Validus Holdings, Ltd. (“Validus” or the “Company”) (NYSE:VR)
today reported a net (loss) attributable to Validus common
shareholders of $(4.1) million, or $(0.05) per diluted common
share, for the three months ended March 31, 2018, compared to
net income available to Validus common shareholders of $94.6
million, or $1.17 per diluted common share, for the three months
ended March 31, 2017.
Net operating income available to Validus common shareholders
was $42.6 million, or $0.53 per diluted common share, for the three
months ended March 31, 2018, compared to $76.8 million, or
$0.95 per diluted common share, for the three months ended
March 31, 2017.
As previously announced on January 22, 2018, the Company entered
into a definitive agreement and plan of merger (the “Merger”) with
American International Group, Inc. (“AIG”). The Merger is expected
to close in mid-2018, subject to regulatory approvals and other
customary closing conditions. During the three months ended March
31, 2018, the Company incurred transaction expenses of $7.8 million
in relation to the Merger.
Book value per common share at March 31, 2018 was $44.14,
compared to $44.06 at December 31, 2017. Book value per
diluted common share at March 31, 2018 was $42.79, compared to
$42.71 at December 31, 2017, reflecting a quarterly increase
of 1.1%, inclusive of common dividends.
(Loss) income (attributable) available to Validus common
shareholders by segment for the three months ended March 31,
2018 and March 31, 2017 was as follows:
Three Months Ended March 31,
(Expressed in
millions of U.S. dollars, except per share
information)
2018 2017 Reinsurance segment - Underwriting
income $ 41.4 $ 84.6 Insurance segment - Underwriting (loss) (12.8
) (16.4 ) Asset Management segment income 7.3 6.1
Total segmental income 35.9 74.3
Total managed investment return(a)
(2.8 ) 52.8 Corporate expenses (29.4 ) (33.9 ) Other items (7.8 )
1.4
Net (loss) income (attributable) available to Validus
common shareholders $ (4.1 ) $
94.6 Net (loss) income per diluted share
(attributable) available to Validus common shareholders
$ (0.05 ) $ 1.17
Net operating income available to
Validus common shareholders(b)
$ 42.6 $ 76.8 Net
operating income per diluted share available to Validus common
shareholders(b) $ 0.53 $
0.95 (a) Total managed investment return
includes returns generated on managed assets governed by the
Company’s investment policy statement (“IPS”) and excludes returns
on non-managed assets held in support of consolidated AlphaCat
variable interest entities which are not governed by the Company’s
IPS. (b) Net operating income available to Validus common
shareholders is presented after tax and is considered a non-GAAP
financial measure. A reconciliation of net (loss) income
(attributable) available to Validus common shareholders, the most
comparable GAAP measure, to net operating income available to
Validus common shareholders is presented at the end of this
release.
This earnings release should be read in conjunction with the
Company's first quarter 2018 investor financial supplement that has
been posted to the Investors section of the Company's website
located at www.validusholdings.com.
First Quarter 2018
Results
Highlights for the first quarter 2018 were as follows:
- Gross premiums
written for the three months ended March 31, 2018 were
$1,832.5 million compared to $1,190.9 million for the three months
ended March 31, 2017, an increase of $641.6 million, or 53.9%
driven by increases in all segments.
- Reinsurance
premiums ceded for the three months ended March 31,
2018 were $376.3 million compared to $200.1 million for the three
months ended March 31, 2017, an increase of $176.2 million, or
88.0%. The increase was primarily driven by increases in the
Insurance and Reinsurance segments.
- Net premiums
earned for the three months ended March 31, 2018 were
$618.9 million compared to $575.4 million for the three months
ended March 31, 2017, an increase of $43.6 million, or 7.6%.
The increase was primarily driven by an increase in the Asset
Management and Insurance segments and was partially offset by a
decrease in the Reinsurance segment.
- Loss ratio
for the three months ended March 31, 2018 and 2017 was 52.0%
and 46.9%, respectively, and included the following:
- Non-notable losses of $nil during the
three months ended March 31, 2018 compared to $19.8 million,
or 3.4 percentage points of the loss ratio during the three months
ended March 31, 2017;
- Favorable loss reserve development on
prior accident years of $7.6 million during the three months ended
March 31, 2018, which benefited the loss ratio by 1.2
percentage points compared to favorable development of $61.2
million during the three months ended March 31, 2017, which
benefited the loss ratio by 10.6 percentage points. Excluding the
Asset Management segment, which includes losses attributable to
AlphaCat’s third party investors and noncontrolling interests,
favorable development during the three months ended March 31,
2018 was $33.4 million; and
- Attritional losses of $329.1 million,
or 53.2 percentage points of the loss ratio during the three months
ended March 31, 2018 compared to $311.1 million, or 54.1
percentage points of the loss ratio during the three months ended
March 31, 2017.
- Combined
ratio for the three months ended March 31, 2018 and
2017 was 90.9% and 83.2%, respectively, an increase of 7.7
percentage points.
- Total managed
investment return from our managed investment portfolio for
the three months ended March 31, 2018 was $(2.8) million
compared to $52.8 million for the three months ended March 31,
2017.
- Annualized return
on average equity for the three months ended March 31,
2018 of (0.5)%, compared to 10.2% for the three months ended
March 31, 2017.
- Annualized net
operating return on average equity for the three months
ended March 31, 2018 of 4.9%, compared to 8.3% for the three
months ended March 31, 2017.
Reinsurance Segment
Highlights for the first quarter 2018 were as follows:
- Gross premiums
written for the three months ended March 31, 2018 were
$765.6 million compared to $643.1 million for the three months
ended March 31, 2017, an increase of $122.4 million, or 19.0%
and included the following:
- Property premiums of $274.0 million
during the three months ended March 31, 2018, compared to
$216.7 million during the three months ended March 31, 2017,
an increase of $57.3 million, or 26.5%, primarily driven by
increased participation on a number of catastrophe excess of loss
programs and new proportional business written;
- Specialty - short-tail premiums of
$352.1 million during the three months ended March 31, 2018,
compared to $376.9 million during the three months ended
March 31, 2017, a decrease of $24.8 million, or 6.6%. The
decrease was primarily driven by the non-renewal of one significant
agriculture contract and was partially offset by new composite
business written; and
- Specialty - other premiums of $139.5
million during the three months ended March 31, 2018, compared
to $49.6 million during the three months ended March 31, 2017,
an increase of $89.9 million, or 181.2%, primarily driven by new
casualty business written and the timing of renewals.
- Reinsurance
premiums ceded for the three months ended March 31,
2018 were $190.2 million compared to $114.4 million for the three
months ended March 31, 2017, an increase of $75.7 million, or
66.2%. The increase was primarily driven by an increase in the
property lines of $48.0 million as a result of new aggregate and
proportional covers purchased and an increase in the specialty -
other lines of $20.7 million as a result of a new casualty
retrocession cover.
- Net premiums
earned for the three months ended March 31, 2018 were
$224.8 million compared to $231.7 million for the three months
ended March 31, 2017, a decrease of $6.9 million, or
3.0%.
- Loss ratio
for the three months ended March 31, 2018 and 2017 was 46.0%
and 34.9%, respectively, and included the following:
- Non-notable losses of $nil during the
three months ended March 31, 2018, compared to $5.1 million,
or 2.2 percentage points during the three months ended
March 31, 2017;
- Favorable loss reserve development on
prior accident years of $17.8 million during the three months ended
March 31, 2018, which benefited the loss ratio by 7.9
percentage points compared to favorable development of $31.1
million during the three months ended March 31, 2017, which
benefited the loss ratio by 13.4 percentage points. The favorable
development of $17.8 million during the three months ended
March 31, 2018 was primarily driven by favorable development
on attritional losses; and
- Attritional losses of $121.3 million,
or 53.9 percentage points of the loss ratio during the three months
ended March 31, 2018 compared to $106.9 million, or 46.1
percentage points of the loss ratio during the three months ended
March 31, 2017. The increase in the attritional loss ratio was
primarily due to $10.0 million of losses from Winter Storm
Friederike which did not meet the non-notable loss threshold and
the earned impact of higher retrocession purchases as noted
above.
- Policy
acquisition cost ratio for the three months ended
March 31, 2018 was 21.5% compared to 18.8% for the three
months ended March 31, 2017, an increase of 2.7 percentage
points. The increase was primarily driven by the earned impact of
higher retrocession purchases as noted above and a change in
business mix in the specialty classes.
- General and
administrative expenses for the three months ended
March 31, 2018 were $28.9 million compared to $20.0 million
for the three months ended March 31, 2017, an increase of $8.9
million or 44.8%. The increase was primarily driven by an increase
in the performance bonus accrual and a higher allocation of costs
to the segment.
- Combined
ratio for the three months ended March 31, 2018 and
2017 was 81.6% and 63.5%, respectively, an increase of 18.1
percentage points.
- Underwriting
income for the three months ended March 31, 2018 was
$41.4 million compared to $84.6 million for the three months ended
March 31, 2017, a decrease of $43.3 million or 51.1%.
Insurance Segment
On May 1, 2017, the Company completed its acquisition of Crop
Risk Services (“CRS”). The results of CRS have been presented
within the specialty - short-tail line of business in the Insurance
segment from the date of acquisition.
Highlights for the first quarter 2018 were as follows:
- Gross premiums
written for the three months ended March 31, 2018 were
$785.8 million compared to $382.8 million for the three months
ended March 31, 2017, an increase of $403.0 million, or 105.3%
and included the following:
- Property premiums of $92.0 million
during the three months ended March 31, 2018, compared to
$81.5 million during the three months ended March 31, 2017, an
increase of $10.4 million, or 12.8%;
- Specialty - short-tail premiums of
$538.3 million during the three months ended March 31, 2018,
compared to $179.2 million during the three months ended
March 31, 2017, an increase of $359.1 million, or 200.4%. The
increase was primarily driven by new agriculture business written
through CRS; and
- Specialty - other premiums of $155.5
million during the three months ended March 31, 2018, compared
to $122.0 million during the three months ended March 31,
2017, an increase of $33.5 million, or 27.4%, primarily driven by
increased participation on renewals and the build out of product
offerings in U.S. liability lines.
- Reinsurance
premiums ceded for the three months ended March 31,
2018 were $191.6 million compared to $79.0 million for the three
months ended March 31, 2017, an increase of $112.6 million, or
142.6%. The increase was primarily driven by an increase in the
specialty - short-tail lines of $78.7 million driven by ceded
agriculture premiums relating to new business written through CRS
and an increase in the specialty - other lines of $20.1 million as
a result of the continued build out of U.S. liability lines as
noted above.
- Net premiums
earned for the three months ended March 31, 2018 were
$299.5 million compared to $279.1 million for the three months
ended March 31, 2017, an increase of $20.4 million, or 7.3%.
The increase was primarily due to agriculture net premiums earned
relating to new business written through CRS.
- Loss ratio
for the three months ended March 31, 2018 and 2017 was 61.2%
and 66.9%, respectively, and included the following:
- Non-notable losses of $nil during the
three months ended March 31, 2018 compared to $14.7 million,
or 5.3 percentage points of the loss ratio during the three months
ended March 31, 2017;
- Favorable loss reserve development on
prior accident years of $15.5 million during the three months ended
March 31, 2018, which benefited the loss ratio by 5.2
percentage points compared to favorable development of $26.7
million during the three months ended March 31, 2017, which
benefited the loss ratio by 9.6 percentage points. The favorable
development of $15.5 million during the three months ended
March 31, 2018 was primarily driven by favorable development
on attritional losses; and
- Attritional losses of $198.9 million,
or 66.4 percentage points of the loss ratio during the three months
ended March 31, 2018 compared to $198.6 million, or 71.2
percentage points of the loss ratio during the three months ended
March 31, 2017.
- Policy
acquisition cost ratio for the three months ended
March 31, 2018 was 20.0% compared to 21.9% for the three
months ended March 31, 2017, a decrease of 1.9 percentage
points.
- General and
administrative expenses for the three months ended
March 31, 2018 were $68.1 million compared to $45.3 million
for the three months ended March 31, 2017, an increase of
$22.8 million or 50.3%. General and administrative expenses for the
three months ended March 31, 2018 included $12.0 million of
CRS expenses, of which $1.7 million related to the amortization of
intangible assets acquired. The remaining increase was primarily
driven by an increase in the performance bonus accrual and a higher
allocation of costs to the segment.
- Combined
ratio for the three months ended March 31, 2018 and
2017 was 104.9% and 106.2%, respectively, a decrease of 1.3
percentage points.
- Underwriting
(loss) for the three months ended March 31, 2018 was
$(12.8) million compared to $(16.4) million for the three months
ended March 31, 2017, a decrease of $3.6 million or
21.9%.
Asset Management Segment
Highlights for the first quarter 2018 were as follows:
- Assets under
management were $3.7 billion as at April 1, 2018,
compared to $3.4 billion as at January 1, 2018, of which third
party assets under management were $3.5 billion as at April 1,
2018, compared to $3.2 billion as at January 1, 2018. During
the three months ended April 1, 2018, a total of $200.4
million of capital was raised, of which $198.1 million was raised
from third parties. During the three months ended April 1,
2018, $4.3 million was returned to investors, of which $3.4 million
was returned to third party investors.
- Fee
revenues earned for the three months ended March 31,
2018 were $6.7 million compared to $5.3 million during the three
months ended March 31, 2017, an increase of $1.4 million or
26.1%. Third party fee revenues earned during the three months
ended March 31, 2018 were $6.2 million compared to $4.6
million during the three months ended March 31, 2017, an
increase of $1.6 million or 33.7%. The increase in third party fee
revenues was primarily driven by an increase in management fees as
a result of an increase in assets under management over the last
twelve months.
- Total
expenses for the three months ended March 31, 2018 were
$4.7 million compared to $4.0 million during the three months ended
March 31, 2017, an increase of $0.7 million, or 17.8%. The
increase was driven by a higher allocation of costs to the
segment.
- Validus’ share of
investment income from AlphaCat Funds and Sidecars for the
three months ended March 31, 2018 was $5.3 million compared to
$4.8 million during the three months ended March 31, 2017, an
increase of $0.5 million, or 9.6%.
- Asset Management
segment income for the three months ended March 31,
2018 was $7.3 million compared to $6.1 million during the three
months ended March 31, 2017, an increase of $1.1 million, or
18.5%.
Managed investments
Highlights for the first quarter 2018 were as follows:
- Managed net
investment income for the three months ended March 31,
2018 was $39.8 million compared to $36.2 million for the three
months ended March 31, 2017, an increase of $3.6 million, or
9.9%.
- Annualized
effective yield on managed investments for the three months
ended March 31, 2018 was 2.33%, compared to 2.27% for the
three months ended March 31, 2017, an increase of 6 basis
points.
- Net realized
gains on managed investments for the three months ended
March 31, 2018 were $1.1 million compared to (losses) of
$(2.9) million for the three months ended March 31, 2017.
- Change in net
unrealized (losses) on managed investments for the three
months ended March 31, 2018 of $(56.8) million compared to
gains $14.3 million for the three months ended March 31, 2017.
Changes in unrealized (losses) on managed investments during the
three months ended March 31, 2018 were primarily driven by the
impact of interest rate increases on the Company’s managed fixed
maturity portfolio.
- Income from
investment affiliates for the three months ended
March 31, 2018 was $13.1 million compared to $5.2 million for
the three months ended March 31, 2017, an increase of $7.9
million, or 151.9%. The income from investment affiliates
represents equity earnings on investments in funds managed by
Aquiline Capital Partners LLC.
Corporate expenses and other
items
Highlights for the first quarter 2018 were as follows:
- General and
administrative expenses for the three months ended
March 31, 2018 were $12.3 million compared to $18.0 million
for the three months ended March 31, 2017, a decrease of $5.7
million, or 31.5%. The decrease was primarily driven by a higher
allocation of costs to reporting segments during the three months
ended March 31, 2018.
- Share
compensation expenses for the three months ended
March 31, 2018 were $4.0 million compared to $3.4 million for
the three months ended March 31, 2017, an increase of $0.6
million, or 18.3%.
- Finance
expenses for the three months ended March 31, 2018 were
$14.1 million compared to $13.9 million for the three months ended
March 31, 2017, an increase of $0.2 million, or 1.6%.
- Dividends on
preferred shares for the three months ended March 31,
2018 were $5.8 million compared to $2.2 million for the three
months ended March 31, 2017, an increase of $3.6 million, or
164.5% due to $250.0 million of new preferred shares issued during
the second quarter of 2017.
- Tax
(benefit) for the three months ended March 31, 2018 was
$(6.8) million compared to $(3.5) million for the three months
ended March 31, 2017. The tax (benefit) during the three
months ended March 31, 2018 mainly related to operating losses
in the Insurance segment and unrealized losses on the Company’s
investment portfolio.
- Foreign exchange
(losses) for the three months ended March 31, 2018 were
$nil compared to gains of $1.1 million for the three months ended
March 31, 2017.
- Transaction
expenses for the three months ended March 31, 2018 were
$7.8 million compared to $nil for the three months ended
March 31, 2017 and were primarily composed of legal and
financial advisory services in relation to the Company’s Merger
with AIG.
Shareholders’ Equity and
Capitalization
As at March 31, 2018, total shareholders’ equity was $4.2
billion including $334.4 million of noncontrolling interests and
$400.0 million of preferred shares. Shareholders’ equity available
to Validus common shareholders was $3.5 billion as at
March 31, 2018. Total capitalization available to Validus at
March 31, 2018 was $4.7 billion, including $539.6 million of
junior subordinated deferrable debentures and $245.6 million of
senior notes. Total capitalization at March 31, 2018 was $6.4
billion, including $1.4 billion of redeemable noncontrolling
interests and $334.4 million of noncontrolling interests related to
AlphaCat.
Book value per common share was $44.14 at March 31, 2018
based on 79,329,028 common shares outstanding, compared to $44.06
at December 31, 2017 based on 79,319,550 common shares
outstanding. Book value per diluted common share was $42.79 at
March 31, 2018 based on 81,818,916 diluted common shares
outstanding, compared to $42.71 at December 31, 2017 based on
81,823,409 diluted common shares outstanding, an increase of 1.1%,
inclusive of dividends for the three months ended March 31,
2018. Book value per diluted common share is a non-GAAP financial
measure. A reconciliation of book value per common share, the most
comparable GAAP measure, to book value per diluted common share is
presented at the end of this release.
Share Repurchases
The Company did not repurchase any common shares during the
three months ended March 31, 2018. A summary of the common
share repurchases made to date under the Company’s previously
announced share repurchase programs is as follows:
Total shares repurchased under publicly announced
repurchase program
Approximate dollar
value of shares
Total number of
Aggregate
that may yet be
shares
Purchase
Average Price per
purchased under
(Dollars in thousands, except share and per share amounts)
repurchased
Price(a)
Share(a)
the Program
Cumulative inception-to-date to April 30, 2018 81,035,969 $
2,730,975 $ 33.70 $ 293,426 (a) Share transactions are on a
trade date basis through April 30, 2018 and are inclusive of
commissions. Average share price is rounded to two decimal places.
About Validus Holdings,
Ltd.
Validus Holdings, Ltd. is a leading global provider of
reinsurance, insurance, and asset management services, delivering
its premier solutions through four diversified yet complementary
operating companies: Validus Reinsurance, Ltd., a global
reinsurance group focused primarily on treaty reinsurance; Talbot
Underwriting Ltd., a specialty (re)insurance group operating within
the Lloyd’s market through Syndicate 1183; Western World Insurance
Group, Inc., a U.S. specialty lines organization; and AlphaCat
Managers, Ltd., a Bermuda‐based investment advisor managing capital
for third parties and Validus through insurance‐linked securities
and other property catastrophe and specialty reinsurance
investments.
Research and analytics are at the core of Validus’ operations
and provide its team of expert practitioners with the knowledge and
insight required to effectively model and interpret risk – an
approach that consistently benefits clients and ensures their needs
are met. Validus maintains a worldwide presence with more than
1,000 employees in 17 offices across all major regions and is
listed on the New York Stock Exchange under the ticker symbol
VR.
More information about the Validus group of companies can be
found at validusholdings.com.
Validus Holdings, Ltd.
Consolidated Balance Sheets
As at
March 31, 2018 and December 31, 2017
(Expressed in thousands of U.S. dollars,
except share and per share information)
March 31,
December 31,
2018
2017
Assets Fixed maturity investments trading, at fair value
(amortized cost: 2018—$5,874,140; 2017—$5,876,261) $ 5,803,022 $
5,858,348 Short-term investments trading, at fair value (amortized
cost: 2018—$3,638,995; 2017—$3,381,714) 3,638,940 3,381,757 Other
investments, at fair value (cost: 2018—$331,950; 2017—$330,416)
357,246 355,218 Investments in investment affiliates, equity method
(cost: 2018—$75,302; 2017—$61,944) 113,471 100,137 Cash and cash
equivalents 672,173 754,990 Restricted cash 302,277 394,663
Total investments and cash 10,887,129 10,845,113 Premiums
receivable 1,865,460 939,487 Deferred acquisition costs 309,825
213,816 Prepaid reinsurance premiums 390,900 132,938 Securities
lending collateral 4,210 2,717 Loss reserves recoverable 979,944
1,233,997 Paid losses recoverable 59,892 46,873 Income taxes
recoverable 7,705 9,044 Deferred tax asset 56,739 52,467 Receivable
for investments sold 31,512 12,182 Intangible assets 169,168
171,411 Goodwill 229,573 229,573 Accrued investment income 29,621
29,096 Other assets 578,964 508,165
Total
assets $ 15,600,642 $ 14,426,879
Liabilities Reserve for losses and loss expenses $ 4,632,629
$ 4,831,390 Unearned premiums 2,242,368 1,147,186 Reinsurance
balances payable 398,861 331,645 Securities lending payable 4,210
2,717 Deferred tax liability 3,633 4,600 Payable for investments
purchased 85,946 74,496 Accounts payable and accrued expenses
520,916 1,225,875 Notes payable to AlphaCat investors 1,268,194
1,108,364 Senior notes payable 245,614 245,564 Debentures payable
539,572 539,158
Total liabilities 9,941,943
9,510,995
Commitments and contingent
liabilities Redeemable noncontrolling interests
1,423,110 1,004,094
Shareholders’ equity Preferred shares
(Issued and Outstanding: 2018—16,000; 2017—16,000) 400,000 400,000
Common shares (Issued: 2018—162,003,969; 2017—161,994,491;
Outstanding: 2018—79,329,028; 2017—79,319,550) 28,351 28,349
Treasury shares (2018—82,674,941; 2017—82,674,941) (14,468 )
(14,468 ) Additional paid-in capital 824,356 814,641 Accumulated
other comprehensive income (loss) 9,405 (22,192 ) Retained earnings
2,653,588 2,688,742
Total shareholders’ equity
available to Validus 3,901,232 3,895,072 Noncontrolling
interests 334,357 16,718
Total shareholders’
equity 4,235,589 3,911,790
Total liabilities,
noncontrolling interests and shareholders’ equity $ 15,600,642
$ 14,426,879
Validus Holdings, Ltd.
Consolidated Statements of (Loss)
Income
For the three
months ended March 31, 2018 and 2017
(Expressed in thousands of U.S. dollars,
except share and per share information)
Three Months Ended March 31, 2018
2017 Revenues Gross premiums written $
1,832,456 $ 1,190,857 Reinsurance premiums ceded (376,294 )
(200,106 ) Net premiums written 1,456,162 990,751 Change in
unearned premiums (837,220 ) (415,375 ) Net premiums earned 618,942
575,376 Net investment income 52,072 40,214 Net realized gains
(losses) on investments 2,200 (1,164 ) Change in net unrealized
(losses) gains on investments (57,381 ) 13,348 Income from
investment affiliates 13,068 5,188 Other insurance related income
and other income 25,540 1,330 Foreign exchange gains 525
1,569
Total revenues 654,966 635,861
Expenses Losses and loss expenses 321,545 269,585 Policy
acquisition costs 116,456 111,628 General and administrative
expenses 114,726 87,924 Share compensation expenses 9,729 9,491
Finance expenses 14,263 13,943 Transaction expenses 7,756 —
Total expenses 584,475 492,571
Income before taxes and (income) attributable to AlphaCat
investors 70,491 143,290 Tax benefit 6,833 3,549 (Income)
attributable to AlphaCat investors (10,862 ) (7,503 )
Net
income 66,462 139,336 Net (income) attributable to
noncontrolling interests (64,712 ) (42,572 )
Net income
available to Validus 1,750 96,764 Dividends on preferred shares
(5,828 ) (2,203 )
Net (loss) income (attributable) available to
Validus common shareholders $ (4,078 )
$ 94,561 Selected ratios: Ratio
of net to gross premiums written 79.5 % 83.2 %
Losses and
loss expense ratio 52.0 % 46.9 % Policy acquisition cost
ratio 18.8 % 19.4 % General and administrative expense ratio 20.1 %
16.9 %
Expense ratio 38.9 % 36.3 %
Combined ratio
90.9 % 83.2 %
Validus Holdings, Ltd.
Segment Information
For the three
months ended March 31, 2018 and 2017
(Expressed in thousands of U.S. dollars,
except share and per share information)
Reinsurance Segment Three Months Ended
March 31, 2018 2017 Underwriting
revenues Gross premiums written $ 765,573 $ 643,141 Reinsurance
premiums ceded (190,194 ) (114,446 ) Net premiums written 575,379
528,695 Change in unearned premiums (350,627 ) (297,040 ) Net
premiums earned 224,752 231,655 Other insurance related income 2
2
Total underwriting revenues 224,754
231,657
Underwriting deductions Losses and loss
expenses 103,473 80,881 Policy acquisition costs 48,340 43,535
General and administrative expenses 28,915 19,969 Share
compensation expenses 2,663 2,623
Total
underwriting deductions 183,391 147,008
Underwriting income $ 41,363 $
84,649 Insurance Segment
Three Months Ended March 31, 2018 2017
Underwriting revenues Gross premiums written $ 785,795 $
382,790 Reinsurance premiums ceded (191,637 ) (79,000 ) Net
premiums written 594,158 303,790 Change in unearned premiums
(294,620 ) (24,696 ) Net premiums earned 299,538 279,094 Other
insurance related income 2,170 996
Total
underwriting revenues 301,708 280,090
Underwriting deductions Losses and loss expenses 183,389
186,610 Policy acquisition costs 60,057 61,192 General and
administrative expenses 68,050 45,276 Share compensation expenses
2,989 3,373
Total underwriting deductions
314,485 296,451
Underwriting (loss) $
(12,777 ) $ (16,361 )
Validus Holdings, Ltd.
Segment Information
For the three
months ended March 31, 2018 and 2017
(Expressed in thousands of U.S. dollars,
except share and per share information)
Asset Management Segment Three Months Ended
March 31, 2018 2017 Fee revenues
Third party $ 6,209 $ 4,644 Related party 443 631
Total fee revenues 6,652 5,275
Expenses
General and administrative expenses 4,547 3,844 Share compensation
expenses 41 82 Finance expenses 78 31 Tax (benefit) (7 ) (1 )
Foreign exchange losses (gains) 1 (1 )
Total expenses
4,660 3,955
Income before investment income from
funds and sidecars 1,992 1,320
Investment income from funds and
sidecars(a)
AlphaCat Sidecars 32 (112 )
AlphaCat ILS Funds - Lower Risk(b)
1,234 2,189
AlphaCat ILS Funds - Higher Risk(b)
3,820 2,367 BetaCat ILS Funds 186 368
Validus'
share of investment income from funds and sidecars 5,272
4,812
Asset Management segment income $
7,264 $ 6,132 (a) The
investment income from 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 7% or greater. The maximum permitted portfolio 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,
2018 2017 Managed investments Managed
net investment income (a) $ 39,791 $ 36,192 Net realized gains
(losses) on managed investments (a) 1,142 (2,892 ) Change in net
unrealized (losses) gains on managed investments (a) (56,777 )
14,349 Income from investment affiliates 13,068 5,188
Total managed investment return (2,776 )
52,837 Corporate expenses General and
administrative expenses 12,309 17,961 Share compensation expenses
4,036 3,413
Finance expenses (a)
14,090 13,864 Dividends on preferred shares 5,828 2,203 Tax
(benefit) (a) (6,826 ) (3,548 )
Total Corporate expenses
29,437 33,893 Other items
Foreign exchange (losses) gains (a) (3 ) 1,103 Other income 44 94
Transaction expenses (7,756 ) —
Total other items
(7,715 ) 1,197 Total Corporate and
Investments $ (39,928 ) $
20,141 (a) These items exclude the components
which are included in the Asset Management segment income and
amounts which are consolidated from variable interest entities.
Validus Holdings, Ltd.
Segment Information
For the three
months ended March 31, 2018 and 2017
(Expressed in thousands of U.S. dollars,
except share and per share information)
Three Months Ended March 31, 2018
Asset
Management
Segment and
Reinsurance
Insurance
Consolidated
Corporate &
Segment
Segment
VIEs
Investments
Eliminations Total Underwriting revenues Gross
premiums written $ 765,573 $ 785,795 $ 286,625 $ — $ (5,537 ) $
1,832,456 Reinsurance premiums ceded (190,194 ) (191,637 ) —
— 5,537 (376,294 ) Net premiums written 575,379
594,158 286,625 — — 1,456,162 Change in unearned premiums (350,627
) (294,620 ) (191,973 ) — — (837,220 ) Net premiums
earned 224,752 299,538 94,652 — — 618,942 Other insurance related
income 2 2,170 28,080 — (4,756 ) 25,496
Total underwriting revenues 224,754 301,708
122,732 — (4,756 ) 644,438
Underwriting deductions Losses and loss expenses 103,473
183,389 34,683 — — 321,545 Policy acquisition costs 48,340 60,057
8,059 — — 116,456 General and administrative expenses 28,915 68,050
10,208 12,309 (4,756 ) 114,726 Share compensation expenses 2,663
2,989 41 4,036 — 9,729
Total underwriting deductions 183,391 314,485
52,991 16,345 (4,756 ) 562,456
Underwriting
income (loss) $ 41,363 $ (12,777 ) $ 69,741 $
(16,345 ) $ — $ 81,982 Net investment return (a) — —
12,735 (2,776 ) — 9,959 Other items (b) — — 362 (20,807 ) — (20,445
) (Income) attributable to AlphaCat investors — — (10,862 ) — —
(10,862 ) Net (income) attributable to noncontrolling interests —
— (64,712 ) — — (64,712 )
Net income
(loss) available (attributable) to Validus common shareholders
$ 41,363 $ (12,777 )
$ 7,264 $ (39,928 )
$ — $ (4,078 )
Three Months Ended March 31, 2017
Asset
Management
Segment and
Reinsurance
Insurance
Consolidated
Corporate &
Segment
Segment
VIEs
Investments
Eliminations Total Underwriting revenues Gross
premiums written $ 643,141 $ 382,790 $ 164,926 $ — $ — $ 1,190,857
Reinsurance premiums ceded (114,446 ) (79,000 ) (6,660 ) — —
(200,106 ) Net premiums written 528,695 303,790 158,266 — —
990,751 Change in unearned premiums (297,040 ) (24,696 ) (93,639 )
— — (415,375 ) Net premiums earned 231,655 279,094
64,627 — — 575,376 Other insurance related income 2 996
5,161 — (4,923 ) 1,236
Total
underwriting revenues 231,657 280,090 69,788
— (4,923 ) 576,612
Underwriting
deductions Losses and loss expenses 80,881 186,610 2,094 — —
269,585 Policy acquisition costs 43,535 61,192 6,901 — — 111,628
General and administrative expenses 19,969 45,276 9,641 17,961
(4,923 ) 87,924 Share compensation expenses 2,623 3,373
82 3,413 — 9,491
Total
underwriting deductions 147,008 296,451 18,718
21,374 (4,923 ) 478,628
Underwriting income
(loss) $ 84,649 $ (16,361 ) $ 51,070 $ (21,374 )
$ — $ 97,984 Net investment return (a) — — 4,749
52,837 — 57,586 Other items (b) — — 388 (11,322 ) — (10,934 )
(Income) attributable to AlphaCat investors — — (7,503 ) — — (7,503
) Net (income) attributable to noncontrolling interests — —
(42,572 ) — — (42,572 )
Net income (loss)
available (attributable) to Validus common shareholders
$ 84,649 $ (16,361 )
$ 6,132 $ 20,141 $
— $ 94,561 (a) Net
investment return includes net investment income, net realized and
change in net unrealized gains (losses) on investments and income
from investment affiliates. (b) Other items includes finance
expenses, transaction expenses, dividends on preferred shares, tax
benefit, foreign exchange gains (losses) and other income (loss).
Non-GAAP Financial Measures
In presenting the Company’s results, management has included and
discussed certain non-GAAP financial measures. The Company believes
that these non-GAAP measures, which may be defined and calculated
differently by other companies, better explain and enhance the
understanding of the Company’s results of operations. However,
these measures should not be viewed as a substitute for those
determined in accordance with U.S. GAAP.
In addition to presenting book value per common share determined
in accordance with U.S. GAAP, the Company believes that the
following non-GAAP book value financial measures are key financial
indicators for evaluating performance and measuring overall growth:
book value per diluted common share, book value per diluted common
share plus accumulated dividends and tangible book value per
diluted common share. A reconciliation of book value per common
share, a GAAP financial measure, to the non-GAAP book value
financial measures has been included below.
In addition to presenting net (loss) income (attributable)
available to Validus common shareholders determined in accordance
with U.S. GAAP, the Company believes that showing net operating
income available to Validus common shareholders, a non-GAAP
financial measure, provides investors with a valuable measure of
profitability and enables investors, analysts, rating agencies and
other users of its financial information to more easily analyze the
Company’s results in a manner similar to how management analyzes
the Company’s underlying business performance.
Net operating income available to Validus common shareholders, a
non-GAAP financial measure, is calculated by the addition or
subtraction of certain Consolidated Statement of (Loss) Income line
items from net (loss) income (attributable) available to Validus
common shareholders, the most directly comparable GAAP financial
measure, and measures the performance of the Company’s operations
without the influence of gains or losses on investments and foreign
currencies and other items as noted in the reconciliation below.
The Company excludes these items from its calculation of net
operating income available to Validus common shareholders because
the amount of these gains and losses is heavily influenced by, and
fluctuates in part, according to availability of investment market
opportunities and other factors. The Company believes these amounts
are largely independent of its core underwriting activities and
including them distorts the analysis of trends in its operations.
The Company believes the reporting of net operating income
available to Validus common shareholders enhances the understanding
of results by highlighting the underlying profitability of the
Company’s core (re)insurance operations. This profitability is
influenced significantly by earned premium growth, adequacy of the
Company’s pricing, as well as loss frequency and severity. Over
time it 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.
Return on average equity, a GAAP financial measure, and net
operating return on average equity, a non-GAAP financial measure,
represents the returns generated on common shareholders’ equity
during the period and are presented below.
Validus Holdings, Ltd.
Non-GAAP Financial Measures
Reconciliation
Book Value per Common Share, Book Value
per Diluted Common Share and Tangible Book Value per Diluted Common
Share
As at
March 31, 2018 and December 31, 2017
(Expressed in thousands of U.S. dollars,
except share and per share information)
March 31, 2018
Per Share
Equity Amount Common Shares
Amount (a)
Book value per common share (b) $ 3,501,232 79,329,028 $
44.14
Non-GAAP Adjustments: Unvested restricted shares — 2,489,888
Book value per diluted common share (c) 3,501,232 81,818,916
$ 42.79 Goodwill (229,573 ) — Intangible assets (169,168 ) —
Tangible book value per diluted common share (c) $ 3,102,491
81,818,916 $ 37.92 Book value per diluted common share (c) $
42.79 Accumulated dividends 13.46 Book value per diluted
common share plus accumulated dividends (c) $ 56.25
December 31, 2017
Per Share
Equity Amount Common Shares
Amount (a)
Book value per common share (b) $ 3,495,072 79,319,550 $ 44.06
Non-GAAP Adjustments: Unvested restricted shares — 2,503,859
Book value per diluted common share (c) 3,495,072 81,823,409
$ 42.71 Goodwill (229,573 ) — Intangible assets (171,411 ) —
Tangible book value per diluted common share (c) $ 3,094,088
81,823,409 $ 37.81 Book value per diluted common share (c) $
42.71 Accumulated dividends 13.08 Book value per diluted
common share plus accumulated dividends (c) $ 55.79 (a) Per
share amounts are calculated by dividing the equity amount by the
common shares. (b) The equity amount used in the calculation of
book value per common share represents total shareholders' equity
available to Validus excluding the liquidation value of the
preferred shares. (c) Non-GAAP financial measure.
Validus Holdings, Ltd.
Non-GAAP Financial Measures
Reconciliation
Net Operating Income available to Validus
Common Shareholders, Net Operating Income per Diluted Share
available to Validus Common Shareholders
and Annualized Net Operating Return on Average Equity
For the three
months ended March 31, 2018 and 2017
(Expressed in thousands of U.S. dollars,
except share and per share information)
Three Months Ended March 31, 2018
2017 Net (loss) income (attributable) available to
Validus common shareholders $ (4,078 ) $ 94,561 Non-GAAP
Adjustments: Net realized (gains) losses on investments (2,200 )
1,164 Change in net unrealized losses (gains) on investments 57,381
(13,348 ) (Income) from investment affiliates (13,068 ) (5,188 )
Foreign exchange (gains) (525 ) (1,569 ) Other (income) (44 ) (94 )
Transaction expenses 7,756 — Net income attributable to
noncontrolling interests 429 728 Tax (benefit) expense (a) (3,094 )
580 Net operating income available to Validus common
shareholders (b) $ 42,557 $ 76,834 Weighted
average number of diluted common shares outstanding 79,325,688
80,739,142 (Loss) earnings per diluted share (attributable)
available to Validus common shareholders $ (0.05 ) $ 1.17 Non-GAAP
Adjustments: Net realized (gains) losses on investments (0.03 )
0.01 Change in net unrealized losses (gains) on investments 0.72
(0.17 ) (Income) from investment affiliates (0.17 ) (0.06 ) Foreign
exchange (gains) (0.01 ) (0.02 ) Other (income) — — Transaction
expenses 0.10 — Net income attributable to noncontrolling interests
0.01 0.01 Tax (benefit) expense (a) (0.04 ) 0.01 Net
operating income per diluted share available to Validus common
shareholders (b) $ 0.53 $ 0.95 Average
shareholders' equity available to Validus common shareholders (c) $
3,498,152 $ 3,725,084 Annualized return on average equity
(0.5 %) 10.2 %
Annualized net operating return on average equity (b)
4.9 % 8.3 % (a)
Represents the tax expense or benefit associated with the
specific country to which the pre-tax adjustment relates to. The
tax impact is estimated by applying the statutory rates of
applicable jurisdictions, after consideration of other relevant
factors including the ability to utilize tax losses carried
forward. (b) Non-GAAP financial measure. (c) Average shareholders’
equity for the three months ended is the average of the beginning
and ending quarter end shareholders’ equity balances, excluding the
liquidation value of the preferred shares.
Cautionary Note Regarding Forward-Looking Statements
Certain statements herein may include projections, goals,
assumptions and statements that may constitute “forward-looking
statements” within the meaning of the Private Securities Litigation
Reform Act of 1995, and Validus may make related oral,
forward-looking statements on or following the date hereof. These
projections, goals, assumptions and statements are not historical
facts but instead represent only Validus’ belief regarding future
events, many of which, by their nature, are inherently uncertain
and outside Validus’ control. These projections, goals, assumptions
and statements include statements preceded by, followed by or
including words such as “will,” “believe,” “anticipate,” “expect,”
“intend,” “plan,” “focused on achieving,” “view,” “target,” “goal,”
or “estimate.” Accordingly, there are or will be important factors
that could cause Validus’ actual results and financial condition to
differ, possibly materially, from the results and financial
condition indicated in these projections, goals, assumptions and
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; 17)
availability of reinsurance and retrocessional coverage; 18) the
inability to complete the proposed transaction with AIG (the
“proposed transaction”) because, among other reasons, conditions to
the closing of the proposed transaction may not be satisfied or
waived; 19) uncertainty as to the timing of completion of the
proposed transaction; 20) the inability to complete the proposed
transaction due to the failure to satisfy other conditions to
completion of the proposed transaction, including that a
governmental entity may prohibit, delay or refuse to grant approval
for the consummation of the transaction; 21) the occurrence of any
event, change or other circumstances that could give rise to the
termination of the merger agreement; 22) risks related to
disruption of management’s attention from Validus’ ongoing business
operations due to the proposed transaction; 23) the effect of the
announcement of the proposed transaction on Validus’ relationships
with its clients, operating results and business generally; and 24)
the outcome of any legal proceedings to the extent initiated
against Validus or others following the announcement of the
proposed transaction, as well as Validus’ 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 Validus on file
with or furnished to the Securities and Exchange Commission
(“SEC”). Any forward-looking statements made in this material 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, Validus
undertakes no obligation to update publicly or revise any
forward-looking statement, whether as a result of new information,
future developments or otherwise.
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Investors:Validus Holdings,
Ltd.Investor.Relations@validusholdings.com+1-441-278-9000orMedia:Brunswick
GroupMustafa Riffat / Charlotte Connerton+1-212-333-3810
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