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Validus Announces Full Year 2012 Net Income Of $408.4 Million And Fourth Quarter 2012 Net Loss Of $(90.7) Million

Operating results of Flagstone have been included in the consolidated financial statements from the November 30, 2012 acquisition date. The aggregate purchase price paid for Flagstone by the Company was $646.0 million for adjusted net assets acquired of $695.7 million. The Company expensed as incurred $2.0 million of transaction expenses, $20.2 million of termination expenses and $6.0 million for amortization of intangibles related to the acquisition for the three months ended December 31, 2012, resulting in a gain on bargain purchase, net of expenses of $21.5 million for the quarter. Transaction expenses are comprised of primarily legal and corporate advisory services.

January 2013 Reinsurance Renewals - Validus Re and AlphaCat segments

During the January 2013 renewal season, the Validus Re and AlphaCat segments underwrote $655.6 million in gross premiums written, an increase of 12.7% from the prior year period. This renewal data does not include Talbot's operations as its business is distributed relatively evenly throughout the year.

Below is a table outlining the Validus Re and AlphaCat segments' January 2013 reinsurance renewals.

January 2013 Gross Premiums Written
Validus Re segment
  U.S. International
Property Property Marine Specialty Total
(Expressed in millions of U.S. dollars)
2013 (a) $ 150.5 $ 157.5 $ 142.6 $

121.8

$

572.4

2012 $ 150.8   $ 140.3   $ 166.5   $ 45.2   $ 502.8  
Increase (Decrease) (0.2 )% 12.3 % (14.4 )%

169.5

%

13.8

%
 
AlphaCat segment managed premium (b)
U.S. International
Property Property Marine Specialty Total
(Expressed in millions of U.S. dollars)
2013 $ 43.4 $ 49.6 $ $ $ 93.0
2012 (c) $ 44.6   $ 34.1   $   $   $ 78.7  
Increase (Decrease) (2.7 )% 45.5 % 18.2 %
 
Validus Re segment and AlphaCat segment managed premium (including intercompany eliminations)
U.S. International
Property Property Marine Specialty Total
(Expressed in millions of U.S. dollars)
2013 (a) (d) $ 186.2 $ 205.0 $ 142.6 $

121.8

$

655.6

2012 $ 195.5   $ 174.4   $ 166.5   $ 45.2   $ 581.6  
Increase (Decrease) (4.8 )% 17.5 % (14.4 )%

169.5

%

12.7

%
(a)   The 2013 Validus Re segment premiums include the impact of the Flagstone acquisition. The 2012 comparative figures do not include Flagstone.
 
(b) AlphaCat segment managed premium includes AlphaCat Re 2011, Ltd., AlphaCat Re 2012, Ltd. and AlphaCat 2013, Ltd., which are accounted for as investments in operating affiliates, under the equity method. Managed premium also includes PaCRe, Ltd. and AlphaCat ILS funds.
 
(c) Included in the 2012 renewal information is $76.1 million of managed premium written by AlphaCat Re 2011 ($42.3 million in the U.S. Property class and $33.8 million in the International Property class).
 

(d)

An inter-segment elimination between AlphaCat and Validus Re totaling $9.8 million for 2013 has been considered in calculating these totals. This elimination relates to business ceded by Validus Re to AlphaCat through a variable quota share arrangement. There was no comparative elimination for 2012.

Fourth Quarter 2012 Results

Highlights for the fourth quarter include the following:

  • Total managed gross premiums written which include gross premiums written from our non-consolidated affiliates, AlphaCat Re 2011, Ltd. ("AlphaCat Re 2011") and AlphaCat Re 2012, Ltd. ("AlphaCat Re 2012"), for the three months ended December 31, 2012 were $311.8 million compared to $278.3 million for the three months ended December 31, 2011, an increase of $33.5 million or 12.0%.
  • Gross premiums written for the three months ended December 31, 2012 were $311.8 million compared to $278.3 million for the three months ended December 31, 2011, an increase of $33.6 million, or 12.1%.
  • Net premiums earned for the three months ended December 31, 2012 were $499.3 million compared to $488.3 million for the three months ended December 31, 2011, an increase of $10.9 million, or 2.2%.
  • Underwriting loss for the three months ended December 31, 2012 was $(113.1) million compared to underwriting income of $12.8 million for the three months ended December 31, 2011, a decrease of $125.8 million, or 985.1%.
  • Combined ratio of 122.7% which included $57.2 million of favorable loss reserve development on prior accident years, benefiting the loss ratio by 11.5 percentage points.
  • Net operating loss attributable to Validus for the three months ended December 31, 2012 was $(100.8) million compared to net operating income available to Validus of $23.4 million for the three months ended December 31, 2011, a decrease of $124.2 million, or 530.9%.
  • Net loss attributable to Validus for the three months ended December 31, 2012 was $(90.7) million compared to net income available to Validus of $27.3 million for the three months ended December 31, 2011, a decrease of $118.0 million, or 432.0%.
  • Annualized return on average equity of (9.5)% and annualized net operating return on average equity of (10.5)%.

Full Year 2012 Results

Highlights for the year ended December 31, 2012 include the following:

  • Total managed gross premiums written which include gross premiums written from our non-consolidated affiliates, AlphaCat Re 2011 and AlphaCat Re 2012, for the year ended December 31, 2012 were $2,292.9 million compared to $2,124.7 million for the year ended December 31, 2011, an increase of $168.2 million, or 7.9%.
  • Gross premiums written for the year ended December 31, 2012 were $2,166.4 million compared to $2,124.7 million for the year ended December 31, 2011, an increase of $41.7 million, or 2.0%.
  • Net premiums earned for the year ended December 31, 2012 were $1,873.2 million compared to $1,802.1 million for the year ended December 31, 2011, an increase of $71.1 million, or 3.9%.
  • Underwriting income for the year ended December 31, 2012 was $248.7 million compared to $11.8 million for the year ended December 31, 2011, an increase of $236.9 million, or 2,014.0%.
  • Combined ratio of 86.8% which included $175.0 million of favorable loss reserve development on prior accident years, benefiting the loss ratio by 9.3 percentage points.
  • Net operating income available to Validus for the year ended December 31, 2012 was $333.8 million compared to $52.3 million for the year ended December 31, 2011, an increase of $281.5 million, or 537.8%.
  • Net income available to Validus for the year ended December 31, 2012 was $408.4 million compared to $21.3 million for the year ended December 31, 2011, an increase of $387.1 million, or 1,814.9%.
  • Annualized return on average equity of 11.3% and annualized net operating return on average equity of 9.2%.

Notable Loss Events

During the three months ended December 31, 2012, the Company incurred net losses and loss expenses of $361.0 million from notable loss events which represented 72.3 percentage points of the loss ratio. Including the impact of $36.4 million of reinstatement premiums, the effect of these events on net income was a decrease of $324.6 million. For the three months ended December 31, 2011, the Company incurred $54.1 million of losses from notable loss events, which represented 11.1 percentage points of the loss ratio. Including the impact of $(1.3) million of reinstatement premiums, the effect of these events on net income was a decrease of $55.5 million. The Company's loss ratio, excluding prior year development, and notable loss events for the three months ended December 31, 2012 and 2011 was 31.0% and 50.3%, respectively. The Company did not establish a reserve for potential development on notable loss events for 2012. The financial impact from Hurricane Sandy on the results for the three months ended December 31, 2012 is consistent with the initial estimate announced on December 21, 2012.

    Three Months Ended December 31, 2012
(U.S. Dollars in thousands)  
Fourth Quarter 2012 Notable Loss Events (a) Validus Re     Talbot     Total  
Description  

Net Losses and Loss Expenses (b)

  % of NPE

Net Losses and Loss Expenses (b)

  % of NPE

Net Losses and Loss Expenses (b)

  % of NPE
Hurricane Sandy (d) Windstorm $ 282,603   99.1 % $ 78,433   37.7 % $ 361,036   72.3 %
Total $ 282,603   99.1 % $ 78,433   37.7 % $ 361,036   72.3 %
 
Three Months Ended December 31, 2011
(U.S. Dollars in thousands)  
Fourth Quarter 2011 Notable Loss Events (a) Validus Re   Talbot   Total  
Description

Net Losses and Loss Expenses (b)

% of NPE (c)

Net Losses and Loss Expenses (b)

% of NPE

Net Losses and Loss Expenses (b)

% of NPE
Thailand Floods Multiple flooding events $ 22,964   9.1 % $ 31,184   14.9 % $ 54,148   11.1 %
Total $ 22,964   9.1 % $ 31,184   14.9 % $ 54,148   11.1 %
(a)   These notable loss event amounts were based on management's estimates following a review of the Company's potential exposure and discussions with certain clients and brokers. Given the magnitude and recent occurrence of these events, and other uncertainties inherent in loss estimation, meaningful uncertainty remains regarding losses from these events and the Company's actual ultimate net losses from these events may vary materially from these estimates.
 
(b) Net of reinsurance but not net of reinstatement premiums. Total reinstatement premiums were $36.4 million and $(1.3) million for the three months ended December 31, 2012 and December 31, 2011, respectively.
 
(c) 2011 loss ratios for the Validus Re segment have been represented to exclude the impact of the AlphaCat segment.
 
(d) The AlphaCat segment's non-consolidated affiliates incurred net loss and loss expenses of $8.4 million related to Hurricane Sandy for the three months ended December 31, 2012. These losses are not included in the table above as the entities are accounted for as investments in operating affiliates.

Validus Re Segment Results

Gross premiums written for the three months ended December 31, 2012 were $79.2 million compared to $55.9 million for the three months ended December 31, 2011, an increase of $23.4 million, or 41.9%. Gross premiums written for the three months ended December 31, 2012 included $54.9 million of property premiums, $8.6 million of marine premiums and $15.7 million of specialty premiums compared to $34.1 million of property premiums, $9.7 million of marine premiums and $12.1 million of specialty premiums for the three months ended December 31, 2011.

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