e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2011
Commission file number 001-33606
VALIDUS HOLDINGS, LTD.
(Exact name of registrant as specified in its charter)
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BERMUDA
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98-0501001 |
(State or other jurisdiction of
incorporation or organization)
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(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 August 3, 2011 there were 99,032,232 outstanding Common Shares, $0.175 par value per
share, of the registrant.
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
Validus Holdings, Ltd.
Consolidated Balance Sheets
As at June 30, 2011 (unaudited) and December 31, 2010
(Expressed in thousands of U.S. dollars, except share and per share information)
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June 30, |
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December 31, |
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2011 |
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2010 |
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(unaudited) |
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Assets |
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Fixed maturities, at fair value (amortized cost: 2011 - $4,539,998; 2010 - $4,772,037) |
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$ |
4,603,534 |
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$ |
4,823,867 |
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Short-term investments, at fair value (amortized cost: 2011 - $725,230; 2010 - $273,444) |
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725,258 |
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273,514 |
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Other investments, at fair value (amortized cost: 2011 - $15,018; 2010 - $18,392) |
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18,746 |
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21,478 |
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Cash and cash equivalents |
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815,921 |
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620,740 |
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Total investments and cash |
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6,163,459 |
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5,739,599 |
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Premiums receivable |
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1,046,775 |
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568,761 |
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Deferred acquisition costs |
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176,724 |
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123,897 |
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Prepaid reinsurance premiums |
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177,729 |
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71,417 |
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Securities lending collateral |
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21,409 |
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22,328 |
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Loss reserves recoverable |
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439,805 |
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283,134 |
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Paid losses recoverable |
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30,854 |
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27,996 |
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Income taxes recoverable |
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3,503 |
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1,142 |
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Intangible assets |
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116,813 |
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118,893 |
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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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21,320 |
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33,726 |
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Other assets |
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41,004 |
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49,592 |
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Total assets |
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$ |
8,259,788 |
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$ |
7,060,878 |
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Liabilities |
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Reserve for losses and loss expenses |
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$ |
2,620,360 |
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$ |
2,035,973 |
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Unearned premiums |
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1,192,772 |
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728,516 |
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Reinsurance balances payable |
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181,013 |
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63,667 |
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Securities lending payable |
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22,133 |
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23,093 |
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Deferred income taxes |
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22,122 |
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24,908 |
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Net payable for investments purchased |
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49,479 |
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43,896 |
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Accounts payable and accrued expenses |
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91,969 |
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99,320 |
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Senior notes payable |
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246,928 |
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246,874 |
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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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$ |
4,716,576 |
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$ |
3,556,047 |
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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 $0.175 (Issued: 2011 - 133,795,913;
2010 - 132,838,111; Outstanding: 2011 - 98,763,928; 2010 - 98,001,226) |
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$ |
23,414 |
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$ |
23,247 |
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Treasury shares (2011 - 35,031,985; 2010 - 34,836,885) |
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(6,131 |
) |
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(6,096 |
) |
Additional paid-in-capital |
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1,880,748 |
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1,860,960 |
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Accumulated other comprehensive (loss) |
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(4,519 |
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(5,455 |
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Retained earnings |
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1,514,805 |
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1,632,175 |
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Total shareholders equity available to Validus |
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3,408,317 |
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3,504,831 |
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Noncontrolling interest |
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134,895 |
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Total shareholders equity |
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$ |
3,543,212 |
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$ |
3,504,831 |
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Total liabilities and shareholders equity |
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$ |
8,259,788 |
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$ |
7,060,878 |
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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 (Loss)
For the Three and Six Months Ended June 30, 2011 and 2010 (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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Six Months Ended |
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June 30, 2011 |
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June 30, 2010 |
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June 30, 2011 |
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June 30, 2010 |
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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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$ |
605,387 |
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$ |
516,861 |
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$ |
1,455,283 |
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$ |
1,387,795 |
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Reinsurance premiums ceded |
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(132,346 |
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(67,726 |
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(242,166 |
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(158,465 |
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Net premiums written |
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473,041 |
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449,135 |
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1,213,117 |
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1,229,330 |
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Change in unearned premiums |
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(47,401 |
) |
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(11,191 |
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(357,944 |
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(333,692 |
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Net premiums earned |
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425,640 |
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437,944 |
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855,173 |
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895,638 |
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Net investment income |
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26,494 |
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34,809 |
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56,469 |
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69,108 |
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Net realized gains on investments |
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11,552 |
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12,441 |
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17,931 |
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23,839 |
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Net unrealized gains on investments |
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18,526 |
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41,640 |
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5,698 |
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57,053 |
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Other income |
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595 |
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2,697 |
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2,201 |
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3,585 |
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Foreign exchange (losses) |
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(1,991 |
) |
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(4,099 |
) |
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(2,458 |
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(12,863 |
) |
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Total revenues |
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480,816 |
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525,432 |
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935,014 |
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1,036,360 |
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Expenses |
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Losses and loss expenses |
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207,307 |
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194,894 |
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683,505 |
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673,425 |
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Policy acquisition costs |
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78,230 |
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74,126 |
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155,526 |
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150,302 |
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General and administrative expenses |
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60,841 |
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52,379 |
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109,318 |
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105,948 |
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Share compensation expenses |
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7,628 |
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6,846 |
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19,677 |
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13,422 |
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Finance expenses |
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16,361 |
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13,218 |
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30,362 |
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28,369 |
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Total expenses |
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370,367 |
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341,463 |
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998,388 |
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971,466 |
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Net income (loss) before taxes |
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110,449 |
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183,969 |
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(63,374 |
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64,894 |
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Tax benefit (expense) |
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29 |
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(4,187 |
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1,488 |
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(3,490 |
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Net income (loss) |
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$ |
110,478 |
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$ |
179,782 |
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$ |
(61,886 |
) |
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$ |
61,404 |
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Net income attributable to
noncontrolling interest |
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(594 |
) |
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(594 |
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Net income (loss) available
(attributable) to Validus |
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$ |
109,884 |
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$ |
179,782 |
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$ |
(62,480 |
) |
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$ |
61,404 |
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Comprehensive income |
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Foreign currency translation adjustments |
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(21 |
) |
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(68 |
) |
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|
936 |
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(1,875 |
) |
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Comprehensive income (loss) available
(attributable) to Validus |
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$ |
109,863 |
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$ |
179,714 |
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$ |
(61,544 |
) |
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$ |
59,529 |
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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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98,385,924 |
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121,009,553 |
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98,165,132 |
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123,821,415 |
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Diluted |
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104,562,450 |
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125,152,300 |
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98,165,132 |
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125,661,729 |
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Basic earnings (loss) per share
available (attributable) to common
shareholders |
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$ |
1.10 |
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$ |
1.47 |
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$ |
(0.68 |
) |
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$ |
0.47 |
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Diluted earnings (loss) per share
available (attributable) to common
shareholders |
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$ |
1.05 |
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$ |
1.44 |
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$ |
(0.68 |
) |
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$ |
0.46 |
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Cash dividends declared per share |
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$ |
0.25 |
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$ |
0.22 |
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$ |
0.50 |
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$ |
0.44 |
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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 Six Months Ended June 30, 2011 and 2010 (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
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June 30, 2011 |
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June 30, 2010 |
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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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$ |
23,247 |
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$ |
23,033 |
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Common shares issued, net |
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|
167 |
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|
68 |
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Balance End of period |
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$ |
23,414 |
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$ |
23,101 |
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Treasury shares |
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Balance Beginning of period |
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$ |
(6,096 |
) |
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$ |
(553 |
) |
Repurchase of common shares |
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(35 |
) |
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(3,052 |
) |
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Balance End of period |
|
$ |
(6,131 |
) |
|
$ |
(3,605 |
) |
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Additional paid-in capital |
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Balance Beginning of period |
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$ |
1,860,960 |
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$ |
2,675,680 |
|
Common shares issued, net |
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|
6,071 |
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|
(80 |
) |
Repurchase of common shares |
|
|
(5,960 |
) |
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|
(441,027 |
) |
Share compensation expenses |
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|
19,677 |
|
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|
13,422 |
|
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|
|
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|
Balance End of period |
|
$ |
1,880,748 |
|
|
$ |
2,247,995 |
|
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Accumulated other comprehensive (loss) |
|
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|
|
|
|
|
|
Balance Beginning of period |
|
$ |
(5,455 |
) |
|
$ |
(4,851 |
) |
Foreign currency translation adjustments |
|
|
936 |
|
|
|
(1,875 |
) |
|
|
|
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|
|
|
Balance End of period |
|
$ |
(4,519 |
) |
|
$ |
(6,726 |
) |
|
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Retained earnings |
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|
|
|
Balance Beginning of period |
|
$ |
1,632,175 |
|
|
$ |
1,337,811 |
|
Dividends |
|
|
(54,890 |
) |
|
|
(57,054 |
) |
Net (loss) income |
|
|
(61,886 |
) |
|
|
61,404 |
|
Net income attributable to noncontrolling interest |
|
|
(594 |
) |
|
|
|
|
|
|
|
|
|
|
|
Balance End of period |
|
$ |
1,514,805 |
|
|
$ |
1,342,161 |
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity available to Validus |
|
$ |
3,408,317 |
|
|
$ |
3,602,926 |
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest |
|
|
134,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
$ |
3,543,212 |
|
|
$ |
3,602,926 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements (unaudited).
4
Validus Holdings, Ltd.
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2011 and 2010 (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
|
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|
|
|
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
Cash flows provided by (used in) operating activities |
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(61,886 |
) |
|
$ |
61,404 |
|
Adjustments to reconcile net income to cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Share compensation expenses |
|
|
19,677 |
|
|
|
13,422 |
|
Amortization of discount on senior notes |
|
|
54 |
|
|
|
27 |
|
Net realized (gains) on investments |
|
|
(17,931 |
) |
|
|
(23,839 |
) |
Net unrealized (gains) on investments |
|
|
(5,698 |
) |
|
|
(57,053 |
) |
Amortization of intangible assets |
|
|
2,080 |
|
|
|
2,080 |
|
Foreign exchange (gains) losses on cash and cash equivalents included in net income |
|
|
(12,729 |
) |
|
|
17,129 |
|
Amortization of premium on fixed maturities |
|
|
16,247 |
|
|
|
8,410 |
|
Change in: |
|
|
|
|
|
|
|
|
Premiums receivable |
|
|
(475,119 |
) |
|
|
(383,671 |
) |
Deferred acquisition costs |
|
|
(52,827 |
) |
|
|
(53,628 |
) |
Prepaid reinsurance premiums |
|
|
(106,312 |
) |
|
|
(112,607 |
) |
Loss reserves recoverable |
|
|
(155,002 |
) |
|
|
(13,488 |
) |
Paid losses recoverable |
|
|
(2,825 |
) |
|
|
(9,364 |
) |
Income taxes recoverable |
|
|
(2,400 |
) |
|
|
860 |
|
Accrued investment income |
|
|
12,406 |
|
|
|
(653 |
) |
Other assets |
|
|
9,351 |
|
|
|
(11,550 |
) |
Reserve for losses and loss expenses |
|
|
575,832 |
|
|
|
367,779 |
|
Unearned premiums |
|
|
464,256 |
|
|
|
452,499 |
|
Reinsurance balances payable |
|
|
116,080 |
|
|
|
35,240 |
|
Deferred income taxes |
|
|
(2,611 |
) |
|
|
1,452 |
|
Accounts payable and accrued expenses |
|
|
(11,029 |
) |
|
|
(30,867 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
309,614 |
|
|
|
263,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in) investing activities |
|
|
|
|
|
|
|
|
Proceeds on sales of investments |
|
|
2,654,804 |
|
|
|
2,933,352 |
|
Proceeds on maturities of investments |
|
|
195,055 |
|
|
|
198,637 |
|
Purchases of fixed maturities |
|
|
(2,613,981 |
) |
|
|
(3,244,072 |
) |
(Purchases) sales of short-term investments, net |
|
|
(451,706 |
) |
|
|
211,801 |
|
Sales of other investments |
|
|
3,809 |
|
|
|
11,610 |
|
Decrease (increase) in securities lending collateral |
|
|
960 |
|
|
|
(9,894 |
) |
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities |
|
|
(211,059 |
) |
|
|
101,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in) financing activities |
|
|
|
|
|
|
|
|
Net proceeds on issuance of senior notes |
|
|
|
|
|
|
246,793 |
|
Issuance (redemption) of common shares, net |
|
|
6,238 |
|
|
|
(12 |
) |
Purchases of common shares under share repurchase program |
|
|
(5,995 |
) |
|
|
(444,079 |
) |
Dividends paid |
|
|
(54,000 |
) |
|
|
(55,994 |
) |
(Decrease) increase in securities lending payable |
|
|
(960 |
) |
|
|
9,894 |
|
Third party investment in noncontrolling interest |
|
|
134,301 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) by financing activities |
|
|
79,584 |
|
|
|
(243,398 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency rate changes on cash and cash equivalents |
|
|
17,042 |
|
|
|
(16,714 |
) |
|
|
|
|
|
|
|
|
|
Net increase in cash |
|
|
195,181 |
|
|
|
104,904 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents beginning of period |
|
$ |
620,740 |
|
|
$ |
387,585 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period |
|
$ |
815,921 |
|
|
$ |
492,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes (recovered) paid during the period |
|
$ |
(3,373 |
) |
|
$ |
1,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid during the period |
|
$ |
23,823 |
|
|
$ |
12,729 |
|
|
|
|
|
|
|
|
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 financial statements included in
the Companys Annual Report on Form 10-K for the year ended December 31, 2010, 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).
On May 25, 2011, the Company joined with other investors in capitalizing AlphaCat Re 2011,
Ltd. (AlphaCat Re 2011) a new special purpose sidecar reinsurer formed for the purpose of
writing collateralized reinsurance and retrocessional reinsurance. Validus Reinsurance, Ltd.
(Validus Re) has an equity interest in AlphaCat Re 2011
and as Validus Re holds
a majority of AlphaCat Re 2011s outstanding voting rights, the financial statements of AlphaCat Re
2011 are included in the consolidated financial statements of the Company. The portion of AlphaCat
Re 2011s earnings attributable to third party investors for the three months ended June 30, 2011
is recorded in the consolidated statement of operations and comprehensive income as net income
attributable to noncontrolling interest. Refer to Note 4 Noncontrolling interest for further
information.
2. Recent accounting pronouncements
In May 2011, the FASB issued Accounting Standards Update No. 2011-04, Amendments to Achieve
Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04).
The objective of ASU 2011-04 is to provide common fair value measurement and disclosure
requirements in U.S. GAAP and IFRSs. Consequently, the amendments change the wording used to
describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing
information about fair value measurements. For many of the requirements, the amendments do not
result in a change in the application of the requirements in Topic 820 Fair
Value Measurements.
6
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
ASU 2011-04 is effective for interim and annual periods beginning after
December 15, 2011. The Company is currently evaluating the impact of this guidance, however it is
not expected to have a material impact on the Companys consolidated financial statements.
In June 2011, the FASB issued Accounting Standards Update No. 2011-05, Presentation of
Comprehensive Income (ASU 2011-05). The objective of ASU 2011-05 is to improve the
comparability, consistency and transparency of financial reporting and to increase the prominence
of items reported in other comprehensive income. ASU 2011-05 is effective for interim and annual
periods beginning after December 15, 2011. The Company is currently evaluating the impact of this
guidance; however, since this update affects disclosures only, it is not expected to have an impact
on the Companys consolidated financial statements.
3. 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, U.S. agency
and non-agency mortgage and asset-backed securities and bank loans. 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 June 30, 2011.
The Companys management and 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.
7
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
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.
During the three month period 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. Because 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. During the three months ended December 31, 2010, the Company liquidated substantially all of
the identified RMBS securities which had previously been classified as Level 3 securities.
Other investments consist of an investment in a fund of hedge funds and a deferred
compensation trust held in mutual funds. The fund of hedge funds is a side pocket valued at $9,776
at June 30, 2011. While a redemption request has been submitted, the timing of receipt of proceeds
on the side pocket is unknown. The funds administrator provides monthly reported net asset values
(NAV) with a one-month delay in its valuation. As a result, the funds administrators May 31,
2011 NAV was used as a partial basis for fair value measurement in the Companys June 30, 2011
balance sheet. The fund manager provides an estimate of the performance of the fund for the
following month based on the estimated performance provided 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 administrators NAV. Immaterial
variances are recorded in the following reporting period.
At June 30, 2011, 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 |
|
$ |
|
|
|
$ |
838,912 |
|
|
$ |
|
|
|
$ |
838,912 |
|
Non-U.S. Government and Government Agency |
|
|
|
|
|
|
476,590 |
|
|
|
|
|
|
|
476,590 |
|
States, municipalities, political subdivision |
|
|
|
|
|
|
29,576 |
|
|
|
|
|
|
|
29,576 |
|
Agency residential mortgage-backed securities |
|
|
|
|
|
|
470,933 |
|
|
|
|
|
|
|
470,933 |
|
Non-Agency residential mortgage-backed securities |
|
|
|
|
|
|
51,223 |
|
|
|
|
|
|
|
51,223 |
|
U.S. corporate |
|
|
|
|
|
|
1,406,591 |
|
|
|
|
|
|
|
1,406,591 |
|
Non-U.S. corporate |
|
|
|
|
|
|
628,045 |
|
|
|
|
|
|
|
628,045 |
|
Bank Loans |
|
|
|
|
|
|
387,201 |
|
|
|
|
|
|
|
387,201 |
|
Catastrophe bonds |
|
|
|
|
|
|
29,934 |
|
|
|
|
|
|
|
29,934 |
|
Asset-backed securities |
|
|
|
|
|
|
276,273 |
|
|
|
|
|
|
|
276,273 |
|
Commercial mortgage-backed securities |
|
|
|
|
|
|
8,256 |
|
|
|
|
|
|
|
8,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities |
|
|
|
|
|
|
4,603,534 |
|
|
|
|
|
|
|
4,603,534 |
|
Short-term investments |
|
|
679,184 |
|
|
|
46,074 |
|
|
|
|
|
|
|
725,258 |
|
Hedge fund |
|
|
|
|
|
|
|
|
|
|
9,776 |
|
|
|
9,776 |
|
Mutual funds |
|
|
|
|
|
|
8,970 |
|
|
|
|
|
|
|
8,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
679,184 |
|
|
$ |
4,658,578 |
|
|
$ |
9,776 |
|
|
$ |
5,347,538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
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, 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 |
|
$ |
|
|
|
$ |
1,677,166 |
|
|
$ |
|
|
|
$ |
1,677,166 |
|
Non-U.S. Government and Government Agency |
|
|
|
|
|
|
554,199 |
|
|
|
|
|
|
|
554,199 |
|
States, municipalities, political subdivision |
|
|
|
|
|
|
26,285 |
|
|
|
|
|
|
|
26,285 |
|
Agency residential mortgage-backed securities |
|
|
|
|
|
|
445,859 |
|
|
|
|
|
|
|
445,859 |
|
Non-Agency residential mortgage-backed securities |
|
|
|
|
|
|
56,470 |
|
|
|
|
|
|
|
56,470 |
|
U.S. corporate |
|
|
|
|
|
|
1,308,406 |
|
|
|
|
|
|
|
1,308,406 |
|
Non-U.S. corporate |
|
|
|
|
|
|
502,067 |
|
|
|
|
|
|
|
502,067 |
|
Bank loans |
|
|
|
|
|
|
52,566 |
|
|
|
|
|
|
|
52,566 |
|
Catastrophe bonds |
|
|
|
|
|
|
58,737 |
|
|
|
|
|
|
|
58,737 |
|
Asset-backed securities |
|
|
|
|
|
|
123,569 |
|
|
|
|
|
|
|
123,569 |
|
Commercial mortgage-backed securities |
|
|
|
|
|
|
18,543 |
|
|
|
|
|
|
|
18,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities |
|
|
|
|
|
|
4,823,867 |
|
|
|
|
|
|
|
4,823,867 |
|
Short-term investments |
|
|
259,261 |
|
|
|
14,253 |
|
|
|
|
|
|
|
273,514 |
|
Hedge fund |
|
|
|
|
|
|
|
|
|
|
12,892 |
|
|
|
12,892 |
|
Mutual funds |
|
|
|
|
|
|
8,586 |
|
|
|
|
|
|
|
8,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
259,261 |
|
|
$ |
4,846,706 |
|
|
$ |
12,892 |
|
|
$ |
5,118,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2011, Level 3 investments totaled $9,776, representing 0.2% of total investments
measured at fair value on a recurring basis. At December 31, 2010, Level 3 investments totaled
$12,892 representing 0.3% of total investments measured at fair value on a recurring basis.
The following tables present a reconciliation of the beginning and ending balances for all
investments measured at fair value on a recurring basis using Level 3 inputs during the three and
six month periods ending June 30, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2011 |
|
|
|
Fixed Maturity |
|
|
|
|
|
|
Total Fair Market |
|
|
|
Investments |
|
|
Other Investments |
|
|
Value |
|
Level 3 investments -
Beginning of period |
|
$ |
|
|
|
$ |
10,713 |
|
|
$ |
10,713 |
|
Purchases |
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
|
|
|
|
(1,247 |
) |
|
|
(1,247 |
) |
Issuances |
|
|
|
|
|
|
|
|
|
|
|
|
Settlements |
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains |
|
|
|
|
|
|
175 |
|
|
|
175 |
|
Unrealized gains |
|
|
|
|
|
|
135 |
|
|
|
135 |
|
Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
Transfers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 investments End of period |
|
$ |
|
|
|
$ |
9,776 |
|
|
$ |
9,776 |
|
|
|
|
|
|
|
|
|
|
|
9
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2010 |
|
|
|
Fixed Maturity |
|
|
|
|
|
|
Total Fair Market |
|
|
|
Investments |
|
|
Other Investments |
|
|
Value |
|
Level 3 investments -
Beginning of period |
|
$ |
76,943 |
|
|
$ |
21,919 |
|
|
$ |
98,862 |
|
Purchases |
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
|
|
|
|
(2,710 |
) |
|
|
(2,710 |
) |
Issuances |
|
|
|
|
|
|
|
|
|
|
|
|
Settlements |
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains |
|
|
|
|
|
|
170 |
|
|
|
170 |
|
Unrealized gains (losses) |
|
|
2,632 |
|
|
|
(249 |
) |
|
|
2,383 |
|
Amortization |
|
|
(3,997 |
) |
|
|
|
|
|
|
(3,997 |
) |
Transfers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 investments End of period |
|
$ |
75,578 |
|
|
$ |
19,130 |
|
|
$ |
94,708 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2011 |
|
|
|
Fixed Maturity |
|
|
|
|
|
|
Total Fair Market |
|
|
|
Investments |
|
|
Other Investments |
|
|
Value |
|
Level 3 investments -
Beginning of period |
|
$ |
|
|
|
$ |
12,892 |
|
|
$ |
12,892 |
|
Purchases |
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
|
|
|
|
(3,809 |
) |
|
|
(3,809 |
) |
Issuances |
|
|
|
|
|
|
|
|
|
|
|
|
Settlements |
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains |
|
|
|
|
|
|
435 |
|
|
|
435 |
|
Unrealized gains |
|
|
|
|
|
|
258 |
|
|
|
258 |
|
Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
Transfers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 investments End of period |
|
$ |
|
|
|
$ |
9,776 |
|
|
$ |
9,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2010 |
|
|
|
Fixed Maturity |
|
|
|
|
|
|
Total Fair Market |
|
|
|
Investments |
|
|
Other Investments |
|
|
Value |
|
Level 3 investments -
Beginning of period |
|
$ |
85,336 |
|
|
$ |
25,670 |
|
|
$ |
111,006 |
|
Purchases |
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
|
|
|
|
(7,094 |
) |
|
|
(7,094 |
) |
Issuances |
|
|
|
|
|
|
|
|
|
|
|
|
Settlements |
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains |
|
|
|
|
|
|
344 |
|
|
|
344 |
|
Unrealized (losses) gains |
|
|
(1,634 |
) |
|
|
210 |
|
|
|
(1,424 |
) |
Amortization |
|
|
(8,124 |
) |
|
|
|
|
|
|
(8,124 |
) |
Transfers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 investments End of period |
|
$ |
75,578 |
|
|
$ |
19,130 |
|
|
$ |
94,708 |
|
|
|
|
|
|
|
|
|
|
|
10
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
(b) Net investment income
Net investment income was derived from the following sources:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Fixed maturities and short-term investments |
|
$ |
27,535 |
|
|
$ |
36,346 |
|
|
$ |
56,470 |
|
|
$ |
72,101 |
|
Cash and cash equivalents |
|
|
687 |
|
|
|
311 |
|
|
|
3,268 |
|
|
|
897 |
|
Securities lending income |
|
|
8 |
|
|
|
49 |
|
|
|
24 |
|
|
|
119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross investment income |
|
|
28,230 |
|
|
|
36,706 |
|
|
|
59,762 |
|
|
|
73,117 |
|
Investment expenses |
|
|
(1,736 |
) |
|
|
(1,897 |
) |
|
|
(3,293 |
) |
|
|
(4,009 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
$ |
26,494 |
|
|
$ |
34,809 |
|
|
$ |
56,469 |
|
|
$ |
69,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) Fixed maturity and short-term investments
The following represents an analysis of net realized gains and the change in net unrealized gains on
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Fixed maturities,
short-term and other investments
and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross realized gains |
|
$ |
13,032 |
|
|
$ |
15,120 |
|
|
$ |
28,797 |
|
|
$ |
27,885 |
|
Gross realized (losses) |
|
|
(1,480 |
) |
|
|
(2,679 |
) |
|
|
(10,866 |
) |
|
|
(4,046 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gains on investments |
|
|
11,552 |
|
|
|
12,441 |
|
|
|
17,931 |
|
|
|
23,839 |
|
Net unrealized gains (losses) on
securities lending |
|
|
11 |
|
|
|
(6 |
) |
|
|
41 |
|
|
|
(1,020 |
) |
Change in net unrealized gains
on investments |
|
|
18,515 |
|
|
|
41,646 |
|
|
|
5,657 |
|
|
|
58,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net realized gains and
change in net unrealized gains
on investments |
|
$ |
30,078 |
|
|
$ |
54,081 |
|
|
$ |
23,629 |
|
|
$ |
80,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
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 June 30, 2011 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Unrealized |
|
|
Gross Unrealized |
|
|
|
|
|
|
Amortized Cost |
|
|
Gains |
|
|
Losses |
|
|
Estimated Fair Value |
|
U.S. Government and Government Agency |
|
$ |
828,627 |
|
|
$ |
10,656 |
|
|
$ |
(371 |
) |
|
$ |
838,912 |
|
Non-U.S. Government and Government
Agency |
|
|
470,438 |
|
|
|
9,551 |
|
|
|
(3,399 |
) |
|
|
476,590 |
|
States, municipalities, political subdivision |
|
|
29,199 |
|
|
|
394 |
|
|
|
(17 |
) |
|
|
29,576 |
|
Agency residential mortgage-backed
securities |
|
|
454,517 |
|
|
|
16,899 |
|
|
|
(483 |
) |
|
|
470,933 |
|
Non-Agency residential mortgage-backed
securities |
|
|
57,678 |
|
|
|
148 |
|
|
|
(6,603 |
) |
|
|
51,223 |
|
U.S. corporate |
|
|
1,378,760 |
|
|
|
29,227 |
|
|
|
(1,396 |
) |
|
|
1,406,591 |
|
Non-U.S. corporate |
|
|
618,411 |
|
|
|
10,615 |
|
|
|
(981 |
) |
|
|
628,045 |
|
Bank loans |
|
|
389,193 |
|
|
|
702 |
|
|
|
(2,694 |
) |
|
|
387,201 |
|
Catastrophe bonds |
|
|
29,550 |
|
|
|
445 |
|
|
|
(61 |
) |
|
|
29,934 |
|
Asset-backed securities |
|
|
275,417 |
|
|
|
1,142 |
|
|
|
(286 |
) |
|
|
276,273 |
|
Commercial mortgage-backed securities |
|
|
8,208 |
|
|
|
48 |
|
|
|
|
|
|
|
8,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities |
|
|
4,539,998 |
|
|
|
79,827 |
|
|
|
(16,291 |
) |
|
|
4,603,534 |
|
Total short-term investments |
|
|
725,230 |
|
|
|
57 |
|
|
|
(29 |
) |
|
|
725,258 |
|
Total other investments |
|
|
15,018 |
|
|
|
3,728 |
|
|
|
|
|
|
|
18,746 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5,280,246 |
|
|
$ |
83,612 |
|
|
$ |
(16,320 |
) |
|
$ |
5,347,538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortized cost, gross unrealized gains and (losses) and estimated fair value of investments at December 31, 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Unrealized |
|
|
Gross Unrealized |
|
|
|
|
|
|
Amortized Cost |
|
|
Gains |
|
|
Losses |
|
|
Estimated Fair Value |
|
U.S. Government and Government Agency |
|
$ |
1,665,050 |
|
|
$ |
20,134 |
|
|
$ |
(8,018 |
) |
|
$ |
1,677,166 |
|
Non-U.S. Government and Government
Agency |
|
|
550,759 |
|
|
|
11,635 |
|
|
|
(8,195 |
) |
|
|
554,199 |
|
States, municipalities, political subdivision |
|
|
26,365 |
|
|
|
90 |
|
|
|
(170 |
) |
|
|
26,285 |
|
Agency residential mortgage-backed
securities |
|
|
430,873 |
|
|
|
15,491 |
|
|
|
(505 |
) |
|
|
445,859 |
|
Non-Agency residential mortgage-backed
securities |
|
|
62,020 |
|
|
|
64 |
|
|
|
(5,614 |
) |
|
|
56,470 |
|
|
U.S. corporate |
|
|
1,288,078 |
|
|
|
28,526 |
|
|
|
(8,198 |
) |
|
|
1,308,406 |
|
Non-U.S. corporate |
|
|
497,689 |
|
|
|
7,939 |
|
|
|
(3,561 |
) |
|
|
502,067 |
|
Bank loans |
|
|
52,612 |
|
|
|
58 |
|
|
|
(104 |
) |
|
|
52,566 |
|
Catastrophe bonds |
|
|
56,991 |
|
|
|
2,042 |
|
|
|
(296 |
) |
|
|
58,737 |
|
Asset-backed securities |
|
|
123,354 |
|
|
|
605 |
|
|
|
(390 |
) |
|
|
123,569 |
|
Commercial mortgage-backed securities |
|
|
18,246 |
|
|
|
299 |
|
|
|
(2 |
) |
|
|
18,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities |
|
|
4,772,037 |
|
|
|
86,883 |
|
|
|
(35,053 |
) |
|
|
4,823,867 |
|
Total short-term investments |
|
|
273,444 |
|
|
|
70 |
|
|
|
|
|
|
|
273,514 |
|
Total other investments |
|
|
18,392 |
|
|
|
3,086 |
|
|
|
|
|
|
|
21,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5,063,873 |
|
|
$ |
90,039 |
|
|
$ |
(35,053 |
) |
|
$ |
5,118,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
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 sets forth certain information regarding the investment ratings of the
Companys fixed maturities portfolio as at June 30, 2011 and December 31, 2010. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011 |
|
|
December 31, 2010 |
|
|
|
Estimated Fair |
|
|
|
|
|
Estimated Fair |
|
|
|
|
|
|
Value |
|
|
% of Total |
|
|
Value |
|
|
% of Total |
|
AAA |
|
$ |
2,237,017 |
|
|
|
48.6 |
% |
|
$ |
2,946,514 |
|
|
|
61.2 |
% |
AA |
|
|
400,177 |
|
|
|
8.7 |
% |
|
|
428,972 |
|
|
|
8.9 |
% |
A |
|
|
1,193,431 |
|
|
|
25.9 |
% |
|
|
1,077,389 |
|
|
|
22.3 |
% |
BBB |
|
|
331,145 |
|
|
|
7.2 |
% |
|
|
219,523 |
|
|
|
4.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment grade |
|
|
4,161,770 |
|
|
|
90.4 |
% |
|
|
4,672,398 |
|
|
|
97.0 |
% |
BB |
|
|
218,227 |
|
|
|
4.7 |
% |
|
|
74,475 |
|
|
|
1.5 |
% |
B |
|
|
199,649 |
|
|
|
4.3 |
% |
|
|
45,660 |
|
|
|
0.9 |
% |
CCC |
|
|
21,548 |
|
|
|
0.5 |
% |
|
|
29,219 |
|
|
|
0.6 |
% |
CC |
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
0.0 |
% |
D/NR |
|
|
2,340 |
|
|
|
0.1 |
% |
|
|
2,115 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Investment grade |
|
|
441,764 |
|
|
|
9.6 |
% |
|
|
151,469 |
|
|
|
3.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fixed Maturities |
|
$ |
4,603,534 |
|
|
|
100.0 |
% |
|
$ |
4,823,867 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortized cost and estimated fair value amounts for fixed maturity securities held at June
30, 2011 and December 31, 2010 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011 |
|
|
December 31, 2010 |
|
|
|
Amortized Cost |
|
|
Estimated Fair
Value |
|
|
Amortized Cost |
|
|
Estimated Fair
Value |
|
Due in one year or less |
|
$ |
427,713 |
|
|
$ |
431,200 |
|
|
$ |
424,327 |
|
|
$ |
426,167 |
|
Due after one year through five years |
|
|
2,965,528 |
|
|
|
3,015,190 |
|
|
|
3,498,334 |
|
|
|
3,540,408 |
|
Due after five years through ten
years |
|
|
344,337 |
|
|
|
343,859 |
|
|
|
207,918 |
|
|
|
206,317 |
|
Due after ten years |
|
|
6,600 |
|
|
|
6,600 |
|
|
|
6,965 |
|
|
|
6,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,744,178 |
|
|
|
3,796,849 |
|
|
|
4,137,544 |
|
|
|
4,179,426 |
|
Asset-backed and mortgage-backed securities |
|
|
795,820 |
|
|
|
806,685 |
|
|
|
634,493 |
|
|
|
644,441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,539,998 |
|
|
$ |
4,603,534 |
|
|
$ |
4,772,037 |
|
|
$ |
4,823,867 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has a five year, $500,000 secured letter of credit facility provided by a
syndicate of commercial banks. At June 30, 2011, approximately $277,679 (December 31, 2010:
$268,944) of letters of credit were issued and outstanding under this facility for which $352,636
of investments were pledged as collateral (December 31, 2010: $325,532). In 2007, the Company
entered into a $100,000 standby letter of credit facility which provides Funds at Lloyds (the
Talbot FAL Facility).
13
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
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 June 30, 2011, $25,000
(December 31, 2010: $25,000) of letters of credit were issued and outstanding under the Talbot FAL
Facility for which $45,204 of investments were pledged as collateral (December 31, 2010: $45,504).
In addition, $1,993,707 of investments were held in trust at June 30, 2011 (December 31, 2010:
$1,729,631). Of those, $1,545,533 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, 2010: $1,489,243).
The Company assumed two letters of credit facilities as part of the acquisition of IPC
Holdings, Ltd. (the IPC Acquisition). A Credit Facility between IPC, IPCRe Limited, the Lenders
party thereto and Wachovia Bank, National Association (the IPC Syndicated Facility) and a Letters
of Credit Master Agreement between Citibank N.A. and IPCRe Limited (the IPC Bi-Lateral Facility).
At March 31, 2010, the IPC Syndicated Facility was closed. At June 30, 2011, the IPC Bi-Lateral
Facility had $63,284 (December 31, 2010: $68,063) letters of credit issued and outstanding for
which $106,216 (December 31, 2010: $105,310) 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 June 30, 2011, the Company had $21,604 (December 31,
2010: $22,566) in securities on loan. During the three months ended June 30, 2011, the Company
recorded a $11 unrealized gain on this collateral on its Statements of Operations (June 30, 2010:
unrealized loss $6). During the six months ended June 30, 2011, the Company recorded a $41
unrealized gain on this collateral in its Statements of Operations (June 30, 2010: unrealized loss
$1,020).
Securities lending collateral reinvested includes corporate floating rate securities and
overnight repo with an average reset period of 1.1 days (December 31, 2010: 17.6 days). As at June
30, 2011, 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 |
|
$ |
|
|
|
$ |
257 |
|
|
$ |
|
|
|
$ |
257 |
|
Asset-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
|
|
20,979 |
|
|
|
173 |
|
|
|
|
|
|
|
21,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
20,979 |
|
|
$ |
430 |
|
|
$ |
|
|
|
$ |
21,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2010, 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 |
|
$ |
|
|
|
$ |
229 |
|
|
$ |
|
|
|
$ |
229 |
|
Asset-backed securities |
|
|
|
|
|
|
5,005 |
|
|
|
|
|
|
|
5,005 |
|
Short-term investments |
|
|
2,644 |
|
|
|
14,450 |
|
|
|
|
|
|
|
17,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,644 |
|
|
$ |
19,684 |
|
|
$ |
|
|
|
$ |
22,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
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 sets forth certain information regarding the investment ratings of the
Companys securities lending collateral reinvested as at June 30, 2011 and December 31, 2010.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011 |
|
|
December 31, 2010 |
|
|
|
Estimated Fair Value |
|
|
% of Total |
|
|
Estimated Fair Value |
|
|
% of Total |
|
AAA |
|
$ |
173 |
|
|
|
0.8 |
% |
|
$ |
5,454 |
|
|
|
24.4 |
% |
AA+ |
|
|
|
|
|
|
0.0 |
% |
|
|
11,003 |
|
|
|
49.3 |
% |
AA |
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
0.0 |
% |
AA- |
|
|
|
|
|
|
0.0 |
% |
|
|
2,998 |
|
|
|
13.5 |
% |
A+ |
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
0.0 |
% |
A |
|
|
|
|
|
|
0.0 |
% |
|
|
|
|
|
|
0.0 |
% |
NR |
|
|
257 |
|
|
|
1.2 |
% |
|
|
229 |
|
|
|
1.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
430 |
|
|
|
2.0 |
% |
|
|
19,684 |
|
|
|
88.2 |
% |
NR- Short-term investments (a) |
|
|
20,979 |
|
|
|
98.0 |
% |
|
|
2,644 |
|
|
|
11.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
21,409 |
|
|
|
100.0 |
% |
|
$ |
22,328 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
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 June 30, 2011 and December 31, 2010 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011 |
|
|
December 31, 2010 |
|
|
|
Amortized Cost |
|
|
Estimated Fair Value |
|
|
Amortized Cost |
|
|
Estimated Fair Value |
|
Due in one year or less |
|
$ |
21,133 |
|
|
$ |
21,152 |
|
|
$ |
17,093 |
|
|
$ |
17,095 |
|
Due after one year through five years |
|
|
1,000 |
|
|
|
257 |
|
|
|
6,000 |
|
|
|
5,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
22,133 |
|
|
$ |
21,409 |
|
|
$ |
23,093 |
|
|
$ |
22,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4. Noncontrolling interest
On May 25, 2011, the Company joined with other investors in capitalizing AlphaCat Re 2011 Ltd.
(AlphaCat Re 2011), a new special purpose sidecar reinsurer formed for the purpose of writing
collateralized reinsurance and retrocessional reinsurance. Validus Re
has an equity
interest in AlphaCat Re 2011 and as Validus Re holds a majority of AlphaCat Re 2011s
outstanding voting rights, the financial statements of AlphaCat Re 2011 are included in the
consolidated financial statements of the Company. The portion of AlphaCat Re 2011s earnings
attributable to third party investors for the three months ended June 30, 2011 is recorded in the
consolidated statement of operations and comprehensive income as net income attributable to
noncontrolling interest.
15
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
The activity in net income attributable to noncontrolling interest is detailed in the table below
as at June 30, 2011:
|
|
|
|
|
|
|
Noncontrolling |
|
|
|
interest |
|
Balance April 1, 2011 |
|
$ |
|
|
Purchase of shares by noncontrolling interest |
|
|
134,301 |
|
Net Income: |
|
|
|
|
Net Income attributable to noncontrolling interest |
|
|
594 |
|
|
|
|
|
Balance June 30, 2011 |
|
$ |
134,895 |
|
|
|
|
|
5. Derivative instruments used in hedging activities
The Company enters into derivative instruments for risk management purposes, specifically to
economically hedge unmatched foreign currency exposures. During the three months ended June 30,
2011, the Company entered into a foreign currency forward exchange contract to mitigate the risk of
foreign currency exposure of unpaid losses denominated in Japanese Yen. During the three months
ended March 31, 2011, the Company entered into three foreign currency forward exchange contracts to
mitigate the risk of fluctuations in the Euro and Australian dollar to U.S. dollar rates. Two of
the contracts were renewed during the three months ended June 30, 2011. During the year ended
December 31, 2010, the Company entered into a foreign currency forward contract to mitigate the
risk of foreign currency exposure of unpaid losses denominated in Chilean Pesos (CLP). The CLP
foreign currency forward contract was renewed during the three months ended June 30, 2011. The
following table summarizes information on the location and amount of the derivative fair value on
the consolidated balance sheet at June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives |
|
|
Liability Derivatives |
|
Derivatives designated as |
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
hedging instruments: |
|
Notional Amount |
|
|
location |
|
|
Fair value |
|
|
location |
|
|
Fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and accrued |
|
|
|
|
Foreign exchange contracts |
|
$ |
128,613 |
|
|
Other assets |
|
$ |
354 |
|
|
expenses |
|
$ |
173 |
|
The following table summarizes information on the location and amount of the derivative fair value on the consolidated balance sheet at
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives |
|
|
Liability Derivatives |
|
Derivatives designated as |
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
hedging instruments: |
|
Notional Amount |
|
|
location |
|
|
Fair value |
|
|
location |
|
|
Fair value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and accrued |
|
|
|
|
Foreign exchange contract |
|
$ |
75,000 |
|
|
Other assets |
|
$ |
2,905 |
|
|
expenses |
|
$ |
|
|
(a) Classification within the fair value hierarchy
As described in Note 3 Investments under U.S. GAAP, a company must determine the appropriate
level in the fair value hierarchy for each fair value measurement. The assumptions used within the
valuation 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. Accordingly, these
derivatives were classified within Level 2 of the fair value hierarchy.
16
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
(b) Derivative instruments designated as a fair value hedge
The Company designates its derivative instruments as fair value hedges and formally and
contemporaneously documents all relationships between the hedging instruments and hedged items and
links the hedging derivatives to specific assets and liabilities. The Company assesses the
effectiveness of the hedges, both at inception and on an on-going basis and determines whether the
hedges are highly effective in offsetting changes in fair value of the linked hedged items.
The following table provides the total impact on earnings relating to the derivative
instruments formally designated as fair value hedges along with the impact of the related hedged
items for the three and six months ended June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2011 |
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain |
|
|
Amount of Gain |
|
|
|
|
|
|
|
|
|
|
|
(Loss) |
|
|
(Loss) Recognized |
|
|
|
|
|
|
|
Amount of Gain |
|
|
on Hedged Item |
|
|
in Income on |
|
Derivatives designated as |
|
Location of Gain |
|
|
(Loss) Recognized |
|
|
Recognized in Income |
|
|
Derivative |
|
fair value hedges and |
|
(Loss) Recognized |
|
|
in Income on |
|
|
Attributable to Risk |
|
|
(Ineffective |
|
related hedged item: |
|
in Income |
|
|
Derivative |
|
|
Being Hedged |
|
|
Portion) |
|
Foreign exchange |
|
Foreign exchange gains (losses) |
|
$ |
897 |
|
|
$ |
(897 |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2011 |
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain |
|
|
Amount of Gain |
|
|
|
|
|
|
|
|
|
|
|
(Loss) |
|
|
(Loss) Recognized |
|
|
|
|
|
|
|
Amount of Gain |
|
|
on Hedged Item |
|
|
in Income on |
|
Derivatives designated as |
|
Location of Gain |
|
|
(Loss) Recognized |
|
|
Recognized in Income |
|
|
Derivative |
|
fair value hedges and |
|
(Loss) Recognized |
|
|
in Income on |
|
|
Attributable to Risk |
|
|
(Ineffective |
|
related hedged item: |
|
in Income |
|
|
Derivative |
|
|
Being Hedged |
|
|
Portion) |
|
Foreign exchange |
|
Foreign exchange (losses) gains |
|
$ |
(2,925 |
) |
|
$ |
2,925 |
|
|
$ |
|
|
There was no derivative activity for the three and six months ended June 30, 2010.
6. 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 for the three and
six months ended June 30, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Reserve for losses and loss expenses, beginning of period |
|
$ |
2,534,415 |
|
|
$ |
1,976,889 |
|
|
$ |
2,035,973 |
|
|
$ |
1,622,134 |
|
Losses and loss expenses recoverable |
|
|
(453,701 |
) |
|
|
(198,956 |
) |
|
|
(283,134 |
) |
|
|
(181,765 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net reserves for losses and loss expenses, beginning of
period |
|
|
2,080,714 |
|
|
|
1,777,933 |
|
|
|
1,752,839 |
|
|
|
1,440,369 |
|
Increase (decrease) in net losses and loss expenses
incurred
in respect of losses occurring in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year |
|
|
233,012 |
|
|
|
244,457 |
|
|
|
735,726 |
|
|
|
749,717 |
|
Prior years |
|
|
(25,705 |
) |
|
|
(49,563 |
) |
|
|
(52,221 |
) |
|
|
(76,292 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total incurred losses and loss expenses |
|
|
207,307 |
|
|
|
194,894 |
|
|
|
683,505 |
|
|
|
673,425 |
|
Total net paid losses |
|
|
(121,046 |
) |
|
|
(178,431 |
) |
|
|
(284,303 |
) |
|
|
(306,084 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange |
|
|
13,580 |
|
|
|
(9,870 |
) |
|
|
28,514 |
|
|
|
(23,184 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net reserve for losses and loss expenses, end of period |
|
|
2,180,555 |
|
|
|
1,784,526 |
|
|
|
2,180,555 |
|
|
|
1,784,526 |
|
Losses and loss expenses recoverable |
|
|
439,805 |
|
|
|
193,604 |
|
|
|
439,805 |
|
|
|
193,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for losses and loss expenses, end of period |
|
$ |
2,620,360 |
|
|
$ |
1,978,130 |
|
|
$ |
2,620,360 |
|
|
$ |
1,978,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7. 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.
18
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
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 June 30, 2011, 99.1% of reinsurance
recoverables (which includes loss reserves recoverable and recoverables on paid losses) were from
reinsurers rated A- or better and included $98,321 of IBNR recoverable (December 31, 2010:
$146,519). Reinsurance recoverables by reinsurer are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011 |
|
|
December 31, 2010 |
|
|
|
Reinsurance |
|
|
|
|
|
|
Reinsurance |
|
|
|
|
|
|
Recoverable |
|
|
% of Total |
|
|
Recoverable |
|
|
% of Total |
|
Top 10 reinsurers |
|
$ |
340,391 |
|
|
|
72.3 |
% |
|
$ |
222,420 |
|
|
|
71.5 |
% |
Other reinsurers balances > $1 million |
|
|
119,899 |
|
|
|
25.5 |
% |
|
|
80,221 |
|
|
|
25.8 |
% |
Other reinsurers balances < $1 million |
|
|
10,369 |
|
|
|
2.2 |
% |
|
|
8,489 |
|
|
|
2.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
470,659 |
|
|
|
100.0 |
% |
|
$ |
311,130 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2011 |
|
Top 10 Reinsurers |
|
Rating |
|
|
Reinsurance
Recoverable |
|
|
% of Total |
|
Lloyds Syndicates |
|
|
A+ |
|
|
$ |
74,882 |
|
|
|
22.0 |
% |
Allianz |
|
AA- |
|
|
69,464 |
|
|
|
20.3 |
% |
Hannover Re |
|
AA- |
|
|
35,757 |
|
|
|
10.5 |
% |
Manulife |
|
|
A- |
|
|
|
35,000 |
|
|
|
10.3 |
% |
Everest Re |
|
|
A+ |
|
|
|
29,812 |
|
|
|
8.8 |
% |
Tokio Marine / Tokio Millennium |
|
AA- |
|
|
26,106 |
|
|
|
7.7 |
% |
Fully collateralized reinsurers |
|
NR |
|
|
20,396 |
|
|
|
6.0 |
% |
Transatlantic Re |
|
|
A+ |
|
|
|
17,049 |
|
|
|
5.0 |
% |
Odyssey Reinsurance Company |
|
|
A- |
|
|
|
16,195 |
|
|
|
4.8 |
% |
Munich Re |
|
AA- |
|
|
15,730 |
|
|
|
4.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
340,391 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
Top 10 Reinsurers |
|
Rating |
|
|
Reinsurance
recoverable |
|
|
% of Total |
|
Lloyds Syndicates |
|
|
A+ |
|
|
$ |
60,716 |
|
|
|
27.2 |
% |
Hannover Re |
|
AA- |
|
|
32,392 |
|
|
|
14.6 |
% |
Fully collateralized reinsurers |
|
NR |
|
|
23,750 |
|
|
|
10.7 |
% |
Montpelier Re |
|
|
A- |
|
|
|
20,000 |
|
|
|
9.0 |
% |
Munich Re |
|
AA- |
|
|
17,411 |
|
|
|
7.8 |
% |
Everest Re |
|
|
A+ |
|
|
|
16,611 |
|
|
|
7.5 |
% |
Allianz |
|
AA |
|
|
14,184 |
|
|
|
6.4 |
% |
Transatlantic Re |
|
|
A+ |
|
|
|
13,758 |
|
|
|
6.2 |
% |
Tokio Millennium Re |
|
AA |
|
|
11,980 |
|
|
|
5.4 |
% |
Platinum Re |
|
|
A |
|
|
|
11,618 |
|
|
|
5.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
222,420 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
19
Validus
Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
At June 30, 2011 and December 31, 2010, the provision for uncollectible reinsurance relating
to losses recoverable was $6,200 and $5,652, 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
$470,659 reinsurance recoverable at June 30, 2011, $20,396 was fully collateralized (December 31,
2010: $23,750).
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.
8. 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 was 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 repurchased $300,000 in common shares. On November 4, 2010, the Board of Directors
authorized a self tender offer pursuant to which the Company repurchased $238,362 in common shares.
In addition, the Board of Directors authorized separate repurchase agreements with funds affiliated
with or managed by each of Aquiline Capital Partners LLC, New Mountain Capital LLC, and Vestar
Capital Partners pursuant to which the Company repurchased $61,638 in common shares. On December
20, 2010, the Board of Directors authorized the
Company to return up to an additional $400,000 to shareholders. This amount is in addition to
the $929,173 of common shares purchased by the Company through December 23, 2010 under its
previously authorized share repurchase program.
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.
20
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 is a summary of the common shares issued and outstanding:
|
|
|
|
|
|
|
Common Shares |
|
Common shares issued, December 31, 2010 |
|
|
132,838,111 |
|
Restricted share awards vested, net of shares withheld |
|
|
458,933 |
|
Restricted share units vested, net of shares withheld |
|
|
9,496 |
|
Employee seller shares vested |
|
|
|
|
Options exercised |
|
|
455,033 |
|
Warrants exercised |
|
|
34,340 |
|
|
|
|
|
Common shares issued, June 30, 2011 |
|
|
133,795,913 |
|
Shares repurchased |
|
|
(35,031,985 |
) |
|
|
|
|
Common shares outstanding, June 30, 2011 |
|
|
98,763,928 |
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares |
|
Common shares issued, December 31, 2009 |
|
|
131,616,349 |
|
Restricted share awards vested, net of shares withheld |
|
|
281,512 |
|
Restricted share units vested, net of shares withheld |
|
|
57,192 |
|
Employee seller shares vested |
|
|
|
|
Options exercised |
|
|
51,534 |
|
Warrants exercised |
|
|
|
|
|
|
|
|
Common shares issued, June 30, 2010 |
|
|
132,006,587 |
|
Shares repurchased |
|
|
(20,598,594 |
) |
|
|
|
|
Common shares outstanding, June 30, 2010 |
|
|
111,407,993 |
|
|
|
|
|
b) Warrants
During the three and six months ended June 30, 2011, 72,598 warrants were exercised which
resulted in the issuance of 34,340 common shares. During the three and six months ended June 30,
2010, no warrants were exercised.
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 June 30, 2011 were 4,802
(December 31, 2010: 4,727).
d) Dividends
On February 9, 2011, the Company announced a quarterly cash dividend of $0.25 (2010: $0.22)
per common share and $0.25 per common share equivalent for which each outstanding warrant is
exercisable. This dividend was paid on March 30, 2011 to holders of record on March 15, 2011.
21
Validus
Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
On May 4, 2011, the Company announced a quarterly cash dividend of $0.25 (2010: $0.22) per
common share and $0.25 per common share equivalent for which each outstanding warrant is
exercisable. This dividend was paid on June 30, 2011 to holders of record on June 15, 2011.
9. Stock plans
a) Long Term Incentive Plan and Short Term Incentive Plan
The Companys Amended and Restated 2005 Long Term Incentive Plan (LTIP) provides for grants
to employees of options, stock appreciation rights (SARs), restricted shares, restricted share
units, performance shares, 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 4,141,021 shares are remaining. The
LTIP and STIP are administered by the Compensation Committee of the Board of Directors. No SARs
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.
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 |
|
2008 |
|
|
3.5% |
|
|
|
3.2% |
|
|
|
7 |
|
|
|
30.0% |
|
2009 |
|
|
3.9% |
|
|
|
3.7% |
|
|
|
2 |
|
|
|
34.6% |
|
2010 (a) |
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
|
(a) |
|
The Company did not grant any stock option awards during the year ended December 31, 2010
or the six months ended June 30, 2011. |
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 $179 were recorded for the three months ended June 30, 2011
(2010: $1,036). Share compensation expenses of $1,426 were recorded for the six months ended June
30, 2011 (2010: $2,074).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 options for the six months ended June 30, 2011 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
Weighted Average |
|
|
|
|
|
|
|
Grant Date |
|
|
Grant Date |
|
|
|
Options |
|
|
Fair Value |
|
|
Exercise Price |
|
Options outstanding, December 31, 2010 |
|
|
2,723,684 |
|
|
$ |
6.74 |
|
|
$ |
20.19 |
|
Options granted |
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised |
|
|
(455,033 |
) |
|
|
6.96 |
|
|
|
20.56 |
|
Options forfeited |
|
|
(1,850 |
) |
|
|
10.30 |
|
|
|
20.39 |
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, June 30, 2011 |
|
|
2,266,801 |
|
|
$ |
6.70 |
|
|
$ |
20.12 |
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at June 30, 2011 |
|
|
2,178,828 |
|
|
$ |
6.62 |
|
|
$ |
20.02 |
|
|
|
|
|
|
|
|
|
|
|
Activity with respect to options for the six months ended June 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 |
|
|
(51,534 |
) |
|
|
5.72 |
|
|
|
22.34 |
|
Options forfeited |
|
|
(4,317 |
) |
|
|
10.30 |
|
|
|
20.39 |
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, June 30, 2010 |
|
|
3,222,164 |
|
|
$ |
6.84 |
|
|
$ |
19.84 |
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at June 30, 2010 |
|
|
2,549,805 |
|
|
$ |
6.05 |
|
|
$ |
20.10 |
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2011, there were $482 (December 31, 2010: $851) of total unrecognized share
compensation expenses in respect of options that are expected to be recognized over a
weighted-average period of 0.7 years (December 31, 2010: 1.2 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 during the vesting period, relating to,
among other things, forfeiture in the event of termination of employment and transferability. Share
compensation expenses of $5,792 were recorded for the three months ended June 30, 2011 (2010:
$4,735). Share compensation expenses of $14,948 were recorded for the six months ended June 30,
2011 (2010: $9,061).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 awards for the six months ended June 30,
2011 was as follows:
|
|
|
|
|
|
|
|
|
|
|
Restricted |
|
|
Weighted Average |
|
|
|
Share |
|
|
Grant Date |
|
|
|
Awards |
|
|
Fair Value |
|
Restricted share awards outstanding, December 31, 2010 |
|
|
3,114,039 |
|
|
$ |
24.33 |
|
Restricted share awards granted |
|
|
590,367 |
|
|
|
32.16 |
|
Restricted share awards vested |
|
|
(553,615 |
) |
|
|
25.46 |
|
Restricted share awards forfeited |
|
|
(13,198 |
) |
|
|
27.28 |
|
|
|
|
|
|
|
|
Restricted share awards outstanding, June 30, 2011 |
|
|
3,137,593 |
|
|
$ |
25.60 |
|
|
|
|
|
|
|
|
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 awards for the six months
ended June 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 |
|
|
439,114 |
|
|
|
26.17 |
|
Restricted share awards vested |
|
|
(323,520 |
) |
|
|
23.91 |
|
Restricted share awards forfeited |
|
|
(22,609 |
) |
|
|
23.07 |
|
|
|
|
|
|
|
|
Restricted share awards outstanding, June 30, 2010 |
|
|
2,618,943 |
|
|
$ |
23.83 |
|
|
|
|
|
|
|
|
At June 30, 2011, there were $50,710 (December 31, 2010: $44,290) of total unrecognized share
compensation expenses in respect of restricted share awards that are expected to be recognized over
a weighted-average period of 2.7 years (December 31, 2010: 2.5 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 during the vesting period, relating to,
among other things, forfeiture in the event of termination of employment and transferability. Share
compensation expenses of $97 were recorded for the three months ended June 30, 2011 (2010: $61).
Share compensation expenses of $211 were recorded for the six months ended June 30, 2011 (2010:
$234). 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 six months ended June 30,
2011 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
Restricted |
|
|
Grant Date |
|
|
|
Share Units |
|
|
Fair Value |
|
Restricted share units outstanding, December 31, 2010 |
|
|
47,049 |
|
|
$ |
25.04 |
|
Restricted share units granted |
|
|
18,388 |
|
|
|
32.10 |
|
Restricted share units vested |
|
|
(13,340 |
) |
|
|
24.72 |
|
Restricted share units reinvested |
|
|
296 |
|
|
|
25.45 |
|
Restricted share units forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted share units outstanding, June 30, 2011 |
|
|
52,393 |
|
|
$ |
27.60 |
|
|
|
|
|
|
|
|
Activity with respect to unvested restricted share units for the six months
ended June 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 |
|
|
7,952 |
|
|
|
26.07 |
|
Restricted share units vested |
|
|
(59,019 |
) |
|
|
24.76 |
|
Restricted share units forfeited |
|
|
(1,094 |
) |
|
|
21.49 |
|
|
|
|
|
|
|
|
Restricted share units outstanding, June 30, 2010 |
|
|
26,430 |
|
|
$ |
25.51 |
|
|
|
|
|
|
|
|
24
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
At June 30, 2011, there were $1,192 (December 31, 2010: $809) of total unrecognized share
compensation expenses in respect of restricted share units that are expected to be recognized over
a weighted-average period of 3.0 years (December 31, 2010: 2.7 years).
iv. Performance share awards
The Performance Share Awards (PSAs) contain a performance based component. The performance
component relates to the compounded growth in the Dividend Adjusted Diluted Book Value per Share
over a three year period. For PSAs granted during the period, the grant date Diluted Book Value per
Share (DBVPS) is based on the DBVPS at the end of the most recent financial reporting year. The
Dividend Adjusted Performance Period End DBVPS will be the DBVPS three years after the grant date
DBVPS. The fair value estimate earns over the requisite attribution period and the estimate will be
reassessed at the end of each performance period which will reflect any adjustments in the
consolidated statements of income in the period in which they are determined.
Share compensation expenses of $528 were recorded for the three months ended June 30, 2011
(2010: $nil). Share compensation expenses of $872 were recorded for the six months ended June 30,
2011 (2010: $nil). The expenses represent the proportionate accrual of the fair value of each grant
based on the remaining vesting period.
Activity with respect to unvested performance share awards for the six months ended June 30,
2011 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
Performance |
|
|
Grant Date |
|
|
|
Share Awards |
|
|
Fair Value |
|
Performance share awards outstanding, December 31, 2010 |
|
|
132,401 |
|
|
$ |
28.70 |
|
Performance share awards granted |
|
|
146,618 |
|
|
|
32.64 |
|
Performance share awards vested |
|
|
|
|
|
|
|
|
Performance share awards forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance share awards outstanding, June 30, 2011 |
|
|
279,019 |
|
|
$ |
30.77 |
|
|
|
|
|
|
|
|
Activity with respect to unvested performance share awards for the six months ended June 30, 2010 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
Performance |
|
|
Grant Date |
|
|
|
Share Awards |
|
|
Fair Value |
|
Performance share awards outstanding, December 31, 2009 |
|
|
|
|
|
$ |
|
|
Performance share awards granted |
|
|
|
|
|
|
|
|
Performance share awards vested |
|
|
|
|
|
|
|
|
Performance share awards forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance share awards outstanding, June 30, 2010 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
At June 30, 2011, there were $7,071 (December 31, 2010: $3,375) of total unrecognized share
compensation expenses in respect of PSAs that are expected to be recognized over a weighted-average
period of 2.6 years (December 31, 2010: 2.4 years).
25
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
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 ended 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 on July 2, 2011 the potential for forfeiture was completely extinguished.
Share compensation expenses of $1,032 were recorded for the three months ended June 30, 2011
(2010: $1,014). Share compensation expenses of $2,220 were recorded for the six months ended June
30, 2011 (2010: $2,053).
Activity with respect to unvested employee seller shares for the six months ended June 30,
2011 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
Employee |
|
|
Grant Date |
|
|
|
Seller Shares |
|
|
Fair Value |
|
Employee seller shares outstanding, December 31, 2010 |
|
|
197,879 |
|
|
$ |
22.01 |
|
Employee seller shares granted |
|
|
|
|
|
|
|
|
Employee seller shares vested |
|
|
|
|
|
|
|
|
Employee seller shares forfeited |
|
|
(705 |
) |
|
|
22.01 |
|
|
|
|
|
|
|
|
Employee seller shares outstanding, June 30, 2011 |
|
|
197,174 |
|
|
$ |
22.01 |
|
|
|
|
|
|
|
|
Activity with respect to unvested employee seller shares for six months ended June 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 |
|
|
|
|
|
|
|
|
Employee seller shares forfeited |
|
|
(3,551 |
) |
|
|
22.01 |
|
|
|
|
|
|
|
|
Employee seller shares outstanding, June 30, 2010 |
|
|
407,116 |
|
|
$ |
22.01 |
|
|
|
|
|
|
|
|
At June 30, 2011, there were $71 (December 31, 2010: $2,141) of total unrecognized share
compensation expenses in respect of employee seller shares that are expected to be recognized during the quarter ended September 30, 2011 (December 31, 2010: weighted average period of 0.5 year).
26
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
c) Total share compensation expenses
The breakdown of share compensation expenses by award type was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, 2011 |
|
|
June 30, 2010 |
|
|
June 30, 2011 |
|
|
June 30, 2010 |
|
Options |
|
$ |
179 |
|
|
$ |
1,036 |
|
|
$ |
1,426 |
|
|
$ |
2,074 |
|
Restricted share awards |
|
|
5,792 |
|
|
|
4,735 |
|
|
|
14,948 |
|
|
|
9,061 |
|
Restricted share units |
|
|
97 |
|
|
|
61 |
|
|
|
211 |
|
|
|
234 |
|
Performance share awards |
|
|
528 |
|
|
|
|
|
|
|
872 |
|
|
|
|
|
Employee seller shares |
|
|
1,032 |
|
|
|
1,014 |
|
|
|
2,220 |
|
|
|
2,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
7,628 |
|
|
$ |
6,846 |
|
|
$ |
19,677 |
|
|
$ |
13,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10. Debt and financing arrangements
a) Financing structure and finance expenses
The financing structure at June 30, 2011 was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitment |
|
|
Outstanding (a) |
|
|
Drawn |
|
2006 Junior Subordinated Deferrable Debentures |
|
$ |
150,000 |
|
|
$ |
150,000 |
|
|
$ |
150,000 |
|
2007 Junior Subordinated Deferrable Debentures |
|
|
200,000 |
|
|
|
139,800 |
|
|
|
139,800 |
|
2010 Senior Notes due 2040 |
|
|
250,000 |
|
|
|
250,000 |
|
|
|
246,928 |
|
$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 |
|
|
|
277,679 |
|
|
|
|
|
Talbot FAL Facility (b) |
|
|
25,000 |
|
|
|
25,000 |
|
|
|
|
|
IPC Bi-Lateral Facility |
|
|
80,000 |
|
|
|
63,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,605,000 |
|
|
$ |
905,763 |
|
|
$ |
536,728 |
|
|
|
|
|
|
|
|
|
|
|
The financing structure at December 31, 2010 was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitment |
|
|
Outstanding (a) |
|
|
Drawn |
|
2006 Junior Subordinated Deferrable Debentures |
|
$ |
150,000 |
|
|
$ |
150,000 |
|
|
$ |
150,000 |
|
2007 Junior Subordinated Deferrable Debentures |
|
|
200,000 |
|
|
|
139,800 |
|
|
|
139,800 |
|
2010 Senior Notes due 2040 |
|
|
250,000 |
|
|
|
250,000 |
|
|
|
246,874 |
|
$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 |
|
|
|
268,944 |
|
|
|
|
|
Talbot FAL Facility (b) |
|
|
25,000 |
|
|
|
25,000 |
|
|
|
|
|
IPC Bi-Lateral Facility |
|
|
80,000 |
|
|
|
68,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,605,000 |
|
|
$ |
901,807 |
|
|
$ |
536,674 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Indicates utilization of commitment amount, not drawn borrowings. |
|
(b) |
|
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. |
27
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
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, fees
relating to the capitalization of AlphaCat Re 2011 and the costs of FAL as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
2006 Junior Subordinated Deferrable
Debentures |
|
$ |
3,228 |
|
|
$ |
3,589 |
|
|
$ |
6,816 |
|
|
$ |
7,177 |
|
2007 Junior Subordinated Deferrable
Debentures |
|
|
3,028 |
|
|
|
3,028 |
|
|
|
6,057 |
|
|
|
6,057 |
|
2010 Senior Notes due 2040 |
|
|
5,597 |
|
|
|
5,597 |
|
|
|
11,194 |
|
|
|
9,575 |
|
Credit facilities |
|
|
1,589 |
|
|
|
1,109 |
|
|
|
3,313 |
|
|
|
2,420 |
|
AlphaCat Re 2011 fees (a) |
|
|
2,919 |
|
|
|
|
|
|
|
2,919 |
|
|
|
|
|
Talbot FAL Facility |
|
|
|
|
|
|
(89 |
) |
|
|
63 |
|
|
|
333 |
|
Talbot other interest |
|
|
|
|
|
|
(16 |
) |
|
|
|
|
|
|
59 |
|
Talbot third party FAL facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
16,361 |
|
|
$ |
13,218 |
|
|
$ |
30,362 |
|
|
$ |
28,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes finance expenses attributable to noncontrolling interest. |
(b) $250,000 2010 Senior Notes due 2040
On January 21, 2010, the Company offered and sold $250,000 of Senior Notes due 2040 (the 2010
Senior Notes) in a registered public offering. The 2010 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
2010 Senior Notes bear interest at the rate of 8.875% per annum from January 26, 2010 to maturity
or early redemption. Interest on the 2010 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 2010 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 2010 Senior Notes.
The 2010 Senior Notes are unsecured and unsubordinated obligations of the Company and rank
equally in right of payment with all of the Companys existing and future unsecured and
unsubordinated indebtedness. The 2010 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 2010 Senior Notes will be
structurally subordinated to all obligations of the Companys subsidiaries.
28
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
Future expected payments of interest on the 2010 Senior Notes are as follows:
|
|
|
|
|
2011 |
|
$ |
11,094 |
|
2012 |
|
|
22,188 |
|
2013 |
|
|
22,188 |
|
2014 |
|
|
22,188 |
|
2015 and thereafter |
|
|
565,780 |
|
|
|
|
|
Total minimum future payments |
|
$ |
643,438 |
|
|
|
|
|
(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 2006 Junior Subordinated Deferrable
Debentures). The 2006 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 2006 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 2006 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 2007 Junior Subordinated Deferrable
Debentures). The 2007 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 2007 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 2007 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.
During 2008 and 2009 the Company repurchased from an unaffiliated financial institution
$60,200 principal amount of its 2007 Junior Subordinated Deferrable Debentures due 2037.
Future expected payments of interest and principal on the 2006 and 2007 Junior Subordinated
Deferrable Debentures are as follows:
|
|
|
|
|
2011 |
|
$ |
5,928 |
|
2012 |
|
|
5,928 |
|
2013 |
|
|
|
|
2014 |
|
|
|
|
2015 and thereafter |
|
|
289,800 |
|
|
|
|
|
Total minimum future payments |
|
$ |
301,656 |
|
|
|
|
|
29
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
(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, 2010, the Company entered into a three-year $340,000 syndicated unsecured letter
of credit facility and a $60,000 bilateral unsecured letter of credit facility which provide for
letter of credit availability for Validus Re and the Companys 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 the Companys 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 its
$500,000 five-year secured letter of credit facility and its then outstanding $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.
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 June 30, 2011, there was $277,679 in outstanding letters of credit under the Five Year
Facility (December 31, 2010: $268,944) and $nil outstanding under the Three Year Facilities
(December 31, 2010: $nil).
As of June 30, 2011, 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.
30
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
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 June 30, 2011, the Company had $25,000 in
outstanding letters of credit under this facility.
As of June 30, 2011, and throughout the reporting periods presented, the Company was in
compliance with all covenants and restrictions under the Talbot FAL Facility.
(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 June 30, 2011,
$63,284 of outstanding letters of credit were issued under the IPC Bi-Lateral Facility (December
31, 2010: $68,063).
As of June 30, 2011, and throughout the reporting periods presented, the Company was in
compliance with all covenants and restrictions under the IPC Bi-Lateral Facility.
11. 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. With the exception of the Companys bank loan portfolio, 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.
31
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
At June 30, 2011, 1.0% of the portfolio, excluding bank loans, had a split rating below Baa3/BBB- and
the Company did not have an aggregate exposure to any single issuer of more than 1.1% 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 Syndicate 1183 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 June 30, 2011 amounted to $441,000 (December 31, 2010: $441,000) of which $25,000 is
provided under the Talbot FAL Facility (December 31, 2010: $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. 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 2011 estimated premium income at Lloyds of £560,000, the June 30,
2011 exchange rate of £1 equals $1.6018 and assuming the maximum 3% assessment, the Company would
be assessed approximately $26,910.
12. Related party transactions
The transactions listed below are classified as related party transactions as each
counterparty has either a direct or indirect shareholding in the Company.
a) 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. For the three and six months ended June 30, 2010,
GSAM was deemed to be a related party due to a combination of GSAM being a shareholder in the
Company and having an employee on the Companys Board of Directors during this period. For the
three and six months ended June 30, 2011, GSAM was no longer a related party due to the resignation
of Sumit Rajpal from the Board of Directors effective February 7, 2011. Investment management fees
earned by GSAM for the three and six months ended June 30, 2010 were $241 and $733, 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) Aquiline Capital Partners, LLC and its related companies (Aquiline), which own 6,255,943
shares in the Company, hold warrants to purchase 2,756,088 shares, and have two employees on the
Companys 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 six months ended June
30, 2011 of $900 (2010: $601) and $1,411 (2010: $1,341), respectively, of which $1,038 was included
in premiums receivable at June 30, 2011 (December 31, 2010: $378). The Company also recognized
reinsurance premiums ceded during the three and six months ended June 30, 2011 of $nil (2010: $nil) and $163 (2010: $606), respectively, of which $49 was included in
reinsurance balances payable at June 30, 2011 (December 31, 2010: $132). Earned premium adjustments
of $344 (2010: $213) and $678 (2010: $881) were incurred during the three and six months ended June
30, 2011.
32
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
c) 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 for the three
and six months ended June 30, 2011 of $628 (2010: $1,432) and $1,081 (2010: $1,469), respectively,
of which $829 was included in accounts payable and accrued expenses at June 30, 2011 (December 31,
2010: $792).
d) 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
company of Conning Holdings Corp. Investment management fees earned by Conning for the three and
six months ended June 30, 2011 were $234 (2010: $100) and $380 (2010: $186), respectively, of
which $203 (December 31, 2010: $97) was included in accounts payable and accrued expenses at June
30, 2011.
13. Earnings per share
The following table sets forth the computation of basic and diluted earnings (loss) per share
available (attributable) to common shareholders for the three and six months ended June 30, 2011
and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Basic earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) available
(attributable) to Validus |
|
$ |
109,884 |
|
|
$ |
179,782 |
|
|
$ |
(62,480 |
) |
|
$ |
61,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
less: Dividends and distributions
declared on outstanding warrants |
|
|
(1,966 |
) |
|
|
(1,749 |
) |
|
|
(3,950 |
) |
|
|
(3,498 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) available
(attributable) to common
shareholders |
|
$ |
107,918 |
|
|
$ |
178,033 |
|
|
$ |
(66,430 |
) |
|
$ |
57,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares outstanding |
|
|
98,385,924 |
|
|
|
121,009,553 |
|
|
|
98,165,132 |
|
|
|
123,821,415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
available (attributable) to common
shareholders |
|
$ |
1.10 |
|
|
$ |
1.47 |
|
|
$ |
(0.68 |
) |
|
$ |
0.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) available
(attributable) to Validus |
|
$ |
109,884 |
|
|
$ |
179,782 |
|
|
$ |
(62,480 |
) |
|
$ |
61,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
less: Dividends and distributions
declared on outstanding warrants |
|
|
|
|
|
|
|
|
|
|
(3,950 |
) |
|
|
(3,498 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) available
(attributable) to common
shareholders |
|
$ |
109,884 |
|
|
$ |
179,782 |
|
|
$ |
(66,430 |
) |
|
$ |
57,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares outstanding |
|
|
98,385,924 |
|
|
|
121,009,553 |
|
|
|
98,165,132 |
|
|
|
123,821,415 |
|
Share equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants |
|
|
3,561,096 |
|
|
|
2,339,922 |
|
|
|
|
|
|
|
|
|
Stock options |
|
|
908,590 |
|
|
|
794,625 |
|
|
|
|
|
|
|
840,067 |
|
Unvested restricted shares |
|
|
1,706,840 |
|
|
|
1,008,200 |
|
|
|
|
|
|
|
1,000,247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares outstanding |
|
|
104,562,450 |
|
|
|
125,152,300 |
|
|
|
98,165,132 |
|
|
|
125,661,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
available (attributable) to common
shareholders |
|
$ |
1.05 |
|
|
$ |
1.44 |
|
|
$ |
(0.68 |
) |
|
$ |
0.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
Share equivalents that would result in the issuance of common shares of 479,104 (2010:
218,497) and 247,550 (2010: 194,812) were outstanding for the three and six months ended June 30,
2011, but were not included in the computation of diluted earnings per share because the effect
would be antidilutive.
14. Subsequent events
Transatlantic
Acquisition Proposal
On
June 12, 2011, Transatlantic Holdings, Inc.
(Transatlantic) and Allied World Assurance
Company Holdings, AG (Allied World) entered into an Agreement and Plan of Merger
(the Transatlantic-Allied World Merger Agreement).
On July 12, 2011, the Company announced that it had delivered to the Board of Directors of
Transatlantic a proposal to merge the businesses of the Company and Transatlantic. Pursuant to the
proposal, Transatlantic stockholders would receive 1.5564 Validus voting common shares in the
merger and $8.00 in cash per share pursuant to a one-time special dividend from Transatlantic
immediately prior to closing of the merger for each share of Transatlantic common stock they own.
On July 20, 2011, the Company filed a preliminary proxy statement with the SEC in connection with
the special meeting of stockholders of Transatlantic, urging the Transatlantic shareholders to vote
against the Transatlantic-Allied World Merger Agreement.
On July 25, 2011, the Company commenced an exchange offer for all of the outstanding shares of
common stock of Transatlantic. Under the terms of the exchange offer, Transatlantic stockholders
would receive 1.5564 Validus voting common shares and $8.00 in cash for each share of Transatlantic
common stock they own. The terms and conditions of the exchange offer are set forth in the offering
documents that the Company has filed with the SEC.
34
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
Quarterly
Dividend
On August 3, 2011, the Company announced a quarterly cash dividend of $0.25 per each common
share and $0.25 per common share equivalent for which each outstanding warrant is exercisable,
payable on September 30, 2011 to holders of record on September 15, 2011.
15. 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 and aviation, financial lines of business, nuclear, terrorism, life, accident & health,
workers compensation, crisis management and motor.
Talbot
The Talbot segment focuses on a wide range of marine and energy, war, political violence,
commercial property, financial institutions, contingency, bloodstock, accident & health and
aviation 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.
35
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 June 30, 2011 |
|
Validus Re |
|
|
Talbot |
|
|
Eliminations |
|
|
Total |
|
Underwriting income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written |
|
$ |
341,651 |
|
|
$ |
276,886 |
|
|
$ |
(13,150 |
) |
|
$ |
605,387 |
|
Reinsurance premiums ceded |
|
|
(98,218 |
) |
|
|
(47,278 |
) |
|
|
13,150 |
|
|
|
(132,346 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
|
243,433 |
|
|
|
229,608 |
|
|
|
|
|
|
|
473,041 |
|
Change in unearned premiums |
|
|
(10,755 |
) |
|
|
(36,646 |
) |
|
|
|
|
|
|
(47,401 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
|
232,678 |
|
|
|
192,962 |
|
|
|
|
|
|
|
425,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting deductions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expenses |
|
|
94,035 |
|
|
|
113,272 |
|
|
|
|
|
|
|
207,307 |
|
Policy acquisition costs |
|
|
35,769 |
|
|
|
42,307 |
|
|
|
154 |
|
|
|
78,230 |
|
General and administrative expenses |
|
|
15,458 |
|
|
|
34,718 |
|
|
|
10,665 |
|
|
|
60,841 |
|
Share compensation expenses |
|
|
1,823 |
|
|
|
2,026 |
|
|
|
3,779 |
|
|
|
7,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total underwriting deductions |
|
|
147,085 |
|
|
|
192,323 |
|
|
|
14,598 |
|
|
|
354,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting income (loss) |
|
$ |
85,593 |
|
|
$ |
639 |
|
|
$ |
(14,598 |
) |
|
$ |
71,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
22,389 |
|
|
|
6,372 |
|
|
|
(2,267 |
) |
|
|
26,494 |
|
Other income |
|
|
854 |
|
|
|
1,967 |
|
|
|
(2,226 |
) |
|
|
595 |
|
Finance expenses |
|
|
(4,502 |
) |
|
|
|
|
|
|
(11,859 |
) |
|
|
(16,361 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) before taxes |
|
|
104,334 |
|
|
|
8,978 |
|
|
|
(30,950 |
) |
|
|
82,362 |
|
Tax (expense) benefit |
|
|
(4 |
) |
|
|
(208 |
) |
|
|
241 |
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income (loss) |
|
$ |
104,330 |
|
|
$ |
8,770 |
|
|
$ |
(30,709 |
) |
|
$ |
82,391 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gains on investments |
|
|
9,552 |
|
|
|
2,000 |
|
|
|
|
|
|
|
11,552 |
|
Net unrealized gains on investments |
|
|
14,557 |
|
|
|
3,969 |
|
|
|
|
|
|
|
18,526 |
|
Foreign exchange (losses) gains |
|
|
(5,337 |
) |
|
|
3,410 |
|
|
|
(64 |
) |
|
|
(1,991 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
123,102 |
|
|
$ |
18,149 |
|
|
$ |
(30,773 |
) |
|
$ |
110,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to noncontrolling interest |
|
|
(594 |
) |
|
|
|
|
|
|
|
|
|
|
(594 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available (attributable) to Validus |
|
$ |
122,508 |
|
|
$ |
18,149 |
|
|
$ |
(30,773 |
) |
|
$ |
109,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written / Gross premiums written |
|
|
71.3 |
% |
|
|
82.9 |
% |
|
|
|
|
|
|
78.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expenses |
|
|
40.4 |
% |
|
|
58.7 |
% |
|
|
|
|
|
|
48.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policy acquisition costs |
|
|
15.4 |
% |
|
|
21.9 |
% |
|
|
|
|
|
|
18.4 |
% |
General and administrative expenses (a) |
|
|
7.4 |
% |
|
|
19.0 |
% |
|
|
|
|
|
|
16.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense ratio |
|
|
22.8 |
% |
|
|
40.9 |
% |
|
|
|
|
|
|
34.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
63.2 |
% |
|
|
99.6 |
% |
|
|
|
|
|
|
83.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
5,411,663 |
|
|
$ |
2,759,850 |
|
|
$ |
88,275 |
|
|
$ |
8,259,788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
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 & |
|
|
|
|
Three Months Ended June 30, 2010 |
|
Validus Re |
|
|
Talbot |
|
|
Eliminations |
|
|
Total |
|
Underwriting income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written |
|
$ |
284,328 |
|
|
$ |
253,710 |
|
|
$ |
(21,177 |
) |
|
$ |
516,861 |
|
Reinsurance premiums ceded |
|
|
(41,175 |
) |
|
|
(47,728 |
) |
|
|
21,177 |
|
|
|
(67,726 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
|
243,153 |
|
|
|
205,982 |
|
|
|
|
|
|
|
449,135 |
|
Change in unearned premiums |
|
|
18,888 |
|
|
|
(30,079 |
) |
|
|
|
|
|
|
(11,191 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
|
262,041 |
|
|
|
175,903 |
|
|
|
|
|
|
|
437,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting deductions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expenses |
|
|
123,793 |
|
|
|
71,101 |
|
|
|
|
|
|
|
194,894 |
|
Policy acquisition costs |
|
|
37,979 |
|
|
|
38,647 |
|
|
|
(2,500 |
) |
|
|
74,126 |
|
General and administrative expenses |
|
|
10,983 |
|
|
|
24,960 |
|
|
|
16,436 |
|
|
|
52,379 |
|
Share compensation expenses |
|
|
1,749 |
|
|
|
1,468 |
|
|
|
3,629 |
|
|
|
6,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total underwriting deductions |
|
|
174,504 |
|
|
|
136,176 |
|
|
|
17,565 |
|
|
|
328,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting income (loss) |
|
$ |
87,537 |
|
|
$ |
39,727 |
|
|
$ |
(17,565 |
) |
|
$ |
109,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
29,914 |
|
|
|
7,251 |
|
|
|
(2,356 |
) |
|
|
34,809 |
|
Other income |
|
|
1,477 |
|
|
|
3,084 |
|
|
|
(1,864 |
) |
|
|
2,697 |
|
Finance expenses |
|
|
(1,107 |
) |
|
|
105 |
|
|
|
(12,216 |
) |
|
|
(13,218 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) before taxes |
|
|
117,821 |
|
|
|
50,167 |
|
|
|
(34,001 |
) |
|
|
133,987 |
|
Tax (expense) benefit |
|
|
(94 |
) |
|
|
(4,094 |
) |
|
|
1 |
|
|
|
(4,187 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income (loss) |
|
$ |
117,727 |
|
|
$ |
46,073 |
|
|
$ |
(34,000 |
) |
|
$ |
129,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gains on investments |
|
|
10,363 |
|
|
|
2,078 |
|
|
|
|
|
|
|
12,441 |
|
Net unrealized gains on investments |
|
|
35,697 |
|
|
|
5,943 |
|
|
|
|
|
|
|
41,640 |
|
Foreign exchange (losses) |
|
|
(843 |
) |
|
|
(3,243 |
) |
|
|
(13 |
) |
|
|
(4,099 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
162,944 |
|
|
$ |
50,851 |
|
|
$ |
(34,013 |
) |
|
$ |
179,782 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available (attributable)
to Validus |
|
$ |
162,944 |
|
|
$ |
50,851 |
|
|
$ |
(34,013 |
) |
|
$ |
179,782 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written / Gross premiums written |
|
|
85.5 |
% |
|
|
81.2 |
% |
|
|
|
|
|
|
86.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expenses |
|
|
47.2 |
% |
|
|
40.4 |
% |
|
|
|
|
|
|
44.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policy acquisition costs |
|
|
14.5 |
% |
|
|
22.0 |
% |
|
|
|
|
|
|
16.9 |
% |
General and administrative expenses (a) |
|
|
4.9 |
% |
|
|
15.0 |
% |
|
|
|
|
|
|
13.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense ratio |
|
|
19.4 |
% |
|
|
37.0 |
% |
|
|
|
|
|
|
30.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
66.6 |
% |
|
|
77.4 |
% |
|
|
|
|
|
|
74.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
5,057,693 |
|
|
$ |
2,507,586 |
|
|
$ |
49,344 |
|
|
$ |
7,614,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Ratios are based on net premiums earned. The general and administrative expense ratio includes share compensation expenses. |
37
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate & |
|
|
|
|
Six Months Ended June 30, 2011 |
|
Validus Re |
|
|
Talbot |
|
|
Eliminations |
|
|
Total |
|
Underwriting income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written |
|
$ |
952,889 |
|
|
$ |
539,943 |
|
|
$ |
(37,549 |
) |
|
$ |
1,455,283 |
|
Reinsurance premiums ceded |
|
|
(145,023 |
) |
|
|
(134,692 |
) |
|
|
37,549 |
|
|
|
(242,166 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
|
807,866 |
|
|
|
405,251 |
|
|
|
|
|
|
|
1,213,117 |
|
Change in unearned premiums |
|
|
(322,879 |
) |
|
|
(35,065 |
) |
|
|
|
|
|
|
(357,944 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
|
484,987 |
|
|
|
370,186 |
|
|
|
|
|
|
|
855,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting deductions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expenses |
|
|
404,579 |
|
|
|
278,926 |
|
|
|
|
|
|
|
683,505 |
|
Policy acquisition costs |
|
|
75,835 |
|
|
|
79,523 |
|
|
|
168 |
|
|
|
155,526 |
|
General and administrative expenses |
|
|
26,115 |
|
|
|
63,440 |
|
|
|
19,763 |
|
|
|
109,318 |
|
Share compensation expenses |
|
|
4,928 |
|
|
|
4,745 |
|
|
|
10,004 |
|
|
|
19,677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total underwriting deductions |
|
|
511,457 |
|
|
|
426,634 |
|
|
|
29,935 |
|
|
|
968,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting (loss) |
|
$ |
(26,470 |
) |
|
$ |
(56,448 |
) |
|
$ |
(29,935 |
) |
|
$ |
(112,853 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
48,040 |
|
|
|
12,962 |
|
|
|
(4,533 |
) |
|
|
56,469 |
|
Other income |
|
|
2,287 |
|
|
|
4,984 |
|
|
|
(5,070 |
) |
|
|
2,201 |
|
Finance expenses |
|
|
(6,215 |
) |
|
|
(63 |
) |
|
|
(24,084 |
) |
|
|
(30,362 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) before taxes |
|
|
17,642 |
|
|
|
(38,565 |
) |
|
|
(63,622 |
) |
|
|
(84,545 |
) |
Tax (expense) benefit |
|
|
(6 |
) |
|
|
1,585 |
|
|
|
(91 |
) |
|
|
1,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income (loss) |
|
$ |
17,636 |
|
|
$ |
(36,980 |
) |
|
$ |
(63,713 |
) |
|
$ |
(83,057 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gains on investments |
|
|
13,471 |
|
|
|
4,460 |
|
|
|
|
|
|
|
17,931 |
|
Net unrealized gains (losses) on investments |
|
|
6,042 |
|
|
|
(344 |
) |
|
|
|
|
|
|
5,698 |
|
Foreign exchange (losses) gains |
|
|
(9,697 |
) |
|
|
7,311 |
|
|
|
(72 |
) |
|
|
(2,458 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
27,452 |
|
|
$ |
(25,553 |
) |
|
$ |
(63,785 |
) |
|
$ |
(61,886 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to noncontrolling interest |
|
|
(594 |
) |
|
|
|
|
|
|
|
|
|
|
(594 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available (attributable) to
Validus |
|
$ |
26,858 |
|
|
$ |
(25,553 |
) |
|
$ |
(63,785 |
) |
|
$ |
(62,480 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written / Gross premiums written |
|
|
84.8 |
% |
|
|
75.1 |
% |
|
|
|
|
|
|
83.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expenses |
|
|
83.4 |
% |
|
|
75.3 |
% |
|
|
|
|
|
|
79.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policy acquisition costs |
|
|
15.6 |
% |
|
|
21.5 |
% |
|
|
|
|
|
|
18.2 |
% |
General and administrative expenses (a) |
|
|
6.4 |
% |
|
|
18.4 |
% |
|
|
|
|
|
|
15.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense ratio |
|
|
22.0 |
% |
|
|
39.9 |
% |
|
|
|
|
|
|
33.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
105.4 |
% |
|
|
115.2 |
% |
|
|
|
|
|
|
113.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
5,411,663 |
|
|
$ |
2,759,850 |
|
|
$ |
88,275 |
|
|
$ |
8,259,788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Ratios are based on net premiums earned. The general and administrative expense ratio includes share compensation expenses.
|
38
Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate & |
|
|
|
|
Six Months Ended June 30, 2010 |
|
Validus Re |
|
|
Talbot |
|
|
Eliminations |
|
|
Total |
|
Underwriting income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written |
|
$ |
924,623 |
|
|
$ |
524,251 |
|
|
$ |
(61,079 |
) |
|
$ |
1,387,795 |
|
Reinsurance premiums ceded |
|
|
(54,285 |
) |
|
|
(165,259 |
) |
|
|
61,079 |
|
|
|
(158,465 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
|
870,338 |
|
|
|
358,992 |
|
|
|
|
|
|
|
1,229,330 |
|
Change in unearned premiums |
|
|
(324,376 |
) |
|
|
(9,316 |
) |
|
|
|
|
|
|
(333,692 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
|
545,962 |
|
|
|
349,676 |
|
|
|
|
|
|
|
895,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting deductions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expenses |
|
|
472,713 |
|
|
|
200,712 |
|
|
|
|
|
|
|
673,425 |
|
Policy acquisition costs |
|
|
81,482 |
|
|
|
73,592 |
|
|
|
(4,772 |
) |
|
|
150,302 |
|
General and administrative expenses |
|
|
27,295 |
|
|
|
50,508 |
|
|
|
28,145 |
|
|
|
105,948 |
|
Share compensation expenses |
|
|
3,378 |
|
|
|
3,027 |
|
|
|
7,017 |
|
|
|
13,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total underwriting deductions |
|
|
584,868 |
|
|
|
327,839 |
|
|
|
30,390 |
|
|
|
943,097 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting (loss) income |
|
$ |
(38,906 |
) |
|
$ |
21,837 |
|
|
$ |
(30,390 |
) |
|
$ |
(47,459 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
59,159 |
|
|
|
14,571 |
|
|
|
(4,622 |
) |
|
|
69,108 |
|
Other income |
|
|
2,555 |
|
|
|
5,059 |
|
|
|
(4,029 |
) |
|
|
3,585 |
|
Finance expenses |
|
|
(2,400 |
) |
|
|
(3,140 |
) |
|
|
(22,829 |
) |
|
|
(28,369 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) before taxes |
|
|
20,408 |
|
|
|
38,327 |
|
|
|
(61,870 |
) |
|
|
(3,135 |
) |
Tax (expense) |
|
|
(185 |
) |
|
|
(3,299 |
) |
|
|
(6 |
) |
|
|
(3,490 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income (loss) |
|
$ |
20,223 |
|
|
$ |
35,028 |
|
|
$ |
(61,876 |
) |
|
$ |
(6,625 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gains on investments |
|
|
20,142 |
|
|
|
3,697 |
|
|
|
|
|
|
|
23,839 |
|
Net unrealized gains (losses) on investments |
|
|
47,892 |
|
|
|
9,161 |
|
|
|
|
|
|
|
57,053 |
|
Foreign exchange (losses) |
|
|
(5,982 |
) |
|
|
(6,842 |
) |
|
|
(39 |
) |
|
|
(12,863 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
82,275 |
|
|
$ |
41,044 |
|
|
$ |
(61,915 |
) |
|
$ |
61,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available (attributable) to
Validus |
|
$ |
82,275 |
|
|
$ |
41,044 |
|
|
$ |
(61,915 |
) |
|
$ |
61,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written / Gross premiums written |
|
|
94.1 |
% |
|
|
68.5 |
% |
|
|
|
|
|
|
88.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expenses |
|
|
86.6 |
% |
|
|
57.4 |
% |
|
|
|
|
|
|
75.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policy acquisition costs |
|
|
14.9 |
% |
|
|
21.0 |
% |
|
|
|
|
|
|
16.8 |
% |
General and administrative expenses (a) |
|
|
5.6 |
% |
|
|
15.3 |
% |
|
|
|
|
|
|
13.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense ratio |
|
|
20.5 |
% |
|
|
36.3 |
% |
|
|
|
|
|
|
30.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
107.1 |
% |
|
|
93.7 |
% |
|
|
|
|
|
|
105.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
5,057,693 |
|
|
$ |
2,507,586 |
|
|
$ |
49,344 |
|
|
$ |
7,614,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Ratios are based on net premiums earned. The general and administrative expense ratio includes share compensation expenses. |
39
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 June 30, 2011 |
|
|
|
Gross premiums written |
|
|
|
Validus Re |
|
|
Talbot |
|
|
Eliminations |
|
|
Total |
|
|
% |
|
United States |
|
$ |
261,364 |
|
|
$ |
34,181 |
|
|
$ |
(2,307 |
) |
|
$ |
293,238 |
|
|
|
48.5 |
% |
Worldwide excluding United States (a) |
|
|
2,580 |
|
|
|
57,204 |
|
|
|
(257 |
) |
|
|
59,527 |
|
|
|
9.8 |
% |
Europe |
|
|
10,729 |
|
|
|
18,935 |
|
|
|
(59 |
) |
|
|
29,605 |
|
|
|
4.9 |
% |
Latin America and Caribbean |
|
|
11,432 |
|
|
|
22,265 |
|
|
|
(8,942 |
) |
|
|
24,755 |
|
|
|
4.1 |
% |
Japan |
|
|
23,871 |
|
|
|
2,216 |
|
|
|
|
|
|
|
26,087 |
|
|
|
4.3 |
% |
Canada |
|
|
10 |
|
|
|
2,443 |
|
|
|
(10 |
) |
|
|
2,443 |
|
|
|
0.4 |
% |
Rest of the world (b) |
|
|
8,939 |
|
|
|
|
|
|
|
|
|
|
|
8,939 |
|
|
|
1.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total, non United States |
|
|
57,561 |
|
|
|
103,063 |
|
|
|
(9,268 |
) |
|
|
151,356 |
|
|
|
25.0 |
% |
Worldwide including United States (a) |
|
|
12,584 |
|
|
|
15,506 |
|
|
|
(40 |
) |
|
|
28,050 |
|
|
|
4.6 |
% |
Marine and Aerospace (c) |
|
|
10,142 |
|
|
|
124,136 |
|
|
|
(1,535 |
) |
|
|
132,743 |
|
|
|
21.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
341,651 |
|
|
$ |
276,886 |
|
|
$ |
(13,150 |
) |
|
$ |
605,387 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2010 |
|
|
|
Gross premiums written |
|
|
|
Validus Re |
|
|
Talbot |
|
|
Eliminations |
|
|
Total |
|
|
% |
|
United States |
|
$ |
186,653 |
|
|
$ |
29,691 |
|
|
$ |
(2,020 |
) |
|
$ |
214,324 |
|
|
|
41.5 |
% |
Worldwide excluding United States (a) |
|
|
4,830 |
|
|
|
58,806 |
|
|
|
(2,086 |
) |
|
|
61,550 |
|
|
|
11.9 |
% |
Europe |
|
|
10,757 |
|
|
|
12,832 |
|
|
|
(504 |
) |
|
|
23,085 |
|
|
|
4.4 |
% |
Latin America and Caribbean |
|
|
15,036 |
|
|
|
29,368 |
|
|
|
(12,766 |
) |
|
|
31,638 |
|
|
|
6.1 |
% |
Japan |
|
|
19,250 |
|
|
|
2,901 |
|
|
|
(72 |
) |
|
|
22,079 |
|
|
|
4.3 |
% |
Canada |
|
|
72 |
|
|
|
3,367 |
|
|
|
(72 |
) |
|
|
3,367 |
|
|
|
0.7 |
% |
Rest of the world (b) |
|
|
25,168 |
|
|
|
|
|
|
|
|
|
|
|
25,168 |
|
|
|
4.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total, non United States |
|
|
75,113 |
|
|
|
107,274 |
|
|
|
(15,500 |
) |
|
|
166,887 |
|
|
|
32.3 |
% |
Worldwide including United States (a) |
|
|
2,032 |
|
|
|
15,911 |
|
|
|
(504 |
) |
|
|
17,439 |
|
|
|
3.3 |
% |
Marine and Aerospace (c) |
|
|
20,530 |
|
|
|
100,834 |
|
|
|
(3,153 |
) |
|
|
118,211 |
|
|
|
22.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
284,328 |
|
|
$ |
253,710 |
|
|
$ |
(21,177 |
) |
|
$ |
516,861 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents risks in two or more geographic zones. |
|
(b) |
|
Represents risks in one geographic zone. |
|
(c) |
|
Not classified as geographic area as marine and aerospace risks can span multiple geographic areas and are not fixed locations in some
instances. |
|
|
|
|
40
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2011 |
|
|
|
Gross premiums written |
|
|
|
Validus Re |
|
|
Talbot |
|
|
Eliminations |
|
|
Total |
|
|
% |
|
United States |
|
$ |
453,729 |
|
|
$ |
62,012 |
|
|
$ |
(4,204 |
) |
|
$ |
511,537 |
|
|
|
35.2 |
% |
Worldwide excluding United States (a) |
|
|
29,558 |
|
|
|
125,171 |
|
|
|
(2,969 |
) |
|
|
151,760 |
|
|
|
10.4 |
% |
Europe |
|
|
69,695 |
|
|
|
34,944 |
|
|
|
(561 |
) |
|
|
104,078 |
|
|
|
7.2 |
% |
Latin America and Caribbean |
|
|
36,551 |
|
|
|
40,533 |
|
|
|
(22,571 |
) |
|
|
54,513 |
|
|
|
3.7 |
% |
Japan |
|
|
34,069 |
|
|
|
2,756 |
|
|
|
(100 |
) |
|
|
36,725 |
|
|
|
2.5 |
% |
Canada |
|
|
110 |
|
|
|
6,251 |
|
|
|
(110 |
) |
|
|
6,251 |
|
|
|
0.4 |
% |
Rest of the world (b) |
|
|
44,996 |
|
|
|
|
|
|
|
|
|
|
|
44,996 |
|
|
|
3.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total, non United States |
|
|
214,979 |
|
|
|
209,655 |
|
|
|
(26,311 |
) |
|
|
398,323 |
|
|
|
27.3 |
% |
Worldwide including United States (a) |
|
|
80,780 |
|
|
|
26,036 |
|
|
|
(542 |
) |
|
|
106,274 |
|
|
|
7.3 |
% |
Marine and Aerospace (c) |
|
|
203,401 |
|
|
|
242,240 |
|
|
|
(6,492 |
) |
|
|
439,149 |
|
|
|
30.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
952,889 |
|
|
$ |
539,943 |
|
|
$ |
(37,549 |
) |
|
$ |
1,455,283 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2010 |
|
|
|
Gross premiums written |
|
|
|
Validus Re |
|
|
Talbot |
|
|
Eliminations |
|
|
Total |
|
|
% |
|
United States |
|
$ |
420,220 |
|
|
$ |
54,974 |
|
|
$ |
(5,491 |
) |
|
$ |
469,703 |
|
|
|
33.8 |
% |
Worldwide excluding United States (a) |
|
|
44,594 |
|
|
|
134,824 |
|
|
|
(5,918 |
) |
|
|
173,500 |
|
|
|
12.5 |
% |
Europe |
|
|
91,233 |
|
|
|
28,370 |
|
|
|
(961 |
) |
|
|
118,642 |
|
|
|
8.5 |
% |
Latin America and Caribbean |
|
|
43,775 |
|
|
|
46,595 |
|
|
|
(28,553 |
) |
|
|
61,817 |
|
|
|
4.5 |
% |
Japan |
|
|
19,900 |
|
|
|
3,609 |
|
|
|
(137 |
) |
|
|
23,372 |
|
|
|
1.7 |
% |
Canada |
|
|
137 |
|
|
|
7,003 |
|
|
|
(137 |
) |
|
|
7,003 |
|
|
|
0.5 |
% |
Rest of the world (b) |
|
|
25,168 |
|
|
|
|
|
|
|
|
|
|
|
25,168 |
|
|
|
1.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total, non United States |
|
|
224,807 |
|
|
|
220,401 |
|
|
|
(35,706 |
) |
|
|
409,502 |
|
|
|
29.5 |
% |
Worldwide including United States (a) |
|
|
78,267 |
|
|
|
28,687 |
|
|
|
(2,234 |
) |
|
|
104,720 |
|
|
|
7.6 |
% |
Marine and Aerospace (c) |
|
|
201,329 |
|
|
|
220,189 |
|
|
|
(17,648 |
) |
|
|
403,870 |
|
|
|
29.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
924,623 |
|
|
$ |
524,251 |
|
|
$ |
(61,079 |
) |
|
$ |
1,387,795 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents risks in two or more geographic zones. |
|
(b) |
|
Represents risks in one geographic zone. |
|
(c) |
|
Not classified as geographic area as marine and aerospace risks can span multiple geographic areas and are not fixed locations in
some instances. |
41
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 six months ended June 30, 2011 and 2010 and the Companys consolidated financial
condition, liquidity and capital resources at June 30, 2011 and December 31, 2010. 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, 2010, 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, 2010.
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, 2010 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 Holdings Ltd. (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 has been to concentrate primarily on short-tail risks, which has been
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.
On May 25, 2011, the Company joined with other investors in capitalizing AlphaCat Re 2011, a
new special purpose sidecar reinsurer formed for the purpose of writing collateralized
reinsurance and retrocessional reinsurance. Validus Re has an equity interest in AlphaCat Re
2011 and as Validus Re holds a majority of AlphaCat Re 2011s outstanding voting rights,
the financial statements of AlphaCat Re 2011 are included in the consolidated financial statements
of the Company. The portion of AlphaCat Re 2011s earnings attributable to third party investors
for the three months ended June 30, 2011 is recorded in the consolidated statement of operations
and comprehensive income as net income attributable to noncontrolling interest.
Business Outlook and Trends
We underwrite global specialty property insurance and reinsurance and have large aggregate
exposures to natural and man-made disasters. The occurrence of claims from catastrophic events
results in substantial volatility, and can have material adverse effects on the Companys financial
condition and results and ability to write new business.
42
This volatility affects results for the
period in which the loss occurs because U.S. accounting principles do not permit reinsurers to
reserve for such catastrophic events until they occur. Catastrophic events of significant magnitude
historically have been relatively infrequent, although management believes the property catastrophe
reinsurance market has experienced a higher level of worldwide catastrophic losses in terms of both
frequency and severity in the period from 1992 to the present. We also expect that increases in the
values and concentrations of insured property will increase the severity of such occurrences in the
future. The Company seeks to reflect these trends when pricing contracts.
Property and other reinsurance premiums have historically risen in the aftermath of
significant catastrophic losses. As loss reserves are established, industry surplus is depleted and
the industrys capacity to write new business diminishes. At the same time, management believes
that there is a heightened awareness of exposure to natural catastrophes on the part of cedants,
rating agencies and catastrophe modeling firms, resulting in an increase in the demand for
reinsurance protection.
The global property and casualty insurance and reinsurance industry has historically been
highly cyclical. 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. In 2009, there were few notable large losses affecting the
worldwide (re)insurance industry and no major hurricanes making landfall in the United States.
During 2010, the Company continued to see increased competition and decreased premium rates in most
classes of business with the exception of offshore energy, Latin America, financial institutions
and political risk lines. During 2010 there was an increased level of catastrophe activity,
principally the Chilean earthquake and the Deepwater Horizon events.
During the January 2011 renewal season, Validus Re increased gross premiums written on the
U.S. Cat XOL lines and decreased gross premiums written in the proportional lines. In addition,
Validus Re decreased gross premiums written in the International Property lines as market
conditions dictated. In the aftermath of 2010s Deepwater Horizon loss, Validus Re saw additional
opportunities and rate increases in the marine lines. Within its specialty lines, Validus Re
increased gross premiums written in the terrorism lines among other sub-classes. During the first
quarter of 2011, premiums in Talbot have been relatively stable with rate increases occurring on
renewals that have suffered losses but rate reductions continuing elsewhere, as a result of good
experience and excess capacity in the market. Talbot is receiving improved pricing in the energy,
property and political risk lines as a result of recent loss events. The significant worldwide
elevated loss activity since the beginning of 2010, in conjunction with changes to certain
commercial vendors catastrophe models, is resulting in improved pricing and demand for catastrophe
reinsurance. Rate levels in both the U.S. and International property catastrophe business continued
to improve for mid-year 2011 renewals due to the magnitude of the worldwide loss activity.
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.
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Year Ended |
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
|
2010 |
|
Annualized return on average equity |
|
|
13.1 |
% |
|
|
19.5 |
% |
|
|
10.8 |
% |
|
|
|
|
|
|
|
|
|
|
The decrease in annualized return on average equity for the three months ended June 30, 2011
was driven primarily by a reduction in net income. Net income available to Validus for the three months ended June
30, 2011 decreased by $69.9 million, or 38.9% compared to the three months ended June 30, 2010.
This unfavorable movement was primarily due to large loss events coupled with an unfavorable
movement in unrealized gains on investments.
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 decreased
by $1.07, or 3.2%, from $32.98 at December 31, 2010 to $31.91 at June 30, 2011. The decrease was
due to the loss generated in the six months ended June 30, 2011. 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
August 3, 2011, the Company announced a quarterly cash dividend of $0.25 per each common share and
$0.25 per common share equivalent for which each outstanding warrant is exercisable, payable on
September 30, 2011 to holders of record on September 15, 2011.
Underwriting income (loss) 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 and foreign exchange
gains (losses). 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 June 30, 2011
and 2010 was $71.6 million and $109.7 million, respectively. Underwriting income (loss) 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, 2010.
44
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.
45
The following table presents results of operations for the three and six months ended June 30, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
(Dollars in thousands) |
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Gross premiums written |
|
$ |
605,387 |
|
|
$ |
516,861 |
|
|
$ |
1,455,283 |
|
|
$ |
1,387,795 |
|
Reinsurance premiums ceded |
|
|
(132,346 |
) |
|
|
(67,726 |
) |
|
|
(242,166 |
) |
|
|
(158,465 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
|
473,041 |
|
|
|
449,135 |
|
|
|
1,213,117 |
|
|
|
1,229,330 |
|
Change in unearned premiums |
|
|
(47,401 |
) |
|
|
(11,191 |
) |
|
|
(357,944 |
) |
|
|
(333,692 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
|
425,640 |
|
|
|
437,944 |
|
|
|
855,173 |
|
|
|
895,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expenses |
|
|
207,307 |
|
|
|
194,894 |
|
|
|
683,505 |
|
|
|
673,425 |
|
Policy acquisition costs |
|
|
78,230 |
|
|
|
74,126 |
|
|
|
155,526 |
|
|
|
150,302 |
|
General and administrative expenses |
|
|
60,841 |
|
|
|
52,379 |
|
|
|
109,318 |
|
|
|
105,948 |
|
Share compensation expenses |
|
|
7,628 |
|
|
|
6,846 |
|
|
|
19,677 |
|
|
|
13,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total underwriting deductions |
|
|
354,006 |
|
|
|
328,245 |
|
|
|
968,026 |
|
|
|
943,097 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting income (loss) (a) |
|
|
71,634 |
|
|
|
109,699 |
|
|
|
(112,853 |
) |
|
|
(47,459 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
26,494 |
|
|
|
34,809 |
|
|
|
56,469 |
|
|
|
69,108 |
|
Other income |
|
|
595 |
|
|
|
2,697 |
|
|
|
2,201 |
|
|
|
3,585 |
|
Finance expenses |
|
|
(16,361 |
) |
|
|
(13,218 |
) |
|
|
(30,362 |
) |
|
|
(28,369 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) before taxes |
|
|
82,362 |
|
|
|
133,987 |
|
|
|
(84,545 |
) |
|
|
(3,135 |
) |
Tax benefit (expense) |
|
|
29 |
|
|
|
(4,187 |
) |
|
|
1,488 |
|
|
|
(3,490 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income (loss) (a) |
|
|
82,391 |
|
|
|
129,800 |
|
|
|
(83,057 |
) |
|
|
(6,625 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gains on investments |
|
|
11,552 |
|
|
|
12,441 |
|
|
|
17,931 |
|
|
|
23,839 |
|
Net unrealized gains on investments |
|
|
18,526 |
|
|
|
41,640 |
|
|
|
5,698 |
|
|
|
57,053 |
|
Foreign exchange (losses) |
|
|
(1,991 |
) |
|
|
(4,099 |
) |
|
|
(2,458 |
) |
|
|
(12,863 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
110,478 |
|
|
|
179,782 |
|
|
|
(61,886 |
) |
|
|
61,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to noncontrolling interest |
|
|
(594 |
) |
|
|
|
|
|
|
(594 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available (attributable) to
Validus |
|
$ |
109,884 |
|
|
$ |
179,782 |
|
|
$ |
(62,480 |
) |
|
$ |
61,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written / Gross premiums written |
|
|
78.1 |
% |
|
|
86.9 |
% |
|
|
83.4 |
% |
|
|
88.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expenses |
|
|
48.7 |
% |
|
|
44.5 |
% |
|
|
79.9 |
% |
|
|
75.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policy acquisition costs |
|
|
18.4 |
% |
|
|
16.9 |
% |
|
|
18.2 |
% |
|
|
16.8 |
% |
General and administrative expenses (b) |
|
|
16.1 |
% |
|
|
13.5 |
% |
|
|
15.1 |
% |
|
|
13.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense ratio |
|
|
34.5 |
% |
|
|
30.4 |
% |
|
|
33.3 |
% |
|
|
30.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio |
|
|
83.2 |
% |
|
|
74.9 |
% |
|
|
113.2 |
% |
|
|
105.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a) |
|
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
underwriting income to net income, the most comparable U.S. GAAP financial measure, is
presented in the section below entitled Underwriting Income. |
|
b) |
|
The general and administrative ratio includes share compensation expenses. |
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Validus Re |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written |
|
$ |
341,651 |
|
|
$ |
284,328 |
|
|
$ |
952,889 |
|
|
$ |
924,623 |
|
Reinsurance premiums ceded |
|
|
(98,218 |
) |
|
|
(41,175 |
) |
|
|
(145,023 |
) |
|
|
(54,285 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
|
243,433 |
|
|
|
243,153 |
|
|
|
807,866 |
|
|
|
870,338 |
|
Change in unearned premiums |
|
|
(10,755 |
) |
|
|
18,888 |
|
|
|
(322,879 |
) |
|
|
(324,376 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
|
232,678 |
|
|
|
262,041 |
|
|
|
484,987 |
|
|
|
545,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expenses |
|
|
94,035 |
|
|
|
123,793 |
|
|
|
404,579 |
|
|
|
472,713 |
|
Policy acquisition costs |
|
|
35,769 |
|
|
|
37,979 |
|
|
|
75,835 |
|
|
|
81,482 |
|
General and administrative expenses |
|
|
15,458 |
|
|
|
10,983 |
|
|
|
26,115 |
|
|
|
27,295 |
|
Share compensation expenses |
|
|
1,823 |
|
|
|
1,749 |
|
|
|
4,928 |
|
|
|
3,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total underwriting deductions |
|
|
147,085 |
|
|
|
174,504 |
|
|
|
511,457 |
|
|
|
584,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting income (loss) (a) |
|
|
85,593 |
|
|
|
87,537 |
|
|
|
(26,470 |
) |
|
|
(38,906 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Talbot |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written |
|
$ |
276,886 |
|
|
$ |
253,710 |
|
|
$ |
539,943 |
|
|
$ |
524,251 |
|
Reinsurance premiums ceded |
|
|
(47,278 |
) |
|
|
(47,728 |
) |
|
|
(134,692 |
) |
|
|
(165,259 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
|
229,608 |
|
|
|
205,982 |
|
|
|
405,251 |
|
|
|
358,992 |
|
Change in unearned premiums |
|
|
(36,646 |
) |
|
|
(30,079 |
) |
|
|
(35,065 |
) |
|
|
(9,316 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
|
192,962 |
|
|
|
175,903 |
|
|
|
370,186 |
|
|
|
349,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expenses |
|
|
113,272 |
|
|
|
71,101 |
|
|
|
278,926 |
|
|
|
200,712 |
|
Policy acquisition costs |
|
|
42,307 |
|
|
|
38,647 |
|
|
|
79,523 |
|
|
|
73,592 |
|
General and administrative expenses |
|
|
34,718 |
|
|
|
24,960 |
|
|
|
63,440 |
|
|
|
50,508 |
|
Share compensation expenses |
|
|
2,026 |
|
|
|
1,468 |
|
|
|
4,745 |
|
|
|
3,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total underwriting deductions |
|
|
192,323 |
|
|
|
136,176 |
|
|
|
426,634 |
|
|
|
327,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting income (loss) (a) |
|
|
639 |
|
|
|
39,727 |
|
|
|
(56,448 |
) |
|
|
21,837 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate & Eliminations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written |
|
$ |
(13,150 |
) |
|
$ |
(21,177 |
) |
|
$ |
(37,549 |
) |
|
$ |
(61,079 |
) |
Reinsurance premiums ceded |
|
|
13,150 |
|
|
|
21,177 |
|
|
|
37,549 |
|
|
|
61,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unearned premiums |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policy acquisition costs |
|
|
154 |
|
|
|
(2,500 |
) |
|
|
168 |
|
|
|
(4,772 |
) |
General and administrative expenses |
|
|
10,665 |
|
|
|
16,436 |
|
|
|
19,763 |
|
|
|
28,145 |
|
Share compensation expenses |
|
|
3,779 |
|
|
|
3,629 |
|
|
|
10,004 |
|
|
|
7,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total underwriting deductions |
|
|
14,598 |
|
|
|
17,565 |
|
|
|
29,935 |
|
|
|
30,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting (loss) (a) |
|
|
(14,598 |
) |
|
|
(17,565 |
) |
|
|
(29,935 |
) |
|
|
(30,390 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total underwriting income (loss) (a) |
|
$ |
71,634 |
|
|
$ |
109,699 |
|
|
$ |
(112,853 |
) |
|
$ |
(47,459 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a) |
|
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. |
47
Three Months Ended June 30, 2011 compared to Three Months Ended June 30, 2010
Net income available to Validus for the three months ended June 30, 2011 was $109.9
million compared to $179.8 million for the three months ended June 30, 2010, a decrease of $69.9
million or 38.9%. The primary factors driving the decrease in net income were:
|
|
Decrease in underwriting income of $38.1 million due to: |
|
|
|
A $12.3 million decrease in net premiums earned. |
|
|
|
|
A $13.3 million increase in other underwriting deductions including policy
acquisition costs, general and administrative expenses and share compensation expenses. |
|
|
|
|
A $12.4 million increase in loss and loss expenses due to increased catastrophe losses. |
|
|
An unfavorable movement of $23.1 million in net unrealized (losses) gains on investments. |
|
|
|
Decrease in net investment income of $8.3 million. |
The change in net income available to Validus for the three months ended June 30, 2011 of $69.9
million as compared to the three months ended June 30, 2010 is described in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2011 |
|
|
|
Increase (Decrease) Over the Three Months Ended June 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
Corporate and |
|
|
|
|
(Dollars in thousands) |
|
Validus Re |
|
|
Talbot |
|
|
Eliminations |
|
|
Total |
|
Notable losses (increase) decrease in net loss
and loss expenses (a) |
|
$ |
(2,852 |
) |
|
$ |
(16,952 |
) |
|
$ |
|
|
|
$ |
(19,804 |
) |
Less: Notable losses (decrease) increase in net
reinstatement premiums (a) |
|
|
(1,452 |
) |
|
|
5,087 |
|
|
|
|
|
|
|
3,635 |
|
Other underwriting income (loss) |
|
|
2,360 |
|
|
|
(27,223 |
) |
|
|
2,967 |
|
|
|
(21,896 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting (loss) income (b) |
|
|
(1,944 |
) |
|
|
(39,088 |
) |
|
|
2,967 |
|
|
|
(38,065 |
) |
Net investment income |
|
|
(7,525 |
) |
|
|
(879 |
) |
|
|
89 |
|
|
|
(8,315 |
) |
Other income |
|
|
(623 |
) |
|
|
(1,117 |
) |
|
|
(362 |
) |
|
|
(2,102 |
) |
Finance expenses |
|
|
(3,395 |
) |
|
|
(105 |
) |
|
|
357 |
|
|
|
(3,143 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,487 |
) |
|
|
(41,189 |
) |
|
|
3,051 |
|
|
|
(51,625 |
) |
Taxes |
|
|
90 |
|
|
|
3,886 |
|
|
|
240 |
|
|
|
4,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,397 |
) |
|
|
(37,303 |
) |
|
|
3,291 |
|
|
|
(47,409 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized (losses) on investments |
|
|
(811 |
) |
|
|
(78 |
) |
|
|
|
|
|
|
(889 |
) |
Net unrealized (losses) on investments |
|
|
(21,140 |
) |
|
|
(1,974 |
) |
|
|
|
|
|
|
(23,114 |
) |
Net foreign exchange (losses) gains |
|
|
(4,494 |
) |
|
|
6,653 |
|
|
|
(51 |
) |
|
|
2,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
|
(39,842 |
) |
|
|
(32,702 |
) |
|
|
3,240 |
|
|
|
(69,304 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to noncontrolling interest |
|
|
(594 |
) |
|
|
|
|
|
|
|
|
|
|
(594 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income (attributable) available to Validus |
|
$ |
(40,436 |
) |
|
$ |
(32,702 |
) |
|
$ |
3,240 |
|
|
$ |
(69,898 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Notable losses for the three months ended June 30, 2011 include: Cat 46, Cat 48 and Jupiter
1. Notable losses for the three months ended June 30, 2010 include Deepwater Horizon, Aban
Pearl, Bangkok riots and Perth hailstorm. Excludes the reserve for potential development on
2010 and 2011 notable loss events. |
48
|
|
|
(b) |
|
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. |
Gross Premiums Written
Gross premiums written for the three months ended June 30, 2011 were $605.4 million compared
to $516.9 million for the three months ended June 30, 2010, an increase of $88.5 million or 17.1%.
Gross premiums written on the property lines increased by $68.5 million, while the marine and
specialty lines increased by $4.9 million and $15.2 million, respectively. Details of gross
premiums written by line of business are provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
June 30, 2011 |
|
|
June 30, 2010 |
|
|
|
|
|
|
Gross Premiums |
|
|
Gross Premiums |
|
|
Gross Premiums |
|
|
Gross Premiums |
|
|
|
|
(Dollars in thousands) |
|
Written |
|
|
Written (%) |
|
|
Written |
|
|
Written (%) |
|
|
% Change |
|
Property |
|
$ |
408,785 |
|
|
|
67.5 |
% |
|
$ |
340,290 |
|
|
|
65.8 |
% |
|
|
20.1 |
% |
Marine |
|
|
97,243 |
|
|
|
16.1 |
% |
|
|
92,380 |
|
|
|
17.9 |
% |
|
|
5.3 |
% |
Specialty |
|
|
99,359 |
|
|
|
16.4 |
% |
|
|
84,191 |
|
|
|
16.3 |
% |
|
|
18.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
605,387 |
|
|
|
100.0 |
% |
|
$ |
516,861 |
|
|
|
100.0 |
% |
|
|
17.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Validus Re. Validus Re gross premiums written for the three months ended June 30, 2011 were $341.7
million compared to $284.3 million for the three months ended June 30, 2010, an increase of $57.3
million or 20.2%. Details of Validus Re gross premiums written by line of business are provided
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
June 30, 2011 |
|
|
June 30, 2010 |
|
|
|
|
|
|
Gross Premiums |
|
|
Gross Premiums |
|
|
Gross Premiums |
|
|
Gross Premiums |
|
|
|
|
(Dollars in thousands) |
|
Written |
|
|
Written (%) |
|
|
Written |
|
|
Written (%) |
|
|
% Change |
|
Property |
|
$ |
323,108 |
|
|
|
94.6 |
% |
|
$ |
261,568 |
|
|
|
92.0 |
% |
|
|
23.5 |
% |
Marine |
|
|
4,846 |
|
|
|
1.4 |
% |
|
|
15,410 |
|
|
|
5.4 |
% |
|
|
(68.6 |
)% |
Specialty |
|
|
13,697 |
|
|
|
4.0 |
% |
|
|
7,350 |
|
|
|
2.6 |
% |
|
|
86.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
341,651 |
|
|
|
100.0 |
% |
|
$ |
284,328 |
|
|
|
100.0 |
% |
|
|
20.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in gross premiums written in the property lines of $61.5 million was due
primarily to $42.6 million of gross premiums written by AlphaCat Re 2011 and a $23.8 million
increase in catastrophe excess of loss gross premiums written. The increase in catastrophe excess
of loss premiums written was due primarily to an improving US property rate environment increasing
premiums on existing business and providing attractive opportunities that resulted in growth. The
decrease in gross premiums written of $10.6 million in the marine lines was due primarily to a $5.1
million decrease in estimated premium income adjustments and a $5.8 milllion decrease in
reinstatement premiums due to higher losses in 2010 attributable to the Deepwater Horizon loss. The
increase in gross premiums written in the specialty lines of $6.3 million was primarily due to a
$6.2 million increase in gross premiums written on a proportional basis.
Gross premiums written under the quota share, surplus treaty and excess of loss contracts
between Validus Re and Talbot for three months ended June 30, 2011 decreased by $8.0 million as
compared to the three months ended June 30, 2010. The decrease in premiums written was due to a
$6.7 million decrease in the property lines and a $1.3 million decrease in the marine lines. These
reinsurance agreements with Talbot are eliminated upon consolidation.
Talbot. Talbot gross premiums written for the three months ended June 30, 2011 were $276.9 million
compared to $253.7 million for the three months ended June 30, 2010, an increase of $23.2 million
or 9.1%. The $276.9 million of gross premiums written translated at 2010 rates of exchange would
have been $273.9 million during the three
months ended June 30, 2011, giving an effective increase of $20.2 million or 8.0%. Details of
Talbot gross premiums written by line of business are provided below.
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
June 30, 2011 |
|
|
June 30, 2010 |
|
|
|
|
|
|
Gross Premiums |
|
|
Gross Premiums |
|
|
Gross Premiums |
|
|
Gross Premiums |
|
|
|
|
(Dollars in thousands) |
|
Written |
|
|
Written (%) |
|
|
Written |
|
|
Written (%) |
|
|
% Change |
|
Property |
|
$ |
97,732 |
|
|
|
35.3 |
% |
|
$ |
97,529 |
|
|
|
38.4 |
% |
|
|
0.2 |
% |
Marine |
|
|
93,492 |
|
|
|
33.8 |
% |
|
|
79,355 |
|
|
|
31.3 |
% |
|
|
17.8 |
% |
Specialty |
|
|
85,662 |
|
|
|
30.9 |
% |
|
|
76,826 |
|
|
|
30.3 |
% |
|
|
11.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
276,886 |
|
|
|
100.0 |
% |
|
$ |
253,710 |
|
|
|
100.0 |
% |
|
|
9.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in gross premiums written in the marine lines of $14.1 million was due primarily
to a $9.8 million increase in premiums written in the marine liability lines and a $5.2 million
increase in premiums written in the cargo lines. The increase in gross premiums written in the
specialty lines of $8.8 million was primarily due to a $6.3 million increase in premiums written in
the political violence lines.
Reinsurance Premiums Ceded
Reinsurance premiums ceded for the three months ended June 30, 2011 were $132.3 million
compared to $67.7 million for the three months ended June 30, 2010, an increase of $64.6 million or
95.4%. Details of reinsurance premiums ceded by line of business are provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
June 30, 2011 |
|
|
June 30, 2010 |
|
|
|
|
|
|
|
|
|
|
Reinsurance |
|
|
|
|
|
|
Reinsurance |
|
|
|
|
|
|
Reinsurance |
|
|
Premiums Ceded |
|
|
Reinsurance |
|
|
Premiums Ceded |
|
|
|
|
(Dollars in thousands) |
|
Premiums Ceded |
|
|
(%) |
|
|
Premiums Ceded |
|
|
(%) |
|
|
% Change |
|
Property |
|
$ |
112,299 |
|
|
|
84.9 |
% |
|
$ |
53,828 |
|
|
|
79.5 |
% |
|
|
108.6 |
% |
Marine |
|
|
16,034 |
|
|
|
12.1 |
% |
|
|
10,923 |
|
|
|
16.1 |
% |
|
|
46.8 |
% |
Specialty |
|
|
4,013 |
|
|
|
3.0 |
% |
|
|
2,975 |
|
|
|
4.4 |
% |
|
|
34.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
132,346 |
|
|
|
100.0 |
% |
|
$ |
67,726 |
|
|
|
100.0 |
% |
|
|
95.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Validus Re. Validus Re reinsurance premiums ceded for the three months ended June 30, 2011 were
$98.2 million compared to $41.2 million for the three months ended June 30, 2010, an increase of
$57.0 million or 138.5%. Details of Validus Re reinsurance premiums ceded by line of business are
provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
June 30, 2011 |
|
|
June 30, 2010 |
|
|
|
|
|
|
Reinsurance |
|
|
Reinsurance |
|
|
Reinsurance |
|
|
Reinsurance |
|
|
|
|
|
|
Premiums |
|
|
Premiums |
|
|
Premiums |
|
|
Premiums |
|
|
|
|
(Dollars in thousands) |
|
Ceded |
|
|
Ceded (%) |
|
|
Ceded |
|
|
Ceded (%) |
|
|
% Change |
|
Property |
|
$ |
85,389 |
|
|
|
86.9 |
% |
|
$ |
33,933 |
|
|
|
82.4 |
% |
|
|
151.6 |
% |
Marine |
|
|
12,829 |
|
|
|
13.1 |
% |
|
|
7,242 |
|
|
|
17.6 |
% |
|
|
77.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
98,218 |
|
|
|
100.0 |
% |
|
$ |
41,175 |
|
|
|
100.0 |
% |
|
|
138.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance premiums ceded in the property lines increased by $51.5 million, due
primarily to the purchase of $60.4 million of additional retrocessional coverage on
the U.S. catastrophe portfolio, partially offset by a $4.8 million decrease in non-proportional
retrocessional coverage on the worldwide catastrophe portfolio. The additional U.S. retrocessional
coverage was purchased to ensure
that the Company would be well positioned to take advantage of opportunities in a post
loss environment.
50
Reinsurance premiums ceded in the marine lines increased by $5.6 million, due primarily to $5.1 million of additional
retrocessional coverage purchased in the three months ended June 30, 2011.
Talbot. Talbot reinsurance premiums ceded for the three months ended June 30, 2011 were $47.3
million compared to $47.7 million for the three months ended June 30, 2010, a decrease of $0.5
million or 0.9%. Details of Talbot reinsurance premiums ceded by line of business are provided
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
June 30, 2011 |
|
|
June 30, 2010 |
|
|
|
|
|
|
|
|
|
|
Reinsurance |
|
|
|
|
|
|
Reinsurance |
|
|
|
|
|
|
Reinsurance |
|
|
Premiums Ceded |
|
|
Reinsurance |
|
|
Premiums Ceded |
|
|
|
|
(Dollars in thousands) |
|
Premiums Ceded |
|
|
(%) |
|
|
Premiums Ceded |
|
|
(%) |
|
|
% Change |
|
Property |
|
$ |
38,965 |
|
|
|
82.4 |
% |
|
$ |
38,702 |
|
|
|
81.1 |
% |
|
|
0.7 |
% |
Marine |
|
|
4,300 |
|
|
|
9.1 |
% |
|
|
6,066 |
|
|
|
12.7 |
% |
|
|
(29.1 |
)% |
Specialty |
|
|
4,013 |
|
|
|
8.5 |
% |
|
|
2,960 |
|
|
|
6.2 |
% |
|
|
35.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
47,278 |
|
|
|
100.0 |
% |
|
$ |
47,728 |
|
|
|
100.0 |
% |
|
|
(0.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance premiums ceded across the property, marine and specialty lines are generally
consistent with the three months ended June 30, 2010. There was a reduction in reinsurance premiums
ceded to Validus Re, which is described above. This reduction was offset by an increase of $7.6
million in reinsurance premiums ceded to third parties.
Net Premiums Written
Net premiums written for the three months ended June 30, 2011 were $473.0 million compared to
$449.1 million for the three months ended June 30, 2010, an increase of $23.9 million, or 5.3%. The
ratios of net premiums written to gross premiums written for the three months ended June 30, 2011
and 2010 were 78.1% and 86.9%, respectively. Details of net premiums written by line of business
are provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
June 30, 2011 |
|
|
June 30, 2010 |
|
|
|
|
|
|
Net Premiums |
|
|
Net Premiums |
|
|
Net Premiums |
|
|
Net Premiums |
|
|
|
|
(Dollars in thousands) |
|
Written |
|
|
Written (%) |
|
|
Written |
|
|
Written (%) |
|
|
% Change |
|
Property |
|
$ |
296,486 |
|
|
|
62.7 |
% |
|
$ |
286,463 |
|
|
|
63.8 |
% |
|
|
3.5 |
% |
Marine |
|
|
81,209 |
|
|
|
17.2 |
% |
|
|
81,455 |
|
|
|
18.1 |
% |
|
|
(0.3 |
)% |
Specialty |
|
|
95,346 |
|
|
|
20.1 |
% |
|
|
81,217 |
|
|
|
18.1 |
% |
|
|
17.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
473,041 |
|
|
|
100.0 |
% |
|
$ |
449,135 |
|
|
|
100.0 |
% |
|
|
5.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Validus Re. Validus Re net premiums written for the three months ended June 30, 2011 were $243.4
million compared to $243.2 million for the three months ended June 30, 2010, an increase of $0.3
million or 0.1%. Details of Validus Re net premiums written by line of business are provided
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
|
June 30, 2011 |
|
|
June 30, 2010 |
|
|
|
|
|
|
|
Net Premiums |
|
|
Net Premiums |
|
|
Net Premiums |
|
|
Net Premiums |
|
|
|
|
|
(Dollars in thousands) |
|
Written |
|
|
Written (%) |
|
|
Written |
|
|
Written (%) |
|
|
% Change |
|
Property |
|
$ |
237,719 |
|
|
|
97.7 |
% |
|
$ |
227,635 |
|
|
|
93.6 |
% |
|
|
4.4 |
% |
Marine |
|
|
(7,983 |
) |
|
|
(3.3 |
)% |
|
|
8,168 |
|
|
|
3.4 |
% |
|
|
(197.7 |
)% |
Specialty |
|
|
13,697 |
|
|
|
5.6 |
% |
|
|
7,350 |
|
|
|
3.0 |
% |
|
|
86.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
243,433 |
|
|
|
100.0 |
% |
|
$ |
243,153 |
|
|
|
100.0 |
% |
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
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. Negative net written premiums in
the marine lines is the result of premium adjustments on gross premiums written and the timing of
purchases of retrocessional coverage. The ratios of net premiums written to gross premiums written
were 71.3% and 85.5% for the three months ended June 30, 2011 and 2010, respectively, reflecting
the increase in reinsurance premiums ceded as a result of the purchase of additional retrocessional
coverage described above.
Talbot. Talbot net premiums written for the three months ended June 30, 2011 were $229.6 million
compared to $206.0 million for the three months ended June 30, 2010, an increase of $23.6 million
or 11.5%. Details of Talbot net premiums written by line of business are provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
|
June 30, 2011 |
|
|
June 30, 2010 |
|
|
|
|
|
|
|
Net Premiums |
|
|
Net Premiums |
|
|
Net Premiums |
|
|
Net Premiums |
|
|
|
|
|
(Dollars in thousands) |
|
Written |
|
|
Written (%) |
|
|
Written |
|
|
Written (%) |
|
|
% Change |
|
Property |
|
$ |
58,767 |
|
|
|
25.6 |
% |
|
$ |
58,827 |
|
|
|
28.5 |
% |
|
|
(0.1 |
)% |
Marine |
|
|
89,192 |
|
|
|
38.8 |
% |
|
|
73,289 |
|
|
|
35.6 |
% |
|
|
21.7 |
% |
Specialty |
|
|
81,649 |
|
|
|
35.6 |
% |
|
|
73,866 |
|
|
|
35.9 |
% |
|
|
10.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
229,608 |
|
|
|
100.0 |
% |
|
$ |
205,982 |
|
|
|
100.0 |
% |
|
|
11.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in 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 for the three months ended June 30, 2011 and 2010 were 82.9% and 81.2%,
respectively.
Change in Unearned Premiums
Net change in unearned premiums for the three months ended June 30, 2011 was ($47.4) million
compared to ($11.2) million for the three months ended June 30, 2010, a change of $36.2 million or
323.6%.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
June 30, 2011 |
|
|
June 30, 2010 |
|
|
|
|
|
|
Change in Unearned |
|
|
Change in Unearned |
|
|
|
|
(Dollars in thousands) |
|
Premiums |
|
|
Premiums |
|
|
% Change |
|
Change in gross unearned premium |
|
$ |
(109,608 |
) |
|
$ |
(93,012 |
) |
|
|
17.8 |
% |
Change in prepaid reinsurance premium |
|
|
62,207 |
|
|
|
81,821 |
|
|
|
(24.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
Net change in unearned premium |
|
$ |
(47,401 |
) |
|
$ |
(11,191 |
) |
|
|
323.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
Validus Re. Validus Res net change in unearned premiums for the three months ended June 30, 2011
were ($10.8) million compared to $18.9 million for the three months ended June 30, 2010, a change
of $29.6 million or 156.9%.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
June 30, 2011 |
|
|
June 30, 2010 |
|
|
|
|
|
|
Change in Unearned |
|
|
Change in Unearned |
|
|
|
|
(Dollars in thousands) |
|
Premiums |
|
|
Premiums |
|
|
% Change |
|
Change in gross unearned premium |
|
$ |
(83,079 |
) |
|
$ |
(75,680 |
) |
|
|
9.8 |
% |
Change in prepaid reinsurance premium |
|
|
72,324 |
|
|
|
94,568 |
|
|
|
(23.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
Net change in unearned premium |
|
$ |
(10,755 |
) |
|
$ |
18,888 |
|
|
|
(156.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
The Validus Re net change in unearned premium has decreased for the three months ended June 30,
2011 due primarily to the timing differences in purchases of retrocessional coverage during the
three months ended June 30, 2011 compared to the three months ended June 30, 2010.
52
Talbot. The Talbot net change in unearned premiums for the three months ended June 30, 2011 was
($36.6) million compared to ($30.1) million for the three months ended June 30, 2010, a change of
$6.6 million or 21.8%.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
June 30, 2011 |
|
|
June 30, 2010 |
|
|
|
|
|
|
Change in Unearned |
|
|
Change in Unearned |
|
|
|
|
(Dollars in thousands) |
|
Premiums |
|
|
Premiums |
|
|
% Change |
|
Change in gross unearned premium |
|
$ |
(26,529 |
) |
|
$ |
(17,332 |
) |
|
|
53.1 |
% |
Change in prepaid reinsurance premium |
|
|
(10,117 |
) |
|
|
(12,747 |
) |
|
|
(20.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
Net change in unearned premium |
|
$ |
(36,646 |
) |
|
$ |
(30,079 |
) |
|
|
21.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
The Talbot net change in unearned premium is generally consistent for the three months ended
June 30, 2011 compared to the three months ended June 30, 2010.
Net Premiums Earned
Net premiums earned for the three months ended June 30, 2011 were $425.6 million compared to
$437.9 million for the three months ended June 30, 2010, a decrease of $12.3 million or 2.8%. The
decrease in net premiums earned was driven by a decrease in net premiums earned of $29.4 million in
the Validus Re segment, partially offset by an increase of $17.1 million in the Talbot segment.
Details of net premiums earned by line of business are provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
June 30, 2011 |
|
|
June 30, 2010 |
|
|
|
|
|
|
Net Premiums |
|
|
Net Premiums |
|
|
Net Premiums |
|
|
Net Premiums |
|
|
|
|
(Dollars in thousands) |
|
Earned |
|
|
Earned (%) |
|
|
Earned |
|
|
Earned (%) |
|
|
% Change |
|
Property |
|
$ |
204,624 |
|
|
|
48.1 |
% |
|
$ |
223,596 |
|
|
|
51.0 |
% |
|
|
(8.5 |
)% |
Marine |
|
|
125,496 |
|
|
|
29.5 |
% |
|
|
111,567 |
|
|
|
25.5 |
% |
|
|
12.5 |
% |
Specialty |
|
|
95,520 |
|
|
|
22.4 |
% |
|
|
102,781 |
|
|
|
23.5 |
% |
|
|
(7.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
425,640 |
|
|
|
100.0 |
% |
|
$ |
437,944 |
|
|
|
100.0 |
% |
|
|
(2.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Validus Re. Validus Re net premiums earned for the three months ended June 30, 2011 were $232.7
million compared to $262.0 million for the three months ended June 30, 2010, a decrease of $29.4
million or 11.2%. Details of Validus Re net premiums earned by line of business are provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
|
June 30, 2011 |
|
|
June 30, 2010 |
|
|
|
|
|
|
|
Net Premiums |
|
|
Net Premiums |
|
|
Net Premiums |
|
|
Net Premiums |
|
|
|
|
|
(Dollars in thousands) |
|
Earned |
|
|
Earned (%) |
|
|
Earned |
|
|
Earned (%) |
|
|
% Change |
|
Property |
|
$ |
166,779 |
|
|
|
71.7 |
% |
|
$ |
186,444 |
|
|
|
71.1 |
% |
|
|
(10.5 |
)% |
Marine |
|
|
46,549 |
|
|
|
20.0 |
% |
|
|
48,154 |
|
|
|
18.4 |
% |
|
|
(3.3 |
)% |
Specialty |
|
|
19,350 |
|
|
|
8.3 |
% |
|
|
27,443 |
|
|
|
10.5 |
% |
|
|
(29.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
232,678 |
|
|
|
100.0 |
% |
|
$ |
262,041 |
|
|
|
100.0 |
% |
|
|
(11.2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in net premiums earned is consistent with the relevant patterns of net written
premiums influencing the earned premiums for the three months ended June 30, 2011 compared to the
three months ended June 30, 2010.
Talbot. Talbot net premiums earned for the three months ended June 30, 2011 were $193.0 million
compared to $175.9 million for the three months ended June 30, 2010, an increase of $17.1 million
or 9.7%. Details of Talbot net premiums earned by line of business are provided below.
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
|
June 30, 2011 |
|
|
June 30, 2010 |
|
|
|
|
|
|
|
Net Premiums |
|
|
Net Premiums |
|
|
Net Premiums |
|
|
Net Premiums |
|
|
|
|
|
(Dollars in thousands) |
|
Earned |
|
|
Earned (%) |
|
|
Earned |
|
|
Earned (%) |
|
|
% Change |
|
Property |
|
$ |
37,845 |
|
|
|
19.6 |
% |
|
$ |
37,152 |
|
|
|
21.1 |
% |
|
|
1.9 |
% |
Marine |
|
|
78,947 |
|
|
|
40.9 |
% |
|
|
63,413 |
|
|
|
36.1 |
% |
|
|
24.5 |
% |
Specialty |
|
|
76,170 |
|
|
|
39.5 |
% |
|
|
75,338 |
|
|
|
42.8 |
% |
|
|
1.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
192,962 |
|
|
|
100.0 |
% |
|
$ |
175,903 |
|
|
|
100.0 |
% |
|
|
9.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in net premiums earned is consistent with the relevant patterns of net written
premiums influencing the earned premium for the three months ended June 30, 2011, as compared to
the three months ended June 30, 2010, as discussed above.
Losses and Loss Expenses
Losses and loss expenses for the three months ended June 30, 2011 were $207.3 million compared
to $194.9 million for the three months ended June 30, 2010, an increase of $12.4 million or 6.4%.
The loss ratios, defined as losses and loss expenses divided by net premiums earned, for the three
months ended June 30, 2011 and 2010 were 48.7% and 44.5%, respectively. Details of loss ratios by
line of business are provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
Percentage |
|
|
|
June 30, 2011 |
|
|
June 30, 2010 |
|
|
Point Change |
|
Property |
|
|
52.8 |
% |
|
|
31.3 |
% |
|
|
21.5 |
|
Marine |
|
|
59.5 |
% |
|
|
76.0 |
% |
|
|
(16.5 |
) |
Specialty |
|
|
25.8 |
% |
|
|
38.9 |
% |
|
|
(13.1 |
) |
All lines |
|
|
48.7 |
% |
|
|
44.5 |
% |
|
|
4.2 |
|
For the three months ended June 30, 2011, the Company incurred $90.3 million from notable loss
events, which represented 21.2 percentage points of the loss ratio as described below. Net of $6.9
million of reinstatement premiums, the effect of these events on net income was $83.4 million. For
the three months ended June 30, 2010, the Company incurred $70.5 million from notable loss events,
which represented 16.1 percentage points of the loss ratio,
excluding reserve for development on notable loss events, as described below. Net of $3.3 million of reinstatement
premiums, the effect of these events on net income was $67.2 million. The Companys loss ratio,
excluding prior year development and notable loss events for the three months ended June 30, 2011
and 2010 was 33.5% and 39.7%, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2011 |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Second Quarter 2011 Notable Loss Events (a) |
|
|
|
|
|
Validus Re |
|
|
Talbot |
|
|
Total |
|
|
|
|
|
|
|
Net Losses |
|
|
|
|
|
|
Net Losses |
|
|
|
|
|
|
Net Losses |
|
|
|
|
|
|
|
|
|
|
and Loss |
|
|
|
|
|
|
and Loss |
|
|
|
|
|
|
and Loss |
|
|
|
|
Description |
|
|
|
|
|
Expenses (b) |
|
|
% of NPE |
|
|
Expenses (b) |
|
|
% of NPE |
|
|
Expenses (b) |
|
|
% of NPE |
|
Cat 46 |
|
Tornado |
|
$ |
36,584 |
|
|
|
15.7 |
% |
|
$ |
7,222 |
|
|
|
3.7 |
% |
|
$ |
43,806 |
|
|
|
10.3 |
% |
Cat 48 |
|
Tornado |
|
|
20,869 |
|
|
|
9.0 |
% |
|
|
10,612 |
|
|
|
5.5 |
% |
|
|
31,481 |
|
|
|
7.4 |
% |
Jupiter 1 |
|
Platform failure |
|
|
4,970 |
|
|
|
2.1 |
% |
|
|
10,038 |
|
|
|
5.2 |
% |
|
|
15,008 |
|
|
|
3.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
62,423 |
|
|
|
26.8 |
% |
|
$ |
27,872 |
|
|
|
14.4 |
% |
|
$ |
90,295 |
|
|
|
21.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2010 |
|
|
|
|
|
|
|
(Dollars in thousands) |
|
Second Quarter 2010 Notable Loss Events (a) |
|
|
|
|
|
Validus Re |
|
|
Talbot |
|
|
Total |
|
|
|
|
|
|
|
Net Losses |
|
|
|
|
|
|
Net Losses |
|
|
|
|
|
|
Net Losses |
|
|
|
|
|
|
|
|
|
|
and Loss |
|
|
|
|
|
|
and Loss |
|
|
|
|
|
|
and Loss |
|
|
|
|
Description |
|
|
|
Expenses (b) |
|
|
% of NPE |
|
|
Expenses (b) |
|
|
% of NPE |
|
|
Expenses (b) |
|
|
% of NPE |
|
Deepwater Horizon |
|
Oil rig and spill |
|
$ |
33,681 |
|
|
|
12.9 |
% |
|
$ |
10,420 |
|
|
|
5.9 |
% |
|
$ |
44,101 |
|
|
|
10.1 |
% |
Aban Pearl |
|
Oil rig |
|
|
10,000 |
|
|
|
3.8 |
% |
|
|
500 |
|
|
|
0.3 |
% |
|
|
10,500 |
|
|
|
2.4 |
% |
Bangkok riots |
|
Terrorism |
|
|
7,500 |
|
|
|
2.9 |
% |
|
|
|
|
|
|
|
|
|
|
7,500 |
|
|
|
1.7 |
% |
Perth hailstorm |
|
Hailstorm |
|
|
8,390 |
|
|
|
3.1 |
% |
|
|
|
|
|
|
|
|
|
|
8,390 |
|
|
|
1.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
59,571 |
|
|
|
22.7 |
% |
|
$ |
10,920 |
|
|
|
6.2 |
% |
|
$ |
70,491 |
|
|
|
16.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
These notable loss event amounts exclude the reserve for potential development on 2010 and
2011 notable loss events and 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,
meaningful uncertainty remains regarding losses from these events and the Companys actual ultimate
net losses from these events may vary materially from these estimates. |
|
(b) |
|
Net of reinsurance but not net of reinstatement premiums. Total reinstatement premiums were
$6.9 million for the three months ended June 30, 2011 and $3.3 million for the three months ended
June 30, 2010. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
Percentage |
|
|
|
2011 |
|
|
2010 |
|
|
Point Change |
|
Property current period excluding notable losses |
|
|
21.9 |
% |
|
|
38.0 |
% |
|
|
(16.1 |
) |
Property current period notable losses |
|
|
33.7 |
% |
|
|
3.8 |
% |
|
|
29.9 |
|
Property change in prior accident years |
|
|
(2.8 |
)% |
|
|
(10.5 |
)% |
|
|
7.7 |
|
|
|
|
|
|
|
|
|
|
|
Property loss ratio |
|
|
52.8 |
% |
|
|
31.3 |
% |
|
|
21.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marine current period excluding notable losses |
|
|
50.9 |
% |
|
|
40.1 |
% |
|
|
10.8 |
|
Marine current period notable losses |
|
|
16.5 |
% |
|
|
48.9 |
% |
|
|
(32.4 |
) |
Marine change in prior accident years |
|
|
(7.9 |
)% |
|
|
(13.0 |
)% |
|
|
5.1 |
|
|
|
|
|
|
|
|
|
|
|
Marine loss ratio |
|
|
59.5 |
% |
|
|
76.0 |
% |
|
|
(16.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty current period excluding notable losses |
|
|
35.8 |
% |
|
|
43.0 |
% |
|
|
(7.2 |
) |
Specialty current period notable losses |
|
|
0.6 |
% |
|
|
7.3 |
% |
|
|
(6.7 |
) |
Specialty change in prior accident years |
|
|
(10.6 |
)% |
|
|
(11.3 |
)% |
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
Specialty loss ratio |
|
|
25.8 |
% |
|
|
38.9 |
% |
|
|
(13.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
All lines current period excluding notable losses |
|
|
33.5 |
% |
|
|
39.7 |
% |
|
|
(6.2 |
) |
All lines current period notable losses |
|
|
21.2 |
% |
|
|
16.1 |
% |
|
|
5.1 |
|
All lines change in prior accident years |
|
|
(6.0 |
)% |
|
|
(11.3 |
)% |
|
|
5.3 |
|
|
|
|
|
|
|
|
|
|
|
All lines loss ratio |
|
|
48.7 |
% |
|
|
44.5 |
% |
|
|
4.2 |
|
Validus Re. Validus Re losses and loss expenses for the three months ended June 30, 2011 were $94.0
million compared to $123.8 million for the three months ended June 30, 2010, a decrease of $29.8
million or 24.0%. The loss ratio, defined as losses and loss expenses divided by net premiums
earned, was 40.4% and 47.2% for the three months ended June 30, 2011 and 2010, respectively. For
the three months ended June 30, 2011, favorable loss development on prior years totaled $12.3
million and benefited the Validus Re loss ratio by 5.3 percentage points. For the three months
ended June 30, 2010, favorable loss development on prior years totaled $17.9 million and benefited
the Validus Re loss ratio by 6.9 percentage points.
55
For the three months ended June 30, 2011, Validus Re incurred notable loss events as
identified above of $62.4 million, which represented 26.8 percentage points of the loss ratio. Net
of reinstatement premiums of $6.3 million, the effect of these events on Validus Re segment income
was $56.1 million. For the three months ended June 30, 2010, Validus Re incurred notable loss
events as identified above of $59.6 million, which represented 22.7 percentage points of the loss
ratio, excluding the reserve for potential development on notable loss events. Net of
reinstatement premiums of $7.7 million, the effect of these events on Validus Re segment income was
$51.9 million. Validus Re segment loss ratios, excluding prior year development and notable loss
events identified above, for the three months ended June 30, 2011 and 2010 were 18.9% and 31.4%,
respectively. Details of loss ratios by line of business and period of occurrence are provided
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|
Percentage |
|
|
|
2011 |
|
|
2010 |
|
|
Point Change |
|
Property current period excluding notable losses |
|
|
13.4 |
% |
|
|
36.1 |
% |
|
|
(22.7 |
) |
Property current period notable losses |
|
|
34.4 |
% |
|
|
4.5 |
% |
|
|
29.9 |
|
Property change in prior accident years |
|
|
(3.9 |
)% |
|
|
(7.3 |
)% |
|
|
3.4 |
|
|
|
|
|
|
|
|
|
|
|
Property loss ratio |
|
|
43.9 |
% |
|
|
33.3 |
% |
|
|
10.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marine current period excluding notable losses |
|
|
41.7 |
% |
|
|
26.8 |
% |
|
|
14.9 |
|
Marine current period notable losses |
|
|
10.7 |
% |
|
|
90.7 |
% |
|
|
(80.0 |
) |
Marine change in prior accident years |
|
|
(9.7 |
)% |
|
|
(7.5 |
)% |
|
|
(2.2 |
) |
|
|
|
|
|
|
|
|
|
|
Marine loss ratio |
|
|
42.7 |
% |
|
|
110.0 |
% |
|
|
(67.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty current period excluding notable losses |
|
|
11.3 |
% |
|
|
7.0 |
% |
|
|
4.3 |
|
Specialty current period notable losses |
|
|
0.0 |
% |
|
|
27.3 |
% |
|
|
(27.3 |
) |
Specialty change in prior accident years |
|
|
(6.6 |
)% |
|
|
(2.3 |
)% |
|
|
(4.3 |
) |
|
|
|
|
|
|
|
|
|
|
Specialty loss ratio |
|
|
4.7 |
% |
|
|
32.0 |
% |
|
|
(27.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
All lines current period excluding notable losses |
|
|
18.9 |
% |
|
|
31.4 |
% |
|
|
(12.5 |
) |
All lines current period notable losses |
|
|
26.8 |
% |
|
|
22.7 |
% |
|
|
4.1 |
|
All lines change in prior accident years |
|
|
(5.3 |
)% |
|
|
(6.9 |
)% |
|
|
1.6 |
|
|
|
|
|
|
|
|
|
|
|
All lines loss ratio |
|
|
40.4 |
% |
|
|
47.2 |
% |
|
|
(6.8 |
) |
For the three months ended June 30, 2011, Validus Re property lines losses and loss expenses
include $79.8 million related to current year losses and $6.5 million of favorable development
relating to prior accident years. This favorable development is attributable to lower than expected
claims development. For the three months ended June 30, 2010, Validus Re property lines losses and
loss expenses included $75.7 million related to current year losses and $13.6 million of favorable
development relating to prior accident years. This favorable development is attributable to reduced
loss estimates for the U.K. flood loss and windstorm Kyrill, as well as lower than expected claim
development elsewhere.
For the three months ended June 30, 2011, Validus Res property lines incurred $57.4 million
of notable losses, which represented 34.4 percentage points of the property lines loss ratio. For
the three months ended June 30, 2010, Validus Res property lines incurred $8.4 million of notable
losses, which represented 4.5 percentage points of the property lines loss ratio, excluding reserve
for potential development on notable loss events. Validus Re property lines loss ratios,
excluding prior year development and notable loss events identified above, for the three months
ended June 30, 2011 and 2010 were 13.4% and 36.1%, respectively.
For the three months ended June 30, 2011, Validus Re marine lines losses and loss expenses
include $24.4 million related to current year losses and $4.5 million of favorable development
relating to prior accident years. For the three months ended June 30, 2010, Validus Re marine lines
losses and loss expenses included $56.6 million related to current year losses and $3.7 million of
favorable development relating to prior accident years.
56
For the three months ended June 30, 2011, Validus Res marine lines incurred $5.0 million of
notable losses which represented 10.7 percentage points of the marine lines loss ratio. For the
three months ended June 30, 2010, Validus Res marine lines incurred $43.7 million of notable
losses, which represented 90.7 percentage points of the marine lines loss ratio, excluding the
reserve for potential development on notable loss events. Validus Re marine lines loss ratios,
excluding prior year development and notable loss events identified above, for the three months
ended June 30, 2011 and 2010 were 41.7% and 26.8%, respectively.
For the three months ended June 30, 2011, Validus Re specialty lines losses and loss expenses
include $2.1 million related to current year losses and $1.3 million of favorable development
relating to prior accident years. For the three months ended June 30, 2010, Validus Re specialty
lines losses and loss expenses included $9.4 million related to current year losses and $0.6
million of favorable development relating to prior accident years.
For the three months ended June 30, 2011, Validus Res specialty lines did not incur any
notable losses. For the three months ended June 30, 2010, Validus Res specialty lines incurred
$7.5 million of notable losses, which represented 27.3 percentage points of the specialty lines
loss ratio. Validus Re specialty lines loss ratios, excluding prior year development, for the three
months ended June 30, 2011 and 2010 were 11.3% and 7.0%, respectively.
Talbot. Talbot losses and loss expenses for the three months ended June 30, 2011 were $113.3
million compared to $71.1 million for the three months ended June 30, 2010, an increase of $42.2
million or 59.3%. The Talbot loss ratio was 58.7% and 40.4% for the three months ended June 30,
2011 and 2010, respectively. For the three months ended June 30, 2011, Talbot incurred losses of
$126.7 million related to current year losses and $13.4 million in favorable development relating
to prior accident years. For the three months ended June 30, 2010, Talbot incurred losses of $102.8
million related to current year losses and $31.7 million in favorable development relating to prior
accident years.
For the three months ended June 30, 2011, Talbot incurred $27.9 million of notable losses,
which represented 14.4 percentage points of the loss ratio. Net of reinstatement premiums of $0.7
million, the effect of these events on Talbot segment income is $27.2 million. For the three months
ended June 30, 2010, Talbot incurred $10.9 million of notable losses, which represented 6.2
percentage points of the Talbot loss ratio. Net of reinstatement
premiums of ($4.4) million, the
effect of these events on Talbot segment income was $15.3 million. Talbot loss ratios, excluding
prior year loss development and notable loss events identified above, for the three months ended
June 30, 2011 and 2010 were 51.2% and 52.2%, respectively. Details of
loss ratios by line of business and period of occurrence are provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
2011 |
|
|
2010 |
|
|
Percentage
Point Change |
|
Property current period excluding notable losses |
|
|
58.9 |
% |
|
|
48.0 |
% |
|
|
10.9 |
|
Property current period notable losses |
|
|
30.5 |
% |
|
|
0.0 |
% |
|
|
30.5 |
|
Property change in prior accident years |
|
|
2.3 |
% |
|
|
(26.5 |
)% |
|
|
28.8 |
|
|
|
|
|
|
|
|
|
|
|
Property loss ratio |
|
|
91.7 |
% |
|
|
21.5 |
% |
|
|
70.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marine current period excluding notable losses |
|
|
56.3 |
% |
|
|
50.1 |
% |
|
|
6.2 |
|
Marine current period notable losses |
|
|
20.0 |
% |
|
|
17.2 |
% |
|
|
2.8 |
|
Marine change in prior accident years |
|
|
(6.8 |
)% |
|
|
(17.0 |
)% |
|
|
10.2 |
|
|
|
|
|
|
|
|
|
|
|
Marine loss ratio |
|
|
69.5 |
% |
|
|
50.3 |
% |
|
|
19.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty current period excluding notable losses |
|
|
42.0 |
% |
|
|
56.1 |
% |
|
|
(14.1 |
) |
Specialty current period notable losses |
|
|
0.7 |
% |
|
|
0.0 |
% |
|
|
0.7 |
|
Specialty change in prior accident years |
|
|
(11.6 |
)% |
|
|
(14.7 |
)% |
|
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
Specialty loss ratio |
|
|
31.1 |
% |
|
|
41.4 |
% |
|
|
(10.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
All lines current period excluding notable losses |
|
|
51.2 |
% |
|
|
52.2 |
% |
|
|
(1.0 |
) |
All lines current period notable losses |
|
|
14.4 |
% |
|
|
6.2 |
% |
|
|
8.2 |
|
All lines change in prior accident years |
|
|
(6.9 |
)% |
|
|
(18.0 |
)% |
|
|
11.1 |
|
|
|
|
|
|
|
|
|
|
|
All lines loss ratio |
|
|
58.7 |
% |
|
|
40.4 |
% |
|
|
18.3 |
|
57
For the three months ended June 30, 2011, Talbot property lines losses and loss expenses
include $33.8 million related to current year losses and $0.9 million of adverse development
relating to prior accident years. The prior year adverse development is attributable to higher than
expected claims development on the onshore energy lines, largely offset by lower than expected
claims on the property treaty and property facultative lines. For the three months ended June 30,
2010, Talbot property lines losses and loss expenses included $17.8 million related to current year
losses and $9.8 million of favorable development relating to prior accident years. The prior year
favorable development was attributable to lower than expected claim development on the property
facultative and binder accounts, together with favorable development on hurricanes Katrina and Ike.
For the three months ended June 30, 2011, Talbots property lines incurred $11.5 million of
notable losses, which represented 30.5 percentage points of the property lines loss ratio. For the
three months ended June 30, 2010, Talbots property lines did not incur any notable losses. Talbot
property line loss ratio, excluding prior year development and notable loss events identified above
for the three months ended June 30, 2011 and 2010 were 58.9% and 48.0%, respectively.
For the three months ended June 30, 2011, Talbot marine lines losses and loss expenses include
$60.3 million related to current year losses and $5.4 million of favorable development relating to
prior accident years. The prior year favorable development is due primarily to lower than expected
claims development across most lines of business, partially offset by adverse claims development on
the offshore energy lines. For the three months ended June 30, 2010, Talbot marine lines losses and
loss expenses included $42.7 million related to current year losses and $10.8 million of favorable
development relating to prior accident years. The prior year favorable development was primarily
due to lower than expected loss development on the Hull lines.
For the three months ended June 30, 2011, Talbots marine lines incurred $15.8 million of
notable losses, which represented 20.0 percentage points of the marine lines loss ratio. For the
three months ended June 30, 2010, Talbots marine lines incurred $10.9 million of notable losses,
which represented 17.2 percentage points of the marine lines loss ratio. Talbot marine lines loss
ratios, excluding prior year development and notable loss events identified above, for the three
months ended June 30, 2011 and 2010 were 56.3% and 50.1%, respectively.
For the three months ended June 30, 2011, Talbot specialty lines losses and loss expenses
include $32.6 million relating to current year losses and $8.9 million of favorable development
relating to prior accident years. The prior year favorable development is due primarily to lower
than expected claims development across most lines of business, partially offset by adverse claims
development on the financial institutions lines. For the three months ended June 30, 2010, Talbot
specialty lines losses and loss expenses included $42.3 million relating to current year losses and
$11.0 million of favorable development relating to prior accident years. The prior year favorable
development was primarily due to lower than expected claims across most specialty sub classes.
For the three months ended June 30, 2011, Talbots specialty lines incurred $0.6 million of
notable losses, which represented 0.7 percentage points of the specialty lines loss ratio. For the
three months ended June 30, 2010, Talbots specialty lines did not incur any notable losses. Talbot
specialty lines loss ratios, excluding prior year development and notable loss events identified
above for the three months ended June 30, 2011 and 2010 were 42.0% and 56.1%, respectively.
At June 30, 2011 and 2010, 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, 2010. The Company did not
make any significant changes in the assumptions or methodology used in its reserving process for
the three months ended June 30, 2011.
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at June 30, 2011 |
|
|
|
|
|
|
|
|
|
|
|
Total Gross Reserve for |
|
(Dollars in thousands) |
|
Gross Case Reserves |
|
|
Gross IBNR |
|
|
Losses and Loss Expenses |
|
Property |
|
$ |
757,858 |
|
|
$ |
556,685 |
|
|
$ |
1,314,543 |
|
Marine |
|
|
404,886 |
|
|
|
372,778 |
|
|
|
777,664 |
|
Specialty |
|
|
236,659 |
|
|
|
291,494 |
|
|
|
528,153 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,399,403 |
|
|
$ |
1,220,957 |
|
|
$ |
2,620,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at June 30, 2011 |
|
|
|
|
|
|
|
|
|
|
|
Total Net Reserve for |
|
(Dollars in thousands) |
|
Net Case Reserves |
|
|
Net IBNR |
|
|
Losses and Loss Expenses |
|
Property |
|
$ |
544,165 |
|
|
$ |
522,391 |
|
|
$ |
1,066,556 |
|
Marine |
|
|
328,987 |
|
|
|
356,046 |
|
|
|
685,033 |
|
Specialty |
|
|
184,767 |
|
|
|
244,199 |
|
|
|
428,966 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,057,919 |
|
|
$ |
1,122,636 |
|
|
$ |
2,180,555 |
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth a reconciliation of gross and net reserves for losses and loss expenses by
segment for the three months ended June 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2011 |
|
(Dollars in thousands) |
|
Validus Re |
|
|
Talbot |
|
|
Eliminations |
|
|
Total |
|
Gross reserves at period beginning |
|
$ |
1,340,418 |
|
|
$ |
1,324,967 |
|
|
$ |
(130,970 |
) |
|
$ |
2,534,415 |
|
Losses recoverable |
|
|
(216,300 |
) |
|
|
(368,371 |
) |
|
|
130,970 |
|
|
|
(453,701 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net reserves at period beginning |
|
|
1,124,118 |
|
|
|
956,596 |
|
|
|
|
|
|
|
2,080,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred losses- current year |
|
|
106,347 |
|
|
|
126,665 |
|
|
|
|
|
|
|
233,012 |
|
Change in prior accident years |
|
|
(12,312 |
) |
|
|
(13,393 |
) |
|
|
|
|
|
|
(25,705 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred losses |
|
|
94,035 |
|
|
|
113,272 |
|
|
|
|
|
|
|
207,307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange |
|
|
14,050 |
|
|
|
(470 |
) |
|
|
|
|
|
|
13,580 |
|
Paid losses |
|
|
(38,070 |
) |
|
|
(82,976 |
) |
|
|
|
|
|
|
(121,046 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net reserves at period end |
|
|
1,194,133 |
|
|
|
986,422 |
|
|
|
|
|
|
|
2,180,555 |
|
Losses recoverable |
|
|
182,306 |
|
|
|
384,268 |
|
|
|
(126,769 |
) |
|
|
439,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross reserves at period end |
|
$ |
1,376,439 |
|
|
$ |
1,370,690 |
|
|
$ |
(126,769 |
) |
|
$ |
2,620,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of recorded reserves represents managements best estimate of expected losses and
loss expenses on premiums earned. For the three months ended June 30, 2011, favorable loss reserve
development on prior years totaled $25.7 million. Of this $12.3 million of the favorable loss
reserve development related to the Validus Re segment and $13.4 million related to the Talbot
segment. Favorable loss reserve development benefited the Companys loss ratio by 6.0 percentage
points for the three months ended June 30, 2011. For the three months ended June 30, 2010,
favorable loss reserve development on prior years totaled $49.6 million. Of this $17.9 million
related to the Validus Re segment and $31.7 million related to the Talbot segment. Favorable loss
reserve development benefited the Companys loss ratio by 11.3 percentage points for the three
months ended June 30, 2010.
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
for recent notable loss events. The Companys actual ultimate net loss may vary materially from
these 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.
59
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. As at March 31, 2011, the total reserve for
development on both 2010 and 2011 events was $83.4 million. During the three months ended June 30,
2011 $8.9 million, $20.1 million and $20.2 million of the reserve for potential development on 2010
and 2011 notable loss events was allocated to the Deepwater Horizon loss, the Tohoku earthquake and
the Christchurch earthquake, respectively. Therefore as at June 30, 2011 the total reserve for
potential development on both 2010 and 2011 events was $34.2 million.
Policy Acquisition Costs
Policy acquisition costs for the three months ended June 30, 2011 were $78.2 million compared
to $74.1 million for the three months ended June 30, 2010, an increase of $4.1 million or 5.5%.
Policy acquisition costs as a percent of net premiums earned for the three months ended June 30,
2011 and 2010 were 18.4% and 16.9%, respectively. The changes in policy acquisition costs are due
to the factors provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
June 30, 2011 |
|
|
June 30, 2010 |
|
|
|
|
|
|
Policy |
|
|
Policy |
|
|
|
|
|
|
Policy |
|
|
Policy |
|
|
|
|
|
|
|
|
|
Acquisition |
|
|
Acquisition |
|
|
Acquisition |
|
|
Acquisition |
|
|
Acquisition |
|
|
Acquisition |
|
|
|
|
(Dollars in thousands) |
|
Costs |
|
|
Costs (%) |
|
|
Cost Ratio |
|
|
Costs |
|
|
Costs (%) |
|
|
Cost Ratio |
|
|
% Change |
|
Property |
|
$ |
30,032 |
|
|
|
38.4 |
% |
|
|
14.7 |
% |
|
$ |
30,614 |
|
|
|
41.3 |
% |
|
|
13.7 |
% |
|
|
(1.9 |
)% |
Marine |
|
|
26,977 |
|
|
|
34.5 |
% |
|
|
21.5 |
% |
|
|
22,982 |
|
|
|
31.0 |
% |
|
|
20.6 |
% |
|
|
17.4 |
% |
Specialty |
|
|
21,221 |
|
|
|
27.1 |
% |
|
|
22.2 |
% |
|
|
20,530 |
|
|
|
27.7 |
% |
|
|
20.0 |
% |
|
|
3.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
78,230 |
|
|
|
100.0 |
% |
|
|
18.4 |
% |
|
$ |
74,126 |
|
|
|
100.0 |
% |
|
|
16.9 |
% |
|
|
5.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Validus Re. Validus Re policy acquisition costs for the three months ended June 30, 2011 were $35.8
million compared to $38.0 million for the three months ended June 30, 2010, a decrease of $2.2
million or 5.8%.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
June 30, 2011 |
|
|
June 30, 2010 |
|
|
|
|
|
|
Policy |
|
|
Policy |
|
|
|
|
|
|
Policy |
|
|
Policy |
|
|
|
|
|
|
|
|
|
Acquisition |
|
|
Acquisition |
|
|
Acquisition |
|
|
Acquisition |
|
|
Acquisition |
|
|
Acquisition |
|
|
|
|
(Dollars in thousands) |
|
Costs |
|
|
Costs (%) |
|
|
Cost Ratio |
|
|
Costs |
|
|
Costs (%) |
|
|
Cost Ratio |
|
|
% Change |
|
Property |
|
$ |
22,546 |
|
|
|
63.0 |
% |
|
|
13.5 |
% |
|
$ |
27,182 |
|
|
|
71.6 |
% |
|
|
14.6 |
% |
|
|
(17.1 |
)% |
Marine |
|
|
10,147 |
|
& |