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Validus sees rate rises after catastrophes hit profits

Bermuda-based reinsurer Validus Holdings’ full-year profit fell by 94 percent, as the firm paid out heavy catastrophe claims.

But chairman and CEO Ed Noonan said the company saw strong rate increases in short-tail lines during January renewals.

The Class of 2005 firm recorded net income of $21.3 million for 2011, compared to $402.6 million in 2010.

For the fourth quarter, the company made net income of $27.3 million, or 25 cents per share, down from $102.7 million, or 92 cents per share, for the same period in 2010.

Mr Noonan said the company was pleased to have made a profit in a year of such high catastrophe activity.

“Insured losses arising from natural catastrophes and man-made disasters were approximately $108 billion in 2011,” Mr Noonan said in a statement released with the results.

“This was the second worst year on record after 2005, the year of our formation. Despite these significant market losses, Validus was profitable in 2011 which continues our company’s record of profitability in each year of our operations despite heavy insured loss activity and financial market turbulence over the period.

He added that Validus was well positioned to capitalise on current market conditions.

“Validus’s short tail classes of business continue to experience strong positive rate movement. At January 1, we grew our gross managed reinsurance premiums by 10.7 percent,” Mr Noonan said.

“We believe that Validus Re achieved rate increases across our portfolio which exceed that of the overall market due to our commitment to pricing discipline at January 1, along with our scale and franchise value.

Talbot’s Lloyd’s operations continue to show positive rate movement, with a 2011 rate change of 3.1 percent on a risk adjusted basis across the entire portfolio. This rate movement in a specialty insurance business reflects Talbot’s size, experienced underwriting teams and skillful cycle management.”

The company reported that its collateralised third-party investment vehicle, AlphaCat Re 2011, wrote $76.1 million of gross premiums at January 1.

The company wrote more business in the fourth quarter, as gross premiums written rose $19.5 million, or 7.6 percent to $278.3 million. Gross premiums for the year were also up 6.7 percent to $2.12 billion.

Combined ratio the proportion of premium dollars spent on claims and expenses for the full year was 99.4 percent which included $156.1 million of favourable prior accident year loss reserve development, benefiting the loss ratio by 8.7 percentage points. For the quarter, it was 97.4 percent.

Underwriting income for 2011 was $11.8 million compared to $242.4 million for the year ended December 31, 2010, a decrease of $230.7 million, or 95.1 percent.

The flooding in Thailand incurred net losses and loss expenses of $55.5 million, including the impact of reinstatement premiums, as revealed by the company last month.

Validus was founded in the wake of Hurricane Katrina in 2005 and Mr Noonan said he was pleased with company’s progress since then.

“Since formation, our company has grown diluted book value per share plus accumulated dividends at an annual compounded rate of 13.3 percent,” Mr Noonan said. “I am satisfied with this outcome which is the result of world class underwriting, risk, financial and operational management throughout our global businesses.”

Validus: Maintained profitability record

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Published February 03, 2012 at 1:00 am (Updated February 03, 2012 at 6:21 am)

Validus sees rate rises after catastrophes hit profits

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