Attached files

file filename
EX-32 - EXHIBIT 32 - VALIDUS HOLDINGS LTDa20160331-exhibit32.htm
EX-31.2 - EXHIBIT 31.2 - VALIDUS HOLDINGS LTDa20160331-exhibit312.htm
EX-31.1 - EXHIBIT 31.1 - VALIDUS HOLDINGS LTDa20160331-exhibit311.htm

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 __________________________________________________
 Form 10-Q 
__________________________________________________

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2016

Commission file number 001-33606
__________________________________________________
VALIDUS HOLDINGS, LTD.
(Exact name of registrant as specified in its charter)
__________________________________________________
BERMUDA
 
98-0501001
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
29 Richmond Road, Pembroke, Bermuda HM 08
(Address of principal executive offices and zip code)
 (441) 278-9000
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer x
 
Accelerated filer o
 
 
 
Non-accelerated filer o
 
Smaller reporting company o
(Do not check if a smaller reporting company)
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x
As of May 4, 2016 there were 81,541,202 outstanding Common Shares, $0.175 par value per share, of the registrant.
 



INDEX
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Validus Holdings, Ltd.
Consolidated Balance Sheets
As at March 31, 2016 (unaudited) and December 31, 2015
(Expressed in thousands of U.S. dollars, except share and per share information)
 
March 31,
2016
 
December 31,
2015
 
(unaudited)
 
 
Assets


 


Fixed maturities trading, at fair value (amortized cost: 2016—$5,478,317; 2015—$5,556,900)
$
5,481,304

 
$
5,510,331

Short-term investments trading, at fair value (amortized cost: 2016—$2,107,714; 2015—$1,941,615)
2,108,199

 
1,941,635

Other investments, at fair value (cost: 2016—$323,196; 2015—$315,963)
344,151

 
336,856

Cash and cash equivalents
569,774

 
723,109

Restricted cash
108,395

 
73,270

Total investments and cash
8,611,823

 
8,585,201

Investments in affiliates, equity method (cost: 2016—$70,761; 2015—$70,186)
84,504

 
88,065

Premiums receivable
1,176,684

 
658,682

Deferred acquisition costs
262,675

 
181,002

Prepaid reinsurance premiums
181,255

 
77,992

Securities lending collateral
9,721

 
4,863

Loss reserves recoverable
370,689

 
350,586

Paid losses recoverable
25,001

 
23,071

Income taxes recoverable
7,146

 
16,228

Deferred tax asset
27,771

 
21,661

Receivable for investments sold
16,278

 
39,766

Intangible assets
119,842

 
121,258

Goodwill
196,758

 
196,758

Accrued investment income
22,298

 
23,897

Other assets
92,076

 
126,782

Total assets
$
11,204,521

 
$
10,515,812

 
 
 
 
Liabilities
 
 
 
Reserve for losses and loss expenses
$
2,980,300

 
$
2,996,567

Unearned premiums
1,503,161

 
966,210

Reinsurance balances payable
96,685

 
75,380

Securities lending payable
10,187

 
5,329

Deferred tax liability
3,618

 
3,847

Payable for investments purchased
76,116

 
77,475

Accounts payable and accrued expenses
136,712

 
627,331

Notes payable to AlphaCat investors
323,510

 
75,493

Senior notes payable
245,211

 
245,161

Debentures payable
538,335

 
537,668

Total liabilities
$
5,913,835

 
$
5,610,461

 
 
 
 
Commitments and contingent liabilities


 


Redeemable noncontrolling interest
1,409,037

 
1,111,714

 
 
 
 
Shareholders’ equity
 
 
 
Common shares, 571,428,571 authorized, par value $0.175 (Issued: 2016—160,582,277; 2015—160,570,772; Outstanding: 2016—81,555,486; 2015—82,900,617)
$
28,102

 
$
28,100

Treasury shares (2016—79,026,791; 2015—77,670,155)
(13,830
)
 
(13,592
)
Additional paid-in capital
954,485

 
1,002,980

Accumulated other comprehensive loss
(15,438
)
 
(12,569
)
Retained earnings
2,771,107

 
2,634,056

Total shareholders’ equity available to Validus
3,724,426

 
3,638,975

Noncontrolling interest
157,223

 
154,662

Total shareholders’ equity
$
3,881,649

 
$
3,793,637

 
 
 
 
Total liabilities, noncontrolling interests and shareholders’ equity
$
11,204,521

 
$
10,515,812

The accompanying notes are an integral part of these Consolidated Financial Statements (unaudited).

2


Validus Holdings, Ltd.
Consolidated Statements of Comprehensive Income
For the Three Months Ended March 31, 2016 and 2015 (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
 
 
Three Months Ended March 31,
 
 
2016
 
2015
 
 
(unaudited)
 
(unaudited)
Revenues
 
 
 
 
Gross premiums written
 
$
1,172,791

 
$
1,119,224

Reinsurance premiums ceded
 
(167,835
)
 
(191,325
)
Net premiums written
 
1,004,956

 
927,899

Change in unearned premiums
 
(433,688
)
 
(352,009
)
Net premiums earned
 
571,268

 
575,890

Net investment income
 
29,461

 
31,029

Net realized (losses) gains on investments
 
(584
)
 
4,169

Change in net unrealized gains on investments
 
47,444

 
33,227

(Loss) income from investment affiliate
 
(4,113
)
 
2,776

Other insurance related income and other income
 
1,413

 
940

Foreign exchange gains (losses)
 
6,245

 
(4,265
)
Total revenues
 
651,134

 
643,766

 
 
 
 
 
Expenses
 
 
 
 
Losses and loss expenses
 
224,447

 
240,929

Policy acquisition costs
 
107,193

 
98,411

General and administrative expenses
 
86,208

 
84,235

Share compensation expenses
 
11,237

 
9,054

Finance expenses
 
15,203

 
20,967

Total expenses
 
444,288

 
453,596

 
 
 
 
 
Income before taxes, income from operating affiliates and (income) attributable to AlphaCat investors
 
206,846

 
190,170

Tax benefit (expense)
 
2,118

 
(2,565
)
(Loss) income from operating affiliates
 
(23
)
 
3,984

(Income) attributable to AlphaCat investors
 
(4,600
)
 

Net income
 
$
204,341

 
$
191,589

Net (income) attributable to noncontrolling interest
 
(37,531
)
 
(18,178
)
Net income available to Validus
 
$
166,810

 
$
173,411

 
 
 
 
 
Other comprehensive loss
 
 
 
 
Change in foreign currency translation adjustments
 
(2,028
)
 
(3,019
)
Change in minimum pension liability, net of tax
 
(83
)
 
(265
)
Change in fair value of cash flow hedge
 
(758
)
 
(801
)
Other comprehensive loss
 
$
(2,869
)
 
$
(4,085
)
 
 
 
 
 
Comprehensive income available to Validus
 
$
163,941

 
$
169,326

 
 
 
 
 
Earnings per share
 
 
 
 
Weighted average number of common shares and common share equivalents outstanding
 
 
 
 
Basic
 
82,821,261

 
83,251,243

Diluted
 
84,198,315

 
87,583,129

 
 
 
 
 
Basic earnings per share available to common shareholders
 
$
2.01

 
$
2.07

Earnings per diluted share available to common shareholders
 
$
1.98

 
$
1.98

 
 
 
 
 
Cash dividends declared per share
 
$
0.35

 
$
0.32

The accompanying notes are an integral part of these Consolidated Financial Statements (unaudited).

3


Validus Holdings, Ltd.
Consolidated Statements of Shareholders’ Equity
For the Three Months Ended March 31, 2016 and 2015 (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
 
Three Months Ended March 31,
 
2016
 
2015
 
(unaudited)
 
(unaudited)
Common shares
 

 
 

Balance - beginning of period
$
28,100

 
$
27,222

Common shares issued, net
2

 
209

Balance - end of period
$
28,102

 
$
27,431

 
 
 
 
Treasury shares
 

 
 

Balance - beginning of period
$
(13,592
)
 
$
(12,545
)
Repurchase of common shares
(238
)
 
(250
)
Balance - end of period
$
(13,830
)
 
$
(12,795
)
 
 
 
 
Additional paid-in capital
 

 
 

Balance - beginning of period
$
1,002,980

 
$
1,207,493

Common shares issued, net
398

 
3,796

Repurchase of common shares
(60,130
)
 
(57,858
)
Share compensation expenses
11,237

 
9,054

Balance - end of period
$
954,485

 
$
1,162,485

 
 
 
 
Accumulated other comprehensive loss
 

 
 

Balance - beginning of period
$
(12,569
)
 
$
(8,556
)
Other comprehensive loss
(2,869
)
 
(4,085
)
Balance - end of period
$
(15,438
)
 
$
(12,641
)
 
 
 
 
Retained earnings
 

 
 

Balance - beginning of period
$
2,634,056

 
$
2,372,972

Dividends
(29,759
)
 
(29,126
)
Net income
204,341

 
191,589

Net (income) attributable to noncontrolling interest
(37,531
)
 
(18,178
)
Balance - end of period
$
2,771,107

 
$
2,517,257

 
 
 
 
Total shareholders’ equity available to Validus
$
3,724,426

 
$
3,681,737

 
 
 
 
Noncontrolling interest
$
157,223

 
$
151,583

 
 
 
 
Total shareholders’ equity
$
3,881,649

 
$
3,833,320

The accompanying notes are an integral part of these Consolidated Financial Statements (unaudited).

4


Validus Holdings, Ltd.
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2016 and 2015 (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
 
Three Months Ended March 31,
 
2016
 
2015
 
(unaudited)
 
(unaudited)
Cash flows provided by (used in) operating activities
 

 
 

Net income
$
204,341

 
$
191,589

Adjustments to reconcile net income to cash provided by (used in) operating activities:
 

 
 

Share compensation expenses
11,237

 
9,054

Amortization of discount on senior notes
27

 
27

Loss (income) from investment affiliate
4,113

 
(2,776
)
Net realized losses (gains) on investments
584

 
(4,169
)
Change in net unrealized gains on investments
(47,444
)
 
(33,227
)
Amortization of intangible assets
1,416

 
1,416

Loss (income) from operating affiliates
23

 
(3,984
)
Foreign exchange (gains) losses included in net income
(6,457
)
 
8,788

Amortization of premium on fixed maturity investments
4,538

 
6,747

Change in:
 

 
 

Premiums receivable
(519,713
)
 
(410,504
)
Deferred acquisition costs
(81,673
)
 
(79,673
)
Prepaid reinsurance premiums
(103,263
)
 
(110,219
)
Loss reserves recoverable
(20,966
)
 
(205
)
Paid losses recoverable
(1,807
)
 
10,976

Income taxes recoverable
9,115

 
(10,759
)
Deferred tax asset
(6,262
)
 
(7,132
)
Accrued investment income
1,550

 
1,558

Other assets
11,794

 
10,979

Reserve for losses and loss expenses
(10,740
)
 
(22,930
)
Unearned premiums
536,951

 
462,228

Reinsurance balances payable
21,658

 
(25,163
)
Deferred tax liability
(242
)
 
7,585

Accounts payable and accrued expenses
(42,826
)
 
(102,490
)
Net cash used in operating activities
(34,046
)
 
(102,284
)
 
 
 
 
Cash flows provided by (used in) investing activities
 

 
 

Proceeds on sales of fixed maturity investments
734,892

 
1,190,559

Proceeds on maturities of fixed maturity investments
79,925

 
93,732

Purchases of fixed maturity investments
(726,233
)
 
(1,163,707
)
(Purchases) sales of short-term investments, net
(166,362
)
 
115,912

Purchases of other investments, net
(3,690
)
 
(7,646
)
Increase in securities lending collateral
(4,858
)
 
(4,867
)
Investment in investment affiliates
(575
)
 
(19,700
)
Increase in restricted cash
(35,125
)
 
(13,420
)
Net cash (used in) provided by investing activities
(122,026
)
 
190,863

 
 
 
 
Cash flows provided by (used in) financing activities
 

 
 

Net proceeds on issuance of notes payable to AlphaCat investors
247,400

 

Issuance of common shares, net
400

 
4,005

Purchases of common shares under share repurchase program
(60,368
)
 
(58,108
)
Dividends paid
(28,637
)
 
(28,217
)
Increase in securities lending payable
4,858

 
4,867

Third party investment in redeemable noncontrolling interest
268,750

 
203,400

Third party redemption of redeemable noncontrolling interest
(10,800
)
 
(21,038
)
Third party investment in noncontrolling interest
112,325

 

Third party distributions of noncontrolling interest
(118,722
)
 
(145,416
)
Third party subscriptions deployed on AlphaCat Funds and Sidecars
(412,036
)
 
(112,400
)
Net cash provided by (used in) financing activities
3,170

 
(152,907
)
 
 
 
 
Effect of foreign currency rate changes on cash and cash equivalents
(433
)
 
(11,724
)
Net decrease in cash
(153,335
)
 
(76,052
)
Cash and cash equivalents - beginning of period
$
723,109

 
$
550,401

Cash and cash equivalents - end of period
$
569,774

 
$
474,349

Taxes paid during the period
$
2,117

 
$
7,187

Interest paid during the period
$
19,303

 
$
19,188

The accompanying notes are an integral part of these Consolidated Financial Statements (unaudited).

5


Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)



1. Basis of preparation and consolidation
These unaudited Consolidated Financial Statements (the "Consolidated Financial Statements") have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 in Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In addition, the year-end balance sheet data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. This Quarterly Report on Form 10-Q should be read in conjunction with the financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the U.S. Securities and Exchange Commission (the "SEC").
The Company consolidates in these Consolidated Financial Statements the results of operations and financial position of all voting interest entities ("VOE") in which the Company has a controlling financial interest and all variable interest entities ("VIE") in which the Company is considered to be the primary beneficiary. The consolidation assessment, including the determination as to whether an entity qualifies as a VIE or VOE, depends on the facts and circumstances surrounding each entity.
During the fourth quarter of 2015, the Company early adopted Accounting Standards Update 2015-02, “Consolidation (Topic 810) Amendments to the Consolidation Analysis” issued by the United States Financial Accounting Standards Board (“FASB”), which changed the method in which the Company determines whether entities are consolidated by the Company. The adoption of this amended accounting guidance was implemented utilizing a full retrospective application for all periods presented in the Company's Consolidated Financial Statements.
The amended guidance includes changes in the identification of the primary beneficiary of investment companies considered to be VIEs. These changes resulted in the Company concluding that it is considered to be the primary beneficiary of the AlphaCat sidecars, the AlphaCat ILS funds and the BetaCat ILS funds and therefore the Company is required to consolidate these entities. The adoption of the amended guidance also resulted in the Company concluding that it was no longer required to consolidate PaCRe Ltd. ("PaCRe") due to the change in the VIE definition of "kick-out" rights under the amended guidance. The cumulative effect of these changes on the Company's retained earnings through the three months ended March 31, 2015 was a loss of $1,372.
The following tables present the impact of the application of the amended accounting guidance on the Company's results for the three months ended March 31, 2015:
 
Three Months Ended March 31, 2015
 
As previously reported
 
Adjustment for adoption of new consolidation guidance
 
Revised
Total revenues
$
689,205

 
$
(45,439
)
 
$
643,766

Total expenses
453,499

 
97

 
453,596

Net income
212,388

 
(20,799
)
 
191,589

Net (income) attributable to noncontrolling interest
(38,977
)
 
20,799

 
(18,178
)
Net income available to Validus
173,411

 

 
173,411

Comprehensive income available to Validus
169,326

 

 
169,326

 
 
 


 
 
Basic earnings per share available to common shareholders
$
2.07

 
$

 
$
2.07

Earnings per diluted share available to common shareholders
$
1.98

 
$

 
$
1.98


6


Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)


 
Three Months Ended March 31, 2015
 
As previously reported
 
Adjustment for adoption of new consolidation guidance
 
Revised
Net cash used in operating activities
$
(228,541
)
 
$
126,257

 
$
(102,284
)
Net cash (used in) provided by investing activities
(56,718
)
 
247,581

 
190,863

Net cash provided by (used in) financing activities
194,228

 
(347,135
)
 
(152,907
)
Effect of foreign currency rate changes on cash and cash equivalents
(15,080
)
 
3,356

 
(11,724
)
Net decrease in cash
(106,111
)
 
30,059

 
(76,052
)
Cash and cash equivalents - beginning of period
577,240

 
(26,839
)
 
550,401

Cash and cash equivalents - end of period
471,129

 
3,220

 
474,349

In the opinion of management, these Consolidated Financial Statements reflect all adjustments (including normal recurring adjustments) considered necessary for a fair statement of the Company's financial position and results of operations as at the end of and for the periods presented. All significant intercompany accounts and transactions have been eliminated. The results of operations for any interim period are not necessarily indicative of the results for a full year.
The preparation of these financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. While management believes that the amounts included in the Consolidated Financial Statements reflect its best estimates and assumptions, actual results could differ materially from those estimates. The Company’s principal estimates include:
reserve for losses and loss expenses;
premium estimates for business written on a line slip or proportional basis;
the valuation of goodwill and intangible assets;
reinsurance recoverable balances including the provision for uncollectible amounts; and
investment valuation of financial assets.
The term “ASC” used in these notes refers to Accounting Standard Codification issued by the FASB.

7


Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)


2. Recent accounting pronouncements
(a)
Adoption of New Accounting Standards
Compensation - Stock Compensation (Topic 718) - Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period
In June 2014, the FASB issued Accounting Standard Update No. 2014-12, “Compensation - Stock Compensation (Topic 718) - Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period” (ASU 2014-12). The amendments in this Update apply to all reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. That is the case when an employee is eligible to retire or otherwise terminate employment before the end of the period in which a performance target (for example, an initial public offering or a profitability target) could be achieved and still be eligible to vest in the award if and when the performance target is achieved. The amendments in this Update became effective for the Company on January 1, 2016. Adoption of this guidance did not have a material impact on the Company’s Consolidated Financial Statements.
Consolidation (Topic 810) - Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity
In August 2014, the FASB issued Accounting Standard Update 2014-13, “Consolidation (Topic 810) - Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity” (ASU 2014-13). The fair value of the financial assets of a collateralized financing entity, as determined under GAAP, may differ from the fair value of its financial liabilities even when the financial liabilities have recourse only to the financial assets. The amendments in this Update provide an alternative to Topic 820 for measuring the financial assets and the financial liabilities of a consolidated collateralized financing entity to eliminate that difference. The amendments in this Update became effective for the Company on January 1, 2016. Adoption of this guidance did not have a material impact on the Company’s Consolidated Financial Statements.
Presentation of Financial Statements - Going Concern - Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern
In August 2014, the FASB issued Accounting Standard Update 2014-15, “Presentation of Financial Statements - Going Concern - Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (ASU 2014-15). The amendments in this Update require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. The amendments in this Update became effective for the Company on January 1, 2016. Adoption of this guidance did not have a material impact on the Company’s Consolidated Financial Statements.
Financial Services - Insurance (Topic 944) - Disclosures about Short-Duration Contracts
In May 2015, the FASB issued Accounting Standard Update 2015-09, “Financial Services - Insurance (Topic 944) - Disclosures about Short-Duration Contracts” (ASU 2015-09). The amendments in this Update enhance annual disclosures relating to reserves for losses and loss expenses by requiring the following: (1) net incurred and paid claims development information by accident year; (2) a reconciliation of incurred and paid claims development information to the aggregate carrying amount of the reserve for losses and loss expenses; (3) for each accident year presented, total IBNR plus expected development on case reserves included in the reserve for losses and loss expenses, accompanied by a description of reserving methodologies and any changes thereto; (4) for each accident year presented, quantitative information about claim frequency (unless impracticable) accompanied by a qualitative description of methodologies used for determining claim frequency information and any changes thereto; and (5) the average annual percentage payout of incurred claims by age for the same number of accident years presented. The amendments in this Update became effective for the Company on January 1, 2016, and as such, the disclosures will first be presented in the Company's Annual Report on Form 10-K for the year ending December 31, 2016.
Business Combinations (Topic 805) - Simplifying the Accounting for Measurement-Period Adjustments
In September 2015, the FASB issued Accounting Standard Update 2015-16, “Business Combinations (Topic 805) - Simplifying the Accounting for Measurement-Period Adjustments” (ASU 2015-16). The amendments in this Update simplify the accounting for adjustments made to provisional amounts recognized in a business combination by eliminating the requirement to retrospectively account for those adjustments. The amendments in this Update became effective for the Company on January 1, 2016. Adoption of this guidance did not have a material impact on the Company’s Consolidated Financial Statements.

8


Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)


(b)
Recently Issued Accounting Standards Not Yet Adopted
In May 2014, the FASB issued Accounting Standard Update 2014-09, “Revenue from Contracts with Customers (Topic 606)” (ASU 2014-09). The guidance in this Update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In March and April 2016, the FASB issued Accounting Standard Update 2016-08, “Revenue from Contracts with Customers (Topic 606) - Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” (ASU 2016-08) and Accounting Standard Update 2016-10, “Revenue from Contracts with Customers (Topic 606) - Identifying Performance Obligations and Licensing” (ASU 2016-10). The amendments in these Updates clarify the implementation guidance within ASU 2014-09 on principal versus agent considerations and the aspects of identifying performance obligations, respectively, while retaining the related principals in those areas. The original effective date for the amendments in ASU 2014-09 was for annual reporting periods beginning after December 15, 2016; however, in August 2015, the FASB delayed the effective date by one year through the issuance of Accounting Standards Update 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date” (ASU 2015-14). As such, the new effective date is for interim and annual reporting periods beginning after December 15, 2017. Entities may adopt the standard as of the original effective date, however, earlier adoption is not permitted. The Company is currently evaluating the impact of this guidance on the Company’s Consolidated Financial Statements.
In February 2016, the FASB issued Accounting Standard Update 2016-02, “Leases (Topic 842)” (ASU 2016-02). The amendments in this Update increase the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requiring the disclosure of key information about leasing arrangements. The amendments in this Update are effective for interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact of this guidance on the Company’s Consolidated Financial Statements.
In March 2016, the FASB issued Accounting Standard Update 2016-05, “Derivatives and Hedging (Topic 815) - Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships (ASU 2016-05). The amendments in this Update clarify that a change in the counterparty to a derivative contract, in and of itself, does not require the dedesignation of a hedging relationship. However, an entity will still need to evaluate whether it is probable that the counterparty will perform under the contract as part of its ongoing effectiveness assessment for hedge accounting. Therefore, a novation of a derivative to a counterparty with a sufficiently high credit risk could still result in the dedesignation of the hedging relationship. The amendments in this Update are effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company has evaluated the impact of this guidance and it will not have a material impact on the Company’s Consolidated Financial Statements.
In March 2016, the FASB issued Accounting Standard Update 2016-07, “Investments-Equity Method and Joint Ventures (Topic 323) - Simplifying the Transition to the Equity Method of Accounting” (ASU 2016-07). The amendments in this Update eliminate the requirement to retroactively adopt the equity method of accounting when an investment becomes qualified for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence. The amendments in this Update are effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the impact of this guidance on the Company’s Consolidated Financial Statements.
In March 2016, the FASB issued Accounting Standard Update 2016-09, “Compensation-Stock Compensation (Topic 718) - Improvements to Employee Share-Based Payment Accounting” (ASU 2016-09). The amendments in this Update simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The amendments in this Update are effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the impact of this guidance on the Company’s Consolidated Financial Statements.


9


Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)


3. Investments
During the fourth quarter of 2015, the Company enhanced disclosures around the allocation of invested assets and the related returns between managed and non-managed investments. Managed investments represent assets governed by the Company’s investment policy statement (“IPS”), whereas non-managed investments represent assets held in support of consolidated AlphaCat VIEs which are not governed by the Company’s IPS. Refer to Note 5, "Variable interest entities," for further details. As such, prior period disclosures have been revised to conform to current period presentation.
The Company classifies its fixed maturity and short-term investments as trading and accounts for its other investments in accordance with U.S. GAAP guidance for "Financial Instruments." As such, all investments are carried at fair value with interest and dividend income and realized and unrealized gains and losses included in net income for the period.
The amortized cost (or cost), gross unrealized gains and (losses) and estimated fair value of investments as at March 31, 2016 were as follows:
 
Amortized Cost (or Cost)
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
Managed investments
 
 
 
 
 
 
 
U.S. government and government agency
$
906,310

 
$
4,440

 
$
(431
)
 
$
910,319

Non-U.S. government and government agency
222,269

 
1,501

 
(1,685
)
 
222,085

U.S. states, municipalities and political subdivisions
288,407

 
5,728

 
(513
)
 
293,622

Agency residential mortgage-backed securities
652,955

 
11,484

 
(500
)
 
663,939

Non-agency residential mortgage-backed securities
25,613

 
256

 
(519
)
 
25,350

U.S. corporate
1,501,939

 
12,311

 
(7,631
)
 
1,506,619

Non-U.S. corporate
397,593

 
2,031

 
(4,568
)
 
395,056

Bank loans
620,570

 
560

 
(17,703
)
 
603,427

Asset-backed securities
410,075

 
1,029

 
(4,277
)
 
406,827

Commercial mortgage-backed securities
274,971

 
2,805

 
(835
)
 
276,941

Total fixed maturities
5,300,702

 
42,145

 
(38,662
)
 
5,304,185

Short-term investments
194,801

 
485

 

 
195,286

Other investments
 
 
 
 
 
 
 
Fund of hedge funds
1,457

 

 
(498
)
 
959

Hedge funds
12,463

 
6,494

 

 
18,957

Private equity investments
54,154

 
13,420

 
(2,553
)
 
65,021

Investment funds
190,125

 
678

 

 
190,803

Overseas deposits
60,601

 

 

 
60,601

Mutual funds
4,396

 
3,414

 

 
7,810

Total other investments
323,196

 
24,006

 
(3,051
)
 
344,151

Total managed investments
$
5,818,699

 
$
66,636

 
$
(41,713
)
 
$
5,843,622

Non-managed investments
 
 
 
 
 
 
 
Catastrophe bonds
$
177,615

 
$
1,175

 
$
(1,671
)
 
$
177,119

Short-term investments
1,912,913

 

 

 
1,912,913

Total non-managed investments
2,090,528

 
1,175

 
(1,671
)
 
2,090,032

Total investments
$
7,909,227

 
$
67,811

 
$
(43,384
)
 
$
7,933,654


10


Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)


The amortized cost (or cost), gross unrealized gains and (losses) and estimated fair value of investments as at December 31, 2015 were as follows:
 
Amortized Cost (or Cost)
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
Managed investments
 
 
 
 
 
 
 
U.S. government and government agency
$
940,428

 
$
333

 
$
(3,559
)
 
$
937,202

Non-U.S. government and government agency
241,549

 
257

 
(3,838
)
 
237,968

U.S. states, municipalities and political subdivisions
299,929

 
2,322

 
(962
)
 
301,289

Agency residential mortgage-backed securities
606,676

 
6,361

 
(2,455
)
 
610,582

Non-agency residential mortgage-backed securities
27,025

 
310

 
(415
)
 
26,920

U.S. corporate
1,503,614

 
1,594

 
(15,257
)
 
1,489,951

Non-U.S. corporate
453,178

 
797

 
(7,405
)
 
446,570

Bank loans
592,981

 
275

 
(17,045
)
 
576,211

Asset-backed securities
440,363

 
344

 
(3,583
)
 
437,124

Commercial mortgage-backed securities
263,310

 
131

 
(3,306
)
 
260,135

Total fixed maturities
5,369,053

 
12,724

 
(57,825
)
 
5,323,952

Short-term investments
237,349

 
20

 

 
237,369

Other investments
 
 
 
 
 
 
 
Fund of hedge funds
1,457

 

 
(40
)
 
1,417

Hedge funds
14,018

 
6,962

 

 
20,980

Private equity investments
53,489

 
12,751

 
(2,469
)
 
63,771

Investment funds
188,121

 
600

 

 
188,721

Overseas deposits
54,484

 

 

 
54,484

Mutual funds
4,394

 
3,089

 

 
7,483

Total other investments
315,963

 
23,402

 
(2,509
)
 
336,856

Total managed investments
$
5,922,365

 
$
36,146

 
$
(60,334
)
 
$
5,898,177

Non-managed investments
 
 
 
 
 
 
 
Catastrophe bonds
$
187,847

 
$
635

 
$
(2,103
)
 
$
186,379

Short-term investments
1,704,266

 

 

 
1,704,266

Total non-managed investments
1,892,113

 
635

 
(2,103
)
 
1,890,645

Total investments
$
7,814,478

 
$
36,781

 
$
(62,437
)
 
$
7,788,822


11


Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)


(a)
Fixed maturity investments
The following table sets forth certain information regarding the investment ratings of the Company’s fixed maturities portfolio as at March 31, 2016 and December 31, 2015.
 
March 31, 2016
 
December 31, 2015
 
Estimated Fair Value
 
% of Total
 
Estimated Fair Value
 
% of Total
Managed fixed maturities
 
 
 
 
 
 
 
AAA
$
2,395,715

 
43.7
%
 
$
2,367,642

 
43.0
%
AA
487,808

 
8.9
%
 
569,386

 
10.3
%
A
1,057,329

 
19.3
%
 
1,031,326

 
18.7
%
BBB
689,739

 
12.6
%
 
691,538

 
12.6
%
Total investment grade managed fixed maturities
4,630,591

 
84.5
%
 
4,659,892

 
84.6
%
 
 
 
 
 
 
 
 
BB
226,370

 
4.1
%
 
235,724

 
4.3
%
B
185,033

 
3.4
%
 
179,069

 
3.2
%
CCC
8,628

 
0.2
%
 
5,706

 
0.1
%
CC
1,004

 
0.0
%
 
1,015

 
0.0
%
NR
252,559

 
4.6
%
 
242,546

 
4.4
%
Total non-investment grade managed fixed maturities
673,594

 
12.3
%
 
664,060

 
12.0
%
Total managed fixed maturities
$
5,304,185

 
96.8
%
 
$
5,323,952

 
96.6
%
 
 
 
 
 
 
 
 
Non-managed catastrophe bonds
 
 
 
 
 
 
 
BBB
$
2,045

 
0.0
%
 
$
1,911

 
0.0
%
Total investment grade non-managed catastrophe bonds
2,045

 
0.0
%
 
1,911

 
0.0
%
 
 
 
 
 
 
 
 
BB
62,990

 
1.1
%
 
70,962

 
1.3
%
B
6,133

 
0.1
%
 
30,698

 
0.6
%
NR
105,951

 
2.0
%
 
82,808

 
1.5
%
Total non-investment grade non-managed catastrophe bonds
175,074

 
3.2
%
 
184,468

 
3.4
%
Total non-managed fixed maturities
177,119

 
3.2
%
 
186,379

 
3.4
%
Total fixed maturities
$
5,481,304

 
100.0
%
 
$
5,510,331

 
100.0
%

12


Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)


The amortized cost and estimated fair value amounts for fixed maturities held at March 31, 2016 and December 31, 2015 are shown below by contractual maturity. Actual maturity may differ from contractual maturity because certain borrowers may have the right to call or prepay certain obligations with or without call or prepayment penalties.
 
March 31, 2016
 
December 31, 2015
 
Amortized Cost
 
Estimated Fair Value
 
Amortized Cost
 
Estimated Fair Value
Managed investments
 
 
 
 
 
 
 
Due in one year or less
$
320,078

 
$
319,683

 
$
367,132

 
$
366,019

Due after one year through five years
2,952,228

 
2,950,820

 
2,965,920

 
2,936,053

Due after five years through ten years
528,963

 
528,871

 
548,183

 
539,083

Due after ten years
135,819

 
131,754

 
150,444

 
148,036

 
3,937,088

 
3,931,128

 
4,031,679

 
3,989,191

Asset-backed and mortgage-backed securities
1,363,614

 
1,373,057

 
1,337,374

 
1,334,761

Total managed fixed maturities
$
5,300,702

 
$
5,304,185

 
$
5,369,053

 
$
5,323,952

 
 
 
 
 
 
 
 
Non-managed catastrophe bonds
 
 
 
 
 
 
 
Due in one year or less
$
30,772

 
$
31,239

 
$
7,504

 
$
7,544

Due after one year through five years
145,803

 
144,838

 
165,093

 
163,575

Due after five years through ten years
1,040

 
1,042

 
15,250

 
15,260

Total non-managed fixed maturities
177,615

 
177,119

 
187,847

 
186,379

Total fixed maturities
$
5,478,317

 
$
5,481,304

 
$
5,556,900

 
$
5,510,331

(b)
Other investments
The following tables set forth certain information regarding the Company's other investment portfolio as at March 31, 2016 and December 31, 2015:
Other investments
 
Estimated Fair Value as at March 31, 2016
 
Investments with redemption restrictions
 
Investments without redemption restrictions
 
Redemption frequency (a)
 
Redemption notice period (a)
Fund of hedge funds
 
$
959

 
$
959

 
$

 

 

Hedge funds
 
18,957

 
18,957

 

 

 

Private equity investments
 
65,021

 
65,021

 

 

 

Investment funds
 
190,803

 
168,593

 
22,210

 
Daily
 
2 days
Overseas deposits
 
60,601

 
60,601

 

 

 

Mutual funds
 
7,810

 

 
7,810

 
Daily
 
Daily
Total other investments
 
$
344,151

 
$
314,131

 
$
30,020

 
 
 
 
(a)
The redemption frequency and notice periods only apply to investments without redemption restrictions.

13


Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)


Other investments
 
Estimated Fair value as at December 31, 2015
 
Investments with redemption restrictions
 
Investments without redemption restrictions
 
Redemption frequency (a)
 
Redemption notice period (a)
Fund of hedge funds
 
$
1,417

 
$
1,417

 
$

 

 

Hedge funds
 
20,980

 
20,980

 

 

 

Private equity investments
 
63,771

 
63,771

 

 

 

Investment funds
 
188,721

 
167,910

 
20,811

 
Daily
 
2 days
Overseas deposits
 
54,484

 
54,484

 

 

 

Mutual funds
 
7,483

 

 
7,483

 
Daily
 
Daily
Total other investments
 
$
336,856

 
$
308,562

 
$
28,294

 
 
 
 
(a)
The redemption frequency and notice periods only apply to investments without redemption restrictions.
Other investments include alternative investments in various funds and pooled investment schemes. These alternative investments employ various investment strategies primarily involving, but not limited to, investments in collateralized obligations, fixed income securities, private equities, distressed debt and equity securities.
Certain securities included in other investments are subject to redemption restrictions and are unable to be redeemed from the funds. Distributions from these funds will be received as the underlying investments of the funds are liquidated. Currently, it is not known to the Company when these underlying assets will be sold by their investment managers; however, it is estimated that the majority of the underlying assets of the investments would liquidate over 5 to 10 years from inception of the funds. In addition, one of the investment funds with a fair value of $165,602 (December 31, 2015: $167,910), has a lock-up period of 3 years as at March 31, 2016 and may also impose a redemption gate. A lock-up period refers to the initial amount of time an investor is contractually required to remain invested before having the ability to redeem. Typically, the imposition of a gate delays a portion of the requested redemption, with the remaining portion settled in cash shortly after the redemption date. Furthermore, the underlying investments held in the overseas deposit funds are liquid and will generally trade freely in an open market. However, the Company's ability to withdraw from the overseas deposit funds is restricted by an annual and quarterly funding and release process for Lloyd's market participants.
The Company's maximum exposure to any of these alternative investments is limited to the amount invested and any remaining capital commitments. Refer to Note 15, "Commitments and contingencies," for further details. As at March 31, 2016, the Company does not have any plans to sell any of the other investments listed above.
(c)
Net investment income
Net investment income was derived from the following sources:
 
 
Three Months Ended March 31,
 
 
2016
 
2015
Managed investments
 
 
 
 
Fixed maturities and short-term investments
 
$
28,017

 
$
27,673

Other investments
 
872

 
3,188

Cash and cash equivalents
 
865

 
416

Securities lending income
 
5

 
3

Total gross investment income
 
29,759

 
31,280

Investment expenses
 
(1,836
)
 
(1,844
)
Total managed net investment income
 
$
27,923

 
$
29,436

Non managed investments
 
 
 
 
Fixed maturities and short-term investments
 
$
1,295

 
$
1,574

Restricted cash, cash and cash equivalents
 
243

 
19

Total non-managed net investment income
 
1,538

 
1,593

Total net investment income
 
$
29,461

 
$
31,029

Managed net investment income from other investments includes distributed and undistributed net income from certain investment funds.

14


Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)


(d)
Net realized (losses) gains and change in net unrealized gains on investments
The following represents an analysis of net realized (losses) gains and the change in net unrealized gains on investments:
 
 
Three Months Ended March 31,
 
 
2016
 
2015
Managed fixed maturities, short-term and other investments
 
 
 
 
Gross realized gains
 
$
3,217

 
$
6,309

Gross realized (losses)
 
(4,303
)
 
(2,129
)
Net realized (losses) gains on investments
 
(1,086
)
 
4,180

Change in net unrealized gains on investments
 
47,078

 
34,669

Total net realized and change in net unrealized gains on managed investments
 
$
45,992

 
$
38,849

Non-managed fixed maturities, short-term and other investments
 
 
 
 
Gross realized gains
 
$
511

 
$

Gross realized (losses)
 
(9
)
 
(11
)
Net realized gains (losses) on investments
 
502

 
(11
)
Change in net unrealized gains (losses) on investments
 
366

 
(1,442
)
Total net realized and change in net unrealized gains (losses) on non-managed investments
 
868

 
(1,453
)
Total net realized and change in net unrealized gains on total investments
 
$
46,860

 
$
37,396

(e)
Pledged investments
The following tables outline investments and cash pledged as collateral under the Company's credit facilities. For further details on the credit facilities, please refer to Note 13,Debt and financing arrangements.”
 
 
March 31, 2016
Description
 
Commitment
 
Issued and Outstanding
 
Investments and cash pledged as collateral
$85,000 syndicated unsecured letter of credit facility
 
$
85,000

 
$

 
$

$300,000 syndicated secured letter of credit facility
 
300,000

 
105,756

 
149,634

$24,000 secured bi-lateral letter of credit facility
 
24,000

 
11,564

 
48,016

AlphaCat Re secured letter of credit facility
 
30,000

 
30,000

 
30,172

IPC bi-lateral facility
 
25,000

 
5,483

 

$236,000 Flagstone bi-lateral facility
 
236,000

 
197,419

 
324,384

Total
 
$
700,000

 
$
350,222

 
$
552,206


15


Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)



 
 
December 31, 2015
Description
 
Commitment
 
Issued and Outstanding
 
Investments and cash pledged as collateral
$85,000 syndicated unsecured letter of credit facility
 
$
85,000

 
$

 
$

$300,000 syndicated secured letter of credit facility
 
300,000

 
235,540

 
370,909

$24,000 secured bi-lateral letter of credit facility
 
24,000

 
10,543

 
47,607

AlphaCat Re secured letter of credit facility
 
30,000

 
30,000

 
30,153

IPC bi-lateral facility
 
25,000

 
9,241

 

$236,000 Flagstone bi-lateral facility
 
236,000

 
193,764

 
377,866

Total
 
$
700,000

 
$
479,088

 
$
826,535

In addition, $4,636,802 of cash and cash equivalents, restricted cash, short-term investments and fixed maturities were pledged during the normal course of business as at March 31, 2016 (December 31, 2015: $4,056,788). Of those, $4,531,282 were held in trust (December 31, 2015: $4,007,215). Pledged assets are generally for the benefit of the Company's cedants and policyholders, to support AlphaCat's fully collateralized reinsurance transactions and to facilitate the accreditation of Validus Reinsurance, Ltd., Validus Reinsurance (Switzerland) Ltd. ("Validus Re Swiss") and Talbot as an alien insurer/reinsurer by certain regulators.
During December 2014, Validus Reinsurance, Ltd. established a Multi-Beneficiary Reinsurance Trust ("MBRT") to collateralize its (re)insurance liabilities associated with and for the benefit of U.S. domiciled cedants, and was approved as a trusteed reinsurer in the State of New Jersey. As a result, cedants domiciled in that state will receive automatic credit in their regulatory filings for the reinsurance provided prospectively by the Company. As of March 31, 2016, Validus Reinsurance, Ltd. was approved as a trusteed reinsurer in 48 states as well as Puerto Rico and the District of Columbia. In addition, Validus Re Swiss established a MBRT in December 2015 and was approved as a trusteed reinsurer in the State of New Jersey as at March 31, 2016.
4. Fair value measurements
(a)
Classification within the fair value hierarchy
Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between market participants. Under U.S. GAAP, a company must determine the appropriate level in the fair value hierarchy for each fair value measurement. The fair value hierarchy prioritizes the inputs, which refer broadly to assumptions market participants would use in pricing an asset or liability, into three levels. It gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The level in the fair value hierarchy within which a fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
The three levels of the fair value hierarchy are described below:
Level 1 - Fair values are measured based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access.
Level 2 - Fair values are measured based on quoted prices in active markets for similar assets or liabilities, quoted prices for identical assets or liabilities in inactive markets, or for which significant inputs are observable (e.g., interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by observable market data.
Level 3 - Fair values are measured based on inputs that are unobservable and significant to the overall fair value measurement. The unobservable inputs reflect the Company's own judgments about assumptions where there is little, if any, market activity for that asset or liability that market participants might use.
The availability of observable inputs can vary from financial instrument to financial instrument and is affected by a wide variety of factors including, for example, the type of financial instrument, whether the financial instrument is new and not yet established in the marketplace, and other characteristics particular to the instrument. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires significantly more judgment.
Accordingly, the degree of judgment exercised by management in determining fair value is greatest for instruments categorized in Level 3. In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This may lead the Company to change the selection of our valuation technique (for example, from market to cash flow approach) or to use multiple valuation techniques to estimate the fair value of a financial instrument. These circumstances could cause an instrument to be reclassified between levels within the fair value hierarchy.

16


Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)


At March 31, 2016, the Company’s investments were allocated between Levels 1, 2 and 3 as follows:
 
Level 1
 
Level 2
 
Level 3
 
Fair value based on NAV practical expedient
 
Total
Managed investments
 
 
 
 
 
 
 
 
 
U.S. government and government agency
$

 
$
910,319

 
$

 
$

 
$
910,319

Non-U.S. government and government agency

 
222,085

 

 

 
222,085

U.S. states, municipalities and political subdivisions

 
293,622

 

 

 
293,622

Agency residential mortgage-backed securities

 
663,939

 

 

 
663,939

Non-agency residential mortgage-backed securities

 
25,350

 

 

 
25,350

U.S. corporate

 
1,506,619

 

 

 
1,506,619

Non-U.S. corporate

 
395,056

 

 

 
395,056

Bank loans

 
348,416

 
255,011

 

 
603,427

Asset-backed securities

 
406,827

 

 

 
406,827

Commercial mortgage-backed securities

 
276,941

 

 

 
276,941

Total fixed maturities

 
5,049,174

 
255,011

 

 
5,304,185

Short-term investments
176,840

 
18,446

 

 

 
195,286

Other investments
 
 
 
 
 
 
 
 
 
Fund of hedge funds

 

 

 
959

 
959

Hedge funds

 

 

 
18,957

 
18,957

Private equity investments

 

 

 
65,021

 
65,021

Investment funds

 
22,210

 

 
168,593

 
190,803

Overseas deposits

 

 

 
60,601

 
60,601

Mutual funds

 
7,810

 

 

 
7,810

Total other investments

 
30,020

 

 
314,131

 
344,151

Total managed investments
$
176,840

 
$
5,097,640

 
$
255,011

 
$
314,131

 
$
5,843,622

Non-managed investments
 
 
 
 
 
 
 
 
 
Catastrophe bonds
$

 
$
140,014

 
$
37,105

 
$

 
$
177,119

Short-term investments
1,912,913

 

 

 

 
1,912,913

Total non-managed investments
1,912,913

 
140,014

 
37,105

 

 
2,090,032

Total investments
$
2,089,753

 
$
5,237,654

 
$
292,116

 
$
314,131

 
$
7,933,654


17


Validus Holdings, Ltd.
Notes to Consolidated Financial Statements (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)


At December 31, 2015, the Company’s investments were allocated between Levels 1, 2 and 3 as follows:
 
Level 1
 
Level 2
 
Level 3
 
Fair value based on NAV practical expedient
 
Total
Managed investments
 
 
 
 
 
 
 
 
 
U.S. government and government agency
$

 
$
937,202

 
$

 
$

 
$
937,202

Non-U.S. government and government agency

 
237,968

 

 

 
237,968

U.S. states, municipalities and political subdivisions

 
301,289

 

 

 
301,289

Agency residential mortgage-backed securities

 
610,582

 

 

 
610,582

Non-agency residential mortgage-backed securities

 
26,920

 

 

 
26,920

U.S. corporate

 
1,489,951

 

 

 
1,489,951

Non-U.S. corporate

 
446,570

 

 

 
446,570

Bank loans

 
343,874

 
232,337

 

 
576,211

Asset-backed securities

 
437,124

 

 

 
437,124

Commercial mortgage-backed securities

 
260,135

 

 

 
260,135

Total fixed maturities

 
5,091,615

 
232,337

 

 
5,323,952

Short-term investments
222,678

 
14,691

 

 

 
237,369

Other investments
 
 
 
 
 
 
 
 
 
Fund of hedge funds

 

 

 
1,417

 
1,417

Hedge funds

 

 

 
20,980