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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Validus Holdings, Ltd. (delisted) | NYSE:VR | NYSE | Ordinary Share |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
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0.00 | 0.00% | 67.99 | 0.00 | 01:00:00 |
Validus Holdings, Ltd. (“Validus” or the “Company”) (NYSE: VR) today reported net income available to Validus common shareholders of $89.8 million, or $1.11 per diluted common share, for the three months ended September 30, 2016, compared to $66.7 million, or $0.78 per diluted common share, for the three months ended September 30, 2015. Net income available to Validus common shareholders was $351.6 million, or $4.24 per diluted common share, for the nine months ended September 30, 2016, compared to $305.9 million, or $3.52 per diluted common share, for the nine months ended September 30, 2015.
Net operating income available to Validus common shareholders was $82.6 million, or $1.02 per diluted common share, for the three months ended September 30, 2016, compared to $65.8 million, or $0.77 per diluted common share, for the three months ended September 30, 2015. Net operating income available to Validus common shareholders was $254.9 million, or $3.07 per diluted common share, for the nine months ended September 30, 2016, compared to $304.4 million, or $3.50 per diluted common share, for the nine months ended September 30, 2015.
The annualized return on average equity was 9.7% for the three months ended September 30, 2016, compared to 7.3% for the three months ended September 30, 2015. The annualized return on average equity was 12.7% for the nine months ended September 30, 2016, compared to 11.2% for the nine months ended September 30, 2015.
The annualized net operating return on average equity was 8.9% for the three months ended September 30, 2016, compared to 7.2% for the three months ended September 30, 2015. The annualized net operating return on average equity was 9.2% for the nine months ended September 30, 2016, compared to 11.1% for the nine months ended September 30, 2015.
Book value per diluted common share at September 30, 2016 was $45.16, reflecting quarterly growth of 2.5%, inclusive of common dividends.
Commenting on the financial results for the three months ended September 30, 2016, Validus' Chairman and CEO Ed Noonan stated:
"Validus delivered favorable results for the third quarter of 2016, with a combined ratio of 82.4% and strong investment returns driving book value growth of 2.5% inclusive of common dividends. Given current market conditions we continue to reduce exposure in areas under the most competitive pressure - notably marine and energy and certain property classes - while continuing to expand our profile in U.S. insurance and the management of third party capital."
Income available to Validus common shareholders by segment for the three months ended September 30, 2016 and September 30, 2015 was as follows:
Income available to Validus common shareholders for the three months ended
September 30, 2016 September 30, 2015 (Expressed in millions of U.S. dollars, except per share information) Validus Re - Underwriting income (a) (c) $ 67.1 $ 56.6 Talbot - Underwriting income (a) (c) 7.3 21.1 Western World - Underwriting loss (a) (c) (2.7 ) — Validus' share of AlphaCat income 11.2 7.5 Validus' share of PaCRe, Ltd. — (8.0 ) Validus' share of AlphaCat income, net (a) 11.2 (0.5 ) Total segmental income 82.9 77.2 Net investment income (b) 41.1 30.0 Corporate operating expenses (40.7 ) (39.3 ) Eliminations and other (0.7 ) (2.1 ) Net operating income available to Validus common shareholders (c) $ 82.6 $ 65.8 Net operating income per diluted share available to Validus common shareholders (c) $ 1.02 $ 0.77 Net income available to Validus common shareholders (c) $ 89.8 $ 66.7 Net income per diluted share available to Validus common shareholders $ 1.11 $ 0.78(a) Underwriting income and Validus' share of AlphaCat income are non-GAAP measures. (b) Net investment income relates to our managed investment portfolio. Total net investment income, inclusive of AlphaCat's non-managed portfolio is $43.5 million and $31.6 million for the three months ended September 30, 2016 and 2015, respectively. (c) A reconciliation of net operating income available to Validus common shareholders and underwriting income to net income available to Validus common shareholders, the most directly comparable GAAP measure, is presented at the end of this release.
This earnings release should be read in conjunction with the Company's September 30, 2016 investor financial supplement that has been posted to the Investors section of the Company's website located at www.validusholdings.com.
Third Quarter 2016 Results
Highlights for the third quarter are as follows:
Notable and Non-Notable Losses
The Company defines a notable loss event as an event whereby consolidated net losses and loss expenses aggregate to a threshold greater than or equal to $30.0 million. The Company defines a non-notable loss event as an event whereby consolidated net losses and loss expenses aggregate to a threshold greater than or equal to $15.0 million but less than $30.0 million.
During the three months ended September 30, 2016, the Company incurred losses and loss expenses from a third quarter non-notable loss event as follows:
Three Months Ended September 30, 2016 SpaceX Non-Notable Loss Event (Dollars in thousands) Validus Re Talbot Total Validus' Share of Net Losses and Loss Expenses $ 10,349 $ 9,894 $ 20,243 Less: Reinstatement Premiums, net (2,159 ) 919 (1,240 ) Net Loss Attributable to Validus $ 8,190 $ 10,813 $ 19,003The September 1 st SpaceX rocket explosion at Cape Canaveral, Florida resulted in estimated losses and loss expenses of $20.2 million, or 3.6 percentage points of the loss ratio. Net of reinstatement premiums of $1.2 million, the net loss attributable to the Company from this event was $19.0 million.
During the three months ended September 30, 2015, the Company incurred $49.0 million of losses and loss expenses from notable loss events, or 8.8 percentage points of the loss ratio, primarily relating to the port explosion in Tianjin, China. Net of $3.9 million of reinstatement premiums, the effect of these events on the Company's underwriting income was a reduction of $45.1 million. Losses and loss expenses from a single non-notable loss event, the 2015 Chilean earthquake, were $22.2 million, or 4.0 percentage points of the loss ratio during the three months ended September 30, 2015. Net of $2.2 million of reinstatement premiums, the effect of this event on the Company's underwriting income was a reduction of $20.0 million.
The Company's loss ratio, excluding the impact of notable and non-notable loss events and the change in prior accident years, for the three months ended September 30, 2016 and 2015 was 51.2% and 50.2%, respectively.
Validus Re Segment
Highlights for the third quarter include the following:
Talbot Segment
Highlights for the third quarter include the following:
Western World Segment
Highlights for the third quarter include the following:
AlphaCat Segment
Highlights for the third quarter include the following:
Investments
Highlights of our managed portfolio for the third quarter include the following:
Corporate Operating Expenses
Highlights for the third quarter include the following:
Year to Date 2016 Results
Highlights for the year to date include the following:
Shareholders' Equity and Capitalization
As at September 30, 2016, total shareholders' equity was $4.1 billion including $223.0 million of noncontrolling interest and $150.0 million of preferred shares issued on June 13, 2016. Shareholders' equity available to Validus common shareholders was $3.7 billion as at September 30, 2016. Book value per diluted common share was $45.16 at September 30, 2016 based on 82,341,307 diluted common shares, compared to $44.41 at June 30, 2016 based on 83,700,593 diluted common shares, an increase of 2.5%, inclusive of dividends for the three months ended September 30, 2016. Book value per diluted common share is a non-GAAP financial measure. A reconciliation of this measure to book value per common share is presented at the end of this release.
Total capitalization available to Validus at September 30, 2016 was $4.7 billion, including $538.2 million of junior subordinated deferrable debentures and $245.3 million of senior notes. Total capitalization at September 30, 2016 was $6.4 billion, including $1.6 billion of redeemable noncontrolling interest and $223.0 million of noncontrolling interest related to AlphaCat.
Share Repurchases
The Company repurchased 1,349,690 shares during the three months ended September 30, 2016. The share repurchases made during the three months ended September 30, 2016 resulted in a dilutive impact to book value per diluted common share of $0.07 for the quarter. A summary of the share repurchases made to date under the Company’s previously announced share repurchase programs is as follows:
Share Repurchase Activity(Expressed in thousands of U.S. dollars except for share and per share information)As at June 30, 2016
Quarter ended Effect of share repurchases: (cumulative) July August September September 30, 2016 Aggregate purchase price (a) $ 2,620,814 $ 18,438 $ 20,599 $ 27,895 $ 66,932 Shares repurchased 78,841,758 382,648 411,738 555,304 1,349,690 Average price (a) $ 33.24 $ 48.18 $ 50.03 $ 50.23 $ 49.59 Share Repurchase Activity(Expressed in thousands of U.S. dollars except for share and per share information)
Effect of share repurchases: As at September 30, 2016 As at October 26, 2016 Cumulative to Date Effect Aggregate purchase price (a) $ 2,687,746 $ 4,029 $ 2,691,775 Shares repurchased 80,191,448 81,174 80,272,622 Average price (a) $ 33.52 $ 49.63 $ 33.53 (a) Share transactions are on a trade date basis through October 26, 2016 and are inclusive of commissions. Average share price is rounded to two decimal places.Conference Call
The Company will host a conference call for analysts and investors on October 28, 2016 at 10:00 AM (Eastern) to discuss the third quarter 2016 financial results and related matters. The conference call may be accessed by dialing 1-844-309-6712 (toll-free U.S.) or 1-484-747-6926 (international) and entering the passcode 7188 6983. 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 11, 2016, by dialing 1-855-859-2056 (toll-free U.S.) or 1-404-537-3406 (international) and entering the passcode 7188 6983.
This conference call will also be available through a live audio webcast accessible through the Investor Relations section of the Company's website located at www.validusholdings.com. A replay of the webcast will be available at the Investor Relations section of the Company's website through November 11, 2016. In addition, a financial supplement relating to the Company's financial results for the three and nine months ended September 30, 2016 is available in the Investor Relations section of the Company's website.
About Validus Holdings, Ltd.
Validus Holdings, Ltd. ("Validus") is a holding company for reinsurance and insurance operating companies and investment advisors including Validus Reinsurance, Ltd. (“Validus Re”), Talbot Underwriting Ltd. (“Talbot”), Western World Insurance Group, Inc. (“Western World”) and AlphaCat Managers, Ltd. (“AlphaCat”).
Validus Re is a Bermuda based reinsurer focused on treaty reinsurance. Talbot is a specialty insurance group primarily operating within the Lloyd's insurance market through Syndicate 1183. Western World is a U.S. specialty lines insurance company focused on excess and surplus lines. AlphaCat is a Bermuda based investment adviser managing capital for third parties and Validus in insurance linked securities and other property catastrophe and specialty reinsurance investments.
Validus Holdings, Ltd.Consolidated Balance Sheets
As at September 30, 2016 and December 31, 2015
(Expressed in thousands of U.S. dollars, except share and per share information)
September 30, 2016 December 31, 2015 (unaudited) Assets Fixed maturities trading, at fair value (amortized cost: 2016—$5,547,838; 2015—$5,556,900) $ 5,576,341 $ 5,510,331 Short-term investments trading, at fair value (amortized cost: 2016—$2,481,573; 2015—$1,941,615) 2,481,406 1,941,635 Other investments, at fair value (cost: 2016—$371,668; 2015—$315,963) 394,695 336,856 Cash and cash equivalents 443,992 723,109 Restricted cash 113,048 73,270 Total investments, cash and cash equivalents 9,009,482 8,585,201 Investments in affiliates, equity method (cost: 2016—$86,305; 2015—$70,186) 99,731 88,065 Premiums receivable 939,127 658,682 Deferred acquisition costs 249,922 181,002 Prepaid reinsurance premiums 119,805 77,992 Securities lending collateral 10,629 4,863 Loss reserves recoverable 444,609 350,586 Paid losses recoverable 36,069 23,071 Income taxes recoverable 6,879 16,228 Deferred tax asset 26,015 21,661 Receivable for investments sold 21,854 39,766 Intangible assets 117,010 121,258 Goodwill 196,758 196,758 Accrued investment income 24,906 23,897 Other assets 183,357 126,782 Total assets $ 11,486,153 $ 10,515,812 Liabilities Reserve for losses and loss expenses $ 3,035,987 $ 2,996,567 Unearned premiums 1,359,438 966,210 Reinsurance balances payable 76,429 75,380 Securities lending payable 11,095 5,329 Deferred tax liability 3,278 3,847 Payable for investments purchased 49,435 77,475 Accounts payable and accrued expenses 144,086 627,331 Notes payable to AlphaCat investors 372,730 75,493 Senior notes payable 245,311 245,161 Debentures payable 538,168 537,668 Total liabilities $ 5,835,957 $ 5,610,461 Commitments and contingent liabilities Redeemable noncontrolling interest 1,559,580 1,111,714 Shareholders’ equity Preferred shares (Issued and Outstanding: 2016—6,000; 2015—nil) $ 150,000 $ — Common shares (Issued: 2016—161,273,353; 2015—160,570,772; Outstanding: 2016—79,443,030; 2015—82,900,617) 28,223 28,100 Treasury shares (2016—81,830,323; 2015—77,670,155) (14,320 ) (13,592 ) Additional paid-in capital 827,256 1,002,980 Accumulated other comprehensive loss (21,092 ) (12,569 ) Retained earnings 2,897,553 2,634,056 Total shareholders’ equity available to Validus 3,867,620 3,638,975 Noncontrolling interest 222,996 154,662 Total shareholders’ equity $ 4,090,616 $ 3,793,637 Total liabilities, noncontrolling interests and shareholders’ equity $ 11,486,153 $ 10,515,812 Validus Holdings, Ltd.
Non-GAAP Financial Measures
Consolidated Statements of Operations - Underwriting Income Format
For the three and nine months ended September 30, 2016 and 2015
(Expressed in thousands of U.S. dollars, except share and per share information)
Three Months Ended September 30, Nine Months Ended September 30, (Dollars in thousands) 2016 2015 2016 2015 Underwriting revenues Gross premiums written $ 372,418 $ 402,509 $ 2,309,251 $ 2,247,901 Reinsurance premiums ceded (45,006 ) (48,810 ) (249,070 ) (295,553 ) Net premiums written 327,412 353,699 2,060,181 1,952,348 Change in unearned premiums 236,363 201,312 (351,415 ) (248,759 ) Net premiums earned 563,775 555,011 1,708,766 1,703,589 Other insurance related income 919 3,496 2,400 5,144 Total underwriting revenues 564,694 558,507 1,711,166 1,708,733 Underwriting deductions Losses and loss expenses 258,394 256,010 789,971 763,085 Policy acquisition costs 113,434 105,039 328,593 307,773 General and administrative expenses 82,443 96,886 258,339 265,146 Share compensation expenses 10,501 9,983 32,465 28,279 Total underwriting deductions 464,772 467,918 1,409,368 1,364,283 Underwriting income $ 99,922 $ 90,589 $ 301,798 $ 344,450 Net investment income 43,514 31,572 112,232 96,212 Finance expenses (14,521 ) (18,512 ) (43,890 ) (58,161 ) Dividends on preferred shares (2,252 ) — (2,252 ) — Tax expense (1,830 ) (2,018 ) (1,418 ) (7,132 ) Loss from operating affiliates — (7,963 ) (23 ) (2,241 ) (Income) attributable to AlphaCat investors (5,564 ) (1,438 ) (16,278 ) (1,438 ) Net operating (income) attributable to noncontrolling interest (36,672 ) (26,467 ) (95,294 ) (67,336 ) Net operating income available to Validus common shareholders $ 82,597 $ 65,763 $ 254,875 $ 304,354 Net realized gains (losses) on investments 4,397 (1,187 ) 6,537 5,226 Change in net unrealized gains on investments 5,459 3,916 84,331 2,467 Income (loss) from investment affiliate 453 2,482 (4,249 ) 5,542 Foreign exchange (losses) gains (766 ) (2,592 ) 11,765 (9,528 ) Other loss (1,529 ) (1,970 ) (773 ) (2,578 ) Net (income) loss attributable to noncontrolling interest (767 ) 238 (869 ) 368 Net income available to Validus common shareholders $ 89,844 $ 66,650 $ 351,617 $ 305,851 Selected ratios: Ratio of net to gross premiums written 87.9 % 87.9 % 89.2 % 86.9 % Losses and loss expenses ratio 45.8 % 46.1 % 46.2 % 44.8 % Policy acquisition costs ratio 20.1 % 18.9 % 19.2 % 18.1 % General and administrative expenses ratio (a) 16.5 % 19.3 % 17.1 % 17.2 % Expense ratio 36.6 % 38.2 % 36.3 % 35.3 % Combined ratio 82.4 % 84.3 % 82.5 % 80.1 % (a) The general and administrative expense ratio includes share compensation expenses. Validus Holdings, Ltd.
Segment Information
For the three and nine months ended September 30, 2016 and 2015
(Expressed in thousands of U.S. dollars, except share and per share information)
Validus Re Segment Three Months Ended September 30, Nine Months Ended September 30, 2016 2015 2016 2015 Underwriting revenues Gross premiums written $ 94,741 $ 103,297 $ 1,072,219 $ 1,112,410 Reinsurance premiums ceded (15,967 ) (15,846 ) (111,658 ) (149,001 ) Net premiums written 78,774 87,451 960,561 963,409 Change in unearned premiums 149,705 153,210 (241,129 ) (205,110 ) Net premiums earned 228,479 240,661 719,432 758,299 Other insurance related income (loss) 58 2,569 (107 ) 3,318 Total underwriting revenues 228,537 243,230 719,325 761,617 Underwriting deductions Losses and loss expenses 98,425 120,958 313,432 357,491 Policy acquisition costs 42,837 42,989 127,660 128,909 General and administrative expenses 17,528 19,964 52,579 58,254 Share compensation expenses 2,695 2,691 8,371 7,665 Total underwriting deductions 161,485 186,602 502,042 552,319 Underwriting income $ 67,052 $ 56,628 $ 217,283 $ 209,298 Talbot Segment Three Months Ended September 30, Nine Months Ended September 30, 2016 2015 2016 2015 Underwriting revenues Gross premiums written $ 189,674 $ 226,025 $ 752,058 $ 789,148 Reinsurance premiums ceded (22,877 ) (35,823 ) (137,496 ) (164,144 ) Net premiums written 166,797 190,202 614,562 625,004 Change in unearned premiums 32,258 15,942 (7,166 ) 9,167 Net premiums earned 199,055 206,144 607,396 634,171 Other insurance related income 99 470 389 564 Total underwriting revenues 199,154 206,614 607,785 634,735 Underwriting deductions Losses and loss expenses 109,860 94,414 319,271 268,512 Policy acquisition costs 46,488 44,575 134,444 141,338 General and administrative expenses 32,333 43,292 109,929 115,341 Share compensation expenses 3,163 3,214 9,955 9,195 Total underwriting deductions 191,844 185,495 573,599 534,386 Underwriting income $ 7,310 $ 21,119 $ 34,186 $ 100,349 Western World Segment Three Months Ended September 30, Nine Months Ended September 30, 2016 2015 2016 2015 Underwriting revenues Gross premiums written $ 85,260 $ 70,871 $ 236,190 $ 207,372 Reinsurance premiums ceded (6,202 ) (4,716 ) (15,347 ) (13,390 ) Net premiums written 79,058 66,155 220,843 193,982 Change in unearned premiums (8,260 ) (2,225 ) (22,890 ) 2,948 Net premiums earned 70,798 63,930 197,953 196,930 Other insurance related income 219 248 696 787 Total underwriting revenues 71,017 64,178 198,649 197,717 Underwriting deductions Losses and loss expenses 45,748 40,810 129,623 138,098 Policy acquisition costs 17,094 13,214 46,704 27,110 General and administrative expenses 10,171 9,587 33,704 29,137 Share compensation expenses 702 554 1,825 1,525 Total underwriting deductions 73,715 64,165 211,856 195,870 Underwriting (loss) income $ (2,698 ) $ 13 $ (13,207 ) $ 1,847 Validus Holdings, Ltd.
Segment Information
For the three and nine months ended September 30, 2016 and 2015
(Expressed in thousands of U.S. dollars, except share and per share information)
AlphaCat Segment Three Months Ended September 30, Nine Months Ended September 30, 2016 2015 2016 2015 Revenues Third party $ 7,025 $ 5,762 $ 14,843 $ 14,622 Related party 1,373 1,738 2,592 4,058 Total revenues 8,398 7,500 17,435 18,680 Expenses General and administrative expenses 3,324 4,124 7,557 8,883 Share compensation expenses (107 ) 141 167 440 Finance expenses 31 2,297 914 9,259 Foreign exchange gains (losses) 5 (11 ) 17 (9 ) Total expenses 3,253 6,551 8,655 18,573 Income before investments from AlphaCat Funds and Sidecars 5,145 949 8,780 107 Investment income (loss) from AlphaCat Funds and Sidecars (a) AlphaCat Sidecars (72 ) 1,445 593 3,886 AlphaCat ILS Funds - Lower Risk (b) 2,321 2,274 6,903 5,454 AlphaCat ILS Funds - Higher Risk (b) 2,479 1,807 5,607 6,608 BetaCat ILS Funds 1,303 1,007 2,979 1,241 PaCRe — (7,963 ) (23 ) (2,241 ) Total investment income (loss) from AlphaCat Funds and Sidecars 6,031 (1,430 ) 16,059 14,948 Validus' share of AlphaCat income (loss) $ 11,176 $ (481 ) $ 24,839 $ 15,055 (a) The investment income from the AlphaCat funds and sidecars is based on equity accounting. (b) Lower risk AlphaCat ILS funds have a maximum permitted portfolio expected loss of less than 7%, whereas higher risk AlphaCat ILS funds have a maximum permitted portfolio expected loss of greater than 7%. Expected loss represents the average annual loss over the set of simulation scenarios divided by the total limit. Corporate and Investments Three Months Ended September 30, Nine Months Ended September 30, 2016 2015 2016 2015 Investment income Net investment income (a) $ 41,071 $ 29,991 $ 105,843 $ 91,281 Operating expenses General and administrative expenses 18,221 18,804 52,276 51,502 Share compensation expenses 4,048 3,383 12,147 9,454 Finance expenses (a) 14,317 15,143 42,637 45,623 Dividends on preferred shares 2,252 — 2,252
—
Tax expense 1,830 2,018 1,418 7,132 Total operating expenses 40,668 39,348 110,730 113,711 Other items Net realized gains (losses) on investments (a) 4,080 (1,233 ) 5,514 5,051 Change in net unrealized gains on investments (a) 4,652 1,765 81,782 2,508 Income (loss) from investment affiliate 453 2,482 (4,249 ) 5,542 Foreign exchange (losses) gains (a) (1,067 ) (2,331 ) 11,628 (9,024 ) Other loss (1,529 ) (1,970 ) (773 ) (2,578 ) Total other items 6,589 (1,287 ) 93,902 1,499 Total Corporate and Investments $ 6,992 $ (10,644 ) $ 89,015 $ (20,931 ) (a) These items exclude the components which are included in Validus' share of AlphaCat and amounts which are consolidated from variable interest entities. Validus Holdings, Ltd.Non-GAAP Financial Measures Reconciliation
Book Value per Common Share, Book Value per Diluted Common Share and Book Value per Diluted Common Share plus Accumulated Dividends
As at September 30, 2016 and December 31, 2015
(Expressed in thousands of U.S. dollars, except share and per share information)
September 30, 2016 (Dollars in thousands, except share and per share amounts)
Equity Amount
SharesExercise Price (a)
Book Value Per Share
Book value per common share Total shareholders' equity available to Validus common shareholders (b) $ 3,717,620 79,443,030 $ 46.80 Tangible book value per common share $ 42.85 Book value per diluted common share Total shareholders' equity available to Validus common shareholders (b) 3,717,620 79,443,030 Assumed exercise of outstanding stock options (c) 689 30,050 $ 22.93 Unvested restricted shares — 2,868,227 Book value per diluted common share $ 3,718,309 82,341,307 $ 45.16 Adjustment for accumulated dividends 11.21 Book value per diluted common share plus accumulated dividends $ 56.37 Tangible book value per diluted common share $ 41.35 December 31, 2015 (Dollars in thousands, except share and per share amounts)Equity Amount
SharesExercise Price (a)
Book Value Per Share
Book value per common share Total shareholders' equity available to Validus common shareholders (b) $ 3,638,975 82,900,617 $ 43.90 Tangible book value per common share $ 40.06 Book value per diluted common share Total shareholders' equity available to Validus common shareholders (b) 3,638,975 82,900,617 Assumed exercise of outstanding stock options (c) 1,319 65,401 $ 20.17 Unvested restricted shares — 3,026,376 Book value per diluted common share $ 3,640,294 85,992,394 $ 42.33 Adjustment for accumulated dividends 10.16 Book value per diluted common share plus accumulated dividends $ 52.49 Tangible book value per diluted common share $ 38.63 (a) Weighted average exercise price for those stock options that have an exercise price lower than book value per share. (b) Total shareholders' equity available to Validus common shareholders excludes the liquidation value of the preferred shares of $150.0 million. (c) Using the "as-if-converted" method, assuming all proceeds received upon exercise of stock options will be retained by the Company and the resulting common shares from exercise remain outstanding. Validus Holdings, Ltd.Non-GAAP Financial Measures Reconciliation
Underwriting Income, Net Operating Income available to Validus Common Shareholders, Net Operating Income per share available to Validus Common Shareholders and Annualized Net Operating Return on Average Equity
For the three and nine months ended September 30, 2016 and 2015
(Expressed in thousands of U.S. dollars, except share and per share information)
Three Months Ended September 30, Nine Months Ended September 30, 2016 2015 2016 2015 Net income available to Validus common shareholders $ 89,844 $ 66,650 $ 351,617 $ 305,851 Adjustments for: Net realized (gains) losses on investments (4,397 ) 1,187 (6,537 ) (5,226 ) Change in net unrealized gains on investments (5,459 ) (3,916 ) (84,331 ) (2,467 ) (Loss) income from investment affiliate (453 ) (2,482 ) 4,249 (5,542 ) Foreign exchange losses (gains) 766 2,592 (11,765 ) 9,528 Other loss 1,529 1,970 773 2,578 Net income (loss) attributable to noncontrolling interest 767 (238 ) 869 (368 ) Net operating income available to Validus common shareholders $ 82,597 $ 65,763 $ 254,875 $ 304,354 Net investment income (43,514 ) (31,572 ) (112,232 ) (96,212 ) Finance expenses 14,521 18,512 43,890 58,161 Dividends on preferred shares 2,252 — 2,252 — Tax expense 1,830 2,018 1,418 7,132 Loss from operating affiliates — 7,963 23 2,241 Income attributable to AlphaCat investors 5,564 1,438 16,278 1,438 Net operating income attributable to noncontrolling interest 36,672 26,467 95,294 67,336 Underwriting income $ 99,922 $ 90,589 $ 301,798 $ 344,450 Net operating income available to Validus common shareholders 82,597 65,763 254,875 304,354 Less: Dividends on outstanding warrants — (1,080 ) — (3,566 ) Net operating income allocated to Validus, adjusted $ 82,597 $ 64,683 $ 254,875 $ 300,788 Net income per share available to Validus common shareholders - diluted $ 1.11 $ 0.78 $ 4.24 $ 3.52 Adjustments for: Net realized (gains) losses on investments (0.05 ) 0.01 (0.08 ) (0.06 ) Change in net unrealized gains on investments (0.07 ) (0.05 ) (1.02 ) (0.03 ) (Loss) income from investment affiliate (0.01 ) (0.03 ) 0.05 (0.06 ) Foreign exchange losses (gains) 0.01 0.03 (0.14 ) 0.11 Other loss 0.02 0.03 0.01 0.02 Net income (loss) attributable to noncontrolling interest 0.01 — 0.01 — Net operating income per share available to Validus common shareholders - diluted $ 1.02 $ 0.77 $ 3.07 $ 3.50 Weighted average number of common shares and common share equivalents 81,244,556 85,629,494 82,938,624 86,841,927 Average shareholders' equity available to Validus common shareholders $ 3,716,938 $ 3,651,151 $ 3,699,319 $ 3,642,656 Annualized net return on average equity 9.7 % 7.3 % 12.7 % 11.2 % Annualized net operating return on average equity 8.9 % 7.2 % 9.2 % 11.1 %
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) statutory or regulatory developments including tax policy, reinsurance and other regulatory matters; 6) Validus' ability to implement its business strategy during "soft" as well as "hard" markets; 7) adequacy of Validus' loss reserves; 8) continued availability of capital and financing; 9) retention of key personnel; 10) competition; 11) potential loss of business from one or more major insurance or reinsurance brokers; 12) Validus' ability to implement, successfully and on a timely basis, complex infrastructure, distribution capabilities, systems, procedures and internal controls, and to develop accurate actuarial data to support the business and regulatory and reporting requirements; 13) general economic and market conditions (including inflation, volatility in the credit and capital markets, interest rates and foreign currency exchange rates); 14) the integration of businesses Validus may acquire or new business ventures Validus may start; 15) the effect on Validus' investment portfolios of changing financial market conditions including inflation, interest rates, liquidity and other factors; 16) acts of terrorism or outbreak of war; and 17) availability of reinsurance and retrocessional coverage, as well as management's response to any of the aforementioned factors.
The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included herein and elsewhere, including the risk factors included in Validus' most recent reports on Form 10-K and Form 10-Q and other documents of the Company on file with or furnished to the U.S. Securities and Exchange Commission (“SEC”). Any forward-looking statements made in this press release are qualified by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by Validus will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, Validus or its business or operations. Except as required by law, the Company undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.
Non-GAAP Financial Measures
In presenting the Company's results, management has included and discussed certain schedules containing net operating income (loss), net operating income (loss) available (attributable) to Validus common shareholders, net operating income (loss) per share, underwriting income (loss), annualized net operating return on average equity, book value per diluted common share and book value per diluted common share plus accumulated dividends 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 underwriting income and net operating income (loss) available (attributable) to Validus common shareholders to net income (loss) available (attributable) to Validus common shareholders, the most comparable U.S. GAAP financial measure, is presented in the section above entitled “Underwriting Income, Net Operating Income available to Validus common shareholders, Net Operating Income per share available to Validus common shareholders and Annualized Net Operating Return on Average Equity”. A reconciliation of underwriting income and operating income to net income, the most comparable U.S. GAAP financial measure, is presented in the “Consolidated Statements of Operations” above.
The AlphaCat segment information is presented as an asset manager view and therefore is considered non-GAAP.
Underwriting income indicates the performance of the Company's core underwriting segments, excluding revenues and expenses such as net investment income (loss), finance expenses, net realized and change in unrealized gains (losses) on investments, foreign exchange gains (losses), other income (loss) and transaction 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.
Net operating income (loss), a non-GAAP financial measure, is defined as net income (loss) excluding net realized and change in net unrealized gains (losses) on investments, income (loss) from investment affiliate, foreign exchange gains (losses), other income (loss) and non-recurring items. Net operating income (loss) available (attributable) to Validus common shareholders is defined as above, but excludes operating income (loss) available (attributable) to noncontrolling interest and dividends on preferred shares. Reconciliations of these measures to net income (loss) and net income (loss) available (attributable) to Validus common shareholders, the most directly comparable GAAP measures, are presented at the end of this release.
Annualized net operating return on average equity is presented in the section above entitled “Underwriting Income, Net Operating Income available to Validus common shareholders, Net Operating Income per share available to Validus common shareholders and Annualized Net Operating Return on Average Equity.” A reconciliation of book value per diluted common share and book value per diluted common share plus accumulated dividends to book value per common share, the most comparable U.S. GAAP financial measure, is presented in the section above entitled “Book Value per Common Share, Book Value per Diluted Common Share and Book Value per Diluted Common Share plus Accumulated Dividends.” Net operating income (loss) is calculated based on net income (loss) excluding net realized gains (losses) on investments, change in net unrealized gains (losses) on investments, foreign exchange gains (losses), other income (loss), income (loss) from investment affiliates and non-recurring items. Realized gains (losses) from the sale of investments are driven by the timing of the disposition of investments, not by our operating performance. Gains (losses) arising from translation of non-US$ denominated balances are unrelated to our underlying business. Net operating income (loss) available (attributable) to Validus common shareholders is defined as net operating income (loss) as defined above, but excluding operating income (loss) available (attributable) to noncontrolling interest and dividends on preferred shares.
View source version on businesswire.com: http://www.businesswire.com/news/home/20161027006734/en/
Investors:Validus Holdings, Ltd.Investor.Relations@validusholdings.com+1-441-278-9000orMedia:Brunswick GroupLaura Pietruszki / Mustafa Riffat+1-212-333-3810
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