EX-99.1 2 y48390bexv99w1.htm EX-99.1: PRESS RELEASE EX-99.1
 

(VALID RE LOGO)
FOR IMMEDIATE RELEASE
     
Contacts:
    
Investors:
  Media:
Validus Holdings, Ltd.
  Drew Brown / Jamie Tully
Jon Levenson, Senior Vice President
  Sand Verbinnen & Co.
+1-441-278-9000
  +1-212-687-8080
Jon.Levenson@Validusre.bm
   
 
  Roddy Watt / Francesca Tuckett
 
  College Hill
 
  +44 (0) 207-457-2020
VALIDUS ANNOUNCES FOURTH QUARTER NET INCOME OF $139.0 MILLION,
ANNUALIZED RETURN ON AVERAGE EQUITY OF 29.9%
Year End Diluted Book Value Per Share Of $24.00;
An Increase of 21.6%Year Over Year
Hamilton, Bermuda, February 12, 2008 — Validus Holdings Limited (“Validus”) (NYSE: VR) today reported net income for the quarter ended December 31, 2007 of $139.0 million, or $1.77 per diluted common share, compared with $69.1 million, or $1.16 per diluted common share, for the quarter ended December 31, 2006. Net income for the year ended December 31, 2007 was $403.0 million, or $5.95 per diluted share, compared with $183.1 million, or $3.11 per diluted share, for the corresponding period in 2006.
Net operating income for the fourth quarter of 2007 was $131.5 million, or $1.68 per diluted share, compared with $68.2 million, or $1.14 per diluted common share, for the quarter ended December 31, 2006. Net operating income for the year ended December 31, 2007 was $388.2 million, or $5.73 per diluted share, compared with $182.1 million, or $3.09 per diluted common share, for the year ended December 31, 2006.
Net operating income, a non-GAAP financial measure, is defined as net income excluding net realized and unrealized gains or losses on investments, foreign exchange gains and losses and non-recurring items. Reconciliations of this measure to net income, the most directly comparable GAAP measure, are presented at the end of this release.
Operating results of Talbot have been included in the consolidated financial statements from the acquisition date of July 2, 2007. The Validus data for the full year 2006 and first six months of 2007 refer only to the company prior to its acquisition of Talbot. Further, the Validus data gives effect to the initial public offering which was consummated on July 30, 2007.
Validus Holdings Limited, 19 Par-la-Ville Road, Hamilton, Bermuda HM11
Tel: 441.278.9000 Fax: 441.278.9090
www.validusre.bm
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Fourth quarter 2007 results
Consolidated operating highlights for the fourth quarter include the following:
  •   Gross premiums written increased by 191.6% to $191.0 million from $65.5 million, due to the addition of Talbot which added $143.5 million of gross premiums written;
 
  •   Net premiums written increased by 183.1% to $186.4 million from $65.9 million, due to the addition of Talbot which added $142.7 million of net premiums written;
 
  •   Net premiums earned increased by 202.4% to $318.0 million from $105.2 million, due primarily to the addition of Talbot which added $155.5 million of net premiums earned;
 
  •   Combined ratio of 63.1% which included $10.0 million of incurred losses relating to the October California wildland fires (representing 3.1 percentage points of the consolidated 33.8% loss ratio), and $30.6 million of favorable prior year loss reserve development benefitting the loss ratio by 9.6 percentage points.
 
  •   Investment income increased by 112.6% to $37.5 million from $17.7 million primarily due to higher investment balances resulting from funds from operations and the addition of Talbot;
 
  •   Return on average equity of 29.9% and net operating return on average equity of 28.2%; and
 
  •   Net income increased by 101.3% to $139.0 million from $69.1 million, due to the addition of Talbot which added $38.7 million of net income and growth in the Validus Re segment which added $39.5 million.
Consolidated operating highlights for the year ended December 31, 2007 included the following:
  •   Gross premiums written increased by 82.8% to $988.6 million from $540.8 million, due to the addition of Talbot which added $286.5 million of gross premiums written and growth in the Validus Re segment;
 
  •   Net premiums written increased by 92.5% to $918.4 million from $477.1 million, due to the addition of Talbot which added $285.2 million of net premiums written and growth in the Validus Re segment;
 
  •   Net premiums earned increased by 179.9% to $858.1 million from $306.5 million, due to the addition of Talbot which added $299.1 million of net premiums earned and growth in the Validus Re segment;
 
  •   Combined ratio of 62.0% included $62.3 million of favorable prior year loss reserve development (representing a benefit of 7.3 percentage points of the 33.1% loss ratio).
 
  •   Investment income increased by 93.6% to $112.3 million from $58.0 million primarily due to higher investment balances resulting from funds from operations and the addition of Talbot;
 
  •   Return on average equity of 26.9% and net operating return on average equity of 25.9%; and
 
  •   Net income increased by 120.1% to $403.0 million from $183.1 million, due to the addition of Talbot which added $81.8 million of net income and growth in the Validus Re segment which added $168.4 million.
Validus Holdings Limited, 19 Par-la-Ville Road, Hamilton, Bermuda HM11
Tel: 441.278.9000 Fax: 441.278.9090
www.validusre.bm
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Commenting on the fourth quarter of 2007 results, Ed Noonan, Chairman and Chief Executive Officer of Validus, stated: “2007 was a milestone year for Validus. We successfully completed the acquisition of Talbot and our initial public offering, while continuing to grow our franchise at Validus Re. The enhanced operating leverage resulting from the Talbot acquisition allowed us to generate an annualized return on average equity of 29.9% in the fourth quarter and 26.9% for the year. In 2007 we grew diluted book value per share by 21.6% and leave 2007 with a strong balance sheet comprising of $3.1 billion total investments and cash and total capitalization of $2.3 billion.”
Validus Re Segment Results
Gross premiums written during the fourth quarter of 2007 were $47.5 million, a decrease of $18.0 million from $65.5 million in the fourth quarter of 2006. Gross premiums written were comprised of $16.3 million of property premiums, $18.1 million of marine premiums and $13.1 million of specialty premiums compared to $41.9 million of property premiums, $6.6 million of marine premiums and $17.0 million of specialty premiums in the fourth quarter of 2006. The $25.6 million decrease in property premiums written was primarily driven by a property proportional treaty written in the fourth quarter of 2006 with a 16-month term. The decrease in property lines was partially offset by the marine lines which accounted for an increase of $11.5 million in gross premiums written.
Net premiums earned for the fourth quarter of 2007 were $162.5 million compared to $105.2 million for the fourth quarter of 2006, an increase of $57.4 million or 54.5%. The increase in net premiums earned reflects the increased premiums written in the period and the benefit of earning premiums written in 2006. As the Company did not write premium prior to January 1, 2006, the fourth quarter of 2006 benefited to a lesser extent from the earning of premiums written in prior periods.
The combined ratio increased to 48.9% from 46.4% in the fourth quarter of 2006. This increase was primarily due to a 6.6 percentage point increase in the Company’s loss ratio offset by a 4.2 percentage point decrease in the expense ratio for the period. The loss ratio of 29.7% increased partly as a result of losses from wildland fires in California. Validus Re recorded loss expense of $10.0 million in the fourth quarter of 2007 relating to the wildland fires in October, representing 6.2 percentage points on the loss ratio. This increase was partially mitigated by favorable prior year loss reserve development of $0.9 million.
Gross premiums written for the year ended December 31, 2007 were $702.1 million, an increase of $161.3 million from $540.8 million in 2006. Gross premiums written were comprised of $498.4 million of property premiums, $136.7 million of marine premiums and $67.0 million of specialty premiums, compared to $371.0 million of property premiums, $104.6 million of marine premiums and $65.2 million of specialty premiums in 2006. The increase in gross premiums written was primarily driven by the property and marine lines which accounted for $127.4 million and $32.1 million of the increase, respectively.
The 50.3% combined ratio for the year ended December 31, 2007 was unchanged from that of the same period for 2006. The expense ratio decreased by 1.9%, which primarily reflects the absence in 2007 of certain start up costs incurred in 2006 and the higher level of earned premiums in the year ended December 31, 2007. The loss ratio increased by 1.6 percentage points in the year. Losses from previously disclosed events consisting of windstorm Kyrill, the Australian windstorms, flooding in parts of northern England and wildland fires in California generated incurred losses of $64.5 million (11.5 percentage points of the 31.4% loss ratio). Favorable prior year loss reserve development of $11.7 million resulted in a 2.1 percentage point benefit to the full
Validus Holdings Limited, 19 Par-la-Ville Road, Hamilton, Bermuda HM11
Tel: 441.278.9000 Fax: 441.278.9090
www.validusre.bm
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year 2007 loss ratio.
Talbot Segment Results
Operating results of Talbot have been included in the consolidated financial statements from the acquisition date of July 2, 2007.
Gross premiums written during the fourth quarter of 2007 were $143.5 million, comprised of $20.6 million of property premiums, $59.0 million of marine premiums and $63.9 million of specialty premiums. Net premiums earned for the fourth quarter of 2007 were $155.5 million. The combined ratio was 74.0%, composed of a loss ratio of 38.1%, a policy acquisition costs ratio of 20.1% and a general and administrative expense ratio of 15.8%. Talbot recorded $29.7 million of favorable prior year loss reserve development during the quarter, resulting in a 19.1 percentage point benefit to the fourth quarter 2007 loss ratio.
Gross premiums written included in the financial statements for the year ended December 31, 2007 were $286.5 million, comprised of $49.2 million of property premiums, $114.0 million of marine premiums and $123.3 million of specialty premiums. Net premiums earned included in the financial statements post acquisition for the year ended December 31, 2007 were $299.0 million. The combined ratio was 74.6%, composed of a loss ratio of 36.3%, a policy acquisition costs ratio of 21.4% and a general and administrative expense ratio of 16.9%. From acquisition on July 2, 2007, until the period ended December 31, 2007, Talbot recorded $50.6 million of favorable prior year loss reserve development, resulting in a 16.9 percentage point benefit to the full year 2007 loss ratio.
Corporate Segment Results
Corporate results are comprised of executive and board expenses, internal and external audit expenses, interest and costs from the junior subordinated deferrable debentures, fair value of warrants issued, and other costs relating to the Company as a whole. General and administrative expenses for the three months ended December 31, 2007 were $2.2 million compared to $1.5 million for the three months ended December 31, 2006. Stock compensation expenses for the three months ended December 31, 2007 were $4.0 million compared to $0.7 million for the three months ended December 31, 2006, which reflects the added cost from the Employee Seller shares issued to Talbot employees as part of the acquisition.
General and administrative expenses for the year ended December 31, 2007 were $17.5 million compared to $13.8 million for the year ended December 31, 2006. Stock compensation expenses for the year ended December 31, 2007 were $10.5 million compared to $4.8 million for the year ended December 31, 2006, which reflects the added cost from the Employee Seller shares issued to Talbot employees as part of the acquisition. Corporate costs for the year ended December 31, 2007 also included $2.9 million resulting from the fair value of warrants issued and $3.0 million to terminate an advisory agreement with its founding investor in conjunction with its IPO.
Investments
Net investment income increased in the fourth quarter and year of 2007 due to higher investment balances resulting from the addition of Talbot and from funds generated from operations.
Investment income was $37.5 million in the fourth quarter of 2007 compared to $17.7 million in the fourth quarter of 2006, an increase of 112.6%, or $19.9 million. Net realized gains on investments were $0.8 million, compared to $0.2 million of net realized losses in the fourth
Validus Holdings Limited, 19 Par-la-Ville Road, Hamilton, Bermuda HM11
Tel: 441.278.9000 Fax: 441.278.9090
www.validusre.bm
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quarter of 2006. Net unrealized gains were $9.2 million in the fourth quarter of 2007.
Investment income for the year ended December 31, 2007 was $112.3 million compared to $58.0 million in the year ended December 31, 2006, an increase of 93.6%, or $54.3 million. The Company experienced $1.6 million of net realized gains, compared to $1.1 million of net realized losses for the year ended December 31, 2006. Net unrealized gains were $12.4 million in the year ended December 31, 2007.
Prior to January 1, 2007, the Company’s investments in fixed maturities were classified as available-for-sale and carried at fair value, with related net unrealized gains or losses excluded from earnings and included in shareholders’ equity as a component of accumulated other comprehensive income. Beginning on January 1, 2007, the Company’s investments in fixed maturities were classified as trading and carried at fair value, with related net unrealized gains or losses included in earnings as a result of the adoption of new accounting guidance. The Company believes that accounting for its investment portfolio as trading more closely reflects its investment guidelines. The fair value of investments is based upon quoted market values. The Company recorded $9.2 million and $12.4 million of net unrealized gains in the three months and year ended December 31, 2007 respectively, which was included in earnings. The Company recorded $nil net unrealized gains in the three months and year ended December 31, 2006 respectively.
At December 31, 2007, the Company held $22.9 million of securities with exposures to the sub-prime mortgage market with an estimated weighted average life of 1.1 years. All of these securities are currently rated AAA by either or both of Standard & Poor’s Corporation and Moody’s Investor Service, and are carried at fair value.
Finance Expenses
Finance expenses for the quarter and year ended December 31, 2007 were $25.4 million and $51.8 million respectively, increasing from $3.7 million and $8.8 million in the respective prior periods. Finance expenses consists of interest due on outstanding debt, the amortization of debt offering expenses and offering discount fees relating to the Company’s credit facility and third-party capital costs for Talbot. The increase partially relates to the inclusion of Talbot in the consolidated financial statements effective with the beginning of the third quarter of 2007. Talbot’s third-party capital costs were $16.0 million in the fourth quarter of 2007 and $24.8 million for the full year 2007. In addition, the increase in finance expenses is partially attributable to the issuance of junior subordinated deferred debentures in both the second quarter of 2006 and second quarter of 2007.
Capitalization and Shareholders’ Equity
Total capitalization at December 31, 2007 was $2.3 billion, including $350 million of junior subordinated deferrable debentures. Total capitalization at December 31, 2006 was $1.3 billion. The increase was primarily due to net income earned during 2007, the issuance in the second quarter of the 8.480% junior subordinated deferrable debentures and the consummation of the initial public offering in the third quarter.
At December 31, 2007, diluted book value per common share was $24.00 and book value per common share was $26.08, compared to $19.73 and $20.39 respectively, from December 31, 2006. Diluted book value per share is a non-GAAP financial measure. A reconciliation of this measure to shareholders’ equity is presented at the end of this release.
Validus Holdings Limited, 19 Par-la-Ville Road, Hamilton, Bermuda HM11
Tel: 441.278.9000 Fax: 441.278.9090
www.validusre.bm
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Conference Call
We will host a conference call for analysts and investors on Wednesday February 13, 2008 at 9:00 AM (Eastern) to discuss the fourth quarter financial results and related matters. The conference call can be accessed via telephone by dialing (800) 860-2442 (toll-free U.S.) or (412) 373-6964 (international). 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 February 27, 2008 by dialing (877) 344-7529 and entering the pass code 414679.
This conference call will also be available through a live audio webcast accessible through the Investor Information section of our website at www.validusre.bm. In addition, a financial supplement relating to our financial results for the quarter ended December 31, 2007 is available in the Investor Information section of our 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 Re is rated “A-” (“Excellent”) by A.M. Best. For more information about Validus, visit our website at www.validusre.bm.
Validus Holdings Limited, 19 Par-la-Ville Road, Hamilton, Bermuda HM11
Tel: 441.278.9000 Fax: 441.278.9090
www.validusre.bm
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Validus Holdings, Ltd.
Consolidated Balance Sheets
As at December 31, 2007 (unaudited) and December 31, 2006
(expressed in thousands of U.S. dollars, except share amounts)
                 
    December 31,     December 31,  
    2007     2006  
Assets
                
Fixed maturities, at fair value
   $ 2,411,398     $ 844,857  
Short-term investments, at fair value
     250,623       531,530  
Cash and cash equivalents
     444,698       63,643  
 
            
Total cash and investments
     3,106,719       1,440,030  
Premiums receivable
     401,241       142,408  
Deferred acquisition costs
     105,562       28,203  
Prepaid reinsurance premiums
     22,817       8,245  
Securities lending collateral
     164,324       12,327  
Loss reserves recoverable
     134,404       —  
Paid losses recoverable
     7,810       —  
Taxes recoverable
     3,325       —  
Goodwill and other intangible assets
     151,772       —  
Accrued investment income
     19,960       6,456  
Other assets
     26,290       8,754  
 
            
 
                
Total assets
   $ 4,144,224     $ 1,646,423  
 
            
 
                
Liabilities
                
Reserve for losses and loss expenses
   $ 926,117     $ 77,363  
Unearned premiums
     557,344       178,824  
Reinsurance balances payables
     36,848       7,438  
Securities lending payable
     164,324       12,327  
Deferred taxation
     16,663       —  
Net payable for investments purchased
     31,426       12,850  
Accounts payable and accrued expenses
     126,702       15,098  
Debentures payable
     350,000       150,000  
 
            
 
                
Total liabilities
     2,209,424       453,900  
 
                
Commitments and contingent liabilities
                
 
                
Shareholders’ equity
                
Ordinary shares
     12,985       10,234  
Additional paid-in capital
     1,384,604       1,048,025  
Accumulated other comprehensive (loss) income
     (49 )     875  
Retained earnings
     537,260       133,389  
 
            
 
                
Total shareholders’ equity
     1,934,800       1,192,523  
 
            
 
                
Total liabilities and shareholder’ equity
   $ 4,144,224     $ 1,646,423  
 
            
Validus Holdings Limited, 19 Par-la-Ville Road, Hamilton, Bermuda HM11
Tel: 441.278.9000 Fax: 441.278.9090
www.validusre.bm
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Validus Holdings, Ltd.
Consolidated Statements of Operations and Comprehensive Income
For the three months and year ended December 31, 2007 and 2006
(expressed in thousands of U.S. dollars, except share amounts)
                                 
    Three months ended     Year ended  
    December 31,     December     December 31,     December  
    2007     31, 2006     2007     31, 2006  
Revenues
                                
Gross premiums written
   $ 190,996     $ 65,505     $ 988,637     $ 540,789  
Reinsurance premiums ceded
     (4,566 )     355       (70,210 )     (63,696 )
 
                        
Net premiums written
     186,430       65,860       918,427       477,093  
Change in unearned premiums
     131,601       39,293       (60,348 )     (170,579 )
 
                        
Net premiums earned
     318,031       105,153       858,079       306,514  
Net investment income
     37,525       17,652       112,324       58,021  
Net realized gains (losses) on investments
     784       (208 )     1,608       (1,102 )
Net unrealized gains on investments
     9,229       —       12,364       —  
Other income
     1,971       —       3,301       —  
Foreign exchange (losses) gains
     (2,515 )     1,096       6,696       2,157  
 
                        
Total revenues
     365,025       123,693       994,372       365,590  
 
                                
Expenses
                                
Losses and loss expense
     107,567       24,265       283,993       91,323  
Policy acquisition costs
     53,277       11,498       134,277       36,072  
General and administrative expenses
     33,676       13,002       100,765       38,352  
Share compensation expense
     6,135       2,223       16,189       7,880  
Finance expenses
     25,423       3,653       51,754       8,789  
Fair value of warrants issued
     —       —       2,893       77  
 
                        
Total expenses
     226,078       54,641       589,871       182,493  
 
                        
 
                                
Net income before taxes
     138,947       69,052       404,501       183,097  
Taxes
     (22 )     —       1,505       —  
 
                        
 
                                
Net income
   $ 138,969     $ 69,052     $ 402,996     $ 183,097  
 
                        
 
                                
Comprehensive income
                                
Unrealized investment gains arising during the period
     —       (522 )     —       (332 )
Foreign currency translation adjustments
     49       —       (591 )     —  
Adjustment for reclassification of investment losses realized in income
     —       208       —       1,102  
 
                        
 
                                
Comprehensive income
   $ 139,018     $ 68,738     $ 402,405     $ 183,867  
 
                        
 
                                
Earnings per share
                                
Weighted average number of common shares and common share equivalents outstanding
                                
Basic
     74,199,836       58,482,601       65,068,093       58,477,130  
Diluted
     78,415,109       59,745,784       67,786,673       58,874,567  
 
                                
Basic earnings per share
   $ 1.87     $ 1.18     $ 6.19     $ 3.13  
 
                        
Diluted earnings per share
   $ 1.77     $ 1.16     $ 5.95     $ 3.11  
 
                        
Validus Holdings Limited, 19 Par-la-Ville Road, Hamilton, Bermuda HM11
Tel: 441.278.9000 Fax: 441.278.9090
www.validusre.bm
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Validus Holdings, Ltd.
Consolidated Statements of Operations
For the three months ended December 31, 2007
(expressed in thousands of U.S. dollars, except share amounts)
                                 
    Three months ended December 31, 2007  
    Validus Re     Talbot     Corporate     Total  
 
                                
Gross premiums written
   $ 47,499     $ 143,497     $ —     $ 190,996  
Reinsurance premiums ceded
     (3,813 )     (753 )     —       (4,566 )
 
                        
Net premiums written
     43,686       142,744       —       186,430  
Change in unearned premiums
     118,828       12,773       —       131,601  
 
                        
Net premiums earned
     162,514       155,517       —       318,031  
Losses and loss expense
     48,244       59,323       —       107,567  
Policy acquisition costs
     22,107       31,170       —       53,277  
General and administrative expenses
     7,858       23,628       2,190       33,676  
Stock compensation expenses
     1,189       978       3,968       6,135  
 
                        
 
                                
Underwriting income (loss)
   $ 83,116     $ 40,418     $ (6,158 )   $ 117,376  
 
                        
 
                                
Net investment income
     25,039       12,446       40       37,525  
Other income
     —       1,971       —       1,971  
Finance expenses
     (236 )     (17,228 )     (7,959 )     (25,423 )
 
                        
 
                                
Operating income (loss) before taxes
     107,919       37,607       (14,077 )     131,449  
Taxes
     14       (36 )     —       (22 )
 
                        
 
                                
Net operating income
   $ 107,905     $ 37,643     $ (14,077 )   $ 131,471  
 
                        
 
                                
Net realized (losses) gains on investments
     (493 )     1,277       —       784  
Net unrealized gains on investments
     7,221       2,008       —       9,229  
Foreign exchange losses
     (269 )     (2,246 )     —       (2,515 )
Fair value of warrants
     —       —       —       —  
Aquiline termination fee
     —       —       —       —  
 
                        
 
                                
Net income
   $ 114,364     $ 38,682     $ (14,077 )   $ 138,969  
 
                        
 
                                
Loss and loss expense ratio
     29.7 %     38.1 %             33.8 %
Policy acquisition cost ratio
     13.6 %     20.1 %             16.8 %
General and administrative expense ratio
     5.6 %     15.8 %             12.5 %
 
                          
 
                                
Combined ratio
     48.9 %     74.0 %             63.1 %
 
                          
Validus Holdings Limited, 19 Par-la-Ville Road, Hamilton, Bermuda HM11
Tel: 441.278.9000 Fax: 441.278.9090
www.validusre.bm
9

 

 

Validus Holdings, Ltd.
Consolidated Statements of Operations
For the three months ended December 31, 2006
(expressed in thousands of U.S. dollars, except share amounts)
                                 
    Three months ended December 31, 2006  
    Validus Re     Talbot     Corporate     Total  
 
                                
Gross premiums written
   $ 65,505     $ —     $ —     $ 65,505  
Reinsurance premiums ceded
     355       —       —       355  
 
                        
Net premiums written
     65,860       —       —       65,860  
Change in unearned premiums
     39,293       —       —       39,293  
 
                        
Net premiums earned
     105,153       —       —       105,153  
Losses and loss expense
     24,265       —       —       24,265  
Policy acquisition costs
     11,498       —       —       11,498  
General and administrative expenses
     11,474       —       1,528       13,002  
Stock compensation expenses
     1,544       —       679       2,223  
 
                        
 
                                
Underwriting income (loss)
   $ 56,372     $ —     $ (2,207 )   $ 54,165  
 
                        
 
                                
Net investment income
     17,652       —       —       17,652  
Other income
     —       —       —       —  
Finance expenses
     (92 )     —       (3,561 )     (3,653 )
 
                        
 
                                
Operating income (loss) before taxes
     73,932       —       (5,768 )     68,164  
Taxes
     —       —       —       —  
 
                        
 
                                
Net operating income
   $ 73,932     $ —     $ (5,768 )   $ 68,164  
 
                        
 
                                
Net realized losses on investments
     (208 )     —       —       (208 )
Net unrealized gains on investments
     —       —       —       —  
Foreign exchange gains
     1,096       —       —       1,096  
Fair value of warrants
     —       —       —       —  
 
                        
 
                                
Net income
   $ 74,820     $ —     $ (5,768 )   $ 69,052  
 
                        
 
                                
Loss and loss expense ratio
     23.1 %     0.0 %             23.1 %
Policy acquisition cost ratio
     10.9 %     0.0 %             10.9 %
General and administrative expense ratio
     12.4 %     0.0 %             14.5 %
 
                          
 
                                
Combined ratio
     46.4 %     0.0 %             48.5 %
 
                          
Validus Holdings Limited, 19 Par-la-Ville Road, Hamilton, Bermuda HM11
Tel: 441.278.9000 Fax: 441.278.9090
www.validusre.bm
10

 

 

Validus Holdings, Ltd.
Consolidated Statements of Operations
For the year ended December 31, 2007
(expressed in thousands of U.S. dollars, except share amounts)
                                 
    Year ended December 31, 2007  
    Validus Re     Talbot     Corporate     Total  
 
                                
Gross premiums written
   $ 702,098     $ 286,539     $ —     $ 988,637  
Reinsurance premiums ceded
     (68,842 )     (1,368 )     —       (70,210 )
 
                        
Net premiums written
     633,256       285,171       —       918,427  
Change in unearned premiums
     (74,227 )     13,879       —       (60,348 )
 
                        
Net premiums earned
     559,029       299,050       —       858,079  
Losses and loss expense
     175,538       108,455       —       283,993  
Policy acquisition costs
     70,323       63,954       —       134,277  
General and administrative expenses
     31,412       48,886       17,467       97,765  
Stock compensation expenses
     4,013       1,709       10,467       16,189  
 
                        
 
                                
Underwriting income (loss)
   $ 277,743     $ 76,046     $ (27,934 )   $ 325,855  
 
                        
 
                                
Net investment income
     85,981       25,805       538       112,324  
Other income
     —       3,301       —       3,301  
Finance expenses
     (1,378 )     (26,086 )     (24,290 )     (51,754 )
 
                        
 
                                
Operating income (loss) before taxes
     362,346       79,066       (51,686 )     389,726  
Taxes
     61       1,444       —       1,505  
 
                        
 
                                
Net operating income
   $ 362,285     $ 77,622     $ (51,686 )   $ 388,221  
 
                        
 
                                
Net realized gains on investments
     443       1,165       —       1,608  
Net unrealized gains on investments
     8,556       3,808       —       12,364  
Foreign exchange gains
     7,495       (799 )     —       6,696  
Fair value of warrants
     —       —       (2,893 )     (2,893 )
Aquiline termination fee
     —       —       (3,000 )     (3,000 )
 
                        
 
                                
Net income
   $ 378,779     $ 81,796     $ (57,579 )   $ 402,996  
 
                        
 
                                
Loss and loss expense ratio
     31.4 %     36.3 %             33.1 %
Policy acquisition cost ratio
     12.6 %     21.4 %             15.6 %
General and administrative expense ratio
     6.3 %     16.9 %             13.3 %
 
                          
 
                                
Combined ratio
     50.3 %     74.6 %             62.0 %
 
                          
Validus Holdings Limited, 19 Par-la-Ville Road, Hamilton, Bermuda HM11
Tel: 441.278.9000 Fax: 441.278.9090
www.validusre.bm
11

 

 

Validus Holdings, Ltd.
Consolidated Statements of Operations
For the year ended December 31, 2006
(expressed in thousands of U.S. dollars, except share amounts)
                                 
    Year ended December 31, 2006  
    Validus Re     Talbot     Corporate     Total  
 
                                
Gross premiums written
   $ 540,789     $ —     $ —     $ 540,789  
Reinsurance premiums ceded
     (63,696 )     —       —       (63,696 )
 
                        
Net premiums written
     477,093       —       —       477,093  
Change in unearned premiums
     (170,579 )     —       —       (170,579 )
 
                        
Net premiums earned
     306,514       —       —       306,514  
Losses and loss expense
     91,323       —       —       91,323  
Policy acquisition costs
     36,072       —       —       36,072  
General and administrative expenses
     24,565       —       13,787       38,352  
Stock compensation expenses
     3,105       —       4,775       7,880  
 
                        
 
                                
Underwriting income (loss)
   $ 151,449     $ —     $ (18,562 )   $ 132,887  
 
                        
 
                                
Net investment income
     57,996       —       25       58,021  
Other income
     —       —       —       —  
Finance expenses
     (97 )     —       (8,692 )     (8,789 )
 
                        
 
                                
Operating income (loss) before taxes
     209,348       —       (27,229 )     182,119  
Taxes
     —       —       —       —  
 
                        
 
                                
Net operating income
   $ 209,348     $ —     $ (27,229 )   $ 182,119  
 
                        
 
                                
Net realized losses on investments
     (1,102 )     —       —       (1,102 )
Net unrealized gains on investments
     —       —       —       —  
Foreign exchange gains
     2,157       —       —       2,157  
Fair value of warrants
     —       —       (77 )     (77 )
 
                        
 
                                
Net income
   $ 210,403     $ —     $ (27,306 )   $ 183,097  
 
                        
 
                                
Loss and loss expense ratio
     29.8 %     0.0 %             29.8 %
Policy acquisition cost ratio
     11.8 %     0.0 %             11.8 %
General and administrative expense ratio
     9.0 %     0.0 %             15.1 %
 
                          
 
                                
Combined ratio
     50.6 %     0.0 %             56.7 %
 
                          
Validus Holdings Limited, 19 Par-la-Ville Road, Hamilton, Bermuda HM11
Tel: 441.278.9000 Fax: 441.278.9090
www.validusre.bm
12

 

 

Validus Holdings, Ltd.
Non-GAAP Financial Measure Reconciliation
Net Operating Income and Annualized Net Operating Return on Average Equity
For the three months and year ended December 31, 2007 and 2006
(expressed in thousands of U.S. dollars, except share amounts)
                                 
    Three months ended     Year ended  
    December     December     December 31,     December  
    31, 2007     31, 2006     2007     31, 2006  
 
                                
Net income
   $ 138,969     $ 69,052     $ 402,996     $ 183,097  
 
                                
Adjustment for net realized (gains) losses on investments
     (784 )     208       (1,608 )     1,102  
Adjustment for net unrealized (gains) on investments
     (9,229 )     —       (12,364 )     —  
Fair value of warrants issued
     —       —       2,893       77  
Aquiline termination fee
     —       —       3,000       —  
Adjustment for foreign exchange losses (gains)
     2,515       (1,096 )     (6,696 )     (2,157 )
 
                        
 
                                
Net operating income
   $ 131,471     $ 68,164     $ 388,221     $ 182,119  
 
                        
 
                                
Net income per share — diluted
   $ 1.77     $ 1.16     $ 5.95     $ 3.11  
 
                                
Adjustment for net realized (gains) losses on investments
     —       —       (0.02 )     0.02  
Adjustment for net unrealized (gains) on investments
     (0.12 )     —       (0.18 )     —  
Fair value of warrants issued
     —       —       0.04       —  
Aquiline termination fee
     —       —       0.04       —  
Adjustment for foreign exchange losses (gains)
     0.03       (0.02 )     (0.10 )     (0.04 )
 
                        
 
                                
Net operating income per share — diluted
   $ 1.68     $ 1.14     $ 5.73     $ 3.09  
 
                        
 
                                
Weighted average number of common shares and common share equivalents — diluted
     78,415,109       59,745,784       67,786,673       58,874,567  
 
                                
Net operating income
   $ 131,471     $ 68,164     $ 388,221     $ 182,119  
 
                                
Average shareholders’ equity
     1,862,080       1,157,115       1,498,369       1,074,114  
 
                                
Annualized net operating return on average equity
     28.2 %     23.6 %     25.9 %     17.0 %
 
                        
Validus Holdings Limited, 19 Par-la-Ville Road, Hamilton, Bermuda HM11
Tel: 441.278.9000 Fax: 441.278.9090
www.validusre.bm
13

 

 

Validus Holdings, Ltd.
Non-GAAP Financial Measure Reconciliation
Diluted Book Value Per Share
As at December 31, 2007 and December 31, 2006
(expressed in thousands of U.S. dollars, except share amounts)
                                 
    At December 31, 2007  
    Equity             Exercise     Book value  
    amount     Shares     Price     per share  
 
                                
Book value per common share
                                
Total shareholders’ equity
   $ 1,934,800       74,199,836             $ 26.08  
 
                              
 
                                
Diluted book value per common share
                                
Total shareholders’ equity
   $ 1,934,800       74,199,836                  
Assumed exercise of outstanding warrants
     152,869       8,711,729     $ 17.55          
Assumed exercise of outstanding options
     49,196       2,761,176     $ 17.82          
Unvested restricted shares
     —       3,367,961                  
 
                            
 
                                
Diluted book value per common share
   $ 2,136,865       89,040,702             $ 24.00  
 
                          
                                 
    At December 31, 2006  
    Equity             Exercise     Book value  
    amount     Shares     Price     per share  
 
                                
Book value per common share
                                
Total shareholders’ equity
   $ 1,192,523       58,482,601             $ 20.39  
 
                              
 
                                
Diluted book value per common share
                                
Total shareholders’ equity
   $ 1,192,523       58,482,601                  
Assumed exercise of outstanding warrants
     147,968       8,455,320     $ 17.50          
Assumed exercise of outstanding options
     45,046       2,568,894     $ 17.54          
Unvested restricted shares
     —       733,964                  
 
                            
 
                                
Diluted book value per common share
   $ 1,385,537       70,240,779             $ 19.73  
 
                          
Validus Holdings Limited, 19 Par-la-Ville Road, Hamilton, Bermuda HM11
Tel: 441.278.9000 Fax: 441.278.9090
www.validusre.bm
14

 

 

Cautionary Note Regarding Forward-Looking Statements
All forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause actual results to differ materially from those indicated in such statements. This report may include forward-looking statements, both with respect to us and our 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. 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 our risk management and loss limitation methods;4) cyclicality of demand and pricing in the reinsurance market; 5) our limited operating history; 6) adequacy of our loss reserves; 7) continued availability of capital and financing; 8) retention of key personnel; 9) competition; 10) potential loss of business from one or more major reinsurance brokers; 11) our 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; 12) general economic and market conditions (including inflation, interest rates and foreign currency exchange rates); 13) the integration of Talbot or other businesses we may acquire; 14) acts of terrorism or outbreak of war; and 15) availability of retrocessional coverage.
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 or elsewhere, including the Risk Factors beginning on page 16 of our Prospectus on Form 424B4 (the “Prospectus”). Any forward-looking statements made in this report are qualified by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us or our business or operations. We 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), annualized net operating return on average equity and diluted book value per 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 below entitled “Net Operating Income and Annualized Net Operating Return on Average Equity”. Annualized net operating return on average equity is presented in the section below entitled “Net Operating Income 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 below 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.
Validus Holdings Limited, 19 Par-la-Ville Road, Hamilton, Bermuda HM11
Tel: 441.278.9000 Fax: 441.278.9090
www.validusre.bm
15