Property $		Specialty - Short-tail $			Specialty - Other $			Total $
Year ended December 31, 2022		8,809		(34,789	)		(4,624	)		(30,604	)
Year ended December 31, 2021		37,162		(50,118	)		(19,910	)		(32,866	)

The net favourable (unfavourable) development on prior accident years for the years ended December 31, 2022 and 2021 were primarily driven by favourable development on attritional losses, offset by adverse development on events.

Short Duration Contract Disclosures

The Company has disaggregated its information presented in the tables below by lines of business. The development tables are shown for all accident years using exchange rates as at December 31, 2022. All accident years prior to the current year have been presented using the current year exchange rate.

Loss development tables

The loss development tables have been produced by lines of business for accident years 2013 through to 2022. The Company provides treaty reinsurance products on a global basis for all of its lines of business and does not receive or maintain claims count information associated with its reserve claims. As such, the Company has determined that it is impracticable to provide this information.

Page 35 | 54

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

10.

Reserve for losses and loss expenses (continued)

Loss development tables – Property


	Incurred losses and loss expenses, net of reinsurance
	Years ended December 31,																					At December 31, 2022
Accident Year	2013 $		2014 $		2015 $		2016 $		2017 $		2018 $		2019 $		2020 $		2021 $			2022 $		Total IBNR reserves ^(a) $
	*Unaudited*
2013		174,302		156,788		141,731		133,361		128,602		127,102		124,765		124,688		124,605			123,929		408
2014		—		106,867		102,140		93,363		93,950		99,169		97,573		95,155		91,328			90,850		1,393
2015		—		—		154,753		118,430		98,474		91,699		84,935		83,466		82,866			82,600		1,199
2016		—		—		—		147,637		154,365		139,461		127,785		120,625		116,787			117,934		1,463
2017		—		—		—		—		393,664		385,667		360,951		363,999		348,630			347,126		24,481
2018		—		—		—		—		—		409,807		441,448		422,434		416,634			413,823		42,297
2019		—		—		—		—		—		—		279,394		315,853		292,842			301,272		67,155
2020		—		—		—		—		—		—		—		339,156		435,924			469,230		128,558
2021		—		—		—		—		—		—		—		—		403,028	��		404,741		(47,721	)
2022		—		—		—		—		—		—		—		—		—			347,836		194,518

																	Total			2,699,341


	Cumulative paid losses and loss expenses, net of reinsurance
	Years ended December 31,
Accident Year	2013 $		2014 $		2015 $		2016 $		2017 $		2018 $		2019 $		2020 $		2021 $			2022 $
	*Unaudited*
2013		19,206		65,318		102,052		114,931		119,671		120,921		121,603		121,949		121,894			122,020
2014		—		25,776		62,442		77,179		83,298		85,493		87,140		87,742		88,398			88,543
2015		—		—		16,836		57,640		72,102		77,123		78,477		79,824		80,572			80,599
2016		—		—		—		27,978		78,515		95,677		106,324		109,095		111,610			113,567
2017		—		—		—		—		129,914		286,010		317,820		304,761		296,636			302,655
2018		—		—		—		—		—		25,791		305,263		324,179		350,678			362,652
2019		—		—		—		—		—		—		14,627		142,570		172,667			195,635
2020		—		—		—		—		—		—		—		29,366		164,541			244,684
2021		—		—		—		—		—		—		—		—		81,250			254,671
2022		—		—		—		—		—		—		—		—		—			51,461
																		Total			1,816,487

				Pre-2013 and other reserves for losses and loss expenses, net of reinsurance ^(b)																	57,247

						Reserves for losses and loss expenses, net of reinsurance															940,101

(a)	Includes reserves for losses and loss expense, net of reinsurance, of $26,014 and $5,048 related to Flagstone Reinsurance Holdings, S.A. (“Flagstone”) and IPC Holdings Ltd. (“IPC”), respectively.

(b)	Total IBNR reserves includes the expected development on reported losses.

Page 36 | 54

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

10.

Reserve for losses and loss expenses (continued)

Loss development tables – Specialty – Short-tail


	Incurred losses and loss expenses, net of reinsurance
	Years ended December 31,																				At December 31, 2022
Accident Year	2013 $		2014 $		2015 $		2016 $		2017 $		2018 $		2019 $		2020 $		2021 $		2022 $		Total IBNR reserves ^(a) $
	*Unaudited*
2013		254,667		264,751		242,752		235,807		235,683		233,895		231,894		231,681		230,327		230,146		16
2014		—		274,884		249,672		234,181		227,541		225,218		223,234		223,647		222,257		222,009		1,833
2015		—		—		419,504		387,324		352,590		341,726		330,897		322,442		321,626		320,526		43
2016		—		—		—		332,092		281,534		268,339		264,146		258,863		257,680		256,460		8,483
2017		—		—		—		—		313,882		277,253		248,537		223,842		229,061		225,994		4,661
2018		—		—		—		—		—		285,762		281,785		249,798		241,385		255,747		16,105
2019		—		—		—		—		—		—		315,824		335,148		333,069		333,097		18,076
2020		—		—		—		—		—		—		—		742,992		711,416		750,886		45,102
2021		—		—		—		—		—		—		—		—		736,768		655,259		121,735
2022		—		—		—		—		—		—		—		—		—		469,313		296,133

																		Total		3,719,437


	Cumulative paid losses and loss expenses, net of reinsurance
	Years ended December 31,
Accident Year	2013 $		2014 $		2015 $		2016 $		2017 $		2018 $		2019 $		2020 $		2021 $		2022 $

	*Unaudited*
2013		110,975		186,998		204,290		211,767		223,550		226,496		227,300		228,745		228,283		228,433
2014		—		102,122		172,272		191,023		196,676		201,066		205,530		207,583		215,789		217,080
2015		—		—		181,302		244,887		298,032		306,914		312,923		314,265		315,793		316,759
2016		—		—		—		158,615		207,383		196,851		220,665		234,827		241,064		242,000
2017		—		—		—		—		98,537		162,259		196,138		205,218		209,578		213,836
2018		—		—		—		—		—		63,586		156,777		184,729		198,260		211,387
2019		—		—		—		—		—		—		93,090		200,473		241,181		271,068
2020		—		—		—		—		—		—		—		322,305		577,593		637,278
2021		—		—		—		—		—		—		—		—		229,735		472,802
2022		—		—		—		—		—		—		—		—		—		122,736

																		Total		2,933,379

Pre-2013 and other reserves for losses and loss expenses, net of reinsurance ^(b)																				76,865

Reserves for losses and loss expenses, net of reinsurance																				862,923

(a)	Total IBNR reserves includes the expected development on reported losses.

(b)	Includes reserves for losses and loss expense, net of reinsurance, of $23,670 and $5,143 related to Flagstone and IPC, respectively.

Page 37 | 54

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

10.

Reserve for losses and loss expenses (continued)

Loss development tables – Specialty – Other


	Incurred losses and loss expenses, net of reinsurance
	Years ended December 31,																				At December 31, 2022
Accident Year	2013 $		2014 $		2015 $		2016 $		2017 $		2018 $		2019 $		2020 $		2021 $		2022 $		Total IBNR reserves ^(a) $
	*Unaudited*
2013		4,185		172		126		130		113		102		22		22		22		22		—
2014		—		2,103		1,359		496		789		340		179		432		444		390		50
2015		—		—		5,600		6,085		3,252		4,179		4,452		3,733		3,026		3,590		910
2016		—		—		—		31,235		37,438		43,161		45,270		30,415		33,946		38,318		2,415
2017		—		—		—		—		73,950		71,984		76,840		77,940		85,586		77,206		16,999
2018		—		—		—		—		—		130,073		117,808		122,393		114,190		108,342		26,151
2019		—		—		—		—		—		—		147,757		158,688		154,698		171,906		56,850
2020		—		—		—		—		—		—		—		221,978		202,904		216,438		136,850
2021		—		—		—		—		—		—		—		—		370,774		343,337		275,395
2022		—		—		—		—		—		—		—		—		—		601,158		570,844

																		Total		1,560,707


	Cumulative paid losses and loss expenses, net of reinsurance
	Years ended December 31,
Accident Year	2013 $		2014 $		2015 $		2016 $		2017 $		2018 $		2019 $		2020 $		2021 $		2022 $
	*Unaudited*
2013		—		77		78		95		95		100		22		22		22		22
2014		—		—		2		11		57		78		68		333		338		337
2015		—		—		21		796		1,198		2,043		2,685		2,863		2,433		2,454
2016		—		—		—		3,502		3,448		8,061		12,824		18,415		21,186		24,521
2017		—		—		—		—		1,253		5,860		14,256		30,542		49,615		48,011
2018		—		—		—		—		—		2,971		13,751		29,095		38,553		56,954
2019		—		—		—		—		—		—		5,261		21,860		37,865		66,906
2020		—		—		—		—		—		—		—		9,085		27,585		56,066
2021		—		—		—		—		—		—		—		—		10,661		37,945
2022		—		—		—		—		—		—		—		—		—		11,231

																		Total		304,447

Pre-2013 and other reserves for losses and loss expenses, net of reinsurance ^(b)																				1,433

Reserves for losses and loss expenses, net of reinsurance																				1,257,693

(a)	Total IBNR reserves includes the expected development on reported losses.

(b)	Includes reserves for losses and loss expense, net of reinsurance, of $3,700 related to Flagstone.

Page 38 | 54

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

10.

Reserve for losses and loss expenses (continued)

Reconciliation of loss development information to the reserve for losses and loss expenses

The following table reconciles the loss development information to the Company’s reserve for losses and loss expenses as at December 31, 2022:


	2022 $
Reserves for losses and loss expenses, net of reinsurance
Property		940,101
Specialty – Short-tail		862,923
Specialty – Other		1,257,693

Total reserves for losses and loss expenses, net of reinsurance		3,060,717
Loss reserves recoverable
Property		1,753,632
Specialty – Short-tail		116,861
Specialty – Other		29,539

Total loss reserves recoverable		1,900,032
Unallocated loss expenses		7,500

Total reserves for losses and loss expenses		4,968,249

Historical loss duration

The following table summarizes the historic average annual percentage pay-out of incurred losses by age, net of reinsurance, as of December 31, 2022:


	Average annual percentage pay-out of incurred losses by age, net of reinsurance (unaudited)
	Year 1 %		Year 2 %		Year 3 %		Year 4 %		Year 5 %		Year 6 %		Year 7 %			Year 8 %		Year 9 %			Year 10 %
Property		17.76		44.05		14.84		6.07		1.80		1.66		0.94			0.35		0.06			0.10
Specialty-Short-tail		41.32		30.16		9.32		5.16		3.59		1.61		0.53			1.54		0.19			0.06
Specialty-Other		2.63		45.95		9.46		24.41		13.29		5.60		(71.10	)		0.63		(0.09	)		0.00

Russia/Ukraine conflict

The Russia/Ukraine conflict began in February 2022. The conflict has and may continue to have a significant impact on the global macroeconomic and geopolitical environments, including increased volatility in capital and commodity markets, rapid changes to regulatory conditions around the globe including the use of sanctions, operational challenges for multinational corporations, inflationary pressures and an increased risk of cybersecurity incidents.

While the major financial ramifications of the conflict have subsided, the situation continues to evolve and has the potential to continue to adversely affect the business and results of operations from an investment, underwriting and operational perspective. While management believes appropriate action has been taken to minimize related risk, the Company continues to monitor potential exposure and operational impacts, as well as any actual and potential claims activity. The ultimate impact will depend on future developments that are uncertain and cannot be reasonably predicted, including scope, severity and duration, governmental, legislative and regulatory actions taken (including the application of sanctions), and court decisions, if any, rendered in response to those actions.

Page 39 | 54

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

10.

Reserve for losses and loss expenses (continued)

Coronavirus (COVID-19) pandemic

While the ultimate impacts from the COVID-19 pandemic are still evolving, it has caused significant societal disruption and has had adverse economic impacts on the Company’s business, such as volatility in the capital markets, disruptions in the labor market, supply chain disruption and inflationary pressures. The Company cannot estimate the full extent to which the COVID-19 pandemic may continue to cause or exacerbate certain risks to our global business, including those discussed herein.

Due to the evolving and disruptive nature of the COVID-19 pandemic, the Company could experience other potential impacts, including, but not limited to, increased reserves for losses and loss expenses, net of reinsurance. Further, new and potentially unforeseen risks beyond those described above and in other risk factors herein may arise as a result of the pandemic and the actions taken by governmental and regulatory authorities to mitigate its impact.

11.

Accounts payable and accrued expenses

The Company’s accounts payable and accrued expenses relate primarily to amounts due to vendors and employees in the form of trade and compensation payable, and to accrued interest on senior notes payable which pays coupons semi-annually. Refer to Note 14, “Debt and financing arrangements”, for further details.

The following are the components of accounts payable and accrued expenses:


	2022 $		2021 $
Accrued interest on senior notes payable		7,533		8,086
Trade and compensation payable		27,524		26,344
Derivative liabilities		5,346		287
Lease liability		534		871
Amounts payable to AlphaCat investors		2,325		4,832

Total accounts payable and accrued expenses		43,262		40,420

12.

Reinsurance

The Company’s reinsurance balances recoverable as at December 31, 2022 and 2021 were as follows:


	2022 $		2021 $
Loss reserves recoverable on unpaid:
Case reserves		423,369		258,811
IBNR		1,476,663		1,881,935

Total loss reserves recoverable		1,900,032		2,140,746
Paid losses recoverable		81,005		36,151

Total reinsurance recoverable		1,981,037		2,176,897

Effects of reinsurance on premiums written and earned

Effective January 1, 2022, the Company entered into an adverse development excess of loss reinsurance agreement with a wholly-owned subsidiary of AIG, under which risk was transferred for certain of the Company’s ultimate net loss reserves at December 31, 2021.

Page 40 | 54

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

12.

Reinsurance (continued)

Effects of reinsurance on premiums written and earned (continued)

The transaction was accounted for as retroactive reinsurance. The transaction resulted in a loss of $27,450 and was recognized in the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income immediately.

The effects of reinsurance on net premiums written and earned for the years ended December 31, 2022 and 2021 were as follows:


	2022 $			2021 $
Premiums written
Assumed		3,080,316			3,171,374
Ceded		(551,785	)		(719,266	)

Net premiums written		2,528,531			2,452,108

Premiums earned
Assumed		2,803,018			2,784,770
Ceded		(568,514	)		(671,065	)

Net premiums earned		2,234,504			2,113,705

Refer to Note 17, “Related party transactions”, for further details regarding related party reinsurance.

Credit risk

The cession of reinsurance does not legally discharge the Company from its primary liability for the full amount of the reinsurance policies it writes, and the Company is required to pay the loss and bear collection risk regarding reinsurers’ obligations under reinsurance and retrocession agreements. The Company records provisions for uncollectible reinsurance recoverable when collection becomes unlikely due to the reinsurer’s inability to pay. To the extent the creditworthiness of the Company’s reinsurers were to deteriorate due to adverse events affecting the reinsurance industry, such as a large number of major catastrophes, actual uncollectible amounts could be significantly greater than the Company’s provision. Amounts recoverable from reinsurers are estimated in a manner consistent with the underlying loss reserves.

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 on a fully collateralized basis or 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 December 31, 2022, $1,944,802 or 98.17% (December 31, 2021: $2,176,240 or 99.97%) of the Company’s reinsurance balances recoverable were either fully collateralized or recoverable from reinsurers rated A- or better.

Page 41 | 54

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

12.

Reinsurance (continued)

Credit risk (continued)

Information regarding the Company’s concentration of credit risk arising from its exposure to individual reinsurers as at December 31, 2022 and 2021 were as follows:


	2022				2021
	Reinsurance recoverable $		Percentage of total %		Reinsurance recoverable $		Percentage of total %
Top 10 reinsurers		1,862,784		94.03		2,134,242		98.04
Other reinsurers’ balances > $1,000		116,518		5.88		38,170		1.75
Other reinsurers’ balances < $1,000		1,735		0.09		4,485		0.21

Total		1,981,037		100.00		2,176,897		100.00

Information regarding the Company’s concentration of credit risk arising from its top 10 reinsurers, including fully collateralized reinsurers, as at December 31, 2022 and 2021 were as follows:

2022

Top 10 reinsurers

Rating

Agency

Reinsurance
recoverable
$

Percentage of
total
%

Fully collateralized reinsurers

N/A

1,669,271

84.26

Everest Re

A+

S&P Global Ratings

32,297

1.63

SiriusPoint Ltd.

A-

S&P Global Ratings

29,643

1.50

Markel

S&P Global Ratings

24,660

1.25

Fidelis

A-

S&P Global Ratings

24,345

1.23

Renaissance Reinsurance Ltd.

A+

S&P Global Ratings

20,450

1.03

Manufacturers P&C Limited

Moody’s Investors Service

18,667

0.94

Lloyd’s Syndicates

AM Best

17,613

0.89

PartnerRe

A+

S&P Global Ratings

13,510

0.68

Axis Capital Holdings

A+

S&P Global Ratings

12,328

0.62

Total

1,862,784

94.03

NR: Not rated

2021

Top 10 reinsurers

Rating

Agency

Reinsurance
recoverable
$

Percentage of
total
%

Fully collateralized reinsurers

N/A

1,937,286

88.99

Everest Re

A+

S&P Global Ratings

40,586

1.86

SiriusPoint Ltd.

A-

S&P Global Ratings

28,137

1.29

Fidelis

A-

S&P Global Ratings

24,674

1.13

Markel

S&P Global Ratings

24,581

1.13

Manufacturers P&C Limited

A-

AM Best

18,900

0.87

Lloyd’s Syndicates

A+

S&P Global Ratings

18,505

0.85

PartnerRe

A+

S&P Global Ratings

17,005

0.78

Chubb

S&P Global Ratings

12,289

0.57

Axis Capital Holdings

A+

S&P Global Ratings

12,279

0.57

Total

2,134,242

98.04

NR: Not rated

Page 42 | 54

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

13.

Share capital

Authorized and issued

The Company has 100 common shares authorized, issued and outstanding as of December 31, 2022, and 2021 with a par value of $0.01.

Capital contributions and distributions

During the year ended December 31, 2022, the Company made capital distributions to AIG amounting to $2,425 (2021: capital contributions from AIG amounting to $6,257) relating to settlement of share-based compensation arrangements.

Dividends

On December 23, 2022, the Company paid a dividend amounting to $100,000 (2021: $nil) to AIG.

14.

Debt and financing arrangements

The Company’s financing structure is comprised of Senior notes payable and credit facilities.

Senior Notes

On January 26, 2010, the Company issued Senior Notes as part of a registered public offering that mature on January 26, 2040, (the “Senior Notes”). The Senior Notes were issued at a principal value of $250,000 and pay 8.875% interest semi-annually in arrears.

Following the acquisition of the Company, AIG executed a guarantee dated July 26, 2018, with respect to Validus’s aggregate outstanding Senior Notes, pursuant to which AIG provided a full and unconditional guarantee of Validus’ obligations with respect to Senior Notes.

During the year ended December 31, 2022, AIG repurchased and cancelled, through cash tender offer, $14,477 (2021: $36,408) in aggregate principal outstanding of the Company’s Senior Notes for $22,257 (2021: $62,041). After writing-off a proportionate share of unamortized debt issuance costs of $209 (2021: $536) and purchased interest of $259 (2021: $1,014), a total loss on extinguishment of debt of $7,729 (2021: $25,155) was recognized within Finance expenses within the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income. As the repurchased principal was paid in-full by AIG and not reimbursed by the Company, $22,257 (2021: $62,041) was accounted for as a deemed contribution to Additional paid-in capital.

Debt issuance costs are amortized to Finance expenses within the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income over the life of the Senior Notes and are presented on a net basis within the Senior notes payable balance in the Company’s Consolidated Balance Sheets. Amortization is accelerated to reflect repurchases transactions.

Below is the principal maturity table relating to the Company’s Senior Notes:


	$
Due in one year or less		—
Due between one to five years		—
Due between five to ten years		—
Due over ten years		119,115

Total		119,115

Page 43 | 54

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

14.

Debt and financing arrangements (continued)

Senior Notes (continued)

The table below reconciles the carrying value of the Senior Notes as at December 31, 2022 and 2021:


	Principal Outstanding $			Debt Issuance Costs $			Total Carrying Value $
Balances as at December 31, 2020		250,000			(3,831	)		246,169
Amortization / Accretion		—			202			202
Impact of repurchases		(36,408	)		536			(35,872	)

Balances as at December 31, 2021		213,592			(3,093	)		210,499


Balances as at December 31, 2021		213,592			(3,093	)		210,499
Amortization / Accretion		—			166			166
Impact of repurchases		(14,477	)		209			(14,268	)

Balances as at December 31, 2022		199,115			(2,718	)		196,397

Letters of credit

The Company’s financing structure is comprised of letters of credit held with Citibank which are ultimately supported by AIG. As at December 31, 2022, total outstanding letters of credit amounted to $337,373 (2021: $456,552). There were no cash or investments pledged as collateral relating to these letters of credit as at December 31, 2022 and 2021.

Finance expenses

The following table summarizes the Company’s finance expenses for the years ended December 31, 2022 and 2021:


	2022 $		2021 $
Bank charges		213		275
Fees on standby letters of credit		5,509		5,677
Coupon interest on Senior notes		18,186		22,012
Loss on early retirement of Senior notes		7,729		25,155

Total finance expenses		31,637		53,119

15.

Income taxes

The Company provides for income taxes based upon amounts reported in the Consolidated Financial Statements and the provisions of currently enacted tax laws. The Company is registered in Bermuda and is subject to Bermuda law with respect to taxation. Under current Bermuda law, the Company is not taxed on any Bermuda income or capital gains and has received an undertaking from the Bermuda Minister of Finance that, in the event of any Bermuda income or capital gains taxes being imposed, the Company will be exempt from such taxes until March 31, 2035.

The Company has operating subsidiaries and branch offices in various other jurisdictions around the world, including but not limited to the United States of America, the United Kingdom, Luxembourg, Switzerland, Singapore and Canada that are subject to relevant taxes in those jurisdictions.

Page 44 | 54

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

15.

Income taxes (continued)

The Company’s total income tax (expense) benefit for the years ended December 31, 2022 and 2021 were comprised of both current and deferred tax attributes, as follows:


	2022 $			2021 $
Current federal income tax benefit		4,318			5,281
Deferred federal income tax expense		(39,065	)		(4,054	)

Total income tax (expense) benefit		(34,747	)		1,227

The table below is a reconciliation of the actual income tax (expense) benefit for the years ended December 31, 2022 and 2021 to the amount computed by applying the effective tax rate of 0% under Bermuda law to (loss) income before taxes and before income (loss) from operating affiliates and structured notes:


	2022 $			2021 $
Bermuda corporation tax at 0% rate		—			—
Effect of foreign operations		(9,443	)		17,487
Tax exempt interest		—			(4,480	)
Foreign branch adjustments		7,539			2,118
U.S. GAAP to statutory accounting differences		19,618			(3,995	)
Deferred income tax valuation allowances		(55,219	)		(23,810	)
Provision to return true ups		1,694			13,816
Non-deductible transfer pricing recharges		506			—
Other		558			91

Total income tax (expense) benefit		(34,747	)		1,227

Deferred tax assets and liabilities primarily represent the tax effect of temporary differences between the carrying value of assets and liabilities computed under U.S. GAAP and such values as measured by tax laws and regulations in countries in which the operations are taxable. Deferred tax assets may also represent the tax effect of tax losses carried forward.

In assessing whether a deferred tax asset can be recovered and assessing the need for a valuation allowance, the Company considers all positive and negative evidence to determine whether it is more likely than not that the tax benefit of part or all of a deferred tax asset will be realized. The Company’s framework for assessing the recoverability of deferred tax assets primarily considers taxable income in prior carry-back years when permitted by law, future reversal of existing taxable temporary differences, available tax planning strategies and the expected occurrence of future taxable income. The weighting of the positive and negative evidence is commensurate with the extent to which they can be objectively verified.

The most material valuation allowance relates to Validus Reinsurance (Switzerland) Ltd., a wholly-owned subsidiary, for the year ended December 31, 2021, where the main deferred tax asset is in respect of losses brought forward and there is significant uncertainty as to whether these will be utilized prior to expiry. For the year ended December 31, 2022, the main impact comes from an assertion change for Flagstone Reinsurance (Luxembourg) S.à r.l., a subsidiary of the Company, where an intended loan restructuring that occurred subsequent to the balance sheet date impacted the income stream supporting the recoverability of the main deferred tax asset in respect of losses brought forward and, therefore, resulted in a change in the valuation allowance. Refer to Note 19, “Subsequent events”, for further details.

Page 45 | 54

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

15.

Income taxes (continued)

Significant components of the Company’s deferred tax assets and liabilities as at December 31, 2022 and 2021 were as follows:


	2022 $			2021 $
Deferred tax assets
Losses and tax credit carryforwards		96,577			92,586
Loss reserving differences		10,883			8,288
Unearned premium reserve reduction		27,100			19,544
Investments		16,253			—
Other		190			190

Total gross deferred tax assets		151,003			120,608
Less valuation allowance		(80,478	)		(25,259	)

Total net deferred tax assets		70,525			95,349

Deferred tax liabilities
Deferred policy acquisition costs		41,303			27,438
Investments		—			1,074
Other		1,592			1,463

Total deferred tax liabilities		42,895			29,975

Net deferred tax asset		27,630			65,374

The Company will continue to monitor all available positive and negative evidence, including its expectations for future taxable income in the relevant jurisdictions, in relation to the recoverability of its existing deferred tax balances. If the Company’s positive evidence develops favourably in the foreseeable future, or new income streams arise, it is possible that releases of the valuation allowances related to deferred tax asset balances will occur.

Recognition of the benefit of a given tax position is based upon whether a company determines that it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. In evaluating the more-likely-than-not recognition threshold, the Company must presume the tax position will be subject to examination by a tax authority with full knowledge of all relevant information. If the recognition threshold is met, then the tax position is measured at the largest amount of benefit that is more than 50% likely of being realized upon ultimate settlement. As at December 31, 2022 and 2021, the Company had no accrued liabilities for tax, interest and penalties relating to uncertain tax positions. Interest and penalties related to uncertain tax positions would be recognized in income tax expense.

The Company has undistributed earnings in several foreign subsidiaries. If such earnings were to be distributed, as dividends or otherwise, they may be subject to income and withholding taxes. As a general rule, the Company intends to only distribute earnings that can be distributed in a tax-free manner with the exception of a few smaller subsidiaries.

Page 46 | 54

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

15.

Income taxes (continued)

The Company has open examination by tax authorities for Switzerland relating to calendar years 2019 to 2021. The Company believes that these examinations will be concluded within the next 12 months from date of balance sheet and currently does not expect any material adjustments as a result of these audits. The impact of the Swiss tax audit is not expected to impact the net position due to the valuation allowance in place.

The Company has open tax years that are potentially subject to examination by local tax authorities in the following major tax jurisdictions: the United Kingdom (2021-2022), the United States (2019-2021), Singapore (2021-2022) and Canada (2019-2022).

As at December 31, 2022, the Company had net operating and capital losses carried forward, inclusive of cumulative currency translation adjustments, as follows:


	Luxembourg $			Switzerland (Federal) $			Switzerland (Cantonal) $			United States $		United Kingdom $			Singapore $			Total $
2028-2029		—			151,663			137,774			—		—			—			289,437
No expiration date		171,890			—			—			76,249		3,913			17,404			269,456

Total		171,890			151,663			137,774			76,249		3,913			17,404			558,893

Gross deferred tax asset		42,871			12,891			22,085			16,012		978			1,740			96,577
Valuation allowance		(42,871	)		(12,891	)		(22,085	)		—		(108	)		(1,740	)		(79,695	)

Net deferred tax asset		—			—			—			16,012		870			—			16,882

Page 47 | 54

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

16.

Commitments and contingencies

Concentrations of credit risk

The Company underwrites a significant amount of its reinsurance business through brokers. There is credit risk associated with payments of reinsurance balances to the Company in regards to these brokers’ ability to fulfil their contractual obligations. These brokerage companies are large and well established, and there are no indications they are financially distressed. There was no other broker or reinsured party that accounted for more than 10% of gross premiums written for the periods mentioned.

The following table shows the percentage of gross premiums written through the significant brokers for the years ended December 31, 2022 and 2021:


Broker	2022 %		2021 %
Marsh & McLennan Companies, Inc.		48.96		49.75
Aon Benfield Group Ltd.		22.55		25.89
Willis Towers Watson Plc / Arthur J. Gallagher & Co.		15.68		14.68

Employment agreements

The Company has entered into employment agreements with certain individuals that provide for executive benefits and severance payments under certain circumstances.

Investments in operating affiliates

During the year ended December 31, 2021, the Company entered into an agreement with an AlphaCat ILS fund whereby it assumed a capital commitment of $25,000. For the year ended December 31, 2021, the total $25,000 capital commitment was called and funded and therefore there was no remaining commitment. As of December 31, 2021, the Company sold its ownership interest in this AlphaCat ILS fund to another subsidiary of AIG. The Company surrendered control over the financial assets during the year and has no continuing involvement with the transferred investments or capital commitments for future periods. Following the sale, the Company does not have any remaining capital commitment as at December 31, 2021.

Fixed maturity commitments

During the year ended December 31, 2021, the Company sold its investment in bank loans and does not have any remaining obligations to participate in certain secured loan facilities as at December 31, 2021.

Other investment commitments

During the year ended December 31, 2021, the Company sold its ownership interest in other investments. As at December 31, 2021, the Company does not have any remaining unfunded capital commitment to these investments.

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Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

17.

Related party transactions

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

Reinsurance agreements

The Company has various reinsurance agreements with its affiliates. The following tables summarize the significant balances resulting from these reinsurance agreements:


Reinsurance agreements with Talbot Syndicate 1183	2022 $			2021 $
Transactions during the years ended December 31
Net premiums earned		(860	)		1,061
Incurred losses and loss expenses		2,379			2,628
Policy acquisition costs		(509	)		255

Balances outstanding as at December 31
Premiums receivable		20,683			33,174
Deferred acquisition costs		16			39
Reserves for losses and loss expenses		24,882			25,492
Unearned premiums		1,406			2,313
Reinsurance balances payable		12,072			22,203

The effects of reinsurance, including the retroactive reinsurance described above, with the affiliated subsidiaries of AIG are as follows:


	2022 $			2021 $
Transactions during the years ended December 31
Net premiums earned		(33,878	)		1,906
Recoveries of losses and loss expenses		1,776			61,695
Policy acquisition costs		106			137

Balances outstanding as at December 31
Premiums receivable		871			1,183
Deferred acquisition costs		—			50
Prepaid reinsurance		6,805			—
Funds withheld		4			13
Reserves for losses and loss expenses		24,660			27,346
Unearned premiums		—			420
Reinsurance balances payable		6,868			48

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Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

17.

Related party transactions ( continued)

Derivative agreement

The Company has a derivative agreement in place with an affiliated AIG entity. Refer to Note 8, “Derivative instruments”, for further details.

Investments

On January 1, 2019, the Company entered into an investment management agreement with AIG, whereby AIG would assume overall management of the Company’s investment portfolio. As part of this agreement, the Company paid $4,062 of investment management expenses to AIG during the year ended December 31, 2022 (2021: $3,711).

During 2022, AIG entered into investment management agreements with BlackRock, Inc. (“BlackRock”), a third party investment manager. Effective October 17, 2022, the Company likewise entered into investment management agreements with BlackRock. The Company has since transferred the management of its investments under such investment management agreements as of December 31, 2022. The Company continues to be responsible for the overall investment portfolio, including investment strategy and developing and monitoring of investment guidelines.

During the year ended December 31, 2021, the Company sold its ownership interest in other investments and its ownership interest in and notes receivable from certain AlphaCat ILS Funds to other subsidiaries of AIG. These subsidiaries are not consolidated by Validus and are not subsidiaries of Validus. The Company surrendered control over the financial assets during the year and has no continuing involvement with the transferred investments. Refer to Note 5, “Investments”, and Note 7, “Investments in operating affiliates and structured notes receivable from AlphaCat ILS fund”, for further details.

Loan receivables

On September 26, 2014, Validus Specialty, Inc., an affiliate, obtained a loan from Flagstone Reinsurance (Luxembourg), S.à r.l., a subsidiary of the Company, with a principal amount of $400,000 bearing an annual interest rate of 5.80% and maturing on September 23, 2024. On April 1, 2019, the Company settled this loan with Validus Specialty, Inc. and entered into a new loan agreement with AIG. The new loan receivable has a principal amount of $400,000 bearing an annual interest rate of 5.09% and maturing on April 1, 2033. The outstanding balance as at December 31, 2022 was $401,664 (December 31, 2021: $401,664). The related interest income earned during the year ended December 31, 2022 amounted to $20,360 (2021: $20,360).

On September 1, 2018, the Company acquired a note receivable from AIG International Holdings GmbH with a principal amount of $327,729 bearing an annual interest rate of 3.60% and matured on August 31, 2022. Upon maturity, the Company entered into a new loan agreement with AIG. The new loan receivable has a rolled principal amount of $339,691 bearing an annual interest rate of 4.60% and maturing on September 1, 2027. The outstanding balance as at December 31, 2022 was $345,030 (December 31, 2021: $331,760). The related interest income earned during the year ended December 31, 2022 amounted to $13,269 (2021: $11,962).

On April 1, 2019, the Validus Reinsurance, Ltd., a wholly-owned subsidiary, acquired an additional AIG loan receivable from Validus Holdings with a principal amount of $250,000 in exchange for a capital contribution of $73,441 and the settlement of intercompany receivables from Validus Holdings of $176,559. This loan bears an annual interest rate of 3.90% and matured on August 31, 2022. Upon maturity, the Validus Reinsurance, Ltd. entered into a new loan agreement with AIG. The new loan receivable has a rolled principal amount of $259,885 bearing an annual interest rate of 5.02% and maturing on August 31, 2027. The outstanding balance as at December 31, 2022 was $264,343 (December 31, 2021: $253,331). The related interest income earned during the year ended December 31, 2022 amounted to $11,011 (2021: $9,885).

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Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

17.

Related party transactions ( continued)

Loans receivables (continued)

The loans were recently renegotiated and as a result, the yield on the loans was set at the market rate prevailing during that period. Accordingly, we consider the carrying values of the Company’s loans receivable to closely approximate their fair values as at December 31, 2022 and 2021.

Service level agreements

In accordance with service level agreements, the Company participates in centralized services wherein expenses are incurred by service and other affiliated entities and allocated to, or recharged from, the Validus Holdings group of companies. Services provided across the group include managerial services, underwriting services, actuarial services, claims services, accounting services, information technology services and others. The following table summarizes the revenue and expenses incurred by the Company for services provided to or received from the Validus Holdings group of companies during the years ended December 31, 2022 and 2021:


	2022 $		2021 $
Other insurance-related income and other income		3,658		6,250
General and administrative expenses		22,646		28,863

Other

Certain shareholders of AIG and their affiliates, as well as employees of entities associated with directors and officers may have purchased insurance and/or reinsurance from the Company in the ordinary course of business. The Company does not believe these transactions to be material.

18.

Statutory and regulatory requirements

The Company has operations which are subject to laws and regulations in the jurisdictions in which they operate, the most significant of which are Bermuda and Switzerland.

The Company’s reinsurance subsidiaries prepare their statutory financial statements in conformity with statutory accounting practices prescribed or permitted by the applicable local laws and relevant regulatory authority. The statutory financial statements may vary materially from statements prepared in accordance with U.S. GAAP.

Statutory capital and surplus as at December 31, 2022 and 2021 and statutory net income for the years ended December 31, 2022 and 2021 for our reinsurance subsidiaries based in our most significant regulatory jurisdictions were as follows:


	Statutory capital and surplus								Statutory (loss) net income
	Required				Actual				Statutory (loss) net income
	2022		2021		2022		2021		2022			2021
	$		$		$		$		$			$
Bermuda		1,228,168		1,211,090		3,654,884		3,893,878		(90,040	)		108,408
Switzerland		617,000		557,000		1,197,052		1,236,051		(38,999	)		91,491

During the year ended December 31, 2022, the Company returned capital to AIG amounting to $100,000 (2021: $nil).

Page 51 | 54

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

18.

Statutory and regulatory requirements (continued)

Bermuda

The Company has the following Bermuda-based insurance subsidiaries at December 31, 2022 and 2021:

•

Validus Reinsurance, Ltd. – Class 4 insurer (“Validus Re”)

•

Validus Reinsurance (Switzerland) Ltd (Bermuda Branch) – Class 4 insurer

•

Mont Fort Re Ltd. – Class 3 insurer

The Company’s Bermuda-based insurers are required to maintain minimum statutory capital and surplus equal to the greater of a Minimum Margin of Solvency (“MMS”) and the Enhanced Capital Requirement (“ECR”) where applicable. The ECR is equal to the higher of the MMS or the Bermuda Solvency Capital Requirement (“BSCR”) model or approved internal capital model. The required statutory capital and surplus as at December 31, 2022 of $1,227,798, which exceeds the December 31, 2022 MMS of $512,436, is primarily based on actual December 2022 ECR. The required statutory capital and surplus as at December 31, 2021 of $1,210,720 is based primarily on the actual December 31, 2021 ECR, which exceeded the December 31, 2021 MMS of $591,332. In addition, Mont Fort Re Ltd., a wholly-owned subsidiary of the Company, has a modified MMS of $370 as at December 31, 2022 and 2021.

At December 31, 2022 and 2021, the actual statutory capital and surplus of the Bermuda-based insurance subsidiaries exceeded the relevant regulatory requirements.

The ability of the Company’s Bermuda-based subsidiaries to pay dividends to the Company is limited under Bermuda law and regulations. The Insurance Act provides that Class 4 insurers may not declare or pay, in any financial year, dividends of more than 25% of its total statutory capital and surplus (as shown on its statutory balance sheet in relation to the previous financial year) unless it files with the BMA at least seven days prior to the payment, an affidavit signed by at least two directors and such insurance subsidiary’s principal representative, stating that in their opinion, such subsidiary will continue to satisfy the required margins following declaration of those dividends, however, there is no additional requirement for BMA approval.

In addition, before reducing its total statutory capital by 15% or more (as set out in its previous year’s statutory financial statements), Class 4 Bermuda insurers must make application to the BMA for permission to do so. Such application shall consist of an affidavit signed by at least two directors and such insurance subsidiary’s principal representative stating that in their opinion, the proposed reduction in capital will not cause such subsidiaries to fail to meet its relevant margins, and such other information as the BMA may require. A Class 3 insurer, before reducing by 15% or more of its total statutory capital, as set out in its previous year’s financial statements, is required to apply to the BMA for its approval and provide such information as the BMA may require.

As at December 31, 2022, the Company’s Bermuda insurance subsidiaries have the ability to distribute up to $839,691 (December 31, 2021: $1,078,309) of unrestricted net assets as dividend payments and/or return of capital to the Company without prior regulatory approval.

The Company’s primary restrictions on net assets of insurance subsidiaries consist of regulatory requirements placed upon the regulated insurance subsidiaries to hold minimum amounts of total statutory capital and surplus. There were no other material restrictions on net assets in place as at December 31, 2022 and 2021.

The Company’s primary operating subsidiary in Bermuda, Validus Re, maintains branch offices in Singapore and Canada. As the branch offices are not considered separate entities for regulatory purposes, the required and actual statutory capital and surplus amount includes amounts, as set out above, related to the applicable branch offices.

Page 52 | 54

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

18.

Statutory and regulatory requirements (continued)

Singapore

The Singapore branch office is subject to capital a minimum adequacy requirement of SGD 5,000 as established by the Monetary Authority of Singapore as at December 31, 2022 and 2021.

At December 31, 2022 and 2021, the actual capital and assets for the branch office exceeded the relevant local regulatory requirements.

Canada

The Canada branch office is subject to regulation by the Office of the Superintendent of Financial Institutions Canada (“OSFI”). Under regulations and guidelines prescribed by OSFI, the Canada branch office is required to maintain prescribed levels of capital, which are dependent on the type and amount of insurance policies in force and the nature of the Canada branch office’s assets. At December 31, 2022, the margin of net assets required is CAD 814. The revised margin of net assets required as at December 31, 2021 of CAD 466 is based on the actual December 31, 2021 Branch Adequacy of Assets Test.

At December 31, 2022 and 2021, the actual capital and assets for the branch office exceeded the relevant local regulatory requirements.

Switzerland

Validus Re Swiss is a société anonyme headquartered in Zurich, Switzerland. The conduct of reinsurance business by a company headquartered in Switzerland requires a license granted by the Swiss Financial Market Supervisory Authority (“FINMA”). Validus Re Swiss maintains a branch office in Bermuda, Validus Reinsurance (Switzerland) Ltd (Bermuda Branch), a Class 4 insurer.

Required statutory capital and surplus is based on the Target Capital requirements calculated under the Swiss Solvency Test (“SST”) and includes both Validus Re Swiss and its Bermuda branch. At December 31, 2022 and 2021, the actual capital and assets exceeded the relevant local regulatory requirements.

Validus Re Swiss is funded by equity in the form of paid in capital by shares and in share premium. Under Swiss corporate law as modified by insurance supervisory law, a non-life insurance company is obliged to contribute to statutory legal reserves a minimum of 20% of any annual profit up to 50% of paid-in share capital. Validus Re Swiss has been substantially funded by reserves from capital contribution (share premium). Share premium can be distributed to shareholders without being subject to withholding tax. The distribution of any dividend to shareholders is subject to the maintenance of solvency and the interests of the reinsureds and creditors, and under certain circumstances, may also require the approval of FINMA.

Validus Reinsurance (Switzerland) Ltd (Bermuda Branch) is exempt from filing an Annual Statutory Financial Return and Annual Capital and Solvency Return but is subject to the minimum required statutory capital and surplus requirements for Class 4 insurers and the SST. At December 31, 2022 and 2021, the branch was in compliance with all relevant regulatory requirements.

Page 53 | 54

Validus Holdings, Ltd.

Notes to the Consolidated Financial Statements

For the years ended December 31, 2022 and 2021

Expressed in thousands of U.S. dollars, except share amounts

19.

Subsequent events

Management has evaluated the need to disclose events that occurred subsequent to the balance sheet date through October 27, 2023, the date these financial statements were available to be issued.

Effective January 1, 2023, the Company renegotiated the adverse development excess of loss reinsurance agreement with a wholly-owned subsidiary of AIG, under which risk was transferred for certain of the Company’s ultimate net loss reserves at December 31, 2022. The transaction was accounted for as retroactive reinsurance resulting in a loss of $10,271.

On May 22, 2023, AIG announced it had entered into a definitive agreement to sell its reinsurance business, which includes Validus Holdings, Ltd. and parts of Validus Specialty, LLC, to RenaissanceRe Holdings Ltd. (“RenaissanceRe”) for $2.985 billion, consisting of $2.735 billion in cash and $250 million in RenaissanceRe common shares in addition to other consideration. The sale includes Validus Re, AlphaCat Managers and Talbot treaty business but does not include Talbot’s non-treaty business and Western World, which remain strategic to AIG. The transaction is expected to close in the fourth quarter of 2023, subject to regulatory approvals.

On September 21, 2023, AIG completed the buyback of Validus Holdings, Ltd. Senior notes in full.

On October 1, 2023, all the intercompany retrocessional protections entered into with wholly-owned subsidiaries of AIG were commuted.

On October 13, 2023, the Company approved the distribution to its immediate parent company the loan from Flagstone Reinsurance (Luxembourg), S.à r.l., a subsidiary of the Company, to AIG Investments UK Ltd. with a principal amount of $400,000 bearing an annual interest rate of 5.09% and maturing on September 23, 2024.

On October 13, 2023, the Company approved the distribution to its immediate parent company the loan from AIG International Holdings GmbH with a principal amount of $339,691 bearing an annual interest rate of 4.60% and maturing on September 1, 2027.

On October 13, 2023, the Company approved the distribution to its immediate parent company the loan from Validus Reinsurance, Ltd., a subsidiary of the Company, to AIG International Holdings GmbH with a principal amount of $265,343 bearing an annual interest rate of 5.02% and maturing on August 31, 2027.

On October 27, 2023, in conjunction with the requirements of the definitive agreement with RenaissanceRe, the Company declared a dividend of $562,509 in cash to its immediate parent AIG Property Casualty International LLC.

Page 54 | 54

RenaissanceRe (RNR) 8-K/AFinancial Statements and Exhibits