Validus Announces Full Year 2012 Net Income of $408.4 Million and Fourth Quarter 2012 Net Loss of $(
Validus Announces Full Year 2012 Net Income of $408.4 Million and Fourth Quarter 2012 Net Loss of $(90.7) Million
Diluted Book Value Per Share of $35.22 at December 31, 2012
Validus Also Provides January 2013 Reinsurance Renewal Details for Validus Re and AlphaCat
PEMBROKE, Bermuda--(BUSINESS WIRE)-- Validus Holdings, Ltd. ("Validus" or the "Company") (NYS: VR) today reported net income available to Validus of $408.4 million, or $3.99 per diluted common share for the year ended December 31, 2012, compared to $21.3 million, or $0.14 per diluted common share, for the year ended December 31, 2011.
Net operating income available to Validus for the year ended December 31, 2012 was $333.8 million, or $3.26 per diluted common share, compared to $52.3 million, or $0.44 per diluted common share, for the year ended December 31, 2011.
Commenting on the Company's 2012 financial results, Ed Noonan, Validus' Chairman and Chief Executive Officer stated: "Validus delivered solid financial results during 2012, a year which included Hurricane Sandy, one of the largest insured catastrophe losses on record. Validus' net income in excess of $400 million for the year and double digit growth in diluted book value per share plus dividends reaffirm the value of our strategy and business model. Validus' three operating segments - Validus Re, Talbot, and AlphaCat - are all leaders in their respective markets. Although each of these businesses stands on its own, they are united by a focus on short tail classes of business and draw upon the outstanding personnel and technical resources available throughout the Company.
Validus enters 2013 in an excellent position. The recent acquisition of Flagstone has provided additional scale in Validus Re's core property catastrophe reinsurance business, Talbot's focus on Marine and Property classes will allow it to capitalize on loss driven rate increases, and AlphaCat recently announced a significant increase in third party capital under management. Together with over $4 billion of common shareholders' equity, $5.2 billion of total capitalization and a high grade investment portfolio, Validus has the size, scale and security to provide significant capacity to our clients and their intermediaries."
Fourth Quarter 2012 Results
Net loss attributable to Validus for the three months ended December 31, 2012 was $(90.7) million, or $(0.94) per diluted common share compared to net income available to Validus of $27.3 million, or $0.25 per diluted common share for the three months ended December 31, 2011.
Net operating loss attributable to Validus for the three months ended December 31, 2012 was $(100.8) million, or $(1.05) per diluted common share, compared to net operating income available to Validus of $23.4 million, or $0.21 per diluted common share, for the three months ended December 31, 2011.
Net loss attributable to Validus, net operating loss attributable to Validus, diluted loss per share and diluted operating loss per share by Validus entity for the three months ended December 31, 2012 were as follows:
Net (Loss) | Diluted Loss Per | Net Operating | Diluted | ||||||||||||
(Expressed in millions of U.S. dollars, except per share information) | |||||||||||||||
Validus Re | $ | (87.2 | ) | $ | (80.9 | ) | |||||||||
PaCRe | (3.0 | ) | 0.1 | ||||||||||||
Other AlphaCat Companies & Other | 24.2 | 0.3 | |||||||||||||
Validus Re consolidated | (66.0 | ) | (80.5 | ) | |||||||||||
Talbot | 6.3 | 7.6 | |||||||||||||
Corporate & Eliminations | (31.0 | ) | (27.9 | ) | |||||||||||
Total | $ | (90.7 | ) | $ | (0.94 | ) | $ | (100.8 | ) | $ | (1.05 | ) | |||
Net operating income (loss), a non-GAAP financial measure, is defined as net income (loss) excluding net realized and unrealized gains (losses) on investments, foreign exchange gains (losses), gains (losses) from investment affiliates and non-recurring items. Net operating income (loss) available (attributable) to Validus is defined as net operating income (loss) as defined above, but excluding income (loss) available (attributable) to noncontrolling interest. Reconciliations of these measures to net income (loss) and net income (loss) available (attributable) to Validus, the most directly comparable GAAP measures, are presented at the end of this release.
Operating results of Flagstone have been included in the consolidated financial statements from the November 30, 2012 acquisition date. The aggregate purchase price paid for Flagstone by the Company was $646.0 million for adjusted net assets acquired of $695.7 million. The Company expensed as incurred $2.0 million of transaction expenses, $20.2 million of termination expenses and $6.0 million for amortization of intangibles related to the acquisition for the three months ended December 31, 2012, resulting in a gain on bargain purchase, net of expenses of $21.5 million for the quarter. Transaction expenses are comprised of primarily legal and corporate advisory services.
January 2013 Reinsurance Renewals - Validus Re and AlphaCat segments
During the January 2013 renewal season, the Validus Re and AlphaCat segments underwrote $655.6 million in gross premiums written, an increase of 12.7% from the prior year period. This renewal data does not include Talbot's operations as its business is distributed relatively evenly throughout the year.
Below is a table outlining the Validus Re and AlphaCat segments' January 2013 reinsurance renewals.
January 2013 Gross Premiums Written | ||||||||||||||||
Validus Re segment | ||||||||||||||||
U.S. | International | |||||||||||||||
Property | Property | Marine | Specialty | Total | ||||||||||||
(Expressed in millions of U.S. dollars) | ||||||||||||||||
2013 (a) | $ | 150.5 | $ | 157.5 | $ | 142.6 | $ | 121.8 | $ | 572.4 | ||||||
2012 | $ | 150.8 | $ | 140.3 | $ | 166.5 | $ | 45.2 | $ | 502.8 | ||||||
Increase (Decrease) | (0.2 | )% | 12.3 | % | (14.4 | )% | 169.5 | % | 13.8 | % | ||||||
AlphaCat segment managed premium (b) | ||||||||||||||||
U.S. | International | |||||||||||||||
Property | Property | Marine | Specialty | Total | ||||||||||||
(Expressed in millions of U.S. dollars) | ||||||||||||||||
2013 | $ | 43.4 | $ | 49.6 | $ | — | $ | — | $ | 93.0 | ||||||
2012 (c) | $ | 44.6 | $ | 34.1 | $ | — | $ | — | $ | 78.7 | ||||||
Increase (Decrease) | (2.7 | )% | 45.5 | % | — | — | 18.2 | % | ||||||||
Validus Re segment and AlphaCat segment managed premium (including intercompany eliminations) | ||||||||||||||||
U.S. | International | |||||||||||||||
Property | Property | Marine | Specialty | Total | ||||||||||||
(Expressed in millions of U.S. dollars) | ||||||||||||||||
2013 (a) (d) | $ | 186.2 | $ | 205.0 | $ | 142.6 | $ | 121.8 | $ | 655.6 | ||||||
2012 | $ | 195.5 | $ | 174.4 | $ | 166.5 | $ | 45.2 | $ | 581.6 | ||||||
Increase (Decrease) | (4.8 | )% | 17.5 | % | (14.4 | )% | 169.5 | % | 12.7 | % | ||||||
(a) | The 2013 Validus Re segment premiums include the impact of the Flagstone acquisition. The 2012 comparative figures do not include Flagstone. | |
(b) | AlphaCat segment managed premium includes AlphaCat Re 2011, Ltd., AlphaCat Re 2012, Ltd. and AlphaCat 2013, Ltd., which are accounted for as investments in operating affiliates, under the equity method. Managed premium also includes PaCRe, Ltd. and AlphaCat ILS funds. | |
(c) | Included in the 2012 renewal information is $76.1 million of managed premium written by AlphaCat Re 2011 ($42.3 million in the U.S. Property class and $33.8 million in the International Property class). | |
(d) | An inter-segment elimination between AlphaCat and Validus Re totaling $9.8 million for 2013 has been considered in calculating these totals. This elimination relates to business ceded by Validus Re to AlphaCat through a variable quota share arrangement. There was no comparative elimination for 2012. |
Fourth Quarter 2012 Results
Highlights for the fourth quarter include the following:
Total managed gross premiums written which include gross premiums written from our non-consolidated affiliates, AlphaCat Re 2011, Ltd. ("AlphaCat Re 2011") and AlphaCat Re 2012, Ltd. ("AlphaCat Re 2012"), for the three months ended December 31, 2012 were $311.8 million compared to $278.3 million for the three months ended December 31, 2011, an increase of $33.5 million or 12.0%.
Gross premiums written for the three months ended December 31, 2012 were $311.8 million compared to $278.3 million for the three months ended December 31, 2011, an increase of $33.6 million, or 12.1%.
Net premiums earned for the three months ended December 31, 2012 were $499.3 million compared to $488.3 million for the three months ended December 31, 2011, an increase of $10.9 million, or 2.2%.
Underwriting loss for the three months ended December 31, 2012 was $(113.1) million compared to underwriting income of $12.8 million for the three months ended December 31, 2011, a decrease of $125.8 million, or 985.1%.
Combined ratio of 122.7% which included $57.2 million of favorable loss reserve development on prior accident years, benefiting the loss ratio by 11.5 percentage points.
Net operating loss attributable to Validus for the three months ended December 31, 2012 was $(100.8) million compared to net operating income available to Validus of $23.4 million for the three months ended December 31, 2011, a decrease of $124.2 million, or 530.9%.
Net loss attributable to Validus for the three months ended December 31, 2012 was $(90.7) million compared to net income available to Validus of $27.3 million for the three months ended December 31, 2011, a decrease of $118.0 million, or 432.0%.
Annualized return on average equity of (9.5)% and annualized net operating return on average equity of (10.5)%.
Full Year 2012 Results
Highlights for the year ended December 31, 2012 include the following:
Total managed gross premiums written which include gross premiums written from our non-consolidated affiliates, AlphaCat Re 2011 and AlphaCat Re 2012, for the year ended December 31, 2012 were $2,292.9 million compared to $2,124.7 million for the year ended December 31, 2011, an increase of $168.2 million, or 7.9%.
Gross premiums written for the year ended December 31, 2012 were $2,166.4 million compared to $2,124.7 million for the year ended December 31, 2011, an increase of $41.7 million, or 2.0%.
Net premiums earned for the year ended December 31, 2012 were $1,873.2 million compared to $1,802.1 million for the year ended December 31, 2011, an increase of $71.1 million, or 3.9%.
Underwriting income for the year ended December 31, 2012 was $248.7 million compared to $11.8 million for the year ended December 31, 2011, an increase of $236.9 million, or 2,014.0%.
Combined ratio of 86.8% which included $175.0 million of favorable loss reserve development on prior accident years, benefiting the loss ratio by 9.3 percentage points.
Net operating income available to Validus for the year ended December 31, 2012 was $333.8 million compared to $52.3 million for the year ended December 31, 2011, an increase of $281.5 million, or 537.8%.
Net income available to Validus for the year ended December 31, 2012 was $408.4 million compared to $21.3 million for the year ended December 31, 2011, an increase of $387.1 million, or 1,814.9%.
Annualized return on average equity of 11.3% and annualized net operating return on average equity of 9.2%.
Notable Loss Events
During the three months ended December 31, 2012, the Company incurred net losses and loss expenses of $361.0 million from notable loss events which represented 72.3 percentage points of the loss ratio. Including the impact of $36.4 million of reinstatement premiums, the effect of these events on net income was a decrease of $324.6 million. For the three months ended December 31, 2011, the Company incurred $54.1 million of losses from notable loss events, which represented 11.1 percentage points of the loss ratio. Including the impact of $(1.3) million of reinstatement premiums, the effect of these events on net income was a decrease of $55.5 million. The Company's loss ratio, excluding prior year development, and notable loss events for the three months ended December 31, 2012 and 2011 was 31.0% and 50.3%, respectively. The Company did not establish a reserve for potential development on notable loss events for 2012. The financial impact from Hurricane Sandy on the results for the three months ended December 31, 2012 is consistent with the initial estimate announced on December 21, 2012.
Three Months Ended December 31, 2012 | |||||||||||||||||||||||
(U.S. Dollars in thousands) | |||||||||||||||||||||||
Fourth Quarter 2012 Notable Loss Events (a) | Validus Re | Talbot | Total | ||||||||||||||||||||
Description | Net Losses and | % of NPE | Net Losses and | % of NPE | Net Losses and | % of NPE | |||||||||||||||||
Hurricane Sandy (d) | Windstorm | $ | 282,603 | 99.1 | % | $ | 78,433 | 37.7 | % | $ | 361,036 | 72.3 | % | ||||||||||
Total | $ | 282,603 | 99.1 | % | $ | 78,433 | 37.7 | % | $ | 361,036 | 72.3 | % | |||||||||||
Three Months Ended December 31, 2011 | |||||||||||||||||||||||
(U.S. Dollars in thousands) | |||||||||||||||||||||||
Fourth Quarter 2011 Notable Loss Events (a) | Validus Re | Talbot | Total | ||||||||||||||||||||
Description | Net Losses and | % of NPE | Net Losses and | % of NPE | Net Losses and | % of NPE | |||||||||||||||||
Thailand Floods | Multiple flooding events | $ | 22,964 | 9.1 | % | $ | 31,184 | 14.9 | % | $ | 54,148 | 11.1 | % | ||||||||||
Total | $ | 22,964 | 9.1 | % | $ | 31,184 | 14.9 | % | $ | 54,148 | 11.1 | % | |||||||||||
(a) | These notable loss event amounts were based on management's estimates following a review of the Company's potential exposure and discussions with certain clients and brokers. Given the magnitude and recent occurrence of these events, and other uncertainties inherent in loss estimation, meaningful uncertainty remains regarding losses from these events and the Company's actual ultimate net losses from these events may vary materially from these estimates. | |
(b) | Net of reinsurance but not net of reinstatement premiums. Total reinstatement premiums were $36.4 million and $(1.3) million for the three months ended December 31, 2012 and December 31, 2011, respectively. | |
(c) | 2011 loss ratios for the Validus Re segment have been represented to exclude the impact of the AlphaCat segment. | |
(d) | The AlphaCat segment's non-consolidated affiliates incurred net loss and loss expenses of $8.4 million related to Hurricane Sandy for the three months ended December 31, 2012. These losses are not included in the table above as the entities are accounted for as investments in operating affiliates. |
Validus Re Segment Results
Gross premiums written for the three months ended December 31, 2012 were $79.2 million compared to $55.9 million for the three months ended December 31, 2011, an increase of $23.4 million, or 41.9%. Gross premiums written for the three months ended December 31, 2012 included $54.9 million of property premiums, $8.6 million of marine premiums and $15.7 million of specialty premiums compared to $34.1 million of property premiums, $9.7 million of marine premiums and $12.1 million of specialty premiums for the three months ended December 31, 2011.
Net premiums earned for the three months ended December 31, 2012 were $285.3 million compared to $252.5 million for the three months ended December 31, 2011, an increase of $32.8 million, or 13.0%.
The combined ratio for the three months ended December 31, 2012 was 136.2% compared to 106.5% for the three months ended December 31, 2011, an increase of 29.7 percentage points.
The loss ratio for the three months ended December 31, 2012 was 116.1% compared to 85.5% for the three months ended December 31, 2011, an increase of 30.6 percentage points. For the three months ended December 31, 2012, Validus Re incurred $282.6 million of losses attributable to notable loss events which represented 99.1 percentage points of the overall loss ratio. The loss ratio for the three months ended December 31, 2012 included favorable loss reserve development on prior accident years of $19.8 million, benefiting the loss ratio by 6.9 percentage points.
Gross premiums written for the year ended December 31, 2012 were $1,132.0 million compared to $1,114.5 million for the year ended December 31, 2011, an increase of $17.5 million, or 1.6%. Gross premiums written for the year ended December 31, 2012 included $771.6 million of property premiums, $257.5 million of marine premiums and $102.9 million of specialty premiums compared to $786.9 million of property premiums, $232.4 million of marine premiums and $95.2 million of specialty premiums for the year ended December 31, 2011.
Net premiums earned for the year ended December 31, 2012 were $1,023.3 million compared to $965.9 million for the year ended December 31, 2011, an increase of $57.3 million, or 5.9%.
The combined ratio for the year ended December 31, 2012 was 78.2% compared to 99.2% for the year ended December 31, 2011, a decrease of 21.0 percentage points.
The loss ratio for the year ended December 31, 2012 was 56.2% compared to 77.6% for the year ended December 31, 2011, a decrease of 21.4 percentage points. For the year ended December 31, 2012, Validus Re incurred $402.7 million of losses attributable to notable loss events, which represented 39.4 percentage points of the loss ratio. The loss ratio for the year ended December 31, 2012 included favorable loss reserve development on prior accident years of $72.6 million, benefiting the loss ratio by 7.1 percentage points.
AlphaCat Segment Results
Gross premiums written from our consolidated entities for the three months ended December 31, 2012 were $0.0 million compared to $(1.3) million for the three months ended December 31, 2011, an increase of $1.3 million or 99.7%.
Net premiums earned for the three months ended December 31, 2012 were $5.9 million compared to $26.5 million for the three months ended December 31, 2011, a decrease of $20.6 million or 77.8%.
The combined ratio for the three months ended December 31, 2012 was 45.6% compared to 76.1% for the three months ended December 31, 2011, a decrease of 30.5 percentage points.
The loss ratio for the three months ended December 31, 2012 was 0.0% compared to 37.7% for the three months ended December 31, 2011, a decrease of 37.7%.
Managed gross premiums written from our non-consolidated affiliates, AlphaCat Re 2011 and AlphaCat Re 2012, for the year ended December 31, 2012 were $126.5 million compared to $60.0 million for the year ended December 31, 2011, an increase of $66.5 million or 110.8%.
Gross premiums written from our consolidated entities for the year ended December 31, 2012 were $21.6 million compared to $15.7 million for the year ended December 31, 2011, an increase of $5.9 million or 37.5%.
Net premiums earned for the year ended December 31, 2012 were $17.7 million compared to $66.0 million for the year ended December 31, 2011, a decrease of $48.3 million or 73.2%.
The combined ratio for the year ended December 31, 2012 was 54.2% compared to 43.9% for the year ended December 31, 2011, an increase of 10.3 percentage points.
The loss ratio for the year ended December 31, 2012 was 0.0% as compared to 15.2% for the year ended December 31, 2011, a decrease of 15.2 percentage points.
Talbot Segment Results
Gross premiums written for the three months ended December 31, 2012 were $241.1 million compared to $235.2 million for the three months ended December 31, 2011, an increase of $5.9 million, or 2.5%. Gross premiums written for the three months ended December 31, 2012 included $62.3 million of property premiums, $81.5 million of marine premiums and $97.3 million of specialty premiums compared to $51.8 million of property premiums, $74.2 million of marine premiums and $109.2 million of specialty premiums in the three months ended December 31, 2011.
Net premiums earned for the three months ended December 31, 2012 were $208.1 million compared to $209.4 million for the three months ended December 31, 2011, a decrease of $1.2 million, or 0.6%.
The combined ratio for the three months ended December 31, 2012 was 97.9% compared to 86.8% for the three months ended December 31, 2011, an increase of 11.1 percentage points.
The loss ratio for the three months ended December 31, 2012 was 61.1% compared to 52.0% for the three months ended December 31, 2011, an increase of 9.1 percentage points. For the three months ended December 31, 2012, Talbot incurred $78.4 million of losses attributable to notable loss events which represented 37.7 percentage points of the overall loss ratio. The loss ratio for the three months ended December 31, 2012 included favorable loss reserve development on prior accident years of $37.4 million, benefiting the loss ratio by 18.0 percentage points.
Gross premiums written for the year ended December 31, 2012 were $1,078.6 million compared to $1,014.1 million for the year ended December 31, 2011, an increase of $64.5 million, or 6.4%. Gross premiums written for the year ended December 31, 2012 included $324.9 million of property premiums, $396.2 million of marine premiums and $357.5 million of specialty premiums compared to $306.3 million of property premiums, $341.8 million of marine premiums and $366.0 million of specialty premiums in the year ended December 31, 2011.
Net premiums earned for the year ended December 31, 2012 were $832.3 million compared to $770.3 million for the year ended December 31, 2011, an increase of $62.0 million, or 8.1%.
The combined ratio for the year ended December 31, 2012 was 89.9% compared to 99.1% for the year ended December 31, 2011, a decrease of 9.2 percentage points.
The loss ratio for the year ended December 31, 2012 was 50.9% compared to 63.0% for the year ended December 31, 2011, a decrease of 12.1 percentage points. For the year ended December 31, 2012, Talbot incurred $97.8 million of losses attributable to notable loss events, which represented 11.8 percentage points of the overall loss ratio. The loss ratio for the year ended December 31, 2012 included favorable loss reserve development on prior accident years of $102.4 million, benefiting the loss ratio by 12.3 percentage points.
Corporate Results
Corporate results include executive and board expenses, internal and external audit expenses, interest and costs incurred in connection with the Company's senior notes and junior subordinated deferrable debentures and other costs relating to the Company as a whole. General and administrative expenses for the three months ended December 31, 2012 were $16.0 million compared to $4.1 million for the three months ended December 31, 2011, an increase of $11.9 million, or 294.6%. Share compensation expenses for the three months ended December 31, 2012 were $2.8 million compared to $3.1 million for the three months ended December 31, 2011, a decrease of $0.3 million, or 10.7%. Additionally, there was $21.5 million in income from the gain on bargain purchase, net of expenses related to the acquisition of Flagstone during the quarter. Included in the Validus Re segment general and administrative expenses are $4.7 million of Flagstone expenses for the month of December as a result of the acquisition.
General and administrative expenses for the year ended December 31, 2012 were $59.8 million compared to $29.8 million for the year ended December 31, 2011, an increase of $30.0 million, or 100.4%. Share compensation expenses for the year ended December 31, 2012 were $10.9 million compared to $16.3 million for the year ended December 31, 2011, a decrease of $5.4 million, or 33.3%.
Investments
Net investment income for the three months ended December 31, 2012 was $28.8 million compared to $28.1 million for the three months ended December 31, 2011, an increase of $0.7 million, or 2.6%. Net investment income for the year ended December 31, 2012 was $107.9 million compared to $112.3 million for the year ended December 31, 2011, a decrease of $4.4 million or 3.9%.
Net realized (losses) on investments for the three months ended December 31, 2012 were $(4.5) million compared to gains of $5.4 million for the three months ended December 31, 2011, a decrease of $9.9 million, or 184.3%. Net realized gains on investments for the year ended December 31, 2012 were $18.2 million compared to $28.5 million for the year ended December 31, 2011, a decrease of $10.3 million or 36.1%.
Net unrealized (losses) on investments for the three months ended December 31, 2012 were $(35.9) million compared to gains of $2.2 million for the three months ended December 31, 2011, a decrease of $38.0 million, or 1,760.8%. Net unrealized gains for the year ended December 31, 2012 were $17.6 million compared to (losses) of $(20.0) million for the year ended December 31, 2011, an increase of $37.6 million or 188.0%.
Finance Expenses
Finance expenses for the three months ended December 31, 2012 were $14.5 million compared to $13.5 million for the three months ended December 31, 2011, an increase of $1.0 million, or 7.3%. Finance expenses for the year ended December 31, 2012 were $53.9 million compared to $54.8 million for the year ended December 31, 2011, a decrease of $1.0 million or 1.8%.
Shareholders' Equity and Capitalization
As at December 31, 2012, total shareholders' equity was $4.5 billion including $434.3 million of noncontrolling interest. Shareholders' equity available to Validus was $4.0 billion as at December 31, 2012. Diluted book value per common share was $35.22 at December 31, 2012, compared to $36.27 at September 30, 2012. Diluted book value per common share is a non-GAAP financial measure. A reconciliation of this measure to shareholders' equity is presented at the end of this release.
Total capitalization at December 31, 2012 was $5.2 billion, including $540.7 million of junior subordinated deferrable debentures and $247.1 million of senior notes.
Share Repurchases
A summary of the share repurchases made to date under the Company's previously announced share repurchase program is as follows:
