On December 20, 2013, the Company joined with other investors in capitalizing AlphaCat 2014, a special purpose vehicle formed for the purpose of investing in collateralized reinsurance and retrocessional contracts. The Company has an equity interest and voting rights in AlphaCat 2014 which is below 50%, therefore the investment in AlphaCat 2014 is included as an equity method investment in the Consolidated Financial Statements of the Company.
Net premiums earned for the three months ended December 31, 2013 were $492.2 million compared to $499.3 million for the three months ended December 31, 2012, a decrease of $7.0 million, or 1.4%.
Combined ratio for the three months ended December 31, 2013 of 77.6% which included $33.6 million of favorable loss reserve development on prior accident years, benefiting the loss ratio by 6.8 percentage points compared to a combined ratio for the three months ended December 31, 2012 of 122.7% which included $57.2 million of favorable loss reserve development on prior accident years, benefiting the loss ratio by 11.5 percentage points.
Net premiums earned decreased $7.0 million for the three months ended December 31, 2013 compared to the three months ended December 31, 2012. This decrease is due to the changes in fourth quarter gross premiums written, noted above, which are offset by the increase in year to date gross premiums written of $234.7 million which impacts fourth quarter net premiums earned. The Flagstone run-off business provided $26.4 million of earned premium for the three months ended December 31, 2012, which was non-recurring in 2013.
Net investment income for the year ended December 31, 2013 was $96.1 million compared to $107.9 million for the year ended December 31, 2012, a decrease of $11.9 million, or 11.0%.
Increases in income attributable to operating affiliate investors and net operating income attributable to noncontrolling interest of $68.8 million and $10.2 million, respectively; and
Gross premiums written from our consolidated entities, including PaCRe for the three months ended December 31, 2013 were $0.3 million compared to $nil for the three months ended December 31, 2012, an increase of $0.3 million.
Net premiums earned for the three months ended December 31, 2013 were $37.6 million compared to $5.9 million for the three months ended December 31, 2012, an increase of $31.8 million.
AlphaCat incurred $0.8 million of losses from a notable loss event, the European Floods, which represented 0.6 percentage points of the loss ratio. In comparison, for the year ended December 31, 2012, AlphaCat did not incur any notable losses. For the year ended December 31, 2012, AlphaCat Re 2011 and AlphaCat Re 2012 incurred Hurricane Sandy losses of $25.0 million and $7.5 million, respectively. The AlphaCat segment's portion of incurred losses and loss expenses related to Hurricane Sandy was $8.4 million for the year ended December 31, 2012 and was included in income from operating affiliates.
Losses and loss expenses from notable loss events for the three months ended December 31, 2013 was $nil compared to $78.4 million for the three months ended December 31, 2012, a decrease of $78.4 million.
In presenting the Company's results, management has also included and discussed certain schedules containing managed gross premiums written, book value per diluted common share and book value per diluted common share plus accumulated dividends that are not calculated under standards or rules that comprise U.S. GAAP. Such measures are referred to as non-GAAP and may
Cash flow from operating activities is derived primarily from the receipt of premiums less the payment of losses and loss expenses related to underwriting activities.
The Company may from time to time repurchase its securities, including common shares, Junior Subordinated Deferrable Debentures and Senior Notes. On February 5 and October 31, 2013, the Board of Directors of the Company approved increases in its common share repurchase authorization to $500.0 million and $500.0 million, respectively. On February 5, 2014, the Board of Directors of the Company approved a further increase to the Company's common share repurchase authorization to $500.0 million. This amount is in addition to the $1,774.4 million of common shares repurchased by the Company through February 5, 2014 under its previously authorized share repurchase programs.
All Moody’s ratings were most recently affirmed on September 16, 2013.
2.ACR: ACR are established for Validus Re and AlphaCat business by our claims department in cases where we believe the case reserves reported by the cedant requires adjustment. ACR supplement case reserves based on information obtained through ceding company audits or other sources. ACR are not generally used at Talbot as claim volumes are generally greater and thus the potential for future variation in case reserve estimates on known claims often can be analyzed at an aggregate level using historical data.
1.In addition to information received from clients on reported claims, the Company also uses information on the patterns of client loss reporting and loss settlements from previous events in order to estimate the Company’s ultimate liability related to these events;
The most significant variance in the above scenarios, six month deceleration in loss emergence patterns, would have the effect of increasing losses and loss expenses by $417.9 million.
Although our reinsurance recoverable balances are derived from our determination of contractual provisions, the recoverability of such amounts may ultimately differ due to the potential for a reinsurer to become financially impaired or insolvent or for a contractual dispute over contract language or coverage. Consequently, we review our reinsurance recoverable balances on a regular basis to determine if there is a need to establish a provision for non-recoverability. In performing this review, the Company uses judgment in assessing the credit worthiness of our reinsurers and the contractual provisions of our reinsurance agreements. As at December 31, 2013, the Company had a provision for non-recoverability of $5.8 million. In the event that the credit worthiness of our reinsurers were to deteriorate, actual uncollectible amounts could be significantly greater than our provision for non-recoverability.