Validus Holdings, Ltd. : Validus Announces Record First Quarter 2012 Net Income of $124.2 Million
04/26/2012| 09:00pm US/Eastern
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Diluted Operating Earnings Per Share of $0.88
Diluted Book Value Per Share of $33.25 at March 31, 2012
Validus Holdings, Ltd. ("Validus" or the "Company") (NYSE: VR) today
reported net income of $124.2 million, or $1.18 per diluted common share
for the three months ended March 31, 2012, compared to a net loss of
($172.4) million, or ($1.78) per diluted common share, for the three
months ended March 31, 2011.
Net operating income for the three months ended March 31, 2012 was $92.9
million, or $0.88 per diluted common share, compared with a net
operating loss of ($165.4) million, or ($1.71) per diluted common share,
for the three months ended March 31, 2011.
Net operating income (loss), a non-GAAP financial measure, is defined as
net income (loss) excluding net realized and unrealized gains (losses)
on investments, foreign exchange gains (losses) and non-recurring items.
A reconciliation of this measure to net income (loss), the most directly
comparable GAAP measure, is presented at the end of this release.
Commenting on financial results for the quarter ended March 31, 2012, Ed
Noonan, Validus' Chairman and Chief Executive Officer stated: "I am
pleased to report nearly $125 million in net income and annualized
growth in diluted book value per share of 15.1% despite meaningful
catastrophe losses in connection with the Costa Concordia sinking and
severe tornado activity in the U.S. heartland. The net effect of the
Costa Concordia loss, after the impact of reinstatement premiums was
$63.1 million, which was within our pre-announced range of $50 million
to $65 million. The total effect of notable losses after reinstatement
premiums was $84.5 million in the first quarter of 2012, as compared to
$271.1 million for the first quarter of 2011. Validus continues to
expand and leverage our core capabilities as evidenced by the
announcement of the capitalization of PaCRe, Ltd. and continued
development of AlphaCat. We have also received interest in, and are
considering opportunities to, raise additional capital for one or more
of our AlphaCat funds or managed accounts. These additional facilities
allow Validus to better serve our customers, intermediaries and
ultimately our shareholders through the growth of our business. With the
January 1 and April 1 renewals behind us, we have plenty of capacity
available for opportunities through the remainder of the year. Our
balance sheet is strong and we continue to generate excess capital. We
expect to become more active in capital management for the balance of
2012, while maintaining our capital in excess of our rating agency
targets and stated risk appetites."
First Quarter 2012 Results
Highlights for the first quarter include the following:
Total managed gross premiums written which includes gross premiums
written from our non-consolidated affiliate, AlphaCat Re 2011, Ltd.
("AlphaCat Re 2011"), for the three months ended March 31, 2012 was
$911.2 million compared to $849.9 million for the three months ended
March 31, 2011, an increase of $61.3 million or 7.2%.
Gross premiums written for the three months ended March 31, 2012 were
$837.3 million compared to $849.9 million for the three months ended
March 31, 2011, a decrease of $12.6 million, or 1.5%.
Net premiums earned for the three months ended March 31, 2012 were
$451.2 million compared to $429.5 million for the three months ended
March 31, 2011, an increase of $21.7 million, or 5.0%.
Underwriting income for the three months ended March 31, 2012 was
$69.3 million compared to an underwriting loss of ($184.5) million for
the three months ended March 31, 2011, an increase of $253.8 million,
or 137.6%.
Combined ratio of 84.6% which included $30.4 million of favorable
prior accident year loss reserve development, benefiting the loss
ratio by 6.7 percentage points.
Net operating income for the three months ended March 31, 2012 was
$92.9 million compared to a net operating loss of ($165.4) million for
the three months ended March 31, 2011, an increase of $258.3 million,
or 156.1%.
Net income for the three months ended March 31, 2012 was $124.2
million compared to a net loss of ($172.4) million for the three
months ended March 31, 2011, an increase of $296.6 million, or 172.1%.
Annualized return on average equity of 14.2% and annualized net
operating return on average equity of 10.6%.
Notable Loss Events
For three months ended March 31, 2012, the Company incurred losses and
loss expenses of $98.9 million from notable loss events, which
represented 21.9 percentage points of the loss ratio. Including the
impact of $14.4 million of reinstatement premiums, the effect of these
events on net income was a decrease of $84.5 million. For the three
months ended March 31, 2011, the Company incurred $293.8 million from
notable loss events, which represented 68.4 percentage points of the
loss ratio. Including the impact of $22.7 million of reinstatement
premiums, the effect of these events on net income was a decrease of
$271.1 million. The Company's loss ratio, excluding prior accident year
development and notable loss events for the three months ended March 31,
2012 and 2011 was 36.2% and 48.7%, respectively.
Three months ended March 31, 2012
First Quarter 2012 Notable Loss Events (a)
(Dollars in thousands)
Validus Re
Talbot
Total
Description
Net Losses
and Loss
Expenses (b)
% of NPE
Net Losses
and Loss
Expenses (b)
% of NPE
Net Losses
and Loss
Expenses (b)
% of NPE
Costa Concordia
Grounding
$
62,798
24.8
%
$
13,399
6.9
%
$
76,197
16.9
%
Cat 67
Tornadoes
22,699
9.0
%
14
0.0
%
22,713
5.0
%
Total
$
85,497
33.8
%
$
13,413
6.9
%
$
98,910
21.9
%
First Quarter 2011 Notable Loss Events
Three months ended March 31, 2011
(Dollars in thousands)
Validus Re
Talbot
Total
Description
Net Losses
and Loss
Expenses (b)
% of NPE
(c)
Net Losses
and Loss
Expenses (b)
% of NPE
Net Losses
and Loss
Expenses (b)
% of NPE
Tohoku earthquake
Earthquake
$
101,156
40.7
%
$
47,770
26.9
%
$
148,926
34.7
%
Gryphon Alpha
Mooring failure
42,914
17.2
%
9,520
5.4
%
52,434
12.2
%
Christchurch earthquake
Earthquake
32,381
13.0
%
9,500
5.4
%
41,881
9.8
%
Brisbane floods
Floods
25,023
10.1
%
6,000
3.4
%
31,023
7.2
%
CNRL Horizon
Explosion
12,000
4.8
%
7,500
4.2
%
19,500
4.5
%
Total
$
213,474
85.8
%
$
80,290
45.3
%
$
293,764
68.4
%
(a)
These 2012 notable loss event amounts are based on management's
estimates following a review of the Company's potential exposure and
discussions with certain clients and brokers. Given the magnitude
and recent occurrence of these events, and other uncertainties
inherent in loss estimation, meaningful uncertainty remains
regarding losses from these events and the Company's actual ultimate
net losses from these events may vary materially from these
estimates.
(b)
Net of reinsurance but not net of reinstatement premiums. Total
reinstatement premiums were $14.4 million for the three months ended
March 31, 2012 and $22.7 million for the three months ended March
31, 2011.
(c)
2011 loss ratios for the Validus Re segment have been represented to
exclude the impact of the AlphaCat segment.
Change in Segmentation
The Company conducts its operations worldwide through two wholly-owned
subsidiaries, Validus Reinsurance, Ltd. ("Validus Re") and Talbot
Holdings Ltd. ("Talbot") from which three operating segments have been
determined under U.S. GAAP segment reporting. During the first quarter
of 2012, to better align the Company's operating and reporting structure
with its current strategy, there was a change in the segment structure.
This change included the AlphaCat group of companies as a separate
operating segment. "AlphaCat segment" was included as an additional
segment and includes the Company's investment in AlphaCat Re 2011. Prior
period comparatives have been restated to reflect the change in
segmentation. The Company's 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.
The AlphaCat segment manages strategic relationships that leverage the
Company's underwriting and investment expertise and earns management,
performance and underwriting fees as well as returns on equity
investment primarily from AlphaCat Re 2011.
Validus Re Segment Results
Gross premiums written for the three months ended March 31, 2012 were
$566.9 million compared to $604.1 million for the three months ended
March 31, 2011, a decrease of $37.2 million, or 6.2%. Gross premiums
written for the three months ended March 31, 2012 included $318.5
million of property premiums, $198.4 million of marine premiums and
$50.0 million of specialty premiums compared to $358.1 million of
property premiums, $185.0 million of marine premiums and $60.9 million
of specialty premiums in the three months ended March 31, 2011.
Net premiums earned for the three months ended March 31, 2012 were
$253.0 million compared to $248.9 million for the three months ended
March 31, 2011, an increase of $4.1 million, or 1.6%.
The combined ratio for the three months ended March 31, 2012 was 72.0%
compared to 146.2% for the three months ended March 31, 2011, a decrease
of 74.2 percentage points.
The loss ratio for the three months ended March 31, 2012 was 49.1%
compared to 124.7% for the three months ended March 31, 2011, a decrease
of 75.6 percentage points. For the three months ended March 31, 2012,
Validus Re incurred $85.5 million of losses attributable to notable loss
events, which represented 33.8 percentage points of the loss ratio. The
loss ratio for the three months ended March 31, 2012 included favorable
prior accident year loss reserve development of $18.3 million,
benefiting the loss ratio by 7.2 percentage points.
AlphaCat Segment Results
Managed gross premiums written from our non-consolidated affiliate,
AlphaCat Re 2011, for the three months ended March 31, 2012 were $73.9
million compared to $nil for the three months ended March 31, 2011.
Gross premiums written for the three months ended March 31, 2012 were
$3.5 million compared to $7.2 million for the three months ended March
31, 2011, a decrease of $3.6 million or 50.8%.
Net premiums earned for the three months ended March 31, 2012 were $2.6
million compared to $3.4 million for the three months ended March 31,
2011, a decrease of $0.7 million or 20.9%.
The combined ratio for the three months ended March 31, 2012 was 50.3%
compared to 36.8% for the three months ended March 31, 2011, an increase
of 13.5 percentage points.
The loss ratio for the three months ended March 31, 2012 and 2011 was
0.0%.
Talbot Segment Results
Gross premiums written for the three months ended March 31, 2012 were
$293.3 million compared to $263.1 million for the three months ended
March 31, 2011, an increase of $30.2 million, or 11.5%. Gross premiums
written for the three months ended March 31, 2012 included $81.5 million
of property premiums, $110.0 million of marine premiums and $101.7
million of specialty premiums compared to $70.7 million of property
premiums, $104.9 million of marine premiums and $87.4 million of
specialty premiums in the three months ended March 31, 2011.
Net premiums earned for the three months ended March 31, 2012 were
$195.5 million compared to $177.2 million for the three months ended
March 31, 2011, an increase of $18.3 million, or 10.3%.
The combined ratio for the three months ended March 31, 2012 was 92.6%
compared to 132.2% for the three months ended March 31, 2011, a decrease
of 39.6 percentage points.
The loss ratio for the three months ended March 31, 2012 was 55.1%
compared to 93.5% for the three months ended March 31, 2011, a decrease
of 38.4 percentage points. For the three months ended March 31, 2012,
Talbot incurred $13.4 million of losses attributable to notable loss
events, which represented 6.9 percentage points of the loss ratio. The
loss ratio for the three months ended March 31, 2012 included favorable
prior accident year loss reserve development of $12.1 million,
benefiting the loss ratio by 6.2 percentage points.
Corporate Results
Corporate results include executive and board expenses, internal and
external audit expenses, interest and costs incurred in connection with
the Company's senior notes and junior subordinated deferrable debentures
and other costs relating to the Company as a whole. General and
administrative expenses for the three months ended March 31, 2012 were
$14.7 million compared to $8.2 million for the three months ended March
31, 2011, an increase of $6.5 million, or 79.7%. Share compensation
expenses for the three months ended March 31, 2012 were $2.2 million
compared to $6.2 million for the three months ended March 31, 2011, a
decrease of $4.0 million, or 65.1%.
Investments
Net investment income for the three months ended March 31, 2012 was
$27.8 million compared to $30.0 million for the three months ended March
31, 2011, a decrease of $2.2 million, or 7.4%.
Net realized gains on investments for the three months ended March 31,
2012 were $7.5 million compared to $6.4 million for the three months
ended March 31, 2011, an increase of $1.2 million, or 18.1%.
Net unrealized gains on investments for the three months ended March 31,
2012 were $20.7 million compared to losses of ($12.8) million for the
three months ended March 31, 2011, an increase of $33.5 million, or
261.1%.
Finance Expenses
Finance expenses for the three months ended March 31, 2012 were $16.3
million compared to $14.0 million for the three months ended March 31,
2011, an increase of $2.3 million, or 16.3%.
Shareholders' Equity and Capitalization
As at March 31, 2012, total shareholders' equity was $3.54 billion.
Diluted book value per common share was $33.25 at March 31, 2012,
compared to $32.28 at December 31, 2011. Diluted book value per common
share is a non-GAAP financial measure. A reconciliation of this measure
to shareholders' equity is presented at the end of this release.
Total capitalization at March 31, 2012 was $4.08 billion, including
$289.8 million of junior subordinated deferrable debentures and $247.0
million of senior notes.
Conference Call
The Company will host a conference call for analysts and investors on
April 27, 2012 at 9:00 AM (Eastern) to discuss the first quarter 2012
financial results and related matters. The conference call can be
accessed via telephone by dialing 1-866-700-0161 (toll-free U.S.) or
1-617-213-8832 (international) and entering the pass code 94066759#.
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
11, 2012 by dialing 1-888-286-8010 (toll-free U.S.) or 1-617-801-6888
(international) and entering the pass code 83325750#.
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 11, 2012. In addition, a
financial supplement relating to the Company's financial results for the
three months ended March 31, 2012 is available in the Investor Relations
section of the Company's website.
About Validus Holdings, Ltd.
Validus Holdings, Ltd. is a provider of reinsurance and insurance,
conducting its operations worldwide through two wholly-owned
subsidiaries, Validus Reinsurance, Ltd. and Talbot Holdings Ltd. Validus
Re is a Bermuda based reinsurer focused on short-tail lines of
reinsurance. Talbot is the Bermuda parent of the specialty insurance
group primarily operating within the Lloyd's insurance market through
Syndicate 1183.
Validus Holdings, Ltd.
Consolidated Balance Sheets
As at March 31, 2012 (unaudited) and December 31, 2011
(Expressed in thousands of U.S. dollars, except share and per
share information)
March 31,
December 31,
2012
2011
(unaudited)
Assets
Fixed maturities, at fair value (amortized cost: 2012 - $4,951,881;
2011 - $4,859,705)
$
5,015,210
$
4,894,145
Short-term investments, at fair value (amortized cost: 2012 -
$304,150; 2011 - $280,299)
304,149
280,191
Other investments, at fair value (amortized cost: 2012 - $14,502;
2011 - $15,002)
16,803
16,787
Cash and cash equivalents
917,396
832,844
Total investments and cash
6,253,558
6,023,967
Investment in non-consolidated affiliate
56,398
53,031
Premiums receivable
894,698
646,354
Deferred acquisition costs
170,722
121,505
Prepaid reinsurance premiums
125,407
91,381
Securities lending collateral
419
7,736
Loss reserves recoverable
351,292
372,485
Paid losses recoverable
47,657
90,495
Income taxes recoverable
967
-
Intangible assets
113,691
114,731
Goodwill
20,393
20,393
Accrued investment income
24,387
25,906
Other assets
62,280
50,487
Total assets
$
8,121,869
$
7,618,471
Liabilities
Reserve for losses and loss expenses
$
2,649,610
$
2,631,143
Unearned premiums
1,085,446
772,382
Reinsurance balances payable
152,724
119,899
Securities lending payable
1,108
8,462
Deferred income taxes
17,556
16,720
Net payable for investments purchased
63,427
1,256
Accounts payable and accrued expenses
75,678
83,402
Senior notes payable
247,009
246,982
Debentures payable
289,800
289,800
Total liabilities
4,582,358
4,170,046
Commitments and contingent liabilities
Shareholders' equity
Common shares, 571,428,571 authorized, par value $0.175 (Issued:
2012 - 134,745,003;
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
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) per share, underwriting income (loss),
annualized net operating return on average equity and diluted book value
per common share 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 net operating income
(loss) to net income (loss), the most comparable U.S. GAAP financial
measure, is presented in the section above entitled "Net Operating
Income (Loss), Net Operating Income (Loss) per share 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. Underwriting income indicates the performance of the
Company's 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 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.
Annualized net operating return on average equity is presented in the
section above entitled "Net Operating Income (Loss), Net Operating
Income (Loss) per share and Annualized Net Operating Return on Average
Equity." A reconciliation of diluted book value per common share 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
and Diluted Book Value Per Common Share." Net operating income (loss) is
calculated based on net income (loss) excluding net realized gains
(losses) on investments, net unrealized gains (losses) on investments,
gains (losses) arising from translation of non-US$ denominated balances
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) is defined as above.
Investors: Validus Holdings, Ltd. Jon Levenson,
Executive Vice President +1-441-278-9000 Jon.Levenson@validusholdings.com or Media: Brunswick
Group Stan Neve / Gemma Hart / Greg Faje +1-212-333-3810
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