e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2010
Commission file number 001-33606
VALIDUS HOLDINGS, LTD.
(Exact name of registrant as specified in its charter)
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BERMUDA
(State or other jurisdiction of
incorporation or organization)
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98-0501001
(I.R.S. Employer
Identification No.) |
29 Richmond Road, Pembroke, Bermuda HM 08
(Address of principal executive offices and zip code)
(441) 278-9000
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller
reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act).
Yes o No þ
As
of November 3, 2010, there were 107,882,874 outstanding Common Shares, $0.175 par value
per share, of the registrant.
INDEX
EXHIBIT 31.1 CERTIFICATION
EXHIBIT 31.2 CERTIFICATION
EXHIBIT 32 CERTIFICATION
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
Validus Holdings, Ltd.
Consolidated Balance Sheets
As at September 30, 2010 (unaudited) and December 31, 2009
(Expressed in thousands of U.S. dollars, except share and per share information)
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September 30, |
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December 31, |
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2010 |
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2009 |
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(unaudited) |
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Assets |
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Fixed maturities, at fair value (amortized cost: 2010 - $5,105,832; 2009 - $4,870,395) |
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$ |
5,200,285 |
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$ |
4,869,378 |
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Short-term investments, at fair value (amortized cost: 2010 - $228,354; 2009 - $482,632) |
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228,356 |
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481,766 |
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Other investments, at fair value (amortized cost: 2010 - $18,392; 2009 - $35,941) |
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19,888 |
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37,615 |
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Cash and cash equivalents |
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518,770 |
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387,585 |
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Total investments and cash |
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5,967,299 |
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5,776,344 |
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Premiums receivable |
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745,968 |
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551,616 |
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Deferred acquisition costs |
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151,701 |
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112,329 |
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Prepaid reinsurance premiums |
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88,651 |
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73,164 |
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Securities lending collateral |
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33,135 |
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90,350 |
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Loss reserves recoverable |
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268,821 |
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181,765 |
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Paid losses recoverable |
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19,560 |
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14,782 |
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Income taxes recoverable |
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1,027 |
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2,043 |
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Intangible assets |
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119,935 |
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123,055 |
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Goodwill |
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20,393 |
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20,393 |
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Accrued investment income |
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41,464 |
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38,077 |
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Other assets |
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45,288 |
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35,222 |
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Total assets |
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$ |
7,503,242 |
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$ |
7,019,140 |
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Liabilities |
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Reserve for losses and loss expenses |
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$ |
2,020,845 |
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$ |
1,622,134 |
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Unearned premiums |
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955,236 |
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724,104 |
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Reinsurance balances payable |
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60,561 |
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65,414 |
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Securities lending payable |
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33,905 |
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90,106 |
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Deferred income taxes |
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23,827 |
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24,508 |
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Net payable for investments purchased |
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14,415 |
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44,145 |
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Accounts payable and accrued expenses |
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96,521 |
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127,809 |
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Senior notes payable |
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246,847 |
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Debentures payable |
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289,800 |
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289,800 |
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Total liabilities |
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3,741,957 |
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2,988,020 |
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Commitments and contingent liabilities |
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Shareholders equity |
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Common shares, 571,428,571 authorized, par value $0.175 (Issued: 2010 - 132,308,157;
2009 - 131,616,349; Outstanding: 2010 - 109,237,890; 2009 - 128,459,478) |
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23,154 |
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23,033 |
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Treasury shares (2010 - 23,070,267; 2009 - 3,156,871) |
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(4,037 |
) |
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(553 |
) |
Additional paid-in-capital |
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2,193,140 |
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2,675,680 |
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Accumulated other comprehensive (loss) |
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(4,945 |
) |
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(4,851 |
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Retained earnings |
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1,553,973 |
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1,337,811 |
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Total shareholders equity |
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3,761,285 |
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4,031,120 |
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Total liabilities and shareholders equity |
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$ |
7,503,242 |
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$ |
7,019,140 |
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The accompanying notes are an integral part of these consolidated financial statements (unaudited).
2
Validus Holdings, Ltd.
Consolidated Statements of Operations and Comprehensive Income
For the Three and Nine Months Ended September 30, 2010 and 2009 (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
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Three Months Ended |
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Nine Months Ended |
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September 30, 2010 |
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September 30, 2009 |
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September 30, 2010 |
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September 30, 2009 |
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(unaudited) |
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(unaudited) |
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(unaudited) |
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(unaudited) |
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Revenues |
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Gross premiums written |
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$ |
344,040 |
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$ |
331,028 |
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$ |
1,731,835 |
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$ |
1,365,951 |
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Reinsurance premiums ceded |
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(35,641 |
) |
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(67,687 |
) |
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(194,106 |
) |
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(202,489 |
) |
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Net premiums written |
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308,399 |
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263,341 |
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1,537,729 |
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1,163,462 |
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Change in unearned premiums |
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124,275 |
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111,376 |
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(209,417 |
) |
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(141,786 |
) |
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Net premiums earned |
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432,674 |
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374,717 |
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1,328,312 |
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1,021,676 |
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Gain on bargain purchase, net of expenses |
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302,950 |
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287,099 |
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Net investment income |
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34,033 |
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29,532 |
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103,141 |
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83,267 |
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Net realized gains (losses) on investments |
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23,058 |
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5,429 |
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46,897 |
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(20,642 |
) |
Net unrealized gains on investments |
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31,588 |
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50,437 |
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88,641 |
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109,839 |
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Other income |
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1,082 |
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1,101 |
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4,667 |
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|
2,875 |
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Foreign exchanges gains (losses) |
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10,790 |
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(5,244 |
) |
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(2,073 |
) |
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(1,012 |
) |
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Total revenues |
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533,225 |
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758,922 |
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1,569,585 |
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1,483,102 |
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Expenses |
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Losses and loss expenses |
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158,936 |
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134,152 |
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832,361 |
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390,736 |
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Policy acquisition costs |
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67,074 |
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64,236 |
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217,376 |
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190,125 |
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General and administrative expenses |
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48,831 |
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46,036 |
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154,779 |
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125,315 |
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Share compensation expenses |
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7,618 |
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5,862 |
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21,040 |
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18,848 |
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Finance expenses |
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13,715 |
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11,257 |
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42,084 |
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29,732 |
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Total expenses |
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296,174 |
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261,543 |
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1,267,640 |
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754,756 |
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Net income before taxes |
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237,051 |
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497,379 |
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301,945 |
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728,346 |
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Tax benefit (expense) |
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1,422 |
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1,799 |
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(2,068 |
) |
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3,301 |
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Net income |
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$ |
238,473 |
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$ |
499,178 |
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$ |
299,877 |
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$ |
731,647 |
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Comprehensive income |
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Foreign currency translation adjustments |
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1,781 |
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(915 |
) |
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(94 |
) |
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2,882 |
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Comprehensive income |
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$ |
240,254 |
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$ |
498,263 |
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$ |
299,783 |
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$ |
734,529 |
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Earnings per share |
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Weighted average number of common shares
and common share equivalents outstanding |
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Basic |
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110,601,888 |
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|
92,492,373 |
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|
119,414,906 |
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|
81,458,329 |
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Diluted |
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114,842,742 |
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95,834,809 |
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123,735,683 |
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84,626,505 |
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Basic earnings per share |
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$ |
2.14 |
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$ |
5.38 |
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$ |
2.47 |
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$ |
8.92 |
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Diluted earnings per share |
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$ |
2.08 |
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$ |
5.21 |
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$ |
2.42 |
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$ |
8.65 |
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Cash dividends declared per share |
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$ |
0.22 |
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$ |
0.20 |
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$ |
0.66 |
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$ |
0.60 |
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The accompanying notes are an integral part of these consolidated financial statements (unaudited).
3
Validus Holdings, Ltd.
Consolidated Statements of Shareholders Equity
For the Nine Months Ended September 30, 2010 and 2009 (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
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|
September 30, 2010 |
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September 30, 2009 |
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(unaudited) |
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(unaudited) |
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Common shares |
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Balance Beginning of period |
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$ |
23,033 |
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$ |
13,235 |
|
Common
shares issued, net |
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|
121 |
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|
9,709 |
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Balance End of period |
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$ |
23,154 |
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$ |
22,944 |
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Treasury shares |
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Balance Beginning of period |
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$ |
(553 |
) |
|
$ |
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|
Repurchase of common shares |
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(3,484 |
) |
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Balance End of period |
|
$ |
(4,037 |
) |
|
$ |
|
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Additional paid-in capital |
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Balance Beginning of period |
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$ |
2,675,680 |
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|
$ |
1,412,635 |
|
Common
shares (redeemed) issued, net |
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|
(605 |
) |
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|
1,311,207 |
|
Repurchase of common shares |
|
|
(502,975 |
) |
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|
Share compensation expenses |
|
|
21,040 |
|
|
|
24,279 |
|
|
|
|
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|
Balance End of period |
|
$ |
2,193,140 |
|
|
$ |
2,748,121 |
|
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|
|
Accumulated other comprehensive (loss) |
|
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|
|
|
|
|
|
Balance Beginning of period |
|
$ |
(4,851 |
) |
|
$ |
(7,858 |
) |
Foreign currency translation adjustments |
|
|
(94 |
) |
|
|
2,882 |
|
|
|
|
|
|
|
|
Balance End of period |
|
$ |
(4,945 |
) |
|
$ |
(4,976 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings |
|
|
|
|
|
|
|
|
Balance Beginning of period |
|
$ |
1,337,811 |
|
|
$ |
520,722 |
|
Dividends |
|
|
(83,715 |
) |
|
|
(52,266 |
) |
Net income |
|
|
299,877 |
|
|
|
731,647 |
|
|
|
|
|
|
|
|
Balance End of period |
|
$ |
1,553,973 |
|
|
$ |
1,200,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
$ |
3,761,285 |
|
|
$ |
3,966,192 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements (unaudited).
4
Validus Holdings, Ltd.
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2010 and 2009 (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
|
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|
|
|
|
|
|
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
Cash flows provided by (used in) operating activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
299,877 |
|
|
$ |
731,647 |
|
Adjustments to reconcile net income to cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Share compensation expenses |
|
|
21,040 |
|
|
|
24,279 |
|
Gain on bargain purchase |
|
|
|
|
|
|
(352,349 |
) |
Amortization
of discount on senior notes |
|
|
54 |
|
|
|
|
|
Net realized (gains) losses on investments |
|
|
(46,897 |
) |
|
|
20,642 |
|
Net unrealized (gains) on investments |
|
|
(88,641 |
) |
|
|
(109,838 |
) |
Amortization of intangible assets |
|
|
3,120 |
|
|
|
24,792 |
|
Foreign exchange (gains) on cash and cash equivalents included in net income |
|
|
(3,432 |
) |
|
|
(10,487 |
) |
Amortization of premium on fixed maturities |
|
|
22,936 |
|
|
|
8,969 |
|
Change in: |
|
|
|
|
|
|
|
|
Premiums receivable |
|
|
(194,939 |
) |
|
|
(134,007 |
) |
Deferred acquisition costs |
|
|
(39,372 |
) |
|
|
(8,914 |
) |
Prepaid reinsurance premiums |
|
|
(15,487 |
) |
|
|
(75,617 |
) |
Loss reserves recoverable |
|
|
(87,199 |
) |
|
|
42,634 |
|
Paid losses recoverable |
|
|
(4,779 |
) |
|
|
(8,621 |
) |
Income taxes recoverable |
|
|
1,019 |
|
|
|
(1,486 |
) |
Accrued investment income |
|
|
(3,396 |
) |
|
|
66 |
|
Other assets |
|
|
(9,287 |
) |
|
|
(557 |
) |
Reserve for losses and loss expenses |
|
|
400,405 |
|
|
|
(8,900 |
) |
Unearned premiums |
|
|
231,132 |
|
|
|
210,099 |
|
Reinsurance balances payable |
|
|
(4,526 |
) |
|
|
3,903 |
|
Deferred income taxes |
|
|
(608 |
) |
|
|
4,731 |
|
Accounts payable and accrued expenses |
|
|
(32,356 |
) |
|
|
(12,602 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
448,664 |
|
|
|
348,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in) investing activities |
|
|
|
|
|
|
|
|
Proceeds on sales of investments |
|
|
3,972,225 |
|
|
|
2,247,581 |
|
Proceeds on maturities of investments |
|
|
272,169 |
|
|
|
466,065 |
|
Purchases of fixed maturities |
|
|
(4,495,131 |
) |
|
|
(2,792,562 |
) |
Sales of short-term investments, net |
|
|
253,340 |
|
|
|
91,354 |
|
Sales (purchases) of other investments |
|
|
18,070 |
|
|
|
(2,047 |
) |
Decrease in securities lending collateral |
|
|
56,201 |
|
|
|
4,649 |
|
Purchase of subsidiary, net of cash acquired |
|
|
|
|
|
|
(376,878 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
76,874 |
|
|
|
(361,838 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in) financing activities |
|
|
|
|
|
|
|
|
Net proceeds on issuance of senior notes |
|
|
246,793 |
|
|
|
|
|
Redemption
of common shares, net |
|
|
(484 |
) |
|
|
(1,774 |
) |
Purchases of common shares under share repurchase program |
|
|
(506,459 |
) |
|
|
|
|
Dividends paid |
|
|
(81,859 |
) |
|
|
(50,938 |
) |
(Decrease) in securities lending payable |
|
|
(56,201 |
) |
|
|
(4,649 |
) |
|
|
|
|
|
|
|
Net cash (used in) financing activities |
|
|
(398,210 |
) |
|
|
(57,361 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency rate changes on cash and cash equivalents |
|
|
3,857 |
|
|
|
14,755 |
|
Net increase (decrease) in cash |
|
|
131,185 |
|
|
|
(56,060 |
) |
Cash and cash equivalents beginning of period |
|
|
387,585 |
|
|
|
449,848 |
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period |
|
$ |
518,770 |
|
|
$ |
393,788 |
|
|
|
|
|
|
|
|
Taxes paid during the period |
|
$ |
2,358 |
|
|
$ |
1,395 |
|
|
|
|
|
|
|
|
Interest paid during the period |
|
$ |
30,188 |
|
|
$ |
20,016 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements (unaudited).
5
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
1. Basis of preparation and consolidation
These unaudited consolidated financial statements include Validus Holdings, Ltd. and its
wholly and majority owned subsidiaries (together, the Company) and have been prepared in
accordance with generally accepted accounting principles in the United States of America (U.S.
GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 in
Regulation S-X. Accordingly, they do not include all of the information and footnotes required by
U.S. GAAP for complete financial statements. In addition, the year-end balance sheet data was
derived from audited financial statements but does not include all disclosures required by U.S.
GAAP. This Quarterly Report should be read in conjunction with the Companys Annual Report on Form
10-K for the year ended December 31, 2009, as filed with the U.S. Securities and Exchange
Commission (the SEC).
In the opinion of management, these unaudited consolidated financial statements reflect all
adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation
of the Companys financial position and results of operations as at the end of and for the periods
presented. Certain amounts in prior periods have been reclassified to conform to current period
presentation. All significant intercompany accounts and transactions have been eliminated. The
preparation of 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. Actual results could differ from
these estimates. The major estimates reflected in the Companys consolidated financial statements
include the reserve for losses and loss expenses, premium estimates for business written on a line
slip or proportional basis, the valuation of goodwill and intangible assets, reinsurance
recoverable balances including the provision for unrecoverable reinsurance recoverable balances and
investment valuation. Actual results could differ from those estimates. The results of operations
for any interim period are not necessarily indicative of the results for a full year. The term
ASC used in these notes refers to Accounting Standard Codifications issued by the United States
Financial Accounting Standards Board (FASB).
The consolidated financial statements include the results of operations and cash flows of IPC
Holdings Ltd. (IPC), since the date of acquisition on September 4, 2009 and not any prior
periods (including for comparative purposes), except with respect to Supplemental Pro Forma
Information included in Note 3.
2. Recent accounting pronouncements
In June 2009, the FASB issued authoritative guidance on accounting for Transfers and
Servicing (ASC 860). This update addresses practices that have developed that are not consistent
with the original intent and key requirements and concerns that derecognized financial assets and
related obligations should continue to be reported in the transferors financial statements. This
update is effective for financial asset transfers in the interim and annual periods beginning
January 1, 2010. The adoption of this guidance has not had a material impact on the Companys
consolidated financial statements.
In June 2009, the FASB issued authoritative guidance which amends the Consolidation guidance
that applies to Variable Interest Entities (VIEs) (ASC 810). This update amends the guidance for
the identification of VIEs and their primary beneficiaries and the financial statement disclosures
required. This update is effective for interim and annual periods beginning January 1, 2010. The
adoption of this update has not had a material impact on the Companys consolidated financial
statements.
6
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
In January 2010, the FASB issued authoritative guidance on Fair Value Measurements and
Disclosures (ASC 820). This update requires additional disclosures regarding (1) significant
transfers in and out of Levels 1 and 2 and the reasons that such transfers were made; (2) inputs
and valuation techniques used to measure fair value for financial assets and liabilities that fall
in either Level 2 or Level 3; (3) the activity within Level 3 fair value measurements, including
information on a gross basis for purchases, sales, issuances, and settlements; and (4)
disaggregation of financial assets and liabilities measured at fair value into classes of financial
assets and liabilities. This guidance is effective for interim and annual reporting periods
beginning January 1, 2010, except for Level 3 reconciliation disclosures which are effective for
interim and annual periods beginning January 1, 2011. The adoption of this update has not had a
material impact on the Companys consolidated financial statements.
In February 2010, the FASB issued authoritative guidance which amends the Subsequent Events
guidance (ASC 855). The guidance requires SEC filers to evaluate subsequent events through the date
the financial statements are issued, and also exempts SEC filers from disclosing the date through
which subsequent events have been evaluated. This update was effective immediately for financial
statements that are (1) issued or available to be issued or (2) revised. The adoption of this
update has not had a material impact on the Companys consolidated financial statements.
In March 2010, the FASB issued authoritative guidance which clarifies the Embedded
Derivatives guidance (ASC 815). All entities that enter into contracts containing an embedded
credit derivative feature related to the transfer of credit risk that is not only in the form of
subordination of one financial instrument to another will be affected by the amendments. The
amendments in this update are effective for interim periods beginning after June 15, 2010. The
adoption of this update has not had a material impact on the Companys consolidated financial
statements.
In April 2010, the FASB issued authoritative guidance which clarifies the Stock Compensation
guidance (ASC 718). This guidance clarifies the accounting for certain employee share-based
payment awards. Awards with an exercise price denominated in the currency of a market in which a
substantial portion of the entitys equity securities trades would not be considered to contain a
condition that is not a market, performance or service condition. Therefore, an entity would not
classify such an award as a liability if it otherwise qualifies as equity. This accounting
guidance is effective for accounting periods beginning on or after December 15, 2010, with earlier
application permitted. The Company has evaluated the impact of this guidance, and has concluded
that it will not have a material impact on the Companys consolidated financial statements.
In October 2010, the FASB issued Accounting Standards Update No. 2010-26, Accounting for
Costs Associated with Acquiring or Renewing Insurance Contracts (ASU 2010-26). The objective of
ASU 2010-26 is to address diversity in practice regarding the interpretation of which costs
relating to the acquisition of new or renewal insurance contracts qualify for deferral. ASU 2010-26
is effective for interim and annual periods beginning after December 15, 2011 and may be applied
prospectively or retrospectively. The Company is currently assessing the potential impact, if any,
of the adoption of ASU 2010-26 on the Companys consolidated financial statements.
3. Business combination
On September 4, 2009, pursuant to an amalgamation agreement, the Company acquired all of the
outstanding common shares of IPC (the IPC Acquisition) in exchange for 0.9727 Company common
shares and $7.50 cash per IPC common share. IPCs operations were focused on short-tail lines of
reinsurance. The primary lines in which IPC conducted business were property catastrophe
reinsurance and, to a limited extent, property-per-risk excess, aviation (including satellite) and
other short-tail reinsurance on a worldwide basis. The IPC Acquisition was undertaken to gain a
strategic advantage in the reinsurance market where capacity had been depleted and to increase the
Companys capital base.
The aggregate purchase price paid by the Company was $1,746,224 for adjusted tangible net
assets acquired of $2,076,902. During 2009, the global financial crisis and related market
illiquidity led to several publicly traded companies trading at substantial discounts. This was the
primary factor responsible for a purchase price less than the book value of IPCs net assets, and
the recognition of a bargain purchase gain on acquisition.
7
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
The estimates of fair values for tangible assets acquired and liabilities assumed were
determined by management based on various market and income analyses and asset appraisals.
Significant judgment was required to arrive at these estimates of fair value and changes to
assumptions used could have led to materially different results.
An adjustment of $50,000 was made to IPCs net assets acquired in respect of the termination
fee (the Max Termination Fee) paid under the Agreement and Plan of Amalgamation among Max Capital
Group Ltd. (Max), IPC and IPC Limited. The Max Termination Fee was advanced to IPC by Validus on
July 9, 2009, but was repayable in certain circumstances.
In addition, at closing, the Company recorded a $21,671 intangible asset for the acquired IPC
customer relationships. This intangible asset was related to the acquired broker distribution
network and was fair valued using a variation of the income approach. Under this approach, the
Company estimated the present value of expected future cash flows to an assumed hypothetical market
participant resulting from the existing IPC customer relationships, considering attrition, and
discounting at a weighted average cost of capital.
The composition of purchase price and fair value of net assets acquired is summarized as
follows:
|
|
|
|
|
|
|
|
|
Total allocable purchase price |
|
|
|
|
|
|
|
|
IPC shares outstanding at September 4, 2009 |
|
|
56,110,096 |
|
|
|
|
|
Exchange ratio |
|
|
0.9727 |
|
|
|
|
|
Validus common shares issued |
|
|
54,578,268 |
|
|
|
|
|
Validus closing share price on September 4, 2009 |
|
$ |
24.10 |
|
|
|
|
|
Total value of Validus shares to be issued |
|
|
|
|
|
$ |
1,315,337 |
|
Total cash consideration paid at $7.50 per IPC share |
|
|
|
|
|
|
420,826 |
|
Share compensation awards issued to IPC employees
pursuant to the Amalgamation Agreement and earned prior to the Amalgamation |
|
|
|
|
|
|
10,061 |
|
|
|
|
|
|
|
|
|
Total allocable purchase price |
|
|
|
|
|
|
1,746,224 |
|
|
|
|
|
|
|
|
|
|
Tangible Assets Acquired |
|
|
|
|
|
|
|
|
Cash and investments |
|
$ |
2,463,374 |
|
|
|
|
|
Receivables (a) |
|
|
202,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible Assets Acquired |
|
|
|
|
|
|
2,665,652 |
|
|
|
|
|
|
|
|
|
|
Liabilities Acquired |
|
|
|
|
|
|
|
|
Net loss reserves and paid losses recoverable |
|
$ |
304,957 |
|
|
|
|
|
Unearned premiums, net of expenses |
|
|
180,370 |
|
|
|
|
|
Other liabilities |
|
|
53,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities acquired |
|
|
|
|
|
|
538,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net tangible assets acquired, at fair value |
|
|
|
|
|
|
2,126,902 |
|
Max Termination Fee |
|
|
|
|
|
|
(50,000 |
) |
|
|
|
|
|
|
|
|
Net tangible assets acquired, at fair value, adjusted |
|
|
|
|
|
|
2,076,902 |
|
|
|
|
|
|
|
|
|
Bargain purchase gain before establishment of intangible assets |
|
|
|
|
|
|
330,678 |
|
|
|
|
|
|
|
|
|
|
Intangible asset customer relationships |
|
|
|
|
|
|
21,671 |
|
|
|
|
|
|
|
|
|
Bargain purchase gain on acquisition of IPC |
|
|
|
|
|
$ |
352,349 |
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The fair value of receivables approximates the gross contractual amounts receivable. |
8
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
The Company also incurred transaction and termination expenses related to the IPC
Acquisition. Transaction expenses included legal, corporate advisory, and audit
related services. Termination expenses included severance costs and accelerated
share compensation costs in connection with certain IPC employment contracts that have been
terminated. Finally, the customer relationships intangible asset has been fully amortized as it is
not expected to significantly contribute to the Companys future cash flows beyond December 31,
2009. The gain on bargain purchase, net of expenses has been presented as a separate line item in
the Companys Consolidated Statements of Operations and Comprehensive Income, and is composed of
the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
|
Three months ended |
|
|
Nine months ended |
|
Bargain purchase gain on acquisition of IPC |
|
$ |
352,349 |
|
|
$ |
352,349 |
|
Transaction expenses |
|
|
(13,597 |
) |
|
|
( 29,448 |
) |
Termination expenses |
|
|
(14,131 |
) |
|
|
(14,131 |
) |
Amortization of intangible asset customer relationships |
|
|
(21,671 |
) |
|
|
(21,671 |
) |
|
|
|
|
|
|
|
Gain on bargain purchase, net of expenses |
|
$ |
302,950 |
|
|
$ |
287,099 |
|
|
|
|
|
|
|
|
The following selected unaudited information has been provided to present a summary of the
results of IPC since the acquisition date, that have been included within the Validus Re segment in
the consolidated financial statements.
|
|
|
|
|
|
|
From Acquisition Date to |
|
|
|
September 30, 2009 |
|
Net premiums written |
|
$ |
(658 |
) |
Total revenue |
|
|
57,434 |
|
Total expenses |
|
|
13,550 |
|
|
|
|
|
Net income |
|
$ |
43,884 |
|
|
|
|
|
Supplemental Pro Forma Information
Operating results of IPC have been included in the consolidated financial statements from the
September 4, 2009 acquisition date. The following selected unaudited pro forma financial
information has been provided to present a summary of the combined results of the Company and IPC,
assuming the transaction had been effected on January 1, 2009. The unaudited pro forma data is for
informational purposes only and does not necessarily represent results that would have occurred if
the transaction had taken place on the basis assumed above.
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
|
Three months ended |
|
|
Nine months ended |
|
Net premiums written |
|
$ |
288,605 |
|
|
$ |
1,544,270 |
|
Total revenue |
|
|
609,620 |
|
|
|
1,620,181 |
|
Total expenses |
|
|
274,365 |
|
|
|
841,921 |
|
Net income |
|
|
335,255 |
|
|
|
778,260 |
|
Basic earnings per share |
|
$ |
3.61 |
|
|
$ |
9.49 |
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
3.50 |
|
|
$ |
9.20 |
|
|
|
|
|
|
|
|
9
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
4. Investments
The Companys investments in fixed maturities are classified as trading and carried at fair
value, with related net unrealized gains or losses included in earnings. 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.
(a) Classification within the fair value hierarchy
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 quoted prices (unadjusted) 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.
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or
liabilities that the reporting entity has the ability to access at the measurement date. Level 2
inputs are inputs other than quoted prices within Level 1 that are observable for the asset or
liability, either directly or indirectly. A significant adjustment to a Level 2 input could result
in the Level 2 measurement becoming a Level 3 measurement. Level 3 inputs are unobservable inputs
for the asset or liability.
Level 1 primarily consists of financial instruments whose value is based on quoted market
prices or alternative indices including overnight repos and commercial paper. Level 2 includes
financial instruments that are valued through independent external sources using models or other
valuation methodologies. These models are primarily industry-standard models that consider various
assumptions, including time value, yield curve, prepayment speeds, default rates, loss severity,
current market and contractual prices for the underlying financial instruments, as well as other
relevant economic measures. Substantially all of these assumptions are observable in the
marketplace, can be derived from observable data or are supported by observable levels at which
transactions are executed in the marketplace. The Company performs internal procedures on the
valuations received from independent external sources. Financial instruments in this category
include U.S. and U.K. Treasuries, sovereign debt, corporate debt, catastrophe bonds and U.S. agency
and non-agency mortgage and asset-backed securities. Level 3 includes financial instruments that
are valued using market approach and income approach valuation techniques. These models incorporate
both observable and unobservable inputs. A hedge fund is the only financial instrument in this
category as at September 30, 2010.
The Companys external investment advisors had noted illiquidity and dislocation in the
non-Agency RMBS market for the period September 30, 2008 through to June 30, 2010. During this
period, the Company identified certain non-Agency RMBS securities in its portfolio trading in
inactive markets (identified RMBS securities). In order to gauge market activity for the
identified RMBS securities, the Company, with assistance from external investment advisors,
reviewed the pricing sources for each security in the portfolio. The Company utilized various
pricing vendors to obtain market pricing information for investment securities.
Consistent with U.S. GAAP, market approach fair value measurements for securities trading
in inactive markets are not determinative. In weighing the fair value measurements resulting from
market approach and income approach valuation techniques, the Company previously placed less
reliance on the market approach fair value measurements. The income approach valuation technique
determines the fair value of each security on the basis of contractual cash flows, discounted using
a risk-adjusted discount rate. As the income approach valuation technique incorporates both
observable and significant unobservable inputs, the securities were
included as Level 3 assets with respect to the fair value hierarchy. The foundation for the income approach was the amount and
timing of future cash flows.
10
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
During the three months ended September 30, 2010, the Company, with assistance from external
investment advisors, determined that market activity had increased for the identified RMBS
securities. Therefore, a market approach valuation technique was adopted for the identified RMBS
securities. As the market approach incorporates observable inputs, the identified RMBS securities
are classified as Level 2 with respect to the fair value hierarchy at September 30, 2010.
Subsequent to the balance sheet date, the Company liquidated substantially all of the identified
RMBS securities which had previously been classified as Level 3
securities. This did not have a material impact on the Companys shareholders equity.
Other investments consist of an investment in a fund of hedge funds and a deferred
compensation trust held in mutual funds. During the fourth quarter of 2009, a majority of the fund
of hedge funds was redeemed. The remaining portion is a side pocket valued at $12,332 at
September 30, 2010. While a redemption request has been submitted, the timing of receipt of
proceeds on the side pocket is unknown. The fund investment manager provides monthly reported net
asset values (NAV) with a one-month delay in its valuation. As a result, the fund investment
managers August 31, 2010 NAV was used as a partial basis for fair value measurement in the
Companys September 30, 2010 balance sheet. The fund investment managers NAV relies on an estimate
of the performance of the fund based on the month end positions from the underlying third-party
funds. The Company utilizes the fund investment managers primary market approach estimated NAV
that incorporates relevant valuation sources on a timely basis. As this valuation technique
incorporates both observable and significant unobservable inputs, the fund of hedge funds is
classified as a Level 3 asset. To determine the reasonableness of the estimated NAV, the Company
assesses the variance between the estimated NAV and the one-month delayed fund investment managers
NAV. Immaterial variances are recorded in the following reporting period.
At September 30, 2010, the Companys investments were allocated between Levels 1, 2 and 3 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
U.S. Government and Government Agency |
|
$ |
|
|
|
$ |
1,923,730 |
|
|
$ |
|
|
|
$ |
1,923,730 |
|
Non-U.S. Government and Government Agency |
|
|
|
|
|
|
641,265 |
|
|
|
|
|
|
|
641,265 |
|
States, municipalities, political subdivision |
|
|
|
|
|
|
17,529 |
|
|
|
|
|
|
|
17,529 |
|
Agency residential mortgage-backed securities |
|
|
|
|
|
|
453,036 |
|
|
|
|
|
|
|
453,036 |
|
Non-Agency residential mortgage-backed securities |
|
|
|
|
|
|
117,886 |
|
|
|
|
|
|
|
117,886 |
|
U.S. corporate |
|
|
|
|
|
|
1,353,191 |
|
|
|
|
|
|
|
1,353,191 |
|
Non-U.S. corporate |
|
|
|
|
|
|
481,517 |
|
|
|
|
|
|
|
481,517 |
|
Catastrophe bonds |
|
|
|
|
|
|
63,818 |
|
|
|
|
|
|
|
63,818 |
|
Asset-backed securities |
|
|
|
|
|
|
124,371 |
|
|
|
|
|
|
|
124,371 |
|
Commercial mortgage-backed securities |
|
|
|
|
|
|
23,942 |
|
|
|
|
|
|
|
23,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities |
|
|
|
|
|
|
5,200,285 |
|
|
|
|
|
|
|
5,200,285 |
|
Short-term investments |
|
|
215,573 |
|
|
|
12,783 |
|
|
|
|
|
|
|
228,356 |
|
Hedge fund |
|
|
|
|
|
|
|
|
|
|
12,332 |
|
|
|
12,332 |
|
Mutual funds |
|
|
|
|
|
|
7,556 |
|
|
|
|
|
|
|
7,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
215,573 |
|
|
$ |
5,220,624 |
|
|
$ |
12,332 |
|
|
$ |
5,448,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
At December 31, 2009, the Companys investments were allocated between Levels 1, 2 and 3 as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
U.S. Government and Government Agency |
|
$ |
|
|
|
$ |
1,918,811 |
|
|
$ |
|
|
|
$ |
1,918,811 |
|
Non-U.S. Government and Government Agency |
|
|
|
|
|
|
673,680 |
|
|
|
|
|
|
|
673,680 |
|
States, municipalities, political subdivision |
|
|
|
|
|
|
19,359 |
|
|
|
|
|
|
|
19,359 |
|
Agency residential mortgage-backed securities |
|
|
|
|
|
|
551,610 |
|
|
|
|
|
|
|
551,610 |
|
Non-Agency residential mortgage-backed securities |
|
|
|
|
|
|
52,233 |
|
|
|
85,336 |
|
|
|
137,569 |
|
U.S. corporate |
|
|
|
|
|
|
1,027,225 |
|
|
|
|
|
|
|
1,027,225 |
|
Non-U.S. corporate |
|
|
|
|
|
|
409,398 |
|
|
|
|
|
|
|
409,398 |
|
Catastrophe bonds |
|
|
|
|
|
|
52,351 |
|
|
|
|
|
|
|
52,351 |
|
Asset-backed securities |
|
|
|
|
|
|
36,712 |
|
|
|
|
|
|
|
36,712 |
|
Commercial mortgage-backed securities |
|
|
|
|
|
|
42,663 |
|
|
|
|
|
|
|
42,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities |
|
|
|
|
|
|
4,784,042 |
|
|
|
85,336 |
|
|
|
4,869,378 |
|
Short-term investments |
|
|
479,552 |
|
|
|
2,214 |
|
|
|
|
|
|
|
481,766 |
|
Hedge fund |
|
|
|
|
|
|
|
|
|
|
25,670 |
|
|
|
25,670 |
|
Mutual funds |
|
|
|
|
|
|
11,945 |
|
|
|
|
|
|
|
11,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
479,552 |
|
|
$ |
4,798,201 |
|
|
$ |
111,006 |
|
|
$ |
5,388,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2010, Level 3 investments totaled $12,332, representing 0.2% of total
investments measured at fair value on a recurring basis. At December 31, 2009, Level 3 investments
totaled $111,006 representing 2.1% of total investments measured at fair value on a recurring
basis.
The following table presents a reconciliation of the beginning and ending balances for all
investments measured at fair value on a recurring basis using Level 3 inputs as at September 30,
2010 and December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2010 |
|
|
|
Fixed Maturity |
|
|
|
|
|
|
Total Fair Market |
|
|
|
Investments |
|
|
Other Investments |
|
|
Value |
|
Level 3 investments -
Beginning of period |
|
$ |
85,336 |
|
|
$ |
25,670 |
|
|
$ |
111,006 |
|
Payments and purchases |
|
|
|
|
|
|
|
|
|
|
|
|
Sales and maturities |
|
|
|
|
|
|
(13,851 |
) |
|
|
(13,851 |
) |
Realized gains |
|
|
|
|
|
|
662 |
|
|
|
662 |
|
Unrealized (losses) |
|
|
(6,307 |
) |
|
|
(149 |
) |
|
|
(6,456 |
) |
Amortization |
|
|
(11,841 |
) |
|
|
|
|
|
|
(11,841 |
) |
Transfers (out) |
|
|
(67,188 |
) |
|
|
|
|
|
|
(67,188 |
) |
|
|
|
|
|
|
|
|
|
|
|
Level 3 investments End of period |
|
$ |
|
|
|
$ |
12,332 |
|
|
$ |
12,332 |
|
|
|
|
|
|
|
|
|
|
|
12
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009 |
|
|
|
Fixed Maturity |
|
|
|
|
|
|
Total Fair Market |
|
|
|
Investments |
|
|
Other Investments |
|
|
Value |
|
Level 3 investments Beginning of period |
|
$ |
111,318 |
|
|
$ |
|
|
|
$ |
111,318 |
|
Payments and purchases |
|
|
|
|
|
|
115,351 |
|
|
|
115,351 |
|
Sales and maturities |
|
|
(822 |
) |
|
|
(92,004 |
) |
|
|
(92,826 |
) |
Realized (losses) gains |
|
|
(1,284 |
) |
|
|
1,609 |
|
|
|
325 |
|
Unrealized (losses) gains |
|
|
(7,329 |
) |
|
|
714 |
|
|
|
(6,615 |
) |
Amortization |
|
|
(16,547 |
) |
|
|
|
|
|
|
(16,547 |
) |
Transfers in (out) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 investments End of period |
|
$ |
85,336 |
|
|
$ |
25,670 |
|
|
$ |
111,006 |
|
|
|
|
|
|
|
|
|
|
|
(b) Net investment income
Net investment income was derived from the following sources:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Fixed maturities and short-term investments |
|
$ |
34,531 |
|
|
$ |
29,427 |
|
|
$ |
106,632 |
|
|
$ |
82,341 |
|
Cash and cash equivalents |
|
|
960 |
|
|
|
742 |
|
|
|
1,857 |
|
|
|
2,623 |
|
Securities lending income |
|
|
49 |
|
|
|
171 |
|
|
|
168 |
|
|
|
683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross investment income |
|
|
35,540 |
|
|
|
30,340 |
|
|
|
108,657 |
|
|
|
85,647 |
|
Investment expenses |
|
|
(1,507 |
) |
|
|
(808 |
) |
|
|
(5,516 |
) |
|
|
(2,380 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
$ |
34,033 |
|
|
$ |
29,532 |
|
|
$ |
103,141 |
|
|
$ |
83,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) Fixed maturity and short-term investments
The following represents an analysis of net realized gains (losses) and the change in net
unrealized gains on investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Fixed maturities, short-term and
other investments and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross realized gains |
|
$ |
23,459 |
|
|
$ |
9,795 |
|
|
$ |
51,344 |
|
|
$ |
23,175 |
|
Gross realized (losses) |
|
|
(401 |
) |
|
|
(4,366 |
) |
|
|
(4,447 |
) |
|
|
(43,817 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gains (losses) on investments |
|
|
23,058 |
|
|
|
5,429 |
|
|
|
46,897 |
|
|
|
(20,642 |
) |
Net unrealized gains (losses) on
securities lending |
|
|
7 |
|
|
|
1,441 |
|
|
|
(1,013 |
) |
|
|
5,747 |
|
Change in net unrealized gains on
investments |
|
|
31,581 |
|
|
|
48,996 |
|
|
|
89,654 |
|
|
|
104,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net realized gains (losses) and
change in
net unrealized gains on
investments |
|
$ |
54,646 |
|
|
$ |
55,866 |
|
|
$ |
135,538 |
|
|
$ |
89,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
The amortized cost, gross unrealized gains and (losses) and estimated fair value of
investments at September 30, 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Unrealized |
|
|
Gross Unrealized |
|
|
|
|
|
|
Amortized Cost |
|
|
Gains |
|
|
Losses |
|
|
Estimated Fair Value |
|
U.S. Government and Government Agency |
|
$ |
1,881,417 |
|
|
$ |
42,373 |
|
|
$ |
(60 |
) |
|
$ |
1,923,730 |
|
Non-U.S. Government and Government
Agency |
|
|
630,008 |
|
|
|
18,751 |
|
|
|
(7,494 |
) |
|
|
641,265 |
|
States, municipalities, political subdivision |
|
|
17,251 |
|
|
|
281 |
|
|
|
(3 |
) |
|
|
17,529 |
|
Agency residential mortgage-backed
securities |
|
|
437,135 |
|
|
|
16,029 |
|
|
|
(128 |
) |
|
|
453,036 |
|
Non-Agency residential mortgage-backed
securities |
|
|
159,851 |
|
|
|
161 |
|
|
|
(42,126 |
) |
|
|
117,886 |
|
U.S. corporate |
|
|
1,301,859 |
|
|
|
51,546 |
|
|
|
(214 |
) |
|
|
1,353,191 |
|
Non-U.S. corporate |
|
|
469,275 |
|
|
|
14,897 |
|
|
|
(2,655 |
) |
|
|
481,517 |
|
Catastrophe bonds |
|
|
61,956 |
|
|
|
2,120 |
|
|
|
(258 |
) |
|
|
63,818 |
|
Asset-backed securities |
|
|
123,666 |
|
|
|
865 |
|
|
|
(160 |
) |
|
|
124,371 |
|
Commercial mortgage-backed securities |
|
|
23,414 |
|
|
|
534 |
|
|
|
(6 |
) |
|
|
23,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities |
|
|
5,105,832 |
|
|
|
147,557 |
|
|
|
(53,104 |
) |
|
|
5,200,285 |
|
Total short-term investments |
|
|
228,354 |
|
|
|
2 |
|
|
|
|
|
|
|
228,356 |
|
Total other investments |
|
|
18,392 |
|
|
|
1,496 |
|
|
|
|
|
|
|
19,888 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5,352,578 |
|
|
$ |
149,055 |
|
|
$ |
(53,104 |
) |
|
$ |
5,448,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortized cost, gross unrealized gains and (losses) and estimated fair value of investments at December 31, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Unrealized |
|
|
Gross Unrealized |
|
|
|
|
|
|
Amortized Cost |
|
|
Gains |
|
|
Losses |
|
|
Estimated Fair Value |
|
U.S. Government and Government Agency |
|
$ |
1,912,081 |
|
|
$ |
12,308 |
|
|
$ |
(5,578 |
) |
|
$ |
1,918,811 |
|
Non-U.S. Government and Government
Agency |
|
|
678,555 |
|
|
|
7,552 |
|
|
|
(12,427 |
) |
|
|
673,680 |
|
States, municipalities, political subdivision |
|
|
19,310 |
|
|
|
105 |
|
|
|
(56 |
) |
|
|
19,359 |
|
Agency residential mortgage-backed
securities |
|
|
537,876 |
|
|
|
14,643 |
|
|
|
(909 |
) |
|
|
551,610 |
|
Non-Agency residential mortgage-backed
securities |
|
|
176,853 |
|
|
|
481 |
|
|
|
(39,765 |
) |
|
|
137,569 |
|
U.S. corporate |
|
|
1,004,464 |
|
|
|
23,895 |
|
|
|
(1,134 |
) |
|
|
1,027,225 |
|
Non-U.S. corporate |
|
|
411,499 |
|
|
|
4,781 |
|
|
|
(6,882 |
) |
|
|
409,398 |
|
Catastrophe bonds |
|
|
51,236 |
|
|
|
1,244 |
|
|
|
(129 |
) |
|
|
52,351 |
|
Asset-backed securities |
|
|
36,828 |
|
|
|
411 |
|
|
|
(527 |
) |
|
|
36,712 |
|
Commercial mortgage-backed securities |
|
|
41,693 |
|
|
|
971 |
|
|
|
(1 |
) |
|
|
42,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities |
|
|
4,870,395 |
|
|
|
66,391 |
|
|
|
(67,408 |
) |
|
|
4,869,378 |
|
Total short-term investments |
|
|
482,632 |
|
|
|
33 |
|
|
|
(899 |
) |
|
|
481,766 |
|
Total other investments |
|
|
35,941 |
|
|
|
1,674 |
|
|
|
|
|
|
|
37,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5,388,968 |
|
|
$ |
68,098 |
|
|
$ |
(68,307 |
) |
|
$ |
5,388,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth certain information regarding the investment ratings of the
Companys fixed maturities portfolio as at September 30, 2010 and December 31, 2009. Investment
ratings are the lower of Moodys or Standard & Poors rating for each investment security,
presented in Standard & Poors equivalent rating. For investments where Moodys and Standard &
Poors ratings are not available, Fitch ratings are used and presented in Standard & Poors
equivalent rating.
14
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
Estimated Fair |
|
|
|
|
|
|
|
|
|
|
|
|
Value |
|
|
% of Total |
|
|
Estimated Fair Value |
|
|
% of Total |
|
AAA |
|
$ |
3,256,140 |
|
|
|
62.6 |
% |
|
$ |
3,287,879 |
|
|
|
67.5 |
% |
AA |
|
|
488,871 |
|
|
|
9.4 |
% |
|
|
487,364 |
|
|
|
10.0 |
% |
A |
|
|
1,169,035 |
|
|
|
22.5 |
% |
|
|
925,532 |
|
|
|
19.0 |
% |
BBB |
|
|
130,841 |
|
|
|
2.5 |
% |
|
|
14,416 |
|
|
|
0.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment grade |
|
|
5,044,887 |
|
|
|
97.0 |
% |
|
|
4,715,191 |
|
|
|
96.8 |
% |
BB |
|
|
49,684 |
|
|
|
1.0 |
% |
|
|
45,191 |
|
|
|
0.9 |
% |
B |
|
|
35,666 |
|
|
|
0.7 |
% |
|
|
59,116 |
|
|
|
1.2 |
% |
CCC |
|
|
58,343 |
|
|
|
1.1 |
% |
|
|
45,194 |
|
|
|
1.0 |
% |
CC |
|
|
7,428 |
|
|
|
0.1 |
% |
|
|
|
|
|
|
0.0 |
% |
D/NR |
|
|
4,277 |
|
|
|
0.1 |
% |
|
|
4,686 |
|
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Investment grade |
|
|
155,398 |
|
|
|
3.0 |
% |
|
|
154,187 |
|
|
|
3.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fixed Maturities |
|
$ |
5,200,285 |
|
|
|
100.0 |
% |
|
$ |
4,869,378 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortized cost and estimated fair value amounts for fixed maturity securities held at
September 30, 2010 and December 31, 2009 are shown by contractual maturity. Actual maturity may
differ from contractual maturity because certain borrowers may have the right to call or prepay
certain obligations with or without call or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
Amortized Cost |
|
|
Estimated Fair Value |
|
|
Amortized Cost |
|
|
Estimated Fair Value |
|
Due in one year or less |
|
$ |
465,643 |
|
|
$ |
467,582 |
|
|
$ |
269,889 |
|
|
$ |
270,688 |
|
Due after one year through five years |
|
|
3,716,150 |
|
|
|
3,827,180 |
|
|
|
3,498,792 |
|
|
|
3,521,167 |
|
Due after five years through ten
years |
|
|
177,234 |
|
|
|
183,472 |
|
|
|
306,065 |
|
|
|
306,502 |
|
Due after ten years |
|
|
2,739 |
|
|
|
2,816 |
|
|
|
2,399 |
|
|
|
2,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,361,766 |
|
|
|
4,481,050 |
|
|
|
4,077,145 |
|
|
|
4,100,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed and mortgage-backed
securities |
|
|
744,066 |
|
|
|
719,235 |
|
|
|
793,250 |
|
|
|
768,554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5,105,832 |
|
|
$ |
5,200,285 |
|
|
$ |
4,870,395 |
|
|
$ |
4,869,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has a five year, $500,000 secured letter of credit facility provided by a
syndicate of commercial banks. At September 30, 2010, approximately $234,837 (December 31, 2009:
$225,823) of letters of credit were issued and outstanding under this facility for which $325,268
of investments were pledged as collateral (December 31, 2009: $314,857). In 2007, the Company
entered into a $100,000 standby letter of credit facility which provides Funds at Lloyds (the
Talbot FAL Facility). On November 19, 2009, the Company entered into a Second Amendment to the
Talbot FAL Facility to reduce the commitment from $100,000 to $25,000. At September 30, 2010,
$25,000 (December 31, 2009: $25,000) of letters of credit were issued and outstanding under the
Talbot FAL Facility for which $45,919 of investments were pledged as collateral (December 31, 2009:
$128,798). In addition, $1,681,727 of investments were held in trust at September 30, 2010
(December 31, 2009: $1,517,249). Of those, $1,536,794 were held in trust for the benefit of
Talbots cedants and policyholders, and to facilitate the accreditation of Talbot as an alien
insurer/reinsurer by certain regulators (December 31, 2009: $1,408,084).
The Company assumed two letters of credit facilities as part of the IPC Acquisition. A
$250,000 Credit Facility between IPC, IPCRe Limited, the Lenders party thereto and Wachovia Bank,
National Association (the IPC Syndicated Facility) and a $350,000
Letters of Credit Master Agreement between Citibank N.A. and
IPCRe Limited (the IPC Bi-Lateral Facility).
15
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
At March 31, 2010, the IPC Syndicated Facility was
closed. At September 30, 2010, the IPC Bi-Lateral Facility had $75,864 (December 31, 2009:
$96,047) letters of credit issued and outstanding for which $99,906 (December 31, 2009: $219,004)
of investments were held in an associated collateral account.
(d) Securities lending
The Company participates in a securities lending program whereby certain securities from its
portfolio are loaned to third parties for short periods of time through a lending agent. The
Company retains all economic interest in the securities it lends and receives a fee from the
borrower for the temporary use of the securities. Collateral in the form of cash, government
securities and letters of credit is required at a rate of 102% of the market value of the loaned
securities and is held by a third party. As at September 30, 2010, the Company had $33,181
(December 31, 2009: $88,146) in securities on loan. During the three months ended September 30,
2010, the Company recorded a $7 unrealized gain on this collateral in its Statements of Operations
(September 30, 2009: unrealized gain $1,441). During the nine months ended September 30, 2010, the
Company recorded a $1,013 unrealized loss on this collateral in its Statements of Operations
(September 30, 2009: unrealized gain $5,747).
Securities
lending collateral reinvested includes corporate floating rate
securities and overnight repo with an average reset period of 14.4 days (December 31, 2009: 26.1
days). As at September 30, 2010, the securities lending collateral reinvested by the Company in
connection with its securities lending program was allocated between Levels 1, 2 and 3 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Corporate |
|
$ |
|
|
|
$ |
216 |
|
|
$ |
|
|
|
$ |
216 |
|
Agency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities |
|
|
|
|
|
|
5,010 |
|
|
|
|
|
|
|
5,010 |
|
Short-term investments |
|
|
8,298 |
|
|
|
19,611 |
|
|
|
|
|
|
|
27,909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
8,298 |
|
|
$ |
24,837 |
|
|
$ |
|
|
|
$ |
33,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
at December 31, 2009, the securities lending collateral reinvested by the Company in connection with its
securities program was allocated between Levels 1, 2 and 3 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Corporate |
|
$ |
|
|
|
$ |
14,123 |
|
|
$ |
|
|
|
$ |
14,123 |
|
Agency |
|
|
|
|
|
|
9,363 |
|
|
|
|
|
|
|
9,363 |
|
Asset-backed securities |
|
|
|
|
|
|
6,153 |
|
|
|
|
|
|
|
6,153 |
|
Short-term investments |
|
|
730 |
|
|
|
59,981 |
|
|
|
|
|
|
|
60,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
730 |
|
|
$ |
89,620 |
|
|
$ |
|
|
|
$ |
90,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth certain information regarding the investment ratings of the
Companys securities lending collateral reinvested as at September 30, 2010 and December 31, 2009.
Investment ratings are the lower of Moodys or Standard & Poors rating for each investment
security, presented in Standard & Poors equivalent rating. For investments where Moodys and
Standard & Poors ratings are not available, Fitch ratings are used and presented in Standard &
Poors equivalent rating.
16
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
Estimated Fair Value |
|
|
% of Total |
|
|
Estimated Fair Value |
|
|
% of Total |
|
AAA |
|
$ |
10,622 |
|
|
|
32.1 |
% |
|
$ |
33,501 |
|
|
|
37.1 |
% |
AA+ |
|
|
11,016 |
|
|
|
33.2 |
% |
|
|
12,011 |
|
|
|
13.3 |
% |
AA |
|
|
|
|
|
|
0.0 |
% |
|
|
4,998 |
|
|
|
5.5 |
% |
AA- |
|
|
2,983 |
|
|
|
9.0 |
% |
|
|
19,910 |
|
|
|
22.0 |
% |
A+ |
|
|
|
|
|
|
0.0 |
% |
|
|
9,999 |
|
|
|
11.1 |
% |
A |
|
|
|
|
|
|
0.0 |
% |
|
|
9,006 |
|
|
|
10.0 |
% |
NR |
|
|
216 |
|
|
|
0.7 |
% |
|
|
195 |
|
|
|
0.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,837 |
|
|
|
75.0 |
% |
|
|
89,620 |
|
|
|
99.2 |
% |
NR- Short-term investments (1) |
|
|
8,298 |
|
|
|
25.0 |
% |
|
|
730 |
|
|
|
0.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
33,135 |
|
|
|
100.0 |
% |
|
$ |
90,350 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
This amount relates to short-term investments and is therefore not a rated security. |
The amortized cost and estimated fair value amounts for securities lending collateral
reinvested by the Company at September 30, 2010 and December 31, 2009 are shown by contractual
maturity below. Actual maturity may differ from contractual maturity because certain borrowers may
have the right to call or prepay certain obligations with or without call or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
Amortized Cost |
|
|
Estimated Fair Value |
|
|
Amortized Cost |
|
|
Estimated Fair Value |
|
Due in one year or less |
|
$ |
27,905 |
|
|
$ |
27,909 |
|
|
$ |
68,895 |
|
|
$ |
70,074 |
|
Due after one year through five years |
|
|
6,000 |
|
|
|
5,226 |
|
|
|
21,211 |
|
|
|
20,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
33,905 |
|
|
$ |
33,135 |
|
|
$ |
90,106 |
|
|
$ |
90,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. Reserve for losses and loss expenses
Reserves for losses and loss expenses are based in part upon the estimation of case losses
reported from brokers, insureds and ceding companies. The Company also uses statistical and
actuarial methods to estimate ultimate expected losses and loss expenses. The period of time from
the occurrence of a loss, the reporting of a loss to the Company and the settlement of the
Companys liability may be several months or years. During this period, additional facts and trends
may be revealed. As these factors become apparent, case reserves will be adjusted, sometimes
requiring an increase or decrease in the overall reserves of the Company, and at other times
requiring a reallocation of incurred but not reported reserves to specific case reserves. These
estimates are reviewed regularly, and such adjustments, if any, are reflected in earnings in the
period in which they become known. While management believes that it has made a reasonable estimate
of ultimate losses, there can be no assurances that ultimate losses and loss expenses will not
exceed the total reserves.
17
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
The following table represents an analysis of paid and unpaid losses and loss expenses
incurred and a reconciliation of the beginning and ending unpaid loss expenses as at September 30,
2010 and December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
Year ended |
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Reserve for losses and loss expenses, beginning of period |
|
$ |
1,622,134 |
|
|
$ |
1,305,303 |
|
Losses and loss expenses recoverable |
|
|
(181,765 |
) |
|
|
(208,796 |
) |
|
|
|
|
|
|
|
Net reserves for losses and loss expenses, beginning of period |
|
|
1,440,369 |
|
|
|
1,096,507 |
|
Net reserves acquired in purchase of IPC |
|
|
|
|
|
|
304,957 |
|
Increase (decrease) in net losses and loss expenses incurred
in respect of losses occurring in: |
|
|
|
|
|
|
|
|
Current year |
|
|
958,406 |
|
|
|
625,810 |
|
Prior years |
|
|
(126,045 |
) |
|
|
(102,053 |
) |
|
|
|
|
|
|
|
Total incurred losses and loss expenses |
|
|
832,361 |
|
|
|
523,757 |
|
Total net paid losses |
|
|
(519,930 |
) |
|
|
(507,435 |
) |
Foreign exchange |
|
|
(776 |
) |
|
|
22,583 |
|
|
|
|
|
|
|
|
Net reserve for losses and loss expenses, end of period |
|
|
1,752,024 |
|
|
|
1,440,369 |
|
Losses and loss expenses recoverable |
|
|
268,821 |
|
|
|
181,765 |
|
|
|
|
|
|
|
|
Reserve for losses and loss expenses, end of period |
|
$ |
2,020,845 |
|
|
$ |
1,622,134 |
|
|
|
|
|
|
|
|
6. Reinsurance
The Company enters into reinsurance and retrocession agreements in order to mitigate its
accumulation of loss, reduce its liability on individual risks, enable it to underwrite policies
with higher limits and increase its aggregate capacity. The cession of insurance and reinsurance
does not legally discharge the Company from its primary liability for the full amount of the
policies, and the Company is required to pay the loss and bear collection risk if the reinsurer
fails to meet its obligations under the reinsurance or retrocession agreement. Amounts recoverable
from reinsurers are estimated in a manner consistent with the underlying liabilities.
a) Credit risk
The Company evaluates the financial condition of its reinsurers and monitors concentration of
credit risk arising from its exposure to individual reinsurers. The reinsurance program is
generally placed with reinsurers whose rating, at the time of placement, was A- or better rated by
Standard & Poors or the equivalent with other rating agencies. Exposure to a single reinsurer is
also controlled with restrictions dependent on rating. At September 30, 2010, 99.0% of reinsurance
recoverables (which includes loss reserves recoverable and recoverables on paid losses) were from
reinsurers rated A- or better and included $132,312 of IBNR recoverable (December 31, 2009:
$99,587). Reinsurance recoverables by reinsurer are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
Reinsurance |
|
|
|
|
|
|
Reinsurance |
|
|
|
|
|
|
Recoverable |
|
|
% of Total |
|
|
Recoverable |
|
|
% of Total |
|
Top 10 reinsurers |
|
$ |
211,844 |
|
|
|
73.5 |
% |
|
|
170,810 |
|
|
|
86.9 |
% |
Other reinsurers balances > $1 million |
|
|
67,797 |
|
|
|
23.5 |
% |
|
|
19,818 |
|
|
|
10.1 |
% |
Other reinsurers balances < $1 million |
|
|
8,740 |
|
|
|
3.0 |
% |
|
|
5,919 |
|
|
|
3.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
288,381 |
|
|
|
100.0 |
% |
|
|
196,547 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
18
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
|
|
|
|
|
Reinsurance |
|
|
|
|
Top 10 Reinsurers |
|
Rating |
|
|
Recoverable |
|
|
% of Total |
|
Lloyds Syndicates |
|
|
A+ |
|
|
$ |
51,660 |
|
|
|
24.3 |
% |
Fully collateralized reinsurers |
|
NR |
|
|
38,249 |
|
|
|
18.1 |
% |
Hannover Re |
|
AA- |
|
|
23,658 |
|
|
|
11.2 |
% |
Montpelier Re |
|
|
A- |
|
|
|
20,000 |
|
|
|
9.4 |
% |
Munich Re |
|
AA- |
|
|
18,852 |
|
|
|
8.9 |
% |
Everest Re |
|
|
A+ |
|
|
|
13,109 |
|
|
|
6.2 |
% |
Transatlantic Re |
|
|
A+ |
|
|
|
12,348 |
|
|
|
5.8 |
% |
Tokio Millennium Re |
|
AA |
|
|
11,980 |
|
|
|
5.7 |
% |
Odyssey Re |
|
|
A- |
|
|
|
11,773 |
|
|
|
5.6 |
% |
Brit Insurance |
|
|
A+ |
|
|
|
10,215 |
|
|
|
4.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
211,844 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Reinsurance |
|
|
|
|
Top 10 Reinsurers |
|
Rating |
|
|
recoverable |
|
|
% of Total |
|
Fully collateralized reinsurers |
|
NR |
|
$ |
50,840 |
|
|
|
29.8 |
% |
Lloyds Syndicates |
|
|
A+ |
|
|
|
33,103 |
|
|
|
19.4 |
% |
Munich Re |
|
AA- |
|
|
19,921 |
|
|
|
11.7 |
% |
Hannover Re |
|
AA- |
|
|
13,427 |
|
|
|
7.8 |
% |
Aspen |
|
|
A |
|
|
|
11,417 |
|
|
|
6.7 |
% |
Allianz |
|
AA |
|
|
9,645 |
|
|
|
5.6 |
% |
Swiss Re |
|
|
A+ |
|
|
|
8,995 |
|
|
|
5.3 |
% |
Transatlantic Re |
|
|
A+ |
|
|
|
8,804 |
|
|
|
5.1 |
% |
Brit Insurance Limited |
|
|
A |
|
|
|
8,159 |
|
|
|
4.8 |
% |
Platinum Underwriters |
|
|
A |
|
|
|
6,499 |
|
|
|
3.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
170,810 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2010 and December 31, 2009, the provision for uncollectible reinsurance
relating to losses recoverable was $5,113 and $3,477, respectively. To estimate the provision for
uncollectible reinsurance recoverable, the reinsurance recoverable is first allocated to applicable
reinsurers. This determination is based on a process rather than an estimate, although an element
of judgment is applied. As part of this process, ceded IBNR is allocated by reinsurer. Of the
$288,381 reinsurance recoverable at September 30, 2010, $38,249 was fully collateralized (December
31, 2009: $50,840).
The Company uses a default analysis to estimate uncollectible reinsurance. The primary
components of the default analysis are reinsurance recoverable balances by reinsurer and default
factors used to determine the portion
of a reinsurers balance deemed to be uncollectible. Default factors require considerable
judgment and are determined using the current rating, or rating equivalent, of each reinsurer as
well as other key considerations and assumptions.
19
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
7. Share capital
a) Authorized and issued
The Companys authorized share capital is 571,428,571 voting and non-voting shares with a par
value of $0.175 per share. The holders of common voting shares are entitled to receive dividends
and are allocated one vote per share, provided that, if the controlled shares of any shareholder or
group of related shareholders constitute more than 9.09 percent of the outstanding common shares of
the Company, their voting power will be reduced to 9.09 percent.
The Company may from time to time repurchase its securities, including common shares, Junior
Subordinated Deferrable Debentures and Senior Notes. In November 2009, the Board of Directors of
the Company authorized an initial $400,000 share repurchase program. On February 17, 2010, the
Board of Directors of the Company authorized the Company to return up to $750,000 to shareholders.
This amount is in addition to, and in excess of, the $135,494 of common shares purchased by the
Company through February 17, 2010 under its previously authorized $400,000 share repurchase
program. On May 6, 2010, the Board of Directors authorized a self tender offer pursuant to which
the Company has repurchased $300,000 in common shares.
The Company expects the purchases under its share repurchase program to be made from time to
time in the open market or in privately negotiated transactions. The timing, form and amount of the
share repurchases under the program will depend on a variety of factors, including market
conditions, the Companys capital position relative to internal and rating agency targets, legal
requirements and other factors. The repurchase program may be modified, extended or terminated by
the Board of Directors at any time.
The following table is a summary of the common shares issued and outstanding:
|
|
|
|
|
|
|
Common Shares |
|
Common shares issued, December 31, 2009 |
|
|
131,616,349 |
|
Restricted share awards vested, net of shares withheld |
|
|
369,576 |
|
Restricted share units vested, net of shares withheld |
|
|
57,192 |
|
Employee seller shares vested |
|
|
203,544 |
|
Options exercised |
|
|
58,500 |
|
Warrants exercised |
|
|
2,996 |
|
|
|
|
|
Common shares issued, September 30, 2010 |
|
|
132,308,157 |
|
Shares repurchased, September 30, 2010 |
|
|
(23,070,267 |
) |
|
|
|
|
Common shares outstanding, September 30, 2010 |
|
|
109,237,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares |
|
Common shares issued and outstanding, December 31, 2008 |
|
|
75,624,697 |
|
IPC acquisition issuance |
|
|
54,556,762 |
|
Restricted share awards vested, net of shares withheld |
|
|
423,746 |
|
Restricted share units vested, net of shares withheld |
|
|
360,383 |
|
Employee seller shares vested |
|
|
248,085 |
|
Options exercised |
|
|
164,834 |
|
Warrants exercised |
|
|
237,842 |
|
|
|
|
|
Common shares issued, December 31, 2009 |
|
|
131,616,349 |
|
Shares repurchased, December 31, 2009 |
|
|
(3,156,871 |
) |
|
|
|
|
Common shares outstanding, December 31, 2009 |
|
|
128,459,478 |
|
|
|
|
|
20
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
b) Warrants
During
the three and nine months ended September 30, 2010, 10,018
warrants were exercised which resulted in the net share issuance of 2,996 common shares. During the three months ended September
30, 2009, nil warrants were exercised. During the nine months ended September 30, 2009, 728,010
warrants were exercised which resulted in the net share issuance of 237,842 common shares.
c) Deferred share units
Under the terms of the Companys Director Stock Compensation Plan, non-management directors
may elect to receive their director fees in deferred share units rather than cash. The number of
share units distributed in case of election under the plan is equal to the amount of the annual
retainer fee otherwise payable to the director on such payment date divided by 100% of the fair
market value of a share on such payment date. Additional deferred share units are issued in lieu of
dividends that accrue on these deferred share units. The total outstanding deferred share units at
September 30, 2010 were 4,694 (December 31, 2009: 4,577).
d) Dividends
On August 4, 2010, the Company announced a quarterly cash dividend of $0.22 (2009: $0.20) per
common share and $0.22 per common share equivalent for which each outstanding warrant is then
exercisable. This dividend was paid on September 30, 2010 to holders of record on September 15,
2010.
8. Stock plans
a) Long Term Incentive Plan and Short Term Incentive Plan
The Companys Long Term Incentive Plan (LTIP) provides for grants to employees of options,
stock appreciation rights (SARs), restricted shares, restricted share units, performance shares,
performance units, dividend equivalents or other share-based awards. In addition, the Company may
issue restricted share awards or restricted share units in connection with awards issued under its
annual Short Term Incentive Plan (STIP). The total number of shares reserved for issuance under
the LTIP and STIP are 13,126,896 shares of which 7,218,577 shares are remaining. The LTIP and STIP
are administered by the Compensation Committee of the Board of Directors. No SARs or performance
shares have been granted to date. Grant prices are established at the fair market value of the
Companys common shares at the date of grant.
i. Options
Options may be exercised for voting common shares upon vesting. Options have a life of 10
years and vest either ratably or at the end of the required service period from the date of grant.
All options granted in 2009 were as a result of the IPC Acquisition. Grant prices are established
at the estimated fair value of the Companys common shares at the date of grant using the
Black-Scholes option-pricing model. The following weighted average assumptions were used for all
grants to date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average risk free |
|
Weighted average |
|
Expected life |
|
|
Year |
|
interest rate |
|
dividend yield |
|
(years) |
|
Expected volatility |
2007 and prior years |
|
|
4.5 |
% |
|
|
0.0 |
% |
|
|
7 |
|
|
|
30.0 |
% |
2008 |
|
|
3.5 |
% |
|
|
3.2 |
% |
|
|
7 |
|
|
|
30.0 |
% |
2009 |
|
|
3.9 |
% |
|
|
3.7 |
% |
|
|
2 |
|
|
|
34.6 |
% |
21
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
Expected volatility is based on stock price volatility of comparable publicly-traded
companies. The Company used the simplified method consistent with U.S. GAAP authoritative guidance
on stock compensation expenses to estimate expected lives for options granted during the period as
historical exercise data was not available and the options met the requirement as set out in the
guidance.
Share compensation expenses of $1,059 were recorded for the three months ended September 30,
2010 (2009: $1,063). Share compensation expenses of $3,133 were recorded for the nine months ended
September 30, 2010 (2009: $3,037). The expenses represent the proportionate accrual of the fair
value of each grant based on the remaining vesting period.
Activity with respect to the options for the nine months ended September 30, 2010 was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
Weighted Average |
|
|
|
|
|
|
|
Grant Date |
|
|
Grant Date |
|
|
|
Options |
|
|
Fair Value |
|
|
Exercise Price |
|
Options outstanding, December 31, 2009 |
|
|
3,278,015 |
|
|
$ |
6.83 |
|
|
$ |
19.88 |
|
Options granted |
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised |
|
|
(58,500 |
) |
|
|
5.97 |
|
|
|
21.91 |
|
Options forfeited |
|
|
(4,317 |
) |
|
|
10.30 |
|
|
|
20.39 |
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, September 30, 2010 |
|
|
3,215,198 |
|
|
$ |
6.84 |
|
|
$ |
19.84 |
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at September 30, 2010 |
|
|
2,545,289 |
|
|
$ |
6.05 |
|
|
$ |
20.10 |
|
|
|
|
|
|
|
|
|
|
|
Activity with respect to options for the nine months ended September 30, 2009 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
Weighted Average |
|
|
|
|
|
|
|
Grant Date |
|
|
Grant Date |
|
|
|
Options |
|
|
Fair Value |
|
|
Exercise Price |
|
Options outstanding, December 31, 2008 |
|
|
2,799,938 |
|
|
$ |
7.57 |
|
|
$ |
18.23 |
|
Options granted |
|
|
650,557 |
|
|
|
3.42 |
|
|
|
27.27 |
|
Options exercised |
|
|
(12,033 |
) |
|
|
6.32 |
|
|
|
21.11 |
|
Options forfeited |
|
|
(7,646 |
) |
|
|
10.30 |
|
|
|
20.39 |
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, September 30, 2009 |
|
|
3,430,816 |
|
|
$ |
6.80 |
|
|
$ |
19.93 |
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at September 30, 2009 |
|
|
1,520,416 |
|
|
$ |
7.56 |
|
|
$ |
17.89 |
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2010, there were $1,534 (December 31, 2009: $4,713) of total unrecognized
share compensation expenses that are expected to be recognized over a weighted-average period of
1.0 years (December 31, 2009: 1.3 years).
ii. Restricted share awards
Restricted shares granted under the LTIP and STIP vest either ratably or at the end of the
required service period and contain certain restrictions for the vesting period, relating to, among
other things, forfeiture in the event of termination of employment and transferability. Share
compensation expenses of $5,134 were recorded for the three months ended September 30, 2010 (2009:
$3,621). Share compensation expenses of $14,195 were recorded for the nine months ended September
30, 2010 (2009: $12,008). The expenses represent the proportionate accrual of the fair value of
each grant based on the remaining vesting period.
22
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
Activity with respect to unvested restricted shares for the nine months ended September 30,
2010 was as follows:
|
|
|
|
|
|
|
|
|
|
|
Restricted |
|
|
Weighted Average |
|
|
|
Share |
|
|
Grant Date |
|
|
|
Awards |
|
|
Fair Value |
|
Restricted share awards outstanding, December 31, 2009 |
|
|
2,525,958 |
|
|
$ |
23.43 |
|
Restricted share awards granted |
|
|
1,108,169 |
|
|
|
25.75 |
|
Restricted share awards vested |
|
|
(453,851 |
) |
|
|
23.43 |
|
Restricted share awards forfeited |
|
|
(34,901 |
) |
|
|
23.29 |
|
|
|
|
|
|
|
|
Restricted share awards outstanding, September 30, 2010 |
|
|
3,145,375 |
|
|
$ |
24.25 |
|
|
|
|
|
|
|
|
Activity with respect to unvested restricted share awards for the nine months ended September
30, 2009 was as follows:
|
|
|
|
|
|
|
|
|
|
|
Restricted |
|
|
Weighted Average |
|
|
|
Share |
|
|
Grant Date |
|
|
|
Awards |
|
|
Fair Value |
|
Restricted share awards outstanding, December 31, 2008 |
|
|
2,307,402 |
|
|
$ |
22.73 |
|
Restricted share awards granted |
|
|
736,030 |
|
|
|
24.62 |
|
Restricted share awards vested |
|
|
(459,910 |
) |
|
|
22.32 |
|
Restricted share awards forfeited |
|
|
(4,517 |
) |
|
|
21.19 |
|
|
|
|
|
|
|
|
Restricted share awards outstanding, September 30, 2009 |
|
|
2,579,005 |
|
|
$ |
23.34 |
|
|
|
|
|
|
|
|
At September 30, 2010, there were $50,075 (December 31, 2009: $38,395) of total unrecognized
share compensation expenses that are expected to be recognized over a weighted-average period of
2.8 years (December 31, 2009: 2.8 years).
iii. Restricted share units
Restricted share units under the LTIP and STIP vest either ratably or at the end of the
required service period and contain certain restrictions for the vesting period, relating to, among
other things, forfeiture in the event of termination of employment and transferability. Share
compensation expenses of $68 were recorded for the three months ended September 30, 2010 (2009:
$5,324). Share compensation expenses of $302 were recorded for the nine months ended September 30,
2010 (2009: $5,360). The expenses represent the proportionate accrual of the fair value of each
grant based on the remaining vesting period.
Activity with respect to unvested restricted share units for the nine months ended September
30, 2010 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
Restricted |
|
|
Grant Date |
|
|
|
Share Units |
|
|
Fair Value |
|
Restricted share units outstanding, December 31, 2009 |
|
|
78,591 |
|
|
$ |
24.84 |
|
Restricted share units granted |
|
|
26,782 |
|
|
|
25.65 |
|
Restricted share units vested |
|
|
(59,019 |
) |
|
|
24.76 |
|
Restricted share units forfeited |
|
|
(1,094 |
) |
|
|
21.49 |
|
|
|
|
|
|
|
|
Restricted share units outstanding, September 30, 2010 |
|
|
45,260 |
|
|
$ |
25.50 |
|
|
|
|
|
|
|
|
23
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
Activity with respect to unvested restricted share units for the nine months ended
September 30, 2009 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
Restricted |
|
|
Grant Date |
|
|
|
Share Units |
|
|
Fair Value |
|
Restricted share units outstanding, December 31, 2008 |
|
|
11,853 |
|
|
$ |
25.28 |
|
Restricted share units granted |
|
|
228,136 |
|
|
|
24.76 |
|
Restricted share units vested |
|
|
(51,753 |
) |
|
|
24.76 |
|
Restricted share units forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted share units outstanding, September 30, 2009 |
|
|
188,236 |
|
|
$ |
24.79 |
|
|
|
|
|
|
|
|
At September 30, 2010, there were $901 (December 31, 2009: $578) of total unrecognized share
compensation expenses that are expected to be recognized over a weighted-average period of 2.9
years (December 31, 2009: 2.5 years). Additional restricted share units are issued in lieu of
accrued dividends for each unvested restricted share unit. As at September 30, 2010, unvested
restricted share units issued in lieu of dividends were 1,476 (December 31, 2009: 858).
b) Employee seller shares
Pursuant to the Share Sale Agreement for the purchase of Talbot Holdings, Ltd. (Talbot), the
Company issued 1,209,741 restricted shares to Talbot employees (the employee seller shares). Upon
consummation of the acquisition, the employee seller shares were validly issued, fully-paid and
non-assessable and entitled to vote and participate in distributions and dividends in accordance
with the Companys Bye-laws. However, the employee seller shares are subject to a restricted period
during which they are subject to forfeiture (as implemented by repurchase by the Company for a
nominal amount). Forfeiture of employee seller shares will generally occur in the event that any
such Talbot employees employment terminates, with certain exceptions, prior to the end of the
restricted period. The restricted period will end for 25% of the employee seller shares on each
anniversary of the closing date of July 2, 2007 for all Talbot employees other than Talbots
Chairman, such that after four years the potential for forfeiture will be completely extinguished.
Share compensation expenses of $1,357 were recorded for the three months ended September 30,
2010 (2009: $1,285). Share compensation expenses of $3,410 were recorded for the nine months ended
September 30, 2010 (2009: $3,874). The expenses represent the proportionate accrual of the fair
value of each grant based on the remaining vesting period.
Activity with respect to unvested employee seller shares for the nine months ended September
30, 2010 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
Employee |
|
|
Grant Date |
|
|
|
Seller Shares |
|
|
Fair Value |
|
Employee seller shares outstanding, December 31, 2009 |
|
|
410,667 |
|
|
$ |
22.01 |
|
Employee seller shares granted |
|
|
|
|
|
|
|
|
Employee seller shares vested |
|
|
(203,544 |
) |
|
|
22.01 |
|
Employee seller shares forfeited |
|
|
(3,551 |
) |
|
|
22.01 |
|
|
|
|
|
|
|
|
Employee seller shares outstanding, September 30, 2010 |
|
|
203,572 |
|
|
$ |
22.01 |
|
|
|
|
|
|
|
|
24
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
Activity with respect to unvested employee seller shares for the nine months ended September 30, 2009
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
Employee |
|
|
Grant Date |
|
|
|
Seller Shares |
|
|
Fair Value |
|
Employee seller shares outstanding, December 31, 2008 |
|
|
663,375 |
|
|
$ |
22.01 |
|
Employee seller shares granted |
|
|
|
|
|
|
|
|
Employee seller shares vested |
|
|
(248,085 |
) |
|
|
22.01 |
|
Employee seller shares forfeited |
|
|
(3,799 |
) |
|
|
22.01 |
|
|
|
|
|
|
|
|
Employee seller shares outstanding, September 30, 2009 |
|
|
411,491 |
|
|
$ |
22.01 |
|
|
|
|
|
|
|
|
At September 30, 2010, there were $2,726 (December 31, 2009: $6,135) of total unrecognized
share compensation expenses that are expected to be recognized over a weighted-average period of
0.8 years (December 31, 2009: 1.5 years).
c) Total share compensation expenses
Total share compensation expenses for the three and nine months ended September 30, 2009 included $5,431 of
IPC-related termination expenses which were included in the gain on bargain purchase, net of expenses in the
Statements of Operations. The breakdown of share compensation expenses by award type was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, 2010 |
|
|
September 30, 2009 |
|
|
September 30, 2010 |
|
|
September 30, 2009 |
|
Options |
|
$ |
1,059 |
|
|
$ |
1,063 |
|
|
$ |
3,133 |
|
|
$ |
3,037 |
|
Restricted share awards |
|
|
5,134 |
|
|
|
3,621 |
|
|
|
14,195 |
|
|
|
12,008 |
|
Restricted share units |
|
|
68 |
|
|
|
5,324 |
|
|
|
302 |
|
|
|
5,360 |
|
Employee seller shares |
|
|
1,357 |
|
|
|
1,285 |
|
|
|
3,410 |
|
|
|
3,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
7,618 |
|
|
$ |
11,293 |
|
|
$ |
21,040 |
|
|
$ |
24,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9. Debt and financing arrangements
a) Financing structure and finance expenses
The financing structure at September 30, 2010 was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitment |
|
|
Outstanding (1) |
|
|
Drawn |
|
9.069% Junior Subordinated Deferrable Debentures |
|
$ |
150,000 |
|
|
$ |
150,000 |
|
|
$ |
150,000 |
|
8.480% Junior Subordinated Deferrable Debentures |
|
|
200,000 |
|
|
|
139,800 |
|
|
|
139,800 |
|
8.875% Senior Notes due 2040 |
|
|
250,000 |
|
|
|
250,000 |
|
|
|
246,847 |
|
$340,000 syndicated unsecured letter of credit facility |
|
|
340,000 |
|
|
|
|
|
|
|
|
|
$60,000 bilateral unsecured letter of credit facility |
|
|
60,000 |
|
|
|
|
|
|
|
|
|
$500,000 secured letter of credit facility |
|
|
500,000 |
|
|
|
234,837 |
|
|
|
|
|
Talbot FAL Facility (2) |
|
|
25,000 |
|
|
|
25,000 |
|
|
|
|
|
$350,000 IPC Bi-Lateral Facility |
|
|
350,000 |
|
|
|
75,864 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,875,000 |
|
|
$ |
875,501 |
|
|
$ |
536,647 |
|
|
|
|
|
|
|
|
|
|
|
25
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
The financing structure at December 31, 2009 was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitment |
|
|
Outstanding (1) |
|
|
Drawn |
|
9.069% Junior Subordinated Deferrable Debentures |
|
$ |
150,000 |
|
|
$ |
150,000 |
|
|
$ |
150,000 |
|
8.480% Junior Subordinated Deferrable Debentures |
|
|
200,000 |
|
|
|
139,800 |
|
|
|
139,800 |
|
$200,000 unsecured letter of credit facility |
|
|
200,000 |
|
|
|
|
|
|
|
|
|
$500,000 secured letter of credit facility |
|
|
500,000 |
|
|
|
225,823 |
|
|
|
|
|
Talbot FAL Facility (2) |
|
|
25,000 |
|
|
|
25,000 |
|
|
|
|
|
$250,000 IPC Syndicated Facility |
|
|
16,537 |
|
|
|
16,537 |
|
|
|
|
|
$350,000 IPC Bi-Lateral Facility |
|
|
350,000 |
|
|
|
96,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,441,537 |
|
|
$ |
653,207 |
|
|
$ |
289,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Indicates utilization of commitment amount, not drawn borrowings. |
|
(2) |
|
Talbot operates in Lloyds through a corporate member, Talbot 2002 Underwriting Capital
Ltd (T02), which is the sole participant in Syndicate 1183. Lloyds sets T02s required
capital annually based on syndicate 1183s business plan, rating environment, reserving
environment together with input arising from Lloyds discussions with, inter alia,
regulatory and rating agencies. Such capital, called Funds at Lloyds (FAL), comprises:
cash, investments and undrawn letters of credit provided by various banks. |
Finance expenses consist of interest on our junior subordinated deferrable debentures and
senior notes, the amortization of debt offering costs, fees relating to our credit facilities and
the costs of FAL as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, 2010 |
|
|
September 30, 2009 |
|
|
September 30, 2010 |
|
|
September 30, 2009 |
|
9.069% Junior Subordinated
Deferrable Debentures |
|
$ |
3,588 |
|
|
$ |
3,588 |
|
|
|
10,765 |
|
|
|
10,765 |
|
8.480% Junior Subordinated Deferrable
Debentures |
|
|
3,029 |
|
|
|
3,348 |
|
|
|
9,086 |
|
|
|
10,044 |
|
8.875% Senior Notes due 2040 |
|
|
5,597 |
|
|
|
|
|
|
|
15,172 |
|
|
|
|
|
Credit facilities |
|
|
1,501 |
|
|
|
395 |
|
|
|
3,921 |
|
|
|
1,235 |
|
Talbot FAL Facility |
|
|
|
|
|
|
62 |
|
|
|
333 |
|
|
|
167 |
|
Talbot other interest |
|
|
|
|
|
|
|
|
|
|
59 |
|
|
|
|
|
Talbot third party FAL facility |
|
|
|
|
|
|
3,864 |
|
|
|
2,748 |
|
|
|
7,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
13,715 |
|
|
$ |
11,257 |
|
|
$ |
42,084 |
|
|
$ |
29,732 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
(b) $250,000 8.875% Senior Notes due 2040
On January 21, 2010, the Company offered and sold $250,000 of Senior Notes due 2040 (the
8.875% Senior Notes) in a registered public offering. The 8.875% Senior Notes mature on January
26, 2040, and are redeemable at the Companys option in whole any time or in part from time to time
at a make-whole redemption price. The Company may redeem the notes in whole, but not in part, at
any time upon the occurrence of certain tax events as described in the notes prospectus
supplement. The 8.875% Senior Notes bear interest at the rate of 8.875% per annum from January 26,
2010 to maturity or early redemption. Interest on the 8.875% Senior Notes is payable semi-annually
in arrears on January 26 and July 26 of each year, commencing on July 26, 2010. The net proceeds
of $243,967 from the sale of the 8.875% Senior Notes, after the deduction of commissions paid to
the underwriters in the transaction and other expenses, was used by the Company for general
corporate purposes, which included the repurchase of its outstanding capital stock and payment of
dividends to shareholders. Debt issuance costs of $2,808 were deferred as an asset and amortized
over the life of the 8.875% Senior Notes.
The 8.875% Senior Notes are unsecured and unsubordinated obligations and rank equally in right
of payment with all of the Companys existing and future unsecured and unsubordinated indebtedness.
The 8.875% Senior Notes will be effectively junior to all of the Companys future secured debt, to
the extent of the value of the collateral securing such debt, and will rank senior to all our
existing and future subordinated debt. The 8.875% Senior Notes will be structurally subordinated
to all obligations of the Companys subsidiaries.
Future expected payments of interest on the 8.875% Senior Notes are as follows:
|
|
|
|
|
2011 |
|
|
22,187 |
|
2012 |
|
|
22,187 |
|
2013 |
|
|
22,187 |
|
2014 |
|
|
22,187 |
|
2015 and thereafter |
|
|
565,783 |
|
|
|
|
|
Total minimum future payments |
|
$ |
654,531 |
|
|
|
|
|
(c) Junior subordinated deferrable debentures
On June 15, 2006, the Company participated in a private placement of $150,000 of junior
subordinated deferrable interest debentures due 2036 (the 9.069% Junior Subordinated Deferrable
Debentures). The 9.069% Junior Subordinated Deferrable Debentures mature on June 15, 2036, are
redeemable at the Companys option at par beginning June 15, 2011, and require quarterly interest
payments by the Company to the holders of the 9.069% Junior Subordinated Deferrable Debentures.
Interest is payable at 9.069% per annum through June 15, 2011, and thereafter at a floating rate of
three-month LIBOR plus 355 basis points, reset quarterly. The proceeds of $150,000 from the sale of
the 9.069% Junior Subordinated Deferrable Debentures, after the deduction of commissions paid to
the placement agents in the transaction and other expenses, were used by the Company to
fund Validus Re segment operations and for general working capital purposes. Debt issuance costs of
$3,750 were deferred as an asset and are amortized to income over the five year optional redemption
period.
On June 21, 2007, the Company participated in a private placement of $200,000 of junior
subordinated deferrable interest debentures due 2037 (the 8.480% Junior Subordinated Deferrable
Debentures). The 8.480% Junior Subordinated Deferrable Debentures mature on June 15, 2037, are
redeemable at the Companys option at par
beginning June 15, 2012, and require quarterly interest payments by the Company to the holders
of the 8.480% Junior Subordinated Deferrable Debentures. Interest will be payable at 8.480% per
annum through June 15, 2012, and thereafter at a floating rate of three-month LIBOR plus 295 basis
points, reset quarterly. The proceeds of $200,000 from the sale of the 8.480% Junior Subordinated
Deferrable Debentures, after the deduction of commissions paid to the placement agents in the
transaction and other expenses, were used by the Company to fund the purchase of Talbot Holdings
Ltd. Debt issuance costs of $2,000 were deferred as an asset and are amortized to income over the
five year optional redemption period.
27
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
On April 29, 2008, the Company repurchased from an unaffiliated financial institution $45,700
principal amount of its 8.480% Junior Subordinated Deferrable Debentures due 2037 at an aggregate
price of $36,560, plus accrued and unpaid interest of $474. The repurchase resulted in the
recognition of a realized gain of $8,752 for the year ended December 31, 2008.
On December 1, 2009, the Company repurchased from an unaffiliated financial institution
$14,500 principal amount of its 8.480% Junior Subordinated Deferrable Debentures due 2037 at an
aggregate price of $9,933, plus accrued and unpaid interest of $246. The repurchase resulted in the
recognition of a realized gain of $4,444 for the year ended December 31, 2009.
Future expected payments of interest and principal on the 9.069% and 8.480% Junior
Subordinated Deferrable Debentures are as follows:
|
|
|
|
|
2010 |
|
$ |
6,365 |
|
2011 |
|
|
168,657 |
|
2012 |
|
|
145,727 |
|
2013 and thereafter |
|
|
|
|
|
|
|
|
Total minimum future payments |
|
$ |
320,749 |
|
|
|
|
|
(d) Credit facilities
(i) $340,000 syndicated unsecured letter of credit facility, $60,000 bilateral unsecured
letter of credit facility and $500,000 secured letter of credit facility
On March 12, 2007, the Company entered into a $200,000 three-year unsecured facility, as
subsequently amended on October 25, 2007 and September 4, 2009. The facility was refinanced at
maturity on March 12, 2010 with a three-year $340,000 syndicated unsecured letter of credit
facility and a $60,000 bilateral unsecured letter of credit facility which provides for letter of
credit availability for Validus Re and our other subsidiaries and revolving credit availability for
the Company (the Three Year Facilities) (the full $400,000 of which is available for letters of
credit and/or revolving loans).
On March 12, 2007, the Company entered into a $500,000 five-year secured letter of credit
facility, as subsequently amended on October 25, 2007, July 24, 2009, and March 12, 2010, which
provides for letter of credit availability for Validus Re and our other subsidiaries (the Five
Year Facility and, together with the Three Year Facilities, the Credit Facilities). The Credit
Facilities were provided by a syndicate of commercial banks arranged by J.P. Morgan Securities Inc.
and Deutsche Bank Securities Inc. On October 25, 2007, the Company entered into the First Amendment
to the Credit Facilities to provide for, among other things, additional capacity to incur up to
$100,000 under a new Funds at Lloyds Letter of Credit Facility (as described below) to support
underwriting capacity provided to Talbot 2002 Underwriting Ltd through Syndicate 1183 at Lloyds of
London for the 2008 and 2009 underwriting years of account. The amendment also modified certain
provisions in the Credit Facilities in order to permit dividend payments on existing and future
preferred and hybrid securities notwithstanding certain events of default.
On September 4, 2009, the Company announced that it had entered into Amendments to each of its
$500,000 five-year secured letter of credit facility; $200,000 three-year unsecured facility and
$100,000 Talbot FAL facility to amend a specific investment restriction clause in order to permit
the completion of the IPC Acquisition. The amendment also modified and updated certain pricing and
covenant terms.
28
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
As amended, the Credit Facilities contain covenants that include, among other things, (i) the
requirement that the Company initially maintain a minimum level of consolidated net worth of at
least 70% of consolidated net worth ($2,925,590) and, commencing with the end of the fiscal quarter
ending December 31, 2009 to be increased quarterly by an amount equal to 50% of its consolidated
net income (if positive) for such quarter plus 50% of any net proceeds received from any issuance
of common shares during such quarter, (ii) the requirement that the Company maintain at all times a
consolidated total debt to consolidated total capitalization ratio not greater than 0.35:1.00, and
(iii) the requirement that Validus Re and any other material insurance subsidiaries maintain a
financial strength rating by A.M. Best of not less than B++ (Fair). For purposes of covenant
compliance (i) net worth is calculated with investments carried at amortized cost and
(ii) consolidated total debt does not include the Companys junior subordinated deferrable
debentures. The credit facilities also contain restrictions on our ability to pay dividends and
other payments in respect of equity interests at any time that we are otherwise in default with
respect to certain provisions under the credit facilities, make investments, incur debt at our
subsidiaries, incur liens, sell assets and merge or consolidate with others.
As of September 30, 2010, there was $234,837 in outstanding letters of credit under the Five
Year Facility (December 31, 2009: $225,823) and $nil outstanding under the Three Year Facilities
(December 31, 2009: $nil).
As of September 30, 2010 and throughout the reporting periods presented, the Company was in
compliance with all covenants and restrictions under the Credit Facilities.
(ii) Talbot FAL Facility
On November 28, 2007, Talbot entered into a $100,000 standby Letter of Credit facility (the
Talbot FAL Facility) to provide Funds at Lloyds for the 2008 and 2009 underwriting years of
account; this facility is guaranteed by the Company and is secured against the assets of Validus
Re. The Talbot FAL Facility was provided by a syndicate of commercial banks arranged by Lloyds TSB
Bank plc and ING Bank N.V., London Branch.
On November 19, 2009, the Company entered into an Amendment and Restatement of the Talbot FAL
Facility to reduce the commitment from $100,000 to $25,000, and to extend the support to the 2010
and 2011 underwriting years of account.
As amended, the Talbot FAL Facility contains affirmative covenants that include, among other
things, (i) the requirement that we initially maintain a minimum level of consolidated net worth of
at least 70% of consolidated net worth ($2,607,219), and commencing with the end of the fiscal
quarter ending September 30, 2009 to be increased quarterly by an amount equal to 50% of our
consolidated net income (if positive) for such quarter plus 50% of any net proceeds received from
any issuance of common shares during such quarter, and (ii) the requirement that we maintain at all
times a consolidated total debt to consolidated total capitalization ratio not greater than
0.35:1.00.
The Talbot FAL Facility also contains restrictions on our ability to incur debt at our
subsidiaries, incur liens, sell assets and merge or consolidate with others. Other than in respect
of existing and future preferred and hybrid securities, the payment of dividends and other payments
in respect of equity interests are not permitted at any time that we are in default with respect to
certain provisions under the Credit Facilities. As of September 30, 2010 the Company had $25,000 in
outstanding letters of credit under this facility.
As of September 30, 2010 and throughout the reporting periods presented, the Company was in
compliance with all covenants and restrictions under the Talbot FAL Facility.
29
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
(iii) IPC Syndicated Facility and IPC Bi-Lateral Facility
IPC obtained letters of credit through the IPC Syndicated Facility and the IPC Bi-Lateral
Facility (the IPC Facilities). In July, 2009, certain terms of these facilities were amended
including suspending IPCs ability to increase existing letters of credit or to issue new letters
of credit. Effective March 31, 2010, the IPC Syndicated Facility was closed. As of September 30,
2010, $75,864 of outstanding letters of credit were issued under the IPC Bi-Lateral Facility.
As of September 30, 2010 and throughout the reporting periods presented, the Company was in
compliance with all covenants and restrictions under the IPC Facilities.
10. Commitments and contingencies
a) Concentrations of credit risk
The Companys investments are managed following prudent standards of diversification. The
Company attempts to limit its credit exposure by purchasing high quality fixed income investments
to maintain an average portfolio credit quality of AA- or higher with mortgage and commercial
mortgage-backed issues having an aggregate weighted average credit quality of triple-A. In
addition, the Company limits its exposure to any single issuer to 3% or less, excluding treasury
and agency securities. The minimum credit rating of any security purchased is Baa3/BBB- and where
investments are downgraded, the Company permits a holding of up to 2% in aggregate market value, or
10% with written pre-authorization. At September 30, 2010, 2.9% of the investment portfolio had a
split rating below Baa3/BBB- and the Company did not have an aggregate exposure to any single
issuer of more than 1.4% of its investment portfolio, other than with respect to government and
agency securities.
b) Funds at Lloyds
The amounts provided under the Talbot FAL Facility would become a liability of the Company in
the event of the syndicate declaring a loss at a level which would call on this arrangement.
Talbot operates in Lloyds through a corporate member, Talbot 2002 Underwriting Capital Ltd
(T02), which is the sole participant in Syndicate 1183. Lloyds sets T02s required capital
annually based on syndicate 1183s business plan, rating environment, reserving environment
together with input arising from Lloyds discussions with, inter alia, regulatory and rating
agencies. Such capital, called Funds at Lloyds (FAL), comprises: cash, investments and undrawn
letters of credit provided by various banks. The amounts of cash, investments and letters of
credit at September 30, 2010 amounted to $452,000 (December 31, 2009: $452,000) of which $25,000 is
provided under the Talbot FAL Facility (December 31, 2009: $25,000).
c) Lloyds Central Fund
Whenever a member of Lloyds is unable to pay its debts to policyholders, such debts may be
payable by the Lloyds Central Fund. If Lloyds determines that the Central Fund needs to be
increased, it has the power to assess premium levies on current Lloyds members up to 3% of a
members underwriting capacity in any one year. This levy is affected by the split of sterling and
US dollar business expected to be written by the syndicate. The Company does not believe that any
assessment is likely in the foreseeable future and has not provided any allowance for such an
assessment. However, based on the Companys 2010 estimated underwriting capacity at Lloyds of
£600,000, the September 30, 2010 exchange rate of £1 equals $1.5805 and assuming the maximum 3%
assessment, the Company would be assessed approximately $28,449.
11. Related party transactions
a) On December 8, 2005, the Company entered into agreements with BlackRock Financial
Management, Inc. (BlackRock) under which BlackRock provides investment management services for
part of the Companys investment portfolio. Merrill Lynch is a shareholder of Blackrock. Merrill
Lynch entities, which are now wholly-owned subsidiaries of Bank of America Corp, own 5,714,285
non-voting shares and 658,614 voting shares in the Company hold warrants to purchase 1,067,187 shares and during
a portion of 2009 had an employee on the Companys Board of Directors who did not receive compensation from the Company.
30
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
For
the three and nine months ended September 30, 2010, BlackRock was no longer a related party.
Investment management fees earned by Blackrock for the three and nine months ended September 30,
2009 were $576 and $1,554, respectively. Management believes that the fees charged were consistent
with those that would have been charged in arms-length transactions with unrelated third parties.
b) On December 8, 2005, the Company entered into agreements with Goldman Sachs Asset
Management and its affiliates (GSAM) under which GSAM provides investment management services for
a portion of the Companys investment portfolio. Goldman Sachs entities, own 14,057,137 non-voting
shares in the Company, hold warrants to purchase 1,604,410 non-voting shares, and have an employee
on the Companys Board of Directors who does not receive compensation from the Company. Sumit
Rajpal, a director of the Company, serves as Managing Director of Goldman, Sachs and Co., GSAMs
parent company. Investment management fees earned by GSAM for the three and nine months ended
September 30, 2010 were $370 (2009: $373), and $1,397 (2009: $1,099), respectively, of which $390
was included in accounts payable and accrued expenses at September 30, 2010 (December 31, 2009:
$371). Management believes that the fees charged were consistent with those that would have been
charged in arms-length transactions with unrelated third parties.
c) Vestar Capital entities own 8,571,427 shares in the Company, hold warrants to purchase
972,810 shares and have an employee on the Companys Board of Directors who does not receive
compensation from the Company. Sander M. Levy, a director of the Company, serves as Managing
Director of Vestar Capital Partners. During 2009, Vestar Capital entities were shareholders of
PARIS RE Holdings, Limited (Paris Re). On July 4, 2009, PartnerRe Ltd. (PartnerRe) acquired the
outstanding shares of Paris Re and as a result Paris Re was not a related party of the Company
during the three and nine months ended September 30, 2010. However, for the three and nine months
ended September 30, 2009, pursuant to reinsurance agreements with Paris Re, the Company recognized
gross premiums written of $nil and $6,634, and earned premium adjustments of $1,710 and $5,101,
respectively.
d) Aquiline Capital Partners, LLC and its related companies (Aquiline), which own 6,886,342
shares in the Company, hold warrants to purchase 3,043,246 shares, and have three employees on the
Board of Directors who do not receive compensation from the Company, are shareholders of Group Ark
Insurance Holdings Ltd. (Group Ark). Christopher E. Watson, a director of the Company, also
serves as a director of Group Ark. Pursuant to reinsurance agreements with a subsidiary of Group
Ark, the Company recognized gross premiums written during the three and nine months ended September
30, 2010 of $nil (2009: $nil) and $1,341 (2009: $nil), respectively, of which $1,778 was included
in premiums receivable at September 30, 2010 (December 31, 2009: $nil). The Company also recognized
reinsurance premiums ceded during the three and nine months ended September 30, 2010 of $nil (2009:
$158) and $606 (2009: $953), respectively, of which $161 was included in reinsurance balances
payable at September 30, 2010 (December 31, 2009: $nil). Earned premium adjustments of $(237) and
$645 were incurred during the three and nine months ended September 30, 2010.
Aquiline is also a shareholder of Tiger Risk Partners LLC (Tiger Risk). Christopher E.
Watson, a director of the Company serves as a director of Tiger Risk. Pursuant to certain
reinsurance contracts, the Company recognized brokerage expenses paid to Tiger Risk during the
three and nine months ended September 30, 2010 of $(11) (2009: $nil) and $1,458 (2009: $nil),
respectively, of which $1,042 was included in accounts payable and accrued expenses at September
30, 2010 (December 31, 2009: $643).
On November 24, 2009, the Company entered into an Investment Management Agreement with
Conning, Inc. (Conning) to manage a portion of the Companys investment portfolio. Aquiline
acquired Conning on June 16, 2009. John J. Hendrickson and Jeffrey W. Greenberg, directors of the
Company, each serve as a director of Conning Holdings Corp., the
parent company of Conning and Michael Carpenter, the Chairman of
Talbot Holdings, Ltd. serves as a director of a subsidiary of Conning
Holdings Corp.
Investment management fees earned by Conning for the three and nine months ended September 30, 2010
were $100 and $286, respectively, of which $100 was included in accounts payable and accrued
expenses at September 30, 2010.
31
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
12. Earnings per share
The following table sets forth the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2010 and
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, 2010 |
|
|
September 30, 2009 |
|
|
September 30, 2010 |
|
|
September 30, 2009 |
|
Basic earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income |
|
$ |
238,473 |
|
|
$ |
499,178 |
|
|
$ |
299,877 |
|
|
$ |
731,647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
less: Dividends and distributions
declared on outstanding warrants |
|
|
(1,747 |
) |
|
|
(1,591 |
) |
|
|
(5,245 |
) |
|
|
(4,917 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common
shareholders |
|
$ |
236,726 |
|
|
$ |
497,587 |
|
|
$ |
294,632 |
|
|
$ |
726,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares outstanding |
|
|
110,601,888 |
|
|
|
92,492,373 |
|
|
|
119,414,906 |
|
|
|
81,458,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
2.14 |
|
|
$ |
5.38 |
|
|
$ |
2.47 |
|
|
$ |
8.92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income |
|
$ |
238,473 |
|
|
$ |
499,178 |
|
|
$ |
299,877 |
|
|
$ |
731,647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
less: Dividends and distributions
declared on outstanding warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common
shareholders |
|
$ |
238,473 |
|
|
$ |
499,178 |
|
|
$ |
299,877 |
|
|
$ |
731,647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares outstanding |
|
|
110,601,888 |
|
|
|
92,492,373 |
|
|
|
119,414,906 |
|
|
|
81,458,329 |
|
Share equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants |
|
|
2,442,095 |
|
|
|
2,146,172 |
|
|
|
2,494,322 |
|
|
|
2,086,546 |
|
Stock options |
|
|
867,429 |
|
|
|
466,525 |
|
|
|
849,187 |
|
|
|
378,144 |
|
Unvested restricted shares |
|
|
931,330 |
|
|
|
729,739 |
|
|
|
977,268 |
|
|
|
703,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares outstanding |
|
|
114,842,742 |
|
|
|
95,834,809 |
|
|
|
123,735,683 |
|
|
|
84,626,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
2.08 |
|
|
$ |
5.21 |
|
|
$ |
2.42 |
|
|
$ |
8.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share equivalents that would result in the issuance of common shares of 168,670 and 175,994
were outstanding for three months ended September 30, 2010 and 2009, respectively, but were not
included in the computation of diluted earnings per share because the effect would be antidilutive.
Share equivalents that would result in the issuance of common shares of 152,765 and 178,473 were
outstanding for nine months ended September 30, 2010 and 2009, respectively, but were not included
in the computation of diluted earnings per share because the effect would be antidilutive.
13. Subsequent events
On
October 19, 2010,
Talbot and Markel have entered into a quota share reinsurance treaty under which Markel, as
the reinsured, agrees to cede various percentages of risks to Talbot in respect of bloodstock,
livestock and aquaculture accounts for all such business with inception
dates during the period January 1, 2011 through and including
December 31, 2011. This will not have a material impact on the Companys financial statements.
32
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
On November 3, 2010, the Company announced a quarterly cash dividend of $0.22 per each common
share and $0.22 per common share equivalent for which each outstanding warrant is then exercisable,
payable on December 31, 2010 to holders of record on December 15, 2010.
Self-Tender Offer and Share Repurchases
On
November 4, 2010 the Company announced that its Board of Directors had approved share repurchase
transactions aggregating $300,000. These repurchases will be effected by a tender offer which the
Company intends to commence on Monday November 8, 2010, for up to 7,945,400 of its common shares at
a price of $30.00 per share. In addition, the Company has entered into separate repurchase
agreements with funds affiliated with or managed by each of Aquiline Capital Partners LLC, New
Mountain Capital, LLC and Vestar Capital Partners to purchase 2,054,600 common shares in the
aggregate at the same price per share as the tender offer, for an aggregate purchase price of
approximately $61,638, subject to completion of the tender offer. The tender offer and share
repurchases are part of the Companys ongoing program to return capital to shareholders through
share repurchases or other means. As a result of these transactions, the Company expects to
repurchase an aggregate of 10.0 million common shares. This amount is in addition to the $629,023
of common shares repurchased by the Company through November 3, 2010 under its previously
authorized share repurchase program announced in February 2010.
Tendering shareholders will receive the purchase price in cash, without interest, for common shares
properly tendered in the tender offer and not properly withdrawn, subject to the conditions of the
tender offer, including the provisions relating to proration, odd lot priority and conditional
tender in the event that more than 7,945,400 common shares are properly tendered in the tender
offer and not properly withdrawn. These provisions will be described in the Offer to Purchase
relating to the tender offer that will be distributed to shareholders. If the tender offer is
fully subscribed, the completion of the tender offer and the share repurchases will result in the
repurchase by Validus of $300,000 of its common shares in the aggregate.
14. Segment information
The Company conducts its operations worldwide through two wholly-owned subsidiaries, Validus
Reinsurance, Ltd. and Talbot Holdings Ltd. from which two operating segments have been determined
under U.S. GAAP segment reporting. The Companys operating segments are strategic business units
that offer different products and services. They are managed and have capital allocated separately
because each business requires different strategies.
Validus Re
The Validus Re segment is focused on short-tail lines of reinsurance. The primary lines in
which the segment conducts business are property, marine and specialty which includes agriculture,
aerospace, nuclear, terrorism, life and accident & health and workers compensation catastrophe.
Talbot
The Talbot segment focuses on a wide range of marine and energy, war, political violence,
commercial property, financial institutions, contingency, bloodstock & livestock, accident & health
and aerospace classes of business on an insurance or facultative reinsurance basis and principally
property, aerospace and marine classes of business on a treaty reinsurance basis.
Corporate and other reconciling items
The Company has a Corporate function, which includes the activities of the parent company,
and which carries out certain functions for the group. Corporate includes non-core underwriting
expenses, predominantly general and administrative and stock compensation expenses. Corporate
also denotes the activities of certain key executives such as the Chief Executive Officer and Chief
Financial Officer. For internal reporting purposes, Corporate is reflected separately, however
Corporate is not considered an operating segment under these circumstances. Other reconciling
items include, but are not limited to, the elimination of intersegment revenues and expenses and
unusual items that are not allocated to segments.
33
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
The following tables summarize the results of our operating segments and corporate segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate & |
|
|
|
|
Three Months Ended September 30, 2010 |
|
Validus Re |
|
|
Talbot |
|
|
Eliminations |
|
|
Total |
|
Underwriting income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written |
|
$ |
142,630 |
|
|
$ |
218,722 |
|
|
$ |
(17,312 |
) |
|
$ |
344,040 |
|
Reinsurance premiums ceded |
|
|
(8,463 |
) |
|
|
(44,490 |
) |
|
|
17,312 |
|
|
|
(35,641 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
|
134,167 |
|
|
|
174,232 |
|
|
|
|
|
|
|
308,399 |
|
Change in unearned premiums |
|
|
124,747 |
|
|
|
(472 |
) |
|
|
|
|
|
|
124,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
|
258,914 |
|
|
|
173,760 |
|
|
|
|
|
|
|
432,674 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting deductions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expenses |
|
|
79,098 |
|
|
|
79,838 |
|
|
|
|
|
|
|
158,936 |
|
Policy acquisition costs |
|
|
39,818 |
|
|
|
32,451 |
|
|
|
(5,195 |
) |
|
|
67,074 |
|
General and administrative expenses |
|
|
5,663 |
|
|
|
33,201 |
|
|
|
9,967 |
|
|
|
48,831 |
|
Share compensation expenses |
|
|
1,869 |
|
|
|
1,754 |
|
|
|
3,995 |
|
|
|
7,618 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total underwriting deductions |
|
|
126,448 |
|
|
|
147,244 |
|
|
|
8,767 |
|
|
|
282,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting income (loss) |
|
$ |
132,466 |
|
|
$ |
26,516 |
|
|
$ |
(8,767 |
) |
|
$ |
150,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
28,683 |
|
|
|
7,614 |
|
|
|
(2,264 |
) |
|
|
34,033 |
|
Other income |
|
|
891 |
|
|
|
3,291 |
|
|
|
(3,100 |
) |
|
|
1,082 |
|
Finance expenses |
|
|
(1,505 |
) |
|
|
|
|
|
|
(12,210 |
) |
|
|
(13,715 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) before taxes |
|
|
160,535 |
|
|
|
37,421 |
|
|
|
(26,341 |
) |
|
|
171,615 |
|
Tax benefit (expense) |
|
|
|
|
|
|
1,544 |
|
|
|
(122 |
) |
|
|
1,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income (loss) |
|
$ |
160,535 |
|
|
$ |
38,965 |
|
|
$ |
(26,463 |
) |
|
$ |
173,037 |
|
Net realized gains on investments |
|
|
20,297 |
|
|
|
2,761 |
|
|
|
|
|
|
|
23,058 |
|
Net unrealized gains on investments |
|
|
25,505 |
|
|
|
6,083 |
|
|
|
|
|
|
|
31,588 |
|
Foreign exchange gains |
|
|
2,895 |
|
|
|
7,595 |
|
|
|
300 |
|
|
|
10,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
209,232 |
|
|
$ |
55,404 |
|
|
$ |
(26,163 |
) |
|
$ |
238,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written / Gross premiums written |
|
|
94.1 |
% |
|
|
79.7 |
% |
|
|
|
|
|
|
89.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expenses |
|
|
30.5 |
% |
|
|
45.9 |
% |
|
|
|
|
|
|
36.7 |
% |
Policy acquisition costs |
|
|
15.4 |
% |
|
|
18.7 |
% |
|
|
|
|
|
|
15.5 |
% |
General and administrative expenses (1) |
|
|
2.9 |
% |
|
|
20.1 |
% |
|
|
|
|
|
|
13.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense ratio |
|
|
18.3 |
% |
|
|
38.8 |
% |
|
|
|
|
|
|
28.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
48.8 |
% |
|
|
84.7 |
% |
|
|
|
|
|
|
65.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
4,884,520 |
|
|
$ |
2,558,598 |
|
|
$ |
60,124 |
|
|
$ |
7,503,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Ratios are based on net premiums earned. The general and administrative expense ratio includes
share compensation expenses. |
34
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate & |
|
|
|
|
Three months ended September 30, 2009 |
|
Validus Re (2) |
|
|
Talbot |
|
|
Eliminations |
|
|
Total |
|
Underwriting income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written |
|
$ |
124,704 |
|
|
$ |
227,325 |
|
|
$ |
(21,001 |
) |
|
$ |
331,028 |
|
Reinsurance premiums ceded |
|
|
(38,435 |
) |
|
|
(50,253 |
) |
|
|
21,001 |
|
|
|
(67,687 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
|
86,269 |
|
|
|
177,072 |
|
|
|
|
|
|
|
263,341 |
|
Change in unearned premiums |
|
|
113,499 |
|
|
|
(2,123 |
) |
|
|
|
|
|
|
111,376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
|
199,768 |
|
|
|
174,949 |
|
|
|
|
|
|
|
374,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting deductions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expenses |
|
|
45,987 |
|
|
|
88,165 |
|
|
|
|
|
|
|
134,152 |
|
Policy acquisition costs |
|
|
32,648 |
|
|
|
33,106 |
|
|
|
(1,518 |
) |
|
|
64,236 |
|
General and administrative expenses |
|
|
17,987 |
|
|
|
23,424 |
|
|
|
4,625 |
|
|
|
46,036 |
|
Share compensation expenses |
|
|
1,766 |
|
|
|
1,371 |
|
|
|
2,725 |
|
|
|
5,862 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total underwriting deductions |
|
|
98,388 |
|
|
|
146,066 |
|
|
|
5,832 |
|
|
|
250,286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting income (loss) |
|
$ |
101,380 |
|
|
$ |
28,883 |
|
|
$ |
(5,832 |
) |
|
$ |
124,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
23,420 |
|
|
|
7,629 |
|
|
|
(1,517 |
) |
|
|
29,532 |
|
Other income |
|
|
1,847 |
|
|
|
772 |
|
|
|
(1,518 |
) |
|
|
1,101 |
|
Finance expenses |
|
|
(393 |
) |
|
|
(3,926 |
) |
|
|
(6,938 |
) |
|
|
(11,257 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) before taxes |
|
|
126,254 |
|
|
|
33,358 |
|
|
|
(15,805 |
) |
|
|
143,807 |
|
Tax (expense) benefit |
|
|
(41 |
) |
|
|
1,840 |
|
|
|
|
|
|
|
1,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income (loss) |
|
$ |
126,213 |
|
|
$ |
35,198 |
|
|
$ |
(15,805 |
) |
|
$ |
145,606 |
|
Gain on bargain purchase, net of expenses |
|
|
|
|
|
|
|
|
|
|
302,950 |
|
|
|
302,950 |
|
Net realized gains on investments |
|
|
5,397 |
|
|
|
32 |
|
|
|
|
|
|
|
5,429 |
|
Net unrealized gains on investments |
|
|
40,893 |
|
|
|
9,544 |
|
|
|
|
|
|
|
50,437 |
|
Foreign exchange gains (losses) |
|
|
739 |
|
|
|
(5,983 |
) |
|
|
|
|
|
|
(5,244 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
173,242 |
|
|
$ |
38,791 |
|
|
$ |
287,145 |
|
|
$ |
499,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written / Gross premiums written |
|
|
69.2 |
% |
|
|
77.9 |
% |
|
|
|
|
|
|
79.6 |
% |
Losses and loss expenses |
|
|
23.0 |
% |
|
|
50.4 |
% |
|
|
|
|
|
|
35.8 |
% |
Policy acquisition costs |
|
|
16.3 |
% |
|
|
18.9 |
% |
|
|
|
|
|
|
17.1 |
% |
General and administrative expenses (1) |
|
|
9.9 |
% |
|
|
14.2 |
% |
|
|
|
|
|
|
13.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense ratio |
|
|
26.2 |
% |
|
|
33.1 |
% |
|
|
|
|
|
|
30.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
49.2 |
% |
|
|
83.5 |
% |
|
|
|
|
|
|
66.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
5,087,544 |
|
|
$ |
2,049,647 |
|
|
$ |
39,880 |
|
|
$ |
7,177,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Ratios are based on net premiums earned. The general and administrative expense ratio includes
share compensation expenses. |
|
(2) |
|
Operating results of IPC have been included from the date of acquisition, September 4, 2009. |
35
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate & |
|
|
|
|
Nine Months Ended September 30, 2010 |
|
Validus Re |
|
|
Talbot |
|
|
Eliminations |
|
|
Total |
|
Underwriting income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written |
|
$ |
1,067,253 |
|
|
$ |
742,973 |
|
|
$ |
(78,391 |
) |
|
$ |
1,731,835 |
|
Reinsurance premiums ceded |
|
|
(62,748 |
) |
|
|
(209,749 |
) |
|
|
78,391 |
|
|
|
(194,106 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
|
1,004,505 |
|
|
|
533,224 |
|
|
|
|
|
|
|
1,537,729 |
|
Change in unearned premiums |
|
|
(199,629 |
) |
|
|
(9,788 |
) |
|
|
|
|
|
|
(209,417 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
|
804,876 |
|
|
|
523,436 |
|
|
|
|
|
|
|
1,328,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting deductions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expenses |
|
|
551,811 |
|
|
|
280,550 |
|
|
|
|
|
|
|
832,361 |
|
Policy acquisition costs |
|
|
121,300 |
|
|
|
106,043 |
|
|
|
(9,967 |
) |
|
|
217,376 |
|
General and administrative expenses |
|
|
32,958 |
|
|
|
83,709 |
|
|
|
38,112 |
|
|
|
154,779 |
|
Share compensation expenses |
|
|
5,247 |
|
|
|
4,781 |
|
|
|
11,012 |
|
|
|
21,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total underwriting deductions |
|
|
711,316 |
|
|
|
475,083 |
|
|
|
39,157 |
|
|
|
1,225,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting income (loss) |
|
$ |
93,560 |
|
|
$ |
48,353 |
|
|
$ |
(39,157 |
) |
|
$ |
102,756 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
87,842 |
|
|
|
22,185 |
|
|
|
(6,886 |
) |
|
|
103,141 |
|
Other income |
|
|
3,446 |
|
|
|
8,350 |
|
|
|
(7,129 |
) |
|
|
4,667 |
|
Finance expenses |
|
|
(3,905 |
) |
|
|
(3,140 |
) |
|
|
(35,039 |
) |
|
|
(42,084 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) before taxes |
|
|
180,943 |
|
|
|
75,748 |
|
|
|
(88,211 |
) |
|
|
168,480 |
|
Tax (expense) |
|
|
(185 |
) |
|
|
(1,755 |
) |
|
|
(128 |
) |
|
|
(2,068 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income (loss) |
|
$ |
180,758 |
|
|
$ |
73,993 |
|
|
$ |
(88,339 |
) |
|
$ |
166,412 |
|
Net realized gains on investments |
|
|
40,439 |
|
|
|
6,458 |
|
|
|
|
|
|
|
46,897 |
|
Net unrealized gains on investments |
|
|
73,397 |
|
|
|
15,244 |
|
|
|
|
|
|
|
88,641 |
|
Foreign exchange (losses) gains |
|
|
(3,087 |
) |
|
|
753 |
|
|
|
261 |
|
|
|
(2,073 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
291,507 |
|
|
$ |
96,448 |
|
|
$ |
(88,078 |
) |
|
$ |
299,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written / Gross premiums written |
|
|
94.1 |
% |
|
|
71.8 |
% |
|
|
|
|
|
|
88.8 |
% |
Losses and loss expenses |
|
|
68.6 |
% |
|
|
53.6 |
% |
|
|
|
|
|
|
62.7 |
% |
Policy acquisition costs |
|
|
15.1 |
% |
|
|
20.3 |
% |
|
|
|
|
|
|
16.4 |
% |
General and administrative expenses (1) |
|
|
4.7 |
% |
|
|
16.9 |
% |
|
|
|
|
|
|
13.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense ratio |
|
|
19.8 |
% |
|
|
37.2 |
% |
|
|
|
|
|
|
29.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
88.4 |
% |
|
|
90.8 |
% |
|
|
|
|
|
|
92.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
4,884,520 |
|
|
$ |
2,558,598 |
|
|
$ |
60,124 |
|
|
$ |
7,503,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Ratios are based on net premiums earned. The general and administrative expense ratio includes
share compensation expenses. |
36
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate & |
|
|
|
|
Nine Months Ended September 30, 2009 |
|
Validus Re (2) |
|
|
Talbot |
|
|
Eliminations |
|
|
Total |
|
Underwriting income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written |
|
$ |
734,390 |
|
|
$ |
690,357 |
|
|
$ |
(58,796 |
) |
|
$ |
1,365,951 |
|
Reinsurance premiums ceded |
|
|
(94,794 |
) |
|
|
(166,491 |
) |
|
|
58,796 |
|
|
|
(202,489 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
|
639,596 |
|
|
|
523,866 |
|
|
|
|
|
|
|
1,163,462 |
|
Change in unearned premiums |
|
|
(101,684 |
) |
|
|
(40,102 |
) |
|
|
|
|
|
|
(141,786 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
|
537,912 |
|
|
|
483,764 |
|
|
|
|
|
|
|
1,021,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting deductions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expenses |
|
|
142,570 |
|
|
|
248,166 |
|
|
|
|
|
|
|
390,736 |
|
Policy acquisition costs |
|
|
90,346 |
|
|
|
102,378 |
|
|
|
(2,599 |
) |
|
|
190,125 |
|
General and administrative expenses |
|
|
45,928 |
|
|
|
65,565 |
|
|
|
13,822 |
|
|
|
125,315 |
|
Share compensation expenses |
|
|
4,986 |
|
|
|
5,804 |
|
|
|
8,058 |
|
|
|
18,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total underwriting deductions |
|
|
283,830 |
|
|
|
421,913 |
|
|
|
19,281 |
|
|
|
725,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting income (loss) |
|
$ |
254,082 |
|
|
$ |
61,851 |
|
|
$ |
(19,281 |
) |
|
$ |
296,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
64,989 |
|
|
|
22,816 |
|
|
|
(4,538 |
) |
|
|
83,267 |
|
Other income |
|
|
3,034 |
|
|
|
2,440 |
|
|
|
(2,599 |
) |
|
|
2,875 |
|
Finance expenses |
|
|
(1,233 |
) |
|
|
(7,688 |
) |
|
|
(20,811 |
) |
|
|
(29,732 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) before taxes |
|
|
320,872 |
|
|
|
79,419 |
|
|
|
(47,229 |
) |
|
|
353,062 |
|
Tax (expense) benefit |
|
|
(107 |
) |
|
|
3,408 |
|
|
|
|
|
|
|
3,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income (loss) |
|
$ |
320,765 |
|
|
$ |
82,827 |
|
|
$ |
(47,229 |
) |
|
$ |
356,363 |
|
Gain on bargain purchase, net of expenses |
|
|
|
|
|
|
|
|
|
|
287,099 |
|
|
|
287,099 |
|
Net realized (losses) on investments |
|
|
(14,282 |
) |
|
|
(6,360 |
) |
|
|
|
|
|
|
(20,642 |
) |
Net unrealized gains on investments |
|
|
95,693 |
|
|
|
14,146 |
|
|
|
|
|
|
|
109,839 |
|
Foreign exchange (losses) gains |
|
|
(641 |
) |
|
|
(427 |
) |
|
|
56 |
|
|
|
(1,012 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
401,535 |
|
|
$ |
90,186 |
|
|
$ |
239,926 |
|
|
$ |
731,647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written / Gross premiums written |
|
|
87.1 |
% |
|
|
75.9 |
% |
|
|
|
|
|
|
85.2 |
% |
Losses and loss expenses |
|
|
26.5 |
% |
|
|
51.3 |
% |
|
|
|
|
|
|
38.2 |
% |
Policy acquisition costs |
|
|
16.8 |
% |
|
|
21.2 |
% |
|
|
|
|
|
|
18.6 |
% |
General and administrative expenses (1) |
|
|
9.5 |
% |
|
|
14.8 |
% |
|
|
|
|
|
|
14.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense ratio |
|
|
26.3 |
% |
|
|
36.0 |
% |
|
|
|
|
|
|
32.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
52.8 |
% |
|
|
87.3 |
% |
|
|
|
|
|
|
70.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
5,087,544 |
|
|
$ |
2,049,647 |
|
|
$ |
39,880 |
|
|
$ |
7,177,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Ratios are based on net premiums earned. The general and administrative expense ratio includes
share compensation expenses. |
|
(2) |
|
Operating results of IPC have been included from the date of acquisition, September 4, 2009. |
37
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
The Companys exposures are generally diversified across geographic zones. The following
tables set forth
the gross premiums written allocated to the territory of coverage exposure for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2010 |
|
|
|
Gross premiums written |
|
|
|
Validus Re |
|
|
Talbot |
|
|
Eliminations |
|
|
Total |
|
|
% |
|
United States |
|
$ |
67,097 |
|
|
$ |
19,639 |
|
|
$ |
(995 |
) |
|
$ |
85,741 |
|
|
|
24.9 |
% |
Worldwide excluding United
States (1) |
|
|
6,243 |
|
|
|
60,500 |
|
|
|
(594 |
) |
|
|
66,149 |
|
|
|
19.2 |
% |
Europe |
|
|
7,163 |
|
|
|
9,688 |
|
|
|
(146 |
) |
|
|
16,705 |
|
|
|
4.9 |
% |
Latin America and Caribbean |
|
|
17,340 |
|
|
|
29,033 |
|
|
|
(14,336 |
) |
|
|
32,037 |
|
|
|
9.3 |
% |
Japan |
|
|
3,125 |
|
|
|
1,556 |
|
|
|
(21 |
) |
|
|
4,660 |
|
|
|
1.4 |
% |
Canada |
|
|
21 |
|
|
|
1,808 |
|
|
|
(21 |
) |
|
|
1,808 |
|
|
|
0.5 |
% |
Rest of the world (2) |
|
|
(372 |
) |
|
|
|
|
|
|
|
|
|
|
(372 |
) |
|
|
(0.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total, non United States |
|
|
33,520 |
|
|
|
102,585 |
|
|
|
(15,118 |
) |
|
|
120,987 |
|
|
|
35.2 |
% |
Worldwide including United
States (1) |
|
|
4,635 |
|
|
|
13,317 |
|
|
|
(135 |
) |
|
|
17,817 |
|
|
|
5.2 |
% |
Marine and Aerospace (3) |
|
|
37,378 |
|
|
|
83,181 |
|
|
|
(1,064 |
) |
|
|
119,495 |
|
|
|
34.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
142,630 |
|
|
$ |
218,722 |
|
|
$ |
(17,312 |
) |
|
$ |
344,040 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2009 |
|
|
|
Gross premiums written |
|
|
|
Validus Re |
|
|
Talbot |
|
|
Eliminations |
|
|
Total |
|
|
% |
|
United States |
|
$ |
54,524 |
|
|
$ |
15,204 |
|
|
$ |
(1,113 |
) |
|
$ |
68,615 |
|
|
|
20.7 |
% |
Worldwide excluding United
States (1) |
|
|
4,322 |
|
|
|
70,954 |
|
|
|
(2,330 |
) |
|
|
72,946 |
|
|
|
22.1 |
% |
Europe |
|
|
3,092 |
|
|
|
14,525 |
|
|
|
140 |
|
|
|
17,757 |
|
|
|
5.4 |
% |
Latin America and Caribbean |
|
|
17,229 |
|
|
|
30,074 |
|
|
|
(16,833 |
) |
|
|
30,470 |
|
|
|
9.2 |
% |
Japan |
|
|
2,363 |
|
|
|
947 |
|
|
|
(273 |
) |
|
|
3,037 |
|
|
|
0.9 |
% |
Canada |
|
|
(183 |
) |
|
|
1,619 |
|
|
|
183 |
|
|
|
1,619 |
|
|
|
0.5 |
% |
Rest of the world (2) |
|
|
804 |
|
|
|
|
|
|
|
|
|
|
|
804 |
|
|
|
0.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total, non United States |
|
|
27,627 |
|
|
|
118,119 |
|
|
|
(19,113 |
) |
|
|
126,633 |
|
|
|
38.3 |
% |
Worldwide including United
States (1) |
|
|
9,946 |
|
|
|
18,152 |
|
|
|
(597 |
) |
|
|
27,501 |
|
|
|
8.3 |
% |
Marine and Aerospace (3) |
|
|
32,607 |
|
|
|
75,850 |
|
|
|
(178 |
) |
|
|
108,279 |
|
|
|
32.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
124,704 |
|
|
$ |
227,325 |
|
|
$ |
(21,001 |
) |
|
$ |
331,028 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents risks in two or more geographic zones. |
|
(2) |
|
Represents risks in one geographic zone. |
|
(3) |
|
Not classified as geographic area as marine and aerospace risks can span multiple geographic
areas and are not fixed locations in some instances. |
38
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
The Companys exposures are generally diversified across geographic zones. The following tables set
forth
the gross premiums written allocated to the territory of coverage exposure for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2010 |
|
|
|
Gross premiums written |
|
|
|
Validus Re |
|
|
Talbot |
|
|
Eliminations |
|
|
Total |
|
|
% |
|
United States |
|
$ |
487,317 |
|
|
$ |
74,613 |
|
|
$ |
(6,486 |
) |
|
$ |
555,444 |
|
|
|
32.1 |
% |
Worldwide excluding United
States (1) |
|
|
50,837 |
|
|
|
195,324 |
|
|
|
(6,512 |
) |
|
|
239,649 |
|
|
|
13.8 |
% |
Europe |
|
|
98,396 |
|
|
|
38,058 |
|
|
|
(1,107 |
) |
|
|
135,347 |
|
|
|
7.8 |
% |
Latin America and Caribbean |
|
|
61,115 |
|
|
|
75,628 |
|
|
|
(42,889 |
) |
|
|
93,854 |
|
|
|
5.4 |
% |
Japan |
|
|
23,025 |
|
|
|
5,165 |
|
|
|
(158 |
) |
|
|
28,032 |
|
|
|
1.6 |
% |
Canada |
|
|
158 |
|
|
|
8,811 |
|
|
|
(158 |
) |
|
|
8,811 |
|
|
|
0.5 |
% |
Rest of the world (2) |
|
|
24,796 |
|
|
|
|
|
|
|
|
|
|
|
24,796 |
|
|
|
1.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total, non United States |
|
|
258,327 |
|
|
|
322,986 |
|
|
|
(50,824 |
) |
|
|
530,489 |
|
|
|
30.5 |
% |
Worldwide including United
States (1) |
|
|
82,902 |
|
|
|
42,004 |
|
|
|
(2,369 |
) |
|
|
122,537 |
|
|
|
7.2 |
% |
Marine and Aerospace (3) |
|
|
238,707 |
|
|
|
303,370 |
|
|
|
(18,712 |
) |
|
|
523,365 |
|
|
|
30.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,067,253 |
|
|
$ |
742,973 |
|
|
$ |
(78,391 |
) |
|
$ |
1,731,835 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2009 |
|
|
|
Gross premiums written |
|
|
|
Validus Re |
|
|
Talbot |
|
|
Eliminations |
|
|
Total |
|
|
% |
|
United States |
|
$ |
352,523 |
|
|
$ |
62,096 |
|
|
$ |
(6,200 |
) |
|
$ |
408,419 |
|
|
|
29.9 |
% |
Worldwide excluding United
States (1) |
|
|
38,264 |
|
|
|
198,145 |
|
|
|
(11,612 |
) |
|
|
224,797 |
|
|
|
16.3 |
% |
Europe |
|
|
49,674 |
|
|
|
52,434 |
|
|
|
(3,073 |
) |
|
|
99,035 |
|
|
|
7.3 |
% |
Latin America and Caribbean |
|
|
35,685 |
|
|
|
62,670 |
|
|
|
(31,726 |
) |
|
|
66,629 |
|
|
|
4.9 |
% |
Japan |
|
|
17,170 |
|
|
|
4,654 |
|
|
|
(273 |
) |
|
|
21,551 |
|
|
|
1.6 |
% |
Canada |
|
|
469 |
|
|
|
7,998 |
|
|
|
(469 |
) |
|
|
7,998 |
|
|
|
0.6 |
% |
Rest of the world (2) |
|
|
21,679 |
|
|
|
|
|
|
|
|
|
|
|
21,679 |
|
|
|
1.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total, non United States |
|
|
162,941 |
|
|
|
325,901 |
|
|
|
(47,153 |
) |
|
|
441,689 |
|
|
|
32.3 |
% |
Worldwide including United
States (1) |
|
|
46,652 |
|
|
|
49,214 |
|
|
|
(2,884 |
) |
|
|
92,982 |
|
|
|
6.8 |
% |
Marine and Aerospace (3) |
|
|
172,274 |
|
|
|
253,146 |
|
|
|
(2,559 |
) |
|
|
422,861 |
|
|
|
31.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
734,390 |
|
|
$ |
690,357 |
|
|
$ |
(58,796 |
) |
|
$ |
1,365,951 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents risks in two or more geographic zones. |
|
(2) |
|
Represents risks in one geographic zone. |
|
(3) |
|
Not classified as geographic area as marine and aerospace risks can span multiple geographic
areas and are not fixed locations in some instances. |
39
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of the Companys consolidated results of operations
for the three and nine months ended September 30, 2010 and 2009 and the Companys consolidated
financial condition, liquidity and capital resources at September 30, 2010 and December 31, 2009.
This discussion and analysis should be read in conjunction with the audited consolidated financial
statements and related notes for the fiscal year ended December 31, 2009, the discussions of
critical accounting policies and the qualitative and quantitative disclosure about market risk
contained in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2009.
The Company was formed on October 19, 2005 and completed the acquisitions of Talbot Holdings
Ltd. (Talbot) and IPC Holdings, Ltd. (IPC) on July 2, 2007 and September 4, 2009, respectively.
For a variety of reasons, the Companys historical financial results may not accurately indicate
future performance. See Cautionary Note Regarding Forward-Looking Statements. The Risk Factors
set forth in Item 1A of the Companys Annual Report on Form 10-K for the fiscal year ended December
31, 2009 present a discussion of important factors that could cause actual results to differ
materially from the results described in or implied by the forward-looking statements contained
herein.
Executive Overview
The Company underwrites from two distinct global operating segments, Validus Reinsurance, Ltd.
(Validus Re) and Talbot. Validus Re, the Companys principal reinsurance operating segment,
operates as a Bermuda-based provider of short-tail reinsurance products on a global basis. Talbot,
the Companys principal insurance operating segment, operates through its two underwriting
platforms: Talbot Underwriting Ltd, which manages Syndicate 1183 at Lloyds of London (Lloyds)
and which writes short-tail insurance products on a worldwide basis, and Underwriting Risk Services
Ltd, which is an underwriting agency writing primarily yacht and onshore energy business on behalf
of the Talbot syndicate and others.
The Companys strategy is to concentrate primarily on short-tail risks, which is an area where
management believes current prices and terms provide an attractive risk adjusted return and the
management team has proven expertise. The Companys profitability in any given period is based upon
premium and investment revenues less net losses and loss expenses, acquisition expenses and
operating expenses. Financial results in the insurance and reinsurance industry are influenced by
the frequency and/or severity of claims and losses, including as a result of catastrophic events,
changes in interest rates, financial markets and general economic conditions, the supply of
insurance and reinsurance capacity and changes in legal, regulatory and judicial environments.
On September 4, 2009, the Company acquired all of the outstanding shares of IPC (the IPC
Acquisition) in exchange for common shares and cash. IPCs operations focused on short-tail lines
of reinsurance. The primary lines in which IPC conducted business were property catastrophe
reinsurance and, to a limited extent, property-per-risk excess, aviation (including satellite) and
other short-tail reinsurance on a worldwide basis. The IPC Acquisition was undertaken to increase
the Companys capital base and gain a strategic advantage in the then current reinsurance market.
This acquisition created a leading Bermuda carrier in the short-tail reinsurance market that
facilitates stronger relationships with major reinsurance intermediaries.
Business Outlook and Trends
The Company was formed in October 2005 in response to the supply/demand imbalance resulting
from the large industry losses in 2004 and 2005. In the aggregate, the Company observed substantial
increases in premium rates in 2006 compared to 2005 levels. During the years ended December 31,
2007 and 2008, the Company experienced increased competition in most lines of business. Capital
provided by new entrants or by the commitment of additional capital by existing insurers and
reinsurers increased the supply of insurance and reinsurance which resulted in a softening of rates
in most lines. However, during 2008, the insurance and reinsurance industry incurred material
losses and capital declines due to Hurricanes Ike and Gustav and the global financial crisis. In
the wake of these events, the January 2009 renewal season saw decreased competition and increased
premium rates due to relatively scarce capital and increased demand. During 2009, the Company
observed reinsurance demand stabilization and industry capital recovery from investment portfolio gains.
40
In 2009, there
were few notable large losses affecting the worldwide (re)insurance industry and no major
hurricanes making landfall in the United States.
The January 2010 renewal period saw business being withdrawn from the market, notably
catastrophe excess of loss, resulting in the Company writing less business in these lines and
reducing the Companys aggregate loss exposure. Despite the elevated level of catastrophe activity
during the first quarter of 2010, principally the Chilean earthquake which stands among the most
costly industry losses in history outside of the United States, the Company continues to see
increased competition and decreased premium rates in most classes of business. During the July 2010
renewal period, Validus Re experienced rate decreases in the property and specialty portfolios. The
Talbot segment, has also experienced pricing pressures in most classes of business, with the
exception of the offshore energy, financial institution and political risk lines, which have been
experiencing favorable renewal terms and conditions following recent losses. During the nine months
ended September 30, 2010, Validus Re experienced rate decreases in most classes of business with
the exception of offshore energy and Latin America. The Talbot segment has also experienced pricing
pressure in most classes of business, with the exception of the offshore energy, financial
institution and political risk lines.
Financial Measures
The Company believes the following financial indicators are important in evaluating
performance and measuring the overall growth in value generated for shareholders:
Annualized return on average equity represents the level of net income available to
shareholders generated from the average shareholders equity during the period. Annualized return
on average equity is calculated by dividing the net income for the period by the average
shareholders equity during the period. Average shareholders equity is the average of the
beginning, ending and intervening quarter end shareholders equity balances. Percentages for the
quarter and interim periods are annualized. The Companys objective is to generate superior returns
on capital that appropriately reward shareholders for the risks assumed and to grow premiums
written only when returns meet or exceed internal requirements. Details of annualized return on
average equity are provided below.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
September 30, |
|
|
2010 |
|
2009 |
Annualized return on average equity |
|
|
25.9 |
% |
|
|
65.3 |
% |
|
|
|
|
|
|
|
|
|
The decrease in annualized return on average equity for the three months ended September 30,
2010 was driven primarily by the absence of the $303.0 million gain on bargain purchase, net of
expenses relating to the IPC Acquisition. Net operating income for the three months ended September
30, 2010 increased by $27.4 million, or 18.8% compared to the three months ended September 30,
2009.
Diluted book value per common share is considered by management to be an appropriate measure
of our returns to common shareholders, as we believe growth in our book value on a diluted basis
ultimately translates into growth of our stock price. Diluted book value per common share increased
by $1.72, or 5.7%, from $30.30 at June 30, 2010 to $32.02 at September 30, 2010. The increase was
substantially due to the earnings generated in the three months ended September 30, 2010, partially
offset by dividends of $0.22 per share and per share equivalent paid in the period. Diluted book
value per common share is a Non-GAAP financial measure. The most comparable U.S. GAAP financial
measure is book value per common share. Diluted book value per common share is calculated based on
total shareholders equity plus the assumed proceeds from the exercise of outstanding options and
warrants, divided by the sum of common shares, unvested restricted shares, options and warrants
outstanding (assuming their exercise). A reconciliation of diluted book value per common share to
book value per common share is presented below in the section entitled Non-GAAP Financial
Measures.
Cash dividends per common share are an integral part of the value created for shareholders. On
November 3, 2010, the Company announced a quarterly cash dividend of $0.22 per each common share
and $0.22 per common share equivalent for which each outstanding warrant is then exercisable,
payable on December 31, 2010 to holders of record on December 15, 2010.
41
Underwriting income measures the performance of the Companys core underwriting function,
excluding revenues and expenses such as net investment income (loss), other income, finance
expenses, net realized and unrealized gains (losses) on investments, foreign exchange gains
(losses) and gain on bargain purchase, net of expenses. The Company believes the reporting of
underwriting income enhances the understanding of our results by highlighting the underlying
profitability of the Companys core insurance and reinsurance operations. Underwriting income for
the three months ended September 30, 2010 and 2009 was $150.2 million and $124.4 million,
respectively. Underwriting income is a Non-GAAP financial measure as described in detail and
reconciled in the section below entitled Underwriting Income.
Critical Accounting Policies and Estimates
There are certain accounting policies that the Company considers to be critical due to the
judgment and uncertainty inherent in the application of those policies. In calculating financial
statement estimates, the use of different assumptions could produce materially different estimates.
The Company believes the following critical accounting policies affect significant estimates used
in the preparation of our consolidated financial statements:
|
|
|
Reserve for losses and loss expenses; |
|
|
|
|
Premiums; |
|
|
|
|
Reinsurance premiums ceded and reinsurance recoverable; and |
|
|
|
|
Investment valuation. |
Critical accounting policies and estimates are discussed further in Item 7, Managements
Discussion and Analysis of Results of Operations and Financial Condition in the Companys Annual
Report on Form 10-K for the year ended December 31, 2009.
Segment Reporting
Management has determined that the Company operates in two reportable segments. The two
significant operating segments are Validus Re and Talbot.
Results of Operations
Validus Re commenced operations on December 16, 2005. The Companys fiscal year ends on
December 31. Financial statements are prepared in accordance with generally accepted accounting
principles in the United States of America (U.S. GAAP) for interim financial information.
42
The following table presents results of operations for the three and nine months ended September
30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
(Dollars in thousands) |
|
2010 |
|
|
2009 (a) |
|
|
Pro Forma 2009 (c) |
|
|
2010 |
|
|
2009 (a) |
|
|
Pro Forma 2009 (c) |
|
Gross premiums written |
|
$ |
344,040 |
|
|
$ |
331,028 |
|
|
$ |
356,471 |
|
|
$ |
1,731,835 |
|
|
$ |
1,365,951 |
|
|
$ |
1,753,288 |
|
Reinsurance premiums ceded |
|
|
(35,641 |
) |
|
|
(67,687 |
) |
|
|
(67,866 |
) |
|
|
(194,106 |
) |
|
|
(202,489 |
) |
|
|
(209,018 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
|
308,399 |
|
|
|
263,341 |
|
|
|
288,605 |
|
|
|
1,537,729 |
|
|
|
1,163,462 |
|
|
|
1,544,270 |
|
Change in unearned premiums |
|
|
124,275 |
|
|
|
111,376 |
|
|
|
153,457 |
|
|
|
(209,417 |
) |
|
|
(141,786 |
) |
|
|
(260,343 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
|
432,674 |
|
|
|
374,717 |
|
|
|
442,062 |
|
|
|
1,328,312 |
|
|
|
1,021,676 |
|
|
|
1,283,927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expenses |
|
|
158,936 |
|
|
|
134,152 |
|
|
|
136,253 |
|
|
|
832,361 |
|
|
|
390,736 |
|
|
|
423,529 |
|
Policy acquisition costs |
|
|
67,074 |
|
|
|
64,236 |
|
|
|
71,126 |
|
|
|
217,376 |
|
|
|
190,125 |
|
|
|
216,759 |
|
General and administrative expenses |
|
|
48,831 |
|
|
|
46,036 |
|
|
|
49,916 |
|
|
|
154,779 |
|
|
|
125,315 |
|
|
|
149,257 |
|
Share compensation expenses |
|
|
7,618 |
|
|
|
5,862 |
|
|
|
7,612 |
|
|
|
21,040 |
|
|
|
18,848 |
|
|
|
25,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total underwriting deductions |
|
|
282,459 |
|
|
|
250,286 |
|
|
|
264,907 |
|
|
|
1,225,556 |
|
|
|
725,024 |
|
|
|
815,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting income (b) |
|
|
150,215 |
|
|
|
124,431 |
|
|
|
177,155 |
|
|
|
102,756 |
|
|
|
296,652 |
|
|
|
468,820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
34,033 |
|
|
|
29,532 |
|
|
|
39,451 |
|
|
|
103,141 |
|
|
|
83,267 |
|
|
|
128,438 |
|
Other income |
|
|
1,082 |
|
|
|
1,101 |
|
|
|
1,044 |
|
|
|
4,667 |
|
|
|
2,875 |
|
|
|
2,844 |
|
Finance expenses |
|
|
(13,715 |
) |
|
|
(11,257 |
) |
|
|
(11,257 |
) |
|
|
(42,084 |
) |
|
|
(29,732 |
) |
|
|
(30,115 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income before taxes (b) |
|
|
171,615 |
|
|
|
143,807 |
|
|
|
206,393 |
|
|
|
168,480 |
|
|
|
353,062 |
|
|
|
569,987 |
|
Tax benefit (expense) |
|
|
1,422 |
|
|
|
1,799 |
|
|
|
1,799 |
|
|
|
(2,068 |
) |
|
|
3,301 |
|
|
|
3,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income (b) |
|
|
173,037 |
|
|
|
145,606 |
|
|
|
208,192 |
|
|
|
166,412 |
|
|
|
356,363 |
|
|
|
573,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on bargain purchase, net of
expenses |
|
|
|
|
|
|
302,950 |
|
|
|
|
|
|
|
|
|
|
|
287,099 |
|
|
|
|
|
Net realized gains (losses) on
investments |
|
|
23,058 |
|
|
|
5,429 |
|
|
|
11,093 |
|
|
|
46,897 |
|
|
|
(20,642 |
) |
|
|
(13,816 |
) |
Net unrealized gains on investments |
|
|
31,588 |
|
|
|
50,437 |
|
|
|
114,779 |
|
|
|
88,641 |
|
|
|
109,839 |
|
|
|
214,832 |
|
Foreign exchange gains (losses) |
|
|
10,790 |
|
|
|
(5,244 |
) |
|
|
1,191 |
|
|
|
(2,073 |
) |
|
|
(1,012 |
) |
|
|
3,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
238,473 |
|
|
$ |
499,178 |
|
|
$ |
335,255 |
|
|
$ |
299,877 |
|
|
$ |
731,647 |
|
|
$ |
778,260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written / Gross
premiums written |
|
|
89.6 |
% |
|
|
79.6 |
% |
|
|
81.0 |
% |
|
|
88.8 |
% |
|
|
85.2 |
% |
|
|
88.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expenses |
|
|
36.7 |
% |
|
|
35.8 |
% |
|
|
30.8 |
% |
|
|
62.7 |
% |
|
|
38.2 |
% |
|
|
33.0 |
% |
Policy acquisition costs |
|
|
15.5 |
% |
|
|
17.1 |
% |
|
|
16.1 |
% |
|
|
16.4 |
% |
|
|
18.6 |
% |
|
|
16.9 |
% |
General and administrative
expenses (d) |
|
|
13.0 |
% |
|
|
13.8 |
% |
|
|
13.0 |
% |
|
|
13.2 |
% |
|
|
14.1 |
% |
|
|
13.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense ratio |
|
|
28.5 |
% |
|
|
30.9 |
% |
|
|
29.1 |
% |
|
|
29.6 |
% |
|
|
32.7 |
% |
|
|
30.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
65.2 |
% |
|
|
66.7 |
% |
|
|
59.9 |
% |
|
|
92.3 |
% |
|
|
70.9 |
% |
|
|
63.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a) |
|
The results of operations for IPC are consolidated only from the September 2009 date of
acquisition. |
|
b) |
|
Non-GAAP Financial Measures. In presenting the Companys results, management has
included and discussed underwriting income and operating income that are not calculated under
standards or rules that comprise U.S. GAAP. Such measures are referred to as non-GAAP.
Non-GAAP measures may be defined or calculated differently by other companies. These measures
should not be viewed as a substitute for those determined in accordance with U.S. GAAP. A
reconciliation of this measure to net income, the most comparable U.S. GAAP financial measure,
is presented in the section below entitled Underwriting Income. |
|
c) |
|
Pro Forma combined Validus Holdings, Ltd. and IPC Holdings Ltd. income statement for the
three months and nine months ended September 30, 2009. |
|
d) |
|
The general and administrative ratio includes share compensation expenses. |
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
(Dollars in thousands) |
|
2010 |
|
|
2009 (a) |
|
|
Pro Forma 2009 (c) |
|
|
2010 |
|
|
2009 (a) |
|
|
Pro Forma 2009 (c) |
|
Validus Re |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written |
|
$ |
142,630 |
|
|
$ |
124,704 |
|
|
$ |
150,147 |
|
|
$ |
1,067,253 |
|
|
$ |
734,390 |
|
|
$ |
1,121,727 |
|
Reinsurance premiums ceded |
|
|
(8,463 |
) |
|
|
(38,435 |
) |
|
|
(38,614 |
) |
|
|
(62,748 |
) |
|
|
(94,794 |
) |
|
|
(101,323 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
|
134,167 |
|
|
|
86,269 |
|
|
|
111,533 |
|
|
|
1,004,505 |
|
|
|
639,596 |
|
|
|
1,020,404 |
|
Change in unearned premiums |
|
|
124,747 |
|
|
|
113,499 |
|
|
|
155,580 |
|
|
|
(199,629 |
) |
|
|
(101,684 |
) |
|
|
(220,241 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
|
258,914 |
|
|
|
199,768 |
|
|
|
267,113 |
|
|
|
804,876 |
|
|
|
537,912 |
|
|
|
800,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expenses |
|
|
79,098 |
|
|
|
45,987 |
|
|
|
48,088 |
|
|
|
551,811 |
|
|
|
142,570 |
|
|
|
175,363 |
|
Policy acquisition costs |
|
|
39,818 |
|
|
|
32,648 |
|
|
|
39,538 |
|
|
|
121,300 |
|
|
|
90,346 |
|
|
|
116,980 |
|
General and administrative expenses |
|
|
5,663 |
|
|
|
17,987 |
|
|
|
21,867 |
|
|
|
32,958 |
|
|
|
45,928 |
|
|
|
69,870 |
|
Share compensation expenses |
|
|
1,869 |
|
|
|
1,766 |
|
|
|
3,516 |
|
|
|
5,247 |
|
|
|
4,986 |
|
|
|
11,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total underwriting deductions |
|
|
126,448 |
|
|
|
98,388 |
|
|
|
113,009 |
|
|
|
711,316 |
|
|
|
283,830 |
|
|
|
373,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting income (b) |
|
|
132,466 |
|
|
|
101,380 |
|
|
|
154,104 |
|
|
|
93,560 |
|
|
|
254,082 |
|
|
|
426,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Talbot |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written |
|
$ |
218,722 |
|
|
$ |
227,325 |
|
|
$ |
227,325 |
|
|
$ |
742,973 |
|
|
$ |
690,357 |
|
|
$ |
690,357 |
|
Reinsurance premiums ceded |
|
|
(44,490 |
) |
|
|
(50,253 |
) |
|
|
(50,253 |
) |
|
|
(209,749 |
) |
|
|
(166,491 |
) |
|
|
(166,491 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
|
174,232 |
|
|
|
177,072 |
|
|
|
177,072 |
|
|
|
533,224 |
|
|
|
523,866 |
|
|
|
523,866 |
|
Change in unearned premiums |
|
|
(472 |
) |
|
|
(2,123 |
) |
|
|
(2,123 |
) |
|
|
(9,788 |
) |
|
|
(40,102 |
) |
|
|
(40,102 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
|
173,760 |
|
|
|
174,949 |
|
|
|
174,949 |
|
|
|
523,436 |
|
|
|
483,764 |
|
|
|
483,764 |
|
Losses and loss expenses |
|
|
79,838 |
|
|
|
88,165 |
|
|
|
88,165 |
|
|
|
280,550 |
|
|
|
248,166 |
|
|
|
248,166 |
|
Policy acquisition costs |
|
|
32,451 |
|
|
|
33,106 |
|
|
|
33,106 |
|
|
|
106,043 |
|
|
|
102,378 |
|
|
|
102,378 |
|
General and administrative expenses |
|
|
33,201 |
|
|
|
23,424 |
|
|
|
23,424 |
|
|
|
83,709 |
|
|
|
65,565 |
|
|
|
65,565 |
|
Share compensation expenses |
|
|
1,754 |
|
|
|
1,371 |
|
|
|
1,371 |
|
|
|
4,781 |
|
|
|
5,804 |
|
|
|
5,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total underwriting deductions |
|
|
147,244 |
|
|
|
146,066 |
|
|
|
146,066 |
|
|
|
475,083 |
|
|
|
421,913 |
|
|
|
421,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting income (b) |
|
|
26,516 |
|
|
|
28,883 |
|
|
|
28,883 |
|
|
|
48,353 |
|
|
|
61,851 |
|
|
|
61,851 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate & Eliminations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written |
|
$ |
(17,312 |
) |
|
$ |
(21,001 |
) |
|
$ |
(21,001 |
) |
|
$ |
(78,391 |
) |
|
$ |
(58,796 |
) |
|
$ |
(58,796 |
) |
Reinsurance premiums ceded |
|
|
17,312 |
|
|
|
21,001 |
|
|
|
21,001 |
|
|
|
78,391 |
|
|
|
58,796 |
|
|
|
58,796 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unearned premiums |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policy acquisition costs |
|
|
(5,195 |
) |
|
|
(1,518 |
) |
|
|
(1,518 |
) |
|
|
(9,967 |
) |
|
|
(2,599 |
) |
|
|
(2,599 |
) |
General and administrative expenses |
|
|
9,967 |
|
|
|
4,625 |
|
|
|
4,625 |
|
|
|
38,112 |
|
|
|
13,822 |
|
|
|
13,822 |
|
Share compensation expenses |
|
|
3,995 |
|
|
|
2,725 |
|
|
|
2,725 |
|
|
|
11,012 |
|
|
|
8,058 |
|
|
|
8,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total underwriting deductions |
|
|
8,767 |
|
|
|
5,832 |
|
|
|
5,832 |
|
|
|
39,157 |
|
|
|
19,281 |
|
|
|
19,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting (loss) (b) |
|
|
(8,767 |
) |
|
|
(5,832 |
) |
|
|
(5,832 |
) |
|
|
(39,157 |
) |
|
|
(19,281 |
) |
|
|
(19,281 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total underwriting income (b) |
|
$ |
150,215 |
|
|
$ |
124,431 |
|
|
$ |
177,155 |
|
|
$ |
102,756 |
|
|
$ |
296,652 |
|
|
$ |
468,820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a) |
|
The results of operations for IPC are consolidated only from the September 2009 date of
acquisition. |
|
b) |
|
Non-GAAP Financial Measures. In presenting the Companys results, management has included and
discussed underwriting income that is not calculated under standards or rules that comprise
U.S. GAAP. Such measures are referred to as non-GAAP. Non-GAAP measures may be defined or
calculated differently by other companies. These measures should not be viewed as a substitute
for those determined in accordance with U.S. GAAP. A reconciliation of this measure to net
income, the most comparable U.S. GAAP financial measure, is presented in the section below
entitled Underwriting Income. |
|
c) |
|
Pro Forma combined Validus Holdings, Ltd. and IPC Holdings Ltd. income statement for the
three and nine months ended September 30, 2009. |
44
Three Months Ended September 30, 2010 compared to Three Months Ended September 30, 2009
Net income for the three months ended September 30, 2010 was $238.5 million compared to
net income of $499.2 million for the three months ended September 30, 2009, a decrease of $260.7
million or 52.2%. The primary factors driving the decrease in net income were:
|
|
The significant non-recurring gain on bargain purchase, net of expenses of $303.0 million
in the third quarter of 2009 relating to the IPC Acquisition; and |
|
|
|
Decrease in net unrealized gains on investments of $18.8 million. |
The above items were partially offset by the following factors:
|
|
Increase in underwriting income of $25.8 million due primarily to an increase in net
premiums earned of $58.0 million, partially offset by an increase in underwriting deductions
of $32.2 million including $47.7 million of notable loss events included in loss and loss
expenses. Underwriting deductions also include policy acquisition costs, general and
administrative expenses and share compensation expenses; |
|
|
|
Increase in net investment income and net realized gains on investments of $4.5 million and
$17.6 million, respectively; and |
|
|
|
A favorable movement in foreign exchange of $16.0 million. |
The change in net income for the three months ended September 30, 2010 of $260.7 million as
compared to the three months ended September 30, 2009 is described in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2010 |
|
|
|
Increase (Decrease) Over the Three Months Ended September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
Corporate and |
|
|
|
|
(Dollars in thousands) |
|
Validus Re (a) |
|
|
Talbot |
|
|
Eliminations |
|
|
Total (a) |
|
Notable losses net loss and loss expenses (b) |
|
$ |
(36,451 |
) |
|
$ |
(11,224 |
) |
|
$ |
|
|
|
$ |
(47,675 |
) |
Notable losses net reinstatement premiums (b) |
|
|
815 |
|
|
|
(265 |
) |
|
|
|
|
|
|
550 |
|
Other underwriting income (loss) |
|
|
66,722 |
|
|
|
9,122 |
|
|
|
(2,935 |
) |
|
|
72,909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting income (loss) (c) |
|
|
31,086 |
|
|
|
(2,367 |
) |
|
|
(2,935 |
) |
|
|
25,784 |
|
Net investment income |
|
|
5,263 |
|
|
|
(15 |
) |
|
|
(747 |
) |
|
|
4,501 |
|
Other income |
|
|
(956 |
) |
|
|
2,519 |
|
|
|
(1,582 |
) |
|
|
(19 |
) |
Finance expenses |
|
|
(1,112 |
) |
|
|
3,926 |
|
|
|
(5,272 |
) |
|
|
(2,458 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,281 |
|
|
|
4,063 |
|
|
|
(10,536 |
) |
|
|
27,808 |
|
Taxes |
|
|
41 |
|
|
|
(296 |
) |
|
|
(122 |
) |
|
|
(377 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,322 |
|
|
|
3,767 |
|
|
|
(10,658 |
) |
|
|
27,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on bargain purchase, net of expenses |
|
|
|
|
|
|
|
|
|
|
(302,950 |
) |
|
|
(302,950 |
) |
Net realized gains on investments |
|
|
14,900 |
|
|
|
2,729 |
|
|
|
|
|
|
|
17,629 |
|
Net unrealized gains on investments |
|
|
(15,388 |
) |
|
|
(3,461 |
) |
|
|
|
|
|
|
(18,849 |
) |
Net foreign exchange gains |
|
|
2,156 |
|
|
|
13,578 |
|
|
|
300 |
|
|
|
16,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
35,990 |
|
|
$ |
16,613 |
|
|
$ |
(313,308 |
) |
|
$ |
(260,705 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The results of operations for IPC are consolidated only from the September 2009 date of
acquisition. |
|
(b) |
|
Notable losses for the three months ended September 30, 2010 include: New Zealand earthquake,
Oklahoma windstorm, a Political risk loss and Hurricane Karl. Excludes the reserve for
potential development on 2010 notable loss events. |
|
(c) |
|
Non-GAAP Financial Measures. In presenting the Companys results, management has included and
discussed underwriting income (loss) that is not calculated under standards or rules that
comprise U.S. GAAP. Such measures are referred to as non-GAAP. Non-GAAP measures may be
defined or calculated differently by other companies. These measures should not be viewed as a
substitute for those determined in accordance with U.S. GAAP. A reconciliation of this measure
to net income, the most comparable U.S. GAAP financial measure, is presented in the section
below entitled Underwriting Income. |
45
Gross Premiums Written
Gross premiums written for the three months ended September 30, 2010 were $344.0 million
compared to $331.0 million for the three months ended September 30, 2009, an increase of $13.0
million or 3.9%. The property and marine lines increased by $14.9 million and $5.0 million,
respectively, while the specialty lines decreased by $6.9 million. Details of gross premiums
written by line of business are provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, 2010 |
|
|
September 30, 2009 (a) |
|
|
|
|
|
|
Gross Premiums |
|
|
Gross Premiums |
|
|
Gross Premiums |
|
|
Gross Premiums |
|
|
|
|
(Dollars in thousands) |
|
Written |
|
|
Written (%) |
|
|
Written |
|
|
Written (%) |
|
|
% Change |
|
Property |
|
$ |
156,381 |
|
|
|
45.4 |
% |
|
$ |
141,480 |
|
|
|
42.7 |
% |
|
|
10.5 |
% |
Marine |
|
|
100,746 |
|
|
|
29.3 |
% |
|
|
95,772 |
|
|
|
29.0 |
% |
|
|
5.2 |
% |
Specialty |
|
|
86,913 |
|
|
|
25.3 |
% |
|
|
93,776 |
|
|
|
28.3 |
% |
|
|
(7.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
344,040 |
|
|
|
100.0 |
% |
|
$ |
331,028 |
|
|
|
100.0 |
% |
|
|
3.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The results of operations for IPC are consolidated only from the September 2009 date of
acquisition. |
Validus Re. Validus Re gross premiums written for the three months ended September 30, 2010
were $142.6 million compared to $124.7 million for the three months ended September 30, 2009, an
increase of $17.9 million or 14.4%. Details of Validus Re gross premiums written by line of
business are provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, 2010 |
|
|
September 30, 2009 (a) |
|
|
|
|
|
|
Gross Premiums |
|
|
Gross Premiums |
|
|
Gross Premiums |
|
|
Gross Premiums |
|
|
|
|
(Dollars in thousands) |
|
Written |
|
|
Written (%) |
|
|
Written |
|
|
Written (%) |
|
|
% Change |
|
Property |
|
$ |
99,313 |
|
|
|
69.6 |
% |
|
$ |
80,578 |
|
|
|
64.6 |
% |
|
|
23.3 |
% |
Marine |
|
|
37,495 |
|
|
|
26.3 |
% |
|
|
28,408 |
|
|
|
22.8 |
% |
|
|
32.0 |
% |
Specialty |
|
|
5,822 |
|
|
|
4.1 |
% |
|
|
15,718 |
|
|
|
12.6 |
% |
|
|
(63.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
142,630 |
|
|
|
100.0 |
% |
|
$ |
124,704 |
|
|
|
100.0 |
% |
|
|
14.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The results of operations for IPC are consolidated only from the September 2009 date of
acquisition. |
During the three months ended September 30, 2010, Validus Re wrote new business and
increased lines on renewing business by $115.3 million compared to $106.5 million in the three
months ended September 30, 2009, an increase of $8.8 million. In addition, there was a $13.5
million net increase in premium adjustments and reinstatement premiums, partially offset by a $3.7
million decrease in inter-company premiums written with Talbot which are eliminated upon
consolidation.
The increase in gross premiums written in the property lines of $18.7 million was due
primarily to an $18.2 million increase in premium adjustments and reinstatement premiums. In
addition, there was a $3.2 million increase in new and renewing business in the property lines. The
increase in gross premiums written of $9.1 million in the marine lines was due primarily to a $10.5
million increase in lines on renewing business and new business. The decrease in gross premiums
written in the specialty lines of $9.9 million was primarily due to a $4.9 million decrease in new
and renewing business due to unfavorable pricing conditions in certain specialty lines. In
addition, the impact of premium adjustments and reinstatement premiums in the specialty lines for the
three months ended September 30, 2010 was $4.4 million lower than for the three months ended
September 30, 2009.
46
Gross premiums written under the quota share, surplus treaty and excess of loss contracts
between Validus Re and Talbot decreased by $2.1 million in the property lines, $1.1 million in the
marine lines and $0.5 million in the specialty lines as compared to the three months ended
September 30, 2009. These reinsurance agreements with Talbot are eliminated upon consolidation.
Talbot. Talbot gross premiums written for the three months ended September 30, 2010 were $218.7
million compared to $227.3 million for the three months ended September 30, 2009, a decrease of
$8.6 million or 3.8%. The $218.7 million of gross premiums written translated at 2009 rates of
exchange would have been $221.5 million during the three months ended September 30, 2010, an
increase of $2.8 million. Details of Talbot gross premiums written by line of business are provided
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, 2010 |
|
|
September 30, 2009 |
|
|
|
|
|
|
Gross Premiums |
|
|
Gross Premiums |
|
|
Gross Premiums |
|
|
Gross Premiums |
|
|
|
|
(Dollars in thousands) |
|
Written |
|
|
Written (%) |
|
|
Written |
|
|
Written (%) |
|
|
% Change |
|
Property |
|
$ |
73,201 |
|
|
|
33.4 |
% |
|
$ |
79,155 |
|
|
|
34.8 |
% |
|
|
(7.5 |
)% |
Marine |
|
|
64,422 |
|
|
|
29.5 |
% |
|
|
69,621 |
|
|
|
30.6 |
% |
|
|
(7.5 |
)% |
Specialty |
|
|
81,099 |
|
|
|
37.1 |
% |
|
|
78,549 |
|
|
|
34.6 |
% |
|
|
3.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
218,722 |
|
|
|
100.0 |
% |
|
$ |
227,325 |
|
|
|
100.0 |
% |
|
|
(3.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in gross premiums written in the property lines of $6.0 million was primarily due
to a $7.6 million reduction of gross premiums written in the onshore energy lines. This reduction
related to the change in timing of certain renewals from the third quarter of 2009 to the second
quarter of 2010. In addition, there was a decrease of $5.2 million in the marine lines and an
increase of $2.6 million in the specialty lines for the three months ended September 30, 2010.
Reinsurance Premiums Ceded
Reinsurance premiums ceded for the three months ended September 30, 2010 were $35.6 million
compared to $67.7 million for the three months ended September 30, 2009, a decrease of $32.0
million or 47.3%. Reinsurance premiums ceded in the property lines decreased by $42.8 million,
partially offset by an increase in the marine and specialty lines of $3.9 million and $6.9 million,
respectively. Details of reinsurance premiums ceded by line of business are described below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, 2010 |
|
|
September 30, 2009 (a) |
|
|
|
|
|
|
|
|
|
|
Reinsurance |
|
|
|
|
|
|
Reinsurance |
|
|
|
|
|
|
Reinsurance |
|
|
Premiums Ceded |
|
|
Reinsurance |
|
|
Premiums Ceded |
|
|
|
|
(Dollars in thousands) |
|
Premiums Ceded |
|
|
(%) |
|
|
Premiums Ceded |
|
|
(%) |
|
|
% Change |
|
Property |
|
$ |
13,662 |
|
|
|
38.3 |
% |
|
$ |
56,466 |
|
|
|
83.4 |
% |
|
|
(75.8 |
)% |
Marine |
|
|
10,377 |
|
|
|
29.1 |
% |
|
|
6,504 |
|
|
|
9.6 |
% |
|
|
59.5 |
% |
Specialty |
|
|
11,602 |
|
|
|
32.6 |
% |
|
|
4,717 |
|
|
|
7.0 |
% |
|
|
146.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
35,641 |
|
|
|
100.0 |
% |
|
$ |
67,687 |
|
|
|
100.0 |
% |
|
|
(47.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The results of operations for IPC are consolidated only from the September 2009 date of
acquisition. |
Validus Re. Validus Re reinsurance premiums ceded for the three months ended September 30,
2010 were $8.5 million compared to $38.4 million for the three months ended September 30, 2009, a
decrease of $30.0 million or 78.0%. Details of Validus Re reinsurance premiums ceded by line of
business are described below.
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, 2010 |
|
|
September 30, 2009 (a) |
|
|
|
|
|
|
|
|
|
|
Reinsurance |
|
|
|
|
|
|
Reinsurance |
|
|
|
|
|
|
Reinsurance |
|
|
Premiums Ceded |
|
|
Reinsurance |
|
|
Premiums Ceded |
|
|
|
|
(Dollars in thousands) |
|
Premiums Ceded |
|
|
(%) |
|
|
Premiums Ceded |
|
|
(%) |
|
|
% Change |
|
Property |
|
$ |
178 |
|
|
|
2.1 |
% |
|
$ |
33,991 |
|
|
|
88.4 |
% |
|
|
(99.5 |
)% |
Marine |
|
|
8,035 |
|
|
|
94.9 |
% |
|
|
4,444 |
|
|
|
11.6 |
% |
|
|
80.8 |
% |
Specialty |
|
|
250 |
|
|
|
3.0 |
% |
|
|
|
|
|
|
0.0 |
% |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
8,463 |
|
|
|
100.0 |
% |
|
$ |
38,435 |
|
|
|
100.0 |
% |
|
|
(78.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The results of operations for IPC are consolidated only from the September 2009 date of
acquisition. |
NM: Not meaningful
Reinsurance premiums ceded in the property lines decreased by $33.8 million, primarily
due the prior year purchase of $34.0 million in catastrophe retrocessional coverage for IPCs U.S.
property exposures. Reinsurance premiums ceded in the marine lines increased by $3.6 million, due
primarily to a change in the timing of purchases of $3.4 million in certain reinsurance contracts.
Talbot. Talbot reinsurance premiums ceded for the three months ended September 30, 2010 were $44.5
million compared to $50.3 million for the three months ended September 30, 2009, a decrease of $5.8
million or 11.5%. This decrease was primarily due to lower amounts ceded under the quota share
following the decrease in premiums written in the onshore energy lines and a lower quota share
percentage for 2010 as compared to 2009. Details of Talbot reinsurance premiums ceded by line of
business are described below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, 2010 |
|
|
September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
Reinsurance |
|
|
|
|
|
|
Reinsurance |
|
|
|
|
|
|
Reinsurance |
|
|
Premiums Ceded |
|
|
Reinsurance |
|
|
Premiums Ceded |
|
|
|
|
(Dollars in thousands) |
|
Premiums Ceded |
|
|
(%) |
|
|
Premiums Ceded |
|
|
(%) |
|
|
% Change |
|
Property |
|
$ |
29,617 |
|
|
|
66.6 |
% |
|
$ |
40,728 |
|
|
|
81.0 |
% |
|
|
(27.3 |
)% |
Marine |
|
|
3,513 |
|
|
|
7.9 |
% |
|
|
4,317 |
|
|
|
8.6 |
% |
|
|
(18.6 |
)% |
Specialty |
|
|
11,360 |
|
|
|
25.5 |
% |
|
|
5,208 |
|
|
|
10.4 |
% |
|
|
118.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
44,490 |
|
|
|
100.0 |
% |
|
$ |
50,253 |
|
|
|
100.0 |
% |
|
|
(11.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance premiums ceded in the property lines decreased by $11.1 million. The decrease was
due primarily to the reduction in premiums written in the onshore energy lines. Reinsurance
premiums ceded in the specialty lines increased by $6.2 million due to an additional purchase of
reinsurance under the excess of loss program and higher reinstatement premiums in the direct
aviation and financial institutions lines. Reinsurance premiums ceded under the quota share,
surplus treaty and excess of loss contracts with Validus Re for the three months ended September
30, 2010 were $17.3 million compared to $21.0 million for the three months ended September 30,
2009, a decrease of $3.7 million. These reinsurance agreements with Validus Re are eliminated upon
consolidation.
Net Premiums Written
Net premiums written for the three months ended September 30, 2010 were $308.4 million
compared to $263.3 million for the three months ended September 30, 2009, an increase of $45.1
million, or 17.1%. The ratios of net premiums written to gross premiums written for the three
months ended September 30, 2010 and 2009 were 89.6% and 79.6%, respectively. Details of net
premiums written by line of business are provided below.
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, 2010 |
|
|
September 30, 2009 (a) |
|
|
|
|
|
|
Net Premiums |
|
|
Net Premiums |
|
|
Net Premiums |
|
|
Net Premiums |
|
|
|
|
(Dollars in thousands) |
|
Written |
|
|
Written (%) |
|
|
Written |
|
|
Written (%) |
|
|
% Change |
|
Property |
|
$ |
142,719 |
|
|
|
46.3 |
% |
|
$ |
85,014 |
|
|
|
32.3 |
% |
|
|
67.9 |
% |
Marine |
|
|
90,369 |
|
|
|
29.3 |
% |
|
|
89,268 |
|
|
|
33.9 |
% |
|
|
1.2 |
% |
Specialty |
|
|
75,311 |
|
|
|
24.4 |
% |
|
|
89,059 |
|
|
|
33.8 |
% |
|
|
(15.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
308,399 |
|
|
|
100.0 |
% |
|
$ |
263,341 |
|
|
|
100.0 |
% |
|
|
17.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The results of operations for IPC are consolidated only from the September 2009 date of
acquisition. |
Validus Re. Validus Re net premiums written for the three months ended September 30, 2010 were
$134.2 million compared to $86.3 million for the three months ended September 30, 2009, an increase
of $47.9 million or 55.5%. Details of Validus Re net premiums written by line of business are
provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, 2010 |
|
|
September 30, 2009 (a) |
|
|
|
|
|
|
Net Premiums |
|
|
Net Premiums |
|
|
Net Premiums |
|
|
Net Premiums |
|
|
|
|
(Dollars in thousands) |
|
Written |
|
|
Written (%) |
|
|
Written |
|
|
Written (%) |
|
|
% Change |
|
Property |
|
$ |
99,135 |
|
|
|
73.8 |
% |
|
$ |
46,587 |
|
|
|
54.0 |
% |
|
|
112.8 |
% |
Marine |
|
|
29,460 |
|
|
|
22.0 |
% |
|
|
23,964 |
|
|
|
27.8 |
% |
|
|
22.9 |
% |
Specialty |
|
|
5,572 |
|
|
|
4.2 |
% |
|
|
15,718 |
|
|
|
18.2 |
% |
|
|
(64.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
134,167 |
|
|
|
100.0 |
% |
|
$ |
86,269 |
|
|
|
100.0 |
% |
|
|
55.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The results of operations for IPC are consolidated only from the September 2009 date of
acquisition. |
The increase in Validus Re net premiums written was driven by the factors highlighted
above in respect of gross premiums written and reinsurance premiums ceded. The ratios of net
premiums written to gross premiums written were 94.1% and 69.2% for the three months ended
September 30, 2010 and 2009, respectively, reflecting the decrease in reinsurance premiums ceded
relating to the purchase of the $34.0 million retrocessional coverage arising from the IPC
Acquisition.
Talbot. Talbot net premiums written for the three months ended September 30, 2010 were $174.2
million compared to $177.1 million for the three months ended September 30, 2009, a decrease of
$2.8 million or 1.6%. Details of Talbot net premiums written by line of business are provided
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, 2010 |
|
|
September 30, 2009 |
|
|
|
|
|
|
Net Premiums |
|
|
Net Premiums |
|
|
Net Premiums |
|
|
Net Premiums |
|
|
|
|
(Dollars in thousands) |
|
Written |
|
|
Written (%) |
|
|
Written |
|
|
Written (%) |
|
|
% Change |
|
Property |
|
$ |
43,584 |
|
|
|
25.0 |
% |
|
$ |
38,427 |
|
|
|
21.7 |
% |
|
|
13.4 |
% |
Marine |
|
|
60,909 |
|
|
|
35.0 |
% |
|
|
65,304 |
|
|
|
36.9 |
% |
|
|
(6.7 |
)% |
Specialty |
|
|
69,739 |
|
|
|
40.0 |
% |
|
|
73,341 |
|
|
|
41.4 |
% |
|
|
(4.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
174,232 |
|
|
|
100.0 |
% |
|
$ |
177,072 |
|
|
|
100.0 |
% |
|
|
(1.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in net premiums written was driven by the factors highlighted above in respect of
gross premiums written and reinsurance premiums ceded, in particular the lower net premium
resulting from lower premiums written in the three months ended September 30, 2010. The ratios of
net premiums written to gross premiums written for the three months ended September 30, 2010 and
2009 were 79.7% and 77.9%, respectively, reflecting the lower gross premiums written.
Change in Unearned Premiums
Change in unearned premiums for the three months ended September 30, 2010 was $124.3 million
compared to $111.4 million for the three months ended September 30, 2009, a change of $12.9 million
or 11.6%.
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, 2010 |
|
|
September 30, 2009 (a) |
|
|
|
|
|
|
Change in Unearned |
|
|
Change in Unearned |
|
|
|
|
(Dollars in thousands) |
|
Premiums |
|
|
Premiums |
|
|
% Change |
|
Change in gross unearned premium |
|
$ |
150,298 |
|
|
$ |
95,638 |
|
|
|
57.2 |
% |
Change in prepaid reinsurance premium |
|
|
(26,023 |
) |
|
|
15,738 |
|
|
|
(265.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
Net change in unearned premium |
|
$ |
124,275 |
|
|
$ |
111,376 |
|
|
|
11.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The results of operations for IPC are consolidated only from the September 2009 date of
acquisition. |
Validus Re. Validus Res net change in unearned premiums for the three months ended September
30, 2010 were $124.7 million compared to $113.5 million for the three months ended September 30,
2009, a change of $11.2 million or 9.9%. The rate of change in unearned premiums has increased due
primarily to the earnings effect of the increased net premiums written and has been impacted by
timing factors on added premiums.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, 2010 |
|
|
September 30, 2009 (a) |
|
|
|
|
|
|
Change in Unearned |
|
|
Change in Unearned |
|
|
|
|
(Dollars in thousands) |
|
Premiums |
|
|
Premiums |
|
|
% Change |
|
Change in gross unearned premium |
|
$ |
131,794 |
|
|
$ |
99,768 |
|
|
|
32.1 |
% |
Change in prepaid reinsurance premium |
|
|
(7,047 |
) |
|
|
13,731 |
|
|
|
(151.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
Net change in unearned premium |
|
$ |
124,747 |
|
|
$ |
113,499 |
|
|
|
9.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The results of operations for IPC are consolidated only from the September 2009 date of
acquisition. |
Talbot. The Talbot net change in unearned premiums for the three months ended September 30,
2010 was ($0.5) million compared to ($2.1) million for the three months ended September 30, 2009, a
change of $1.7 million, or 77.8%.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, 2010 |
|
|
September 30, 2009 |
|
|
|
|
|
|
Change in Unearned |
|
|
Change in Unearned |
|
|
|
|
(Dollars in thousands) |
|
Premiums |
|
|
Premiums |
|
|
% Change |
|
Change in gross unearned premium |
|
$ |
18,504 |
|
|
$ |
(4,130 |
) |
|
|
548.0 |
% |
Change in prepaid reinsurance premium |
|
|
(18,976 |
) |
|
|
2,007 |
|
|
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
Net change in unearned premium |
|
$ |
(472 |
) |
|
$ |
(2,123 |
) |
|
|
77.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
NM: Not meaningful
The Talbot net change in unearned premium has decreased for the three months ended
September 30, 2010 primarily due to the seasonality of earnings of gross premiums written compared
to the current quarter premiums written.
Net Premiums Earned
Net premiums earned for the three months ended September 30, 2010 were $432.7 million compared
to $374.7 million for the three months ended September 30, 2009, an increase of $58.0 million or
15.5%. The increase in net premiums earned was driven by increased premiums earned of $59.1 million
in the Validus Re segment, partially offset by a decrease of $1.2 million in the Talbot segment.
Details of net premiums earned by line of business are provided below.
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, 2010 |
|
|
September 30 , 2009 (a) |
|
|
|
|
|
|
Net Premiums |
|
|
Net Premiums |
|
|
Net Premiums |
|
|
Net Premiums |
|
|
|
|
(Dollars in thousands) |
|
Earned |
|
|
Earned (%) |
|
|
Earned |
|
|
Earned (%) |
|
|
% Change |
|
Property |
|
$ |
232,117 |
|
|
|
53.6 |
% |
|
$ |
177,916 |
|
|
|
47.4 |
% |
|
|
30.5 |
% |
Marine |
|
|
109,904 |
|
|
|
25.4 |
% |
|
|
114,114 |
|
|
|
30.5 |
% |
|
|
(3.7 |
)% |
Specialty |
|
|
90,653 |
|
|
|
21.0 |
% |
|
|
82,687 |
|
|
|
22.1 |
% |
|
|
9.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
432,674 |
|
|
|
100.0 |
% |
|
$ |
374,717 |
|
|
|
100.0 |
% |
|
|
15.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The results of operations for IPC are consolidated only from the September 2009 date of
acquisition. |
Validus Re. Validus Re net premiums earned for the three months ended September 30, 2010 were
$258.9 million compared to $199.8 million for the three months ended September 30, 2009, an
increase of $59.1 million or 29.6%. Details of Validus Re net premiums earned by line of business
are provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, 2010 |
|
|
September 30, 2009 (a) |
|
|
|
|
|
|
Net Premiums |
|
|
Net Premiums |
|
|
Net Premiums |
|
|
Net Premiums |
|
|
|
|
(Dollars in thousands) |
|
Earned |
|
|
Earned (%) |
|
|
Earned |
|
|
Earned (%) |
|
|
% Change |
|
Property |
|
$ |
191,027 |
|
|
|
73.8 |
% |
|
$ |
141,547 |
|
|
|
70.9 |
% |
|
|
35.0 |
% |
Marine |
|
|
41,894 |
|
|
|
16.2 |
% |
|
|
35,397 |
|
|
|
17.7 |
% |
|
|
18.4 |
% |
Specialty |
|
|
25,993 |
|
|
|
10.0 |
% |
|
|
22,824 |
|
|
|
11.4 |
% |
|
|
13.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
258,914 |
|
|
|
100.0 |
% |
|
$ |
199,768 |
|
|
|
100.0 |
% |
|
|
29.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The results of operations for IPC are consolidated only from the September 2009 date of
acquisition. |
The increase in net premiums earned was due primarily to an increase of $59.2 million of
premiums earned on contracts incepting in the first half of the year which is consistent with the
increase in new and renewing premiums compared to the three months ended September 30, 2009.
Talbot. Talbot net premiums earned for the three months ended September 30, 2010 were $173.8
million compared to $174.9 million for the three months ended September 30, 2009, a decrease of
$1.2 million or 0.7%. Details of Talbot net premiums earned by line of business are provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, 2010 |
|
|
September 30, 2009 |
|
|
|
|
|
|
Net Premiums |
|
|
Net Premiums |
|
|
Net Premiums |
|
|
Net Premiums |
|
|
|
|
(Dollars in thousands) |
|
Earned |
|
|
Earned (%) |
|
|
Earned |
|
|
Earned (%) |
|
|
% Change |
|
Property |
|
$ |
41,090 |
|
|
|
23.6 |
% |
|
$ |
36,369 |
|
|
|
20.8 |
% |
|
|
13.0 |
% |
Marine |
|
|
68,010 |
|
|
|
39.2 |
% |
|
|
78,717 |
|
|
|
45.0 |
% |
|
|
(13.6 |
)% |
Specialty |
|
|
64,660 |
|
|
|
37.2 |
% |
|
|
59,863 |
|
|
|
34.2 |
% |
|
|
8.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
173,760 |
|
|
|
100.0 |
% |
|
$ |
174,949 |
|
|
|
100.0 |
% |
|
|
(0.7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in net premiums earned is due primarily to the lower levels of gross premiums
written by the onshore energy team, over the three months ended September 30, 2010, as compared to
the three months ended September 30, 2009, as discussed above.
Losses and Loss Expenses
Losses and loss expenses for the three months ended September 30, 2010 were $158.9 million
compared to $134.2 million for the three months ended September 30, 2009, an increase of $24.8
million or 18.5%. The loss ratios, defined as losses and loss expenses divided by net premiums
earned, for the three months ended September 30, 2010 and 2009 were 36.7% and 35.8%, respectively.
Details of loss ratios by line of business are provided below.
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Three Months Ended |
|
|
|
|
September 30, 2010 |
|
September 30, 2009 (a) |
|
% Change |
Property |
|
|
25.8 |
% |
|
|
13.5 |
% |
|
|
12.3 |
|
Marine |
|
|
44.0 |
% |
|
|
65.5 |
% |
|
|
(21.5 |
) |
Specialty |
|
|
55.9 |
% |
|
|
42.7 |
% |
|
|
13.2 |
|
All lines |
|
|
36.7 |
% |
|
|
35.8 |
% |
|
|
0.9 |
|
|
|
|
(a) |
|
The results of operations for IPC are consolidated only from the September 2009 date of
acquisition. |
At September 30, 2010 and 2009, gross and net reserves for losses and loss expenses were
estimated using the methodology as outlined in the critical accounting policies and estimates as
discussed in Item 7, Managements Discussion and Analysis of Results of Operations and Financial
Condition in the Companys Annual Report on Form 10-K for the year ended December 31, 2009. The
Company did not make any significant changes in the assumptions or methodology used in its
reserving process for the three months ended September 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
Total Gross Reserve for |
|
(Dollars in thousands) |
|
Gross Case Reserves |
|
|
Gross IBNR |
|
|
Losses and Loss Expenses |
|
Property |
|
$ |
511,831 |
|
|
$ |
418,457 |
|
|
$ |
930,288 |
|
Marine |
|
|
322,300 |
|
|
|
316,790 |
|
|
|
639,090 |
|
Specialty |
|
|
194,428 |
|
|
|
257,039 |
|
|
|
451,467 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,028,559 |
|
|
$ |
992,286 |
|
|
$ |
2,020,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
Total Net Reserve for |
|
(Dollars in thousands) |
|
Net Case Reserves |
|
|
Net IBNR |
|
|
Losses and Loss Expenses |
|
Property |
|
$ |
477,683 |
|
|
$ |
391,877 |
|
|
$ |
869,560 |
|
Marine |
|
|
260,079 |
|
|
|
256,371 |
|
|
|
516,450 |
|
Specialty |
|
|
154,288 |
|
|
|
211,726 |
|
|
|
366,014 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
892,050 |
|
|
$ |
859,974 |
|
|
$ |
1,752,024 |
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth a reconciliation of gross and net reserves for losses and loss expenses by
segment for the three months ended September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2010 |
|
(Dollars in thousands) |
|
Validus Re |
|
|
Talbot |
|
|
Eliminations |
|
|
Total |
|
Gross reserves at period beginning |
|
$ |
1,029,478 |
|
|
$ |
1,142,715 |
|
|
$ |
(194,063 |
) |
|
$ |
1,978,130 |
|
Losses recoverable at period beginning |
|
|
(60,145 |
) |
|
|
(327,522 |
) |
|
|
194,063 |
|
|
|
(193,604 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net reserves at period beginning |
|
|
969,333 |
|
|
|
815,193 |
|
|
|
|
|
|
|
1,784,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred losses current period |
|
|
98,295 |
|
|
|
110,394 |
|
|
|
|
|
|
|
208,689 |
|
Incurred losses change in prior
accident years |
|
|
(19,197 |
) |
|
|
(30,556 |
) |
|
|
|
|
|
|
(49,753 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred losses |
|
|
79,098 |
|
|
|
79,838 |
|
|
|
|
|
|
|
158,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange |
|
|
13,812 |
|
|
|
8,596 |
|
|
|
|
|
|
|
22,408 |
|
Paid losses |
|
|
(108,384 |
) |
|
|
(105,462 |
) |
|
|
|
|
|
|
(213,846 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net reserves at period end |
|
|
953,859 |
|
|
|
798,165 |
|
|
|
|
|
|
|
1,752,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses recoverable |
|
|
81,368 |
|
|
|
355,778 |
|
|
|
(168,325 |
) |
|
|
268,821 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross reserves at period end |
|
|
1,035,227 |
|
|
|
1,153,943 |
|
|
|
(168,325 |
) |
|
|
2,020,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
The amount of recorded reserves represents managements best estimate of expected losses and
loss expenses on premiums earned. Favorable loss development on prior years totaled $49.8 million
of this, $19.2 million related to the Validus Re segment and $30.6 million related to the Talbot
segment. Favorable loss reserve development benefited the Companys loss ratio by 11.5 percentage
points for the three months ended September 30, 2010. For the three months ended September 30,
2010, the Company incurred $47.7 million from notable loss events described below, which
represented 11.0 percentage points of the loss ratio, excluding reserve for potential development
on 2010 notable loss events, as described below. Net of $0.6 million of reinstatement premiums, the
effect of these events on net income was $47.1 million. For the three months ended September 30,
2009, the Company did not experience any notable loss events. The Companys loss ratio, excluding
prior year development and notable loss events for the three months ended September 30, 2010 and
2009 were 37.2% and 44.3%, respectively.
Management of insurance and reinsurance companies use significant judgment in the estimation
of reserves for losses and loss expenses. Given the magnitude of recent loss events and other
uncertainties inherent in loss estimation, meaningful uncertainty remains regarding the estimation
of recent notable loss events. The Companys actual ultimate net loss may vary materially from
estimates. Validus Re ultimate losses for notable loss events are estimated through detailed review
of contracts which are identified by the Company as potentially exposed to the specific notable
loss event. However, there can be no assurance that the ultimate loss amount estimated for a
specific contract will be accurate, or that all contracts with exposure to a specific notable loss
event will be identified in a timely manner. Potential losses in excess of the estimated ultimate
loss assigned to a contract on the basis of a specific review, or loss amounts from
contracts not specifically included in the detailed review are reserved for in the reserve for
potential development on notable loss events. Therefore, during the three months ended September 30, 2010, the
Company incurred a further $30.0 million reserve for potential development on 2010 notable loss
events which is in excess of the $47.7 million cited above and which represented 6.9 percentage
points on the loss ratio.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2010 |
|
Third Quarter 2010 Notable Loss Events (1) |
|
Validus Re |
|
|
Talbot |
|
|
Total |
|
|
|
|
|
Losses and |
|
|
|
|
|
|
Losses and |
|
|
|
|
|
|
Losses and |
|
|
|
|
|
|
|
|
Loss |
|
|
|
|
|
|
Loss |
|
|
|
|
|
|
Loss |
|
|
|
|
(Dollars in thousands) |
|
Description |
|
Expenses (2) |
|
|
% of NPE |
|
|
Expenses (2) |
|
|
% of NPE |
|
|
Expenses (2) |
|
|
% of NPE |
|
New Zealand
earthquake |
|
Earthquake |
|
$ |
25,285 |
|
|
|
9.8 |
% |
|
$ |
3,400 |
|
|
|
2.0 |
% |
|
$ |
28,685 |
|
|
|
6.6 |
% |
Oklahoma windstorm |
|
Windstorm |
|
|
7,500 |
|
|
|
2.9 |
% |
|
|
177 |
|
|
|
0.1 |
% |
|
|
7,677 |
|
|
|
1.8 |
% |
Political risk |
|
Contract frustration |
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
2.9 |
% |
|
|
5,000 |
|
|
|
1.1 |
% |
Hurricane Karl |
|
Windstorm |
|
|
3,666 |
|
|
|
1.4 |
% |
|
|
2,647 |
|
|
|
1.5 |
% |
|
|
6,313 |
|
|
|
1.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
36,451 |
|
|
|
14.1 |
% |
|
$ |
11,224 |
|
|
|
6.5 |
% |
|
$ |
47,675 |
|
|
|
11.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These 2010 notable loss event amounts are based on managements
estimates following a review of the Companys 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, uncertainty remains regarding losses from these events and the
Companys actual ultimate net losses from these events may vary materially from
these estimates. |
|
(2) |
|
Net of reinsurance but not net of reinstatement premiums. Reinstatement
premiums were $0.6 million for the three months ended September 30, 2010. |
Validus Re. Validus Re losses and loss expenses for the three months ended September 30, 2010
were $79.1 million compared to $46.0 million for the three months ended September 30, 2009, an
increase of $33.1 million or 72.0%. The loss ratio, defined as losses and loss expenses divided by
net premiums earned, was 30.5% and 23.0% for the three months ended September 30, 2010 and 2009,
respectively. Favorable loss development on prior years totaled $19.2 million and benefited the
Validus Re loss ratio by 7.5 percentage points. For the three months ended
53
September 30, 2010,
Validus Re incurred notable loss events as identified above of $36.5 million, which represented
14.1 percentage points of the loss ratio, excluding the reserve for potential development on 2010
notable loss events. For the three months ended September 30, 2009, Validus Re did not experience any notable loss events. Validus Re segment loss
ratios, excluding prior year development and notable loss events identified above, for the three
months ended September 30, 2010 and 2009 were 23.9% and 32.6%, respectively. Details of loss ratios
by line of business and period of occurrence are provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
|
2010 |
|
|
2009 (a) |
|
|
% Change |
|
Property current year |
|
|
30.5 |
% |
|
|
28.2 |
% |
|
|
2.3 |
|
Property change in prior accident years |
|
|
(9.0 |
)% |
|
|
(23.3 |
)% |
|
|
14.3 |
|
|
|
|
|
|
|
|
|
|
|
Property loss ratio |
|
|
21.5 |
% |
|
|
4.9 |
% |
|
|
16.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marine current year |
|
|
90.3 |
% |
|
|
32.7 |
% |
|
|
57.6 |
|
Marine change in prior accident years |
|
|
(1.7 |
)% |
|
|
47.8 |
% |
|
|
(49.5 |
) |
|
|
|
|
|
|
|
|
|
|
Marine loss ratio |
|
|
88.6 |
% |
|
|
80.5 |
% |
|
|
8.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty current year |
|
|
8.5 |
% |
|
|
60.3 |
% |
|
|
(51.8 |
) |
Specialty change in prior accident years |
|
|
(5.3 |
)% |
|
|
(13.8 |
)% |
|
|
8.5 |
|
|
|
|
|
|
|
|
|
|
|
Specialty loss ratio |
|
|
3.2 |
% |
|
|
46.5 |
% |
|
|
(43.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
All lines current year |
|
|
38.0 |
% |
|
|
32.6 |
% |
|
|
5.4 |
|
All lines change in prior accident years |
|
|
(7.5 |
)% |
|
|
(9.6 |
)% |
|
|
2.1 |
|
|
|
|
|
|
|
|
|
|
|
All lines loss ratio |
|
|
30.5 |
% |
|
|
23.0 |
% |
|
|
7.5 |
|
|
|
|
(a) |
|
The results of operations for IPC are consolidated only from the September 2009 date of
acquisition. |
For the three months ended September 30, 2010, Validus Re property lines include $58.3
million related to current year losses and $17.1 million of favorable development relating to prior
accident years. This favorable development is attributable to lower than expected claim
development. For the three months ended September 30, 2010, Validus Res property lines incurred
$36.5 million of notable losses, which represented 19.1 percentage points of the property line loss
ratio, excluding reserve for potential development on 2010 notable loss events. For the three
months ended September 30, 2009, Validus Res property lines did not experience any notable loss
events. Validus Re property lines loss ratios, excluding prior year development and notable loss
events identified above, for the three months ended September 30, 2010 and 2009 were 11.4% and
28.2%, respectively.
For the three months ended September 30, 2010, Validus Re marine lines include $37.8 million
related to current year losses and $0.7 million of favorable development relating to prior accident
years. For the three months ended September 30, 2010 and three months ended September 30, 2009,
Validus Res marine lines did not experience any notable loss events. Validus Re marine line loss
ratios, excluding prior year development, for the three months ended September 30, 2010 and 2009
were 90.3% and 32.7%, respectively.
For the three months ended September 30, 2010, Validus Re specialty lines include $2.2 million
related to current year losses and $1.4 million of favorable development relating to prior accident
years. For the three months ended September 30, 2010 and three months ended September 30, 2009,
Validus Res specialty lines did not experience any notable loss events. Validus Re specialty lines
loss ratios, excluding prior year development, for the three months ended September 30, 2010 and
2009 were 8.5% and 60.3%, respectively.
Talbot. Talbot losses and loss expenses for the three months ended September 30, 2010 were $79.8
million compared to $88.2 million for the three months ended September 30, 2009, a decrease of $8.3
million, or 9.4%. The Talbot loss ratio was 45.9% and 50.4% for the three months ended September
30, 2010 and 2009, respectively. For the three months ended September 30, 2010, Talbot incurred
losses of $110.4 million related to current year losses and $30.6 million in favorable development
relating to prior accident years. For the three months ended
September 30, 2010, Talbot incurred $11.2 million of notable
losses, which represented 6.5 percentage points
of the loss ratio.
54
For the three months ended September 30, 2009, Talbot did not experience any
notable loss events. Talbot loss ratios, excluding prior year loss development and notable loss
events identified above, for the three months ended September 30, 2010 and three months ended
September 30, 2009 were 57.0% and 57.7%, respectively. Details of loss ratios by line of business
and period of occurrence are provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
|
2010 |
|
|
2009 | |
|
% Change |
|
Property current year |
|
|
60.1 |
% |
|
|
56.1 |
% |
|
|
4.0 |
|
Property change in prior accident years |
|
|
(14.3 |
)% |
|
|
(8.9 |
)% |
|
|
(5.4 |
) |
|
|
|
|
|
|
|
|
|
|
Property loss ratio |
|
|
45.8 |
% |
|
|
47.2 |
% |
|
|
(1.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Marine current year |
|
|
53.1 |
% |
|
|
58.7 |
% |
|
|
(5.6 |
) |
Marine change in prior accident years |
|
|
(36.6 |
)% |
|
|
0.1 |
% |
|
|
(36.7 |
) |
|
|
|
|
|
|
|
|
|
|
Marine loss ratio |
|
|
16.5 |
% |
|
|
58.8 |
% |
|
|
(42.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty current year |
|
|
76.7 |
% |
|
|
57.3 |
% |
|
|
19.4 |
|
Specialty change in prior accident years |
|
|
0.3 |
% |
|
|
(16.0 |
)% |
|
|
16.3 |
|
|
|
|
|
|
|
|
|
|
|
Specialty loss ratio |
|
|
77.0 |
% |
|
|
41.3 |
% |
|
|
35.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All lines current year |
|
|
63.5 |
% |
|
|
57.7 |
% |
|
|
5.8 |
|
All lines change in prior accident years |
|
|
(17.6 |
)% |
|
|
(7.3 |
)% |
|
|
(10.3 |
) |
|
|
|
|
|
|
|
|
|
|
All lines loss ratio |
|
|
45.9 |
% |
|
|
50.4 |
% |
|
|
(4.5 |
) |
For the three months ended September 30, 2010, Talbot property lines include $24.7 million
related to current year losses and $5.9 million of favorable development relating to prior accident
years. The favorable development is attributable to lower than expected claims development on the
property facultative and binder accounts. For the three months ended September 30, 2010, Talbots
property lines incurred $6.2 million of notable losses, which represented 15.1 percentage points of
the property lines loss ratio. For the three months ended September 30, 2009, Talbots property
lines did not experience any notable loss events. Talbot property line loss ratio, excluding prior
year development and loss events noted above for the three months ended September 30, 2010 and 2009
were 45.0% and 56.1%, respectively.
For the three months ended September 30, 2010, Talbot marine lines include $36.1 million
related to current year losses and $24.9 million of favorable development relating to prior
accident years. The prior year favorable development is primarily due to lower than expected loss
development across a number of lines but most notably on the offshore energy lines. Talbot marine
lines loss ratios, excluding prior year development, for the three months ended September 30, 2010
and 2009 were 53.1% and 58.7%, respectively.
For the three months ended September 30, 2010, Talbot specialty lines include $49.6 million
relating to current year losses and $0.2 million of adverse development on prior accident years.
For the three months ended September 30, 2010, Talbots specialty lines incurred $5.0 million of
notable losses, which represented 7.7 percentage points of the specialty lines loss ratio. For the
three months ended September 30, 2009, Talbots specialty lines did not experience any notable loss
events. Talbot specialty lines loss ratios, excluding prior year development for the three months
ended September 30, 2010 and 2009 were 69.0% and 57.3%, respectively.
Policy Acquisition Costs
Policy acquisition costs for the three months ended September 30, 2010 were $67.1 million
compared to $64.2 million for the three months ended September 30, 2009, an increase of $2.8
million or 4.4%. Policy acquisition costs as a percent of net premiums earned for the three months
ended September 30, 2010 and 2009 were 15.5% and 17.1%, respectively. The changes in policy
acquisition costs are due to the factors described below.
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, 2010 |
|
|
September 30, 2009 (a) |
|
|
|
|
|
|
Policy |
|
|
Policy |
|
|
|
|
|
|
Policy |
|
|
Policy |
|
|
|
|
|
|
|
|
|
Acquisition |
|
|
Acquisition |
|
|
Acquisition |
|
|
Acquisition |
|
|
Acquisition |
|
|
Acquisition |
|
|
|
|
(Dollars in thousands) |
|
Costs |
|
|
Costs (%) |
|
|
Cost Ratio |
|
|
Costs |
|
|
Costs (%) |
|
|
Cost Ratio |
|
|
% Change |
|
Property |
|
$ |
22,690 |
|
|
|
33.8 |
% |
|
|
9.8 |
% |
|
$ |
24,919 |
|
|
|
38.8 |
% |
|
|
14.0 |
% |
|
|
(8.9 |
)% |
Marine |
|
|
24,361 |
|
|
|
36.3 |
% |
|
|
22.2 |
% |
|
|
21,586 |
|
|
|
33.6 |
% |
|
|
18.9 |
% |
|
|
12.9 |
% |
Specialty |
|
|
20,023 |
|
|
|
29.9 |
% |
|
|
22.1 |
% |
|
|
17,731 |
|
|
|
27.6 |
% |
|
|
21.4 |
% |
|
|
12.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
67,074 |
|
|
|
100.0 |
% |
|
|
15.5 |
% |
|
$ |
64,236 |
|
|
|
100.0 |
% |
|
|
17.1 |
% |
|
|
4.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The results of operations for IPC are consolidated only from the September 2009 date of
acquisition. |
Validus Re. Validus Re policy acquisition costs for the three months ended September 30, 2010
were $39.8 million compared to $32.6 million for the three months ended September 30, 2009, an
increase of $7.2 million or 22.0%.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, 2010 |
|
|
September 30, 2009 (a) |
|
|
|
|
|
|
Policy |
|
|
Policy |
|
|
|
|
|
|
Policy |
|
|
Policy |
|
|
|
|
|
|
|
|
|
Acquisition |
|
|
Acquisition |
|
|
Acquisition |
|
|
Acquisition |
|
|
Acquisition |
|
|
Acquisition |
|
|
|
|
(Dollars in thousands) |
|
Costs |
|
|
Costs (%) |
|
|
Cost Ratio |
|
|
Costs |
|
|
Costs (%) |
|
|
Cost Ratio |
|
|
% Change |
|
Property |
|
$ |
27,335 |
|
|
|
68.6 |
% |
|
|
14.3 |
% |
|
$ |
22,884 |
|
|
|
70.1 |
% |
|
|
16.2 |
% |
|
|
19.5 |
% |
Marine |
|
|
9,113 |
|
|
|
22.9 |
% |
|
|
21.8 |
% |
|
|
6,392 |
|
|
|
19.6 |
% |
|
|
18.1 |
% |
|
|
42.6 |
% |
Specialty |
|
|
3,370 |
|
|
|
8.5 |
% |
|
|
13.0 |
% |
|
|
3,372 |
|
|
|
10.3 |
% |
|
|
14.8 |
% |
|
|
(0.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
39,818 |
|
|
|
100.0 |
% |
|
|
15.4 |
% |
|
$ |
32,648 |
|
|
|
100.0 |
% |
|
|
16.3 |
% |
|
|
22.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The results of operations for IPC are consolidated only from the September 2009 date of
acquisition. |
Policy acquisition costs include brokerage, commission and excise tax and are generally
driven by contract terms and are normally a set percentage of premiums and are also net of ceding
commission income on retrocessions. Validus Re policy acquisition costs as a percent of net
premiums earned for the three months ended September 30, 2010 and 2009 were 15.4% and 16.3%,
respectively. The Validus Re policy acquisition ratio has remained relatively stable for the three
months ended September 30, 2010 as compared to the three months ended September 30, 2009. Items
such as ceded premium, earned premium adjustments and reinstatement premiums that are recognized in
the period have the effect of distorting the policy acquisition costs.
Talbot. Talbot policy acquisition costs for the three months ended September 30, 2010 were $32.5
million compared to $33.1 million for the three months ended September 30, 2009, a decrease of $0.7
million or 2.0%.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, 2010 |
|
|
September 30, 2009 |
|
|
|
|
|
|
Policy |
|
|
Policy |
|
|
|
|
|
|
Policy |
|
|
Policy |
|
|
|
|
|
|
|
|
|
Acquisition |
|
|
Acquisition |
|
|
Acquisition |
|
|
Acquisition |
|
|
Acquisition |
|
|
Acquisition |
|
|
|
|
(Dollars in thousands) |
|
Costs |
|
|
Costs (%) |
|
|
Cost Ratio |
|
|
Costs |
|
|
Costs (%) |
|
|
Cost Ratio |
|
|
% Change |
|
Property |
|
$ |
433 |
|
|
|
1.3 |
% |
|
|
1.1 |
% |
|
$ |
3,553 |
|
|
|
10.7 |
% |
|
|
9.8 |
% |
|
|
(87.8 |
)% |
Marine |
|
|
15,302 |
|
|
|
47.2 |
% |
|
|
22.5 |
% |
|
|
15,194 |
|
|
|
45.9 |
% |
|
|
19.3 |
% |
|
|
0.7 |
% |
Specialty |
|
|
16,716 |
|
|
|
51.5 |
% |
|
|
25.9 |
% |
|
|
14,359 |
|
|
|
43.4 |
% |
|
|
24.0 |
% |
|
|
16.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
32,451 |
|
|
|
100.0 |
% |
|
|
18.7 |
% |
|
$ |
33,106 |
|
|
|
100.0 |
% |
|
|
18.9 |
% |
|
|
(2.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policy acquisition costs as a percent of net premiums earned for the three months ended
September 30, 2010 and 2009 were 18.7% and 18.9%, respectively.
56
General and Administrative Expenses
General and administrative expenses for the three months ended September 30, 2010 were $48.8
million compared to $46.0 million for the three months ended September 30, 2009, an increase of
$2.8 million or 6.1%. The increase was a result of increased expenses in the Talbot and Corporate
segments, offset by a decrease in the Validus Re segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, 2010 |
|
|
September 30, 2009 (a) |
|
|
|
|
|
|
General and |
|
|
General and |
|
|
General and |
|
|
General and |
|
|
|
|
|
|
Administrative |
|
|
Administrative |
|
|
Administrative |
|
|
Administrative |
|
|
|
|
(Dollars in thousands) |
|
Expenses |
|
|
Expenses (%) |
|
|
Expenses |
|
|
Expenses (%) |
|
|
% Change |
|
Validus Re |
|
$ |
5,663 |
|
|
|
11.6 |
% |
|
$ |
17,987 |
|
|
|
39.1 |
% |
|
|
(68.5 |
)% |
Talbot |
|
|
33,201 |
|
|
|
68.0 |
% |
|
|
23,424 |
|
|
|
50.9 |
% |
|
|
41.7 |
% |
Corporate &
Eliminations |
|
|
9,967 |
|
|
|
20.4 |
% |
|
|
4,625 |
|
|
|
10.0 |
% |
|
|
115.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
48,831 |
|
|
|
100.0 |
% |
|
$ |
46,036 |
|
|
|
100.0 |
% |
|
|
6.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The results of operations for IPC are consolidated only from the September 2009 date of
acquisition. |
General and administrative expenses of $48.8 million in the three months ended September
30, 2010 represents 11.3 percentage points of the expense ratio. Share compensation expense is
discussed in the following section.
Validus Re. Validus Re general and administrative expenses for the three months ended September 30,
2010 were $5.7 million compared to $18.0 million for the three months ended September 30, 2009, a
decrease of $12.3 million or 68.5%. General and administrative expenses have decreased primarily as
a result of a decrease in salaries and benefits driven by the reallocation of staff, starting in
the first quarter of 2010, into the Corporate segment from the Validus Re segment compared to the
three months ended September 30, 2009. In addition, there was a reduction of performance bonus
accrual during the quarter and a reduction in employee severance costs relating to the IPC
Acquisition compared to the prior year. General and administrative
expenses include salaries and benefits, professional fees, rent and office expenses. Validus Res general and
administrative expenses as a percent of net premiums earned for the three months ended September
30, 2010 and 2009 were 2.2% and 9.0%, respectively.
Talbot. Talbot general and administrative expenses for the three months ended September 30, 2010
were $33.2 million compared to $23.4 million for the three months ended September 30, 2009, an
increase of $9.8 million or 41.7%. General and administrative expenses have increased primarily as
a result of an increase in staff costs and performance bonus accruals. There was an increase in
staff from 223 at September 30, 2009 to 268 at September 30, 2010. Talbots general and
administrative expenses as a percent of net premiums earned for the three months ended September
30, 2010 and 2009 were 19.1% and 13.4%, respectively.
Corporate & Eliminations. Corporate general and administrative expenses for the three months
ended September 30, 2010 were $10.0 million compared to $4.6 million for the three months ended
September 30, 2009, an increase of $5.3 million or 115.5%. During the first quarter of 2010, to
better align the Companys operating and reporting structure with its current strategy, there was a
change in segment structure. This change was to allocate all non-core underwriting expenses,
predominantly general and administration and stock compensation expenses to the Corporate segment.
Prior periods have not been restated as the change is immaterial to the Consolidated Financial
Statements. Corporate general and administrative expenses include executive and board
expenses, internal and external audit expenses and other costs relating to the Company as a whole.
In addition, general and administrative expenses have increased as a result of an increase in staff
from 61 at September 30, 2009, on a comparative basis, to 78 at September 30, 2010.
Share Compensation Expenses
Share compensation expenses for the three months ended September 30, 2010 were $7.6 million
compared to $5.9 million for the three months ended September 30, 2009, an increase of $1.8 million
or 30.0%. This expense is non-cash and has no net effect on total shareholders equity, as it is
balanced by an increase in additional paid-in capital.
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, 2010 |
|
|
September 30, 2009 (a) |
|
|
|
|
|
|
Share |
|
|
Share |
|
|
Share |
|
|
Share |
|
|
|
|
|
|
Compensation |
|
|
Compensation |
|
|
Compensation |
|
|
Compensation |
|
|
|
|
(Dollars in thousands) |
|
Expenses |
|
|
Expenses (%) |
|
|
Expenses |
|
|
Expenses (%) |
|
|
% Change |
|
Validus Re |
|
$ |
1,869 |
|
|
|
24.6 |
% |
|
$ |
1,766 |
|
|
|
30.1 |
% |
|
|
5.8 |
% |
Talbot |
|
|
1,754 |
|
|
|
23.0 |
% |
|
|
1,371 |
|
|
|
23.4 |
% |
|
|
27.9 |
% |
Corporate & Eliminations |
|
|
3,995 |
|
|
|
52.4 |
% |
|
|
2,725 |
|
|
|
46.5 |
% |
|
|
46.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
7,618 |
|
|
|
100.0 |
% |
|
$ |
5,862 |
|
|
|
100.0 |
% |
|
|
30.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The results of operations for IPC are consolidated only from the September 2009 date of
acquisition. |
Share compensation expenses of $7.6 million in the three months ended September 30, 2010
represents 1.7 percentage points of the general and administrative expense ratio.
Validus Re. Validus Re share compensation expenses for the three months ended September 30, 2010
were $1.9 million compared to $1.8 million for the three months ended September 30, 2009 an
increase of $0.1 million or 5.8%. Share compensation expense as a percent of net premiums earned
for the three months ended September 30, 2010 and 2009 were 0.7% and 0.9%, respectively.
Talbot. Talbot share compensation expenses for the three months ended September 30, 2010 was $1.8
million compared to $1.4 million for the three months ended September 30, 2009 an increase of $0.4
million or 27.9%. Share compensation expense as a percent of net premiums earned for the three
months ended September 30, 2010 and 2009 were 1.0% and 0.8%, respectively.
Corporate & Eliminations. Corporate share compensation expenses for the three months ended
September 30, 2010 were $4.0 million compared to $2.7 million for the three months ended September
30, 2009, an increase of $1.3 million or 46.6%.
Selected Ratios
The underwriting results of an insurance or reinsurance company are often measured by
reference to its combined ratio, which is the sum of the loss ratio and the expense ratio. The net
loss ratio is calculated by dividing losses and loss expenses incurred (including estimates for
incurred but not reported losses) by net premiums earned. The expense ratio is calculated by
dividing acquisition costs combined with general and administrative expenses (including share
compensation expenses) by net premiums earned. The following table presents the losses and loss
expenses ratio, policy acquisition cost ratio, general and administrative expense ratio, expense
ratio and combined ratio for the three months ended September 30, 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
September 30, 2010 |
|
|
September 30, 2009 (a) |
|
|
% Change |
|
Losses and loss expense ratio |
|
|
36.7 |
% |
|
|
35.8 |
% |
|
|
0.9 |
|
Policy acquisition cost ratio |
|
|
15.5 |
% |
|
|
17.1 |
% |
|
|
(1.6 |
) |
General and administrative expense
ratio (b) |
|
|
13.0 |
% |
|
|
13.8 |
% |
|
|
(0.8 |
) |
|
|
|
|
|
|
|
|
|
|
Expense ratio |
|
|
28.5 |
% |
|
|
30.9 |
% |
|
|
(2.4 |
) |
|
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
65.2 |
% |
|
|
66.7 |
% |
|
|
(1.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
Validus Re |
|
September 30, 2010 |
|
|
September 30, 2009 (a) |
|
|
% Change |
|
Losses and loss expense ratio |
|
|
30.5 |
% |
|
|
23.0 |
% |
|
|
7.5 |
|
Policy acquisition cost ratio |
|
|
15.4 |
% |
|
|
16.3 |
% |
|
|
(0.9 |
) |
General and administrative expense
ratio (b) |
|
|
2.9 |
% |
|
|
9.9 |
% |
|
|
(7.0 |
) |
|
|
|
|
|
|
|
|
|
|
Expense ratio |
|
|
18.3 |
% |
|
|
26.2 |
% |
|
|
(7.9 |
) |
|
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
48.8 |
% |
|
|
49.2 |
% |
|
|
(0.4 |
) |
|
|
|
|
|
|
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
Talbot |
|
September 30, 2010 |
|
|
September 30, 2009 (a) |
|
|
% Change |
|
Losses and loss expense ratio |
|
|
45.9 |
% |
|
|
50.4 |
% |
|
|
(4.5 |
) |
Policy acquisition cost ratio |
|
|
18.7 |
% |
|
|
18.9 |
% |
|
|
(0.2 |
) |
General and administrative expense
ratio (b) |
|
|
20.1 |
% |
|
|
14.2 |
% |
|
|
5.9 |
|
|
|
|
|
|
|
|
|
|
|
Expense ratio |
|
|
38.8 |
% |
|
|
33.1 |
% |
|
|
5.7 |
|
|
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
84.7 |
% |
|
|
83.5 |
% |
|
|
1.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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(a) |
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The results of operations for IPC are consolidated only from the September 2009 date of
acquisition. |
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(b) |
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Includes general and administrative expenses and share compensation expenses. |
General and administrative expense ratios for the three months ended September 30, 2010
and 2009 were 13.0% and 13.8%, respectively. General and administrative expense ratio is the sum of
general and administrative expenses and share compensation expense divided by net premiums earned.