Ed Noonan - Validus Holdings, Ltd. - Chairman & CEO

Thanks, Jeff. Let me give you some further color on our business, as well as the Flagstone integration, after which we’ll be happy to take any questions you may have. Starting with Talbot, we continued to be in a good pricing environment, although by no means a hard market. Year-to-date we have generated rate increases across our portfolio of 3.3%. In general, classes that have sustained losses over the last few years are the best performing, with international property and onshore energy up by over 11%. Competition is not excessive in the short tail classes at Lloyd’s, as our overall level of rate change by class ranges from negative 2% to positive 12%.

Given the general competitive environment and the state of the global economy, most of Talbot’s growth in the quarter has come from rate increase activity. The global economic downturn has had a meaningful impact on shipping and commerce, consequently, there’s less new business coming into the market. At the same time, Talbot’s renewal retention ratio has increased materially. Our view of rate levels has caused us to be underweight direct and facultative property business for several years, particularly for US risks. We see rates now reaching attractive levels in some major markets. We would expect this to be a key growth area for Talbot going forward. We’ll also continue to see growth from our emerging markets through our Miami and Singapore offices.

Turning to Validus Re, it was obviously an outstanding quarter, as you would expect, given the absence of CAT losses. We’re very proud of our ability to generate underwriting profits in the worst of years, while delivering excellent results when CAT losses are low. Regarding loss activity in the quarter, Validus is not a major player in the crop market. We write a high layer excess of loss account, which is well diversified by state and peril. Our crop loss of $22 million was in line with our expectations and we believe we may see the chance to grow this book next year.

We are in the process of integrating the Flagstone portfolio as we speak. The integration is going very nicely, in large part due to the professionalism and cooperation of Flagstone’s management. We will be renewing all businesses Validus Re starting at January 1. And I wanted to take a minute to describe the process by which we are building the combined portfolio. Our VCAPS system allows us to run our optimization routines across the combined Validus and Flagstone portfolio. Our goal is to maximize our underwriting profit relative to our risk constraints. This process yields the optimal portfolio by client and by layer and moves us out toward the efficient frontier. We know that as we go into the live market our outcomes will vary, but by having disciplined targets at such a granular level, our underwriters will be able to achieve the best possible outcome.

Toward this end the reaction from clients and brokers has been very gratifying. The thing we hear most often is clients desire that we keep our combined lines on their programs. Combining our deep research and analytic skills with responsive underwriting and a $5 billion plus capital base, makes us one of the most important markets for catastrophe risk in the world. Our ability to integrate our sidecars and top layer facility into customer solutions makes us a go-to market for clients and brokers. Finally, our dual rating upgrade this year reinforced the strength of our franchise.

As you know, we were significantly underweight AustralAsia earthquake risk before last year’s events, as our geoscience research caused us to view rates as significantly inadequate. It’s gratifying to see the industry come around to our view and adjust rates appropriately. We would observe, however, that the market does not seem to fully understand the change in seismicity arising from last year’s events. This informs both our pricing and risk-taking and has caused us to make significant changes in our portfolio construction.

Despite being underweight in Asia, we enjoy excellent relationships with the major Japanese customers based on long-standing personal relationships, the quality of our analytical research and the consistency of the capacity we do provide. I spent some time in Asia over the last few weeks and thought it would be helpful to share some thoughts on the Asian market and our position there. Our Asian operations for both Validus Re and Talbot are based in Singapore, with catastrophe risk predominantly underwritten in Bermuda. Both operations are four years old and we have well-developed infrastructure with excellent people. Premium information is dominated by the Japanese and Australian accounts, although Southeast Asia and China are growing rapidly as you would expect.

5