Annualized Return on Average Equity of
18.1%
Book Value Per Diluted Common Share of
$44.00 at March 31, 2016
Validus Holdings, Ltd. (“Validus” or the “Company”) (NYSE:VR)
today reported net income available to Validus of $166.8 million,
or $1.98 per diluted common share, for the three months ended
March 31, 2016, compared to $173.4 million, or $1.98 per
diluted common share, for the three months ended March 31,
2015.
Net operating income available to Validus was $117.4 million, or
$1.39 per diluted common share, for the three months ended
March 31, 2016, compared to $136.9 million, or $1.56 per
diluted common share, for the three months ended March 31,
2015.
Book value per diluted common share at March 31, 2016 was
$44.00, reflecting quarterly growth of 4.8% inclusive of
dividends.
Commenting on the financial results for the three months ended
March 31, 2016, Validus' Chairman and CEO Ed Noonan
stated:
"I’m very pleased to report Validus’ strong results for the
quarter which were driven by excellent underwriting and investment
results. Despite competitive conditions in the insurance and
reinsurance markets combined with capital markets volatility,
Validus generated an 18.1% annualized return on average equity. We
continue to build upon existing strengths in our Bermuda and London
platforms while positioning our U.S. operations for long term
success."
Income available to Validus by segment for the three months
ended March 31, 2016 and March 31, 2015 was as
follows:
Income available to Validus for the three months
ended March 31, 2016 March 31, 2015
(Expressed in millions of U.S. dollars, except per share
information) Validus Re - Underwriting income (a) $ 98.3 $
76.1 Talbot - Underwriting income (a) 20.3 56.0 Western World -
Underwriting (loss) income (a) (4.7 ) 2.2 Validus' share of PaCRe,
Ltd. — 4.0 Validus' share of other AlphaCat income (a)
8.8 3.8 Validus' share of
AlphaCat net income 8.8 7.8
Total segmental
income 122.7 142.1 Net investment income (b) 27.9
29.4 Corporate operating expenses (32.5 ) (36.4 ) Eliminations and
other (0.7 ) 1.8
Net operating income available to
Validus (c) $ 117.4 $ 136.9
Net operating earnings per diluted common share available
to Validus (c) $ 1.39 $ 1.56
Net income available to Validus (c) $
166.8 $ 173.4 Net earnings
per diluted common share available to Validus $
1.98 $ 1.98 (a)
Underwriting income and Validus' share of AlphaCat net income are
non-GAAP measures.
(b) Net investment income relates to our
managed investment portfolio. Total net investment income,
inclusive of AlphaCat's non-managed portfolio is $29.5 million and
$31.0 million for the three months ended March 31, 2016 and 2015,
respectively.
(c) A reconciliation of net operating
income available to Validus and underwriting income to net income
available to Validus, the most directly comparable GAAP measure, is
presented at the end of this release.
This earnings release should be read in conjunction with the
Company's March 31, 2016 investor financial supplement that
has been posted to the Investor section of the Company's website
located at www.validusholdings.com.
First Quarter 2016
Results
Highlights for the first quarter are as follows:
- Gross premiums written for the three
months ended March 31, 2016 were $1,172.8 million compared to
$1,119.2 million for the three months ended March 31, 2015, an
increase of $53.6 million, or 4.8%. The increase was primarily due
to increases at Western World and AlphaCat, and was partially
offset by decreases at Validus Re and Talbot.
- The loss ratio for the three months
ended March 31, 2016 was 39.3% which included $53.7 million of
favorable loss reserve development on prior accident years,
benefiting the loss ratio by 9.4 percentage points compared to a
loss ratio for the three months ended March 31, 2015 of 41.8%
which included $83.6 million of favorable loss reserve development
on prior accident years, benefiting the loss ratio by 14.5
percentage points. The favorable development of $53.7 million for
the three months ended March 31, 2016 was primarily due to
favorable development on non-event reserves of $71.4 million;
offset by unfavorable development on event specific reserves of
$17.7 million. The unfavorable development was driven by reserves
established following the receipt of a loss advice on an individual
marine policy that incepted during the second half of 2015.
- The combined ratio for the three months
ended March 31, 2016 and 2015 was 75.1%.
- Net operating income available to
Validus for the three months ended March 31, 2016 was $117.4
million compared to $136.9 million for the three months ended
March 31, 2015, a decrease of $19.5 million, or 14.2%.
- Net income available to Validus for the
three months ended March 31, 2016 was $166.8 million compared
to $173.4 million for the three months ended March 31, 2015, a
decrease of $6.6 million, or 3.8%.
- Annualized return on average equity of
18.1% and annualized net operating return on average equity of
12.8% for the three months ended March 31, 2016 compared to
19.1% and 15.1%, respectively, for the three months ended
March 31, 2015.
Notable and Non-Notable Loss
Events
During the three months ended March 31, 2016 and 2015, the
Company did not incur any notable loss events, defined as
consolidated losses that aggregate to a threshold greater than or
equal to $30.0 million or any non-notable loss events, defined as
consolidated losses that aggregate to a threshold greater than or
equal to $15.0 million, but less than $30.0 million. During the
three months ended March 31, 2015, the Company incurred a
single non-notable loss event, Windstorm Niklas, which resulted in
an estimated loss to the Company of $15.0 million, or 2.6
percentage points of the loss ratio.
The Company's loss ratio, excluding prior year development,
notable loss events, and non-notable loss events for the three
months ended March 31, 2016 and 2015 was 48.7% and 53.7%,
respectively.
Validus Re Segment
Highlights for the first quarter include the following:
- Gross premiums written for the three
months ended March 31, 2016 were $691.7 million compared to
$711.7 million for the three months ended March 31, 2015, a
decrease of $20.0 million, or 2.8%. Gross premiums written for the
three months ended March 31, 2016 included $192.6 million of
property premiums, $106.6 million of marine premiums and $392.4
million of specialty premiums, compared to $219.8 million of
property premiums, $133.4 million of marine premiums and $358.5
million of specialty premiums for the three months ended
March 31, 2015. The decrease in the property lines of $27.2
million was primarily due to utilization of third party capital,
along with reductions in our participation and non-renewals on
various programs due to the current rate environment and was
partially offset by an increase in the proportional lines of $11.4
million as a result of a new quota share program. The decrease in
the marine lines of $26.8 million was primarily driven by
reductions in our participation on various programs due to current
market conditions. The decreases were partially offset by an
increase in the specialty lines of $34.0 million primarily as a
result of new casualty business of $23.6 million written during the
three months ended March 31, 2016 and adjustments to premiums
on existing business.
- The loss ratio for the three months
ended March 31, 2016 was 34.0%, which included $25.7 million
of favorable loss reserve development on prior accident years,
benefiting the loss ratio by 10.5 percentage points compared to a
loss ratio for the three months ended March 31, 2015 of 44.7% which
included $24.7 million of favorable loss reserve development on
prior accident years, benefiting the loss ratio by 9.8 percentage
points. The favorable development of $25.7 million on prior
accident years for the three months ended March 31, 2016 is
primarily due to favorable development on non-event reserves of
$28.1 million; offset by unfavorable development on event specific
reserves of $2.4 million.
- The combined ratio for the three months
ended March 31, 2016 was 59.6% compared to 70.1% for the three
months ended March 31, 2015, a decrease of 10.5 percentage
points.
- Underwriting income for the three
months ended March 31, 2016 was $98.3 million compared to
$76.1 million for the three months ended March 31, 2015, an
increase of $22.2 million, or 29.2%.
Talbot Segment
Highlights for the first quarter include the following:
- Gross premiums written for the three
months ended March 31, 2016 were $266.3 million compared to
$270.1 million for the three months ended March 31, 2015, a
decrease of $3.8 million, or 1.4%. Gross premiums written for the
three months ended March 31, 2016 included $69.8 million of
property premiums, $88.2 million of marine premiums and $108.3
million of specialty premiums compared to $71.7 million of property
premiums, $110.4 million of marine premiums and $88.0 million of
specialty premiums for the three months ended March 31, 2015.
The decrease in the marine lines of $22.1 million was driven by
decreases in a number of classes, primarily the upstream energy,
cargo, and marine and other treaty lines due to the timing of
renewals of certain policies, a reduction in premium adjustments to
prior years and ongoing market conditions which have reduced
renewals, and was partially offset by an increase in premium
estimates of $6.5 million, which had no impact on earned premium.
The increase in gross premiums written in the specialty lines of
$20.3 million included an increase in premium estimates of $15.8
million, which had no impact on earned premium. After the impact of
these changes in estimate, the increase of $4.5 million was
primarily due to new business in the political lines class and
upwards premium adjustments on existing business.
- The loss ratio for the three months
ended March 31, 2016 was 48.4%, which included $22.7 million
of favorable loss reserve development on prior accident years,
benefiting the loss ratio by 11.0 percentage points compared to a
loss ratio for the three months ended March 31, 2015 of 35.1% which
included $51.7 million of favorable loss reserve development on
prior accident years, benefiting the loss ratio by 23.2 percentage
points. The favorable development of $22.7 million on prior
accident years for the three months ended March 31, 2016 is
primarily due to favorable development on non-event reserves of
$38.0 million; offset by unfavorable development on event specific
reserves of $15.3 million.
- The combined ratio for the three months
ended March 31, 2016 was 90.2% compared to 74.9% for the three
months ended March 31, 2015, an increase of 15.3 percentage
points.
- Underwriting income for the three
months ended March 31, 2016 was $20.3 million compared to
$56.0 million for the three months ended March 31, 2015, a
decrease of $35.7 million.
Western World Segment
Highlights for the first quarter include the following:
- Gross premiums written for the three
months ended March 31, 2016 were $64.0 million compared to
$56.9 million for the three months ended March 31, 2015, an
increase of $7.0 million, or 12.3%. Gross premiums written for the
three months ended March 31, 2016 included $15.4 million of
property premiums and $48.5 million of liability premiums, compared
to $9.4 million of property premiums and $47.6 million of liability
premiums for the three months ended March 31, 2015. The
increase in gross premiums written in the property lines of $6.0
million was primarily a result of$5.0 million of additional
business written in the brokerage property and commercial package
property classes as a result of continued enhancements in the
coastal wind property program.
- The loss ratio for the three months
ended March 31, 2016 was 64.5%, which included $4.4 million of
favorable loss reserve development on prior accident years,
benefiting the loss ratio by 7.2 percentage points compared to a
loss ratio for the three months ended March 31, 2015 of 74.4% which
included $6.3 million of favorable loss reserve development on
prior accident years, benefiting the loss ratio by 9.3 percentage
points. The loss ratio for the three months ended March 31,
2016 included catastrophe losses totaling $2.0 million, or 3.3
percentage points. Of the 2015 incurred losses, $3.2 million or 4.7
percentage points arose from the amortization of the risk premium
adjustment accounted for at the time of the acquisition of Western
World.
- The combined ratio for the three months
ended March 31, 2016 was 108.1% compared to 97.1% for the
three months ended March 31, 2015, an increase of 11.0
percentage points, primarily due to the amortization of the fair
value adjustment accounted for at the time of the acquisition of
Western World, which benefited the policy acquisition cost ratio by
15.3 percentage points during the three months ended March 31,
2015.
- Underwriting loss for the three months
ended March 31, 2016 was $4.7 million compared to income of
$2.2 million for the three months ended March 31, 2015, a
decrease of $7.0 million.
AlphaCat Segment
Highlights for the first quarter include the following:
- AlphaCat's assets under management were
$2,318.0 million as at April 1, 2016, compared to $2,386.2
million as at January 1, 2016. Third party assets under
management were $2,010.4 million as at April 1, 2016, compared
to $2,059.5 million as at January 1, 2016. During the three
months ended April 1, 2016, a total of $49.2 million of
capital was raised, of which $45.8 million was raised from third
parties. During the three months ended April 1, 2016, $146.5
million was returned to Sidecar investors upon expiration of the
risk period. Of this, $120.2 million was returned to third party
investors.
- Management fees earned for the three
months ended March 31, 2016 were $5.6 million, of which $0.9
million were earned from related parties, compared to $5.7 million
for the three months ended March 31, 2015, of which $1.2
million were earned from related parties.
- Total expenses for the three months
ended March 31, 2016 were $2.4 million, compared to $7.0
million for the three months ended March 31, 2015, a decrease
of $4.6 million. The decrease was primarily due to reduced
placement fees incurred in relation to raising new capital during
the three months ended March 31, 2016.
- Income available to Validus before
investment income from AlphaCat Funds and Sidecars for the three
months ended March 31, 2016 was $3.2 million, compared to a
loss of $1.3 million for the three months ended March 31,
2015, an increase of $4.4 million.
- Investment income available to Validus
from AlphaCat Funds and Sidecars for the three months ended
March 31, 2016 was $5.6 million, compared to $5.1 million for
the three months ended March 31, 2015, an increase of $0.6
million.
- Validus' share of AlphaCat's net income
for the three months ended March 31, 2016 was $8.8 million,
compared to $7.8 million for the three months ended March 31,
2015, an increase of $1.0 million. Validus' share of AlphaCat net
income for the three months ended March 31, 2016 was $8.8
million, compared to $3.8 million excluding Validus' share of
PaCRe's net income for the three months ended March 31, 2015,
an increase of $5.0 million.
Investments
Highlights of our managed portfolio for the first quarter
include the following:
- Net investment income for the three
months ended March 31, 2016 was $27.9 million compared to
$29.4 million for the three months ended March 31, 2015, a
decrease of $1.5 million, or 5.1%. Annualized effective yield for
the three months ended March 31, 2016 was 1.79%, compared to
1.83% for the three months ended March 31, 2015, a decrease of
4.0 basis points.
- Net realized losses on investments for
the three months ended March 31, 2016 were $1.1 million
compared to gains of $4.2 million for the three months ended
March 31, 2015, a decrease of $5.3 million, or 126.0%.
- The change in net unrealized gains on
investments for the three months ended March 31, 2016 was
$47.1 million compared to $34.7 million for the three months ended
March 31, 2015, an increase of $12.4 million, primarily as a
result of a falling interest rate environment during the three
months ended March 31, 2016 compared to the three months ended
March 31, 2015.
Corporate Operating
Expenses
Highlights for the first quarter include the following:
- General and administrative expenses for
the three months ended March 31, 2016, were $16.2 million
compared to $15.6 million for the three months ended March 31,
2015, an increase of $0.6 million or 3.7%.
- Share compensation expenses for the
three months ended March 31, 2016 were $4.1 million compared
to $2.9 million for the three months ended March 31, 2015, an
increase of $1.2 million or 41.4% primarily due to performance
share award adjustments.
- Tax benefits for the three months ended
March 31, 2016 were $2.1 million compared to expenses of $2.6
million for the three months ended March 31, 2015, a decrease
of $4.7 million, primarily relating to a partial drawdown of
valuation allowances on net operating losses.
Shareholders' Equity and
Capitalization
As at March 31, 2016, total shareholders' equity was $3.9
billion including $157.2 million of noncontrolling interest.
Shareholders' equity available to Validus was $3.7 billion as at
March 31, 2016. Book value per diluted common share was $44.00
at March 31, 2016 based on 84,670,648 fully diluted common
shares, compared to $42.33 at December 31, 2015 based on
85,992,394 fully diluted common shares, an increase of 4.8%,
inclusive of dividends. Book value per diluted common share is a
non-GAAP financial measure. A reconciliation of this measure to
book value per common share is presented at the end of this
release.
Total capitalization available to Validus at March 31, 2016
was $4.5 billion, including $538.3 million of junior subordinated
deferrable debentures and $245.2 million of senior notes. Total
capitalization at March 31, 2016 was $6.1 billion, including
$1.4 billion of redeemable noncontrolling interest and $157.2
million of noncontrolling interest related to AlphaCat.
Share Repurchases
For the three months ended March 31, 2016, the number of
shares repurchased by the Company was 1.4 million. The share
repurchases made during the three months ended March 31, 2016
resulted in a dilutive impact to book value per diluted common
share of $0.01 for the quarter. A summary of the share
repurchases made to date under the Company’s previously announced
share repurchase program is as follows:
Share Repurchase Activity
(Expressed in thousands of U.S. dollars
except for share and per share information)
As at
December 31, 2015
Quarter ended Effect of share repurchases:
(cumulative)
January
February March March 31, 2016 Aggregate
purchase price (a) $ 2,491,731 $ 18,377 $ 28,677 $ 13,313 $ 60,367
Shares repurchased 76,031,280 419,668 647,030 289,938 1,356,636
Average price (a) $ 32.77 $ 43.79 $ 44.32 $ 45.92 $ 44.50
Share Repurchase Activity
(Expressed in thousands of U.S. dollars
except for share and per share information)
Effect of share repurchases: As at March 31, 2016
As at April 27, 2016 Cumulative to Date
Effect Aggregate purchase price (a) $ 2,552,098 $ — $ 2,552,098
Shares repurchased 77,387,916 — 77,387,916 Average price (a) $
32.98 $ — $ 32.98 (a) Share transactions are on a trade date
basis through April 27, 2016 and are inclusive of commissions.
Average share price is rounded to two decimal places.
Conference Call
The Company will host a conference call for analysts and
investors on April 29, 2016 at 10:00 AM (Eastern) to discuss
the first quarter 2016 financial results and related matters. The
conference call may be accessed by dialing 1-866-440-4674
(toll-free U.S.) or 1-704-908-0454 (international) and entering the
passcode 5826 9955. Those who intend to participate in the
conference call should register at least ten minutes in advance to
ensure access to the call. A telephone replay of the conference
call will be available through May 13, 2016, by dialing
1-855-859-2056 (toll-free U.S.) or 1-404-537-3406 (international)
and entering the passcode 5826 9955.
This conference call will also be available through a live audio
webcast accessible through the Investor Relations section of the
Company's website located at www.validusholdings.com. A replay of the webcast
will be available at the Investor Relations section of the
Company's website through May 13, 2016. In addition, a
financial supplement relating to the Company's financial results
for the three months and three months ended March 31, 2016 is
available in the Investor Relations section of the Company's
website.
About Validus Holdings,
Ltd.
Validus Holdings, Ltd. ("Validus") is a holding company for
reinsurance and insurance operating companies and investment
advisors including Validus Reinsurance, Ltd. (“Validus Re”), Talbot
Holdings Ltd. (“Talbot”), Western World Insurance Group, Inc.
(“Western World”) and AlphaCat Managers, Ltd. (“AlphaCat”).
Validus Re is a Bermuda based reinsurer focused on treaty
reinsurance. Talbot is the Bermuda parent of the specialty
insurance group primarily operating within the Lloyd's insurance
market through Syndicate 1183. Western World is a U.S.
specialty lines insurance company focused on excess and surplus
lines. AlphaCat is a Bermuda based investment adviser managing
capital for third parties and Validus in insurance linked
securities and other property catastrophe reinsurance
investments.
Validus Holdings, Ltd.
Consolidated Balance Sheets
As at
March 31, 2016 and December 31, 2015
(Expressed in thousands of U.S. dollars,
except share and per share information)
March 31,
2016
December 31,
2015
Assets Fixed maturities trading, at fair value (amortized
cost: 2016—$5,478,317; 2015—$5,556,900) $ 5,481,304 $ 5,510,331
Short-term investments trading, at fair value (amortized cost:
2016—$2,107,714; 2015—$1,941,615) 2,108,199 1,941,635 Other
investments, at fair value (cost: 2016—$323,196; 2015—$315,963)
344,151 336,856 Cash and cash equivalents 569,774 723,109
Restricted cash 108,395 73,270 Total investments and
cash 8,611,823 8,585,201 Investments in affiliates, equity method
(cost: 2016—$70,761; 2015—$70,186) 84,504 88,065 Premiums
receivable 1,176,684 658,682 Deferred acquisition costs 262,675
181,002 Prepaid reinsurance premiums 181,255 77,992 Securities
lending collateral 9,721 4,863 Loss reserves recoverable 370,689
350,586 Paid losses recoverable 25,001 23,071 Income taxes
recoverable 7,146 16,228 Deferred tax asset 27,771 21,661
Receivable for investments sold 16,278 39,766 Intangible assets
119,842 121,258 Goodwill 196,758 196,758 Accrued investment income
22,298 23,897 Other assets 92,076 126,782
Total
assets $ 11,204,521 $ 10,515,812
Liabilities Reserve for losses and loss expenses $ 2,980,300
$ 2,996,567 Unearned premiums 1,503,161 966,210 Reinsurance
balances payable 96,685 75,380 Securities lending payable 10,187
5,329 Deferred tax liability 3,618 3,847 Payable for investments
purchased 76,116 77,475 Accounts payable and accrued expenses
136,712 627,331 Notes payable to AlphaCat investors 323,510 75,493
Senior notes payable 245,211 245,161 Debentures payable 538,335
537,668
Total liabilities $ 5,913,835 $
5,610,461 Commitments and contingent liabilities
Redeemable noncontrolling interest 1,409,037 1,111,714
Shareholders’ equity
Common shares, 571,428,571 authorized, par
value $0.175 (Issued: 2016—160,582,277;
2015—160,570,772;Outstanding: 2016—81,555,486; 2015—82,900,617)
$ 28,102 $ 28,100 Treasury shares (2016—79,026,791;
2015—77,670,155) (13,830 ) (13,592 ) Additional paid-in-capital
954,485 1,002,980 Accumulated other comprehensive loss (15,438 )
(12,569 ) Retained earnings 2,771,107 2,634,056
Total shareholders’ equity available to Validus 3,724,426
3,638,975 Noncontrolling interest 157,223 154,662
Total shareholders’ equity $ 3,881,649 $ 3,793,637
Total liabilities, noncontrolling interests and
shareholders’ equity $ 11,204,521 $ 10,515,812
Validus Holdings, Ltd.
Consolidated Statements of Operations
For the three
months ended March 31, 2016 and 2015
(Expressed in thousands of U.S. dollars,
except share and per share information)
Three Months Ended March 31, (Dollars in
thousands) 2016 2015 Underwriting
income Gross premiums written $ 1,172,791 $ 1,119,224
Reinsurance premiums ceded (167,835 ) (191,325 ) Net premiums
written 1,004,956 927,899 Change in unearned premiums (433,688 )
(352,009 )
Net premiums earned 571,268 575,890
Other insurance related income 736 940
Underwriting revenues 572,004 576,830
Underwriting deductions Losses and loss expenses 224,447
240,929 Policy acquisition costs 107,193 98,411 General and
administrative expenses 86,208 84,235 Share compensation expenses
11,237 9,054
Total underwriting deductions
429,085 432,629
Underwriting income
$ 142,919 $ 144,201 Net
investment income 29,461 31,029 Finance expenses (15,203 ) (20,967
)
Operating income before taxes, income from operating
affiliates and (income) attributable to AlphaCat investors
$ 157,177 $ 154,263 Tax benefit
(expense) 2,118 (2,565 ) (Loss) income from operating affiliates
(23 ) 3,984 (Income) attributable to AlphaCat investors (4,600 ) —
Net operating income $ 154,672 $
155,682 Net realized (losses) gains on investments
(584 ) 4,169 Change in net unrealized gains on investments 47,444
33,227 (Loss) income from investment affiliate (4,113 ) 2,776
Foreign exchange gains (losses) 6,245 (4,265 ) Other income 677
—
Net income $ 204,341 $
191,589 Net (income) attributable to noncontrolling
interest (37,531 ) (18,178 )
Net income available
to Validus $ 166,810 $
173,411 Selected ratios: Net premiums
written / Gross premiums written 85.7 % 82.9 % Losses and
loss expenses 39.3 % 41.8 % Policy acquisition costs 18.8 %
17.1 % General and administrative expenses (a) 17.0 % 16.2 %
Expense ratio 35.8 % 33.3 % Combined ratio 75.1 % 75.1 %
(a) The general and administrative expense
ratio includes share compensation expenses.
Validus Holdings, Ltd.
Segment Information
For the three
months ended March 31, 2016 and 2015
(Expressed in thousands of U.S. dollars,
except share and per share information)
Validus Re Segment
Three Months Ended March 31, 2016
2015 Underwriting income Gross premiums
written $ 691,668 $ 711,693 Reinsurance premiums ceded (92,495 )
(113,777 ) Net premiums written 599,173 597,916 Change in unearned
premiums (355,342 ) (344,828 )
Net premiums earned 243,831
253,088 Other insurance related (loss) income (315 )
315
Underwriting revenues 243,516 253,403
Underwriting deductions Losses and loss
expenses 82,868 113,128 Policy acquisition costs 42,259 42,094
General and administrative expenses 17,179 19,509 Share
compensation expenses 2,901 2,578
Total
underwriting deductions 145,207 177,309
Underwriting income $ 98,309
$ 76,094 Talbot Segment
Three Months Ended March 31, 2016 2015
Underwriting income Gross premiums written $ 266,317 $
270,077 Reinsurance premiums ceded (87,458 ) (91,075 ) Net premiums
written 178,859 179,002 Change in unearned premiums 27,933
43,587
Net premiums earned 206,792 222,589
Other insurance related income 11 54
Underwriting revenues 206,803 222,643
Underwriting deductions Losses and loss expenses 100,101
78,128 Policy acquisition costs 44,343 49,104 General and
administrative expenses 38,535 36,494 Share compensation expenses
3,522 2,957
Total underwriting deductions
186,501 166,683
Underwriting
income $ 20,302 $ 55,960
Western World Segment Three Months
Ended March 31, 2016 2015 Underwriting
income Gross premiums written $ 63,959 $ 56,947 Reinsurance
premiums ceded (4,139 ) (3,233 ) Net premiums written 59,820 53,714
Change in unearned premiums 1,679 14,168
Net
premiums earned 61,499 67,882 Other insurance
related income 288 263
Underwriting revenues
61,787 68,145
Underwriting deductions
Losses and loss expenses 39,646 50,517 Policy acquisition costs
14,200 4,279 General and administrative expenses 12,075 10,627
Share compensation expenses 581 477
Total
underwriting deductions 66,502 65,900
Underwriting (loss) income $ (4,715
) $ 2,245
Validus Holdings, Ltd.
Segment Information
For the three
months ended March 31, 2016 and 2015
(Expressed in thousands of U.S. dollars,
except share and per share information)
AlphaCat Segment Three Months Ended March
31, 2016 2015 Revenue - management
fees Third party $ 4,727 $ 4,537 Related party 891 1,186
Total revenue 5,618 5,723
Expenses General and administrative expenses 1,482 2,429
Share compensation expenses 141 149 Finance expenses 808 4,428
Foreign exchange losses (gains) 8 (13 )
Total
expenses 2,439 6,993
Income (loss) before
investments from AlphaCat Funds and Sidecars 3,179
(1,270 )
Investment income (loss) from AlphaCat Funds and
Sidecars (a) AlphaCat Sidecars 124 1,168 AlphaCat ILS Funds -
Lower Risk (b) 2,507 1,286 AlphaCat ILS Funds - Higher Risk (b)
2,436 2,425 BetaCat ILS Funds 563 174 PaCRe (23 ) 3,984
Total investment income from AlphaCat Funds and Sidecars
5,607 9,037
Validus' share of
AlphaCat income $ 8,786 $
7,767 (a) The investment income
from the AlphaCat funds and sidecars is based on equity accounting.
(b)
Lower risk AlphaCat ILS funds have a maximum permitted portfolio
expected loss of less than 7%, whereas higher risk AlphaCat ILS
funds have a maximum permitted portfolio expected loss of greater
than 7%. Expected loss represents the average annual loss over the
set of simulation scenarios divided by the total limit.
Corporate and Investments
Three Months Ended March 31, 2016
2015 Investment income Net investment
income (a) $ 27,923 $ 29,436
Operating expenses
General and administrative expenses 16,183 15,606 Share
compensation expenses 4,092 2,893 Finance expenses (a) 14,341
15,336 Tax (benefit) expense (2,118 ) 2,565
Total
operating expenses 32,498 36,400
Other
items Net realized (losses) gains on investments (a) (1,086 )
4,180 Change in net unrealized gains on investments (a) 47,078
34,669 (Loss) income from investment affiliate (4,113 ) 2,776
Foreign exchange gains (losses) (a) 6,074 (3,456 ) Other income 677
—
Total other items 48,630 38,169
Total Corporate and Investments $
44,055 $ 31,205 (a) These items
exclude the components which are included in Validus' share of
AlphaCat and amounts which are consolidated from variable interest
entities.
Validus Holdings, Ltd.
Non-GAAP Financial Measures
Reconciliation
Book Value per Common Share, Book Value
per Diluted Common Share and Book Value per Diluted Common Share
plus Accumulated Dividends
As at March 31,
2016 and December 31, 2015
(Expressed in thousands of U.S. dollars,
except share and per share information)
March 31, 2016 (Dollars in thousands, except share
and per share amounts) Equity Amount
Shares Exercise Price (a) Book Value
Per
Share
Book value per common share Total shareholders' equity
available to Validus $ 3,724,426 81,555,486 $ 45.67
Tangible book value per common share $ 41.79
Book
value per diluted common share Total shareholders' equity
available to Validus 3,724,426 81,555,486 Assumed exercise of
outstanding stock options (b) 1,319 65,401 $ 20.17 Unvested
restricted shares — 3,049,761
Book value per
diluted common share $ 3,725,745 84,670,648 $
44.00 Adjustment for accumulated dividends 10.51
Book value per
diluted common share plus accumulated dividends $ 54.51
Tangible book value per diluted common share $ 40.26
December 31, 2015 (Dollars in thousands, except
share and per share amounts) Equity Amount Shares
Exercise Price (a) Book Value Per
Share
Book value per common share Total shareholders' equity
available to Validus $ 3,638,975 82,900,617 $ 43.90
Tangible book value per common share $ 40.06
Book
value per diluted common share Total shareholders' equity
available to Validus 3,638,975 82,900,617 Assumed exercise of
outstanding stock options (b) 1,319 65,401 $ 20.17 Unvested
restricted shares — 3,026,376
Book value per
diluted common share $ 3,640,294 85,992,394 $
42.33 Adjustment for accumulated dividends 10.16
Book value per
diluted common share plus accumulated dividends $ 52.49
Tangible book value per diluted common share $ 38.63
(a) Weighted average exercise price for those stock
options that have an exercise price lower than book value per
share. (b) Using the "as-if-converted" method, assuming all
proceeds received upon exercise of stock options will be retained
by the Company and the resulting common shares from exercise remain
outstanding.
Validus Holdings, Ltd.
Non-GAAP Financial Measures
Reconciliation
Underwriting Income, Net Operating Income
available to Validus, Net Operating Income per share available to
Validus and Annualized Net Operating Return on Average Equity
For the three
months ended March 31, 2016 and 2015
(Expressed in thousands of U.S. dollars,
except share and per share information)
Three Months Ended March 31, 2016
2015 Net income available to Validus $ 166,810 $
173,411 Adjustments for: Net realized losses (gains) on investments
584 (4,169 ) Change in net unrealized gains on investments (47,444
) (33,227 ) Loss (income) from investment affiliate 4,113 (2,776 )
Foreign exchange (gains) losses (6,245 ) 4,265 Other income (677 )
— Net income (loss) attributable to noncontrolling interest 237
(630 )
Net operating income available to Validus $
117,378 $ 136,874 Net investment income (29,461 ) (31,029 ) Finance
expenses 15,203 20,967 Tax (benefit) expense (2,118 ) 2,565 Loss
(income) from operating affiliates 23 (3,984 ) Income attributable
to AlphaCat investors 4,600 — Net operating income attributable to
noncontrolling interest 37,294 18,808
Underwriting
income $ 142,919 $ 144,201
Net
operating income available to Validus 117,378 136,874 Less:
Dividends and distributions declared on outstanding warrants —
(1,405 )
Net operating income available to Validus,
adjusted $ 117,378 $ 135,469
Net income
per share available to Validus - diluted $ 1.98 $ 1.98
Adjustments for: Net realized losses (gains) on investments — (0.05
) Change in net unrealized gains on investments (0.56 ) (0.38 )
Loss (income) from investment affiliate 0.05 (0.03 ) Foreign
exchange (gains) losses (0.07 ) 0.05 Other income (0.01 ) — Net
income (loss) attributable to noncontrolling interest —
(0.01 )
Net operating income per share available to Validus -
diluted $ 1.39 $ 1.56
Weighted average
number of common shares and common share equivalents 84,198,315
87,583,129
Average shareholders' equity available to
Validus $ 3,681,701 $ 3,634,162
Annualized net
operating return on average equity 12.8 % 15.1 %
Cautionary Note Regarding Forward-Looking Statements
This press release may include forward-looking statements, both
with respect to the Company and its industry, that reflect our
current views with respect to future events and financial
performance. Statements that include the words "expect", "intend",
"plan", "believe", "project", "anticipate", "will", "may" and
similar statements of a future or forward-looking nature identify
forward-looking statements. All forward-looking statements address
matters that involve risks and uncertainties, many of which are
beyond the Company's control. Accordingly, there are or will be
important factors that could cause actual results to differ
materially from those indicated in such statements and, therefore,
you should not place undue reliance on any such statements. We
believe that these factors include, but are not limited to, the
following: 1) unpredictability and severity of catastrophic events;
2) rating agency actions; 3) adequacy of Validus' risk management
and loss limitation methods; 4) cyclicality of demand and pricing
in the insurance and reinsurance markets; 5) statutory or
regulatory developments including tax policy, reinsurance and other
regulatory matters; 6) Validus' ability to implement its business
strategy during "soft" as well as "hard" markets; 7) adequacy of
Validus' loss reserves; 8) continued availability of capital and
financing; 9) retention of key personnel; 10) competition; 11)
potential loss of business from one or more major insurance or
reinsurance brokers; 12) Validus' ability to implement,
successfully and on a timely basis, complex infrastructure,
distribution capabilities, systems, procedures and internal
controls, and to develop accurate actuarial data to support the
business and regulatory and reporting requirements; 13) general
economic and market conditions (including inflation, volatility in
the credit and capital markets, interest rates and foreign currency
exchange rates); 14) the integration of businesses Validus may
acquire or new business ventures Validus may start; 15) the effect
on Validus' investment portfolios of changing financial market
conditions including inflation, interest rates, liquidity and other
factors; 16) acts of terrorism or outbreak of war; and 17)
availability of reinsurance and retrocessional coverage, as well as
management's response to any of the aforementioned factors.
The foregoing review of important factors should not be
construed as exhaustive and should be read in conjunction with the
other cautionary statements that are included herein and elsewhere,
including the risk factors included in Validus' most recent reports
on Form 10-K and Form 10-Q and other documents of the Company on
file with or furnished to the U.S. Securities and Exchange
Commission (“SEC”). Any forward-looking statements made in this
press release are qualified by these cautionary statements, and
there can be no assurance that the actual results or developments
anticipated by Validus will be realized or, even if substantially
realized, that they will have the expected consequences to, or
effects on, Validus or its business or operations. Except as
required by law, the Company undertakes no obligation to update
publicly or revise any forward-looking statement, whether as a
result of new information, future developments or otherwise.
Non-GAAP Financial Measures
In presenting the Company's results, management has included and
discussed certain schedules containing net operating income (loss),
net operating income (loss) available (attributable) to Validus,
net operating income (loss) per share, underwriting income (loss),
annualized net operating return on average equity, book value per
diluted common share and book value per diluted common share plus
accumulated dividends 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 and net operating income
(loss) available (attributable) to Validus to net income (loss)
available (attributable) to Validus, the most comparable U.S. GAAP
financial measure, is presented in the section above entitled
“Underwriting Income, Net Operating Income available to Validus,
Net Operating Income per share available to Validus and Annualized
Net Operating Return on Average Equity”. A reconciliation of
underwriting income and operating income to net income, the most
comparable U.S. GAAP financial measure, is presented in the
“Consolidated Statements of Operations” above.
The AlphaCat segment information is presented as an asset
manager view and therefore is considered non-GAAP.
Underwriting income indicates the performance of the Company's
core underwriting segments, excluding revenues and expenses such as
net investment income (loss), finance expenses, net realized and
change in unrealized gains (losses) on investments, foreign
exchange gains (losses), other income (loss) and transaction
expenses. The Company believes the reporting of underwriting income
enhances the understanding of our results by highlighting the
underlying profitability of the Company's core insurance and
reinsurance business. Underwriting profitability is influenced
significantly by earned premium growth, adequacy of the Company's
pricing and loss frequency and severity.
Underwriting profitability over time is also influenced by the
Company's underwriting discipline, which seeks to manage exposure
to loss through favorable risk selection and diversification, its
management of claims, its use of reinsurance and its ability to
manage its expense ratio, which it accomplishes through its
management of acquisition costs and other underwriting expenses.
The Company believes that underwriting income provides investors
with a valuable measure of profitability derived from underwriting
activities.
Net operating income (loss), a non-GAAP financial measure, is
defined as net income (loss) excluding net realized and change in
net unrealized gains (losses) on investments, income (loss) from
investment affiliate, foreign exchange gains (losses), other income
(loss) and non-recurring items. Net operating income (loss)
available (attributable) to Validus is defined as above, but
excludes income (loss) available (attributable) to noncontrolling
interest. Reconciliations of these measures to net income (loss)and
net income (loss) available (attributable) to Validus, the most
directly comparable GAAP measures, are presented at the end of this
release.
Annualized net operating return on average equity is presented
in the section above entitled “Underwriting Income, Net Operating
Income available to Validus, Net Operating Income per share
available to Validus and Annualized Net Operating Return on Average
Equity.” A reconciliation of book value per diluted common share
and book value per diluted common share plus accumulated dividends
to book value per common share, the most comparable U.S. GAAP
financial measure, is presented in the section above entitled “Book
Value per Common Share, Book Value per Diluted Common Share and
Book Value per Diluted Common Share plus Accumulated Dividends.”
Net operating income (loss) is calculated based on net income
(loss) excluding net realized gains (losses) on investments, change
in net unrealized gains (losses) on investments, foreign exchange
gains (losses), other income (loss), income (loss) from investment
affiliates and non-recurring items. Realized gains (losses) from
the sale of investments are driven by the timing of the disposition
of investments, not by our operating performance. Gains (losses)
arising from translation of non-US$ denominated balances are
unrelated to our underlying business. Net operating income (loss)
available (attributable) to Validus is defined as net operating
income (loss) as defined above, but excluding income (loss)
available (attributable) to noncontrolling interest.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160428006907/en/
Investors:Validus Holdings,
Ltd.Investor.Relations@validusholdings.com+1-441-278-9000Media:Brunswick
GroupJosh Gerth / Laura Pietruszki+1-212-333-3810
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