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Fitch: Validus' Acquisition of Western World Provides U.S. Platform
June 24, 2014 / 9:12 PM / in 3 years

Fitch: Validus' Acquisition of Western World Provides U.S. Platform

(The following statement was released by the rating agency) NEW YORK, June 24 (Fitch) Fitch Ratings today said that the ratings of Validus Holdings, Ltd. (Validus) were unaffected by the company's announced plans to acquire Western World Insurance Group (Western World). Validus has reached agreement to acquire Western World for $690 million in cash in a transaction that is expected to close in the fourth quarter of 2014. Western World is a New Jersey-based privately held property/casualty insurer that focuses on casualty risks in the excess and surplus lines market. The acquisition will provide Validus with a U.S. platform from which to distribute specialty short-tail primary insurance products. Through a combination of strategic acquisitions and organic growth, Validus has grown relatively quickly into one of the largest global providers of catastrophe and other short-tail reinsurance. However, the company remains significantly smaller than many of its global competitors in the reinsurance and primary insurance markets. Validus' diversification effort into primary U.S. insurance segments is partially a function of current competitive market dynamics in reinsurance markets. Validus' core property catastrophe reinsurance business is under significant pressure as new underwriting capacity from securitization activity and alternative capital providers has led to significant price reductions with no catalyst for a reversal in sight. Fitch expects the transaction, which Validus plans to fund with cash on hand, to result in negligible changes to the company's financial and operating leverage. After closing, the company's consolidated debt-to-capital ratio is anticipated to remain near recent levels in the mid-teens while net written premiums-to-equity ratio should remain close to levels of around 0.5x reported by Validus in each of the last several years. With $1.8 billion in cash and short-term investments on the balance sheet as of March 31, 2014, Validus possesses ample liquidity to fund the deal without unduly straining the company's ability to pay its other near-term obligations. Fitch views the addition of Western World's existing book of business as adding modest incremental catastrophe risk to Validus' existing portfolio, as a result of Western World's current focus on medium-tail casualty lines. The transaction adds some uncertainty as to the possibility of adverse loss reserve development of Western World's existing reserve liabilities, inadequate pricing of Western World's business going forward, and possible complications arising during the process of integrating the two companies. Fitch views these risks as partially mitigated by Western World's relatively modest size and simple organization structure. On a pro forma basis, Western World would have comprised roughly 10% of Validus' 2013 gross written premiums. The company's adjusted GAAP book value of $518 million equates to roughly 14% of Validus' reported GAAP equity at March 31, 2014. Contact: Primary Analyst Greg Dickerson Director +1-212-908-0220 Fitch Ratings, Inc. 33 Whitehall ST. New York, NY 10004 Secondary Analyst Brian Schneider Senior Director +1-312-606-2321 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. Additional information is available at 'www.fitchratings.com' Applicable Criteria and Related Research: --Insurance Rating Methodology (November 2013). Applicable Criteria and Related Research: Insurance Rating Methodology here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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