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Validus credits diversification for improved fourth quarter

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Pembroke, Bermuda-based Validus Holdings Ltd. posted strong fourth-quarter financial results as its efforts to diversify its business beyond the competitive reinsurance and London markets gather steam.

Validus on Thursday reported net income of $125.9 million for the fourth quarter of 2014, an increase of 32.1% over the same period a year ago. Notably, gross premiums written surged 41.9% during the fourth quarter to $336.6 million, compared with the same period in 2013. Underwriting results improved modestly as Validus recorded a combined ratio of 75.7% for the fourth quarter of 2014, compared with a combined ratio of 77.6% during the same period in 2013.

Validus Executive Vice President and Chief Financial Officer Jeffrey D. Sangster said the company's results were buoyed by its $690 million acquisition of Franklin Lakes, New Jersey-based specialty lines insurer Western World Insurance Group Inc., which was finalized in October 2014.

“Western World contributed $65.2 million of gross premiums written for the quarter,” Mr. Sangster said during a conference call discussing the results.

The acquisition of Western World gives the company a foothold in the U.S. market, enabling it to be more selective in the business it writes in the reinsurance and London markets, Validus Chairman and CEO Edward J. Noonan said, noting the company was lowering its exposures in the marine, aviation and energy sectors as excess capacity in those areas suppresses pricing.

“We feel like Western World gives us a greenfield to play on, even as prices are flattening out in the U.S. market,” Mr. Noonan said. “We feel like we don't have to write a billion dollars in business to be successful. This will allow us to pick our spots.”

Results were less favorable on a yearly basis, as gross premiums written for 2014 fell by 1.6% from 2013 to $2.36 billion. Moreover, underwriting results deteriorated slightly as the company posted a combined ratio of 73.7% for 2014, compared with 71.2% for 2013. Net income fell 9.7% in 2014 to $481.3 million.

Claims related to airplanes damaged during the fighting at the airport in Tripoli, Libya, contributed materially to losses in 2014, Mr. Sangster said. “There was loss development on the Tripoli airport loss event, which contributed $6.8 million to losses in the quarter,” he said. “The total loss impact for the year is now $ 34.9 million, and as a result is now a notable loss event.”

Going forward, the company said it would look to keep diversifying, stressing agricultural insurance and insurance-linked securities as top growth prospects, along with AlphaCat Managers Ltd., its third-party capital management and ILS unit.

“AlphaCat has added $564 million to assets under management for 2015,” Mr. Sangster said. “Validus is very pleased with the continued level of investor support for AlphaCat and is now a top 10 global ILS manager as measured by assets under management.”

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