Segment information

3 Months Ended

Mar. 31, 2018

The Company conducts its operations worldwide through three reportable segments, which have been determined under ASC Topic 280 “Segment Reporting” to be Reinsurance, Insurance and Asset Management. The Company’s reportable segments are strategic business units that offer different products and services. They are managed and have capital allocated separately because each segment undertakes different strategies.

A description of each of the Company’s reportable segments and its Corporate and Investments function is as follows:

Reinsurance Segment

The Reinsurance segment operates globally and is primarily focused on treaty reinsurance within the following lines and classes of business:


•	Property: catastrophe excess of loss, per risk excess of loss, proportional and treaty;


•	Specialty - Short-tail: aerospace and aviation, agriculture, composite, marine, other specialty (including contingency, crisis management and life and accident & health), technical lines, terrorism, trade credit and workers’ compensation; and


•	Specialty - Other: casualty and financial lines of business.

Insurance Segment

The Insurance segment operates globally and focuses on specialty insurance within both the Lloyd’s and the U.S. commercial insurance markets and is focused on a wide range of insurance products within the following lines and classes of business:


•	Property: direct property and downstream energy and power;


•	Specialty - Short-tail: accident & health, agriculture, aviation, contingency, marine, and political lines (including war and political violence); and


•	Specialty - Other: financial, liability (including general liability, professional liability, products liability and miscellaneous malpractice), marine and energy, political risk and products and airports.

Asset Management Segment

The Asset Management segment leverages the Company’s underwriting and analytical expertise and earns management and performance fees primarily through the management of ILS funds and sidecars.

Corporate and Investments

The Company’s Corporate and Investments function, which includes the activities of the parent company, carries out certain functions for the group, including investment management. Corporate and Investments includes investment income on a managed basis and other non-segment expenses, predominantly general and administrative, stock compensation, finance and transaction expenses. Transaction expenses are primarily composed of legal and financial advisory services incurred in connection with the Company’s Merger with AIG. Corporate and Investments also includes the activities of certain key executives such as the Chief Executive Officer and Chief Financial Officer. For reporting purposes, Corporate and Investments is reflected separately; however, it is not considered a reportable segment under these circumstances. Other reconciling items include, but are not limited to, the elimination of certain inter segment revenues and expenses and other items that are not allocated to the reportable segments.

The following tables summarize the results of our reportable segments and “Corporate and Investments” function:



	Three Months Ended March 31,
Reinsurance Segment Information	2018			2017
Underwriting revenues
Gross premiums written	$	765,573		$	643,141
Reinsurance premiums ceded	(190,194		)	(114,446		)
Net premiums written	575,379			528,695
Change in unearned premiums	(350,627		)	(297,040		)
Net premiums earned	224,752			231,655
Other insurance related income	2			2
Total underwriting revenues	224,754			231,657
Underwriting deductions
Losses and loss expenses	103,473			80,881
Policy acquisition costs	48,340			43,535
General and administrative expenses	28,915			19,969
Share compensation expenses	2,663			2,623
Total underwriting deductions	183,391			147,008
Underwriting income	$	41,363		$	84,649

Selected ratios:
Ratio of net to gross premiums written	75.2		%	82.2		%

Losses and loss expense ratio	46.0		%	34.9		%

Policy acquisition cost ratio	21.5		%	18.8		%
General and administrative expense ratio	14.1		%	9.8		%
Expense ratio	35.6		%	28.6		%
Combined ratio	81.6		%	63.5		%



	Three Months Ended March 31,
Insurance Segment Information	2018			2017
Underwriting revenues
Gross premiums written	$	785,795		$	382,790
Reinsurance premiums ceded	(191,637		)	(79,000		)
Net premiums written	594,158			303,790
Change in unearned premiums	(294,620		)	(24,696		)
Net premiums earned	299,538			279,094
Other insurance related income	2,170			996
Total underwriting revenues	301,708			280,090
Underwriting deductions
Losses and loss expenses	183,389			186,610
Policy acquisition costs	60,057			61,192
General and administrative expenses	68,050			45,276
Share compensation expenses	2,989			3,373
Total underwriting deductions	314,485			296,451
Underwriting (loss)	$	(12,777	)	$	(16,361	)

Selected ratios:
Ratio of net to gross premiums written	75.6		%	79.4		%

Losses and loss expense ratio	61.2		%	66.9		%

Policy acquisition cost ratio	20.0		%	21.9		%
General and administrative expense ratio	23.7		%	17.4		%
Expense ratio	43.7		%	39.3		%
Combined ratio	104.9		%	106.2		%



	Three Months Ended March 31,
Asset Management Segment Information	2018			2017
Fee revenues
Third party	$	6,209		$	4,644
Related party	443			631
Total fee revenues	6,652			5,275
Expenses
General and administrative expenses	4,547			3,844
Share compensation expenses	41			82
Finance expenses	78			31
Tax (benefit)	(7		)	(1		)
Foreign exchange losses (gains)	1			(1		)
Total expenses	4,660			3,955
Income before investment income from funds and sidecars	1,992			1,320
Investment income (loss) from funds and sidecars^(a)
AlphaCat Sidecars	32			(112		)
AlphaCat ILS Funds - Lower Risk ^(b)	1,234			2,189
AlphaCat ILS Funds - Higher Risk ^(b)	3,820			2,367
BetaCat ILS Funds	186			368
Validus' share of investment income from funds and sidecars	5,272			4,812
Asset Management segment income	$	7,264		$	6,132

Gross premiums written
AlphaCat Sidecars	$	(143	)	$	66
AlphaCat ILS Funds - Lower Risk ^(b)	109,950			52,908
AlphaCat ILS Funds - Higher Risk ^(b)	165,896			93,536
AlphaCat Direct ^(c)	10,922			18,416
Total	$	286,625		$	164,926


(a)	The investment income (loss) from funds and sidecars is based on equity accounting.


(b)	Lower risk AlphaCat ILS funds have a maximum permitted portfolio expected loss of less than 7%, whereas higher risk AlphaCat ILS funds have a maximum permitted portfolio expected loss of 7% or greater. The portfolio expected loss represents the average annual loss over the set of simulation scenarios divided by the total limit.


(c)	AlphaCat Direct includes direct investments from a third party investor in AlphaCat Re.



	Three Months Ended March 31,
Corporate and Investments	2018			2017
Managed investments
Managed net investment income ^(a)	$	39,791		$	36,192
Net realized gains (losses) on managed investments ^(a)	1,142			(2,892		)
Change in net unrealized (losses) gains on managed investments ^(a)	(56,777		)	14,349
Income from investment affiliates	13,068			5,188
Total managed investment return	$	(2,776	)	$	52,837

Corporate expenses
General and administrative expenses	$	12,309		$	17,961
Share compensation expenses	4,036			3,413
Finance expenses^(a)	14,090			13,864
Dividends on preferred shares	5,828			2,203
Tax (benefit) ^(a)	(6,826		)	(3,548		)
Total Corporate expenses	$	29,437		$	33,893

Other items
Foreign exchange (losses) gains ^(a)	(3		)	1,103
Other income	44			94
Transaction expenses	(7,756		)	—
Total other items	$	(7,715	)	$	1,197
Total Corporate and Investments	$	(39,928	)	$	20,141


(a)	These items exclude the components which are included in the Asset Management segment income (loss) and amounts which are consolidated from VIEs.

The following tables reconcile the results of our reportable segments and “Corporate & Investments” function to the Consolidated results of the Company for the years indicated:



	Three Months Ended March 31, 2018
	Reinsurance Segment			Insurance Segment			Asset Management Segment and Consolidated VIEs			Corporate & Investments			Eliminations			Total
Underwriting revenues
Gross premiums written	$	765,573		$	785,795		$	286,625		$	—		$	(5,537	)	$	1,832,456
Reinsurance premiums ceded	(190,194		)	(191,637		)	—			—			5,537			(376,294		)
Net premiums written	575,379			594,158			286,625			—			—			1,456,162
Change in unearned premiums	(350,627		)	(294,620		)	(191,973		)	—			—			(837,220		)
Net premiums earned	224,752			299,538			94,652			—			—			618,942
Other insurance related income	2			2,170			28,080			—			(4,756		)	25,496
Total underwriting revenues	224,754			301,708			122,732			—			(4,756		)	644,438
Underwriting deductions
Losses and loss expenses	103,473			183,389			34,683			—			—			321,545
Policy acquisition costs	48,340			60,057			8,059			—			—			116,456
General and administrative expenses	28,915			68,050			10,208			12,309			(4,756		)	114,726
Share compensation expenses	2,663			2,989			41			4,036			—			9,729
Total underwriting deductions	183,391			314,485			52,991			16,345			(4,756		)	562,456
Underwriting income (loss)	$	41,363		$	(12,777	)	$	69,741		$	(16,345	)	$	—		$	81,982
Net investment return^(a)	—			—			12,735			(2,776		)	—			9,959
Other items^(b)	—			—			362			(20,807		)	—			(20,445		)
(Income) attributable to AlphaCat investors	—			—			(10,862		)	—			—			(10,862		)
Net (income) attributable to noncontrolling interests	—			—			(64,712		)	—			—			(64,712		)
Net income (loss) available (attributable) to Validus common shareholders	$	41,363		$	(12,777	)	$	7,264		$	(39,928	)	$	—		$	(4,078	)


(a)	Net investment return includes net investment income, net realized and change in net unrealized gains (losses) on investments and income (loss) from investment affiliates.


(b)	Other items includes finance expenses, transaction expenses, dividends on preferred shares, tax benefit (expense), foreign exchange gains (losses), income (loss) from operating affiliate and other income (loss).



	Three Months Ended March 31, 2017
	Reinsurance Segment			Insurance Segment			Asset Management Segment and Consolidated VIEs			Corporate & Investments			Eliminations			Total
Underwriting revenues
Gross premiums written	$	643,141		$	382,790		$	164,926		$	—		$	—		$	1,190,857
Reinsurance premiums ceded	(114,446		)	(79,000		)	(6,660		)	—			—			(200,106		)
Net premiums written	528,695			303,790			158,266			—			—			990,751
Change in unearned premiums	(297,040		)	(24,696		)	(93,639		)	—			—			(415,375		)
Net premiums earned	231,655			279,094			64,627			—			—			575,376
Other insurance related income	2			996			5,161			—			(4,923		)	1,236
Total underwriting revenues	231,657			280,090			69,788			—			(4,923		)	576,612
Underwriting deductions
Losses and loss expenses	80,881			186,610			2,094			—			—			269,585
Policy acquisition costs	43,535			61,192			6,901			—			—			111,628
General and administrative expenses	19,969			45,276			9,641			17,961			(4,923		)	87,924
Share compensation expenses	2,623			3,373			82			3,413			—			9,491
Total underwriting deductions	147,008			296,451			18,718			21,374			(4,923		)	478,628
Underwriting income (loss)	$	84,649		$	(16,361	)	$	51,070		$	(21,374	)	$	—		$	97,984
Net investment return ^(a)	—			—			4,749			52,837			—			57,586
Other items ^(b)	—			—			388			(11,322		)	—			(10,934		)
(Income) attributable to AlphaCat investors	—			—			(7,503		)	—			—			(7,503		)
Net (income) attributable to noncontrolling interests	—			—			(42,572		)	—			—			(42,572		)
Net income (loss) available (attributable) to Validus common shareholders	$	84,649		$	(16,361	)	$	6,132		$	20,141		$	—		$	94,561


(a)	Net investment return includes net investment income, net realized and change in net unrealized gains (losses) on investments and income (loss) from investment affiliates.


(b)	Other items includes finance expenses, transaction expenses, dividends on preferred shares, tax benefit (expense), foreign exchange gains (losses), income (loss) from operating affiliate and other income (loss).

The Company’s exposures are generally diversified across geographic zones. The following tables set forth the gross premiums written allocated to the territory of coverage exposure for the years indicated:



	Gross Premiums Written
	Three Months Ended March 31, 2018
	Reinsurance Segment		Insurance Segment		Asset Management Segment		Eliminations			Total		%
United States	$	200,174	$	560,722	$	31,023	$	(1,525	)	$	790,394	43.1	%

Worldwide excluding United States ^(a)	39,325		52,232		2,879		—			94,436		5.2	%
Australia and New Zealand	1,136		8,177		—		—			9,313		0.5	%
Europe	37,982		5,560		338		—			43,880		2.4	%
Latin America and Caribbean	6,539		18,445		—		—			24,984		1.4	%
Japan	2,100		916		431		—			3,447		0.2	%
Canada	3,735		933		—		—			4,668		0.3	%
Rest of the world ^(b)	18,298		27,220		—		—			45,518		2.5	%
Sub-total, non United States	109,115		113,483		3,648		—			226,246		12.3	%
Worldwide including United States ^(a)	118,809		26,655		248,114		(4,012		)	389,566		21.3	%
Other locations non-specific ^(c)	337,475		84,935		3,840		—			426,250		23.3	%
Total	$	765,573	$	785,795	$	286,625	$	(5,537	)	$	1,832,456	100.0	%



	Gross Premiums Written
	Three Months Ended March 31, 2017
	Reinsurance Segment		Insurance Segment		Asset Management Segment		Eliminations		Total		%
United States	$	223,928	$	190,188	$	28,203	$	—	$	442,319	37.1	%

Worldwide excluding United States ^(a)	35,208		32,538		7,035		—		74,781		6.3	%
Australia and New Zealand	789		3,174		—		—		3,963		0.3	%
Europe	31,945		8,681		466		—		41,092		3.5	%
Latin America and Caribbean	9,960		20,687		—		—		30,647		2.6	%
Japan	1,951		1,005		1,193		—		4,149		0.3	%
Canada	2,358		449		—		—		2,807		0.2	%
Rest of the world ^(b)	15,103		20,392		—		—		35,495		3.0	%
Sub-total, non United States	97,314		86,926		8,694		—		192,934		16.2	%
Worldwide including United States ^(a)	95,801		27,187		123,309		—		246,297		20.7	%
Other locations non-specific ^(c)	226,098		78,489		4,720		—		309,307		26.0	%
Total	$	643,141	$	382,790	$	164,926	$	—	$	1,190,857	100.0	%


(a)	Represents risks in two or more geographic zones.


(b)	Represents risks in one geographic zone.


(c)	The other locations non-specific category refers to business for which an analysis of exposure by geographic zone is not applicable since these exposures can span multiple geographic areas and, in some instances, are not fixed locations.

VALIDUS HOLDINGS LTD 10-Q