Validus Holdings, Ltd. (VR) reported fourth-quarter 2014 net operating income of $1.47 per share, outperforming the Zacks Consensus Estimate of $1.21 by 21.49% and improving 54.7% year over year. The upside was driven by strong underwriting income across the Validus Re and AlphaCat segments.
Including net realized gains on investments of 8 cents, change in net unrealized losses on investments of 82 cents, income from investment affiliate of 1 cent, foreign exchange gains of 5 cents, other loss of 2 cents, transaction expenses of 5 cents and net loss attributable to noncontrolling interest of 71 cents – Validus reported net income of $1.38 per share in the reported quarter.
Validus reported full-year 2014 net operating income of $5.03 per share down 8.5% year over year. However, results surpassed the Zacks Consensus Estimate of $4.97 per share by 1.2%.
Behind the Headlines
Net premiums earned for the reported quarter rose 13.5% to $558.7 million year over year.
Net investment income was $30.2 million, up 24.6% year over year.
Underwriting income increased 22.9% to $135.7 million year over year due to a decline in the change in unearned premiums.
Combined ratio for the fourth quarter improved by 190 basis points (bps) to 75.7% due to solid performance in the Validus Re and AlphaCat segments.
Segment Details
Validus Re: Gross premiums written were $32.7 million, significantly higher than the year-ago figure. The upside came on the back of higher marine and specialty premiums.
The combined ratio improved by 1780 bps to 51.3% year over year due to a better loss ratio, driven by favorable loss reserve development.
Talbot: Gross premiums written inched up 4.6% to $247.4 million year over year, led by increase in property premiums in the reported quarter.
The combined ratio deteriorated 100 bps to 96.8% due to deterioration in the loss ratio.
AlphaCat: Gross premiums written including PaCRe investments were $0.1 million, down 66.7% year over year in the reported quarter.
The combined ratio improved by 1130 bps to 14.3% year over year in the reported quarter due to lower loss ratio.
The ownership of Validus in various AlphaCat entities had a favorable impact on net operating income available, which came in at $8.8 million.
Western World Segment: On Oct 2, 2014, the Company acquired all the outstanding capital stocks of Western World, which is now a separate segment of the company.
Western World recorded gross premiums written worth $65.2 million and combined ratio of 89.7% for fourth-quarter 2014.
Jan 2015 Reinsurance Renewals
During the Jan 2015 renewal season, the Validus Re and AlphaCat segments underwrote $540.9 million in gross premiums written, a decrease of 6.0% from the prior-year renewal period.
Financial Update
Validus exited 2014 with cash and cash equivalents of $407.7 million, down 22.7% as of Dec 31, 2013.
Total assets of Validus increased 5.1% to $10.3 billion from 2013-end level.
Total shareholders’ equity came in at nearly $4.04 billion as of Dec 31, 2014, down 3.7% from the 2013 year-end.
Book value per share increased 9.46% to $39.66 per share as of Dec 31, 2014.
Annualized return on average equity was 13.8% and annualized net operating return on average equity was 14.2% as of Dec 31, 2014 compared to the year ago figures of 10.2% and 10.7% respectively.
Share Repurchase
In fourth-quarter 2014, Validus repurchased 5.5 million shares worth $224.4 million.
Currently, Validus carries a Zacks Rank #3 (Hold).
Performance of Other Stocks
Other players from the same sector that outpaced the Zacks Consensus Estimate in fourth-quarter earnings include Brown & Brown Inc. (BRO), RLI Corp. (RLI) and The Travelers Companies Inc. (TRV)
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