Last10K.com

Validus Holdings Ltd (VR) SEC Filing 10-Q Quarterly report for the period ending Friday, June 30, 2017

Validus Holdings Ltd

CIK: 1348259 Ticker: VR


Validus Holdings, Ltd. June 30, 2017 GAAP fixed maturity portfolio in Schedule D format
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 CHANGE IN BOOK/ADJUSTED CARRYING VALUE
 
INTEREST
DATES
1

2

3

4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
 
 
 
FOREIGN
BOND

NAIC
 
 GAAP FAIR
 
 GAAP
 
 CURRENT YEAR
 
 TOTAL FX CHG
INTEREST
EFFECTIVE
HOW
 ACCRUED
 GROSS REC'D
 
 
CUSIP
DESCRIPTION
*

CODE
CHAR

DESIG
 ACTUAL COST
 MARKET VALUE
 PAR VALUE
 BOOK VALUE
 UGL
 AMORTIZATION
 IMPAIRMENTS
 IN B/A. C.V.
RATE
RATE OF
PAID
 INTEREST
 DURING YEAR
 ACQUIRED
MATURITY
BRSTBY9Y7

A. SCHULMAN INC SENIOR SECURED TERM LOAN

 
 
 

 3FE

142,158.48

142,692.90

142,514.76

142,259.94

432.96

27.27




0.0359

 M-J-S-D

2,972.92

20150511
20220601
03763KAB2

AASET_14-1 ABS_14-1 A

 
 
4

 1Z

2,517,631.33

2,518,583.68

2,509,174.28

2,515,047.39

3,536.29

(2,012.86
)


5.1250

5.0245

 Monthly
5,715.34

69,708.03

20141121
20291215
BRT28HQ50

ABACUS INNOVATIONS CORP SENIOR SECURED T

 
 
 
 3FE

1,024,649.24

1,033,894.18

1,027,217.27

1,024,960.58

8,933.60

194.66




0.0354

 M-J-S-D

17,405.45

20160609
20230816
002824AU4

ABBOTT LABORATORIES CORP BND

 
 
 
 2FE

2,412,386.00

2,261,885.89

2,150,000.00

2,270,483.96

(8,598.07
)
(33,422.78
)


5.1250

1.8571

 Apr-Oct
27,546.88

55,093.75

20150504
20190401
002824BJ8

ABBOTT LABORATORIES SENIOR CORP BND

 
 
 
 2FE

2,326,947.77

2,334,963.13

2,330,000.00

2,327,508.96

7,454.17

561.19



2.0000

2.0902

 Mar-Sep
13,721.11

(906.11
)
20170322
20180915
002824BC3

ABBOTT LABORATORIES SENIOR CORP BND

 
 
 
 2FE

6,596,529.06

6,652,456.53

6,603,000.00

6,597,806.13

54,650.40

1,274.36



2.3500

2.3840

 May-Nov
16,810.13

99,826.76

20161117
20191122
00287YAL3

ABBVIE INC SENIOR CORP BND

 
 
 
 2FE

982,080.00

1,009,580.00

1,000,000.00

986,716.02

22,863.98

1,125.99



2.9000

3.1721

 May-Nov
4,430.56

14,500.00

20150521
20221106
00287YAN9

ABBVIE INC SENIOR CORP BND

 
 
 
 2FE

4,249,677.50

4,255,312.50

4,250,000.00

4,250,410.52

4,901.98

(261.39
)


1.8000

1.4790

 May-Nov
9,987.50

39,230.00

20150505
20180514
00287YAT6

ABBVIE INC SENIOR CORP BND

 
 
2

 2FE

4,182,780.00

4,245,989.74

4,200,000.00

4,189,849.58

56,140.16

1,756.48



2.5000

2.5879

 May-Nov
13,708.32

55,333.33

20150505
20200514
00287YAU3

ABBVIE INC SENIOR CORP BND

 
 
2

 2FE

5,372,341.40

5,373,883.67

5,390,000.00

5,375,337.68

(1,454.01
)
1,785.81



2.3000

2.3370

 May-Nov
16,184.98

61,985.00

20160509
20210514
BRSXK39C4

ABN AMRO BANK NV SENIOR CORP BND EMTN

 
B
 
 
729,467.25

686,070.00

500,000.00

727,026.94

23,400.95

(1,436.66
)

(64,357.90
)
2.3750

2.4641

 Jun-Dec
1,011.48

7,486.89

20151130
20211207
N04899AK1

ABN AMRO BANK NV SENIOR CORP BND EMTN

 
B
 
 1FE

673,949.91

688,719.85

500,000.00

659,993.99

(4,103.16
)
(13,305.86
)

32,829.02

4.8750

0.5218

 Jan-Jul
14,519.00

15,080.81

20161221
20190116
BRT6UXYC7

ABN AMRO BANK NV SENIOR CORP BOND

 
B
 
 1FE

1,462,592.69

1,562,418.63

1,200,000.00

1,462,319.19

1,437.81

(273.50
)

98,661.63

0.7965

0.6944

 F-M-A-N
1,054.46

1,139.38

20170424
20181130
000823AA2

ABPCI_17-1A ABS 17-1A 144A

 
D
4

 
2,000,000.00

2,004,294.60

2,000,000.00

2,000,000.00

4,294.60






 J-A-J-O


20170602
20290720
553204AB4

ACASC_14-1A SUB ABS 14-1A-BR 144A

 
D
4

 
850,000.00

850,477.79

850,000.00

850,000.00

477.79




2.7584

2.7677

 J-A-J-O
4,819.61

2,741.77

20170213
20260718
00432CCM1

ACCESS GROUP INC ACCSS_05-2 ABS 05-2

 
 
4

 
540,621.79

555,142.48

555,195.67

552,126.62

3,015.86

2,505.70



1.3517

2.2142

 F-M-A-N
833.85

4,002.90

20120808
20241122
00100VAG5

ACIS_14-4A SUB ABS_14-4A C 144A

 
D
4

 1FE

237,625.00

248,505.85

250,000.00

238,550.14

9,955.71

866.82



3.7196

4.6339

 F-M-A-N
1,575.65

4,410.29

20161215
20260501
00452PAN7

ACIS_15-6A MEZZANIN ABS 15-6A C 144A

 
D
4

 1FE

495,000.00

499,984.50

500,000.00

496,269.36

3,715.14

264.60



4.5396

4.7061

 F-M-A-N
3,846.02

10,881.98

20150304
20270501
00452PAG2

ACIS_15-6A MEZZANIN ABS 15-6A B1 144A

 
D
4

 1FE

2,238,750.00

2,257,896.60

2,250,000.00

2,241,977.59

15,919.01

687.80



3.6496

3.7380

 F-M-A-N
13,913.95

38,900.79

20150304
20270501
00485YAA7

ACORN RE LTD SENIOR CORP BND 144A

 
D
 
 
5,541,500.00

5,585,525.00

5,500,000.00

5,516,979.31

68,545.69

(7,778.06
)


4.8271

4.4307

 Monthly
8,849.70

125,087.09

20150702
20180717
BRST137M4

ACOSTA HOLDCO INC SENIOR SECURED TERM LO

 
 
4

 4FE

971,027.18

883,066.37

983,318.66

973,694.43

(90,628.06
)
1,229.86




0.2287

 M-J-S-D

28,342.09

20160414
20210926
BRT6PK3X9

ACTAGRO LLC SENIOR SECURED TERM NOTES

 
 
 
 
5,897,666.68

5,838,690.01

5,897,666.68

5,897,666.68

(58,976.67
)





 M-J-S-D

161,461.42

20161101
20200710
00507UAD3

ACTAVIS FUNDING SCS SENIOR CORP BND

 
D
 
 2FE

8,308,549.80

8,361,896.85

8,315,000.00

8,312,199.29

49,697.56

692.88



2.4500

2.4637

 Jun-Dec
9,054.11

103,859.58

20141113
20190615
00507UAP6

ACTAVIS FUNDING SCS SENIOR CORP BND

 
D
2

 2FE

949,952.50

970,063.92

950,000.00

949,973.50

20,090.42

4.64



3.0000

3.0011

 Mar-Sep
8,629.16

14,250.00

20150303
20200312
BRT63CM02

ADS WASTE HOLDINGS INC SENIOR SECURED TE

 
 
 
 4FE

2,067,568.87

2,079,507.31

2,070,265.65

2,066,648.26

12,859.05

(828.78
)



0.0356

 M-J-S-D

38,284.81

20161028
20231110
BRSNZFA49

ADVANTAGE SALES & MARKETING IN SENIOR SE

 
 
4

 4FE

1,789,189.72

1,722,931.90

1,795,655.97

1,791,531.23

(68,599.33
)
526.35




0.0356

 M-J-S-D

51,582.07

20140711
20210723
05377RBM5

AESOP_13-1A ABS 13-1A C144A

 
 
4

 2FE

2,063,125.00

2,024,617.80

2,000,000.00

2,020,286.85

4,330.95

(9,792.92
)


4.4200

3.4204

 Monthly
2,701.11

44,200.02

20150325
20190920
05377RBY9

AESOP_15-1A SUB ABS 15-1A B 144A

 
 
4

 2FE

1,999,207.20

1,983,087.60

2,000,000.00

1,999,526.89

(16,439.29
)
68.78



3.2200

3.2493

 Monthly
1,967.78

32,200.02

20150122
20210720



The following information was filed by Validus Holdings Ltd (VR) on Thursday, July 27, 2017 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.

 
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 June 30, 2017

Commission file number 001-33606
__________________________________________________
valirgbcroppeda05.jpg
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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
o
Non-accelerated filer
o
(Do not check if a smaller reporting company)
 
 
 
Smaller reporting company
o
 
 
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o 

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 July 31, 2017 there were 79,465,860 outstanding Common Shares, $0.175 par value per share, of the registrant.
 



INDEX
 



PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Table of Contents
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



2


Validus Holdings, Ltd.
Consolidated Balance Sheets
As at June 30, 2017 (unaudited) and December 31, 2016
(Expressed in thousands of U.S. dollars, except share and per share information)
 
June 30,
2017
 
December 31,
2016
 
(unaudited)
 
 
Assets
 
 
 
Fixed maturity investments trading, at fair value (amortized cost: 2017—$5,424,562; 2016—$5,584,599)
$
5,418,643

 
$
5,543,030

Short-term investments trading, at fair value (amortized cost: 2017—$2,871,126; 2016—$2,796,358)
2,871,353

 
2,796,170

Other investments, at fair value (cost: 2017—$416,996; 2016—$380,130)
448,618

 
405,712

Investments in investment affiliates, equity method (cost: 2017—$72,532; 2016—$84,840)
103,377

 
100,431

Cash and cash equivalents
800,405

 
419,976

Restricted cash
195,039

 
70,956

Total investments and cash
9,837,435

 
9,336,275

Premiums receivable
1,940,637

 
725,390

Deferred acquisition costs
302,857

 
209,227

Prepaid reinsurance premiums
335,837

 
77,996

Securities lending collateral
2,514

 
9,779

Loss reserves recoverable
600,207

 
430,421

Paid losses recoverable
35,675

 
35,247

Income taxes recoverable
4,763

 
4,870

Deferred tax asset
52,655

 
43,529

Receivable for investments sold
20,519

 
3,901

Intangible assets
175,518

 
115,592

Goodwill
227,701

 
196,758

Accrued investment income
26,968

 
26,488

Other assets
387,860

 
134,282

Total assets
$
13,951,146

 
$
11,349,755

Liabilities
 
 
 
Reserve for losses and loss expenses
$
3,305,191

 
$
2,995,195

Unearned premiums
1,970,896

 
1,076,049

Reinsurance balances payable
461,261

 
54,781

Securities lending payable
2,980

 
10,245

Deferred tax liability
4,012

 
3,331

Payable for investments purchased
92,077

 
29,447

Accounts payable and accrued expenses
385,958

 
587,648

Notes payable to AlphaCat investors
1,066,159

 
278,202

Senior notes payable
245,463

 
245,362

Debentures payable
538,400

 
537,226

Total liabilities
8,072,397

 
5,817,486

Commitments and contingent liabilities


 


Redeemable noncontrolling interests
1,251,660

 
1,528,001

Shareholders’ equity
 
 
 
Preferred shares (Issued and Outstanding: 2017—16,000; 2016—6,000)
400,000

 
150,000

Common shares (Issued: 2017—161,934,355; 2016—161,279,976; Outstanding: 2017—79,518,581; 2016—79,132,252)
28,339

 
28,224

Treasury shares (2017—82,415,774; 2016—82,147,724)
(14,423
)
 
(14,376
)
Additional paid-in capital
807,321

 
821,023

Accumulated other comprehensive loss
(19,924
)
 
(23,216
)
Retained earnings
3,010,118

 
2,876,636

Total shareholders’ equity available to Validus
4,211,431

 
3,838,291

Noncontrolling interests
415,658

 
165,977

Total shareholders’ equity
4,627,089

 
4,004,268

Total liabilities, noncontrolling interests and shareholders’ equity
$
13,951,146

 
$
11,349,755

The accompanying notes are an integral part of these unaudited consolidated financial statements.

3


Validus Holdings, Ltd.
Consolidated Statements of Income and Comprehensive Income
For the Three and Six Months Ended June 30, 2017 and 2016 (unaudited)
(Expressed in thousands of U.S. dollars, except share and per share information)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
(unaudited)
 
(unaudited)
Revenues
 

 
 

 
 
 
 
Gross premiums written
$
792,902

 
$
764,042

 
$
1,983,759

 
$
1,936,833

Reinsurance premiums ceded
(56,222
)
 
(36,229
)
 
(256,328
)
 
(204,064
)
Net premiums written
736,680

 
727,813

 
1,727,431

 
1,732,769

Change in unearned premiums
(105,653
)
 
(154,090
)
 
(521,028
)
 
(587,778
)
Net premiums earned
631,027

 
573,723

 
1,206,403

 
1,144,991

Net investment income
44,241

 
39,257

 
84,455

 
68,718

Net realized gains on investments
2,274

 
2,724

 
1,110

 
2,140

Change in net unrealized gains on investments
16,321

 
31,428

 
29,669

 
78,872

Income (loss) from investment affiliates
9,466

 
(589
)
 
14,654

 
(4,702
)
Other insurance related income and other income
1,339

 
824

 
2,669

 
2,237

Foreign exchange (losses) gains
(7,329
)
 
6,286

 
(5,760
)
 
12,531

Total revenues
697,339

 
653,653

 
1,333,200

 
1,304,787

Expenses
 

 
 

 
 
 
 
Losses and loss expenses
296,149

 
307,130

 
565,734

 
531,577

Policy acquisition costs
117,268

 
107,966

 
228,896

 
215,159

General and administrative expenses
96,349

 
89,688

 
184,273

 
175,896

Share compensation expenses
11,146

 
10,727

 
20,637

 
21,964

Finance expenses
14,209

 
14,166

 
28,152

 
29,369

Transaction expenses
4,427

 

 
4,427

 

Total expenses
539,548

 
529,677

 
1,032,119

 
973,965

Income before taxes, loss from operating affiliate and (income) attributable to AlphaCat investors
157,791

 
123,976

 
301,081

 
330,822

Tax benefit (expense)
987

 
(1,706
)
 
4,536

 
412

Loss from operating affiliate

 

 

 
(23
)
(Income) attributable to AlphaCat investors
(11,830
)
 
(6,114
)
 
(19,333
)
 
(10,714
)
Net income
$
146,948

 
$
116,156

 
$
286,284

 
$
320,497

Net (income) attributable to noncontrolling interests
(43,650
)
 
(21,193
)
 
(86,222
)
 
(58,724
)
Net income available to Validus
103,298

 
94,963

 
200,062

 
261,773

Dividends on preferred shares
(2,203
)
 

 
(4,406
)
 

Net income available to Validus common shareholders
$
101,095

 
$
94,963

 
$
195,656

 
$
261,773

 
 
 
 
 
 
 
 
Comprehensive income
 
 
 
 
 
 
 
Net income
$
146,948

 
$
116,156

 
$
286,284

 
$
320,497

Other comprehensive income (loss)
 

 
 

 
 
 
 
Change in foreign currency translation adjustments
1,489

 
(3,287
)
 
2,086

 
(5,315
)
Change in minimum pension liability, net of tax
1,184

 
479

 
1,252

 
396

Change in fair value of cash flow hedge
(144
)
 
64

 
(46
)
 
(694
)
Other comprehensive income (loss), net of tax
2,529

 
(2,744
)
 
3,292

 
(5,613
)
Comprehensive (income) attributable to noncontrolling interests
(43,650
)
 
(21,193
)
 
(86,222
)
 
(58,724
)
Comprehensive income available to Validus
$
105,827

 
$
92,219

 
$
203,354

 
$
256,160

 
 
 
 
 
 
 
 
Earnings per common share
 

 
 

 
 
 
 
Basic earnings per share available to Validus common shareholders
$
1.28

 
$
1.16

 
$
2.47

 
$
3.18

Earnings per diluted share available to Validus common shareholders
$
1.25

 
$
1.14

 
$
2.42

 
$
3.12

Cash dividends declared per common share
$
0.38

 
$
0.35

 
$
0.76

 
$
0.70

 
 
 
 
 
 
 
 
Weighted average number of common shares and common share equivalents outstanding:
 
 

 
 
 
 
Basic
79,270,561

 
81,950,833

 
79,202,116

 
82,386,047

Diluted
80,872,451

 
83,373,003

 
80,861,998

 
83,785,659

The accompanying notes are an integral part of these unaudited consolidated financial statements.

4


Validus Holdings, Ltd.
Consolidated Statements of Shareholders’ Equity
For the Six Months Ended June 30, 2017 and 2016 (unaudited)
(Expressed in thousands of U.S. dollars)
 
Six Months Ended June 30,
 
2017
 
2016
 
(unaudited)
Preferred shares
 
 
 
Balance, beginning of period
$
150,000

 
$

Preferred shares issued
250,000

 
150,000

Balance, end of period
$
400,000

 
$
150,000

 
 
 
 
Common shares
 

 
 

Balance, beginning of period
$
28,224

 
$
28,100

Common shares issued, net
115

 
119

Balance, end of period
$
28,339

 
$
28,219

 
 
 
 
Treasury shares
 

 
 

Balance, beginning of period
$
(14,376
)
 
$
(13,592
)
Repurchase of common shares
(47
)
 
(492
)
Balance, end of period
$
(14,423
)
 
$
(14,084
)
 
 
 
 
Additional paid-in capital
 

 
 

Balance, beginning of period
$
821,023

 
$
1,002,980

Offering expenses on preferred shares
(8,314
)
 
(5,148
)
Common shares redeemed, net
(12,076
)
 
(7,504
)
Repurchase of common shares
(13,949
)
 
(128,591
)
Share compensation expenses
20,637

 
21,964

Balance, end of period
$
807,321

 
$
883,701

 
 
 
 
Accumulated other comprehensive loss
 

 
 

Balance, beginning of period
$
(23,216
)
 
$
(12,569
)
Other comprehensive income (loss)
3,292

 
(5,613
)
Balance, end of period
$
(19,924
)
 
$
(18,182
)
 
 
 
 
Retained earnings
 

 
 

Balance, beginning of period
$
2,876,636

 
$
2,634,056

Net income
286,284

 
320,497

Net (income) attributable to noncontrolling interests
(86,222
)
 
(58,724
)
Dividends on preferred shares
(4,406
)
 

Dividends on common shares
(62,174
)
 
(59,227
)
Balance, end of period
$
3,010,118

 
$
2,836,602

 
 
 
 
Total shareholders’ equity available to Validus
$
4,211,431

 
$
3,866,256

Noncontrolling interests
$
415,658

 
$
212,154

Total shareholders’ equity
$
4,627,089

 
$
4,078,410

The accompanying notes are an integral part of these unaudited consolidated financial statements.


5


Validus Holdings, Ltd.
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2017 and 2016 (unaudited)
(Expressed in thousands of U.S. dollars)
 
Six Months Ended June 30,
 
2017
 
2016
 
(unaudited)
Cash flows provided by (used in) operating activities
 

 
 

Net income
$
286,284

 
$
320,497

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

 
 

Share compensation expenses
20,637

 
21,964

Loss on deconsolidation of AlphaCat ILS fund
402

 

Amortization of discount on senior notes
54

 
54

(Income) loss from investment affiliates
(14,654
)
 
4,702

Net realized and change in net unrealized gains on investments
(30,779
)
 
(81,012
)
Amortization of intangible assets
3,995

 
2,832

Loss from operating affiliate

 
23

Foreign exchange gains included in net income
(9,686
)
 
(6,289
)
Amortization of premium on fixed maturity investments
7,012

 
8,710

Change in:
 

 
 

Premiums receivable
(648,195
)
 
(719,070
)
Deferred acquisition costs
(97,746
)
 
(102,211
)
Prepaid reinsurance premiums
(30,684
)
 
(67,575
)
Loss reserves recoverable
(113,508
)
 
(95,429
)
Paid losses recoverable
17,500

 
(4,571
)
Reserve for losses and loss expenses
199,985

 
147,305

Unearned premiums
488,198

 
655,353

Reinsurance balances payable
111,488

 
18,610

Other operational balance sheet items, net
(137,618
)
 
(34,450
)
Net cash provided by operating activities
52,685

 
69,443

 
 
 
 
Cash flows provided by (used in) investing activities
 

 
 

Proceeds on sales of fixed maturity investments
1,632,371

 
1,376,077

Proceeds on maturities of fixed maturity investments
247,394

 
184,413

Purchases of fixed maturity investments
(1,682,609
)
 
(1,537,606
)
Purchases of short-term investments, net
(88,623
)
 
(428,040
)
Purchases of other investments, net
(33,870
)
 
(19,796
)
Decrease (increase) in securities lending collateral
7,265

 
(5,361
)
Redemption from operating affiliates

 
369

Distributions from (investments in) investment affiliates, net
11,708

 
(16,307
)
Increase in restricted cash
(124,083
)
 
(22,752
)
Purchase of subsidiary, net of cash acquired
(183,923
)
 

Net cash used in investing activities
(214,370
)
 
(469,003
)
 
 
 
 
Cash flows provided by (used in) financing activities
 

 
 

Net proceeds on issuance of notes payable to AlphaCat investors
269,645

 
294,748

Net proceeds on issuance of preferred shares
241,686

 
144,852

Redemption of common shares, net
(11,961
)
 
(7,385
)
Purchases of common shares under share repurchase program
(13,996
)
 
(129,083
)
Dividends paid on preferred shares
(4,406
)
 

Dividends paid on common shares
(63,286
)
 
(59,961
)
(Decrease) increase in securities lending payable
(7,265
)
 
5,361

Third party investment in redeemable noncontrolling interests
210,200

 
381,250

Third party redemption of redeemable noncontrolling interests
(79,334
)
 
(10,800
)
Third party investment in noncontrolling interests
258,300

 
171,674

Third party distributions of noncontrolling interests
(96,125
)
 
(127,103
)
Third party subscriptions deployed in AlphaCat Funds and Sidecars
(171,952
)
 
(411,336
)
Net cash provided by financing activities
531,506

 
252,217

Effect of foreign currency rate changes on cash and cash equivalents
10,608

 
(6,968
)
Net increase (decrease) in cash and cash equivalents
380,429

 
(154,311
)
Cash and cash equivalents - beginning of period
419,976

 
723,109

Cash and cash equivalents - end of period
$
800,405

 
$
568,798

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Taxes paid during the period
$
568

 
$
3,837

Interest paid during the period
$
27,186

 
$
27,552

The accompanying notes are an integral part of these unaudited consolidated financial statements.


6

Validus Holdings, Ltd.
Notes to the 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 Validus Holdings, Ltd.’s (the “Company”) Annual Report on Form 10-K for the year ended December 31, 2016, 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.
In the opinion of management, these unaudited 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 United States Financial Accounting Standards Board (the “FASB”).
2. Recent accounting pronouncements
Recently issued accounting standards not yet adopted
In May 2017, the FASB issued ASU 2017-09, “Compensation - Stock Compensation (Topic 718).” This ASU is directed at reducing diversity in practice when applying the accounting guidance to a change in the terms or conditions of a share-based payment award. The ASU is effective for fiscal periods beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company has evaluated the impact of this guidance and it will not have a material impact on the Company’s Consolidated Financial Statements. The Company plans to adopt this guidance on January 1, 2018.






7

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


3. Business combination
On May 1, 2017, Western World Insurance Group, Inc. (“Western World”), a wholly owned subsidiary of the Company acquired all of the outstanding capital stock of Crop Risk Services (“CRS”) for an aggregate purchase price of $185,576 in cash. CRS is a primary crop insurance managing general agent (“MGA”) based in Decatur, Illinois with 1,170 agents across 36 states. CRS does not have insurance licenses of its own, but acts solely as an MGA in that it can produce business for any properly licensed entity on a commission basis. Concurrent with closing of the transaction, Stratford Insurance Company (“Stratford”), a wholly–owned subsidiary of Western World, was granted the required license to write crop insurance in the United States and executed several agreements to transfer the related agriculture book of business to Stratford.    
The CRS acquisition was undertaken to complement the Company’s existing agricultural business and expand the Company’s presence in U.S. primary specialty lines.
For segmental reporting purposes, the results of CRS’ operations, including the related agricultural book of business have been included within the Western World segment in the Consolidated Financial Statements from the date of acquisition.
On closing, the Company recorded intangible assets totaling $63,921 for Distribution Channels, Brand Name and Technology. Distribution Channels and Brand Name were estimated to have finite useful economic lives of ten years on acquisition and are being amortized on a straight line basis over such period. Technology was estimated to have a finite useful economic life of two years on acquisition and is being amortized on a straight line basis over such a period.
The purchase price was allocated to the acquired assets and liabilities of CRS based on estimated fair values on May 1, 2017, the date the transaction closed, as detailed below. The Company recognized goodwill of $30,943 primarily attributable to CRS’s assembled workforce and synergies expected to result upon the integration of CRS and its related book of business into the Company’s operations. The estimates of fair values for tangible assets acquired and liabilities assumed were determined by management based on various market and income analyses. The Company estimated the fair values of intangible assets acquired based on variations of the income and cost approaches. Significant judgment was required to arrive at these estimates of fair value and changes to assumptions used could have led to materially different results.
The purchase of CRS was a taxable transaction and as such, goodwill and intangibles recorded at closing will be deductible for income tax purposes. The Company has recognized and recorded a deferred tax asset of $6,443 which results from the excess of tax-deductible goodwill over book goodwill as recognized in the purchase price allocation.


8

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


The fair value of net assets acquired, including GAAP adjustments, are summarized as follows:
Total purchase price
 
$
185,576

Assets acquired
 
 
Cash and cash equivalents
$
1,653

 
Premiums receivable
564,453

 
Prepaid reinsurance premiums
227,157

 
Other assets
157,146

 
Assets acquired

950,409

 
 
 
Liabilities acquired
 
 
Reinsurance balances payable
$
294,201

 
Unearned premiums
406,649

 
Net loss reserves
42,575

 
Other liabilities
122,715

 
Liabilities acquired
 
866,140

Excess purchase price
 
$
101,307

 
 
 
Goodwill and other intangible assets acquired
 
 
Intangible asset - Distribution channels
$
52,898

 
Intangible asset - Brand name
9,568

 
Intangible asset - Technology
1,455

 
Total intangible assets
63,921


Goodwill
30,943

 
Deferred tax arising on Goodwill
6,443

 
Total goodwill and intangible assets
 
$
101,307

The Company also incurred transaction expenses related to the CRS acquisition of $4,427. Transaction expenses included legal, financial advisory and audit related services.

9

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


The following tables reconcile the carrying amount of goodwill and intangible assets from December 31, 2016 to June 30, 2017:
 
 
Goodwill
 
 
Six Months Ended June 30, 2017
 
 
Talbot
 
Western World
 
Total
Balance at December 31, 2016
 
20,393

 
176,365

 
196,758

Additions
 

 
30,943

 
30,943

Balance at June 30, 2017
 
20,393

 
207,308

 
227,701

 
 
 
 
 
 
 
 
 
Intangible assets
 
 
Six Months Ended June 30, 2017
 
 
Talbot
 
Western World
 
Total
Balance at December 31, 2016
 
93,924

 
21,668

 
115,592

Additions
 

 
63,921

 
63,921

Amortization
 
(2,081
)
 
(1,914
)
 
(3,995
)
Balance at June 30, 2017
 
91,843

 
83,675

 
175,518

 
 
Intangible assets
 
 
Six Months Ended June 30, 2017
 
 
With a Finite Life
 
With an Indefinite Life
 
Total
Balance at December 31, 2016
 
11,424

 
104,168

 
115,592

Additions
 
63,921

 

 
63,921

Amortization
 
(3,995
)
 

 
(3,995
)
Balance at June 30, 2017
 
71,350

 
104,168

 
175,518

Operating results of CRS have been included in the Consolidated Financial Statements from the May 1, 2017 acquisition date.
The following selected unaudited information has been provided to present a summary of the results of CRS that have been included in the Consolidated Financial Statements for the three and six months ended June 30, 2017.
 
From Acquisition Date to
 
June 30, 2017
Net premiums written
6,988

Net premiums earned
50,044

Total underwriting deductions
44,780

Underwriting income, before general and administrative expenses
5,264


10

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


4. 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 6, “Variable interest entities,” for further details.

The Company classifies its fixed maturity and short-term investments as trading and accounts for its other investments in accordance with ASC Topic 825 “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) and fair value of the Company’s investments as at June 30, 2017 and December 31, 2016 were as follows:
 
June 30, 2017
 
December 31, 2016
 
Amortized 
Cost or Cost
 

Fair Value
 
Amortized 
Cost or Cost
 
Fair Value
Managed investments
 
 
 
 
 
 
 
U.S. government and government agency
$
649,214

 
$
646,436

 
$
809,392

 
$
804,126

Non-U.S. government and government agency
293,002

 
292,504

 
245,651

 
240,791

U.S. states, municipalities and political subdivisions
227,047

 
227,949

 
271,742

 
271,830

Agency residential mortgage-backed securities
786,784

 
783,006

 
684,490

 
679,595

Non-agency residential mortgage-backed securities
26,745

 
26,683

 
15,858

 
15,477

U.S. corporate
1,378,884

 
1,386,484

 
1,540,036

 
1,534,508

Non-U.S. corporate
380,317

 
379,480

 
418,520

 
410,227

Bank loans
560,446

 
552,901

 
579,121

 
570,399

Asset-backed securities
500,679

 
502,056

 
528,563

 
526,814

Commercial mortgage-backed securities
317,732

 
316,190

 
333,740

 
330,932

Total fixed maturities
5,120,850

 
5,113,689

 
5,427,113

 
5,384,699

Short-term investments
255,289

 
255,516

 
228,574

 
228,386

Other investments
 
 
 
 
 
 
 
Fund of hedge funds

 

 
1,457

 
955

Hedge funds
11,292

 
18,303

 
11,292

 
17,381

Private equity investments
79,871

 
100,391

 
66,383

 
82,627

Fixed income investment funds
266,041

 
268,110

 
247,967

 
249,275

Overseas deposits
57,874

 
57,874

 
50,106

 
50,106

Mutual funds
1,918

 
3,940

 
2,925

 
5,368

Total other investments
416,996

 
448,618

 
380,130

 
405,712

Investments in investment affiliates (a)
72,532

 
103,377

 
84,840

 
100,431

Total managed investments
$
5,865,667

 
$
5,921,200

 
$
6,120,657

 
$
6,119,228

Non-managed investments
 
 
 
 
 
 
 
Catastrophe bonds
$
303,712

 
$
304,954

 
$
157,486

 
$
158,331

Short-term investments
2,615,837

 
2,615,837

 
2,567,784

 
2,567,784

Total non-managed investments
2,919,549

 
2,920,791

 
2,725,270

 
2,726,115

Total investments
$
8,785,216

 
$
8,841,991

 
$
8,845,927

 
$
8,845,343

(a)
The Company’s investments in investment affiliates have been treated as equity method investments with the corresponding gains and losses recorded in
income as “Income (loss) from investment affiliates.”


11

Validus Holdings, Ltd.
Notes to the 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 maturity investments as at June 30, 2017 and December 31, 2016.
 
June 30, 2017
 
December 31, 2016
 
Fair Value
 
% of Total
 
Fair Value
 
% of Total
Managed fixed maturities
 
 
 
 
 
 
 
AAA
$
2,318,254

 
42.8
%
 
$
2,405,597

 
43.4
%
AA
463,060

 
8.5
%
 
538,289

 
9.7
%
A
1,009,366

 
18.6
%
 
1,081,949

 
19.5
%
BBB
703,563

 
13.0
%
 
740,861

 
13.4
%
Total investment grade managed fixed maturities
4,494,243

 
82.9
%
 
4,766,696

 
86.0
%
 
 
 
 
 
 
 
 
BB
229,023

 
4.2
%
 
213,568

 
3.9
%
B
176,743

 
3.3
%
 
177,737

 
3.2
%
CCC
11,114

 
0.2
%
 
13,371

 
0.2
%
NR
202,566

 
3.8
%
 
213,327

 
3.8
%
Total non-investment grade fixed maturities
619,446

 
11.5
%
 
618,003

 
11.1
%
Total managed fixed maturities
$
5,113,689

 
94.4
%
 
$
5,384,699

 
97.1
%
 
 
 
 
 
 
 
 
Non-managed fixed maturities
 
 
 
 
 
 
 
BB
28,177

 
0.4
%
 
29,731

 
0.6
%
B
2,781

 
0.1
%
 
4,524

 
0.1
%
NR
273,996

 
5.1
%
 
124,076

 
2.2
%
Total non-managed fixed maturities
304,954

 
5.6
%
 
158,331

 
2.9
%
Total fixed maturities
$
5,418,643

 
100.0
%
 
$
5,543,030

 
100.0
%

12

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


The amortized cost and fair value amounts for the Company’s fixed maturity investments held at June 30, 2017 and December 31, 2016 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.
 
June 30, 2017
 
December 31, 2016
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
Managed fixed maturities
 
 
 
 
 
 
 
Due in one year or less
$
497,473

 
$
492,256

 
$
350,733

 
$
346,161

Due after one year through five years
2,464,093

 
2,461,870

 
2,954,856

 
2,933,146

Due after five years through ten years
456,793

 
459,311

 
430,365

 
426,647

Due after ten years
70,551

 
72,317

 
128,508

 
125,927

 
3,488,910

 
3,485,754

 
3,864,462

 
3,831,881

Asset-backed and mortgage-backed securities
1,631,940

 
1,627,935

 
1,562,651

 
1,552,818

Total managed fixed maturities
$
5,120,850

 
$
5,113,689

 
$
5,427,113

 
$
5,384,699

 
 
 
 
 
 
 
 
Non-managed catastrophe bonds
 
 
 
 
 
 
 
Due in one year or less
$
33,662

 
$
32,441

 
$
43,664

 
$
45,418

Due after one year through five years
263,300

 
265,735

 
112,572

 
111,656

Due after five years through ten years
6,750

 
6,778

 
1,250

 
1,257

Due after ten years

 

 

 

Total non-managed fixed maturities
303,712

 
304,954

 
157,486

 
158,331

Total fixed maturities
$
5,424,562

 
$
5,418,643

 
$
5,584,599

 
$
5,543,030


13

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


(b)
Other investments
The following tables set forth certain information regarding the Company’s other investment portfolio as at June 30, 2017 and December 31, 2016:
 
 
June 30, 2017
 
 
Fair Value
 
Investments with redemption restrictions
 
Investments without redemption restrictions
 
Redemption frequency (a)
 
Redemption notice period (a)
Hedge funds
 
18,303

 
18,303

 

 
 
 
 
Private equity investments
 
100,391

 
100,391

 

 
 
 
 
Fixed income investment funds
 
268,110

 
237,986

 
30,124

 
Daily
 
Daily to 2 days
Overseas deposits
 
57,874

 
57,874

 

 
 
 
 
Mutual funds
 
3,940

 

 
3,940

 
Daily
 
Daily
Total other investments
 
$
448,618

 
$
414,554

 
$
34,064

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 
 
Fair Value
 
Investments with redemption restrictions
 
Investments without redemption restrictions
 
Redemption frequency (a)
 
Redemption notice period (a)
Fund of hedge funds
 
$
955

 
$
955

 
$

 
 
 
 
Hedge funds