Segment information

The Company conducts its operations worldwide through four operating segments, which have been determined under ASC Topic 280 “Segment Reporting” to be Validus Re, Talbot, Western World and AlphaCat. The Company’s operating segments are strategic business units that offer different products and services. They are managed and have capital allocated separately because each segment undertakes different strategies.

A description of each of the Company’s operating segments and its corporate and investments function is as follows:

Validus Re Segment

The Validus Re segment is focused primarily on treaty reinsurance. The primary lines in which the segment conducts business are property, marine and specialty which includes agriculture, aerospace and aviation, financial lines of business, nuclear, terrorism, life, accident & health, workers’ compensation, crisis management, contingency, technical lines, composite, trade credit and casualty.

Talbot Segment

The Talbot segment is focused on a wide range of marine and energy, political lines, commercial property, financial lines, contingency, accident & health and aviation classes of business on an insurance or facultative reinsurance basis and principally property, aerospace and marine classes of business on a treaty reinsurance basis.

Western World Segment

The Western World segment is focused on providing commercial insurance products on a surplus lines and specialty admitted basis. Western World specializes in underwriting classes of business that are not easily placed in the standard insurance market due to their complexity, high hazard, or unusual nature; including general liability, property and professional liability classes of business.

AlphaCat Segment

The AlphaCat segment leverages the Company’s underwriting and analytical expertise and earns management and performance fees from the Company and other third party investors primarily through the AlphaCat ILS funds and sidecars.

Corporate and Investments

The Company has a corporate and investments function (“Corporate and Investments”), which includes the activities of the parent company, and which carries out certain functions for the group, including investment management. Corporate and Investments includes investment income on a managed basis and other non-segment expenses, predominantly general and administrative, stock compensation and finance expenses. Corporate and Investments also denotes the activities of certain key executives such as the Chief Executive Officer and Chief Financial Officer. For internal reporting purposes, Corporate and Investments is reflected separately; however, it is not considered an operating segment under these circumstances. Other reconciling items include, but are not limited to, the elimination of certain inter segment revenues and expenses and other items that are not allocated to the operating segments.

Underwriting income and the AlphaCat asset manager view are non-GAAP financial measures. A reconciliation of segmental income to net income available to Validus is included in the tables below.

The following tables summarize the results of our operating segments and “Corporate and Investments”:



	Years Ended December 31,
Validus Re Segment Information	2016			2015			2014
Underwriting revenues
Gross premiums written	$	1,111,054		$	1,126,759		$	1,118,532
Reinsurance premiums ceded	(111,564		)	(149,088		)	(163,678		)
Net premiums written	999,490			977,671			954,854
Change in unearned premiums	(55,545		)	12,542			(37,570		)
Net premiums earned	943,945			990,213			917,284
Other insurance related (loss) income	(55		)	3,575			3,159
Total underwriting revenues	943,890			993,788			920,443

Underwriting deductions
Losses and loss expenses	411,488			457,976			307,290
Policy acquisition costs	181,040			166,387			141,670
General and administrative expenses	72,770			78,428			74,739
Share compensation expenses	11,034			10,350			9,739
Total underwriting deductions	676,332			713,141			533,438
Underwriting income	$	267,558		$	280,647		$	387,005

Selected ratios:
Ratio of net to gross premiums written	90.0		%	86.8		%	85.4		%

Losses and loss expense ratio	43.6		%	46.2		%	33.5		%

Policy acquisition cost ratio	19.2		%	16.8		%	15.5		%
General and administrative expense ratio ^(a)	8.8		%	9.0		%	9.2		%
Expense ratio	28.0		%	25.8		%	24.7		%
Combined ratio	71.6		%	72.0		%	58.2		%


(a)	The general and administrative expense ratio includes share compensation expenses.



	Years Ended December 31,
Talbot Segment Information	2016			2015			2014
Underwriting revenues
Gross premiums written	$	970,702		$	1,018,835		$	1,101,770
Reinsurance premiums ceded	(175,729		)	(198,896		)	(192,211		)
Net premiums written	794,973			819,939			909,559
Change in unearned premiums	(13,057		)	18,152			(29,785		)
Net premiums earned	781,916			838,091			879,774
Other insurance related income	455			851			1,095
Total underwriting revenues	782,371			838,942			880,869

Underwriting deductions
Losses and loss expenses	424,946			347,322			423,394
Policy acquisition costs	177,127			187,535			187,162
General and administrative expenses	134,479			155,306			150,828
Share compensation expenses	13,078			12,373			11,346
Total underwriting deductions	749,630			702,536			772,730
Underwriting income	$	32,741		$	136,406		$	108,139

Selected ratios:
Ratio of net to gross premiums written	81.9		%	80.5		%	82.6		%

Losses and loss expense ratio	54.3		%	41.4		%	48.1		%

Policy acquisition cost ratio	22.7		%	22.4		%	21.3		%
General and administrative expense ratio^(a)	18.9		%	20.0		%	18.4		%
Expense ratio	41.6		%	42.4		%	39.7		%
Combined ratio	95.9		%	83.8		%	87.8		%


(a)	The general and administrative expense ratio includes share compensation expenses.



	Years Ended December 31,
Western World Segment Information	2016			2015			2014 ^(a)
Underwriting revenues
Gross premiums written	$	323,220		$	278,504		$	65,235
Reinsurance premiums ceded	(22,634		)	(18,877		)	(6,428		)
Net premiums written	300,586			259,627			58,807
Change in unearned premiums	(27,354		)	(977		)	14,189
Net premiums earned	273,232			258,650			72,996
Other insurance related income	912			1,044			264
Total underwriting revenues	274,144			259,694			73,260

Underwriting deductions
Losses and loss expenses	183,812			171,878			51,035
Policy acquisition costs	64,442			41,408			3,169
General and administrative expenses	43,280			38,715			11,121
Share compensation expenses	2,543			2,083			135
Total underwriting deductions	294,077			254,084			65,460
Underwriting (loss) income	$	(19,933	)	$	5,610		$	7,800

Selected ratios:
Ratio of net to gross premiums written	93.0		%	93.2		%	90.1		%

Losses and loss expense ratio	67.3		%	66.4		%	69.9		%

Policy acquisition cost ratio	23.5		%	16.0		%	4.4		%
General and administrative expense ratio ^(b)	16.8		%	15.8		%	15.4		%
Expense ratio	40.3		%	31.8		%	19.8		%
Combined ratio	107.6		%	98.2		%	89.7		%


(a)	The results of Western World have been included in the Company’s consolidated results from the October 2, 2014 date of acquisition.


(b)	The general and administrative expense ratio includes share compensation expenses.



	Years Ended December 31,
AlphaCat Segment Information ^(a)	2016			2015			2014
Revenues
Third party	$	18,771		$	19,661		$	18,667
Related party	3,329			5,309			7,467
Total revenues	22,100			24,970			26,134

Expenses
General and administrative expenses	10,233			12,115			10,134
Share compensation expenses	249			580			501
Finance expenses	947			9,312			3,417
Tax expenses	90			—			—
Foreign exchange losses (gains)	19			(16		)	(20		)
Total expenses	11,538			21,991			14,032
Income before investment income from AlphaCat Funds and Sidecars	10,562			2,979			12,102

Investment income (loss) from AlphaCat Funds and Sidecars ^(b)
AlphaCat Re & Master Fund	—			—			(1,377		)
AlphaCat Sidecars	607			5,504			10,525
AlphaCat ILS Funds - Lower Risk	8,901			7,491			7,974
AlphaCat ILS Funds - Higher Risk	7,471			8,428			8,754
BetaCat ILS Funds	3,623			1,702			(51		)
PaCRe	(23		)	(3,949		)	(4,340		)
Total investment income from AlphaCat Funds and Sidecars	20,579			19,176			21,485
Validus’ share of AlphaCat income	$	31,141		$	22,155		$	33,587

Supplemental information:
Gross premiums written
AlphaCat Sidecars	$	(341	)	$	45,755		$	50,023
AlphaCat ILS Funds - Lower Risk	112,222			91,363			52,264
AlphaCat ILS Funds - Higher Risk	140,022			34,228			24,498
AlphaCat Direct ^(c)	18,499			4,780			—
Total gross premiums written	$	270,402		$	176,126		$	126,785


(a)	The results of AlphaCat are presented on an asset manager basis, which is non-GAAP. A reconciliation of Validus’ share of AlphaCat segment income to segmental income is presented in the tables below.


(b)	The investment income from the AlphaCat funds and sidecars is based on equity accounting.


(c)	AlphaCat Direct includes direct investments from third party investors in AlphaCat Re.



	Years Ended December 31,
Corporate and Investments	2016			2015			2014
Investment income
Managed net investment income ^(a)	$	141,718		$	121,166		$	95,800

Operating expenses
General and administrative expenses	72,249			75,724			80,210
Share compensation expenses	16,003			12,955			11,352
Finance expenses ^(a)	57,183			61,071			60,309
Dividends on preferred shares	4,455			—			—
Tax (benefit) expense ^(a)	(19,819		)	6,376			155
Total operating expenses	130,071			156,126			152,026

Other items
Net realized gains on managed investments ^(a)	14,680			1,698			12,160
Change in net unrealized gains (losses) on managed investments ^(a)	14,106			(32,007		)	(1,030		)
(Loss) income from investment affiliates	(2,083		)	4,281			8,411
Foreign exchange gains (losses) ^(a)	10,778			(8,172		)	(10,700		)
Other loss	(766		)	(1,002		)	(2,243		)
Transaction expenses^(b)	—			—			(8,096		)
Total other items	36,715			(35,202		)	(1,498		)
Total Corporate and Investments	$	48,362		$	(70,162	)	$	(57,724	)


(a)	These items exclude the components which are included in Validus’ share of AlphaCat and amounts which are consolidated from VIEs.


(b)	The transaction expenses relate to costs incurred in connection with the acquisition of Western World, which was completed on October 2, 2014. Transaction expenses are primarily comprised of legal, financial advisory and audit related services.

The following tables reconcile the results of our operating segments and “Corporate & Investments” to the Consolidated results of the Company for the years indicated:



	Year Ended December 31, 2016
	Validus Re Segment			Talbot Segment			Western World Segment			AlphaCat Segment and Consolidated VIEs			Corporate and Investments			Eliminations			Total
Underwriting revenues
Gross premiums written	$	1,111,054		$	970,702		$	323,220		$	270,402		$	—		$	(26,673	)	$	2,648,705
Reinsurance premiums ceded	(111,564		)	(175,729		)	(22,634		)	(6,451		)	—			26,673			(289,705		)
Net premiums written	999,490			794,973			300,586			263,951			—			—			2,359,000
Change in unearned premiums	(55,545		)	(13,057		)	(27,354		)	(13,879		)	—			—			(109,835		)
Net premiums earned	943,945			781,916			273,232			250,072			—			—			2,249,165
Other insurance related (loss) income	(55		)	455			912			22,386			—			(20,737		)	2,961
Total underwriting revenues	943,890			782,371			274,144			272,458			—			(20,737		)	2,252,126

Underwriting deductions
Losses and loss expenses	411,488			424,946			183,812			44,851			—			—			1,065,097
Policy acquisition costs	181,040			177,127			64,442			26,905			—			(32		)	449,482
General and administrative expenses	72,770			134,479			43,280			34,333			72,249			(20,817		)	336,294
Share compensation expenses	11,034			13,078			2,543			249			16,003			—			42,907
Total underwriting deductions	676,332			749,630			294,077			106,338			88,252			(20,849		)	1,893,780

Underwriting income (loss)	$	267,558		$	32,741		$	(19,933	)	$	166,120		$	(88,252	)	$	112		$	358,346

Other items^(a)	—			—			—			2,478			(649		)	—			1,829
Dividends on preferred shares	—			—			—			—			(4,455		)	—			(4,455		)
Net investment income	—			—			—			9,264			141,718			(597		)	150,385
(Income) attributable to AlphaCat investors	—			—			—			(23,358		)	—			—			(23,358		)
Net (income) attributable to noncontrolling interests	—			—			—			(123,363		)	—			—			(123,363		)
Segmental income (loss)	$	267,558		$	32,741		$	(19,933	)	$	31,141		$	48,362		$	(485	)

Net income available to Validus common shareholders																			$	359,384


(a)	Other items includes finance expenses, tax (benefit) expense, foreign exchange gains (losses), net realized and change in net unrealized gains (losses) on investments, income from investment and operating affiliates and other income (loss).



	Year Ended December 31, 2015
	Validus Re Segment			Talbot Segment			Western World Segment			AlphaCat Segment and Consolidated VIEs			Corporate and Investments			Eliminations			Total
Underwriting revenues
Gross premiums written	$	1,126,759		$	1,018,835		$	278,504		$	176,126		$	—		$	(42,718	)	$	2,557,506
Reinsurance premiums ceded	(149,088		)	(198,896		)	(18,877		)	(4,538		)	—			42,718			(328,681		)
Net premiums written	977,671			819,939			259,627			171,588			—			—			2,228,825
Change in unearned premiums	12,542			18,152			(977		)	(11,653		)	—			—			18,064
Net premiums earned	990,213			838,091			258,650			159,935			—			—			2,246,889
Other insurance related income	3,575			851			1,044			25,524			—			(24,881		)	6,113
Total underwriting revenues	993,788			838,942			259,694			185,459			—			(24,881		)	2,253,002

Underwriting deductions
Losses and loss expenses	457,976			347,322			171,878			657			—			—			977,833
Policy acquisition costs	166,387			187,535			41,408			16,327			—			(1,599		)	410,058
General and administrative expenses	78,428			155,306			38,715			39,055			75,724			(23,519		)	363,709
Share compensation expenses	10,350			12,373			2,083			580			12,955			—			38,341
Total underwriting deductions	713,141			702,536			254,084			56,619			88,679			(25,118		)	1,789,941

Underwriting income	$	280,647		$	136,406		$	5,610		$	128,840		$	(88,679	)	$	237		$	463,061

Other items^(a)	—			—			—			(17,967		)	(102,649		)	—			(120,616		)
Dividends on preferred shares	—			—			—			—			—			—			—
Net investment income	—			—			—			6,658			121,166			—			127,824
(Income) attributable to AlphaCat investors	—			—			—			(2,412		)	—			—			(2,412		)
Net (income) attributable to noncontrolling interests	—			—			—			(92,964		)	—			—			(92,964		)
Segmental income	$	280,647		$	136,406		$	5,610		$	22,155		$	(70,162	)	$	237

Net income available to Validus																			$	374,893


(a)	Other items includes finance expenses, tax expenses, foreign exchange gains (losses), net realized and change in net unrealized gains (losses) on investments, income from investment and operating affiliates and other income (loss).



	Year Ended December 31, 2014
	Validus Re Segment			Talbot Segment			Western World Segment ^(c)			AlphaCat Segment and Consolidated VIEs			Corporate and Investments			Eliminations			Total
Underwriting revenues
Gross premiums written	$	1,118,532		$	1,101,770		$	65,235		$	126,785		$	—		$	(53,457	)	$	2,358,865
Reinsurance premiums ceded	(163,678		)	(192,211		)	(6,428		)	(4,348		)	—			53,457			(313,208		)
Net premiums written	954,854			909,559			58,807			122,437			—			—			2,045,657
Change in unearned premiums	(37,570		)	(29,785		)	14,189			564			—			—			(52,602		)
Net premiums earned	917,284			879,774			72,996			123,001			—			—			1,993,055
Other insurance related income	3,159			1,095			264			25,750			—			(26,796		)	3,472
Total underwriting revenues	920,443			880,869			73,260			148,751			—			(26,796		)	1,996,527

Underwriting deductions
Losses and loss expenses	307,290			423,394			51,035			(16,704		)	—			—			765,015
Policy acquisition costs	141,670			187,162			3,169			11,584			—			(4,118		)	339,467
General and administrative expenses	74,739			150,828			11,121			36,298			80,210			(23,834		)	329,362
Share compensation expenses	9,739			11,346			135			501			11,352			—			33,073
Total underwriting deductions	533,438			772,730			65,460			31,679			91,562			(27,952		)	1,466,917

Underwriting income	$	387,005		$	108,139		$	7,800		$	117,072		$	(91,562	)	$	1,156		$	529,610

Other items ^(a)	—			—			—			(12,891		)	(53,866		)	—			(66,757		)
Net investment income	—			—			—			4,286			95,800			—			100,086
Net (income) attributable to noncontrolling interests	—			—			—			(74,880		)	—			—			(74,880		)
Transaction expenses ^(b)	—			—			—			—			(8,096		)	—			(8,096		)
Segmental income	$	387,005		$	108,139		$	7,800		$	33,587		$	(57,724	)	$	1,156

Net income available to Validus																			$	479,963


(a)	Other items includes finance expenses, tax expenses, foreign exchange gains (losses), net realized and change in net unrealized gains (losses) on investments, income from investment and operating affiliates and other income (loss).


(b)	The transaction expenses relate to costs incurred in connection with the acquisition of Western World, which was completed on October 2, 2014. Transaction expenses are primarily comprised of legal, financial advisory and audit related services.


(c)	The results of Western World have been included in the Company’s consolidated results from the October 2, 2014 date of acquisition.

The following table sets forth the gross premiums written by line of business for the years indicated:



	Years Ended December 31,
	2016		2015		2014^(a)
Property	$	1,128,523	$	1,077,700	$	1,050,109
Marine	363,656		471,857		576,478
Specialty	927,746		782,463		677,026
Liability	228,780		225,486		55,252
Total	$	2,648,705	$	2,557,506	$	2,358,865


(a)	The results of Western World have been included in the Company’s consolidated results from the October 2, 2014 date of acquisition.

The Company’s exposures are generally diversified across geographic zones. The following tables set forth the gross premiums written allocated to the territory of coverage exposure for the years indicated:



	Gross Premiums Written
	Year Ended December 31, 2016
	Validus Re		Talbot		Western World		AlphaCat		Eliminations			Total		%
United States	$	448,243	$	103,415	$	323,220	$	64,766	$	(2,057	)	$	937,587	35.4	%

Worldwide excluding United States ^(a)	51,902		148,347		—		22,206		(689		)	221,766		8.4	%
Australia and New Zealand	7,389		10,844		—		4,949		(133		)	23,049		0.9	%
Europe	28,967		34,264		—		3,245		(695		)	65,781		2.4	%
Latin America and Caribbean	47,586		102,293		—		—		(9,484		)	140,395		5.3	%
Japan	40,099		6,580		—		3,221		(33		)	49,867		1.9	%
Canada	3,349		6,834		—		207		(147		)	10,243		0.4	%
Rest of the world ^(b)	22,595		107,106		—		—		(2,449		)	127,252		4.8	%
Sub-total, non United States	201,887		416,268		—		33,828		(13,630		)	638,353		24.1	%
Worldwide including United States ^(a)	167,065		98,311		—		170,253		(10,983		)	424,646		16.0	%
Other locations non-specific ^(c)	293,859		352,708		—		1,555		(3		)	648,119		24.5	%
Total	$	1,111,054	$	970,702	$	323,220	$	270,402	$	(26,673	)	$	2,648,705	100.0	%



	Gross Premiums Written
	Year Ended December 31, 2015
	Validus Re		Talbot		Western World		AlphaCat		Eliminations			Total		%
United States	$	530,541	$	106,679	$	278,504	$	41,134	$	(2,547	)	$	954,311	37.4	%

Worldwide excluding United States ^(a)	52,860		127,540		—		8,107		(1,186		)	187,321		7.3	%
Australia and New Zealand	12,190		8,974		—		624		(244		)	21,544		0.8	%
Europe	48,240		38,657		—		2,504		(1,135		)	88,266		3.5	%
Latin America and Caribbean	46,258		103,318		—		38		(15,481		)	134,133		5.2	%
Japan	38,885		5,171		—		1,671		(109		)	45,618		1.8	%
Canada	3,129		6,666		—		458		(231		)	10,022		0.4	%
Rest of the world ^(b)	21,498		103,237		—		—		(3,660		)	121,075		4.7	%
Sub-total, non United States	223,060		393,563		—		13,402		(22,046		)	607,979		23.7	%
Worldwide including United States ^(a)	139,419		100,523		—		116,523		(18,120		)	338,345		13.2	%
Other locations non-specific ^(c)	233,739		418,070		—		5,067		(5		)	656,871		25.7	%
Total	$	1,126,759	$	1,018,835	$	278,504	$	176,126	$	(42,718	)	$	2,557,506	100.0	%



	Gross Premiums Written
	Year Ended December 31, 2014
	Validus Re		Talbot		Western World ^(d)		AlphaCat		Eliminations			Total		%
United States	$	437,124	$	108,458	$	65,235	$	26,067	$	(3,664	)	$	633,220	26.8	%

Worldwide excluding United States ^(a)	76,370		139,570		—		6,727		(1,575		)	221,092		9.4	%
Australia and New Zealand	20,617		9,736		—		1,019		(360		)	31,012		1.3	%
Europe	57,223		45,615		—		2,305		(1,292		)	103,851		4.4	%
Latin America and Caribbean	56,102		116,281		—		—		(26,007		)	146,376		6.2	%
Japan	42,813		4,116		—		608		(111		)	47,426		2.0	%
Canada	3,793		10,194		—		214		(337		)	13,864		0.6	%
Rest of the world ^(b)	25,272		93,012		—		—		(3,805		)	114,479		4.9	%
Sub-total, non United States	282,190		418,524		—		10,873		(33,487		)	678,100		28.8	%
Worldwide including United States ^(a)	175,098		96,187		—		89,845		(16,196		)	344,934		14.6	%
Other locations non-specific ^(c)	224,120		478,601		—		—		(110		)	702,611		29.8	%
Total	$	1,118,532	$	1,101,770	$	65,235	$	126,785	$	(53,457	)	$	2,358,865	100.0	%


(a)	Represents risks in two or more geographic zones.


(b)	Represents risks in one geographic zone.


(c)	The other locations non-specific category refers to business for which an analysis of exposure by geographic zone is not applicable since these exposures can span multiple geographic areas and, in some instances, are not fixed locations.


(d)	The results of Western World have been included in the Company’s consolidated results from the October 2, 2014 date of acquisition.