Fitch Affirms Validus’ Ratings, Outlook Stable

August 13, 2016

Fitch Ratings has affirmed the ratings of Bermuda-based Validus Holdings as follows: Long-Term Issuer Default Rating [IDR] at ‘A-’; Senior debt at ‘BBB+’; Junior subordinated debt at ‘BBB’; and Preferred shares at ‘BBB’.

Fitch has also affirmed the ‘A’ Insurer Financial Strength [IFS] rating of Validus Reinsurance, Ltd. [Validus Re]. The Rating Outlook is Stable.

A statement from the ratings agency said, “Validus’ ratings reflect the company’s solid operating performance and stable combined ratios, solid capitalization with a conservative premiums-to-equity ratio and modest financial leverage, and diversity in the company’s book of business. These favorable factors are partially offset by potential volatility from large catastrophe-related events and Fitch’s negative sector outlook on global reinsurance.

“Validus’ market position and size/scale is characterized as ‘Medium’ by Fitch when measured by net written premium and equity. Along with Validus’ broad product portfolio of reinsurance business, the company writes property/casualty primary specialty insurance business through subsidiaries Talbot Underwriting, Ltd. [Talbot] in the Lloyds market [Syndicate 1183] and Western World Insurance Group [Western World] in the U.S.

“Fitch views this favorably as it provides the company flexibility to deemphasize various products when market conditions are poor and reduces its dependency on any single product line. Fitch expects that Validus will continue to manage successfully through various market conditions and cycles.

“In the first half of 2016 [1H16], gross premiums written GPW increased by 5.0% over the prior year. The increase in premiums is driven by the AlphaCat and Western World segments, somewhat offset by a decrease in GPW in the Validus Re and Talbot segments. The decline in GPW at Validus Re was primarily related to property catastrophe, marine and agriculture lines, while new casualty business served to offset some of the drop in premium in 1H16.

“Profitability for Validus is strong, characterized by low and stable combined ratios and solid returns on average common equity [ROAE] as Validus has posted an underwriting profit and overall net income in every year of its operating history. The most recent five-year averages [2011 - 2015] are 82.1% and 9.6%, respectively. In 1H16, Validus posted a calendar-year combined ratio of 82.5% with an annualized ROE of 14.2%.

“Fitch observes that the company’s share of global catastrophe losses since its inception, while significant in some cases, has been manageable and catastrophe loss experience has not exceeded the company’s modelled loss estimates. Per event 1-100 and 1-250-year PMLs on an occurrence basis for the U.S. wind peril remain among the highest within Validus’ peer group at 18% and 26% of common shareholders’ equity at July 1, 2016, but remain within expectations for the current rating category.

“Validus’ financial leverage ratio [FLR] is modest at 16.2% as of June 30, 2016, down from 17% at year-end 2015. This decrease reflects a 7.5% increase in total shareholders’ equity to nearly $4.1 billion at June 30, 2016, as a result of strong net earnings in the first half [1H16].

“At mid-year 2016 Validus’ 12-month trailing net written premiums-to-equity ratio remained conservative at 0.6x, consistent with the levels reported by the company in each of the last several years. Validus’ low underwriting leverage enables the company to preserve capital during periods that include underwriting volatility.”

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