1348259--2/27/2009--VALIDUS_HOLDINGS

related topics

{loss, insurance, financial}

{regulation, change, law}

{tax, income, asset}

{acquisition, growth, future}

{provision, law, control}

{operation, international, foreign}

{regulation, government, change}

{interest, director, officer}

{stock, price, share}

{loan, real, estate}

{cost, contract, operation}

{debt, indebtedness, cash}

{operation, natural, condition}

{competitive, industry, competition}

{personnel, key, retain}

{control, financial, internal}

{product, liability, claim}

Emerging claim and coverage issues could adversely affect our business. We depend on ratings from third party rating agencies. Our financial strength rating could be revised downward, which could affect our standing among brokers and customers, cause our premiums and earnings to decrease and limit our ability to pay dividends on our common shares. If Validus Re s risk management and loss limitation methods fail to adequately manage exposure to losses from catastrophic events, our financial condition and results of operations could be adversely affected. The insurance and reinsurance business is historically cyclical, and we expect to experience periods with excess underwriting capacity and unfavorable premium rates and policy terms and conditions, which could materially adversely affect our financial condition and results of operations. If we underestimate our reserve for losses and loss expenses, our financial condition and results of operations could be adversely affected. We rely on key personnel and the loss of their services may adversely affect us. The Bermuda location of our head office may be an impediment to attracting and retaining experienced personnel. Certain of our directors and officers may have conflicts of interest with us. We may require additional capital or credit in the future, which may not be available or only available on unfavorable terms. Competition for business in our industry is intense, and if we are unable to compete effectively, we may not be able to retain market share and our business may be materially adversely affected. Loss of business from one or more major brokers could adversely affect us. We assume a degree of credit risk associated with substantially all of our brokers. Our success depends on our ability to establish and maintain effective operating procedures and internal controls. Failure to detect control issues and any instances of fraud could adversely affect us. We may be unable to purchase reinsurance or retrocessional reinsurance in the future, and if we successfully purchase retrocessional reinsurance, we may be unable to collect, which could adversely affect our business, financial condition and results of operations. Our investment portfolio may suffer reduced returns or losses which could adversely affect our results of operations and financial condition. Any increase in interest rates or volatility in the fixed income markets could result in significant unrealized losses in the fair value of our investment portfolio which, commencing in 2007, would reduce our net income. Deterioration in the public debt and equity markets could lead to additional investment losses. Our operating results may be adversely affected by currency fluctuations. The preparation of our financial statements will require us to make many estimates and judgments, which are even more difficult than those made in a mature company, and which, if inaccurate, could cause volatility in our results. Risks Related to Acquisitions and New Ventures There can be no assurance that we will fully realize the expected benefits of the Talbot acquisition in the anticipated time. Any future acquisitions or new ventures may expose us to operational risks. Risks Relating to Lloyd s and Other U.K. Regulatory Matters The regulation of Lloyd s members and of Lloyd s by the U.K. Financial Services Authority ( FSA ) and under European Directives and other local laws may result in intervention that could have a significant negative impact on Talbot. Should Lloyd s Council decide additional levies are required to support the central fund, this could adversely affect Talbot. Lloyd s 1992 and prior liabilities. The failure of Lloyd s to satisfy the FSA s annual solvency test could result in limitations on Talbot s ability to underwrite or its ability to commence legal proceedings against Lloyd s. A downgrade in Lloyd s ratings would have an adverse effect on Syndicate 1183 s standing among brokers and customers and cause its premiums and earnings to decrease. An increase in the charges paid by Talbot to participate in the Lloyd s market could adversely affect Talbot s financial and operating results. An increase in the level or type of deposits required by U.S. Situs Trust Deeds to be maintained by Lloyd s syndicates could result in Syndicate 1183 being required to make a cash call which could adversely affect Talbot s financial performance. We may be subject to U.S. tax. U.S. persons who hold common shares may be subject to U.S. income taxation at ordinary income rates on our undistributed earnings and profits. U.S. persons who hold common shares will be subject to adverse tax consequences if the Company is considered a passive foreign investment company for U.S. federal income tax purposes. Changes in U.S. tax laws may be retroactive and could subject a U.S. holder of common shares to other adverse tax consequences. Proposed U.S. Tax Legislation Could Adversely Affect U.S. Shareholders. We may become subject to taxes in Bermuda after March 28, 2016, which may have a material adverse effect on our results of operations. The Organisation for Economic Cooperation and Development and other multinational organizations are considering measures that might increase our taxes and reduce our net income. Our non-U.S. companies may be subject to U.K. tax. Risks Related to Laws and Regulations Applicable to Us If we become subject to insurance statutes and regulations in addition to the statutes and regulations that currently apply to us, there could be a significant and negative impact on our business. Risks Related to Ownership of Our Common Shares Because we are a holding company and substantially all of our operations are conducted by our main operating subsidiaries, Validus Re and Talbot, our ability to meet any ongoing cash requirements and to pay dividends will depend on our ability to obtain cash dividends or other cash payments or obtain loans from Validus Re and Talbot. Future sales of our common shares and grants of restricted shares may affect the market price of our common shares and the future exercise of options and warrants may result in immediate and substantial dilution of the common shares. Our classified board structure may prevent a change in our control. There are provisions in our Bye-laws that reduce the voting rights of voting common shares that are held by a person or group to the extent that such person or group holds more than 9.09% of the aggregate voting power of all common shares entitled to vote on a matter. There are regulatory limitations on the ownership and transfer of our common shares which could result in the delay or denial of any transfers shareholders might seek to make. A shareholder of our company may have greater difficulties in protecting its interests than as a shareholder of a U.S. corporation.

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1348259--2/27/2009--VALIDUS_HOLDINGS_LTD