Third Quarter 2012 Results

Highlights for the third 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 September 30, 2012 were $399.5 million compared to $391.1 million for the three months ended September 30, 2011, an increase of $8.3 million or 2.1%.
  • Gross premiums written for the three months ended September 30, 2012 were $390.2 million compared to $391.1 million for the three months ended September 30, 2011, a decrease of $0.9 million, or 0.2%.
  • Net premiums earned for the three months ended September 30, 2012 were $475.1 million compared to $458.6 million for the three months ended September 30, 2011, an increase of $16.5 million, or 3.6%.
  • Underwriting income for the three months ended September 30, 2012 was $143.1 million compared to $111.8 million for the three months ended September 30, 2011, an increase of $31.3 million, or 28.0%.
  • Combined ratio of 69.9% which included $49.8 million of favorable loss reserve development on prior accident years, benefiting the loss ratio by 10.5 percentage points.
  • Net operating income available to Validus for the three months ended September 30, 2012 was $170.6 million compared to $112.6 million for the three months ended September 30, 2011, an increase of $58.0 million, or 51.5%.
  • Net income available to Validus for the three months ended September 30, 2012 was $207.3 million compared to $56.5 million for the three months ended September 30, 2011, an increase of $150.8 million, or 267.0%.
  • Annualized return on average equity of 23.3% and annualized net operating return on average equity of 19.2%.

Highlights for the year to date 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 nine months ended September 30, 2012 were $1,981.1 million compared to $1,846.4 million for the nine months ended September 30, 2011, an increase of $134.7 million or 7.3%.
  • Gross premiums written for the nine months ended September 30, 2012 were $1,854.6 million compared to $1,846.4 million for the nine months ended September 30, 2011, an increase of $8.2 million, or 0.4%.
  • Net premiums earned for the nine months ended September 30, 2012 were $1,373.9 million compared to $1,313.8 million for the nine months ended September 30, 2011, an increase of $60.1 million, or 4.6%.
  • Underwriting income for the nine months ended September 30, 2012 was $361.8 million compared to an underwriting (loss) of $(1.0) million for the nine months ended September 30, 2011, an increase of $362.8 million.
  • Combined ratio of 73.7% which included $117.7 million of favorable loss reserve development on prior accident years, benefiting the loss ratio by 8.6 percentage points.
  • Net operating income available to Validus for the nine months ended September 30, 2012 was $434.6 million compared to $29.0 million for the nine months ended September 30, 2011, an increase of $405.7 million.
  • Net income available to Validus for the nine months ended September 30, 2012 was $499.2 million compared to a net (loss) attributable to Validus of $(6.0) million for the nine months ended September 30, 2011, an increase of $505.1 million.
  • Annualized return on average equity of 18.9% and annualized net operating return on average equity of 16.4%.

Notable Loss Events

During the three months ended September 30, 2012, the Company incurred losses and loss expenses of $37.2 million from notable loss events which represented 7.8 percentage points of the loss ratio. Including the impact of $1.6 million of reinstatement premiums, the effect of these events on net income was a decrease of $35.6 million. For the three months ended September 30, 2011, the Company incurred $51.9 million of losses from notable loss events, which represented 11.3 percentage points of the loss ratio. Including the impact of $4.0 million of reinstatement premiums, the effect of these events on net income was a decrease of $47.9 million. The Company's loss ratio, excluding prior year development and notable loss events, for the three months ended September 30, 2012 and 2011 was 35.4% and 51.3%, respectively.
           
Three Months Ended September 30, 2012
(U.S. Dollars in thousands)

 
Third 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
U.S. drought Drought $ 22,021 9.1 % $ 0.0 % $ 22,021 4.6 %
Hurricane Isaac Windstorm 13,459   5.6 % 1,750   0.8 % 15,209   3.2 %
Total $ 35,480   14.7 % $ 1,750   0.8 % $ 37,230   7.8 %
 
Three Months Ended September 30, 2011
(U.S. Dollars in thousands)

 
Third 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
Danish flood Rainstorm $ 16,429 6.8 % $ 3,000 1.6 % $ 19,429 4.2 %
Hurricane Irene Windstorm 22,951   9.6 % 9,500   5.0 % 32,451   7.1 %
Total $ 39,380   16.4 % $ 12,500   6.6 % $ 51,880   11.3 %
 
(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 $1.6 million and $4.0 million for the three months ended September 30, 2012 and September 30, 2011, respectively.
 
(c) 2011 loss ratios for the Validus Re segment have been represented to exclude the impact of the AlphaCat segment.

Validus Re Segment Results

Gross premiums written for the three months ended September 30, 2012 were $145.0 million compared to $163.9 million for the three months ended September 30, 2011, a decrease of $18.9 million, or 11.5%. Gross premiums written for the three months ended September 30, 2012 included $106.0 million of property premiums, $25.5 million of marine premiums and $13.5 million of specialty premiums compared to $122.6 million of property premiums, $32.8 million of marine premiums and $8.5 million of specialty premiums for the three months ended September 30, 2011.

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