Attached files
| file | filename |
|---|---|
| 8-K - 8-K - VALIDUS HOLDINGS LTD | a8-kcoverpagex20160930inve.htm |
1
Validus Holdings, Ltd.
Investor Presentation – Third Quarter 2016
2
This presentation may include forward-looking statements, both with respect to us and our industry, that reflect our current views with respect
to future events and financial performance. Statements that include the words “expect,” “intend,” “plan,” “believe,” “project,” “anticipate,”
“will,” “may” and similar statements of a future or forward-looking nature identify forward-looking statements. All forward-looking statements
address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause actual results to differ
materially from those indicated in such statements 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 Holdings, Ltd.’s (“Validus” or the “Company”) 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 our most recent reports on Form 10-K and Form 10-Q
and other documents on file with the Securities and Exchange Commission. Any forward-looking statements made in this presentation are
qualified by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by us will be
realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us or our business or operations. We
undertake no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future
developments or otherwise.
Cautionary Note Regarding Forward-looking Statements
3
• Since commencing operations in late 2005, Validus has developed a re/insurance
platform consisting of U.S. specialty insurance, Lloyd’s of London, third party
reinsurance asset management and global reinsurance
• The diversified portfolio as measured by gross premium written is comprised of 44%
insurance and 56% reinsurance for the 12 months ended September 30, 2016
• Business plan since formation has been to focus on short-tail lines with strategic
diversification into select longer-tail classes
• Maintained a focus on underwriting profits in conjunction with a strong balance
sheet
• Profitable in all ten years of operation, 2006 through 2015
• Delivered outstanding financial results since 2007 IPO as measured by growth in
book value per diluted common share plus accumulated dividends
• Active capital management, returning $3.84 billion to investors through repurchases
and dividends from Validus’ 2007 IPO through November 1, 2016
Validus – Key Accomplishments
4
Validus – Four Diversified Yet Complementary Businesses
• U.S. based specialty
property and casualty
underwriter
• Focused on U.S. Excess and
Surplus Lines
• Pioneer in the binding
authority business
• 12% of last 12 months
GPW as of September 30,
2016
• Bermuda based
investment adviser
• Focused on managing
capital for third parties and
Validus in ILS and other
property catastrophe and
specialty reinsurance
investments
• AUM of $2.6 billion(1) as of
October 1, 2016
• 11% of last 12 months
GPW as of September 30,
2016
• Lloyd’s of London
Syndicate
• Focused on short tail
specialty lines in the
Lloyd’s of London market
• Market leader in War and
Terror and Energy and
Marine Classes
• 37% of last 12 months
GPW as of September 30,
2016
• Bermuda based
reinsurer
• Focused on treaty
reinsurance, including
property cat
• Specializing in Property
CAT XOL, Marine, and
Agriculture
• 40% of last 12 months
GPW as of September 30,
2016
Validus Research – Provides Analytical Support Across All Platforms
1) Assets under management (AUM) of $2.6 billion includes $2.3 billion of third party investment and $0.3 billion of related party investment.
5
Validus Operating Timeline
2005 2006 2007 2008 2009 2012 2013 2014 2015
2005
Founding of
Validus
October 19, 2005
2007
Acquisition of
Talbot
July 2, 2007
2008
Founding of
AlphaCat
July 29, 2008
2012
Launch of PaCRe
April 2, 2012
2013
Acquisition of
Longhorn Re
April 25, 2013
2015
Validus 10th Year
Anniversary
October 19, 2015
2006
Launch of
Petrel Re I Sidecar
June 30, 2006
2007
Validus IPO
July 30, 2007
2009
Acquisition of IPC
September 4, 2009
2012
Acquisition of
Flagstone November
30, 2012
2014
Acquisition of
Western World
October 2, 2014
2016
New York, USA
Waterloo, Canada
Parsippany, USA
Hamilton, Bermuda
Miami, USA
Santiago, Chile
London, England
Dubai, United Arab Emirates
Republic of Singapore
Boston, USA
Sydney, Australia
Scottsdale, USA
Labuan, Malaysia
Zurich, Switzerland
Atlanta, USA
Validus Global Operating Platform
6
7
11.8% Compound Annual Growth in Diluted BVPS Plus Accumulated
Dividends from Company Formation Through September 30, 2016
Growth in Book Value Per Diluted Share Plus Accumulated Dividends
16.93
19.73
24.00 23.78
29.68
32.98 32.28
35.22 36.23
39.65
42.33
45.16
0.80
1.60
2.48 3.48
4.48
7.68
8.88
10.16
11.21
16.93
19.73
24.00 24.58
31.28
35.46 35.76
39.70
43.91
48.53
52.49
56.37
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
$40.00
$45.00
$50.00
$55.00
$60.00
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Diluted BVPS Cumulative Dividends Diluted BVPS plus Accumulated Dividends
8
1) Source: SNL Financial.
2) VR starting point is Pro Forma diluted BVPS at September 30, 2007 of $20.89 as disclosed in the VR IPO Prospectus.
3) Book value per diluted share calculation includes impact of quarterly and special dividends.
From VR IPO Through September 30, 2016
Compound Growth in Book Value per Diluted Share Versus Peers
15.0%
14.1%
12.7%
11.3% 11.3% 11.0%
9.6%
6.0%
0.0%
5.0%
10.0%
15.0%
20.0%
AWH ACGL RNR VR AXS RE AHL AGII
9
Validus Common Shareholders’ Equity vs. Selected Peers
1) Source: SNL Financial.
Peer Comparison – Q3 2016 Common Shareholders’ Equity in $US Billions
8.0
6.6
5.4
4.4
3.7 3.6
3.3
1.8
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
$8.0
$9.0
RE ACGL AXS RNR VR AWH AHL AGII
10
1) Source: SNL Financial.
2) Peer group includes: AWH, ACGL, AGII, AHL, AXS, ENH, RE and RNR.
3) Starting point of chart is January 1, 2007.
From VR IPO Through September 30, 2016
Validus Stock Total Return Versus Peers and S&P 500
-50.0%
-25.0%
0.0%
25.0%
50.0%
75.0%
100.0%
125.0%
150.0%
175.0%
200.0%
225.0%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Validus Peers S&P 500
11
Gross Premium Written of $2.6 Billion - Last 12 months to September 30, 2016
1) $2.6 billion consolidated gross premiums written net of $29.1 million of intersegment eliminations.
By Operating SegmentBy Class of Business
Validus Re
40%
Talbot
37%
Western
World
12%
AlphaCat
11%
Specialty
34%
Property
Cat XOL
23%
Marine
15%
Other
Property
19%
Liability
9%
Validus Mix of Business
12
Insurance Underwriting Income – Validus vs. Bermuda Peers
1) Source: SEC filings and other public disclosures.
2) RNR underwriting income above assumes that all Lloyd’s underwriting income is insurance. Validus insurance underwriting income includes Western
World and Talbot’s direct insurance and facultative reinsurance.
3) AGII is excluded as they do not disclose underwriting income as insurance / reinsurance.
Insurance Underwriting Income in $US Millions: 2012 - 2015
435.4
270.3
221.6
182.3
66.7
(7.3)
(34.7)
(343.9)
-$400.0
-$300.0
-$200.0
-$100.0
$0.0
$100.0
$200.0
$300.0
$400.0
$500.0
VR AXS AWH ACGL AHL ENH RNR RE
13
Underwriting Income – Validus vs. Bermuda Peers
1) Source: SEC filings and other public disclosures.
2) AGII is excluded as they do not disclose underwriting income as insurance / reinsurance.
Underwriting Income in $US Millions: 2012 - 2015
2,933.6
2,128.4
1,500.4
1,319.9
1,184.6
872.3 906.6
595.7
(343.9)
(34.7)
435.4
182.3
270.3
66.7
(7.3)
221.6
(500.0)
-
500.0
1,000.0
1,500.0
2,000.0
2,500.0
3,000.0
RE RNR VR ACGL AXS AHL ENH AWH
Reinsurance Income Insurance Income
14
Validus – Growth and Diversification
Net Premiums Written in $US Millions – 2006 to Year to Date (“YTD”) 2016
1) 2014 Net Premiums Written for Western World cover the time period from the acquisition by Validus on October 2, 2014 through December 31, 2014.
2) YTD 2016 figures are as of September 30, 2016.
477.1
633.3 624.8 672.6
1,038.1 963.8 987.4 1,016.3 954.9 977.7
960.6
285.2
613.5
715.7
723.0 795.9
850.0 865.8 909.6 819.9
614.6
75.7
140.1 130.6 122.4 171.6
264.2
58.8 259.6
220.8
$-
$500.0
$1,000.0
$1,500.0
$2,000.0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD 2016
Validus Re Talbot AlphaCat Western World
15
Validus - Adapting to Market Demand
1) 2006 was the first full year of operations for Validus.
2) GPW for 2006 is for the full year. GPW for 2016 is for the last 12 months as of September 30, 2016.
Growth and Diversification in VR’s Business Since Inception
Reinsurance
100%
2006 GPW
(1,2)
$540.8 million
2016 GPW
(2)
$2,618.9 million
• Significant growth in GPW through
acquisitions of:
– 2007 – Talbot
– 2009 – 2012: IPCRe,
Flagstone, Longhorn Re
– 2014 –Western World
• Improved portfolio balance in
insurance through Talbot and Western
World acquisitions
• AlphaCat established in 2008 to
capitalize on the insurance linked
securities market
• Access to multiple sources of capital
to respond to business opportunities
as presented
Reinsurance
56%
Insurance
44%
16
Gross premiums written of
$372.4 million
(Increase of 20.3% at Western
World)
9.7% ROAE and
8.9% net operating ROAE
1) Validus diluted book value per share, operating income, operating EPS and operating ROAE are non-GAAP financial measures. Please refer to notes
on non-GAAP and other financial and exposure measures found in the Appendix hereto.
2) ROAE and net operating ROAE calculations are annualized.
82.4% combined ratio
(70.7% at Validus Re, 96.4% at
Talbot and 104.1% at Western
World)
Net income available
to Validus common
shareholders of
$89.8 million and
diluted EPS of $1.11
Book value per
diluted share of $45.16
2.5% growth (including
dividends) in Q3 2016
Q3 2016 Financial Results
Net operating income
available to Validus common
shareholders of
$82.6 million and
diluted operating EPS
of $1.02
17
Validus Reinsurance Highlights
Gross Premium Written - $1.1 Billion
last 12 months to September 30, 2016
Validus Re Overview
1) Validus Re financial reporting based on reporting of the Validus Re segment which does not include AlphaCat.
2) YTD 2016 figures are as of September 30, 2016.
3) Other Specialty class includes Aerospace & Aviation, Agriculture, Crisis Management, Contingency, Financial, Life and A&H, Technical Lines, Terrorism,
Trade Credit, and Workers' Compensation. Other Property class includes Per Risk XOL and Proportional.
Net Underwriting Income in $US Millions
• Validus Re formed in October 2005 as the first operating
subsidiary of Validus Holdings, Ltd.
• Headquartered in Bermuda with overseas offices in Asia,
Continental Europe and Latin America
• Global provider focused on treaty reinsurance including
– Property catastrophe
– Marine and energy
– Other specialty lines
• A.M. Best rating of A (Stable); S&P Rating of A (Stable)
Property
Cat XOL
32%
Marine
10%Other
Specialty
18%
Agriculture
22%
Casualty
6%
Other
Property
12%
277.7
91.5
413.2
240.4
15.5
227.8
443.4
387.0
280.6
217.3
$0.0
$100.0
$200.0
$300.0
$400.0
$500.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD
2016
18
AlphaCat Highlights
AlphaCat Overview
Assets Under Management
Expressed in $US Millions
1) AlphaCat financial information based on reporting of the AlphaCat segment.
2) AlphaCat began operations in 2008, and became a stand alone segment in 2012.
Q3 2016 Performance
• Generated management fee revenue of $8.4
million
• Validus’ share of AlphaCat income of $11.2
million
• Investment adviser managing capital for third
parties and Validus in ILS and other property
catastrophe and specialty reinsurance
investments
• AlphaCat brand was established in 2008
• In 2011, AlphaCat opened access to external
investors
• As of October 1, 2016, AlphaCat had $2.6
billion in assets under management
1,204.6
1,533.8
2,292.6
392.4
346.9
322.5
$0.0
$500.0
$1,000.0
$1,500.0
$2,000.0
$2,500.0
$3,000.0
1-Jan-14 1-Jan-15 1-Oct-16
Third Party Related Party
19
Talbot Highlights
Gross Premium Written - $981.7 Million
last 12 months ended September 30, 2016
Talbot Overview
Net Underwriting Income in $US Millions
• Founded in 2001 and acquired by Validus in 2007
• Significant competitive position
• Focus is on short tail business with meaningful market
position in targeted classes
• By design, Talbot is underweight in Casualty, Casualty
Treaty and Property Treaty classes
• Strategically placed offices in international hubs – New
York, Miami, Santiago, Dubai, Labuan, Sydney and
Singapore
1) Talbot financial information based on reporting of the Talbot segment.
2) Energy is Downstream Energy and Power. Other includes Accident & Health and Contingency lines.
3) YTD 2016 figures are as of September 30, 2016.
79.3
45.6
78.7 72.0
10.7
85.3
169.3
108.1
136.4
34.2
$0.0
$50.0
$100.0
$150.0
$200.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD
2016
Marine
29%
Property
23%
Political
Lines
19%
Energy
10%
Aviation
8%
Fin. Lines
5%
Other
6%
20
Talbot - Lloyd’s Market Share By Class of Business
1) Source: Lloyd’s Franchise Board.
2) Percentages are calculated based on 2015 year of account gross premium written.
3) Talbot’s overall market share in Lloyd’s is 2.7%.
Key Classes of Business Underweight Classes of Business
2.7%
2.7%
3.0%
3.0%
3.1%
3.5%
3.5%
3.7%
3.9%
4.4%
4.5%
5.1%
5.4%
5.4%
5.4%
5.8%
5.8%
6.5%
6.9%
10.4%
13.3%
0% 5% 10% 15%
Total
Nuclear
Space
Property D&F (non-US open market)
Marine XL
Property D&F (US open market)
Marine Liability
General Aviation
Financial Institutions (non-US)
Marine Hull
Energy Offshore Property
Financial Institutions (US)
Energy Offshore Liability
Political Risks, Credit & Financial Guarantee
Airline
Aviation Products/ Airport Liabilities
Engineering
BBB/ Crime
Terrorism
Aviation XL
Energy Onshore Property
0.1%
0.1%
0.2%
0.2%
0.3%
0.3%
0.4%
0.5%
0.6%
0.6%
0.7%
0.7%
0.7%
1.0%
1.3%
1.6%
1.7%
2.0%
2.6%
2.7%
2.7%
0.0% 1.0% 2.0% 3.0%
Property pro rata
Professional Indemnity (US)
Property D&F (non-US binder)
Overseas Motor
Directors & Officers (US)
NM General Liability (US direct)
Property Risk XS
Directors & Officers (non-US)
NM General Liability (non-US direct)
Employers Liability/ WCA (US)
Professional Indemnity (non-US)
Personal Accident XL
Property D&F (US binder)
Medical Expenses
Difference in Conditions
Accident & Health (direct)
Energy Onshore Liability
Power Generation
Cargo
Yacht
Total
21
Western World Highlights
Gross Premium Written - $307.3 Million
last 12 months ended September 30, 2016
Western World Overview
1) Western World financial information based on reporting of the Western World segment.
• Founded in 1964 and acquired by Validus in 2014
• Focused on US small and mid sized enterprise
business (“SME”)
• Commercial General Liability has been the
historical focus
• Writing on both E&S and admitted paper
• Western World Integrated Platform (“WWIP”) is a
technological competitive advantage
• Validus ownership provides the resources for
expansion into short tail classes of business
• Meaningful strategic changes have already been
made to date:
– New Brokerage Property
– New Professional Liability
– Discontinued lines, Commercial Auto and select
Programs
Contract GL
49%
Property
26%
Program GL
12%
Auto
5%
Professional
7%
Brokerage GL
1%
22
Western World – Class of Business Detail
1) Western World financial information based on reporting of the Western World segment.
2) YTD 2016 figures are as of September 30, 2016.
Contract
Division
Program
Division
Brokerage Professional / Casualty
(discontinued Q1 2016)
Brokerage
Property
YTD 2016 GPW
in $US MM
$142 $55 $21 $18
% of Total 60% 23% 9% 8%
Description
• General & Professional
Liability and Property
Coverage on small-to-
medium size commercial
risks offered in 50 states
• Distributed through
exclusive general agents
with binding authority
• General, Professional,
Liability, Property and
Commercial Auto plans
• Distributed through affinity
group program
administrators
• Single-class relationships,
generally with 50-state
binding authority
• Underwrites larger, more complex
accounts
• Distributed through select wholesale
brokers
• Business accepted from 50 states
• Commercial E&S
Property Insurance
• “Middle Market,”
Catastrophe exposed
business
• Distributed through
select wholesale
brokers
• Business accepted from
50 states
Coverages
• General & Professional
Liability
• Property (package and
monoline)
• General Liability &
Professional
• Commercial Auto & APD
• Property
• Flood
• Professional Liability (Claims Made) • ISO special, broad and
basic causes of loss
• Single Peril (Earthquake,
Flood, Wind)
• Difference in Conditions
(DIC) for Earthquake
and Flood
Business
Classes
• Manufacturers and
Contractors
• Owners, Landlords and
Tenants
• Professional Services /
Misc. Malpractice
• Spectator Events
• Hospitality & Habitational
• Contracted Services
• Outdoor / Recreation &
Amusement
• Professional Services
• Residential Flood
• Errors & Omissions
• Management Liability
• Financial Institutions
• Hotel / Motel
• Habitational
• Retail
• Restaurants
• Offices
23
Estimated Exposures to Peak Zone Property Catastrophe Losses
(Expressed in thousands of U.S. Dollars)
Probable Maximum Losses by Zone and Peril
Consolidated (Validus Re, Talbot and Western World) Estimated Net Loss
Zones Perils
20 year return
period
50 year return
period
100 year return
period
250 year return
period
Validus Re Net
Maximum Zonal
Aggregate
United States Hurricane 302,295 465,337 722,854 1,057,613 2,032,828
California Earthquake 74,883 222,418 323,047 389,540 1,778,081
Europe Windstorm 77,786 206,280 294,743 522,873 1,293,780
Japan Earthquake 55,146 117,654 202,313 292,904 760,203
Japan Typhoon 57,043 117,038 209,962 272,320 705,495
1:100 year PML equal to 15.5% of quarter end total capitalization, 19.4% of equity available to Validus common shareholders
1) A full explanation and disclaimer is contained in the notes on non-GAAP and other financial and exposure measures found in the Appendix hereto.
2) 1:100 year PML as a % of capital and shareholders’ equity is based on United States Hurricane PML.
3) Validus Re net maximum zonal aggregate includes Validus share of AlphaCat limits, excludes Western World and the limits supported by the Funds
at Lloyd’s provided by Validus Re.
Transparent Risk Disclosure – October 1, 2016 Portfolio
Peak Zone PML
24
Net Probable Maximum Loss (1:100) by Zone and Peril Compared to Total Capitalization
Substantial Capital Margin Above Risk Appetites
1) A full explanation and disclaimer is contained in the notes on non-GAAP and other financial and exposure measures found in the Appendix hereto.
2) Consolidated (Validus Re, Talbot and Western World) estimated net loss 1:100 year PML as a % of total capitalization and shareholder’s equity
available to common shareholders.
3) Total capitalization equals total shareholder's equity less noncontrolling interests plus Senior Notes and Junior Subordinated Deferrable
Debentures.
4) All data points are as at January 1st, except 2016 which is at October 1st.
1:100 PML Internal Risk Appetite
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2011 2012 2013 2014 2015 2016
United States Hurricane California Earthquake Europe Windstorm Japan Earthquake Japan Typhoon
25
1) A full explanation and disclaimer is contained in the notes on non-GAAP and other financial and exposure measures found in the Appendix hereto.
Realistic Disaster Scenarios
Consolidated (Validus Re, Talbot and Western World) Estimated Exposures to Specified Loss Scenarios - As of July 1, 2016
(Expressed in millions of U.S. Dollars, except share and per share information)
Type Catastrophe Scenarios Description
Estimated
Consolidated (Validus
Talbot and Western
World)
Net Loss
% of latest 12
Months
Consolidated Net
Premiums
Earned
Marine Loss of major complex Total loss to all platforms and bridge links of a major oil complex $ 197.5 8.8%
Marine
Major cruise vessel
incident US-owned cruise vessel sunk or severely damaged 131.7 5.8%
Marine Marine collision Fully laden tanker collides with a cruise vessel in US waters 91.1 4.0%
Political Risks South East Asia
Chinese economy has a "hard landing" with sharp fall in growth rates; regional
contagion 118.9 5.3%
Political Risks Russia
The Russian corporate sector struggles to deal with the effects of crashing
commodity and stock prices 56.5 2.5%
Political Risks Turkey Severe economic crisis in Turkey due to political upheaval 54.7 2.4%
Political Risks Nigeria
Severe economic, political and social crisis in Nigeria leads to widespread civil
unrest 42.3 1.9%
Political Risks Middle East US and Iran escalate into military confrontation; regional contagion 27.6 1.2%
Aviation Aviation collision Collision of two aircraft over a major city 94.1 4.2%
Satellite Solar flare
Large single or sequence of proton flares results in loss to all satellites in
synchronous orbit 45.2 2.0%
Satellite Generic defect Undetected defect in a number of operational satellites causing major loss 23.7 1.1%
Terrorism Rockefeller Center Midtown Manhattan suffers a 2-tonne conventional bomb blast 68.4 3.0%
Terrorism Exchange Place Lower Manhattan suffers a 2-tonne conventional bomb blast 40.8 1.8%
Liability Professional lines Failure or collapse of a major corporation 37.2 1.7%
Liability Professional lines UK pensions mis-selling 16.3 0.7%
Cyber
Major data security
breach
Simultaneous cyber-attacks on organizations within one industrial sector; loss of
customer data 26.8 1.2%
26
Validus – Active Capital Management
Expressed in millions of U.S. Dollars
1) Inception to date capital management includes $2.3 million of dividends on preferred shares.
2) Inception to date and YTD 2016 capital management actions of $3.84 billion is through November 1, 2016.
Capital Management Inception to
Date of $3.84 Billion(1)
• On Feb 3, 2015 Validus reset the
common share repurchase
authorization to $750.0 million
• Remaining authorization of $332.6
million
• In 2016 Validus increased quarterly
dividend to $0.35 per share
• YTD 2016 capital management of
$290.2 million
― Common share repurchases in
2016 of $200.0 million
― Common share dividends of $87.9
million
― Preferred share dividends of $2.3
million
Capital Management
2,691.8
917.1
230.8
Share Repurchases
Common Share Dividends
Special Dividend
27
Managed Investment Portfolio at September 30, 2016
• Total managed investments, cash and
cash equivalents and restricted cash of
$6.46 billion
– Emphasis on the preservation of
invested assets
– Provision of sufficient liquidity for
prompt payment of claims
– Comprehensive portfolio disclosure
• Average portfolio rating of AA-
• Duration of 2.29 years
• Q3 2016 annualized investment yield:
2.58% (Q3 2015: 1.91%)
• Q3 2016 generated net realized and
unrealized gains of $8.73 million
1) Validus has $9.01 billion total investments, cash and cash equivalents and restricted cash inclusive of investments supporting AlphaCat
collateralized business.
23.6%
13.0%
10.2%
9.1%
7.5%
6.8%
6.7%
6.0%
5.3%
4.4%
3.8%
3.1%
0.3%
0.2%
0% 5% 10% 15% 20% 25%
U.S. corporate
U.S. Govt. and Agency
Agency RMBS
Bank loans
ABS
Cash
Non-U.S. corporate
Other
CMBS
State and local
Non-U.S. Govt. and Agency
Short term
Non-Agency RMBS
Restricted cash
28
Validus Invested Asset Strategy and Performance
• In 2014, Validus set out to increase portfolio yield without increasing tail risk. Validus’ Chief
Investment Officer worked with our risk and financial modeling teams to establish a new
portfolio allocation
• Noteworthy benefit in terms of higher yields on the portfolio during the past eight quarters.
The second half of 2015 confirmed our conservative risk profile as the portfolio, absent PaCRe,
generated minimal losses in very challenging investment markets
1.55%
1.78%
1.83%
2.02%
1.91% 1.90%
1.79%
2.34%
2.58%
1.42%
1.51%
1.62%
1.80%
1.89%
1.92% 1.91%
1.99%
2.15%
1.20%
1.40%
1.60%
1.80%
2.00%
2.20%
2.40%
2.60%
2.80%
1-Sep-14 1-Dec-14 1-Mar-15 1-Jun-15 1-Sep-15 1-Dec-15 1-Mar-16 1-Jun-16 1-Sep-16
Quarter Annualized Yield Rolling 4-Quarter Annualized Yield
29
Validus Loss Reserves at September 30, 2016
• Gross reserves for losses and loss
expenses of $3.04 billion
• $2.59 billion net of reinsurance
• Q3 2016 non-notable loss SpaceX rocket
explosion of $19.0 million
• No notable losses in Q3 2016
• Favorable reserve development during
Q3 2016:
– Validus Re: $33.0 million
– AlphaCat: $0.3 million
– Talbot: $18.7 million
– Western World: $0.9 million
Net Favorable Reserve Development
Expressed in $US Millions
Validus Gross Reserve Mix
1) Q3 non-notable loss relates to Validus’ share of net losses and loss expenses less reinstatement premiums.
2) Notable loss events are loss events which aggregate to over $30.0 million on a consolidated basis. Non-notable loss events are loss events
which aggregate to over $15.0 million but less than $30.0 million on a consolidated basis.
Case
Reserves
43%
IBNR
Reserves
57%
208.4
246.3
48.7 71.4 56.3 32.6
50.8
59.8
9.4
(17.7)
6.5
20.3
-$50.0
$0.0
$50.0
$100.0
$150.0
$200.0
$250.0
$300.0
$350.0
2014 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016
Non-event Event
30
Development of Prior Period Loss Reserves by Accident Year
96.7
47.2 44.8 37.8
49.3
(10.4) (8.5) (5.6)
29.0
89.9
67.5
30.1
95.9
83.3
58.3
72.1
91.1
94.4
175.0
222.6
259.2
306.1
-$15.0
$35.0
$85.0
$135.0
$185.0
$235.0
$285.0
$335.0
2012 2013 2014 2015
Before 2010 2010 2011 2012 2013 2014
Development of Prior Period Loss Reserves in $US Millions – 2012 to 2015
31
• Global insurance and reinsurance business
• Size and scale to compete effectively in targeted markets
• Four distinct yet complementary operating segments
• Focused on short-tail lines with strategic diversification into select longer-tail
classes
• Profitable in all ten years of operation
• Short duration, highly liquid, conservative balance sheet
• Transparent risk disclosure
Conclusion – Continue to be Well Positioned for 2017 and Beyond
APPENDIX
Investor Presentation
33
8.4% year over year increase
in gross premiums written
(Increases of 0.7% at Validus
Re, 38.9% at AlphaCat and a
decrease of 7.5% at Talbot)
10.3% ROAE and
11.3% net operating ROAE
1) Validus diluted book value per share, operating income, operating EPS and operating ROAE are non-GAAP financial measures. Please refer to notes
on non-GAAP and other financial and exposure measures found in the Appendix hereto.
79.7% combined ratio
(72.0% at Validus Re, 83.8% at
Talbot and 98.2% at Western
World)
Net income available to
Validus of
$374.9 million and
diluted EPS of $4.34
Book value
per diluted share of $42.33
10.0% growth (including
dividends) in 2015
Full Year 2015 Financial Results
Net operating income
available to Validus of
$409.7 million and
diluted operating EPS
of $4.74
34
Selected Market Information at September 30, 2016
Exchange / Ticker:
Share Price:
Primary Shares Outstanding:
Primary Market Capitalization:
Annual Dividend/Yield:
NYSE / “VR”
$49.82
79,443,030
$3.96 billion
$1.40 per share (2.81%)
1) Validus increased its quarterly common share dividend to $0.35 from $0.32 on February 2, 2016.
35
111
136
2007 2015
40
66
55
15
2007 2015
Dubai
New York
Asia
LATAM
157
364
2007 2015
473
888
2007 2015
688
1,019
2007 2015
508
955
2007 2015
Talbot Growth Since Acquisition
1) Converted at rate of exchange £1.00 = $1.53, the average rate for 2015.
2) 2007 GPW & Net Underwriting Income are full year amounts, including pre-acquisition results.
3) 2015 Shareholders’ Equity includes capital supporting Funds at Lloyd’s.
Employees
2.3x
Shareholders’ Equity(3)
$ in millions
1.9x
Net Underwriting Income(2)
$ in millions
1.2x
Gross Premium Written(2)
$ in millions
1.5x
Syndicate Capacity (1)
1.9x
$ in millions
GPW in Overseas Offices
$ in millions
186
36
Talbot Composite Rate Index – The Benefits of Cycle Management
1) Rate index reflects the whole account rate change, as adjusted for changes in exposure, inflation, attachment point and terms and conditions.
2) All data points are as of December 31st, except for 2016 which is as of September 30th.
100%
126%
187%
208% 206% 204%
217%
207%
197%
209% 208%
215%
221% 220%
211%
198%
185%
75%
100%
125%
150%
175%
200%
225%
250%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
37
Abbreviated Balance Sheets
1) A full explanation and disclaimer is contained in the note on non-GAAP financial and other measures found in the Appendix hereto.
2) Capital as at September 30, 2016 includes $150.0 million of 5.875% Non-Cumulative Preferred Shares, Series A.
(Expressed in thousands of U.S. Dollars)
September 30, 2016 December 31, 2015 December 31, 2014
Assets
Fixed maturities $ 5,576,341 $ 5,510,331 $ 5,545,231
Short-term investments 2,481,406 1,941,635 1,501,212
Other investments 394,695 336,856 334,685
Cash and cash equivalents 443,992 723,109 550,401
Restricted cash 113,048 73,270 173,003
Total investments and cash 9,009,482 8,585,201 8,104,532
Goodwill and Intangible assets 313,768 318,016 322,821
Other assets 2,162,903 1,612,595 1,204,542
Total assets $ 11,486,153 $ 10,515,812 $ 10,112,564
Liabilities
Reserve for losses and loss expenses $ 3,035,987 $ 2,996,567 $ 3,243,147
Unearned premiums 1,359,438 966,210 989,229
Other liabilities 284,323 789,362 599,300
Notes payable to AlphaCat investors 372,730 75,493 -
Senior notes payable 245,311 245,161 244,960
Debentures payable 538,168 537,668 539,277
Total liabilities $ 5,835,957 $ 5,610,461 $ 5,615,913
Redeemable noncontrolling interest 1,559,580 1,111,714 617,791
Shareholders' equity
Capital(2) $ 970,067 $ 1,004,919 $ 1,213,614
Retained earnings 2,897,553 2,634,056 2,372,972
Total shareholders' equity available to Validus 3,867,620 3,638,975 3,586,586
Noncontrolling interest 222,996 154,662 292,274
Total shareholders' equity 4,090,616 3,793,637 3,878,860
Total liabilities, noncontrolling interests and shareholders' equity $ 11,486,153 $ 10,515,812 $ 10,112,564
Debt to capital ratio 3.8% 4.3% 4.6%
Debt and hybrid to capital ratio 12.2% 13.8% 14.9%
Investments and cash to equity 220.2% 226.3% 208.9%
38
Net Operating Income Available to Validus Reconciliation
Validus Holdings, Ltd.
Non-GAAP Financial Measure Reconciliation
Net Operating Income available to Validus, Net Operating Income per share available to Validus and Annualized Net Operating Return on Average Equity
(Expressed in thousands of U.S. Dollars, except share and per share information)
Three Months Ended Year Ended
September 30,
2016
September 30,
2015
September 30,
2016
September 30,
2015
Net income available to Validus common shareholders $ 89,844 $ 66,650 $ 351,617 $ 305,851
Adjustments for:
Net realized (gains) on investments (4,397) 1,187 (6,537) (5,226)
Change in net unrealized (gains) losses 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 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) on investments (0.05) 0.01 (0.08) (0.06)
Change in net unrealized (gains) losses on investments (0.07) (0.05) (1.02) (0.03)
(Income) loss 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%
39
1) Weighted average exercise price for those stock options that have an exercise price lower than book value per share.
2) 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.
Diluted Book Value Per Share Reconciliation
(Expressed in thousands of U.S. Dollars, except share and per share information)
September 30, 2016
Equity amount Shares Exercise Price (1)
Book value per
share
Total shareholders' equity available to Validus common shareholders
Book value per common share
Total shareholders' equity available to Validus common shareholders $ 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 $ 3,717,620 79,443,030
Assumed exercise of outstanding stock options (2) 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
Diluted book value per common share plus accumulated dividends $ 56.37
Tangible book value per diluted common share $ 41.35
40
In presenting the Company’s results herein, management has included and discussed certain schedules containing underwriting income (loss), net operating income (loss)
available (attributable) to Validus, annualized return on average equity and diluted book value per common share that are not calculated under standards or rules that
comprise U.S. GAAP. Such measures are referred to as non-GAAP. Non-GAAP measures may be defined or calculated differently by other companies. We believe that these
measures are important to investors and other interested parties. These measures should not be viewed as a substitute for those determined in accordance with U.S. GAAP.
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.
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. This measure focuses on the underlying fundamentals
of our operations without the influence of gains (losses) from the sale of investments, translation of non-U.S.$ currencies and non-recurring items. 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-U.S.$
denominated balances are unrelated to our underlying business. 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 preference shares.
Diluted book value per share is calculated based on total shareholders’ equity available to Validus common shareholders plus the assumed proceeds from the exercise of
outstanding stock options, divided by the sum of unvested restricted shares, stock options and share equivalents outstanding (assuming their exercise).
Reconciliations to the most comparable GAAP measure for net operating income and diluted book value per share can be found on pages 38 and 39, respectively.
Net loss estimates and zonal aggregates are before income tax, net of reinstatement premiums, and net of reinsurance and retrocessional recoveries. The estimates set
forth herein are based on an Occurrence basis on assumptions that are inherently subject to significant uncertainties and contingencies. These uncertainties and
contingencies can affect actual losses and could cause actual losses to differ materially from those expressed above. In particular, modeled loss estimates do not necessarily
accurately predict actual losses, and may significantly mis-estimate actual losses. Such estimates, therefore, should not be considered as a representation of actual losses.
Notes on Non-GAAP and Other Financial and Exposure Measures
41
The Company has developed the estimates of losses expected from certain catastrophes for its portfolio of property, marine, workers’ compensation, and personal accident
contracts using commercially available catastrophe models such as RMS, AIR and EQECAT, which are applied and adjusted by the Company. These estimates include
assumptions regarding the location, size and magnitude of an event, the frequency of events, the construction type and damageability of property in a zone, policy terms
and conditions and the cost of rebuilding property in a zone, among other assumptions. These assumptions will evolve following any actual event. Accordingly, if the
estimates and assumptions that are entered into the risk model are incorrect, or if the risk model proves to be an inaccurate forecasting tool, the losses the Company might
incur from an actual catastrophe could be materially higher than its expectation of losses generated from modeled catastrophe scenarios. In addition, many risks such as
second-event covers, aggregate excess of loss, or attritional loss components cannot be fully evaluated using the vendor models. Further, there can be no assurance that
such third party models are free of defects in the modeling logic or in the software code. Commencing in January 2012, the Company incorporated RMS version 11 as part
of its vendor models.
The Company has presented the Company Realistic Disaster Scenarios for non-natural catastrophe events. Twice yearly, Lloyds' syndicates, including the Company's Talbot
Syndicate 1183, are required to provide details of their potential exposures to specific disaster scenarios. Lloyds' makes its updated Realistic Disaster Scenarios (RDS)
guidance available to the market annually. The RDS scenario specification document for 2012 can be accessed at the RDS part of the Lloyd's public website:
http://www.lloyds.com/The-Market/Tools-and-Resources/Research/Exposure-Management/Realistic-Disaster-Scenarios
The Consolidated Net Premiums Earned used in the calculation represent the latest 12 months of net premiums earned up to September 30, 2016.
Modeling catastrophe threat scenarios is a complex exercise involving numerous variables and is inherently subject to significant uncertainties and contingencies. These
uncertainties and contingencies can affect actual losses and could cause actual losses incurred by the Company to differ materially from those expressed above. Should an
event occur, the modeled outcomes may prove inadequate, possibly materially so. This may occur for a number of reasons including, legal requirements, model deficiency,
non-modeled risks or data inaccuracies.
A modeled outcome of net loss from a single event also relies in significant part on the reinsurance and retrocession arrangements in place, or expected to be in place at the
time of the analysis, and may change during the year. Modeled outcomes assume that the reinsurance and retrocession in place responds as expected with minimal
reinsurance failure or dispute. Reinsurance is purchased to match the original exposure as far as possible, but it is possible for there to be a mismatch or gap in cover which
could result in higher than modeled losses to the Company. In addition, many parts of the reinsurance program are purchased with limited reinstatements and, therefore,
the number of claims or events which may be recovered from second or subsequent events is limited. It should also be noted that renewal dates of the reinsurance program
do not necessarily coincide with those of the inwards business written. Where original business is not protected by risks attaching reinsurance or retrocession programs, the
programs could expire resulting in an increase in the possible net loss retained by the Company.
Investors should not rely on the information set forth in this presentation when considering an investment in the Company. The information contained in this presentation
has not been audited nor has it been subject to independent verification. The estimates set forth herein speak only as of the date of this presentation and the Company
undertakes no obligation to update or revise such information to reflect the occurrence of future events. The events presented reflect a specific set of prescribed
calculations and do not necessarily reflect all events that may impact the Company.
Notes on Non-GAAP and Other Financial and Exposure Measures –
Continued
Street Address: 29 Richmond Road
Pembroke, Bermuda
Mailing Address: Suite 1790 48 Par-la-Ville Road
Hamilton, Bermuda HM 11
Telephone: +1-441-278-9000
Email: investor.relations@validusholdings.com
For more information on our company, products and
management team please visit our website at:
www.validusholdings.com