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Net income of $499.2 million
Diluted Book Value Per Share of $28.61 at September 30, 2009
HAMILTON, Bermuda--(BUSINESS WIRE)-- Validus Holdings, Ltd. ("Validus" or the "Company") (NYSE: VR) today reported net income of $499.2 million, or $5.21 per diluted common share for the three months ended September 30, 2009, compared with a net (loss) of ($126.3) million, or ($1.71) per diluted common share, for the three months ended September 30, 2008. Net income for the nine months ended September 30, 2009 was $731.6 million, or $8.65 per diluted share, compared with $16.1 million, or $0.14 per diluted share, for the nine months ended September 30, 2008.
Net operating income for the three months ended September 30, 2009 was $145.6 million, or $1.52 per diluted share, compared with a net operating (loss) of ($53.1) million, or ($0.73) per diluted common share, for the three months ended September 30, 2008. Net operating income for the nine months ended September 30, 2009 was $356.4 million, or $4.21 per diluted share, compared with net operating income of $124.1 million, or $1.53 per diluted common share, for the nine months ended September 30, 2008.
Net operating income (loss), a non-GAAP financial measure, is defined as net income (loss) excluding net realized and unrealized gains or losses on investments, foreign exchange gains and losses and non-recurring items, including the gain on bargain purchase, net of expenses relating to the acquisition of IPC Holdings, Ltd. ("IPC") Reconciliations of this measure to net income, the most directly comparable GAAP measure, are presented at the end of this release.
Commenting on third quarter results and 2009 business conditions, Validus' Chairman and Chief Executive Officer Ed Noonan stated: "We completed the IPC amalgamation on September 4, 2009. As a consequence of the acquisition and of strong underlying financial results for our Validus Re and Talbot segments, we closed the quarter with total shareholders' equity of $3.97 billion, total assets of $7.18 billion and total investments and cash of $5.71 billion. Diluted book value per share rose to $28.61 at September 30, 2009, which when combined with our $0.20 quarterly dividend resulted in an increase in diluted book value per share plus dividends of 10.5% in the quarter. Looking toward 2010, we approach the January renewal season with $4.3 billion of capital and the ability and intent to support our clients with our expanded resources."
Third quarter 2009 results
Highlights for the third quarter include the following:
-- Gross premiums written for the three months ended September 30, 2009
were $331.0 million compared to $269.2 million for the three months
ended September 30, 2008, an increase of $61.8 million, or 23.0%.
-- Net premiums earned for the three months ended September 30, 2009 were
$374.7 million compared to $339.3 million for the three months ended
September 30, 2008, an increase of $35.4 million, or 10.4%.
-- Combined ratio of 66.7% which included $32.0 million of favorable prior
year loss reserve development, benefiting the loss ratio by 8.5
percentage points.
-- Net operating income for the three months ended September 30, 2009 of
$145.6 million compared to a loss of ($53.1) million for the three
months ended September 30, 2008, an increase of $198.7 million, or
374.5%, primarily attributable to an increased contribution from
underwriting income of $200.1 million and lower finance charges of $3.3
million, offset by lower investment income of $6.8 million.
-- Net income for the three months ended September 30, 2009 of $499.2
million compared to a loss of ($126.3) million for the three months
ended September 30, 2008, an increase of $625.5 million, or 495.2%,
reflecting an increase in operating income of $198.7 million, an
increase in net unrealized investment gains of $65.1 million, a decrease
in foreign exchange losses of $39.7 million, and the gain on bargain
purchase, net of expenses of $302.9 million.
-- Annualized return on average equity of 65.3% and annualized operating
return on average equity of 19.0%.
Highlights for the nine months ended September 30, 2009 include the following:
-- Gross premiums written for the nine months ended September 30, 2009 were
$1,366.0 million compared to $1,170.7 million for the nine months ended
September 30, 2008, an increase of $195.2 million, or 16.7%.
-- Net premiums earned for the nine months ended September 30, 2009 were
$1,021.7 million compared to $940.5 million for the nine months ended
September 30, 2008, an increase of $81.2 million, or 8.6%.
-- Combined ratio of 70.9% which included $53.3 million of favorable prior
year loss reserve development, benefiting the loss ratio by 5.2
percentage points.
-- Net operating income for the nine months ended September 30, 2009 of
$356.4 million compared to $124.1 million for the nine months ended
September 30, 2008, an increase of $232.2 million, or 187.1%, primarily
reflecting increased contribution from underwriting income of $231.2
million and lower finance charges of $19.1 million, offset by lower
investment income of $25.6 million.
-- Net income for the nine months ended September 30, 2009 of $731.6
million compared to $16.1 million for the nine months ended September
30, 2008, an increase of $715.6 million, reflecting growth in operating
income of $232.2 million, an increase in net unrealized investment gains
of $182.4 million, a gain on bargain purchase, net of expenses of $287.1
million offset in part by an increase in net realized losses on
investments of $12.3 million.
-- Annualized return on average equity of 38.7% and annualized operating
return on average equity of 18.9%.
Validus Re Segment Results
Gross premiums written for the three months ended September 30, 2009 were $124.7 million compared to $125.0 million for the three months ended September 30, 2008, a decrease of $0.3 million, or 0.3%. Gross premiums written for the three months ended September 30, 2009 were comprised of $80.6 million of property premiums, $28.4 million of marine premiums and $15.7 million of specialty premiums compared to $97.5 million of property premiums, $19.2 million of marine premiums and $8.3 million of specialty premiums in the three months ended September 30, 2008.
Net premiums earned for the three months ended September 30, 2009 were $199.8 million compared to $181.4 million for the three months ended September 30, 2008, an increase of $18.4 million, or 10.1%.
The combined ratio for the three months ended September 30, 2009 was 49.2% compared to 139.7% for the three months ended September 30, 2008, a decrease of (90.5) percentage points.
The loss ratio for the three months ended September 30, 2009 was 23.0% compared to 119.7% for the three months ended September 30, 2008, a decrease of (96.7) percentage points, due primarily to lower incidences of significant property and other loss events in the three months ended September 30, 2009, which added 95.2 points to the loss ratio for the three months ended September 30, 2008. The loss ratio for the three months ended September 30, 2009 included favorable prior year loss reserve development of $19.3 million (benefiting the loss ratio by 9.6 percentage points).
Gross premiums written for the nine months ended September 30, 2009 were $734.4 million compared to $643.9 million for the nine months ended September 30, 2008, an increase of $90.5 million, or 14.1%. Gross premiums written for the nine months ended September 30, 2009 were comprised of $499.1 million of property premiums, $153.9 million of marine premiums and $81.3 million of specialty premiums compared to $472.0 million of property premiums, $111.9 million of marine premiums and $60.0 million of specialty premiums in the nine months ended September 30, 2008.
Net premiums earned for the nine months ended September 30, 2009 were $537.9 million compared to $489.2 million for the nine months ended September 30, 2008, an increase of $48.7 million, or 10.0%.
The combined ratio for the nine months ended September 30, 2009 was 52.8% compared to 87.7% for the nine months ended September 30, 2008, a decrease of (34.9) percentage points.
The loss ratio for the nine months ended September 30, 2009 was 26.5% compared to 66.4% for the nine months ended September 30, 2008, a decrease of (39.9) percentage points. The loss ratio for the nine months ended September 30, 2009 included favorable prior year loss reserve development of $24.1 million (benefiting the loss ratio by 4.5 percentage points).
Talbot Segment Results
Gross premiums written for the three months ended September 30, 2009 were $227.3 million compared to $157.3 million for the three months ended September 30, 2008, an increase of $70.0 million, or 44.5%. Gross premiums written for the three months ended September 30, 2009 were comprised of $79.2 million of property premiums, $69.6 million of marine premiums and $78.5 million of specialty premiums compared to $35.2 million of property premiums, $66.7 million of marine premiums and $55.4 million of specialty premiums in the three months ended September 30, 2008.
Net premiums earned for the three months ended September 30, 2009 were $174.9 million compared to $157.9 million for the three months ended September 30, 2008, an increase of $17.0 million, or 10.8%.
The combined ratio for the three months ended September 30, 2009 was 83.5% compared to 97.7% for the three months ended September 30, 2008, a decrease of (14.2) percentage points.
The loss ratio for the three months ended September 30, 2009 was 50.4% compared to 64.2% for the three months ended September 30, 2008, a decrease of (13.8) percentage points. The loss ratio for the three months ended September 30, 2009 included favorable prior year loss reserve development of $12.8 million (benefiting the loss ratio by 7.3 percentage points).
Gross premiums written for the nine months ended September 30, 2009 were $690.4 million compared to $556.3 million for the nine months ended September 30, 2008, an increase of $134.0 million, or 24.1%. Gross premiums written for the nine months ended September 30, 2009 were comprised of $218.7 million of property premiums, $244.7 million of marine premiums and $227.0 million of specialty premiums compared to $123.0 million of property premiums, $230.8 million of marine premiums and $202.6 million of specialty premiums in the nine months ended September 30, 2008.
Net premiums earned for the nine months ended September 30, 2009 were $483.8 million compared to $451.3 million for the nine months ended September 30, 2008, an increase of $32.4 million, or 7.2%.
The combined ratio for the nine months ended September 30, 2009 was 87.3% compared to 92.9% for the nine months ended September 30, 2008, a decrease of (5.6) percentage points.
The loss ratio for the nine months ended September 30, 2009 was 51.3% compared to 56.7% for the nine months ended September 30, 2008, a decrease of (5.4) percentage points. The loss ratio for the nine months ended September 30, 2009 included favorable prior year loss reserve development of $29.2 million (benefiting the loss ratio by 6.0 percentage points).
Corporate Segment Results
Corporate results are comprised of executive and board expenses, internal and external audit expenses, interest and costs incurred in connection with the Company's junior subordinated deferrable debentures and other costs relating to the Company as a whole. General and administrative expenses for the three months ended September 30, 2009 were $4.6 million compared to $4.3 million for the three months ended September 30, 2008, an increase of $0.3 million, or 7.6%. Additionally, there was $302.9 million in income from the gain on bargain purchase, net of expenses relating to the acquisition of IPC during the quarter. Share compensation expense for the three months ended September 30, 2009 was $2.7 million compared to $3.0 million for the three months ended September 30, 2008, a decrease of $0.3 million, or 10.3%.
General and administrative expenses for the nine months ended September 30, 2009 were $13.8 million compared to $15.3 million for the nine months ended September 30, 2008, a decrease of $1.5 million, or 9.5%. Additionally, there was $287.1 million in income from the gain on bargain purchase, net of expenses relating to the acquisition of IPC during the quarter. Share compensation expense for the nine months ended September 30, 2009 was $8.1 million compared to $11.9 million for the nine months ended September 30, 2008, a decrease of $3.9 million, or 32.4%, due to the vesting of a tranche of restricted stock to senior executives during the three months ended March 31, 2009.
Investments
Net investment income for the three months ended September 30, 2009 was $29.5 million compared to $36.4 million for the three months ended September 30, 2008, a decrease of $6.8 million, or 18.8%. Net investment income for the nine months ended September 30, 2009 was $83.3 million compared to $108.9 million for the nine months ended September 30, 2008, a decrease of $25.6 million, or 23.5%. Net investment income decreased as a result of reduced market yields and higher average cash balances.
Net realized gains on investments for the three months ended September 30, 2009 were $5.4 million compared to net realized (losses) of ($13.7) million for the three months ended September 30, 2008. Net realized (losses) on investments for the nine months ended September 30, 2009 were ($20.6) million compared to net realized (losses) of ($8.3) million for the nine months ended September 30, 2008.
Net unrealized gains on investments for the three months ended September 30, 2009 were $50.4 million compared to net unrealized (losses) of ($14.6) million for the three months ended September 30, 2008. Net unrealized gains on investments for the nine months ended September 30, 2009 were $109.8 million compared to net unrealized (losses) of ($72.6) million for the nine months ended September 30, 2008. The net unrealized gains in the three months ended September 30, 2009 resulted primarily from unrealized gains in non-agency RMBS and corporate bonds sectors, partially offset by unrealized losses in US government and government agency securities. As at September 30, 2009, the unrealized gain on investments was $25.1 million, which represented 0.4% of total investments and cash.
Finance Expenses
Finance expenses for the three months ended September 30, 2009 were $11.3 million compared to $14.5 million for the three months ended September 30, 2008, a decrease of $3.3 million, or 22.5%. Finance expenses for the nine months ended September 30, 2009 were $29.7 million compared to $48.8 million for the nine months ended September 30, 2008, a decrease of $19.1 million, or 39.1%. These decreases primarily related to the termination of third-party capital for Talbot commencing with the 2008 year of account. Finance expenses consisted principally of interest on the Company's junior subordinated deferrable debentures and third-party capital costs for Talbot.
Shareholders' Equity and Capitalization
As at September 30, 2009, shareholders' equity was $3.97 billion. Diluted book value per common share was $28.61 compared to $26.08 at June 30, 2009. 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 September 30, 2009 was $4.3 billion, including $304.3 million of junior subordinated deferrable debentures.
Share Repurchase Program Authorization
The Company also announced today that on November 4, 2009, the Board of Directors of the Company (the "Board") approved a share repurchase program, authorizing the Company to repurchase up to $400 million of its common shares. The Company expects the purchases to be made from time to time in the open market or in privately negotiated transactions. The timing, form and amount of the share repurchases under the program will depend on a variety of factors, including market conditions, the Company's capital position relative to internal and rating agency targets, legal requirements and other factors. The repurchase program may be modified, extended or terminated by the Board at any time.
Conference Call
The Company will host a conference call for analysts and investors on November 6, 2009 at 9:00 AM (Eastern) to discuss the third quarter 2009 financial results and related matters. The conference call can be accessed via telephone by dialing 1-866-713-8566 (toll-free U.S.) or 1-617-597-5325 (international) and entering the pass code 31062383. 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 November 20, 2009 by dialing 1-888-286-8010 (toll-free U.S.) or 1-617-801-6888 (international) and entering the pass code 45321761.
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. In addition, a financial supplement relating to our financial results for the three and nine months ended September 30, 2009 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. ("Validus Re") and Talbot Holdings Ltd. ("Talbot"). 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 September 30, 2009 (Unaudited) and December 31, 2008
(Expressed in thousands of U.S. dollars, except share and per share
information)
September 30, December 31,
2009 2008
(Unaudited)
Assets
Fixed maturities, at fair value $ 4,590,143 $ 2,454,501
(amortized cost: 2009 - $4,566,801; 2008 -
$2,553,018)
Short-term investments, at fair value 594,581 377,036
(amortized cost: 2009 - $595,557; 2008 - $379,537)
Other investments, at fair value 129,012 -
(amortized cost: 2009 - $126,301)
Cash and cash equivalents 393,788 449,848
Total investments and cash 5,707,524 3,281,385
Premiums receivable 723,029 408,259
Deferred acquisition costs 139,157 108,156
Prepaid reinsurance premiums 101,711 22,459
Securities lending collateral 100,053 98,954
Loss reserves recoverable 172,101 208,796
Paid losses recoverable 10,064 1,388
Net receivable for investments sold - 490
Income taxes recoverable 3,027 1,365
Intangibles assets 124,096 127,217
Goodwill 20,393 20,393
Accrued investment income 43,190 20,433
Other assets 32,726 23,185
Total assets $ 7,177,071 $ 4,322,480
Liabilities
Reserve for losses and loss expenses $ 1,624,743 $ 1,305,303
Unearned premiums 955,049 539,450
Reinsurance balances payable 40,879 33,042
Securities lending payable 101,040 105,688
Deferred income taxes 26,110 21,779
Net payable for investments purchased 39,224 -
Accounts payable and accrued expenses 119,534 74,184
Debentures payable 304,300 304,300
Total liabilities 3,210,879 2,383,746
Shareholders' equity
Common shares, 571,428,571 authorized, par value
$0.175
Issued and outstanding (2009 - 131,107,196; 2008 - 22,944 13,235
75,624,697)
Additional paid-in-capital 2,748,121 1,412,635
Accumulated other comprehensive (loss) (4,976) (7,858)
Retained earnings 1,200,103 520,722
Total shareholders' equity 3,966,192 1,938,734
Total liabilities and shareholders' equity $ 7,177,071 $ 4,322,480
Validus Holdings, Ltd.
Consolidated Statements of Operations and Comprehensive Income (Loss)
For the three and nine months ended September 30, 2009 and 2008 (Unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
Three months ended Nine months ended
September 30, September 30, September 30, September 30, 2008
2009 2008 2009
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues
Gross premiums $ 331,028 $ 269,236 $ 1,365,951 $ 1,170,749
written
Reinsurance (67,687) (35,139) (202,489) (121,438)
premiums ceded
Net premiums 263,341 234,097 1,163,462 1,049,311
written
Change in
unearned 111,376 105,229 (141,786) (108,823)
premiums
Net premiums 374,717 339,326 1,021,676 940,488
earned
Gain on bargain
purchase, net 302,950 - 287,099 -
of expenses
Net investment 29,532 36,379 83,267 108,857
income
Realized gain
on repurchase - - - 8,752
of debentures
Net realized
gains (losses) 5,429 (13,667) (20,642) (8,348)
on investments
Net unrealized
gains (losses) 50,437 (14,649) 109,839 (72,608)
on investments
Other income 1,101 1,269 2,875 3,666
Foreign
exchange (5,244) (44,933) (1,012) (35,843)
(losses)
Total revenues 758,922 303,725 1,483,102 944,964
Expenses
Losses and loss 134,152 318,464 390,736 580,578
expenses
Policy
acquisition 64,236 60,425 190,125 173,545
costs
General and
administrative 46,036 30,120 125,315 101,139
expenses
Share
compensation 5,862 6,012 18,848 19,818
expenses
Finance 11,257 14,517 29,732 48,796
expenses
Total expenses 261,543 429,538 754,756 923,876
Net income
(loss) before 497,379 (125,813) 728,346 21,088
taxes
Tax benefit 1,799 (487) 3,301 (4,992)
(expense)
Net income $ 499,178 $ (126,300) $ 731,647 $ 16,096
(loss)
Comprehensive
income
Foreign
currency (915) (1,556) 2,882 (1,479)
translation
adjustments
Comprehensive $ 498,263 $ (127,856) $ 734,529 $ 14,617
income (loss)
Earnings per
share
Weighted
average number
of common
shares and
common share
equivalents
outstanding
Basic 92,492,373 74,864,724 81,458,329 74,435,840
Diluted 95,834,809 74,864,724 84,626,505 77,922,718
Basic earnings
(loss) per $ 5.38 $ (1.71) $ 8.92 $ 0.15
share
Diluted
earnings (loss) $ 5.21 $ (1.71) $ 8.65 $ 0.14
per share
Cash dividends
declared per $ 0.20 $ 0.20 $ 0.60 $ 0.60
share
Validus Holdings, Ltd. Consolidated Statements of Operations For the three months ended September 30, 2009 (Expressed in thousands of U.S. dollars, except share and per share information) The following tables summarize the underwriting results of our operating segments and corporate segment: Three months ended Validus Re Talbot Corporate & Total September 30, 2009 Eliminations Gross premiums written $ 124,704 $ 227,325 $ (21,001) $ 331,028 Reinsurance premiums ceded (38,435) (50,253) 21,001 (67,687) Net premiums written 86,269 177,072 - 263,341 Change in unearned premiums 113,499 (2,123) - 111,376 Net premiums earned 199,768 174,949 - 374,717 Losses and loss expenses 45,987 88,165 - 134,152 Policy acquisition costs 32,648 33,106 (1,518) 64,236 General and administrative 17,987 23,424 4,625 46,036 expenses Share compensation expenses 1,766 1,371 2,725 5,862 Underwriting income (loss) $ 101,380 $ 28,883 $ (5,832) $ 124,431 Net investment income 23,420 7,629 (1,517) 29,532 Net realized gains (losses) 5,397 32 - 5,429 on investments Net unrealized gains 40,893 9,544 - 50,437 (losses) on investments Other income 1,847 772 (1,518) 1,101 Finance expenses (393) (3,926) (6,938) (11,257) Foreign exchange gains 739 (5,983) - (5,244) (losses) Gain on bargain purchase, - - 302,950 302,950 net of expenses Net income before taxes 173,283 36,951 287,145 497,379 Tax (expense) benefit (41) 1,840 - 1,799 Net income $ 173,242 $ 38,791 $ 287,145 $ 499,178 Selected ratios (1) Losses and loss expenses 23.0% 50.4% 35.8% Policy acquisition costs 16.3% 18.9% 17.1% General and administrative 9.9% 14.2% 13.8% expenses Expense ratio 26.2% 33.1% 30.9% Combined ratio 49.2% 83.5% 66.7% Total assets $ 5,087,544 $ 2,049,647 $ 39,880 $ 7,177,071
(1) Ratios are based on net premiums earned. The general and administrative expense ratio includes share compensation expenses.
Validus Holdings, Ltd. Consolidated Statements of Operations For the three months ended September 30, 2008 (Expressed in thousands of U.S. dollars, except share and per share information) Three months ended Validus Re Talbot Corporate & Total September 30, 2008 Eliminations Gross premiums written $ 125,029 $ 157,307 $ (13,100) $ 269,236 Reinsurance premiums ceded (36,286) (11,953) 13,100 (35,139) Net premiums written 88,743 145,354 - 234,097 Change in unearned premiums 92,653 12,576 - 105,229 Net premiums earned 181,396 157,930 - 339,326 Losses and loss expenses 217,081 101,383 - 318,464 Policy acquisition costs 26,520 34,026 (121) 60,425 General and administrative 7,972 17,851 4,297 30,120 expenses Share compensation expenses 1,809 1,164 3,039 6,012 Underwriting (loss) income $ (71,986) $ 3,506 $ (7,215) $ (75,695) Net investment income 25,984 11,737 (1,342) 36,379 Net realized (losses) on (12,528) (1,139) - (13,667) investments Net unrealized (losses) (15,946) 1,297 - (14,649) gains on investments Other income 121 1,269 (121) 1,269 Finance expenses (213) (7,201) (7,103) (14,517) Foreign exchange (losses) (22,919) (22,014) - (44,933) Net (loss) before taxes (97,487) (12,545) (15,781) (125,813) Tax (expense) (31) (456) - (487) Net (loss) $ (97,518) $ (13,001) $ (15,781) $ (126,300) Selected ratios (1): Losses and loss expenses 119.7% 64.2% 93.9% Policy acquisition costs 14.6% 21.5% 17.8% General and administrative 5.4% 12.0% 10.6% expenses Expense ratio 20.0% 33.5% 28.4% Combined ratio 139.7% 97.7% 122.3% Total assets $ 2,741,721 $ 1,763,614 $ 4,261 $ 4,509,596
(1) Ratios are based on net premiums earned. The general and administrative expense ratio includes share compensation expenses.
Validus Holdings, Ltd. Consolidated Statements of Operations For the nine months ended September 30, 2009 (Expressed in thousands of U.S. dollars, except share and per share information) The following tables summarize the underwriting results of our operating segments and corporate segment: Nine months ended September Validus Re Talbot Corporate & Total 30, 2009 Eliminations Gross premiums written $ 734,390 $ 690,357 $ (58,796) $ 1,365,951 Reinsurance premiums ceded (94,794) (166,491) 58,796 (202,489) Net premiums written 639,596 523,866 - 1,163,462 Change in unearned premiums (101,684) (40,102) - (141,786) Net premiums earned 537,912 483,764 - 1,021,676 Losses and loss expenses 142,570 248,166 - 390,736 Policy acquisition costs 90,346 102,378 (2,599) 190,125 General and administrative 45,928 65,565 13,822 125,315 expenses Share compensation expenses 4,986 5,804 8,058 18,848 Underwriting income (loss) $ 254,082 $ 61,851 $ (19,281) $ 296,652 Net investment income 64,989 22,816 (4,538) 83,267 Net realized (losses) on (14,282) (6,360) - (20,642) investments Net unrealized gains on 95,693 14,146 - 109,839 investments Other income 3,034 2,440 (2,599) 2,875 Finance expenses (1,233) (7,688) (20,811) (29,732) Foreign exchange (losses) (641) (427) 56 (1,012) gains Gain on bargain purchase, - - 287,099 287,099 net of expenses Net income before taxes 401,642 86,778 239,926 728,346 Tax (expense) benefit (107) 3,408 - 3,301 Net income $ 401,535 $ 90,186 $ 239,926 $ 731,647 Selected ratios (1) Losses and loss expenses 26.5% 51.3% 38.2% Policy acquisition costs 16.8% 21.2% 18.6% General and administrative 9.5% 14.8% 14.1% expenses Expense ratio 26.3% 36.0% 32.7% Combined ratio 52.8% 87.3% 70.9% Total assets $ 5,087,544 $ 2,049,647 $ 39,880 $ 7,177,071
(1) Ratios are based on net premiums earned. The general and administrative expense ratio includes share compensation expenses.
Validus Holdings, Ltd. Consolidated Statements of Operations For the nine months ended September 30, 2008 (Expressed in thousands of U.S. dollars, except share and per share information) Nine months ended September Validus Re Talbot Corporate & Total 30, 2008 Eliminations Gross premiums written $ 643,898 $ 556,335 $ (29,484) $ 1,170,749 Reinsurance premiums ceded (61,237) (89,685) 29,484 (121,438) Net premiums written 582,661 466,650 - 1,049,311 Change in unearned premiums (93,498) (15,325) - (108,823) Net premiums earned 489,163 451,325 - 940,488 Losses and loss expenses 324,673 255,905 - 580,578 Policy acquisition costs 72,232 101,458 (145) 173,545 General and administrative 27,306 58,561 15,272 101,139 expenses Share compensation expenses 4,632 3,266 11,920 19,818 Underwriting income (loss) $ 60,320 $ 32,135 $ (27,047) $ 65,408 Net investment income 76,736 34,445 (2,324) 108,857 Realized gain on repurchase - - 8,752 8,752 of debentures Net realized (losses) gains (13,711) 5,363 - (8,348) on investments Net unrealized (losses) on (58,617) (13,991) - (72,608) investments Other income 145 3,666 (145) 3,666 Finance expenses (655) (25,821) (22,320) (48,796) Foreign exchange (losses) (15,647) (20,196) - (35,843) Net income (loss) before 48,571 15,601 (43,084) 21,088 taxes Tax (expense) (78) (4,914) - (4,992) Net income (loss) $ 48,493 $ 10,687 $ (43,084) $ 16,096 Selected ratios (1) Losses and loss expenses 66.4% 56.7% 61.7% Policy acquisition costs 14.8% 22.5% 18.5% General and administrative 6.5% 13.7% 12.9% expenses Expense ratio 21.3% 36.2% 31.4% Combined ratio 87.7% 92.9% 93.1% Total assets $ 2,741,721 $ 1,763,614 $ 4,261 $ 4,509,596
(1) Ratios are based on net premiums earned. The general and administrative expense ratio includes share compensation expenses.
Validus Holdings, Ltd.
Non-GAAP Financial Measure Reconciliation
Net Operating Income, Net Operating Income per share,
and Annualized Net Operating Return on Average Equity
For the three and nine months ended September 30, 2009 and 2008
(Expressed in thousands of U.S. dollars, except share and per share
information)
Three months ended Nine months ended
September September 30, September 30, September 30,
30,
2009 2008 2009 2008
Net income $ 499,178 $ (126,300) $ 731,647 $ 16,096
(loss)
Adjustments
for:
Gain on
bargain (302,950) - (287,099) -
purchase, net
of expenses
Realized gain
on repurchase - - - (8,752)
of debentures
Net realized
(gains) (5,429) 13,667 20,642 8,348
losses on
investments
Net
unrealized
(gains) (50,437) 14,649 (109,839) 72,608
losses on
investments
Foreign
exchange 5,244 44,933 1,012 35,843
losses
Net operating 145,606 (53,051) 356,363 124,143
income (loss)
less:
Dividends and
distributions
declared on
outstanding (1,591) (1,739) (4,917) (5,217)
warrants
Net operating
income $ 144,015 (54,790) 351,446 118,926
(loss),
adjusted
Net income
(loss) per $ 5.21 $ (1.71) $ 8.65 $ 0.14
share -
diluted
Adjustments
for:
Gain on
bargain (3.16) - (3.39) -
purchase, net
of expenses
Realized gain
on repurchase - - - (0.11)
of debentures
Net realized
(gains) (0.06) 0.18 0.24 0.11
losses on
investments
Net
unrealized
(gains) (0.53) 0.20 (1.30) 0.93
losses on
investments
Foreign
exchange 0.06 0.60 0.01 0.46
losses
Net operating
income (loss) $ 1.52 $ (0.73) $ 4.21 $ 1.53
per share -
diluted
Weighted
average
number of
common shares
and common
share 95,834,809 74,864,724 84,626,505 77,922,718
equivalents -
diluted
Average
shareholders' 3,059,081 1,986,696 2,519,970 1,974,713
equity
Annualized
operating
return on 19.0% (10.7)% 18.9% 8.4%
average
equity
Validus Holdings, Ltd.
Non-GAAP Financial Measure Reconciliation
Diluted Book Value Per Common Share
As at September 30, 2009 and December 31, 2008
(Expressed in thousands of U.S. dollars, except share and per share
information)
As at September 30, 2009
Equity amount Shares Exercise price Book value
per share
Book value per common
share
Total shareholders' $ 3,966,192 131,107,196 $ 30.25
equity
Diluted book value per
common share
Total shareholders' 3,966,192 131,107,196
equity
Assumed exercise of 139,576 7,952,138 $ 17.55
outstanding warrants
Assumed exercise of
outstanding stock 68,368 3,430,816 $ 19.93
options
Unvested restricted - 3,383,298
shares
Diluted book value per $ 4,174,136 145,873,448 $ 28.61
common share
As at December 31, 2008
Equity amount Shares Exercise price Book value
per share
Book value per common
share
Total shareholders' $ 1,938,734 75,624,697 $ 25.64
equity
Diluted book value per
common share
Total shareholders' 1,938,734 75,624,697
equity
Assumed exercise of 152,316 8,680,149 $ 17.55
outstanding warrants
Assumed exercise of
outstanding stock 51,043 2,799,938 $ 18.23
options
Unvested restricted - 2,986,619
shares
Diluted book value per $ 2,142,093 90,091,403 $ 23.78
common share
Validus Holdings, Ltd.
Pro Forma Combined - Validus Holdings, Ltd. and IPC Holdings, Ltd.
Pro Forma Combined Statement of Operations
For the three months ended September 30, 2009
(Expressed in thousands of U.S. dollars, except share and per share information)
Historical Historical Pro Forma
Validus IPC Purchase Pro Forma
Holdings, Ltd. Holdings, Ltd. Adjustments Consolidated
Underwriting income
Gross premiums $ 331,028 $ 25,443 $ - $ 356,471
written
Reinsurance (67,687) (179) - (67,866)
premiums ceded
Net premiums 263,341 25,264 - 288,605
written
Change in unearned 111,376 42,081 - 153,457
premiums
Net premiums earned 374,717 67,345 - 442,062
Underwriting
deductions
Losses and loss 134,152 2,101 - 136,253
expenses
Policy acquisition 64,236 6,890 - 71,126
costs
General and
administrative 46,036 3,880 - 49,916
expenses
Share compensation 5,862 1,750 - 7,612
expenses
Total underwriting 250,286 14,621 - 264,907
deductions
Underwriting income 124,431 52,724 - 177,155
Net investment 29,532 13,650 (3,731) 39,451
income
Other income 1,101 (57) - 1,044
(expense)
Finance expenses (11,257) - - (11,257)
Operating income 143,807 66,317 (3,731) 206,393
before taxes
Tax benefit 1,799 - - 1,799
Net operating 145,606 66,317 (3,731) 208,192
income
Gain on bargain
purchase, net of 302,950 (69,700) (233,250) -
expenses
Net realized gains 5,429 5,664 - 11,093
on investments
Net unrealized
gains on 50,437 64,342 - 114,779
investments
Foreign exchange (5,244) 6,435 - 1,191
(losses) gains
Net income 499,178 73,058 (236,981) 335,255
Warrant dividend (1,591) - - (1,591)
Net income
available to common $ 497,587 $ 73,058 $ (236,981) $ 333,664
shareholders
Earnings per share
Weighted average
number of common
shares and common
share equivalents
outstanding
Basic 92,492,373 38,545,538 131,037,911
Diluted 95,834,809 38,545,538 134,380,347
Basic earnings per $ 5.38 $ 2.55
common share
Diluted earnings $ 5.21 $ 2.49
per common share
Operating income $ 1.56 $ 1.58
per share
Operating income $ 1.52 $ 1.55
per diluted share
Notes: (a) Operating results of IPC have been included under Historical Validus Holdings, Ltd. from September 4, 2009, the date of acquisition. Historical IPC Holdings, Ltd. includes operating results for eight months only.
Validus Holdings, Ltd.
Pro Forma Combined - Validus Holdings, Ltd. and IPC Holdings, Ltd.
Pro Forma Combined Statement of Operations
For the nine months ended September 30, 2009
(Expressed in thousands of U.S. dollars, except share and per share information)
Historical Historical Pro Forma
Validus IPC Purchase Pro Forma
Holdings, Ltd. Holdings, Ltd. Adjustments Consolidated
Underwriting income
Gross premiums $ 1,365,951 $ 387,602 $ (265) $ 1,753,288
written
Reinsurance (202,489) (6,794) 265 (209,018)
premiums ceded
Net premiums 1,163,462 380,808 - 1,544,270
written
Change in unearned (141,786) (118,557) - (260,343)
premiums
Net premiums earned 1,021,676 262,251 - 1,283,927
Underwriting
deductions
Losses and loss 390,736 32,793 - 423,529
expenses
Policy acquisition 190,125 26,634 - 216,759
costs
General and
administrative 125,315 23,942 - 149,257
expenses
Share compensation 18,848 6,714 - 25,562
expenses
Total underwriting 725,024 90,083 - 815,107
deductions
Underwriting income 296,652 172,168 - 468,820
Net investment 83,267 56,795 (11,624) 128,438
income
Other income 2,875 (31) - 2,844
(expense)
Finance expenses (29,732) (383) - (30,115)
Operating income 353,062 228,549 (11,624) 569,987
before taxes
Tax benefit 3,301 - - 3,301
Net operating 356,363 228,549 (11,624) 573,288
income
Gain on bargain
purchase, net of 287,099 (90,151) (196,948) -
expenses
Net realized
(losses) gains on (20,642) 6,826 - (13,816)
investments
Net unrealized
gains on 109,839 104,993 - 214,832
investments
Foreign exchange (1,012) 4,968 - 3,956
(losses) gains
Net income 731,647 255,185 (208,572) 778,260
Warrant dividend (4,917) - - (4,917)
Net income
available to common $ 726,730 $ 255,185 $ (208,572) $ 773,343
shareholders
Earnings per share
Weighted average
number of common
shares and common
share equivalents
outstanding
Basic 81,458,329 49,219,687 130,678,016
Diluted 84,626,505 49,219,687 133,846,192
Basic earnings per $ 8.92 $ 5.92
common share
Diluted earnings $ 8.65 $ 5.81
per common share
Operating income $ 4.31 $ 4.35
per share
Operating income $ 4.21 $ 4.28
per diluted share
Notes: (a) Operating results of IPC have been included under Historical Validus Holdings, Ltd. from September 4, 2009, the date of acquisition. Historical IPC Holdings, Ltd. includes operating results for eight months only.
Validus Holdings, Ltd.
Pro Forma Combined - Validus Holdings, Ltd. and IPC Holdings, Ltd.
Pro Forma Combined Statement of Operations
For the three months ended June 30, 2009
(Expressed in thousands of U.S. dollars, except share and per share information)
Historical Historical Pro Forma
Validus IPC Purchase Pro Forma
Holdings, Ltd. Holdings, Ltd. Adjustments Consolidated
Underwriting income
Gross premiums $ 425,032 $ 127,549 $ - $ 552,581
written
Reinsurance (62,291) (2,195) - (64,486)
premiums ceded
Net premiums 362,741 125,354 - 488,095
written
Change in unearned (34,541) (29,156) - (63,697)
premiums
Net premiums earned 328,200 96,198 - 424,398
Underwriting
deductions
Losses and loss 124,751 (8,417) - 116,334
expenses
Policy acquisition 64,438 9,906 - 74,344
costs
General and
administrative 41,200 9,908 - 51,108
expenses
Share compensation 5,632 2,475 - 8,107
expenses
Total underwriting 236,021 13,872 - 249,893
deductions
Underwriting Income 92,179 82,326 - 174,505
Net investment 26,963 21,279 (3,702) 44,540
income
Other income 1,017 19 - 1,036
Finance expenses (10,752) - - (10,752)
Operating income 109,407 103,624 (3,702) 209,329
before taxes
Tax benefit 976 - - 976
Net operating 110,383 103,624 (3,702) 210,305
income
Gain on bargain
purchase, net of (15,851) (8,813) 24,664 -
expenses
Net realized
(losses) gains on (2,650) 5,080 - 2,430
investments
Net unrealized
gains on 37,249 72,305 - 109,554
investments
Foreign exchange 8,432 1,679 - 10,111
gains
Net income 137,563 173,875 20,962 332,400
Warrant dividend (1,590) - - (1,590)
Net income
available to common $ 135,973 $ 173,875 $ 20,962 $ 330,810
shareholders
Earnings per share
Weighted average
number of common
shares and common
share equivalents
outstanding
Basic 76,138,038 54,679,419 130,817,457
Diluted 78,942,065 55,036,063 133,978,128
Basic earnings per $ 1.79 $ 2.53
common share
Diluted earnings $ 1.74 $ 2.48
per common share
Operating income $ 1.43 $ 1.60
per share
Operating income $ 1.40 $ 1.57
per diluted share
Validus Holdings, Ltd.
Pro Forma Combined - Validus Holdings, Ltd. and IPC Holdings, Ltd.
Pro Forma Combined Statement of Operations
For the three months ended March 31, 2009
(Expressed in thousands of U.S. dollars, except share and per share information)
Historical Historical Pro Forma
Validus IPC Purchase Pro Forma
Holdings, Ltd. Holdings, Ltd. Adjustments Consolidated
Underwriting income
Gross premiums $ 609,892 $ 234,610 $ (265) $ 844,237
written
Reinsurance (72,512) (1,734) 265 (73,981)
premiums ceded
Net premiums 537,380 232,876 - 770,256
written
Change in unearned (218,621) (134,168) - (352,789)
premiums
Net premiums earned 318,759 98,708 - 417,467
Underwriting
deductions
Losses and loss 131,834 39,109 - 170,943
expenses
Policy acquisition 61,449 9,838 - 71,287
costs
General and
administrative 38,079 10,154 - 48,233
expenses
Share compensation 7,354 2,489 - 9,843
expenses
Total underwriting 238,716 61,590 - 300,306
deductions
Underwriting income 80,043 37,118 - 117,161
Net investment 26,772 21,866 (4,191) 44,447
income
Other income 757 7 - 764
Finance expenses (7,723) (383) - (8,106)
Operating income 99,849 58,608 (4,191) 154,266
before taxes
Tax benefit 526 - - 526
Net operating 100,375 58,608 (4,191) 154,792
income
Gain on bargain
purchase, net of - (11,638) 11,638 -
expenses
Net realized losses (23,421) (3,918) - (27,339)
on investments
Net unrealized
gains (losses) on 22,153 (31,654) - (9,501)
investments
Foreign exchange (4,200) (3,146) - (7,346)
losses
Net income 94,907 8,252 7,447 110,606
Warrant dividend (1,736) - - (1,736)
Net income
available to common $ 93,171 $ 8,252 $ 7,447 $ 108,870
shareholders
Earnings per share
Weighted average
number of common
shares and common
share equivalents
outstanding
Basic 75,744,577 54,425,368 130,169,945
Diluted 79,102,643 54,959,647 134,062,290
Basic earnings per $ 1.23 $ 0.84
common share
Diluted earnings $ 1.20 $ 0.83
per common share
Operating income $ 1.30 $ 1.18
per share
Operating income $ 1.27 $ 1.15
per diluted share
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) Validus' limited operating history; 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 Talbot, IPC or other 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; and 18) failure to realize the anticipated benefits of the IPC acquisition, including as a result of failure or delay in integrating the businesses of Validus and IPC, 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 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 parties undertake 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 per share, underwriting income, 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 to net income, the most comparable U.S. GAAP financial measure, is presented in the section above entitled "Net Operating Income, Net Operating Income per share and Annualized Net Operating Return on Average Equity". A reconciliation of underwriting 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. 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, Net Operating Income per share and Annualized Net Operating Return on Average Equity". A reconciliation of diluted book value per share to book value per share, the most comparable U.S. GAAP financial measure, is presented in the section above entitled "Diluted Book Value Per Share". Net operating income is calculated based on net income (loss) excluding net realized gains (losses), 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.
Source: Validus Holdings, Ltd.
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