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•	Raising approximately $1.0 billion of initial equity capital in December 2005 and underwriting $217.4 million in gross premiums written for the January 2006 renewal season;

•	Building a risk analytics staff comprised of over 50 experts, many of whom have PhDs and Masters degrees in related fields;

•	Developing Validus Capital Allocation and Pricing System (“VCAPS”), a proprietary computer-based system for modeling, pricing, allocating capital and analyzing catastrophe-exposed risks;

•	Acquiring all of the outstanding shares of Talbot Holdings Ltd. (“Talbot”) on July 2, 2007;

•	Completing an initial public offering (“IPO”) on July 30, 2007;

•	Acquiring all of the outstanding shares of IPC Holdings Ltd. (“IPC”) on September 4, 2009;

•	Acquiring all of the outstanding shares of Flagstone Reinsurance Holdings, S.A. (“Flagstone”) on November 30, 2012;

•	Acquiring all of the outstanding shares of Western World Insurance Group, Inc. (“Western World”) on October 2, 2014;

•	Successfully launching a series of AlphaCat sidecars and ILS funds beginning on May 25, 2011 and managing third party capital of $2.5 billion as at January 1, 2017;

•	Delivering an 11.6% compounded annual growth in book value per diluted common share plus accumulated dividends from formation to December 31, 2016;

•	Repurchasing approximately 80.5 million common shares for an aggregate purchase price of approximately $2,704.4 million and paying an aggregate amount of $1,175.5 million in common share dividends from formation to February 22, 2017.

•	Raising $150.0 million of additional equity capital through the issuance of preferred shares in June 2016 and paying an aggregate amount of $4.5 million in preferred dividends to February 22, 2017.

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(a)	The results of Western World have been included in the Company’s consolidated results from the October 2, 2014 date of acquisition.

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

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•	Establish the principles by which the Company can evaluate the risk/reward trade-offs associated with key strategic and tactical decisions.

•	Establish a risk governance structure that, in respect of all activities related to ERM, operates with clearly defined roles and responsibilities.

•	Establish minimum requirements that must be met by each of the Company’s segments.

•	Identify and assess all risks and causes of risks arising out of the Company’s strategic initiatives, internal processes and external environment.

•	Establish a set of responses to manage the Company’s risks within its stated risk appetite and risk tolerances.

•	Establish procedures through which near-miss and actual incidents, that either have the potential to impact or have impacted the Company, are reported and reviewed in order to inform the risk identification and assessment process.

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•	Absolute maximum limits - these are defined based on the underlying peril or coverage and include measures such as zonal aggregates, which convey the maximum contractual loss exposure.

•	Probable maximum loss - these are defined where probabilistic event sets exist for underlying perils and are established for most natural catastrophe, aviation and upstream energy coverage, and convey an extreme but likely loss exposure.

•	Realistic disaster scenarios (“RDSs”) - these are either prescribed by third parties or developed internally and convey a more intuitive view of potential loss outcomes.

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•	Lines of business that a particular underwriter is authorized to write;

•	Exposure limits by line of business;

•	Contractual exposures and limits requiring mandatory referrals; and

•	Levels of analysis to be performed by lines of business.

•	Seek high quality clients who have demonstrated superior performance over an extended period;

•	Evaluate our clients’ exposures and make adjustments where their exposure is not adequately reflected;

•	Apply the comprehensive knowledge and experience of our entire underwriting team to make progressive and cohesive decisions about the business they underwrite; and

•	Employ our well-founded and carefully maintained market contacts within the Company to enhance our robust distribution capabilities.

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Ceding companies may often report insufficient data and many reinsurers may not be sufficiently critical in their analysis of this data. The Company generally scrutinizes data for anomalies that may indicate insufficient data quality. These circumstances are addressed by either declining the program or, if the variances are manageable, by modifying the model inputs and outputs, and ultimately, pricing to reflect insufficient data quality;

•	Performing independent checks on the accuracy of reported building characteristics through third-party tools and the use of licensed data sources;

•	Prior to making overall adjustments for changes in variable metrics, the Company carefully examines the adjustment against the latest scientific studies and technology available to ensure its impact to the business is thoroughly evaluated before adopting it into its systems; and

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•	To properly quantify risk, the Company frequently adjusts vendor models in advance of their updates based on the latest scientific studies and claims data from recent events.

•

VCAPS takes into account annual limits, event/franchise/annual aggregate deductibles, and reinstatement premiums. This allows for more accurate evaluation of treaties with a broad range of features, including both common (reinstatement premium and annual limits) and complex features (second or third event coverage, aggregate excess of loss, attritional loss components, covers with varying attachment across different geographical zones or lines of businesses and covers with complicated structures); and

•	VCAPS use of 100,000-year simulations enables robust pricing of catastrophe-exposed business. This is possible in real-time operation because the Company has designed a computing hardware platform and software environment to accommodate the significant computing needs.

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•	budgeted underwriting activity for the coming year;

•	loss experience from prior years;

•	loss information from the coming year’s individual capital assessment calculations;

•	expected changes to risk limits and aggregation limits and any other changes to Talbot’s risk tolerance;

•	scenario planning;

•	changes to capital requirements; and

•	RDSs prescribed by Lloyd’s.

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•	Communicate and align the Company’s investment philosophy and goals;

•	Provide transparency regarding investment policies, procedures and controls;

•	Set expectations and priorities of our third party investment managers;

•	Establish a framework for integrating investment management into our overall ERM process;

•	Mandate our investment parameters, including permissible asset classes and portfolio constraints, and governance structure for portfolio oversight and management;

•	Establish formalized criteria to measure, monitor, and evaluate investment performance and risk exposures on a regular basis; and

•	Ensure assets are invested in accordance with the overall financial goals and risk tolerances of the Company.

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•	Allied World Assurance Company Holdings, Limited., Arch Capital Group, Limited., Argo Group International Holdings, Ltd., Aspen Insurance Holdings Limited, AXIS Capital Holdings Limited, Endurance Specialty Holdings Ltd., Everest Re Group Limited and RenaissanceRe Holdings Ltd.;

•	MS Amlin plc, Beazley plc, Brit plc, Hiscox Ltd., Novae Group plc and others in the Lloyd’s market;

•	Scottsdale Insurance Company, Burlington Insurance Company, Nautilus Insurance Company, Essex Insurance Company, Penn-America Group, Inc., Colony Specialty Insurance Company, RSUI Group, Inc., and others in the U.S. excess and surplus market;

•	Asset managers and reinsurers who provide collateralized reinsurance and retrocessional coverage;

•	Treaty and direct insurers, in not only the London but also the global market, that compete with Lloyd’s on a worldwide basis;

•	Various capital markets participants who access insurance and reinsurance business in securitized form, including through special purpose entities or derivative transactions; and

•	Government-sponsored insurers and reinsurers.

•	premiums charged and other terms and conditions offered;

•	services provided;

•	financial ratings assigned by independent rating agencies;

•	speed of claims payment;

•	reputation;

•	perceived financial strength; and

•	the experience of the underwriter in the line of insurance or reinsurance written.

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•	integrating financial and operational reporting systems;

•	integration into new geographical regions;

•	establishing satisfactory budgetary and other financial controls;

•	funding increased capital needs and overhead expenses;

•	retaining management personnel required for existing operations;

•	obtaining management personnel required for expanded operations;

•	obtaining necessary regulatory permissions;

•	funding cash flow shortages that may occur if anticipated revenues are not realized or are delayed, whether by general economic or market conditions or unforeseen internal difficulties;

•	the value of assets related to acquisitions or new ventures may be lower than expected or may diminish due to credit defaults or changes in interest rates and liabilities assumed may be greater than expected;

•	the assets and liabilities related to acquisitions or new ventures may be subject to foreign currency exchange rate fluctuation; and

•	financial exposures in the event that the sellers of the entities we acquire are unable or unwilling to meet their indemnification, reinsurance and other obligations to us.

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(a)	Share transactions are on a trade date basis through February 22, 2017 and are inclusive of commissions. Average share price is rounded to two decimal places.

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(a)	The gain on bargain purchase, net of expenses, arose from the acquisition of Flagstone on November 30, 2012 and is net of transaction related expenses.

(b)	Transaction expenses incurred during 2014 relate to the acquisition of Western World. Transaction expenses are primarily comprised of legal, financial advisory and audit related services.

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(a)	The losses and loss expense ratio is calculated by dividing losses and loss expenses by net premiums earned.

(b)	The policy acquisition cost ratio is calculated by dividing policy acquisition costs by net premiums earned.

(c)	The general and administrative expense ratio is calculated by dividing the sum of general and administrative expenses and share compensation expenses by net premiums earned.

(d)	The expense ratio is calculated by combining the policy acquisition cost ratio and the general and administrative expense ratio.

(e)	The combined ratio is calculated by combining the losses and loss expense ratio, the policy acquisition cost ratio and the general and administrative expense ratio.

(f)	Return on average equity is calculated by dividing the net income available to Validus common shareholders for the period by the average of the beginning, ending and intervening quarter end shareholders’ equity available to Validus common shareholders balances.

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(a)	Book value per common share is defined as total shareholders’ equity available to Validus common shareholders divided by the number of common shares outstanding as at the end of the period, giving no effect to dilutive securities.

(b)

Book value per diluted common share is calculated based on total shareholders’ equity available to Validus common shareholders plus the assumed proceeds from the exercise of outstanding options and warrants, divided by the sum of common shares, unvested restricted shares and options and warrants outstanding (assuming their exercise). Book value per diluted common share is a non-GAAP financial measure, which are described in the section entitled “Non-GAAP Financial Measures.”

(c)

Tangible book value per common share is defined as total shareholders’ equity available to Validus common shareholders, less goodwill and other intangible assets, divided by the number of common shares outstanding as at the end of the period, giving no effect to dilutive securities. Tangible book value per common share is a non-GAAP financial measure, which are described in the section entitled “Non-GAAP Financial Measures.”

(d)

Tangible book value per diluted common share is calculated based on total shareholders’ equity available to Validus common shareholders, less goodwill and other intangible assets, plus the assumed proceeds from the exercise of outstanding options and warrants, divided by the sum of common shares, unvested restricted shares and options outstanding and warrants (assuming their exercise). Tangible book value per diluted common share is a non-GAAP financial measure, which are described in the section entitled “Non-GAAP Financial Measures.”

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(a)	The renewal data above does not include intercompany eliminations between Validus Re and Talbot.

(a)	These are non-GAAP financial measures which are described in the section entitled “Non-GAAP Financial Measures.”

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(a)	This is a non-GAAP financial measure which is described in the section entitled “Non-GAAP Financial Measures.”

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(a)	Non-GAAP Financial Measures. In presenting the Company’s results, management has included and discussed underwriting income and operating income that are not calculated under standards or rules that comprise U.S. GAAP. Such measures are referred to as non-GAAP. Further discussion of these measures is presented in the section entitled “Non-GAAP Financial Measures.”

(b)	The general and administrative expense ratio includes share compensation expenses.

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•	Gross premiums written for the three months ended December 31, 2016 were $339.5 million compared to $309.6 million for the three months ended December 31, 2015, an increase of $29.8 million, or 9.6%. The increase was primarily driven by increases in the Validus Re and Western World segments and was partially offset by decreases in the Talbot and AlphaCat segments.

•	Underwriting revenues for the three months ended December 31, 2016 were $541.0 million compared to $544.3 million for the three months ended December 31, 2015, a decrease of $3.3 million or 0.6%.

•	Losses and loss expenses for the three months ended December 31, 2016 were $275.1 million compared to $214.7 million for the three months ended December 31, 2015, an increase of $60.4 million or 28.1%. The increase was primarily driven by an increase in notable loss events during the three months ended December 31, 2016.

•	The Company defines a notable loss event as an event whereby consolidated net losses and loss expenses aggregate to a threshold greater than or equal to $30.0 million. The Company defines a non-notable loss event as an event whereby consolidated net losses and loss expenses aggregate to a threshold greater than or equal to $15.0 million but less than $30.0 million.

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There were no non-notable loss events occurring during the three months ended December 31, 2016. There were no notable or non-notable loss events occurring during the three months ended December 31, 2015. Losses and loss expenses incurred from notable loss events during the three months ended December 31, 2016 included losses and loss expenses from the fourth quarter 2016 notable loss events, Hurricane Matthew and the 2016 New Zealand earthquake, and were partially offset by a reduction on the second quarter 2016 notable loss event, the Canadian Wildfires, as follows:

•	For the three months ended December 31, 2016, losses and loss expenses from notable loss events were $52.3 million, or 9.7 percentage points of the loss ratio. Net of losses attributable to AlphaCat investors and noncontrolling interests of $15.3 million and reinstatement premiums of $0.7 million, the net loss attributable to the Company from these events was $36.3 million.

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The loss ratio for the three months ended December 31, 2016 was 50.9%, which included $46.8 million of favorable loss reserve development on prior accident years, benefiting the loss ratio by 8.7 percentage points compared to a loss ratio for the three months ended December 31, 2015 of 39.5%, which included $58.1 million of favorable loss reserve development on prior accident years, benefiting the loss ratio by 10.7 percentage points. The favorable loss reserve development on prior accident years of $46.8 million was primarily due to favorable development on attritional losses of $41.5 million and favorable development on events of $5.3 million. The favorable loss reserve development on prior accident years of $58.1 million was primarily due to favorable development of attritional losses of $48.1 million and favorable development on events of $10.0 million. The term “events” refers to aggregate notable and non-notable losses incurred.

•	The combined ratio for the three months ended December 31, 2016 was 89.6% compared to 78.3% for the three months ended December 31, 2015, an increase of 11.3 percentage points.

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•	Loss ratios by line of business for the three months ended December 31, 2016 and 2015 were as follows:

•	Policy acquisition costs for the three months ended December 31, 2016 were $120.9 million compared to $102.3 million for the three months ended December 31, 2015, an increase of $18.6 million or 18.2%. The increase was primarily driven by an increase in the Validus Re segment as a result of profit commissions on agriculture business.

•	General and administrative expenses for the three months ended December 31, 2016 were $78.0 million compared to $98.6 million for the three months ended December 31, 2015, a decrease of $20.6 million or 20.9%. The decrease was primarily driven by a decrease in the performance bonus accrual.

•	Underwriting income for the three months ended December 31, 2016 was $56.5 million compared to $118.6 million for the three months ended December 31, 2015, a decrease of $62.1 million or 52.3% primarily as a result of the changes in underwriting revenues and deductions described above.

•	Net operating income available to Validus common shareholders for the three months ended December 31, 2016 was $64.3 million compared to $105.4 million for the three months ended December 31, 2015, a decrease of $41.1 million, or 39.0%.

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(a)	Non-GAAP Financial Measures. In presenting the Company’s results, management has included and discussed underwriting income that is not calculated under standards or rules that comprise U.S. GAAP. Such measures are referred to as non-GAAP. Further discussion of these measures is presented in the section entitled “Non-GAAP Financial Measures.”

(b)	The general and administrative expense ratio includes share compensation expenses.

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Gross premiums written for the three months ended December 31, 2016 were $38.8 million compared to $14.3 million for the three months ended December 31, 2015, an increase of $24.5 million, or 170.6%. Gross premiums written for the three months ended December 31, 2016 included $10.5 million of property premiums, $(4.2) million of marine premiums and $32.5 million of specialty premiums, compared to $15.6 million of property premiums, $(0.7) million of marine premiums and $(0.5) million of specialty premiums for the three months ended December 31, 2015. The increase in the specialty lines of $33.0 million was primarily driven by new casualty business of $24.9 million and growth in the financial lines of $9.3 million. Partially offsetting this increase were decreases in the property and marine lines of $5.0 million and $3.5 million, respectively.

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The loss ratio for the three months ended December 31, 2016 was 43.7%, which included $28.9 million of favorable loss reserve development on prior accident years, benefiting the loss ratio by 12.9 percentage points compared to a loss ratio for the three months ended December 31, 2015 of 43.3%, which included $22.6 million of favorable loss reserve development on prior accident years, benefiting the loss ratio by 9.7 percentage points. The loss ratio for the three months ended December 31, 2016 included losses on fourth quarter 2016 notable loss events of $32.5 million, or 14.4 percentage points of the loss ratio. Partially offsetting these losses was a reduction on the second quarter 2016 notable loss event, the Canadian Wildfires, of $12.0 million, benefiting the loss ratio by 5.3 percentage points, for total notable losses of $20.5 million or 9.1 percentage points of the loss ratio. The favorable development of $28.9 million on prior accident years for the three months ended December 31, 2016 was primarily due to favorable development on attritional losses of $24.3 million and favorable development on events of $4.6 million.

•	Policy acquisition costs for the three months ended December 31, 2016 were $53.4 million compared to $37.5 million for the three months ended December 31, 2015, an increase of $15.9 million or 42.4%. The increase was primarily driven by an increase in the specialty lines as a result of profit commissions on agriculture business.

•	The combined ratio for the three months ended December 31, 2016 was 77.6% compared to 69.3% for the three months ended December 31, 2015, an increase of 8.3 percentage points.

•	Underwriting income for the three months ended December 31, 2016 was $50.3 million compared to $71.3 million for the three months ended December 31, 2015, a decrease of $21.1 million, or 29.5%.

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(a)	Non-GAAP Financial Measures. In presenting the Company’s results, management has included and discussed underwriting income that is not calculated under standards or rules that comprise U.S. GAAP. Such measures are referred to as non-GAAP. Further discussion of these measures is presented in the section entitled “Non-GAAP Financial Measures.”

(b)	The general and administrative expense ratio includes share compensation expenses.

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Gross premiums written for the three months ended December 31, 2016 were $218.6 million compared to $229.7 million for the three months ended December 31, 2015, a decrease of $11.0 million, or 4.8%. Gross premiums written for the three months ended December 31, 2016 included $71.4 million of property premiums, $39.6 million of marine premiums and $107.6 million of specialty premiums compared to $73.9 million of property premiums, $60.6 million of marine premiums and $95.1 million of specialty premiums for the three months ended December 31, 2015. The decrease in the marine lines of $21.0 million was primarily driven by decreases in the upstream energy and cargo classes as a result of reductions in our participation and non-renewals on various programs due to the current rate environment and premium adjustments on prior year policies. This decrease was partially offset by an increase in gross premiums written in the specialty lines of $12.5 million, primarily due to increases in the contingency, political lines and financial lines classes of $10.0 million, $7.6 million and $4.1 million, respectively.

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Net premiums earned for the three months ended December 31, 2016 were $174.5 million compared to $203.9 million for the three months ended December 31, 2015, a decrease of $29.4 million or 14.4%. The decrease was driven primarily by the decline in gross premiums written in the marine lines and slower earnings patterns on longer-term contracts in the specialty lines during the twelve months ended December 31, 2016. Also contributing to the decrease was the impact of reinstatement premiums payable during the three months ended December 31, 2016.

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The loss ratio for the three months ended December 31, 2016 was 60.6%, which included $16.1 million of favorable loss reserve development on prior accident years, benefiting the loss ratio by 9.2 percentage points compared to a loss ratio for the three months ended December 31, 2015 of 38.6%, which included $23.1 million of favorable loss reserve development on prior accident years, benefiting the loss ratio by 11.3 percentage points. The loss ratio for the three months ended December 31, 2016 included losses on fourth quarter 2016 notable loss events of $14.6 million, or 8.4 percentage points of the loss ratio. Partially offsetting these losses was a reduction on the second quarter 2016 notable loss event, the Canadian Wildfires, of $2.2 million, benefiting the loss ratio by 1.3 percentage points, for total notable losses of $12.4 million or 7.1 percentage points of the loss ratio. The favorable development of $16.1 million on prior accident years for the three months ended December 31, 2016 is primarily due to favorable development on attritional losses.

•	General and administrative expenses for the three months ended December 31, 2016 were $24.6 million compared to $40.0 million for the three months ended December 31, 2015, a decrease of $15.4 million, or 38.6%. The decrease was primarily due to the impact of foreign exchange and a reduction in the performance bonus accrual.

•	The combined ratio for the three months ended December 31, 2016 was 100.9% compared to 82.5% for the three months ended December 31, 2015, an increase of 18.4 percentage points.

•	Underwriting loss for the three months ended December 31, 2016 was $1.4 million compared to income of $36.1 million for the three months ended December 31, 2015, a decrease of $37.5 million, or 104.0%.

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(a)	Non-GAAP Financial Measures. In presenting the Company’s results, management has included and discussed underwriting income that is not calculated under standards or rules that comprise U.S. GAAP. Such measures are referred to as non-GAAP. Further discussion of these measures is presented in the section entitled “Non-GAAP Financial Measures.”

(b)	The general and administrative expense ratio includes share compensation expenses.

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Gross premiums written for the three months ended December 31, 2016 were $87.0 million compared to $71.1 million for the three months ended December 31, 2015, an increase of $15.9 million, or 22.3%. Gross premiums written for the three months ended December 31, 2016 included $29.0 million of property premiums and $58.0 million of liability premiums, compared to $13.9 million of property premiums and $57.2 million of liability premiums for the three months ended December 31, 2015. The increase in gross premiums written in the property lines of $15.2 million was primarily due to additional business written in the programs property, commercial package property, and brokerage property classes of $5.6 million, $3.9 million, and $3.1 million, respectively, as a result of the continued build out of the underwriting platform in short-tail lines.

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The loss ratio for the three months ended December 31, 2016 was 72.0%, which included $0.6 million of favorable loss reserve development on prior accident years, benefiting the loss ratio by 0.9 percentage points compared to a loss ratio for the three months ended December 31, 2015 of 54.7%, which included $7.3 million of favorable loss reserve development on prior accident years, benefiting the loss ratio by 11.9 percentage points. The loss ratio for the three months ended December 31, 2016 included losses on fourth quarter 2016 notable loss events of $3.4 million, or 4.5 percentage points of the loss ratio and other U.S.-based weather losses of $2.8 million, or 3.7 percentage points of the loss ratio. The favorable development of $7.3 million on prior accident years for the three months ended December 31, 2015 is primarily due to favorable development on attritional losses and the amortization of the risk premium adjustment accounted for at the time of the acquisition of Western World.

•	The combined ratio for the three months ended December 31, 2016 was 109.2% compared to 94.3% for the three months ended December 31, 2015, an increase of 14.9 percentage points. The increase was driven by lower favorable development on prior accident years and higher losses and loss expenses on notable loss events and U.S.-based weather losses during the three months ended December 31, 2016.

•	Underwriting loss for the three months ended December 31, 2016 was $6.7 million compared to income of $3.8 million for the three months ended December 31, 2015, a decrease of $10.5 million.

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(a)	In presenting the Company’s results, management has included and discussed the results of AlphaCat, which are presented on an asset manager basis. Validus’ share of AlphaCat income is a non-GAAP measure and is not calculated under standards or rules that comprise U.S. GAAP. Further discussion of these measures is presented in the section entitled “Non-GAAP Financial Measures.”

(b)	The investment income from the AlphaCat funds and sidecars is based on equity accounting.

(c)	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 greater than 7%. Expected loss represents the average annual loss over the set of simulation scenarios divided by the total limit.

(d)	AlphaCat Direct includes direct investments from third party investors in AlphaCat Re.

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•	AlphaCat’s assets under management increased during the fourth quarter 2016 to $2,741.3 million as at January 1, 2017, compared to $2,615.1 million as at October 1, 2016. Third party assets under management were $2,498.6 million as at January 1, 2017, compared to $2,292.6 million as at October 1, 2016.

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Revenues earned for the three months ended December 31, 2016 were $4.7 million, of which $3.9 million were earned from third parties, compared to $6.3 million for the three months ended December 31, 2015, of which $5.0 million were earned from third parties. The decrease in revenues earned from third parties of $1.1 million was driven by a decrease in performance fees earned as a result of the notable loss events incurred during the three months ended December 31, 2016.

•	Total expenses for the three months ended December 31, 2016 were $2.9 million, compared to $3.4 million for the three months ended December 31, 2015, a decrease of $0.5 million, or 15.7%.

•	Income before investment income from AlphaCat Funds and Sidecars for the three months ended December 31, 2016 was $1.8 million, compared to $2.9 million for the three months ended December 31, 2015, a decrease of $1.1 million, or 38.0%.

•	Investment income from AlphaCat Funds and Sidecars, excluding PaCRe which was off-risk effective January 1, 2016, for the three months ended December 31, 2016 was $4.5 million, compared to $5.9 million for the three months ended December 31, 2015, a decrease of $1.4 million or 23.9%. The decrease was driven by the notable loss events incurred during the three months ended December 31, 2016.

•	Validus’ share of AlphaCat income, excluding PaCRe, for the three months ended December 31, 2016 was $6.3 million, compared to $8.8 million for the three months ended December 31, 2015, a decrease of $2.5 million, or 28.5%.

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(a)	These items exclude the components which are included in the Company’s share of AlphaCat and amounts which are consolidated from VIEs.

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Net investment income from managed investments for the three months ended December 31, 2016 was $35.9 million compared to $29.9 million for the three months ended December 31, 2015, an increase of $6.0 million, or 20.0%. The increase was primarily driven by returns on the Company’s portfolio of structured securities, of which $4.0 million was generated from a single fixed income fund. Annualized effective yield for the three months ended December 31, 2016 was 2.25%, compared to 1.90% for the three months ended December 31, 2015, an increase of 35 basis points.

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Net realized gains on managed investments for the three months ended December 31, 2016 were $9.2 million compared to losses of $3.4 million for the three months ended December 31, 2015, a favorable movement of $12.5 million. The favorable movement primarily resulted from realized gains on the termination of two interest rate swap contracts which were entered into in the third quarter of 2016 to partially offset the impact of interest rate increases on the Company’s fixed maturity portfolio.

•	The change in net unrealized losses on managed investments for the three months ended December 31, 2016 was $67.7 million compared to $34.5 million for the three months ended December 31, 2015, an unfavorable movement of $33.2 million, or 96.1%. The unfavorable movement was primarily driven by an increase in interest rates during the three months ended December 31, 2016.

•	General and administrative expenses for the three months ended December 31, 2016 were $20.0 million compared to $24.2 million for the three months ended December 31, 2015, a decrease of $4.2 million or 17.5% primarily due to a reduction in the performance bonus accrual during the three months ended December 31, 2016.

•	Share compensation expenses for the three months ended December 31, 2016 were $3.9 million compared to $3.5 million for the three months ended December 31, 2015, an increase of $0.4 million or 10.1%.

•	Finance expenses, excluding the Company’s share of AlphaCat finance expenses from consolidated variable interest entities, for the three months ended December 31, 2016 were $14.5 million compared to $15.4 million for the three months ended December 31, 2015, a decrease of $0.9 million or 5.8%.

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•	The Company issued $150.0 million of preferred shares in June 2016. Dividends paid on preferred shares were $2.2 million for the three months ended December 31, 2016.

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Tax benefit for the three months ended December 31, 2016 was $21.2 million compared to $0.8 million for the three months ended December 31, 2015, a favorable movement of $20.5 million. The favorable movement was primarily due to a partial release of a valuation allowance which had been applied against a deferred tax asset related to net operating losses acquired as part of the Flagstone acquisition. The Company believes it is now more-likely-than-not that it will have sufficient future taxable income to realize a portion of that deferred tax asset over the next three years and in accordance with U.S. GAAP, the Company was required to record a tax benefit of $18.4 million in the quarter.

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(a)	Non-GAAP Financial Measures. In presenting the Company’s results, management has included and discussed underwriting income and operating income that are not calculated under standards or rules that comprise U.S. GAAP. Such measures are referred to as non-GAAP. Further discussion of these measures is presented in the section entitled “Non-GAAP Financial Measures.”

(b)	The general and administrative expense ratio includes share compensation expenses.

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•	Gross premiums written for the year ended December 31, 2016 were $2,648.7 million compared to $2,557.5 million for the year ended December 31, 2015, an increase of $91.2 million, or 3.6%. The increase in gross premiums written was primarily driven by an increase in the AlphaCat and Western World segments and was partially offset by a decrease in the Validus Re and Talbot segments.

•	Gross premiums written for the year ended December 31, 2015 were $2,557.5 million compared to $2,358.9 million for the year ended December 31, 2014, an increase of $198.6 million, or 8.4%. The increase in gross premiums written was primarily driven by an increase in the Western World, AlphaCat and Validus Re segments and was partially offset by a decrease in the Talbot segment.

•	Underwriting revenues for the years ended December 31, 2016, 2015 and 2014 were $2,252.1 million, $2,253.0 million, and $1,996.5 million, respectively.

•	Losses and loss expenses for the years ended December 31, 2016, 2015 and 2014 were $1,065.1 million, $977.8 million and $765.0 million, respectively.

•

For the year ended December 31, 2016, losses and loss expenses from the three notable loss events were $90.2 million, or 4.0 percentage points of the loss ratio. Net of losses attributable to AlphaCat investors and noncontrolling interests of $21.7 million and reinstatement premiums of $4.3 million, the net loss attributable to the Company from these notable loss events was $64.2 million. Losses and loss expenses from the four non-notable loss events were $70.2 million, or 3.1 percentage points of the loss ratio. Net of losses attributable to AlphaCat investors and noncontrolling interests of $5.6 million and reinstatement premiums of $12.6 million, the net loss attributable to the Company from these non-notable loss events was $52.0 million.

•	For the year ended December 31, 2015, losses and loss expenses from the two notable loss events were $97.0 million, or 4.3 percentage points of the loss ratio. Net of reinstatement premiums of $1.8 million, the net loss attributable to the Company

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•

For the year ended December 31, 2014, losses and loss expenses from a single notable loss event were $34.9 million, or 1.8 percentage points of the loss ratio. Net of reinstatement premiums of $3.8 million, the net loss attributable to the Company from this notable loss event was $31.1 million. Losses and loss expenses from the two non-notable loss events were $34.7 million, or 1.7 percentage points of the loss ratio. Net of reinstatement premiums of $2.7 million, the net loss attributable to the Company from these non-notable loss events was $32.0 million.

•	Loss reserve development on prior years was as follows:

•	Loss ratios by line of business were as follows:

•	Policy acquisition costs for the years ended December 31, 2016, 2015 and 2014 were $449.5 million, $410.1 million and $339.5 million, respectively.

•	General and administrative expenses for the years ended December 31, 2016, 2015 and 2014 were $336.3 million, $363.7 million and $329.4 million, respectively.

•	Underwriting income for the years ended December 31, 2016, 2015 and 2014 was $358.3 million, $463.1 million and $529.6 million, respectively.

•	Net operating income available to Validus common shareholders for the years ended December 31, 2016, 2015 and 2014 was $319.2 million, $409.7 million and $480.8 million, respectively.

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(a)	Non-GAAP Financial Measures. In presenting the Company’s results, management has included and discussed underwriting income that is not calculated under standards or rules that comprise U.S. GAAP. Such measures are referred to as non-GAAP. Further discussion of these measures is presented in the section entitled “Non-GAAP Financial Measures.”

(b)	The general and administrative expense ratio includes share compensation expenses.

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•	Gross premiums written for the year ended December 31, 2016 were $1,111.1 million compared to $1,126.8 million for the year ended December 31, 2015, a decrease of $15.7 million, or 1.4%. The decrease in gross premiums written was primarily driven by:

◦	A decrease in gross premiums written in the property lines of $74.4 million, primarily due to a reduction in business written in the catastrophe excess of loss lines driven by reductions in participation on various programs due to market conditions; and

◦	A decrease in gross premiums written in the marine lines of $47.0 million, primarily due to reductions in participation on various programs as a result of challenging market conditions and business historically written in marine lines being renewed in specialty lines; partially offset by

◦	An increase in gross premiums written in the specialty lines of $105.7 million, primarily due to new casualty lines written during the period of $79.0 million and business historically written in marine lines being renewed in specialty lines.

•	Reinsurance premiums ceded for the year ended December 31, 2016 were $111.6 million compared to $149.1 million for the year ended December 31, 2015, a decrease of $37.5 million, or 25.2%. The decrease was primarily due to a reduction in the costs associated with the Company’s main proportional retrocession program during the year ended December 31, 2016.

•

Net premiums earned for the year ended December 31, 2016 were $943.9 million compared to $990.2 million for the year ended December 31, 2015, a decrease of $46.3 million, or 4.7%. The decrease was driven by decreases in the property and marine lines of $32.3 million and $36.4 million, respectively, as a result of lower gross premiums written during the year ended December 31, 2016, offset by the earned impact of the reduction in reinsurance premiums ceded and was partially offset by an increase in net premiums earned in the specialty lines of $22.4 million, primarily due to the increase in gross premiums written as noted above, the impact of reinstatement premiums and adjustments to existing business.

•

Losses and loss expenses for the year ended December 31, 2016 were $411.5 million compared to $458.0 million for the year ended December 31, 2015, a decrease of $46.5 million or 10.2%. The decrease was primarily as a result of lower losses and loss expenses from attritional losses and notable loss events during the year ended December 31, 2016 and was partially offset by higher losses and loss expenses from non-notable loss events.

◦

The loss ratio for the year ended December 31, 2016 was 43.6%, which included $118.5 million of favorable loss reserve development on prior accident years, benefiting the loss ratio by 12.6 percentage points compared to a loss ratio for the year ended December 31, 2015 of 46.2% which included $128.6 million of favorable loss reserve development on prior accident years, benefiting the loss ratio by 13.0 percentage points.

◦	During the year ended December 31, 2016, there were three notable loss events and four non-notable loss events that impacted Validus Re as set out in the table below:

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◦	During the year ended December 31, 2015, there were two notable loss events and one non-notable loss event that impacted Validus Re as set out in the table below:

◦

For the year ended December 31, 2016, losses and loss expenses from three notable loss events, the Canadian Wildfires, Hurricane Matthew and the 2016 New Zealand Earthquake were $38.4 million, or 4.1 percentage points of the loss ratio. Net of reinstatement premiums of $3.9 million, these events resulted in an aggregate reduction of underwriting income of $34.5 million. The losses and loss expenses of the 2016 notable loss events by line of business were as follows:

◦

For the year ended December 31, 2015, losses and loss expenses from two notable loss events, Tianjin and Pemex, were $72.5 million, or 7.3 percentage points of the loss ratio. Net of reinstatement premiums of $12.1 million, these events resulted in an aggregate reduction of underwriting income of $60.4 million. The losses and loss expenses of the 2015 notable loss events by line of business were as follows:

◦

For the year ended December 31, 2016, losses and loss expenses incurred from the 2016 non-notable loss events, the Texas Hailstorms, Kumamoto Earthquake, Jubilee Oil and SpaceX, were $42.8 million, or 4.5 percentage points of the loss ratio. Net of reinstatement premiums of $12.4 million, these events resulted in an aggregate reduction of underwriting income of $30.4 million. The losses and loss expenses of the 2016 non-notable loss events by line of business were as follows:

◦	For the year ended December 31, 2015, losses and loss expenses from the 2015 Chilean Earthquake non-notable loss event were $17.6 million, or 1.8 percentage points of the loss ratio, and related primarily to Validus Re’s property lines. Net of reinstatement premiums of $2.2 million, this event resulted in an aggregate reduction of underwriting income of $15.4 million.

•	Loss reserve development by line of business for the years ended December 31, 2016 and 2015 was as follows:

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•

Policy acquisition costs for the year ended December 31, 2016 were $181.0 million compared to $166.4 million for the year ended December 31, 2015, an increase of $14.7 million, or 2.4 percentage points of the policy acquisition costs ratio. The increase was driven by an increase in the specialty lines due to profit commissions on agriculture business, as well as an increase in financial, trade credit and mortgage lines, along with new casualty business which carries higher costs and was partially offset by a decrease in the marine lines as a result of a reduction in proportional business along with adjustments to existing business.

•	General and administration expenses for the year ended December 31, 2016 were $72.8 million compared to $78.4 million for the year ended December 31, 2015, a decrease of $5.7 million, or 7.2%. The decrease was primarily due to reductions in office related expenses, staff costs and the performance bonus accrual.

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(a)	Non-GAAP Financial Measures. In presenting the Company’s results, management has included and discussed underwriting income that is not calculated under standards or rules that comprise U.S. GAAP. Such measures are referred to as non-GAAP. Further discussion of these measures is presented in the section entitled “Non-GAAP Financial Measures.”

(b)	The general and administrative expense ratio includes share compensation expenses.

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•	Gross premiums written for the year ended December 31, 2015 were $1,126.8 million compared to $1,118.5 million for the year ended December 31, 2014, an increase of $8.2 million, or 0.7%. The increase in gross premiums written was primarily driven by:

◦	An increase in gross premiums written in the specialty lines of $115.7 million, primarily due to a significant new agriculture deal and new casualty business of $7.1 million which was written during the three months ended December 31, 2015, partially offset by various non-renewals; and

◦	A decrease in gross premiums written in the property lines of $69.1 million, primarily due to a reduction in business written in the catastrophe excess of loss lines of $76.8 million, driven by reductions in participation on various programs due to market conditions; and

◦

A decrease in gross premiums written in the marine lines of $38.3 million, primarily due to non-renewals as a result of difficult market conditions and business historically written in marine lines being renewed in specialty lines. Further contributing to the decrease was a gain on the commutation of a Flagstone contract with a Lloyd’s counterparty which occurred in the three months ended December 31, 2014.

•

Reinsurance premiums ceded for the year ended December 31, 2015 were $149.1 million compared to $163.7 million for the year ended December 31, 2014, a decrease of $14.6 million, or 8.9%. The decrease was due to a reduction in the property lines of $18.1 million primarily due to a reduction in the costs associated with the Company’s main proportional retrocession program during the year ended December 31, 2015 and was partially offset by an increase in the specialty lines of $2.9 million.

•

Net premiums earned for the year ended December 31, 2015 were $990.2 million compared to $917.3 million for the year ended December 31, 2014, an increase of $72.9 million, or 8.0%. The increase was primarily due to an increase in the specialty lines of $131.8 million as a result of the increase in gross premiums written as described above and was partially offset by decreases in the property and marine lines of $39.2 million and $19.7 million, respectively, as a result of lower gross premiums written during the year ended December 31, 2015 compared to the year ended December 31, 2014.

•	Losses and loss expenses for the year ended December 31, 2015 were $458.0 million compared to $307.3 million for the year ended December 31, 2014, an increase of $150.7 million or 49.0%, primarily as a result of an increase in attritional losses and losses from notable loss events during the year ended December 31, 2015.

◦

The loss ratio for the year ended December 31, 2015 was 46.2%, which included $128.6 million of favorable loss reserve development on prior accident years, benefiting the loss ratio by 13.0 percentage points compared to a loss ratio for the year ended December 31, 2014 of 33.5% which included $87.6 million of favorable loss reserve development on prior accident years, benefiting the loss ratio by 9.5 percentage points.

◦	During the year ended December 31, 2014, there was one notable loss event and two non-notable loss events that impacted Validus Re as set out in the table below:

◦	For the year ended December 31, 2014, losses and loss expenses from a single notable loss event, Tripoli Airport, were $22.5 million, or 2.4 percentage points of the loss ratio and primarily related to the specialty lines. Net of reinstatement premiums of $3.0 million, this event resulted in an aggregate reduction of underwriting income of $19.5 million.

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◦

For the year ended December 31, 2014, losses and loss expenses incurred from two non-notable loss events, the Japanese Snowstorm and the 2014 Chilean Earthquake, were $29.9 million, or 3.3 percentage points of the loss ratio and related solely to the property lines. Net of reinstatement premiums of $2.5 million, these events resulted in an aggregate reduction of underwriting income of $27.4 million.

•	Loss reserve development by line of business for the year ended December 31, 2014 was as follows:

•

Policy acquisition costs for the year ended December 31, 2015 were $166.4 million compared to $141.7 million for the year ended December 31, 2014, an increase of $24.7 million, or 1.3 percentage points of the policy acquisition costs ratio. The increase was primarily due to an increase in the policy acquisition costs ratio in the marine and specialty lines of 4.3 and 1.4 percentage points, respectively, as a result of the impact of premium adjustments and profit commissions, respectively.

•

General and administration expenses for the year ended December 31, 2015 were $78.4 million compared to $74.7 million for the year ended December 31, 2014, an increase of $3.7 million, or 4.9%. The increase was primarily due to a greater retention of costs within the segment and an increase in staff costs related to overseas underwriting operations during the year ended December 31, 2015. This increase was partially offset by a reduction in office and infrastructure costs in the current year related to entities that are no longer in use as a result of efficiencies achieved through rationalization of historical Flagstone entities.

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(a)	Non-GAAP Financial Measures. In presenting the Company’s results, management has included and discussed underwriting income that is not calculated under standards or rules that comprise U.S. GAAP. Such measures are referred to as non-GAAP. Further discussion of these measures is presented in the section entitled “Non-GAAP Financial Measures.”

(b)	The general and administrative expense ratio includes share compensation expenses.

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•	Gross premiums written for the year ended December 31, 2016 were $970.7 million compared to $1,018.8 million for the year ended December 31, 2015, a decrease of $48.1 million, or 4.7%. The decrease in gross premiums written was primarily driven by:

◦

A decrease in gross premiums written in the property lines of $10.0 million. The decrease includes an increase in premium estimates of $5.2 million, which had no impact on earned premium. After the impact of these changes in estimates, the decrease was primarily driven by decreases in the downstream energy and power and property treaty classes as a result of the timing of renewals, the non-renewal of various programs due to the current rate environment and reduced premium adjustments in the current year; and

◦

A decrease in gross premiums written in the marine lines of $65.6 million, which includes an increase in premium estimates of $4.2 million, which had no impact on earned premium. After the impact of these changes in estimates, the decrease was primarily driven by decreases in the upstream energy and cargo classes as a result of reductions in our participation and non-renewals on various programs due to continued pressure on rates from the lack of activity and lower prices in the oil and gas sector; partially offset by,

◦

An increase in gross premiums written in the specialty lines of $27.5 million. The increase includes an increase in premium estimates of $17.0 million, which had no impact on earned premium. After the impact of these changes in estimates, the increase was primarily driven by increases in the contingency and political violence classes as a result of premium adjustments on prior period policies and an increase in the financial lines as a result of new business written during the year. The increases were partially offset by a decrease in the aviation direct class as a result of non-renewals on various programs due to continued pressure on rates.

•

Reinsurance premiums ceded for the year ended December 31, 2016 were $175.7 million compared to $198.9 million for the year ended December 31, 2015, a decrease of $23.2 million, or 11.6%. The decrease was primarily due to a decrease in the property lines of $17.4 million as a result of lower quota share ceded premiums during the year ended December 31, 2016 compared to the year ended December 31, 2015 and a decrease in the marine lines of $4.6 million as a result of higher reinstatement premiums during the year ended December 31, 2015, which was primarily attributable to $11.1 million of reinstatement premiums from Pemex, a 2015 notable loss event.

•

Net premiums earned for the year ended December 31, 2016 were $781.9 million compared to $838.1 million for the year ended December 31, 2015, a decrease of $56.2 million, or 6.7%. Excluding the impact of the changes in estimates noted above on gross premiums written, which had no impact on earned premium, the decrease was primarily driven by the overall reduction in net premiums written in the marine lines and slower earnings patterns on longer-term contracts in the specialty lines during the year ended December 31, 2016 compared to the year ended December 31, 2015.

•	Losses and loss expenses for the year ended December 31, 2016 were $424.9 million compared to $347.3 million for the year ended December 31, 2015, an increase of $77.6 million or 22.3%, primarily as a result of lower favorable development on prior accident years and higher losses from non-notable loss events during the year ended December 31, 2016.

◦

The loss ratio for the year ended December 31, 2016 was 54.3%, which included $85.8 million of favorable loss reserve development on prior accident years, benefiting the loss ratio by 11.0 percentage points compared to a loss ratio for the year ended December 31, 2015 of 41.4%, which included $146.4 million of favorable loss reserve development on prior accident years, benefiting the loss ratio by 17.5 percentage points.

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◦	During the year ended December 31, 2016, there were three notable loss events and four non-notable loss events that impacted Talbot as set out in the table below:

◦	During the year ended December 31, 2015, there were two notable loss events and one non-notable loss event that impacted Talbot as set out in the table below:

◦

For the year ended December 31, 2016, losses and loss expenses from three notable loss events, the Canadian Wildfires, Hurricane Matthew and the 2016 New Zealand Earthquake were $24.1 million, or 3.1 percentage points of the loss ratio. Net of reinstatement premiums of $0.4 million, these events resulted in an aggregate reduction of underwriting income of $23.7 million. The losses and loss expenses of the 2016 notable loss events by line of business were as follows:

▪	Hurricane Matthew - property, marine and specialty lines of $8.5 million, $3.4 million and $0.4 million, respectively; and

◦

For the year ended December 31, 2015, losses and loss expenses from two notable loss events, Tianjin and Pemex, were $24.5 million, or 2.9 percentage points of the loss ratio. Including reinstatement premiums of $10.3 million, these events resulted in an aggregate reduction of underwriting income of $34.8 million. The losses and loss expenses of the 2015 notable loss events by line of business were as follows:

◦

For the year ended December 31, 2016, losses and loss expenses incurred from the 2016 non-notable loss events, the Texas Hailstorms, Kumamoto Earthquake, Jubilee Oil and SpaceX, were $20.5 million, or 2.6 percentage points of the loss ratio. Net of reinstatement premiums of $0.1 million, these events resulted in an aggregate reduction of underwriting income of $20.4 million. The losses and loss expenses of the 2016 non-notable loss events by line of business were as follows:

◦	For the year ended December 31, 2015, losses and loss expenses from the 2015 Chilean earthquake non-notable loss event were $4.7 million, or 0.6 percentage points of the loss ratio, and related primarily to Talbot’s property lines.

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•	Loss reserve development by line of business was as follows:

•	Policy acquisition costs for the year ended December 31, 2016 were $177.1 million compared to $187.5 million for the year ended December 31, 2015, a decrease of $10.4 million, or 0.3 percentage points of the policy acquisition costs ratio.

•	General and administration expenses for the year ended December 31, 2016 were $134.5 million compared to $155.3 million for the year ended December 31, 2015, a decrease of $20.8 million, or 13.4%. The decrease was primarily due to the impact of foreign exchange and a reduction in the performance bonus accrual.

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(a)	Non-GAAP Financial Measures. In presenting the Company’s results, management has included and discussed underwriting income that is not calculated under standards or rules that comprise U.S. GAAP. Such measures are referred to as non-GAAP. Further discussion of these measures is presented in the section entitled “Non-GAAP Financial Measures.”

(b)	The general and administrative expense ratio includes share compensation expenses.

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•	Gross premiums written for the year ended December 31, 2015 were $1,018.8 million compared to $1,101.8 million for the year ended December 31, 2014, a decrease of $82.9 million or 7.5%. The decrease in gross premiums written was primarily driven by:

◦

A decrease in gross premiums written in the property lines of $10.1 million, primarily due to a decrease in the property treaty lines of $9.3 million which related primarily to Latin American business being written directly by Validus Re Swiss. In addition, renewed business in the downstream energy and power international lines has decreased due to unfavorable market conditions. These decreases were partially offset by an increase in the construction lines as a result of new projects and amendments to existing contracts; and

◦

A decrease in gross premiums written in the marine lines of $65.2 million, primarily driven by a decrease in the upstream energy and cargo lines due to ongoing market conditions and economic factors, including the worldwide reduction in oil prices, which have reduced new business and renewals. Also contributing to the decrease was a decrease in the marine hull lines primarily as a result of 18-month policies written during the year ended December 31, 2014 which were not yet due for renewal; and

◦	A decrease in gross premiums written in the specialty lines of $7.7 million, primarily driven by a decrease in the aviation treaty lines as a result of a higher level of reinstatement premiums and adjustments to prior year policies during the year ended December 31, 2014.

•

Reinsurance premiums ceded for the year ended December 31, 2015 were $198.9 million compared to $192.2 million for the year ended December 31, 2014, an increase of $6.7 million, or 3.5%. The increase was primarily due to an increase in the marine and specialty lines of $9.2 million and $5.8 million, respectively, primarily due to increased reinstatement premiums across a number of classes and was partially offset by a decrease in the property lines of $8.3 million due to lower quota share premiums as a result of the Latin American business being written directly by Validus Re Swiss and due to a decrease in reinstatement premiums in the year ended December 31, 2015.

•	Net premiums earned for the year ended December 31, 2015 were $838.1 million compared to $879.8 million for the year ended December 31, 2014, a decrease of $41.7 million, or 4.7%. The decrease was consistent with the pattern of gross premiums written and reinsurance premiums ceded as discussed above.

•	Losses and loss expenses for the year ended December 31, 2015 were $347.3 million compared to $423.4 million for the year ended December 31, 2014, a decrease of $76.1 million or 18.0%, primarily as a result of lower attritional losses during the year ended December 31, 2015.

◦

The loss ratio for the year ended December 31, 2015 was 41.4%, which included $146.4 million of favorable loss reserve development on prior accident years, benefiting the loss ratio by 17.5 percentage points compared to a loss ratio for the year ended December 31, 2014 of 48.1% which included $141.2 million of favorable loss reserve development on prior accident years, benefiting the loss ratio by 16.1 percentage points.

◦	During the year ended December 31, 2014, there was one notable loss event and one non-notable loss event that impacted Talbot as set out in the table below:

◦	For the year ended December 31, 2014, losses and loss expenses from a single notable loss event, Tripoli Airport, were $12.5 million, or 1.4 percentage points of the loss ratio and primarily related to the specialty lines. Net of reinstatement premiums of $0.8 million, this event resulted in an aggregate reduction of underwriting income of $11.7 million.

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◦	For the year ended December 31, 2014, losses and loss expenses incurred from a single non-notable loss event, the 2014 Chilean Earthquake, were $4.8 million, or 0.5 percentage points of the loss ratio and related solely to the property lines. Net of reinstatement premiums of $0.3 million, this event resulted in an aggregate reduction of underwriting income of $4.5 million.

•	Loss reserve development by line of business for the year ended December 31, 2014 was as follows:

•	Policy acquisition costs for the year ended December 31, 2015 were $187.5 million compared to $187.2 million for the year ended December 31, 2014, an increase of $0.4 million, or 1.1 percentage points of the policy acquisition costs ratio.

•	General and administration expenses for the year ended December 31, 2015 were $155.3 million compared to $150.8 million for the year ended December 31, 2014, an increase of $4.5 million, or 3.0%. The increase was primarily due to a greater retention of costs within the segment and an increase in the performance bonus accrual.

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(a)	Non-GAAP Financial Measures. In presenting the Company’s results, management has included and discussed underwriting income that is not calculated under standards or rules that comprise U.S. GAAP. Such measures are referred to as non-GAAP. Further discussion of these measures is presented in the section entitled “Non-GAAP Financial Measures.”

(b)	The general and administrative expense ratio includes share compensation expenses.

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•	Gross premiums written for the year ended December 31, 2016 were $323.2 million compared to $278.5 million for the year ended December 31, 2015, an increase of $44.7 million, or 16.1%. The increase in gross premiums written was primarily driven by:

◦	An increase in gross premiums written in the property lines of $41.4 million primarily due to increases in the brokerage property, contract commercial package property, monoline property and program flood classes of $12.5 million, $12.2 million, $6.9 million and $6.4 million, respectively, as a result of the continued build out of the underwriting platform in short tail lines.

◦	An increase in gross premiums written in the liability lines of $3.3 million. The increase was driven by increases in the contract liability and brokerage professional lines of $12.2 million and $6.3 million, respectively, and was partially offset by decreases arising from the discontinuation of underperforming programs and brokerage general liability lines.

•	Reinsurance premiums ceded for the year ended December 31, 2016 were $22.6 million compared to $18.9 million for the year ended December 31, 2015, an increase of $3.8 million, or 19.9% and were driven by the factors highlighted above in respect of gross premiums written.

•	Net premiums earned for the year ended December 31, 2016 were $273.2 million compared to $258.7 million for the year ended December 31, 2015, an increase of $14.6 million, or 5.6%. The increase was primarily driven by the increase in gross premiums written in the property lines and was partially offset by the discontinuation of various liability lines as discussed above.

•

Losses and loss expenses for the year ended December 31, 2016 were $183.8 million compared to $171.9 million for the year ended December 31, 2015, an increase of $11.9 million or 6.9%, primarily as a result of losses incurred from notable loss events during the year ended December 31, 2016 and lower favorable development on prior accident years as discussed below. Included as part of current year losses and loss expenses for the year ended December 31, 2016 are $14.3 million, or 5.2 percentage points of the loss ratio, of losses from other U.S.-based weather losses.

◦

The loss ratio for the year ended December 31, 2016 was 67.3%, which included $9.1 million of favorable loss reserve development on prior accident years, benefiting the loss ratio by 3.3 percentage points compared to a loss ratio for the year ended December 31, 2015 of 66.4% which included $23.0 million of favorable loss reserve development on prior accident years, benefiting the loss ratio by 8.9 percentage points. The favorable development of $23.0 million on prior accident years for the year ended December 31, 2015 primarily relates to favorable development on attritional losses and also includes the amortization of the risk premium adjustment accounted for at the time of the acquisition of Western World. This adjustment was fully amortized to income through a reduction in losses and loss expenses of $11.0 million during the year ended December 31, 2015, benefiting the loss ratio by 4.2 percentage points.

◦	During the year ended December 31, 2016, there was one notable and one non-notable loss event that impacted Western World as set out in the table below:

◦	For the year ended December 31, 2016, losses and loss expenses from a single notable loss event, Hurricane Matthew, were $3.4 million, or 1.2 percentage points of the loss ratio and solely impacted Western World’s property lines.

◦	For the year ended December 31, 2016, losses and loss expenses incurred from a single non-notable loss event, the Texas Hailstorms, were $0.7 million, or 0.3 percentage points of the loss ratio and solely impacted Western World’s property lines.

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•

Policy acquisition costs for the year ended December 31, 2016 were $64.4 million compared to $41.4 million for the year ended December 31, 2015, an increase of $23.0 million, or 7.5 percentage points of the policy acquisition costs ratio. The increase was primarily a result of an adjustment made upon the acquisition of Western World to reduce deferred acquisition costs to reflect fair value. These deferred acquisition costs would otherwise have been expensed in the amount of $21.8 million during the year ended December 31, 2015, benefiting the policy acquisition costs ratio by 8.4 percentage points.

•	General and administration expenses for the year ended December 31, 2016 were $43.3 million compared to $38.7 million for the year ended December 31, 2015, an increase of $4.6 million, or 11.8%. The increase was primarily due to increases in staff costs associated with the opening of new offices in Scottsdale, Atlanta, and New York.

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(a)	The results of Western World have been included in the Company’s consolidated results from the October 2, 2014 date of acquisition.

(b)	Non-GAAP Financial Measures. In presenting the Company’s results, management has included and discussed underwriting income that is not calculated under standards or rules that comprise U.S. GAAP. Such measures are referred to as non-GAAP. Further discussion of these measures is presented in the section entitled “Non-GAAP Financial Measures.”

(c)	The general and administrative expense ratio includes share compensation expenses.

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(a)	In presenting the Company’s results, management has included and discussed the results of AlphaCat, which are presented on an asset manager basis. Validus’ share of AlphaCat income is a non-GAAP measure and is not calculated under standards or rules that comprise U.S. GAAP. Further discussion of these measures is presented in the section entitled “Non-GAAP Financial Measures.”

(b)	The investment income from the AlphaCat funds and sidecars is based on equity accounting.

(c)	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 greater than 7%. Expected loss represents the average annual loss over the set of simulation scenarios divided by the total limit.

(d)	AlphaCat Direct includes direct investments from third party investors in AlphaCat Re.

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(a)	The Company’s assets under management are based on NAV and are represented by investments made by related parties and third parties in the feeder funds and on a direct basis.

(b)	AlphaCat Direct includes direct investments from third party investors in AlphaCat Re.

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(a)	These items exclude the components which are included in the Company’s share of AlphaCat and amounts which are consolidated from VIEs.

(b)	The transaction expenses relate to costs incurred in connection with the acquisition of Western World and are primarily comprised of legal, financial advisory, and audit related services.

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(a)	Weighted average exercise price for those stock options that have an exercise price lower than book value per share.

(b)	Total shareholders’ equity available to Validus common shareholders excludes the liquidation value of the preferred shares of $150,000.

(c)	Using the “as-if-converted” method, assuming all proceeds received upon exercise of stock options will be retained by the Company and the resulting common shares from exercise remain outstanding.

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(a)	Issuers exclude government-backed government-sponsored enterprises and cash and cash equivalents.

(b)	Investment ratings are the median of Moody’s, Standard & Poor’s and Fitch. For investments where three ratings are unavailable, the lower of the ratings shall apply. All investment ratings are presented as the Standard & Poor’s equivalent rating.

(c)	Credit exposures represent only direct exposure to fixed maturities and short-term investments of the parent issuer and its major subsidiaries. These exposures exclude asset and mortgage backed securities that were issued, sponsored or serviced by the parent.

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(a)	Includes paid losses, case reserves and IBNR reserves.

(b)	Excludes impact of movements in foreign exchange rates.

(c)	Closing Reserve for the period equals Closing Estimate for the period less cumulative paid losses (recovery).

(d)	As at September 30, 2014, the initial estimate for Tripoli Airport was below the $30.0 million notable loss event threshold; however, during the fourth quarter of 2014 adverse development caused this event to exceed the notable loss event threshold.

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(a)	Validus Reinsurance, Ltd. (excluding capital supporting FAL) includes capital of $639,113 (2015: $640,684) relating to Western World Insurance Group, Inc.

(b)	Validus Reinsurance, Ltd. (excluding capital supporting FAL) excludes capital of $723,888 (2015: $586,393) which supports Talbot’s FAL. This capital was included in Talbot Holdings, Ltd. (including capital supporting FAL).

(c)	Total shareholders’ equity available to Validus common shareholders excludes the liquidation value of the preferred shares of $150,000.

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(a)	Refer to Part II, Item 8, Note 20 to the Consolidated Financial Statements, “Debt and financing arrangements,” for further details and discussion on the debt and financing arrangements of the Company.

(b)	Refer to Part II, Item 8, Note 17 to the Consolidated Financial Statements, “Share capital,” for further details and discussion on the Company’s preferred shares.

(c)	Total capitalization equals total shareholders’ equity plus redeemable noncontrolling interests and total debt.

(d)	Total capitalization available to Validus equals total capitalization (as per (c)) less redeemable noncontrolling interests and noncontrolling interests.

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(a)

The reserve for losses and loss expenses represents an estimate, including actuarial and statistical projections at a given point in time of an insurer’s or reinsurer’s expectations of the ultimate settlement and administration costs of claims incurred. As such, the actual payment of the reserve for losses and loss expenses will differ from estimated payouts. Refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates” for further details and discussion on the Company’s reserve for losses and loss expenses.

(b)

The amounts in the table above reflect the Company’s contractual obligations with respect to the principal and interest payments on the Company’s Senior Notes and JSDs. The Company has entered into interest rate swaps which fix the rates of interest on the JSDs. The terms of the swaps are matched to the maturity date of the JSDs. Refer to Part II, Item 8, Note 20 to the Consolidated Financial Statements, “Debt and financing arrangements,” for further details and discussion on the debt and financing arrangements of the Company.

(c)	Refer to Part II, Item 8, Note 19 to the Consolidated Financial Statements, “Retirement and pension plans,” for further details describing the projected pension benefit obligation.

(d)	The private equity and investment commitments do not have a defined contractual commitment date and are therefore included in the less than one year category. Refer to Part II, Item 8, Note 23 to the Consolidated Financial Statements, “Commitments and contingencies,” for further details describing these contractual obligations and commitments.

(e)	Other commitments include commitments related the Company’s structured settlements, AlphaCat ILS funds and notes payable to AlphaCat investors. Refer to Part II, Item 8, Note 23 to the Consolidated Financial Statements, “Commitments and contingencies,” for further details describing these contractual obligations and commitments.

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(a)	The results of operations for Western World are consolidated from the October 2, 2014 date of acquisition.

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•	unpredictability and severity of catastrophic events;

•	our ability to obtain and maintain ratings, which may affect by our ability to raise additional equity or debt financings, as well as other factors described herein;

•	adequacy of the Company’s risk management and loss limitation methods;

•	cyclicality of demand and pricing in the insurance and reinsurance markets;

•	the Company’s ability to implement its business strategy during “soft” as well as “hard” markets;

•	adequacy of the Company’s loss reserves;

•	continued availability of capital and financing;

•	the Company’s ability to identify, hire and retain, on a timely and unimpeded basis and on anticipated economic and other terms, experienced and capable senior management, as well as underwriters, claims professionals and support staff;

•	acceptance of our business strategy, security and financial condition by rating agencies and regulators, as well as by brokers and (re)insureds;

•	competition, including increased competition, on the basis of pricing, capacity, coverage terms or other factors;

•	potential loss of business from one or more major insurance or reinsurance brokers;

•	the Company’s ability to implement, successfully and on a timely basis, complex infrastructure, distribution capabilities, systems, procedures and internal controls, and to develop accurate actuarial data to support the business and regulatory and reporting requirements;

•	general economic and market conditions (including inflation, volatility in the credit and capital markets, interest rates and foreign currency exchange rates) and conditions specific to the insurance and reinsurance markets in which we operate;

•	the integration of businesses we may acquire or new business ventures, including overseas offices, we may start and the risk associated with implementing our business strategies and initiatives with respect to the new business ventures;

•

accuracy of those estimates and judgments used in the preparation of our financial statements, including those related to revenue recognition, insurance and other reserves, reinsurance recoverables, investment valuations, intangible assets, bad debts, taxes, contingencies, litigation and any determination to use the deposit method of accounting, which, for a relatively new insurance and reinsurance company like our company, are even more difficult to make than those made in a mature company because of limited historical information;

•	the effect on the Company’s investment portfolio of changing financial market conditions including inflation, interest rates, liquidity and other factors;

•	acts of terrorism, political unrest, outbreak of war and other hostilities or other non-forecasted and unpredictable events;

•	availability and cost of reinsurance and retrocession coverage;

•	the failure of reinsurers, retrocessionaires, producers or others to meet their obligations to us;

•	the timing of loss payments being faster or the receipt of reinsurance recoverables being slower than anticipated by us;

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•	changes in domestic or foreign laws or regulations, or their interpretations;

•	changes in accounting principles or the application of such principles by regulators;

•	statutory or regulatory or rating agency developments, including as to tax policy and reinsurance and other regulatory matters such as the adoption of proposed legislation that would affect Bermuda-headquartered companies and/or Bermuda based insurers or reinsurers; and

•

the other factors set forth herein under Part I Item 1A “Risk Factors” and under Part II Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the other sections of this Annual Report on Form 10-K for the year ended December 31, 2016, as well as the risk and other factors set forth in the Company’s other filings with the SEC, as well as management’s response to any of the aforementioned factors.

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•	interest rate risk;

•	foreign currency risk;

•	credit risk;

•	liquidity risk; and

•	inflation risk.

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(a)	Financial Statements and Financial Statement Schedules: See pages F-1 to F-99.

(b)	The exhibits numbers followed by an asterisk (*) indicate exhibits physically filed with this Annual Report on Form 10-K. All other exhibit numbers indicate exhibits filed by incorporation by reference.

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(a)	Premiums

(b)	Policy acquisition costs

(c)	Reserve for losses and loss expenses

(d)	Reinsurance

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(e)	Investments

(f)	Fair value of financial instruments

(g)	Derivative instruments

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(h)	Cash and cash equivalents

(i)	Foreign exchange

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(j)	Stock plans

(k)	Warrants

(l)	Earnings per share

(m)	Income taxes and uncertain tax provisions

(n)	Business combinations, goodwill and other intangible assets

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(n)	Variable interest entities

(o)	Noncontrolling interests

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(a)	Accounting Standards Adopted in 2016

(b)	Recently Issued Accounting Standards Not Yet Adopted

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(a)	During the year ended December 31, 2015, measurement period adjustments of $861 were made to certain other assets, net of taxes.

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(a)	The Company’s investments in investment affiliates have been treated as equity method investments with the corresponding gains and losses recorded in

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(a)	Fixed maturity investments

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(b)	Other investments

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(c)	Investments in investment affiliates

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(d)	Net investment income

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(e)	Net realized gains and change in net unrealized gains (losses) on investments

(f)	Pledged investments and cash

(g)	Securities lending

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(a)	Classification within the fair value hierarchy

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(a)	In accordance with ASC Topic 825 “Financial Instruments,” the Company’s investments in investment affiliates have not been classified in the fair value hierarchy.

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(a)	In accordance with ASC Topic 825 “Financial Instruments,” the Company’s investments in investment affiliates have not been classified in the fair value hierarchy.

(b)	Valuation techniques

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(c)	Level 3 investments

(d)	Financial instruments not carried at fair value

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(a)	Consolidated VIEs

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(b)	Non-Consolidated VIEs

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(a)	Asset and liability derivatives are classified within other assets and accounts payable and accrued expenses, respectively, within the Company’s Consolidated Balance Sheets.

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(a)	Relates to net realized gains on two interest rate swap contracts which were entered into and terminated during the year ended December 31, 2016 to partially offset the impact of interest rate increases on the Company’s fixed maturity investment portfolio.

(a)	Asset and liability derivatives are classified within other assets and accounts payable and accrued expenses, respectively, within the Company’s Consolidated Balance Sheets.

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(a)	Upon closing the acquisition of Western World, an adjustment of $15,586 was made to increase net reserves to reflect fair value. This adjustment was fully amortized to income through a reduction in losses and loss expenses of $10,979 and $4,607 during the years ended December 31, 2015 and 2014, respectively.

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(a)	Upon closing the acquisition of Western World, an adjustment of $15,586 was made to increase net reserves to reflect fair value. This adjustment was fully amortized to income through a reduction in losses and loss expenses of $10,979 and $4,607 during the years ended December 31, 2015 and 2014, respectively.

(a)	Loss Development Tables

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(a)	Includes reserves for losses and loss expenses, net of reinsurance, of $77,790 and $10,614 related to Flagstone and IPC, respectively.

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(a)	Includes reserves for losses and loss expenses, net of reinsurance, of $15,178 and $1,537 related to Flagstone and IPC, respectively.

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(a)	Includes reserves for losses and loss expenses, net of reinsurance, of $41,091 and $5,743 related to Flagstone and IPC, respectively.

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(b)	Reconciliation of Loss Development Information to the Reserves for Losses and Loss Expenses

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(c)	Historical Loss Duration

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(a)	Effects of reinsurance on premiums written and earned

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(b)	Credit risk

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(a)	Preferred shares

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(a)	Long Term Incentive Plan

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(a)	The total intrinsic value in the tables above represent the amount by which the market price of the Company’s common stock is greater than the option strike price multiplied by the number of options exercised during the year.

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(b)	Total share compensation expenses

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(a)	Defined benefit plans

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(b)	Other pension plans

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(a)	Senior notes and junior subordinated deferrable debentures

(a)	Fixed interest rate for 5 years, floating interest rate of three-month LIBOR plus 3.550% thereafter, reset quarterly.

(b)	Floating interest rate of three-month LIBOR plus amount stated, reset quarterly.

(c)	Fixed interest rate for 5 years, floating interest rate of three-month LIBOR plus 2.950% thereafter, reset quarterly.

(d)	Fixed interest rate.

(e)	Fixed interest rate as a result of interest rate swap contracts entered into by the Company.

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(b)	Credit facilities

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(c)	Finance expenses

(a)	On November 30, 2015, the Company terminated its Talbot FAL Facility provided and arranged by Lloyds Bank plc and ING Bank N.V., London Branch.

(b)	Includes finance expenses incurred by AlphaCat Managers in relation to fund raising for the AlphaCat sidecars, the AlphaCat ILS funds and AlphaCat direct.

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(a)	Concentrations of credit risk

(b)	Employment agreements

(c)	Operating leases

(d)	Funds at Lloyd’s

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(e)	Lloyd’s Central Fund

(f)	Investment affiliate commitments

(g)	AlphaCat commitments

(h)	Fixed maturity commitments

(i)	Other investment commitments

(j)	Structured settlements

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(a)	Aquiline Capital Partners LLC (“Aquiline Capital”)

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(a)	The general and administrative expense ratio includes share compensation expenses.

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(a)	The general and administrative expense ratio includes share compensation expenses.

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(a)	The results of Western World have been included in the Company’s consolidated results from the October 2, 2014 date of acquisition.

(b)	The general and administrative expense ratio includes share compensation expenses.

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(a)	The results of AlphaCat are presented on an asset manager basis, which is non-GAAP. A reconciliation of Validus’ share of AlphaCat segment income to segmental income is presented in the tables below.

(b)	The investment income from the AlphaCat funds and sidecars is based on equity accounting.

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

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(a)	These items exclude the components which are included in Validus’ share of AlphaCat and amounts which are consolidated from VIEs.

(b)	The transaction expenses relate to costs incurred in connection with the acquisition of Western World, which was completed on October 2, 2014. Transaction expenses are primarily comprised of legal, financial advisory and audit related services.

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(a)	Other items includes finance expenses, tax (benefit) expense, foreign exchange gains (losses), net realized and change in net unrealized gains (losses) on investments, income from investment and operating affiliates and other income (loss).

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(a)	Other items includes finance expenses, tax expenses, foreign exchange gains (losses), net realized and change in net unrealized gains (losses) on investments, income from investment and operating affiliates and other income (loss).

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(a)	Other items includes finance expenses, tax expenses, foreign exchange gains (losses), net realized and change in net unrealized gains (losses) on investments, income from investment and operating affiliates and other income (loss).

(b)	The transaction expenses relate to costs incurred in connection with the acquisition of Western World, which was completed on October 2, 2014. Transaction expenses are primarily comprised of legal, financial advisory and audit related services.

(c)	The results of Western World have been included in the Company’s consolidated results from the October 2, 2014 date of acquisition.

(a)	The results of Western World have been included in the Company’s consolidated results from the October 2, 2014 date of acquisition.

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(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.

(d)	The results of Western World have been included in the Company’s consolidated results from the October 2, 2014 date of acquisition.

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(a)	Bermuda

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(b)	United Kingdom - Lloyd’s

(c)	United States

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(d)	Switzerland

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