Validus Books Q4 Loss on Sandy; CEO Says 'Little Debate' on Wind Versus Water

Validus Holdings reports a fourth-quarter net loss of $90.7 million on losses tied to Superstorm Sandy—which affected its two biggest classes of business.

Fourth-quarter income in 2011 was $27.3 million.

However, net income for the 2012 full-year was $408.4 million—up from $21.3 million for all of 2011, as full-year underwriting income increased $236.9 million to $248.7 million, compared to 2011.

Fourth-quarter results include about a month of Flagstone Reinsurance Holdings’ financial results. Validus closed on its purchase of Flagstone on Nov. 30.

Fourth-quarter results were heavily impacted by $361 million in net losses and loss expenses attributed to Sandy. The storm primarily hit Validus’ two largest classes, catastrophe and marine, and drove an unprofitable combined ratio of 122.7 for the quarter.

The Pembroke, Bermuda-based insurer and reinsurer says it estimates industry losses from Sandy to exceed the highest estimation of losses provided by catastrophe modelers of $25 billion.

Validus’ Sandy loss estimate of about $333.1 million remains unchanged. During an earnings conference call, CEO Ed Noonan says personal and commercial claims are going smoothly, with “little debate over wind versus flood,” but he does expect commercial claims out of Manhattan, N.Y. to take longer to settle due to their complexity.

Continuing with Sandy-related observations, Noonan says the storm exposed “some limitations” of policy wording on deductibles, “that the market is beginning to address.”

Noonan also addressed the tendency to see an event like Sandy as a “part of some new trend.”

“I think it’s helpful to separate the probability of financial loss from the meteorology attributes of the event,” he adds. “A land-falling storm of this size in New Jersey is about a 1-in-28-year event. The storm surge associated with the high tide and full moon occurring simultaneously with a land-falling storm is a much, much more remote event.”

But Sandy wasn’t unique, Noonan says. The industry has the models to contemplate these types of storms, he says, adding that Validus disagreed with one modeler’s view of flood so the insurer uses its own models.

Noonan also told analysts on the conference call that Validus plans to buy a small crop insurer, Longhorn Re. He says crop insurance was the primary driver of strong growth in Validus’ specialty segment.

“Crop fits as a part of our portfolio and we see this as an attractive time to expand in light of last year’s loss activity,” Noon says.

In-coming CFO Jeff Sangster says short-tail crop business is attractive because it “has little or no correlation with our other big risk classes—things like hurricanes, marine [and] terrorism.”

“We see the crop business as a good long-term fit,” since it does not require a lot of capital to get a return, adds Sangster.

Comments

Resource Center

View All »

Complimentary Case Study: Helping achieve your financial goals By:...

Find out how a Special Investigation Union used TLOxp to save the company money and...

Do Your Clients Hold The Right CDL License?

Learn about the various classes of CDL Licenses and the industries that are impacted by...

Integrated Content & Communications: A Key Business Issue For Insurers

Insurers are renewing their focus on top line growth, and many are learning that growth...

High Risk Insurance Coverage in the E&S Market

Experts discuss market conditions, trends and projected growth in a rapidly changing niche.

Top E-Signature Security Requirements

This white paper covers the most important security features to look for when evaluating e-signatures...

EPLI Programs Crafted Just For Your Clients

Bring us your restaurant clients, associations and other groups and we’ll help you win more...

Is It Time To Step Up And Own An Agency?

Download this eBook for insight on how to determine if owning an agency is right...

Claims - The Good The Bad And The Ugly

Fraudulent claims cost the industry and the public thousands of dollars in losses. This article...

Leveraging BI for Improved Claims Performance and Results

If claims organizations do not avail themselves of the latest business intelligence (BI) tools, they...

Top 10 Legal Requirements for E-Signatures in Insurance

Want to make sure you’ve covered all your bases when adopting e-signatures? Learn how to...

Looking for Markets?

Search Kirschner’s Insurance Directory to help service your hard to place risks.

497 Risk Categories | 70,000 P&C Insurance Markets

kirschners
Specialty Markets Insight eNewsletter

Receive updates and analyses on hard to place and challenging coverages. Sign Up Now!

Advertisement. Closing in 15 seconds.