Validus reveals loss at AlphaCat ILS operations from European floods

Bermuda headquartered reinsurance and third-party reinsurance capital management group Validus Holdings has revealed its initial estimate of the negative financial impact from losses created by the recent severe flooding in central Europe and Germany. It transpires that the floods have caused Validus a small loss within its AlphaCat ILS and collateralized reinsurance division.

Validus is one of the largest re/insurers with a dedicated capital markets and third-party reinsurance capital management division in AlphaCat. Under the AlphaCat brand Validus has been actively managing third-party capital within its reinsurance underwriting for some time, through a mix of insurance-linked securities funds, sidecars and collateralized reinsurance underwriting. As such, it’s not that surprising that some of the re/insurers loss from the European floods is attributed to its capital management business.

Validus said that it expects to record a loss, net of reinstatement premiums and reinsurance, retrocessional and other recoveries, from the European floods of $69.6 million. The amount is split between the various Validus operating units as; Validus Re – $63.1m, Talbot – $6.4m and AlphaCat – $0.1m.

Validus has estimated the insurance industry loss from the European flooding at between $4 billion and $5 billion, which would put it at the upper end of the ranges quoted by reinsurers Swiss Re which said up to $4.5 billion and Munich Re which said around $3.9 billion. Validus bases its estimate on internal and external models as well as loss reporting from impacted re/insurers. Validus notes that the estimate could change.

So the loss to the AlphaCat ILS segment, of $100,000, is not a major loss but it is the first confirmed loss reported by an ILS or collateralized reinsurance entity so far. It’s possible that other third-party collateralized reinsurers will see similar small losses, as so many participate on the same contracts and operate at similar attachment levels.