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Validus Announces Third Quarter 2012 Net Operating Income Of $170.6 Million, Diluted Book Value Growth Of 14.7% Year To Date Inclusive Of Dividends

Stocks in this article: VR

This conference call will also be available through a live audio webcast accessible through the Investor Relations section of the Company's website located at www.validusholdings.com. A replay of the webcast will be available at the Investor Relations section of the Company's website through November 9, 2012. In addition, a financial supplement relating to the Company's financial results for the three and nine months ended September 30, 2012 is available in the Investor Relations section of the Company's website.

About Validus Holdings, Ltd.

Validus Holdings, Ltd. is a provider of reinsurance and insurance, conducting its operations worldwide through two wholly-owned subsidiaries, Validus Reinsurance, Ltd. and Talbot Holdings Ltd. Validus Re is a Bermuda based reinsurer focused on short-tail lines of reinsurance. Talbot is the Bermuda parent of the specialty insurance group primarily operating within the Lloyd's insurance market through Syndicate 1183.

       
Validus Holdings, Ltd.

Consolidated Balance Sheets

As at September 30, 2012 (unaudited) and December 31, 2011

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

 

 
  September 30, 2012 December 31, 2011
(unaudited)
Assets
Fixed maturities, at fair value (amortized cost: 2012—$4,803,217; 2011—$4,859,705)

$

4,887,622

$ 4,894,145
Short-term investments, at fair value (amortized cost: 2012—$275,099; 2011—$280,299) 275,324 280,191
Other investments, at fair value (amortized cost: 2012—$511,310; 2011—$15,002) 525,441 16,787
Cash and cash equivalents 1,005,829   832,844  
Total investments and cash 6,694,216 6,023,967
Investments in affiliates 99,312 53,031
Premiums receivable 781,991 646,354
Deferred acquisition costs 155,456 121,505
Prepaid reinsurance premiums 144,788 91,381
Securities lending collateral 10,383 7,736
Loss reserves recoverable 317,252 372,485
Paid losses recoverable 36,209 90,495
Income taxes recoverable 5,019
Intangible assets 111,611 114,731
Goodwill 20,393 20,393
Accrued investment income 19,945 25,906
Other assets   67,245     50,487  
Total assets $ 8,463,820   $ 7,618,471  
 
Liabilities
Reserve for losses and loss expenses $ 2,562,604 $ 2,631,143
Unearned premiums 1,034,605 772,382
Reinsurance balances payable 87,955 119,899
Securities lending payable 10,849 8,462
Deferred income taxes 22,848

 

16,720
Net payable for investments purchased 26,629 1,256
Accounts payable and accrued expenses 86,128 83,402
Senior notes payable 247,063 246,982
Debentures payable   289,800     289,800  
Total liabilities   4,368,481     4,170,046  
 
Commitments and contingent liabilities
 
Shareholders' equity
Common shares, 571,428,571 authorized, par value $0.175 (Issued: 2012—136,632,448; 2011—134,503,065; Outstanding: 2012—93,494,391; 2011—99,471,080) 23,911 23,538
Treasury shares (2012—43,138,057; 2011—35,031,985) (7,549 )

 

 

(6,131 )
Additional paid-in-capital 1,657,767 1,893,890
Accumulated other comprehensive (loss) (4,565 ) (6,601 )
Retained earnings   1,964,289     1,543,729  
Total shareholders' equity available to Validus   3,633,853     3,448,425  
 
Noncontrolling interest 461,486
       
Total shareholders' equity   4,095,339     3,448,425  
 
Total liabilities and shareholders' equity $ 8,463,820   $ 7,618,471  
       
Validus Holdings, Ltd.

Consolidated Statement of Operations

For the three and nine months ended September 30, 2012 and 2011 (unaudited)

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

 

 

Three Months Ended September 30,

Nine Months Ended September 30,

(unaudited)   (unaudited)  
2012     2011   2012     2011  
Underwriting income
Gross premiums written $ 390,215 $ 391,129 $ 1,854,593 $ 1,846,412
Reinsurance premiums ceded   (45,743 )   (30,586 )   (271,847 )   (272,752 )
Net premiums written 344,472 360,543 1,582,746 1,573,660
Change in unearned premiums   130,632     98,081     (208,816 )   (259,863 )
Net premiums earned   475,104     458,624     1,373,930     1,313,797  
 
Underwriting deductions
Losses and loss expenses 155,455 226,067 541,136 909,572
Policy acquisition costs 98,623 77,405 252,884 232,931
General and administrative expenses 70,547 35,926 198,557 145,244
Share compensation expenses   7,345     7,382     19,583     27,059  
Total underwriting deductions   331,970     346,780     1,012,160     1,314,806  
 
Underwriting income (loss) $ 143,134 $ 111,844 $ 361,770 $ (1,009 )
 
Net investment income 25,489 27,747 79,134 84,216
Other income 7,324 22,209 2,201
Finance expenses   (9,362 )   (10,935 )   (39,347 )   (41,297 )
Operating income before taxes and income from operating affiliates $ 166,585 $ 128,656 $ 423,766 $ 44,111
Tax (expense) (1,343 ) (2,538 ) (1,886 ) (1,050 )
Income from operating affiliates   6,235         13,194      
Net operating income $ 171,477 $ 126,118 $ 435,074 $ 43,061
 
Net realized gains on investments 9,063 5,246 22,749 23,177
Net unrealized gains (losses) on investments 86,345 (27,848 ) 53,442 (22,150 )
(Loss) from investment affiliate (160 ) (558 )
Foreign exchange gains (losses) 1,103 (19,932 ) 3,617 (22,390 )
Transaction expenses (a)   (3,784 )   (13,583 )   (3,784 )   (13,583 )
Net income $ 264,044 $ 70,001 $ 510,540 $ 8,115
 
Net (income) attributable to noncontrolling interest (56,746 ) (13,516 ) (11,386 ) (14,110 )
               
Net income (loss) available (attributable) to Validus $ 207,298   $ 56,485   $ 499,154   $ (5,995 )
 
Selected ratios:
Net premiums written / Gross premiums written 88.3 % 92.2 % 85.3 % 85.2 %
 
Losses and loss expenses 32.7 % 49.3 % 39.4 % 69.2 %
Policy acquisition costs 20.8 % 16.9 % 18.4 % 17.7 %
General and administrative expenses   16.4 %   9.4 %   15.9 %   13.1 %
Expense ratio   37.2 %   26.3 %   34.3 %   30.8 %
 
Combined ratio   69.9 %   75.6 %   73.7 %   100.0 %
 
(a) The transaction expenses relate to costs incurred in connection with the proposed acquisition of Flagstone Reinsurance Holdings, S.A. The transaction expenses for 2011 relate to costs incurred in connection with the Company's proposed acquisition of Transatlantic Holdings, Inc. Transaction expenses are primarily comprised of legal, financial advisory and audit related services.
       
Validus Holdings, Ltd.

Consolidated Segment Underwriting Income (Loss)

For the three and nine months ended September 30, 2012 and 2011 (unaudited)

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

 

 
Three Months Ended September 30, Nine Months Ended September 30,
(unaudited)   (unaudited)  
2012     2011   2012     2011  

Validus Re

Gross premiums written $ 145,010 $ 163,863 $ 1,052,726 $ 1,058,642
Reinsurance premiums ceded   (10,426 )   (5,646 )   (137,504 )   (150,669 )
Net premiums written 134,584 158,217 915,222 907,973
Change in unearned premiums   107,728     81,997     (177,215 )   (194,529 )
Net premiums earned   242,312     240,214     738,007     713,444  
 
Losses and loss expenses 66,890 128,823 244,286 533,402
Policy acquisition costs 37,785 40,592 113,659 115,355
General and administrative expenses 16,938 7,358 48,332 32,947
Share compensation expenses   2,076     2,190     5,914     7,118  
Total underwriting deductions   123,689     178,963     412,191     688,822  
 
Underwriting income   118,623     61,251     325,816     24,622  
 

AlphaCat

Gross premiums written $ 2,934 $ 18,940 $ 21,607 $ 77,050
Reinsurance premiums ceded                
Net premiums written 2,934 18,940 21,607 77,050
Change in unearned premiums   2,591     8,758     (9,832 )   (37,595 )
Net premiums earned   5,525     27,698     11,775     39,455  
 
Losses and loss expenses
Policy acquisition costs 547 3,326 1,185 4,615
General and administrative expenses 2,087 2,167 5,521 4,122
Share compensation expenses   84     26     195     74  
Total underwriting deductions   2,718     5,519     6,901     8,811  
 
Underwriting income   2,807     22,179     4,874     30,644  
 

Talbot

Gross premiums written $ 260,755 $ 238,937 $ 837,536 $ 778,880
Reinsurance premiums ceded   (53,801 )   (55,551 )   (191,619 )   (190,243 )
Net premiums written 206,954 183,386 645,917 588,637
Change in unearned premiums   20,313     7,326     (21,769 )   (27,739 )
Net premiums earned   227,267     190,712     624,148     560,898  
 
Losses and loss expenses 88,565 97,244 296,850 376,170
Policy acquisition costs 61,640 36,651 142,181 116,174
General and administrative expenses 36,605 21,745 100,910 82,396
Share compensation expenses   2,200     1,903     5,347     6,648  
Total underwriting deductions   189,010     157,543     545,288     581,388  
 
Underwriting income (loss)   38,257     33,169     78,860     (20,490 )
 
       
Validus Holdings, Ltd.

Consolidated Segment Underwriting Income (Loss)

For the three and nine months ended September 30, 2012 and 2011 (unaudited)

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

 

 
Three Months Ended September 30, Nine Months Ended September 30,
(unaudited)   (unaudited)  
2012     2011   2012     2011  

Corporate & Eliminations

Gross premiums written $ (18,484 ) $ (30,611 ) $ (57,276 ) $ (68,160 )
Reinsurance premiums ceded   18,484     30,611     57,276     68,160  
Net premiums written
Change in unearned premiums                
Net premiums earned                
 
Losses and loss expenses
Policy acquisition costs (1,349 ) (3,164 ) (4,141 ) (3,213 )
General and administrative expenses 14,917 4,656 43,794 25,779
Share compensation expenses   2,985     3,263     8,127     13,219  
Total underwriting deductions   16,553     4,755     47,780     35,785  
 
Underwriting (loss)   (16,553 )   (4,755 )   (47,780 )   (35,785 )
               
Total underwriting income (loss) $ 143,134   $ 111,844   $ 361,770   $ (1,009 )
 
       
Validus Holdings, Ltd.

Non-GAAP Financial Measure Reconciliation

Managed Gross Premiums Written

For the three and nine months ended September 30, 2012 and 2011 (unaudited)

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

 

 
Three Months Ended Nine Months Ended
(unaudited)   (unaudited)
September 30,   September 30, September 30,   September 30,
2012   2011(a)   2012   2011(a)
 
Total gross premiums written $ 390,215 $ 391,129 $ 1,854,593 $ 1,846,412
Adjustments for:
Gross premiums written on behalf of AlphaCat Re 2011 7,604 94,309
Gross premiums written on behalf of AlphaCat Re 2012   1,658         32,216    
Total managed gross premiums written $ 399,477   $ 391,129   $ 1,981,118   $ 1,846,412
 

(a) Total gross premiums written for the three and nine months ended September 30, 2011 included $18.8 million and $61.4 million, respectively, of gross premiums written from AlphaCat Re 2011, which was a consolidated subsidiary during the three months ended June 30, September 30 and December 31, 2011. The balance sheet of AlphaCat Re 2011 was deconsolidated as at December 31, 2011.

       
Validus Holdings, Ltd.

Non-GAAP Financial Measure Reconciliation

Net Operating Income (Loss), Net Operating Income (Loss) per share,

and Annualized Net Operating Return on Average Equity

For the three and nine months ended September 30, 2012 and 2011 (unaudited)

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

 

 
Three Months Ended Nine Months Ended
  (unaudited)   (unaudited)  
September 30,   September 30, September 30,   September 30,
  2012   2011   2012   2011
 
Net income (loss) available (attributable) to Validus $ 207,298 $ 56,485 $ 499,154 $ (5,995 )
Adjustments for:
Net realized (gains) on investments (9,063 ) (5,246 ) (22,749 ) (23,177 )
Net unrealized (gains) losses on investments (86,345 ) 27,848 (53,442 ) 22,150
Loss from investment affiliate 160 558
Foreign exchange (gains) losses (1,103 ) 19,932 (3,617 ) 22,390
Transaction expenses (a) 3,784 13,583 3,784 13,583
Net income attributable to noncontrolling interest 55,821     10,940    
Net operating income available to Validus 170,552 112,602 434,628 28,951
Less: Dividends and distributions declared on outstanding warrants   (1,663 )   (1,966 )   (5,121 )   (5,916 )
Net operating income available to Validus, adjusted $ 168,889   $ 110,636   $ 429,507   $ 23,035  
 
Net income (loss) per share available (attributable) to Validus - diluted $ 2.11 $ 0.54 $ 4.88 $ (0.12 )
Adjustments for:
Net realized (gains) on investments (0.09 ) (0.04 ) (0.22 ) (0.22 )
Net unrealized (gains) losses on investments (0.88 ) 0.27 (0.52 ) 0.22
Loss from investment affiliate
Foreign exchange (gains) losses (0.01 ) 0.19 (0.04 ) 0.22
Transaction expenses (a) 0.04 0.13 0.04 0.13
Net income attributable to noncontrolling interest   0.57         0.11      
Net operating income per share available (attributable) to Validus - diluted $ 1.74   $ 1.09   $ 4.25   $ 0.23  
 
Weighted average number of common shares and common share equivalents 98,236,490 103,482,263 102,333,515 100,796,280
 
Average shareholders' equity available to Validus $ 3,555,844 $ 3,426,093 $ 3,524,906 $ 3,418,085
 
Annualized net operating return on average equity   19.2 %   13.1 %   16.4 %   1.1 %
 
(a) The transaction expenses relate to costs incurred in connection with the proposed acquisition of Flagstone Reinsurance Holdings, S.A. The transaction expenses for 2011 relate to costs incurred in connection with the Company's proposed acquisition of Transatlantic Holdings, Inc. Transaction expenses are primarily comprised of legal, financial advisory and audit related services.
     
Validus Holdings, Ltd.

Non-GAAP Financial Measure Reconciliation

Book Value and Diluted Book Value per Common Share

As at September 30, 2012 (unaudited) and December 31, 2011

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

 

 
As at September 30, 2012
(unaudited)

Equity Amount

    Shares    

Exercise Price

   

Book Value Per Share

Book value per common share        
Total shareholders' equity available to Validus $ 3,633,853 93,494,391 $ 38.87
 
Diluted book value per common share
Total shareholders' equity available to Validus 3,633,853 93,494,391
Assumed exercise of outstanding warrants 116,822 6,652,550 $ 17.56
Assumed exercise of outstanding stock options 37,745 1,823,947 $ 20.69
Unvested restricted shares       2,468,053  
Diluted book value per common share $ 3,788,420     104,438,941   $ 36.27
 
As at December 31, 2011

Equity Amount

  Shares  

Exercise Price

 

Book Value Per Share

Book value per common share
Total shareholders' equity available to Validus $ 3,448,425 99,471,080 $ 34.67
 
Diluted book value per common share
Total shareholders' equity available to Validus 3,448,425 99,471,080
Assumed exercise of outstanding warrants 121,445 6,916,677 $ 17.56
Assumed exercise of outstanding stock options 45,530 2,263,012 $ 20.12
Unvested restricted shares       3,340,729  
Diluted book value per common share $ 3,615,400     111,991,498   $ 32.28
 

Cautionary Note Regarding Forward-Looking Statements

This press release may include forward-looking statements, both with respect to the Company and its industry, that reflect our current views with respect to future events and financial performance. Statements that include the words "expect", "intend", "plan", "believe", "project", "anticipate", "will", "may" and similar statements of a future or forward-looking nature identify forward-looking statements. All forward-looking statements address matters that involve risks and uncertainties, many of which are beyond the Company's control. Accordingly, there are or will be important factors that could cause actual results to differ materially from those indicated in such statements and, therefore, you should not place undue reliance on any such statements. We believe that these factors include, but are not limited to, the following: 1) unpredictability and severity of catastrophic events; 2) rating agency actions; 3) adequacy of Validus' risk management and loss limitation methods; 4) cyclicality of demand and pricing in the insurance and reinsurance markets; 5) statutory or regulatory developments including tax policy, reinsurance and other regulatory matters; 6) Validus' ability to implement its business strategy during "soft" as well as "hard" markets; 7) adequacy of Validus' loss reserves; 8) continued availability of capital and financing; 9) retention of key personnel; 10) competition; 11) potential loss of business from one or more major insurance or reinsurance brokers; 12) Validus' ability to implement, successfully and on a timely basis, complex infrastructure, distribution capabilities, systems, procedures and internal controls, and to develop accurate actuarial data to support the business and regulatory and reporting requirements; 13) general economic and market conditions (including inflation, volatility in the credit and capital markets, interest rates and foreign currency exchange rates); 14) the integration of businesses Validus may acquire or new business ventures Validus may start; 15) the effect on Validus' investment portfolios of changing financial market conditions including inflation, interest rates, liquidity and other factors; 16) acts of terrorism or outbreak of war; and 17) availability of reinsurance and retrocessional coverage, as well as management's response to any of the aforementioned factors.

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