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

Fourth-quarter income in 2011 was $27.3 million.

However, net income for the 2012 full-year was $408.4 million—upfrom $21.3 million for all of 2011, as full-year underwritingincome increased $236.9 million to $248.7 million, compared to2011.

Fourth-quarter results include about a month of FlagstoneReinsurance Holdings' financial results. Validus closed on itspurchase of Flagstone on Nov. 30.

Fourth-quarter results were heavily impacted by $361 million innet losses and loss expenses attributed to Sandy. The stormprimarily hit Validus' two largest classes, catastrophe and marine,and drove an unprofitable combined ratio of 122.7 for thequarter.

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

Validus' Sandy loss estimate of about $333.1 million remainsunchanged. During an earnings conference call, CEO Ed Noonan sayspersonal and commercial claims are going smoothly, with “littledebate over wind versus flood,” but he does expect commercialclaims out of Manhattan, N.Y. to take longer to settle due to theircomplexity.

Continuing with Sandy-related observations, Noonan says thestorm 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 asa “part of some new trend.”

“I think it's helpful to separate the probability of financialloss from the meteorology attributes of the event,” he adds. “Aland-falling storm of this size in New Jersey is about a1-in-28-year event. The storm surge associated with the high tideand full moon occurring simultaneously with a land-falling storm isa much, much more remote event.”

But Sandy wasn't unique, Noonan says. The industry has themodels to contemplate these types of storms, he says, adding thatValidus disagreed with one modeler's view of flood so the insureruses its own models.

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

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

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

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